FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | September 30, 20222023 |
| ☐ | 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 | 1-10816 |
MGIC Investment Corporation
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
| Wisconsin | | 39-1486475 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| 250 E. Kilbourn Avenue | | 53202 |
| Milwaukee, | Wisconsin | | (Zip Code) |
| (Address of principal executive offices) | | |
| | |
| (414) | | 347-6480 |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading Symbol | | Name of each exchange on which registered |
| Common stock | | MTG | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☒
| Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | ☐ | (Do not check if a smaller reporting company) |
| Emerging growth company | ☐ | If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of October 28, 2022,27, 2023, there were 297,025,490277,311,432 shares of common stock of the registrant, par value $1.00 per share, outstanding.
Forward Looking and Other Statements
All statements in this report that address events, developments or results that we expect or anticipate may occur in the future are “forward looking statements.” Forward looking statements consist of statements that relate to matters other than historical fact. In most cases, forward looking statements may be identified by words such as “believe,” “anticipate” or “expect,” or words of similar import. The Risk Factors referred to in “Forward Looking Statements and Risk Factors – Location of Risk Factors” in Management’s Discussion and Analysis of Financial Condition and Results of Operations below, may cause our actual results to differ materially from the results contemplated by forward looking statements that we may make. We are not undertaking any obligation to update any forward looking statements or other statements we may make in this document even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.
MGIC Investment Corporation - Q3 20222023 | 2
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED September 30, 20222023
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| Consolidated Statements of Operations (Unaudited) - Three and Nine Months Ended September 30, 20222023 and 20212022 | |
| Consolidated Statements of Comprehensive Income (Unaudited) - Three and Nine Months Ended September 30, 20222023 and 20212022 | |
| Consolidated Statements of Shareholders’ Equity (Unaudited) - Three and Nine Months Ended September 30, 20222023 and 20212022 | |
| Consolidated Statements of Cash Flows (Unaudited) - Three and Nine Months Ended September 30, 20222023 and 20212022 | |
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| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | |
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MGIC Investment Corporation - Q3 20222023 | 3
Glossary of terms and acronyms
/ A
ARMs
Adjustable rate mortgages
ABS
Asset-backed securities
Annual Persistency
The percentage of our insurance remaining in force from one year prior. As of September 30, 2023, we refined our methodology for calculating our Annual Persistency by excluding the amortization of the principal balance. All prior periods have been revised
ASC
Accounting Standards Codification
Available Assets
Assets, as designated under the PMIERs, that are readily available to pay claims, and include the most liquid investments
/ B
Book or book year
A group of loans insured in a particular calendar year
BPMI
Borrower-paid mortgage insurance
/ C
CECL
Current expected credit losses covered under ASC 326
CFPB
Consumer Financial Protection Bureau
CLO
Collateralized loan obligations
CMBS
Commercial mortgage-backed securities
COVID-19 Pandemic
An outbreak of the novel coronavirus disease, later named COVID-19. The outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency in the United States in March 2020
CRT
Credit risk transfer. The transfer of a portion of mortgage credit risk to the private sector through different forms of transactions and structures
/ D
DAC
Deferred insurance policy acquisition costs
Debt-to-income (“DTI”) ratio
The ratio, expressed as a percentage, of a borrower’s total debt payments to gross income
Delinquent Loan
A loan that is past due on a mortgage payment. A delinquent loan is typically reported to us by servicers when the loan has missed two or more payments. A loan will continue to be reported as delinquent until it becomes current, or a claim payment has been made. A delinquent loan is also referred to as a default
Delinquency Rate
The percentage of insured loans that are delinquent
Direct
Before giving effect to reinsurance
/ E
EPS
Earnings per share
/ F
Fannie Mae
Federal National Mortgage Association
FCRA
Fair Credit Reporting Act
FHA
Federal Housing Administration
FHFA
Federal Housing Finance Agency
FHLB
Federal Home Loan Bank of Chicago, of which MGIC is a member
FICO score
A measure of consumer credit risk provided by credit bureaus, typically produced from statistical models by Fair Isaac Corporation utilizing data collected by the credit bureaus
Freddie Mac
Federal Home Loan Mortgage Corporation
/ G
GAAP
Generally Accepted Accounting Principles in the United States
GSEs
Government Sponsored Enterprise. Collectively, Fannie Mae and Freddie Mac
MGIC Investment Corporation - Q3 2023 | 4
/ H
HAMP
Home Affordable Modification Program
HARP
Home Affordable Refinance Program
MGIC Investment Corporation - Q3 2022 | 4
Home Re Entities
Unaffiliated special purpose insurers domiciled in Bermuda that participate in our aggregate XOL Transactions through the ILN market.market
Home Re Transactions
Excess-of-loss reinsurance transactions with the Home Re Entities
HOPA
Homeowners Protection Act
HUD
Housing and Urban Development
/ I
IBNR Reserves
Loss reserves established on loans we estimate are delinquent, but for which the delinquency has not been reported to us
IIF
Insurance in force, which for loans insured by us, is equal to the unpaid principal balance, as reported to us
ILN
Insurance-linked notes
/ L
LAE
Loss adjustment expenses, which includesinclude the costs of settling claims, including legal and other expenses and general expenses of administering the claims settlement process.process
Loan-to-value ("LTV") ratio
The ratio, expressed as a percentage, of the dollar amount of the first mortgage loan to the value of the property at the time the loan became insured and does not reflect subsequent housing price appreciation or depreciation. Subordinate mortgages may also be present.present
Long-term debt:
5.75% Notes
5.75% Senior Notes
5.25% Notes
5.25% Senior Notes due on August 15, 2028, with interest payable semi-annually on February 15 and August 15 of each year
9% Debentures
9% Convertible Junior Subordinated Debentures due on April 1, 2063, with interest payable semi-annually on April 1 and October 1 of each year
FHLB Advance or the Advance
1.91% Fixed rate advance from the FHLB
Loss ratio
The ratio, expressed as a percentage, of the sum of net incurred losses and loss adjustment expensesincurred to net premiums earned
Low down payment loans or mortgages
Loans with less than 20% down payments
LPMI
Lender-paid mortgage insurance
/ M
MBS
Mortgage-backed securities
MD&A
Management's discussion and analysis of financial condition and results of operations
MGIC
Mortgage Guaranty Insurance Corporation, a subsidiary of MGIC Investment Corporation
MAC
MGIC Assurance Corporation, a subsidiary of MGIC
Minimum Required Assets
The minimum amount of Available Assets that must be held under the PMIERs which is based on an insurer’s book of RIF and is calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor of $400 million.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
MGIC Investment Corporation - Q3 2023 | 5
NIW
New Insurance Written, is the aggregate original principal amount of the mortgages that are insured during a period
N/M
Data, or calculation, deemed not meaningful for the period presented
NPL
Non-performing loan, which is a delinquent loan, at any stage in its delinquency
MGIC Investment Corporation - Q3 2022 | 5
/ O
OCI
Office of the Commissioner of Insurance of the State of Wisconsin
/ P
Peak COVID-19 delinquencies
A delinquent loan reported to us in the second and third quarter of 2020
Persistency
The percentage of our insurance remaining in force from one year prior
PMI
Private Mortgage Insurance (as an industry or product type)
PMIERs
Private Mortgage Insurer Eligibility Requirements issued by each of Fannie Mae and Freddie Mac to set forth requirements that an approved insurer must meet and maintain to provide mortgage guaranty insurance on loans delivered to or acquired by Fannie Mae or Freddie Mac, as applicable.
Pre-COVID-19 delinquencies
A delinquent loan reported to us prior to the second quarter of 2020.applicable
Premium Yield
The ratio of premium earned divided by the average IIF outstanding for the period measured
Premium Rate
The contractual rate charged for coverage under our insurance policies
Primary Insurance
Insurance that provides mortgage default protection on individual loans. Primary insurance may be written on a "flow" basis, in which loans are insured in individual, loan-by-loan transactions, or on a "bulk" basis, in which each loan in a portfolio of loans is individually insured in a single bulk transaction.
Profit Commission
Payments we receive from reinsurers under each of our quota share reinsurance transactions if the annual loss ratio is below levels specified in the quota share reinsurance transaction
/ Q
QSR Transaction
Quota share reinsurance transaction with a group of unaffiliated reinsurers
2015 QSR
Our QSR transaction that providesprovided coverage on eligible NIW written prior to 2017
20172019 QSR
Our QSR transaction that provided coverage on eligible NIW in 2017
2018 QSR
Our QSR transaction that provided coverage on eligible NIW in 2018
2019 QSR
Our QSR transaction that provides coverage on eligible NIW in 2019
2020 QSR
Our QSR transactions that provides coverage on eligible NIW in 2020
2021 QSR
Our QSR transactions that provides coverage on eligible NIW in 2021
2022 QSR
Our QSR transactions that provides coverage on eligible NIW in 2022
2023 QSR
Our QSR transactions that provides coverage on eligible NIW in 2023
Credit Union QSR
Our QSR transaction that provides coverage on eligible NIW from credit union institutions originated from April 1, 2020 through December 31, 2025
/ R
RESPA
Real Estate Settlement Procedures Act
RIF
Risk in force, which for an individual loan insured by us, is equal to the unpaid loan principal balance, as reported to us, multiplied by the insurance coverage percentage. RIF is sometimes referred to as exposure
Risk-to-capital
Under certain state regulations, the ratio of RIF, net of reinsurance and exposure on policies currently in default and for which loss reserves have been established, to the level of statutory capital
MGIC Investment Corporation - Q3 2022 | 6
RMBS
Residential mortgage-backed securities
/ S
State Capital Requirements
Under certain state regulations, the minimum amount of statutory capital relative to risk in force (or similar measure)
/ T
TILA
Truth in Lending Act
MGIC Investment Corporation - Q3 2023 | 6
Traditional XOL Transaction
Excess-of-loss reinsurance transaction with a group of unaffiliated reinsurers
2022 Traditional XOL
Our XOL transaction that provides coverage on eligible NIW in 2022.2022
2023 Traditional XOL
Our XOL transaction that provides coverage on eligible NIW in 2023
/ U
Underwriting expense ratio
The ratio, expressed as a percentage, of the other underwriting and operating expenses, net, and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance subsidiaries) to net premiums written
Underwriting profit
Net premiums earned minus losses incurred, net incurred losses and other underwriting and operating expenses, net
USDA
U.S. Department of Agriculture
/ V
VA
U.S. Department of Veterans Affairs
VIE
Variable interest entity
/ X
XOL Transactions
Excess-of-loss reinsurance transactions executed through the Home Re Transactions and the Traditional XOL TransactionTransactions
MGIC Investment Corporation - Q3 20222023 | 7
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
| | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS |
| | (In thousands) | (In thousands) | | Note | | September 30,
2022 | | December 31, 2021 | (In thousands) | | Note | | September 30, 2023 | | December 31, 2022 |
| | (Unaudited) | | | (Unaudited) | |
| ASSETS | ASSETS | | ASSETS | |
| Investment portfolio: | Investment portfolio: | | 7 / 8 | | Investment portfolio: | | 7 / 8 | |
| Fixed income, available-for-sale, at fair value (amortized cost 2022 - $5,970,459; 2021 - $6,397,658) | | $ | 5,400,982 | | | $ | 6,587,581 | | |
| Equity securities, at fair value (cost 2022 - $16,006; 2021 - $15,838) | | 13,885 | | | 16,068 | | |
| Fixed income, available-for-sale, at fair value (amortized cost 2023 - $6,130,009; 2022 - $5,926,785) | | Fixed income, available-for-sale, at fair value (amortized cost 2023 - $6,130,009; 2022 - $5,926,785) | | $ | 5,581,537 | | | $ | 5,409,698 | |
| Equity securities, at fair value (cost 2023 - $15,998; 2022 - $15,924) | | Equity securities, at fair value (cost 2023 - $15,998; 2022 - $15,924) | | 13,949 | | | 14,140 | |
| Other invested assets, at cost | Other invested assets, at cost | | 850 | | | 3,100 | | Other invested assets, at cost | | 850 | | | 850 | |
| Total investment portfolio | Total investment portfolio | | 5,415,717 | | | 6,606,749 | | Total investment portfolio | | 5,596,336 | | | 5,424,688 | |
| Cash and cash equivalents | Cash and cash equivalents | | 241,982 | | | 284,690 | | Cash and cash equivalents | | 266,543 | | | 327,384 | |
| Restricted cash and cash equivalents | Restricted cash and cash equivalents | | 7,776 | | | 20,268 | | Restricted cash and cash equivalents | | 8,582 | | | 5,529 | |
| Accrued investment income | Accrued investment income | | 52,867 | | | 51,902 | | Accrued investment income | | 58,499 | | | 55,178 | |
| Reinsurance recoverable on loss reserves | Reinsurance recoverable on loss reserves | | 4 | | 46,384 | | | 66,905 | | Reinsurance recoverable on loss reserves | | 4 | | 40,934 | | | 28,240 | |
| Reinsurance recoverable on paid losses | Reinsurance recoverable on paid losses | | 4 | | 214 | | | 36,275 | | Reinsurance recoverable on paid losses | | 4 | | 265 | | | 18,081 | |
| Premiums receivable | Premiums receivable | | 57,654 | | | 56,540 | | Premiums receivable | | 57,606 | | | 58,000 | |
| Home office and equipment, net | Home office and equipment, net | | 44,206 | | | 45,614 | | Home office and equipment, net | | 39,379 | | | 41,419 | |
| Deferred insurance policy acquisition costs | Deferred insurance policy acquisition costs | | 19,975 | | | 21,671 | | Deferred insurance policy acquisition costs | | 15,905 | | | 19,062 | |
| Deferred income taxes, net | Deferred income taxes, net | | 122,228 | | | — | | Deferred income taxes, net | | 132,030 | | | 124,769 | |
| Other assets | Other assets | | 145,113 | | | 134,394 | | Other assets | | 115,600 | | | 111,443 | |
| Total assets | Total assets | | $ | 6,154,116 | | | $ | 7,325,008 | | Total assets | | $ | 6,331,679 | | | $ | 6,213,793 | |
| | LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | | LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| Liabilities: | Liabilities: | | Liabilities: | |
| Loss reserves | Loss reserves | | | | $ | 603,370 | | | $ | 883,522 | | Loss reserves | | | | $ | 525,528 | | | $ | 557,988 | |
| Unearned premiums | Unearned premiums | | 207,935 | | | 241,690 | | Unearned premiums | | 165,093 | | | 195,289 | |
| Federal Home Loan Bank advance | | | | — | | | 155,000 | | |
| | Senior notes | Senior notes | | | | 641,357 | | | 881,508 | | Senior notes | | | | 642,828 | | | 641,724 | |
| Convertible junior subordinated debentures | Convertible junior subordinated debentures | | | | 21,296 | | | 110,204 | | Convertible junior subordinated debentures | | | | — | | | 21,086 | |
| Other liabilities | Other liabilities | | 140,097 | | | 191,702 | | Other liabilities | | 143,525 | | | 154,966 | |
| Total liabilities | Total liabilities | | 1,614,055 | | | 2,463,626 | | Total liabilities | | 1,476,974 | | | 1,571,053 | |
| Contingencies | Contingencies | | | | Contingencies | | | |
| Shareholders’ equity: | Shareholders’ equity: | | | | Shareholders’ equity: | | | |
| Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2022 - 371,353; 2021 - 371,353; shares outstanding 2022 - 299,478; 2021 - 320,336) | | 371,353 | | | 371,353 | | |
| Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2023 - 371,353; 2022 - 371,353; shares outstanding 2023 - 279,475; 2022 - 293,433) | | Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2023 - 371,353; 2022 - 371,353; shares outstanding 2023 - 279,475; 2022 - 293,433) | | 371,353 | | | 371,353 | |
| Paid-in capital | Paid-in capital | | 1,792,043 | | | 1,794,906 | | Paid-in capital | | 1,799,624 | | | 1,798,842 | |
| Treasury stock at cost (shares 2022 - 71,875; 2021 - 51,017) | | (970,870) | | | (675,265) | | |
| Treasury stock at cost (shares 2023 - 91,878; 2022 - 77,920) | | Treasury stock at cost (shares 2023 - 91,878; 2022 - 77,920) | | (1,260,422) | | | (1,050,238) | |
| Accumulated other comprehensive income (loss), net of tax | Accumulated other comprehensive income (loss), net of tax | | (495,525) | | | 119,697 | | Accumulated other comprehensive income (loss), net of tax | | (496,895) | | | (481,511) | |
| Retained earnings | Retained earnings | | 3,843,060 | | | 3,250,691 | | Retained earnings | | 4,441,045 | | | 4,004,294 | |
| Total shareholders’ equity | Total shareholders’ equity | | 4,540,061 | | | 4,861,382 | | Total shareholders’ equity | | 4,854,705 | | | 4,642,740 | |
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | | $ | 6,154,116 | | | $ | 7,325,008 | | Total liabilities and shareholders’ equity | | $ | 6,331,679 | | | $ | 6,213,793 | |
See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q3 20222023 | 8
| | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | |
| CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) | CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) | | CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) | |
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (In thousands, except per share data) | (In thousands, except per share data) | | Note | | 2022 | | 2021 | | 2022 | | 2021 | | (In thousands, except per share data) | | Note | | 2023 | | 2022 | | 2023 | | 2022 | |
| Revenues: | Revenues: | | | Revenues: | | |
| Premiums written: | Premiums written: | | | Premiums written: | | |
| Direct | Direct | | $ | 279,317 | | | $ | 280,172 | | | $ | 830,646 | | | $ | 846,700 | | | Direct | | $ | 280,885 | | | $ | 279,317 | | | $ | 828,211 | | | $ | 830,646 | | |
| Assumed | Assumed | | 2,205 | | | 2,477 | | | 6,291 | | | 6,810 | | | Assumed | | 3,770 | | | 2,205 | | | 9,538 | | | 6,291 | | |
| Ceded | Ceded | | | | (39,215) | | | (35,039) | | | (107,644) | | | (122,664) | | | Ceded | | | | (50,164) | | | (39,215) | | | (141,842) | | | (107,644) | | |
| Net premiums written | Net premiums written | | 242,307 | | | 247,610 | | | 729,293 | | | 730,846 | | | Net premiums written | | 234,491 | | | 242,307 | | | 695,907 | | | 729,293 | | |
| Decrease in unearned premiums, net | Decrease in unearned premiums, net | | 9,804 | | | 7,234 | | | 33,755 | | | 30,582 | | | Decrease in unearned premiums, net | | 6,786 | | | 9,804 | | | 30,196 | | | 33,755 | | |
| Net premiums earned | Net premiums earned | | 252,111 | | | 254,844 | | | 763,048 | | | 761,428 | | | Net premiums earned | | 241,277 | | | 252,111 | | | 726,103 | | | 763,048 | | |
| Investment income, net of expenses | Investment income, net of expenses | | 42,549 | | | 38,282 | | | 121,116 | | | 117,304 | | | Investment income, net of expenses | | 55,375 | | | 42,549 | | | 156,938 | | | 121,116 | | |
| Net gains (losses) on investments and other financial instruments | Net gains (losses) on investments and other financial instruments | | | | (3,258) | | | 612 | | (1) | (8,776) | | | 5,773 | | (1) | Net gains (losses) on investments and other financial instruments | | | | (695) | | | (3,258) | | | (13,380) | | | (8,776) | | |
| Other revenue | Other revenue | | 1,397 | | | 2,008 | | (1) | 5,143 | | | 7,050 | | (1) | Other revenue | | 548 | | | 1,397 | | | 1,484 | | | 5,143 | | |
| Total revenues | Total revenues | | 292,799 | | | 295,746 | | | 880,531 | | | 891,555 | | | Total revenues | | 296,505 | | | 292,799 | | | 871,145 | | | 880,531 | | |
| | Losses and expenses: | Losses and expenses: | | Losses and expenses: | | |
| Losses incurred, net | Losses incurred, net | | | | (105,054) | | | 20,766 | | | (223,426) | | | 89,566 | | | Losses incurred, net | | | | (77) | | | (105,054) | | | (11,322) | | | (223,426) | | |
| Amortization of deferred policy acquisition costs | Amortization of deferred policy acquisition costs | | 3,179 | | | 3,295 | | | 8,901 | | | 9,016 | | | Amortization of deferred policy acquisition costs | | 2,802 | | | 3,179 | | | 7,889 | | | 8,901 | | |
| Other underwriting and operating expenses, net | Other underwriting and operating expenses, net | | 58,475 | | | 53,942 | | | 166,656 | | | 155,763 | | | Other underwriting and operating expenses, net | | 50,130 | | | 58,475 | | | 174,191 | | | 166,656 | | |
| Loss on debt extinguishment | Loss on debt extinguishment | | 11,632 | | | — | | | 40,130 | | | — | | | Loss on debt extinguishment | | — | | | 11,632 | | | — | | | 40,130 | | |
| Interest expense | Interest expense | | 10,300 | | | 18,011 | | | 38,673 | | | 53,993 | | | Interest expense | | 9,254 | | | 10,300 | | | 28,005 | | | 38,673 | | |
| Total losses and expenses | Total losses and expenses | | (21,468) | | | 96,014 | | | 30,934 | | | 308,338 | | | Total losses and expenses | | 62,109 | | | (21,468) | | | 198,763 | | | 30,934 | | |
| Income before tax | Income before tax | | 314,267 | | | 199,732 | | | 849,597 | | | 583,217 | | | Income before tax | | 234,396 | | | 314,267 | | | 672,382 | | | 849,597 | | |
| Provision for income tax | Provision for income tax | | 64,642 | | | 41,755 | | | 175,691 | | | 122,168 | | | Provision for income tax | | 51,552 | | | 64,642 | | | 143,937 | | | 175,691 | | |
| Net income | Net income | | $ | 249,625 | | | $ | 157,977 | | | $ | 673,906 | | | $ | 461,049 | | | Net income | | $ | 182,844 | | | $ | 249,625 | | | $ | 528,445 | | | $ | 673,906 | | |
| | Earnings per share: | Earnings per share: | | Earnings per share: | | |
| Basic | Basic | | | | $ | 0.82 | | | $ | 0.47 | | | $ | 2.18 | | | $ | 1.36 | | | Basic | | | | $ | 0.65 | | | $ | 0.82 | | | $ | 1.85 | | | $ | 2.18 | | |
| Diluted | Diluted | | | | $ | 0.81 | | | $ | 0.46 | | | $ | 2.15 | | | $ | 1.33 | | | Diluted | | | | $ | 0.64 | | | $ | 0.81 | | | $ | 1.83 | | | $ | 2.15 | | |
| | Weighted average common shares outstanding - basic | Weighted average common shares outstanding - basic | | | | 302,622 | | | 335,938 | | | 309,097 | | | 338,045 | | | Weighted average common shares outstanding - basic | | | | 281,757 | | | 302,622 | | | 286,184 | | | 309,097 | | |
| Weighted average common shares outstanding - diluted | Weighted average common shares outstanding - diluted | | | | 307,194 | | | 353,557 | | | 315,029 | | | 355,481 | | | Weighted average common shares outstanding - diluted | | | | 285,600 | | | 307,194 | | | 289,924 | | | 315,029 | | |
| (1) Certain amounts have been reclassified to conform with the current year presentation | | |
|
See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q3 20222023 | 9
| | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands) | (In thousands) | | Note | | 2022 | | 2021 | | 2022 | | 2021 | (In thousands) | | Note | | 2023 | | 2022 | | 2023 | | 2022 |
| Net income | Net income | | $ | 249,625 | | | $ | 157,977 | | | $ | 673,906 | | | $ | 461,049 | | Net income | | $ | 182,844 | | | $ | 249,625 | | | $ | 528,445 | | | $ | 673,906 | |
| Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | | | | | | Other comprehensive income (loss), net of tax: | | | | | |
| Change in unrealized investment gains and losses | Change in unrealized investment gains and losses | | | | (153,615) | | | (27,600) | | | (599,933) | | | (76,675) | | Change in unrealized investment gains and losses | | | | (75,221) | | | (153,615) | | | (24,796) | | | (599,933) | |
| Benefit plan adjustments | Benefit plan adjustments | | (16,172) | | | 5,963 | | | (15,289) | | | 7,499 | | Benefit plan adjustments | | 3,213 | | | (16,172) | | | 9,412 | | | (15,289) | |
| Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | (169,787) | | | (21,637) | | | (615,222) | | | (69,176) | | Other comprehensive income (loss), net of tax | | (72,008) | | | (169,787) | | | (15,384) | | | (615,222) | |
| Comprehensive income (loss) | Comprehensive income (loss) | | $ | 79,838 | | | $ | 136,340 | | | $ | 58,684 | | | $ | 391,873 | | Comprehensive income (loss) | | $ | 110,836 | | | $ | 79,838 | | | $ | 513,061 | | | $ | 58,684 | |
See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q3 20222023 | 10
| | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) | CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) | CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands) | (In thousands) | | Note | | 2022 | | 2021 | | 2022 | | 2021 | (In thousands) | | Note | | 2023 | | 2022 | | 2023 | | 2022 |
| Common stock | Common stock | | Common stock | |
| | Balance, beginning and end of period | Balance, beginning and end of period | | $ | 371,353 | | | $ | 371,353 | | | $ | 371,353 | | | $ | 371,353 | | Balance, beginning and end of period | | $ | 371,353 | | | $ | 371,353 | | | $ | 371,353 | | | $ | 371,353 | |
| | | Paid-in capital | Paid-in capital | | Paid-in capital | |
| Balance, beginning of period, as previously reported | | 1,791,380 | | | 1,786,260 | | | 1,794,906 | | | 1,862,042 | | |
| Cumulative effect of debt with conversion options accounting standards update | | — | | | — | | | — | | | (68,289) | | |
| Balance, beginning of the period, as adjusted | | 1,791,380 | | | 1,786,260 | | | 1,794,906 | | | 1,793,753 | | |
| Balance, beginning of period | | Balance, beginning of period | | 1,799,444 | | | 1,791,380 | | | 1,798,842 | | | 1,794,906 | |
| | Reissuance of treasury stock, net under share-based compensation plans | Reissuance of treasury stock, net under share-based compensation plans | | (2,670) | | | (211) | | | (20,537) | | | (15,956) | | Reissuance of treasury stock, net under share-based compensation plans | | (80) | | | (2,670) | | | (16,992) | | | (20,537) | |
| Conversion of 9% Debentures, net of tax | | Conversion of 9% Debentures, net of tax | | 12 | | (5,315) | | | — | | | (5,315) | | | — | |
| | Equity compensation | Equity compensation | | 3,333 | | | 3,825 | | | 17,674 | | | 12,077 | | Equity compensation | | 5,575 | | | 3,333 | | | 23,089 | | | 17,674 | |
| Balance, end of period | Balance, end of period | | 1,792,043 | | | 1,789,874 | | | 1,792,043 | | | 1,789,874 | | Balance, end of period | | 1,799,624 | | | 1,792,043 | | | 1,799,624 | | | 1,792,043 | |
| | Treasury stock | Treasury stock | | Treasury stock | |
| Balance, beginning of period | Balance, beginning of period | | (887,959) | | | (384,550) | | | (675,265) | | | (393,326) | | Balance, beginning of period | | (1,192,783) | | | (887,959) | | | (1,050,238) | | | (675,265) | |
| Reissuance of treasury stock, net under share-based compensation plans | Reissuance of treasury stock, net under share-based compensation plans | | 1,400 | | | 103 | | | 10,579 | | | 8,879 | | Reissuance of treasury stock, net under share-based compensation plans | | 33 | | | 1,400 | | | 9,746 | | | 10,579 | |
| Repurchase of common stock | Repurchase of common stock | | | | (84,311) | | | (150,000) | | | (306,184) | | | (150,000) | | Repurchase of common stock | | | | (67,672) | | | (84,311) | | | (219,930) | | | (306,184) | |
| Balance, end of period | Balance, end of period | | (970,870) | | | (534,447) | | | (970,870) | | | (534,447) | | Balance, end of period | | (1,260,422) | | | (970,870) | | | (1,260,422) | | | (970,870) | |
| | Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | | Accumulated other comprehensive income (loss) | |
| Balance, beginning of period | Balance, beginning of period | | (325,738) | | | 169,282 | | | 119,697 | | | 216,821 | | Balance, beginning of period | | (424,887) | | | (325,738) | | | (481,511) | | | 119,697 | |
| Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | | | (169,787) | | | (21,637) | | | (615,222) | | | (69,176) | | Other comprehensive income (loss), net of tax | | | | (72,008) | | | (169,787) | | | (15,384) | | | (615,222) | |
| Balance, end of period | Balance, end of period | | (495,525) | | | 147,645 | | | (495,525) | | | 147,645 | | Balance, end of period | | (496,895) | | | (495,525) | | | (496,895) | | | (495,525) | |
| | Retained earnings | Retained earnings | | Retained earnings | |
| Balance, beginning of period, as previously reported | | 3,623,983 | | | 2,972,362 | | | 3,250,691 | | | 2,642,096 | | |
| Cumulative effect of debt with conversion options accounting standards update | | — | | | — | | | — | | | 68,289 | | |
| Balance, beginning of the period, as adjusted | | 3,623,983 | | | 2,972,362 | | | 3,250,691 | | | 2,710,385 | | |
| Balance, beginning of period | | Balance, beginning of period | | 4,291,135 | | | 3,623,983 | | | 4,004,294 | | | 3,250,691 | |
| | Net income | Net income | | 249,625 | | | 157,977 | | | 673,906 | | | 461,049 | | Net income | | 182,844 | | | 249,625 | | | 528,445 | | | 673,906 | |
| Cash dividends | Cash dividends | | | | (30,548) | | | (27,344) | | | (81,537) | | | (68,439) | | Cash dividends | | | | (32,934) | | | (30,548) | | | (91,694) | | | (81,537) | |
| Balance, end of period | Balance, end of period | | 3,843,060 | | | 3,102,995 | | | 3,843,060 | | | 3,102,995 | | Balance, end of period | | 4,441,045 | | | 3,843,060 | | | 4,441,045 | | | 3,843,060 | |
| | Total shareholders’ equity | Total shareholders’ equity | | $ | 4,540,061 | | | $ | 4,877,420 | | | $ | 4,540,061 | | | $ | 4,877,420 | | Total shareholders’ equity | | $ | 4,854,705 | | | $ | 4,540,061 | | | $ | 4,854,705 | | | $ | 4,540,061 | |
See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q3 20222023 | 11
| | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | | MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | | CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | |
| | | Nine Months Ended September 30, | | | Nine Months Ended September 30, | |
| (In thousands) | (In thousands) | | 2022 | | 2021 | | (In thousands) | | 2023 | | 2022 | |
| Cash flows from operating activities: | Cash flows from operating activities: | | | Cash flows from operating activities: | | |
| Net income | Net income | | $ | 673,906 | | | $ | 461,049 | | | Net income | | $ | 528,445 | | | $ | 673,906 | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Depreciation and amortization | Depreciation and amortization | | 42,826 | | | 49,820 | | | Depreciation and amortization | | 29,004 | | | 42,826 | | |
| Deferred tax expense | | 1,900 | | | 4,591 | | | |
| Deferred tax expense (benefit) | | Deferred tax expense (benefit) | | (3,172) | | | 1,900 | | |
| Equity compensation | Equity compensation | | 17,674 | | | 12,077 | | (1) | | Equity compensation | | 23,089 | | | 17,674 | | |
| Loss on debt extinguishment | Loss on debt extinguishment | | 40,130 | | | — | | | Loss on debt extinguishment | | — | | | 40,130 | | |
| Net (gains) losses on investments and other financial instruments | Net (gains) losses on investments and other financial instruments | | 8,776 | | | (5,773) | | (1) | | Net (gains) losses on investments and other financial instruments | | 13,380 | | | 8,776 | | |
| Change in certain assets and liabilities: | Change in certain assets and liabilities: | | | Change in certain assets and liabilities: | | |
| Accrued investment income | Accrued investment income | | (965) | | | (3,598) | | | Accrued investment income | | (3,321) | | | (965) | | |
| Reinsurance recoverable on loss reserves | Reinsurance recoverable on loss reserves | | 20,521 | | | (11,987) | | | Reinsurance recoverable on loss reserves | | (12,694) | | | 20,521 | | |
| Reinsurance recoverable on paid losses | Reinsurance recoverable on paid losses | | 36,061 | | | 143 | | | Reinsurance recoverable on paid losses | | 17,816 | | | 36,061 | | |
| Premium receivable | Premium receivable | | (1,114) | | | (344) | | | Premium receivable | | 394 | | | (1,114) | | |
| Deferred insurance policy acquisition costs | Deferred insurance policy acquisition costs | | 1,696 | | | (723) | | | Deferred insurance policy acquisition costs | | 3,157 | | | 1,696 | | |
| Profit commission receivable | Profit commission receivable | | (1,497) | | | (18,564) | | | Profit commission receivable | | 10,337 | | | (1,497) | | |
| Loss reserves | Loss reserves | | (280,152) | | | 52,372 | | | Loss reserves | | (32,460) | | | (280,152) | | |
| Unearned premiums | Unearned premiums | | (33,755) | | | (30,582) | | | Unearned premiums | | (30,196) | | | (33,755) | | |
| Return premium accrual | Return premium accrual | | (9,200) | | | 7,200 | | | Return premium accrual | | (5,900) | | | (9,200) | | |
| Current income taxes | Current income taxes | | 3,140 | | | 5,453 | | | Current income taxes | | (2,130) | | | 3,140 | | |
| Other, net | Other, net | | (36,154) | | | (8,724) | | (1) | | Other, net | | (9,033) | | | (36,154) | | |
| Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | | 483,793 | | | 512,410 | | | Net cash provided by (used in) operating activities | | 526,716 | | | 483,793 | | |
| | Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | | |
| Purchases of investments | Purchases of investments | | (544,224) | | | (1,335,569) | | | Purchases of investments | | (1,220,219) | | | (544,224) | | |
| Proceeds from sales of investments | Proceeds from sales of investments | | 391,394 | | | 239,483 | | | Proceeds from sales of investments | | 294,202 | | | 391,394 | | |
| Proceeds from maturity of fixed income securities | Proceeds from maturity of fixed income securities | | 536,194 | | | 700,301 | | | Proceeds from maturity of fixed income securities | | 686,552 | | | 536,194 | | |
| Proceeds from sale of equipment | | Proceeds from sale of equipment | | 166 | | | — | | |
| Additions to property and equipment | Additions to property and equipment | | (2,402) | | | (2,388) | | | Additions to property and equipment | | (1,455) | | | (2,402) | | |
| Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | | 380,962 | | | (398,173) | | | Net cash provided by (used in) investing activities | | (240,754) | | | 380,962 | | |
| | Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | | |
| | Purchase of convertible junior subordinated debentures | | (88,908) | | | — | | | |
| | Conversion/purchase of 9% convertible junior debentures | | Conversion/purchase of 9% convertible junior debentures | | (28,637) | | | (88,908) | | |
| Redemption of 5.75% senior notes | Redemption of 5.75% senior notes | | (242,296) | | | — | | | Redemption of 5.75% senior notes | | — | | | (242,296) | | |
| Repayment of FHLB Advance | Repayment of FHLB Advance | | (155,000) | | | — | | | Repayment of FHLB Advance | | — | | | (155,000) | | |
| Cash portion of loss on debt extinguishment | Cash portion of loss on debt extinguishment | | (39,445) | | | — | | | Cash portion of loss on debt extinguishment | | — | | | (39,445) | | |
| | Repurchase of common stock | Repurchase of common stock | | (303,060) | | | (150,000) | | | Repurchase of common stock | | (216,693) | | | (303,060) | | |
| Dividends paid | Dividends paid | | (81,288) | | | (68,276) | | | Dividends paid | | (91,174) | | | (81,288) | | |
| Payment of withholding taxes related to share-based compensation net share settlement | Payment of withholding taxes related to share-based compensation net share settlement | | (9,958) | | | (6,729) | | | Payment of withholding taxes related to share-based compensation net share settlement | | (7,246) | | | (9,958) | | |
| Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | | (919,955) | | | (225,005) | | | Net cash provided by (used in) financing activities | | (343,750) | | | (919,955) | | |
| Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents | Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents | | (55,200) | | | (110,768) | | | Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents | | (57,788) | | | (55,200) | | |
| Cash and cash equivalents and restricted cash and cash equivalents at beginning of period | Cash and cash equivalents and restricted cash and cash equivalents at beginning of period | | 304,958 | | | 296,680 | | | Cash and cash equivalents and restricted cash and cash equivalents at beginning of period | | 332,913 | | | 304,958 | | |
| Cash and cash equivalents and restricted cash and cash equivalents at end of period | Cash and cash equivalents and restricted cash and cash equivalents at end of period | | $ | 249,758 | | | $ | 185,912 | | | Cash and cash equivalents and restricted cash and cash equivalents at end of period | | $ | 275,125 | | | $ | 249,758 | | |
| (1) Amounts have been reclassified to conform to the current year presentation | | | |
|
See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q3 20222023 | 12
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20222023
(Unaudited)
Note 1. Nature of Business and Basis of Presentation
MGIC Investment Corporation is a holding company which, through Mortgage Guaranty Insurance Corporation (“MGIC”), is principally engaged in the mortgage insurance business. We provide mortgage insurance to lenders throughout the United States and to government sponsored entities to protect against loss from defaults on low down payment residential mortgage loans. MGIC Assurance Corporation (“MAC”) and MGIC Indemnity Corporation (“MIC”), insurance subsidiaries of MGIC, provide insurance for certain mortgages under Fannie Mae and Freddie Mac (the “GSEs”) credit risk transfer programs.
The accompanying unaudited consolidated financial statements of MGIC Investment Corporation and its wholly-owned subsidiaries have been prepared in accordance with the instructions to Form 10-Q as prescribed by the Securities and Exchange Commission (“SEC”) for interim reporting and do not include all of the other information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 20212022 included in our 20212022 Annual Report on Form 10-K. As used below, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as the context requires.
In the opinion of management, the accompanying financial statements include all adjustments, consisting primarily of normal recurring accruals, necessary to fairly state our consolidated financial position and consolidated results of operations for the periods indicated. The consolidated results of operations for an interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023.
The substantial majority of our NIW has been for loans purchased by the GSEs. The current private mortgage insurer eligibility requirements ("PMIERs") of the GSEs include financial requirements, as well as business, quality control and certain transactional approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s "Available Assets" (generally only the most liquid assets of an insurer) to equal or exceed its "Minimum Required Assets" (which are based on an insurer's book of risk in force, calculated from tables of factors with several risk dimensions). Based on our application of the PMIERs, as of September 30, 2022,2023, MGIC’s Available Assets are in excess of its Minimum Required Assets; and MGIC is in compliance with the PMIERs and eligible to insure loans purchased by the GSEs.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
Subsequent events
We have considered subsequent events through the date of this filing.
MGIC Investment Corporation - Q3 2023 | 13
Note 2. Significant Accounting Policies
TaxesRecent accounting and reporting developments
TheAccounting standards and laws and regulations effective in 2023, or early adopted, and relevant to our financial statements are described below:
Reference Rate Reform: ASU 2022-06
In March 2020, the FASB issued ASU 2020-04 to provide temporary optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform. It provided optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. In December 2022, the FASB issued ASU 2022-06, extending the election and application from March 12, 2020 through December 31, 2024 (originally December 31, 2022). Future elections of this standard will ease, if warranted, the requirements for accounting for the future effects of reference rate reform. We have evaluated the impact the discontinuance of LIBOR will have on our consolidated financial statements and have determined it will not have a material impact.
Inflation Reduction Act
On August 16, 2022, the Inflation Reduction Act of 2022(the “IRA”) was enacted and signed into law in the United States. The IRA includes provisions for a 15% corporate minimum tax and a 1% excise tax on net stock repurchases and a 15% corporate minimum tax.repurchases. Both of these taxes are effective in 2023. We do not expect these tax provisions to have a material impact on our Consolidated Financial Statements.consolidated financial results, including our annual estimated effective tax rate. The amount of the excise tax on the repurchase of corporate stock was immaterial for the nine months ended September 30, 2023.
Prospective Accounting Standards
Table 2.1 shows the relevant new amendments to accounting standards, which are not yet effective or adopted.
| | | | | | | | | | | | | | |
Standard / Interpretation |
Table | 2.1 | | |
| | | |
Amended Standards | Effective date |
| | |
| | | |
ASC 944 | Long-Duration Contracts | |
| • | ASU 2018-12 - Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts | January 1, 2023 |
Targeted Improvements for Long Duration Contracts: ASU 2018-12
In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies the amortization of deferred insurance policy acquisition costs. It also provides updates to the recognition, measurement, presentation and disclosure requirements for long duration contracts, which generally do not apply to mortgage insurance. The updated guidance requires deferred acquisition costs to be amortized on a constant level basis over the expected term of the related contracts, versus in proportion to premium, gross profits, or gross margins. In November 2020, FASB issued ASU 2020-11 deferring the effective date, so that it applies for annual periods beginning after December 15, 2022, including interim periods within those annual periods.We are currently evaluating the impacts the adoption of this guidance will have on our consolidated financial statements, but do not expect it to have a material impact.
MGIC Investment Corporation - Q3 2022 | 13
Note 3. Debt
Debt obligations
The aggregate carrying values of our long-term debt obligations and their par values, if different, as of September 30, 20222023 and December 31, 20212022 are presented in table 3.1 below.
| | | | | | | | | | | | | | | | | |
| Long-term debt obligations |
| Table | 3.1 | | | | |
| (In millions) | | September 30, 2022 | | December 31, 2021 |
| FHLB Advance - 1.91%, due February 2023 | | $ | — | | | $ | 155.0 | |
| 5.75% Notes, due August 2023 | | — | | | 241.3 | |
| 5.25% Notes, due August 2028 (par value: $650 million) | | 641.4 | | | 640.2 | |
9% Debentures, due April 2063 (1) | | 21.3 | | | 110.2 | |
| Long-term debt, carrying value | | $ | 662.7 | | | $ | 1,146.7 | |
(1)Convertible at any time prior to maturity at the holder’s option, at a conversion rate, which is subject to adjustment, of 76.5496 shares per $1,000 principal amount, representing a conversion price of approximately $13.06 per share. The payment of dividends by our holding company results in adjustments to the conversion rate, with such adjustments generally deferred until the end of the year. | | | | | | | | | | | | | | | | | |
| Long-term debt obligations |
| Table | 3.1 | | | | |
| (In thousands) | | September 30, 2023 | | December 31, 2022 |
| 5.25% Notes, due August 2028 (par value: $650 million) | | $ | 642,828 | | | $ | 641,724 | |
| 9% Debentures, due April 2063 | | — | | | 21,086 | |
| Long-term debt, carrying value | | $ | 642,828 | | | $ | 662,810 | |
The 5.25% Senior Notes (5.25% Notes) and 9% Convertible Junior Subordinated Debentures (“9% Debentures”) are obligationsis an obligation of our holding company, MGIC Investment Corporation.
During2023 Transactions
In the nine months ending September 30, 2022, we repurchased $88.9 million in aggregate principal amountthird quarter of 2023, under the terms of our 9% Convertible Junior Subordinated Debentures (“9% Debentures”), we exercised our option to redeem the outstanding principal of $21.1 million. The 9% Debentures were convertible into shares of MGIC common stock at a purchase pricerate of $120.977.9620 shares per $1,000 principal amount. Prior to the redemption date, substantially all holders elected to convert into shares of common stock. Under the terms of the 9% Debentures, we paid cash of $28.6 million plus accrued interest.in lieu of issuing shares of common stock. The repurchaseconversion of our 9% Debentures resulted in a $32.0$5.3 million loss on debt extinguishment onreduction in our consolidated statementshareholders’ equity, net of operationstax and a reduction of approximately 6.81.6 million potentially dilutive shares.
The Federal Home Loan Bank Advance (the “FHLB Advance”) was an obligation of MGIC. In the first quarter of 2022, we repaid the outstanding principal balance of the FHLB Advance at a prepayment price of $156.3 million, incurring a prepayment fee of $1.3 million.
In July 2022, we redeemed the outstanding principal balance of the 5.75% Senior Notes (“5.75% Notes”) at a purchase price of $248.4 million plus accrued interest. The excess of the purchase price over the carrying value, plus the write-off of unamortized issuance costs on the par value, resulted in a $6.8 million loss on debt extinguishment. The 5.75% Notes were an obligation of our holding company.
See Note 7 - “Debt” in our Annual Report on Form 10-K for the year ended December 31, 20212022 for additional information pertaining to our debt obligations.obligations, including the conversion feature on the 9% Debentures. As of September 30, 20222023 we are in compliance with all of our debt covenants.
Interest payments
Interest payments for the nine months ended September 30, 2023 and 2022 were $35.1 million and 2021 were $52.7 million, and $60.0 million, respectively.
MGIC Investment Corporation - Q3 20222023 | 14
Note 4. Reinsurance
TheWe have in place reinsurance agreements to which we are a party, areexecuted under quota share reinsurance (“QSR”) transactions and excess-of-loss (“XOL”) transactions as discussed below. The effect of all of our reinsurance agreementstransactions on premiums earned and losses incurredour consolidated statement of operations is shown in table 4.1 below.
| | Reinsurance | Reinsurance | | Reinsurance | |
| Table | Table | 4.1 | | Table | 4.1 | |
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands) | (In thousands) | | 2022 | | 2021 | | 2022 | | 2021 | (In thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
| Premiums earned: | Premiums earned: | | Premiums earned: | |
| Direct | Direct | | $ | 289,072 | | | $ | 287,223 | | | $ | 864,191 | | | $ | 876,541 | | Direct | | $ | 287,640 | | | $ | 289,072 | | | $ | 858,310 | | | $ | 864,191 | |
| Assumed | Assumed | | 2,254 | | | 2,660 | | | 6,501 | | | 7,551 | | Assumed | | 3,801 | | | 2,254 | | | 9,635 | | | 6,501 | |
Ceded - quota share reinsurance (1) | Ceded - quota share reinsurance (1) | | (19,348) | | | (22,911) | | | (56,721) | | | (90,284) | | Ceded - quota share reinsurance (1) | | (32,693) | | | (19,348) | | | (90,012) | | | (56,721) | |
| Ceded - excess-of-loss reinsurance | Ceded - excess-of-loss reinsurance | | (19,867) | | | (12,128) | | | (50,923) | | | (32,380) | | Ceded - excess-of-loss reinsurance | | (17,471) | | | (19,867) | | | (51,830) | | | (50,923) | |
| Total ceded | Total ceded | | (39,215) | | | (35,039) | | | (107,644) | | | (122,664) | | Total ceded | | (50,164) | | | (39,215) | | | (141,842) | | | (107,644) | |
| Net premiums earned | Net premiums earned | | $ | 252,111 | | | $ | 254,844 | | | $ | 763,048 | | | $ | 761,428 | | Net premiums earned | | $ | 241,277 | | | $ | 252,111 | | | $ | 726,103 | | | $ | 763,048 | |
| | Losses incurred: | Losses incurred: | | Losses incurred: | |
| Direct | Direct | | $ | (112,435) | | | $ | 17,265 | | | $ | (242,861) | | | $ | 103,319 | | Direct | | $ | 6,627 | | | $ | (112,435) | | | $ | 2,044 | | | $ | (242,861) | |
| Assumed | Assumed | | 21 | | | (97) | | | (340) | | | (43) | | Assumed | | 20 | | | 21 | | | (7) | | | (340) | |
| Ceded - quota share reinsurance | Ceded - quota share reinsurance | | 7,360 | | | 3,598 | | | 19,775 | | | (13,710) | | Ceded - quota share reinsurance | | (6,724) | | | 7,360 | | | (13,359) | | | 19,775 | |
| Losses incurred, net | Losses incurred, net | | $ | (105,054) | | | $ | 20,766 | | | $ | (223,426) | | | $ | 89,566 | | Losses incurred, net | | $ | (77) | | | $ | (105,054) | | | $ | (11,322) | | | $ | (223,426) | |
| | Other Reinsurance Impacts: | Other Reinsurance Impacts: | | Other Reinsurance Impacts: | |
Profit commission on quota share reinsurance (1) | Profit commission on quota share reinsurance (1) | | $ | 47,255 | | | $ | 45,078 | | | $ | 135,049 | | | $ | 108,000 | | Profit commission on quota share reinsurance (1) | | $ | 30,698 | | | $ | 47,255 | | | $ | 97,218 | | | $ | 135,049 | |
| Ceding commission on quota share reinsurance | Ceding commission on quota share reinsurance | | 13,321 | | | 13,599 | | | 38,355 | | | 39,657 | | Ceding commission on quota share reinsurance | | 12,678 | | | 13,321 | | | 37,446 | | | 38,355 | |
|
(1)Ceded premiums earned are shown net of profit commission.
Ceded losses incurred for the three and nine months ended September 30, 2022 primarily reflects favorable loss reserve development. See Note 11 - “Loss Reserves” for discussion of our loss reserves.Quota share reinsurance
We have entered into quota share reinsurance ("QSR") transactionsQSR Transactions with panels of third-party reinsurers to cede a fixed quota share percentage of premiums earned and received and losses incurred on insurance covered by the transactions. We receive the benefit of a ceding commission equal to 20% of premiums ceded before profit commission. We also receive the benefit of a profit commission through a reduction of premiums we cede. The profit commission varies inversely with the level of losses on a “dollar for dollar” basis and can be eliminated at annual loss ratios higher than we have experienced on our QSR Transactions.
Each of our QSR Transactions typically have annual loss ratio caps of 300% and lifetime loss ratios of 200%.
Table 4.2 below provides additional detail regarding our QSR Transactions.
| | Quota Share Reinsurance | Quota Share Reinsurance | Quota Share Reinsurance |
| Table | Table | 4.2 | | Table | 4.2 | |
| | Quota Share Contract | Quota Share Contract | | Covered Policy Years | Quota Share % | | Annual Loss Ratio to Exhaust Profit Commission (1) | | Contractual Termination Date | Quota Share Contract | | Covered Policy Years | Quota Share % | | Annual Loss Ratio to Exhaust Profit Commission (1) | | Contractual Termination Date |
| 2015 QSR | | Prior to 2017 | 15.0 | % | | 68.0 | % | | December 31, 2031 | |
| 2019 QSR | | 2019 | 30.0 | % | | 62.0 | % | | December 31, 2030 | |
| 2020 QSR | 2020 QSR | | 2020 | 12.5 | % | | 62.0 | % | | December 31, 2031 | 2020 QSR | | 2020 | 12.5 | % | | 62.0 | % | | December 31, 2031 |
| 2020 QSR and 2021 QSR | 2020 QSR and 2021 QSR | | 2020 | 17.5 | % | | 62.0 | % | | December 31, 2032 | 2020 QSR and 2021 QSR | | 2020 | 17.5 | % | | 62.0 | % | | December 31, 2032 |
| 2020 QSR and 2021 QSR | 2020 QSR and 2021 QSR | | 2021 | 17.5 | % | | 61.9 | % | | December 31, 2032 | 2020 QSR and 2021 QSR | | 2021 | 17.5 | % | | 61.9 | % | | December 31, 2032 |
| 2021 QSR and 2022 QSR | 2021 QSR and 2022 QSR | | 2021 | 12.5 | % | | 57.5 | % | | December 31, 2032 | 2021 QSR and 2022 QSR | | 2021 | 12.5 | % | | 57.5 | % | | December 31, 2032 |
| 2021 QSR and 2022 QSR | 2021 QSR and 2022 QSR | | 2022 | 15.0 | % | | 57.5 | % | | December 31, 2033 | 2021 QSR and 2022 QSR | | 2022 | 15.0 | % | | 57.5 | % | | December 31, 2033 |
| 2022 QSR and 2023 QSR | 2022 QSR and 2023 QSR | | 2022 | 15.0 | % | | 62.0 | % | | December 31, 2033 | 2022 QSR and 2023 QSR | | 2022 | 15.0 | % | | 62.0 | % | | December 31, 2033 |
| 2022 QSR and 2023 QSR | 2022 QSR and 2023 QSR | | 2023 | 15.0 | % | | 62.0 | % | | December 31, 2034 | 2022 QSR and 2023 QSR | | 2023 | 15.0 | % | | 62.0 | % | | December 31, 2034 |
Credit Union QSR (2) | | 2020-2025 | 65.0 | % | | 50.0 | % | | December 31, 2039 | |
| 2023 QSR | | 2023 QSR | | 2023 | 10.0 | % | | 58.5 | % | | December 31, 2034 |
| Credit Union QSR | | Credit Union QSR | | 2020-2025 | 65.0 | % | | 50.0 | % | | December 31, 2039 |
(1) We will receive a profit commission provided the annual loss ratio on policies covered under the transaction remains below this ratio.
(2)Eligible credit union business written before April 1, 2020 was covered by our 2019 and 2015 QSR Transactions.
MGIC Investment Corporation - Q3 2022 | 15
We can elect to terminate the QSR Transactions under specified scenarios without penalty upon prior written notice, including if we will receive less than 90% (80% for the Credit Union QSR Transaction) of the full credit amount under the PMIERs, full financial statement credit or full credit under applicable regulatory capital requirements for the risk ceded in any required calculation period.
MGIC Investment Corporation - Q3 2023 | 15
Table 4.3 provides additional detaildetails regarding optional termination dates and optional reductions to our quota share percentage which can, in each case, be elected by us for a fee. Under the optional reduction to the quota share percentage, we may reduce our quota share percentage from the original percentage shown in table 4.2 to the percentage shown in table 4.3.
| | | | | | | | | | | | | | | | | | | | |
| Quota Share Reinsurance |
| Table | 4.3 | | | | | |
| |
| Quota Share Contract | Covered Policy Years | Optional Termination Date (1) | Optional Quota Share % Reduction Date (2) | | Optional Reduced Quota Share % |
2015 QSR | Prior to 2017 | December 31, 2022 | NA | | NA |
2019 QSR | 2019 | December 31, 2022 | January 1, 2023 | | 25% or 20% |
| 2020 QSR | 2020 | December 31, 20222023 | January 1, 20232024 | | 10.5% or 8% |
| 2020 QSR and 2021 QSR | 2020 | December 31, 20222023 | January 1, 20232024 | | 14.5% or 12% |
| 2020 QSR and 2021 QSR | 2021 | December 31, 2023 | January 1, 20232024 | | 14.5% or 12% |
| 2021 QSR and 2022 QSR | 2021 | December 31, 2023 | January 1, 20232024 | | 10.5% or 8% |
| 2021 QSR and 2022 QSR | 2022 | December 31, 2024 | JulyJanuary 1, 20232024 | | 12.5% or 10% |
| 2022 QSR and 2023 QSR | 2022 | December 31, 2024 | JulyJanuary 1, 20232024 | | 12.5% or 10% |
| 2022 QSR and 2023 QSR | 2023 | December 31, 2025 | July 1, 2024 | | 12.5% or 10% |
| 2023 QSR | 2023 | December 31, 2025 | July 1, 2024 | | 8% or 7% |
(1) We can elect early termination of the QSR Transaction beginning on this date, and bi-annuallysemi-annually thereafter.
(2) We can elect to reduce the quota share percentage beginning on this date, and bi-annuallysemi-annually thereafter.
We have elected to terminate our 20152020 QSR and 2019 QSR TransactionsTransaction effective December 31, 2022. See Note 9 “Reinsurance”2023 and will incur an early termination fee in our Annual Reportthe fourth quarter of approximately $5 million.
We agreed to terms on Form 10-K for the year ended December 31, 2021 for information about the terminationa 30% QSR Transaction with a group of unaffiliated reinsurers covering most of our 2017 and 2018 QSR Transactions, which resultednew insurance written in a reinsurance recoverable on paid losses of $36 million for loss and loss adjustment expenses (“LAE”) reserves incurred at the time of termination.2024.
Under the terms of our QSR Transactions, ceded premiums earned, ceding commissions, profit commission, and ceded paid loss and LAE are settled net on a quarterly basis. The ceded premiums earned due, after deducting the related ceding commission and profit commission, is reported within Other liabilities on the consolidated balance sheets.
The reinsurance recoverable on loss reserves related to our QSR Transactions was $46.4$40.9 million as of September 30, 20222023 and $66.9$28.2 million as of December 31, 2021.2022. The reinsurance recoverable balance is secured by funds on deposit from reinsurers (which does not include letters of credit), the minimum amount of which is based on the greater of 1) a reinsurer's funding requirements under PMIERs or 2) ceded reserves and unpaid losses. Each of the reinsurers under our quota share reinsurance agreementsQSR Transactions described above has an insurer financial strength rating of A- or better (or a comparable rating) by Standard and Poor's Rating Services, A.M. Best, Moody's, or a combination of the three.
Excess of loss reinsurance
We have Excess-of-loss transactions (“XOL Transactions”)Transactions with a panel of unaffiliated reinsurers executed through the traditional reinsurance market (“Traditional XOL Transaction”Transactions”) and with unaffiliated special purpose insurers (“Home Re Transactions”).
TheWe have entered into Traditional XOL Transaction provides up to $175 millionTransactions with panels of reinsurance coverage on eligible NIW in 2022. The Traditional XOL Transaction has a contractual termination date after approximately ten years, with an optional termination date after seven years and quarterly thereafter.third-party reinsurers. For the covered policies, we retain the first layer of the aggregate losses paid, and the reinsurers will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses paid in excess of the outstanding reinsurance coverage amount. The reinsurance coverage is subject to adjustment based on the risk characteristics of the covered loans.loans until the initial excess of loss reinsurance coverage layer has been finalized.
We can elect to terminate our Traditional XOL Transactions under specified scenarios without penalty upon prior written notice, including if we will receive less than 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. The reinsurance premiums ceded to the Traditional XOL TransactionTransactions are based off the remaining reinsurance coverage levels. The reinsured coverage levels are secured by funds on deposit from reinsurers (which does not include letters of credit), the minimum amount of which is based on the greater of 1) a reinsurer's funding requirements under PMIERs or 2) ceded reserves and unpaid losses. Each of the reinsurers under our Traditional XOL Transactions 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.
The Home Re Transactions are executed with unaffiliated special purpose insurers (“Home Re Entities”). For the reinsurance coverage periods, we retain the first layer of the respective aggregate losses paid, and a Home Re Entity will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses paid in excess of the outstanding reinsurance coverage amount. Subject to certain conditions, the reinsurance coverage decreases over a period of either 10 or 12.5 years, depending on the transaction, as the underlying covered mortgages amortize or are repaid, or mortgage insurance losses are paid.
MGIC Investment Corporation - Q3 20222023 | 16
The Home Re Entities financed the collateral for the coverages by issuing mortgage insurance-linked notes (“ILNs”) to unaffiliated investors in an aggregate amount equal to the initial reinsurance coverage amounts. Each ILN is non-recourse to any assets of MGIC or affiliates. The proceeds of the ILNs, which were deposited into reinsurance trusts for the benefit of MGIC, will be the source of reinsurance claim payments to MGIC and principal repayments on the ILNs.
When a “Trigger Event” is in effect, as defined in the related insurance-linked notes transaction agreements, paymentPayment of principal on the related insurance-linked notes will be suspended and the reinsurance coverage available to MGIC under the transactions will not be reduced by such principal payments.payments until a target level of credit enhancement is obtained or if certain thresholds or “Trigger Events” are reached, as defined in the related insurance-linked notes transaction agreement. As of September 30, 20222023, a "Trigger Event" has occurred on our Home Re 2019-1 ILN transaction because the reinsured principal balance of loans that were reported 60 or more days delinquent exceeded a percentage of the total reinsured principal balance of loans specified under each transaction. A "Trigger Event" has also occurred on
In October 2023, Home Re 2019-1 Ltd., Home Re 2021-1 Ltd., and Home Re 2021-2 Ltd conducted tender offers for certain tranches of the mortgage insurance-linked notes that supported the reinsurance agreements with MGIC. The tender offer resulted in the reduction in the insurance-linked notes of $187.1 million for the Home Re 2022-1 ILN transactions because2019-1 Ltd, $91.1 million for the credit enhancementHome Re 2021-1 Ltd., and $106.7 million for the Home Re 2021-2 Ltd. The reinsurance coverage corresponding to the tendered notes was terminated. MGIC will incur approximately $8 million of additional ceded premium in the fourth quarter associated with the cost of the most senior tranche is less than the target credit enhancement.tender premiums and associated expenses.
TablesAlso in October, 2023, MGIC entered into a $330.2 million excess-of-loss reinsurance agreement (executed through an insurance linked note transaction) that covers policies with inforce dates from June 1, 2022 through August 31, 2023.
Table 4.4a and 4.4b provideprovides a summary of our Home ReXOL Transactions as of September 30, 2022 and December 31, 2021.2023.
| | Excess of Loss Reinsurance - Home Re Transactions | |
| 4.4a | | |
| Excess of Loss Reinsurance | | Excess of Loss Reinsurance |
| Table 4.4a | | Table 4.4a | |
| ($ in thousands) | ($ in thousands) | Issue Date | Policy In force Dates | Optional Call Date (1) | Legal Maturity | Initial First Layer Retention | Initial Excess of Loss Reinsurance Coverage | ($ in thousands) | Issue Date | Policy In force Dates | Optional Call Date (1) | Legal Maturity | Initial First Layer Retention | Initial Excess of Loss Reinsurance Coverage |
2023 Traditional XOL (2) | | 2023 Traditional XOL (2) | April 1, 2023 | January 1, 2023 - December 29, 2023 | January 1, 2031 | 10 years | TBD |
| 2022 Traditional XOL | | 2022 Traditional XOL | April 1, 2022 | January 1, 2022 - December 30, 2022 | January 1, 2030 | 10 years | $82,523 | $142,642 |
| Home Re 2022-1, Ltd. | Home Re 2022-1, Ltd. | April 26, 2022 | May 29, 2021 - December 31, 2021 | April 25, 2028 | 12.5 years | $325,589 | $473,575 | Home Re 2022-1, Ltd. | April 26, 2022 | May 29, 2021 - December 31, 2021 | April 25, 2028 | 12.5 years | 325,589 | 473,575 |
| Home Re 2021-2, Ltd. | Home Re 2021-2, Ltd. | August 3, 2021 | January 1, 2021 - May 28, 2021 | July 25, 2028 | 12.5 years | 190,159 | 398,429 | Home Re 2021-2, Ltd. | August 3, 2021 | January 1, 2021 - May 28, 2021 | July 25, 2028 | 12.5 years | 190,159 | 398,429 |
| Home Re 2021-1, Ltd. | Home Re 2021-1, Ltd. | February 2, 2021 | August 1, 2020 - December 31, 2020 | January 25, 2028 | 12.5 years | 211,159 | 398,848 | Home Re 2021-1, Ltd. | February 2, 2021 | August 1, 2020 - December 31, 2020 | January 25, 2028 | 12.5 years | 211,159 | 398,848 |
| Home Re 2020-1, Ltd. | Home Re 2020-1, Ltd. | October 29, 2020 | January 1, 2020 - July 31, 2020 | October 25, 2027 | 10 years | 275,283 | 412,917 | Home Re 2020-1, Ltd. | October 29, 2020 | January 1, 2020 - July 31, 2020 | October 25, 2027 | 10 years | 275,283 | 412,917 |
| Home Re 2019-1, Ltd. | Home Re 2019-1, Ltd. | May 25, 2019 | January 1, 2018 - March 31, 2019 | May 25, 2026 | 10 years | 185,730 | 315,739 | Home Re 2019-1, Ltd. | May 25, 2019 | January 1, 2018 - March 31, 2019 | May 25, 2026 | 10 years | 185,730 | 315,739 |
| Home Re 2018-1, Ltd. | Home Re 2018-1, Ltd. | October 30, 2018 | July 1, 2016 - December 31, 2017 | October 25, 2025 | 10 years | 168,691 | 318,636 | Home Re 2018-1, Ltd. | October 30, 2018 | July 1, 2016 - December 31, 2017 | October 25, 2025 | 10 years | 168,691 | 318,636 |
(1) We have the right to terminate the Home Re Transactions under certain circumstances, including an optional call feature that provides us the right to terminate if the outstanding principal balance of the related insurance-linked notes falls below 10% of the initial principal balance of the related insurance-linked notes, and on any payment date on or after the respective Optional Call Date. We can elect early termination of the Traditional XOL Transactions beginning on this date, and quarterly thereafter.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 4.4b | | Remaining First Layer Retention | | Remaining Excess of Loss Reinsurance Coverage |
| ($ in thousands) | | September 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 |
| Home Re 2022-1, Ltd. | | $ | 325,589 | | | $ | — | | | $ | 473,575 | | | $ | — | |
| Home Re 2021-2, Ltd. | | 190,135 | | | 190,159 | | | 367,702 | | | 398,429 | |
| Home Re 2021-1, Ltd. | | 211,117 | | | 211,142 | | | 306,243 | | | 387,830 | |
| Home Re 2020-1, Ltd. | | 275,154 | | | 275,204 | | | 133,120 | | | 234,312 | |
| Home Re 2019-1, Ltd. | | 183,691 | | | 183,917 | | | 208,146 | | | 208,146 | |
| Home Re 2018-1, Ltd. | | 165,028 | | | 165,365 | | | 162,305 | | | 218,343 | |
(2) The 2023 Traditional XOL Transaction provides up to $116 million of reinsurance coverage on eligible NIW in 2023.
MGIC Investment Corporation - Q3 20222023 | 17
Table 4.4b provides a summary of the remaining first layer retention and remaining excess of loss reinsurance coverage on our XOL Transactions as of September 30, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Table 4.4b | | Remaining First Layer Retention | | Remaining Excess of Loss Reinsurance Coverage |
| ($ in thousands) | | September 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
| | | | | | | | |
| 2022 Traditional XOL | | $ | 82,463 | | | $ | 82,517 | | | $ | 142,642 | | | $ | 142,642 | |
| Home Re 2022-1, Ltd. | | 325,104 | | | 325,576 | | | 445,461 | | | 473,575 | |
| Home Re 2021-2, Ltd. | | 189,610 | | | 190,097 | | | 281,919 | | | 352,084 | |
| Home Re 2021-1, Ltd. | | 210,858 | | | 211,102 | | | 209,311 | | | 277,053 | |
| Home Re 2020-1, Ltd. | | 274,968 | | | 275,051 | | | 53,023 | | | 113,247 | |
| Home Re 2019-1, Ltd. | | 182,791 | | | 183,540 | | | 208,146 | | | 208,146 | |
| Home Re 2018-1, Ltd. | | 164,385 | | | 164,849 | | | 84,819 | | | 140,993 | |
The reinsurance premiums ceded to each Home Re Entity are composed of coverage, initial expense and supplemental premiums. The coverage premiums are generally calculated as the difference between the amount of interest payable by the Home Re Entity on the remaining reinsurance coverage levels, and the investment income collected on the collateral assets held in a reinsurance trust account and used to collateralize the Home Re Entity’s reinsurance obligation to MGIC. The amount of monthly reinsurance coverage premium ceded on the Home Re Transactions will fluctuate due to changes in the reference rate and changes in money market rates that affect investment income collected on the assets in the reinsurance trust. The Home Re 2021-2 and Home Re 2022-1 Transactions reference SOFR, while theSOFR. The remaining Home Re Transactions referencereferenced one-month LIBOR.LIBOR, and transitioned to SOFR when the one-month LIBOR rate was no longer published. As a result, we concluded that each Home Re Transaction contains an embedded derivative that is accounted for separately as a freestanding derivative. The fair values of the derivatives at September 30, 2023 and December 31, 2022, were not material to our consolidated balance sheet and the changes in fair value during the three and nine months ended September 30, 2023 and September 30, 2022 were not material to our consolidated statements of operations. (See Note 7 - “Investments”“Investments” and Note 8 - “Fair Value Measurements”.)
At the time the Home Re Transactions were entered into, we concluded that each Home Re Entity is a variable interest entity (“VIE”). A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make sufficient decisions relating to the entity’s operations through voting rights or do not substantively participate in gains and losses of the entity. Given that MGIC (1) does not have the unilateral power to direct the activities that most significantly affect each Home Re Entity’s economic performance and (2) does not have the obligation to absorb losses or the right to receive benefits of each Home Re Entity that could be significant to the Home Re Entity, consolidation of the Home Re Entities is not required.
We are required to disclose our maximum exposure to loss, which we consider to be an amount that we could be required to record in our statements of operations, as a result of our involvement with the VIEs under our Home Re Transactions. As of September 30, 2022,2023, and December 31, 2021,2022, we did not have material exposure to the VIEs as we have no investment in the VIEs and had no reinsurance claim payments due from the VIEs under our reinsurance transactions. We are unable to determine the timing or extent of claims from losses that are ceded under the reinsurance transactions. The VIE assets are deposited in reinsurance trusts for the benefit of MGIC that will be the source of reinsurance claim payments to MGIC. The purpose of the reinsurance trusts is to provide security to MGIC for the obligations of the VIEs under the reinsurance transactions. The trustee of the reinsurance trusts, a recognized provider of corporate trust services, has established segregated accounts within the reinsurance trusts for the benefit of MGIC, pursuant to the trust agreements. The trust agreements are governed by, and construed in accordance with, the laws of the State of New York. If the trustee of the reinsurance trusts failed to distribute claim payments to us as provided in the reinsurance trusts, we would incur a loss related to our losses ceded under the reinsurance transactions and deemed unrecoverable. We are also unable to determine the impact such possible failure by the trustee to perform pursuant to the reinsurance trust agreements may have on our consolidated financial statements. As a result, we are unable to quantify our maximum exposure to loss related to our
involvement with the VIEs. MGIC has certain termination rights under the reinsurance transactions should its claims not be paid. We consider our exposure to loss from our reinsurance transactions with the VIEs to be remote.
MGIC Investment Corporation - Q3 2023 | 18
Table 4.5 presents the total assets of the Home Re Entities as of September 30, 20222023 and December 31, 2021.2022.
| | | | | | | | | | | |
Home Re total assets |
Table | 4.5 | | |
(In thousands) | | |
Home Re Entity | | Total VIE Assets |
September 30, 2022 | | |
Home Re 2022-1 Ltd. | | $ | 473,575 | |
Home Re 2021-2 Ltd. | | 372,715 | |
Home Re 2021-1 Ltd. | | 317,891 | |
Home Re 2020-1 Ltd. | | 141,508 | |
Home Re 2019-1 Ltd. | | 208,146 | |
Home Re 2018-1 Ltd. | | 169,157 | |
| |
December 31, 2021 | | |
Home Re 2021-2 Ltd. | | $ | 398,429 | |
Home Re 2021-1 Ltd. | | 398,848 | |
Home Re 2020-1 Ltd. | | 251,387 | |
Home Re 2019-1 Ltd. | | 208,146 | |
Home Re 2018-1 Ltd. | | 218,343 | |
| |
| | | | | | | | | | | | | | | | | |
| Home Re total assets | | | | |
| Table | 4.5 | | | | |
| (In thousands) | | Total VIE Assets |
| Home Re Entity | | September 30, 2023 | | December 31, 2022 |
| | | | |
| Home Re 2022-1 Ltd. | | $ | 454,943 | | | $ | 473,575 | |
| Home Re 2021-2 Ltd. | | 282,328 | | | 357,340 | |
| Home Re 2021-1 Ltd. | | 209,384 | | | 285,039 | |
| Home Re 2020-1 Ltd. | | 58,371 | | | 119,159 | |
| Home Re 2019-1 Ltd. | | 208,146 | | | 208,146 | |
| Home Re 2018-1 Ltd. | | 89,405 | | | 146,822 | |
| | | | |
The reinsurance trust agreements provide that the trust assets may generally only be invested in certain money market funds that (i) invest at least 99.5% of their total assets in cash or direct U.S. federal government obligations, such as U.S. Treasury bills, as well as other short-term securities backed by the full faith and credit of the U.S. federal government or issued by an agency of the U.S. federal government, (ii) have a principal stability fund rating of “AAAm” by S&P or a money market fund rating of “Aaamf” by Moody’s as of the Closing Date and thereafter maintain any rating with either S&P or Moody’s, and (iii) are permitted investments under the applicable credit for reinsurance laws and applicable PMIERs credit for reinsurance requirements.
The total calculated PMIERs credit for risk ceded under our XOL Transactions are generally based on the PMIERs requirement of the covered policies and the attachment and detachment points of the coverage, all of which fluctuate over time. (See Note 1 - “Nature of Business and Basis of Presentation”.)
MGIC Investment Corporation - Q3 20222023 | 1819
Note 5. Litigation and Contingencies
Before paying an insurance claim, generally we review the loan and servicing files to determine the appropriateness of the claim amount. When reviewing the files, we may determine that we have the right to rescind coverage or deny a claim on the loan (both referred to herein as “rescissions”). In addition, our insurance policies generally provide that we can reduce a claim if the servicer did not comply with its obligations under our insurance policy (such reduction referred to as a “curtailment”).
When the insured disputes our right to rescind coverage or curtail claims, we generally engage in discussions in an attempt to settle the dispute. If we are unable to reach a settlement, the outcome of a dispute ultimately may be determined by legal proceedings. Under ASC 450-20, until a loss associated with settlement discussions or legal proceedings becomes probable and can be reasonably estimated, we consider our claim payment or rescission resolved for financial reporting purposes and do not accrue an estimated loss. When we determine that a loss is probable and can be reasonably estimated, we record our best estimate of our probable loss. In those cases, until settlement negotiations or legal proceedings are concluded (including the receipt of any necessary GSE approvals), it is possible that we will record an additional loss.
We have been named as a third-party defendant in a lawsuit that involves refunds of mortgage insurance premiums under the Homeowners Protection Act. We are monitoring litigation addressing similar issues in which we have not been named a defendant. We are unable to assess the potential impact of any such litigation at this time.
In addition, fromFrom time to time, we are involved in other disputes and legal proceedings in the ordinary course of business. In our opinion, based on the facts known at this time, the ultimate resolution of these ordinary course disputes and legal proceedings will not have a material adverse effect on our financial position or results of operations.
MGIC Investment Corporation - Q3 20222023 | 1920
Note 6. Earnings per Share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of shares of common stock outstanding. For purposes of calculating basic EPS, vested restricted stock and restricted stock units (“RSUs”) are considered outstanding. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. The determination of whether components are dilutive is calculated independently for each period. We calculate diluted EPS using the treasury stock method and if-converted method. Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if unvested RSUs result in the issuance of common stock. Under the if-converted method, diluted EPS reflects the potential dilution that could occur if our 9% Debentures result in the issuance of common stock. The determination of potentially issuable shares does not consider the satisfaction of the conversion requirements and the shares are included in the determination of diluted EPS as of the beginning of the period, if dilutive. In the third quarter of 2023, under the terms of our 9% Debentures, we exercised our option to redeem the outstanding principal. (See Note 3 -“Debt”.)
Table 6.1 reconciles the numerators and denominators used to calculate basic and diluted EPS.
| | Earnings per share | Earnings per share | | Earnings per share | |
| Table | Table | 6.1 | | Table | 6.1 | |
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands, except per share data) | (In thousands, except per share data) | | 2022 | | 2021 | | 2022 | | 2021 | (In thousands, except per share data) | | 2023 | | 2022 | | 2023 | | 2022 |
| Basic earnings per share: | Basic earnings per share: | | Basic earnings per share: | |
| Net income | Net income | | $ | 249,625 | | | $ | 157,977 | | | $ | 673,906 | | | $ | 461,049 | | Net income | | $ | 182,844 | | | $ | 249,625 | | | $ | 528,445 | | | $ | 673,906 | |
| Weighted average common shares outstanding - basic | Weighted average common shares outstanding - basic | | 302,622 | | | 335,938 | | | 309,097 | | | 338,045 | | Weighted average common shares outstanding - basic | | 281,757 | | | 302,622 | | | 286,184 | | | 309,097 | |
| Basic earnings per share | Basic earnings per share | | $ | 0.82 | | | $ | 0.47 | | | $ | 2.18 | | | $ | 1.36 | | Basic earnings per share | | $ | 0.65 | | | $ | 0.82 | | | $ | 1.85 | | | $ | 2.18 | |
| | Diluted earnings per share: | Diluted earnings per share: | | Diluted earnings per share: | |
| Net income | Net income | | $ | 249,625 | | | $ | 157,977 | | | $ | 673,906 | | | $ | 461,049 | | Net income | | $ | 182,844 | | | $ | 249,625 | | | $ | 528,445 | | | $ | 673,906 | |
Interest expense, net of tax (1): | Interest expense, net of tax (1): | | Interest expense, net of tax (1): | |
| 9% Debentures | 9% Debentures | | 620 | | | 3,712 | | | 2,851 | | | 11,135 | | 9% Debentures | | 276 | | | 620 | | | 1,025 | | | 2,851 | |
| Diluted income available to common shareholders | Diluted income available to common shareholders | | $ | 250,245 | | | $ | 161,689 | | | $ | 676,757 | | | $ | 472,184 | | Diluted income available to common shareholders | | $ | 183,120 | | | $ | 250,245 | | | $ | 529,470 | | | $ | 676,757 | |
| | Weighted average common shares outstanding - basic | Weighted average common shares outstanding - basic | | 302,622 | | | 335,938 | | | 309,097 | | | 338,045 | | Weighted average common shares outstanding - basic | | 281,757 | | | 302,622 | | | 286,184 | | | 309,097 | |
| Effect of dilutive securities: | Effect of dilutive securities: | | Effect of dilutive securities: | |
| Unvested RSUs | Unvested RSUs | | 1,902 | | | 1,834 | | | 1,848 | | | 1,651 | | Unvested RSUs | | 2,624 | | | 1,902 | | | 2,239 | | | 1,848 | |
| 9% Debentures | 9% Debentures | | 2,670 | | | 15,785 | | | 4,084 | | | 15,785 | | 9% Debentures | | 1,219 | | | 2,670 | | | 1,501 | | | 4,084 | |
| Weighted average common shares outstanding - diluted | Weighted average common shares outstanding - diluted | | 307,194 | | | 353,557 | | | 315,029 | | | 355,481 | | Weighted average common shares outstanding - diluted | | 285,600 | | | 307,194 | | | 289,924 | | | 315,029 | |
| Diluted earnings per share | Diluted earnings per share | | $ | 0.81 | | | $ | 0.46 | | | $ | 2.15 | | | $ | 1.33 | | Diluted earnings per share | | $ | 0.64 | | | $ | 0.81 | | | $ | 1.83 | | | $ | 2.15 | |
| |
(1) Interest expense for the three and nine months ended September 30, 2022 and 2021, respectively, has been tax effected at a rate of 21%.
MGIC Investment Corporation - Q3 20222023 | 2021
Note 7. Investments
Fixed income securities
Our fixed income securities classified as available-for-sale at September 30, 20222023 and December 31, 20212022 are shown in tables 7.1a and 7.1b below.
| | Details of fixed income securities by category as of September 30, 2022 | |
| Details of fixed income securities by category as of September 30, 2023 | | Details of fixed income securities by category as of September 30, 2023 |
| Table | Table | 7.1a | | | | Table | 7.1a | | | |
| (In thousands) | (In thousands) | | Amortized Cost | | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Fair Value | (In thousands) | | Amortized Cost | | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Fair Value |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | U.S. Treasury securities and obligations of U.S. government corporations and agencies | | $ | 180,941 | | | | $ | 25 | | | $ | (10,294) | | | $ | 170,672 | | U.S. Treasury securities and obligations of U.S. government corporations and agencies | | $ | 220,592 | | | | $ | 7 | | | $ | (9,765) | | | $ | 210,834 | |
| Obligations of U.S. states and political subdivisions | Obligations of U.S. states and political subdivisions | | 2,414,505 | | | | 1,700 | | | (265,167) | | | 2,151,038 | | Obligations of U.S. states and political subdivisions | | 2,178,573 | | | | 1,234 | | | (274,157) | | | 1,905,650 | |
| Corporate debt securities | Corporate debt securities | | 2,393,106 | | | | 148 | | | (227,409) | | | 2,165,845 | | Corporate debt securities | | 2,564,817 | | | | 498 | | | (200,650) | | | 2,364,665 | |
| ABS | ABS | | 134,309 | | | | 5 | | | (5,819) | | | 128,495 | | ABS | | 172,262 | | | | 9 | | | (5,051) | | | 167,220 | |
| RMBS | RMBS | | 230,997 | | | | 15 | | | (28,372) | | | 202,640 | | RMBS | | 307,402 | | | | 7 | | | (34,727) | | | 272,682 | |
| CMBS | CMBS | | 266,711 | | | | 14 | | | (21,080) | | | 245,645 | | CMBS | | 297,091 | | | | 65 | | | (22,836) | | | 274,320 | |
| CLOs | CLOs | | 337,827 | | | | — | | | (12,329) | | | 325,498 | | CLOs | | 333,974 | | | | 9 | | | (2,256) | | | 331,727 | |
| Foreign government debt | Foreign government debt | | 4,486 | | | | — | | | (914) | | | 3,572 | | Foreign government debt | | 4,486 | | | | — | | | (859) | | | 3,627 | |
| Commercial paper | Commercial paper | | 7,577 | | | | — | | | — | | | 7,577 | | Commercial paper | | 50,812 | | | | — | | | — | | | 50,812 | |
Total fixed income securities | Total fixed income securities | | $ | 5,970,459 | | | | $ | 1,907 | | | $ | (571,384) | | | $ | 5,400,982 | | Total fixed income securities | | $ | 6,130,009 | | | | $ | 1,829 | | | $ | (550,301) | | | $ | 5,581,537 | |
| | Details of fixed income securities by category as of December 31, 2021 | |
| Details of fixed income securities by category as of December 31, 2022 | | Details of fixed income securities by category as of December 31, 2022 |
| Table | Table | 7.1b | | | | Table | 7.1b | | | |
| | (In thousands) | (In thousands) | | Amortized Cost | | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Fair Value | (In thousands) | | Amortized Cost | | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Fair Value |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | U.S. Treasury securities and obligations of U.S. government corporations and agencies | | $ | 133,990 | | | | $ | 285 | | | $ | (868) | | | $ | 133,407 | | U.S. Treasury securities and obligations of U.S. government corporations and agencies | | $ | 145,581 | | | | $ | 2 | | | $ | (9,683) | | | $ | 135,900 | |
| Obligations of U.S. states and political subdivisions | Obligations of U.S. states and political subdivisions | | 2,408,688 | | | | 133,361 | | | (7,396) | | | 2,534,653 | | Obligations of U.S. states and political subdivisions | | 2,400,261 | | | | 4,866 | | | (256,073) | | | 2,149,054 | |
| Corporate debt securities | Corporate debt securities | | 2,704,586 | | | | 75,172 | | | (13,776) | | | 2,765,982 | | Corporate debt securities | | 2,416,475 | | | | 1,043 | | | (196,377) | | | 2,221,141 | |
| ABS | ABS | | 150,888 | | | | 830 | | | (1,008) | | | 150,710 | | ABS | | 126,723 | | | | 5 | | | (6,041) | | | 120,687 | |
| RMBS | RMBS | | 309,991 | | | | 2,397 | | | (3,278) | | | 309,110 | | RMBS | | 223,743 | | | | 10 | | | (25,744) | | | 198,009 | |
| CMBS | CMBS | | 315,330 | | | | 5,736 | | | (1,936) | | | 319,130 | | CMBS | | 257,785 | | | | 22 | | | (20,591) | | | 237,216 | |
| CLOs | CLOs | | 360,436 | | | | 609 | | | (106) | | | 360,939 | | CLOs | | 337,656 | | | | 5 | | | (7,829) | | | 329,832 | |
| Foreign government debt | Foreign government debt | | 13,749 | | | | — | | | (99) | | | 13,650 | | Foreign government debt | | 4,486 | | | | — | | | (699) | | | 3,787 | |
| Total fixed income securities | | $ | 6,397,658 | | | | $ | 218,390 | | | $ | (28,467) | | | $ | 6,587,581 | | |
| Commercial paper | | Commercial paper | | 14,075 | | | | — | | | (3) | | | 14,072 | |
Total fixed income securities (1) | | Total fixed income securities (1) | | $ | 5,926,785 | | | | $ | 5,953 | | | $ | (523,040) | | | $ | 5,409,698 | |
(1)Includes Short-Term Fixed Income Securities of $177.4 million and $67.0 million at September 30, 2023 and December 31, 2022, respectively.
We had $12.2$11.5 million and $13.4$11.8 million of investments at fair value on deposit with various states as of September 30, 20222023 and December 31, 2021,2022, respectively, due to regulatory requirements of those state insurance departments.
In connection with our insurance and reinsurance activities within MAC and MIC, insurance subsidiaries of MGIC, we are required to maintain assets in trusts for the benefit of contractual counterparties, which had investments at fair value of $165.0$143.8 million and $189.8$128.4 million at September 30, 20222023 and December 31, 2021,2022, respectively.
MGIC Investment Corporation - Q3 20222023 | 2122
The amortized cost and fair values of fixed income securities at September 30, 2022,2023, by contractual maturity, are shown in table 7.2 below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most ABS, RMBS, CMBS,mortgage and CLOsasset-backed securities provide for periodic payments throughout their lives, they are listed in separate categories.
| | Fixed income securities maturity schedule | Fixed income securities maturity schedule | Fixed income securities maturity schedule |
| Table | Table | 7.2 | | Table | 7.2 | |
| | | September 30, 2022 | | | September 30, 2023 |
| (In thousands) | (In thousands) | | Amortized cost | | Fair Value | (In thousands) | | Amortized cost | | Fair Value |
| Due in one year or less | Due in one year or less | | $ | 422,546 | | | $ | 416,536 | | Due in one year or less | | $ | 667,446 | | | $ | 659,512 | |
| Due after one year through five years | Due after one year through five years | | 1,413,885 | | | 1,334,284 | | Due after one year through five years | | 1,543,417 | | | 1,458,444 | |
| Due after five years through ten years | Due after five years through ten years | | 1,814,408 | | | 1,614,687 | | Due after five years through ten years | | 1,805,365 | | | 1,617,227 | |
| Due after ten years | Due after ten years | | 1,349,776 | | | 1,133,197 | | Due after ten years | | 1,003,052 | | | 800,405 | |
| | | 5,000,615 | | | 4,498,704 | | | | 5,019,280 | | | 4,535,588 | |
| | ABS | ABS | | 134,309 | | | 128,495 | | ABS | | 172,262 | | | 167,220 | |
| RMBS | RMBS | | 230,997 | | | 202,640 | | RMBS | | 307,402 | | | 272,682 | |
| CMBS | CMBS | | 266,711 | | | 245,645 | | CMBS | | 297,091 | | | 274,320 | |
| CLOs | CLOs | | 337,827 | | | 325,498 | | CLOs | | 333,974 | | | 331,727 | |
| Total as of September 30, 2022 | | $ | 5,970,459 | | | $ | 5,400,982 | | |
| Total | | Total | | $ | 6,130,009 | | | $ | 5,581,537 | |
Equity securities
The cost and fair value of investments in equity securities at September 30, 20222023 and December 31, 20212022 are shown in tables 7.3a and 7.3b below.
| | Details of equity security investments as of September 30, 2022 | |
| Details of equity security investments as of September 30, 2023 | | Details of equity security investments as of September 30, 2023 |
| Table | Table | 7.3a | | Table | 7.3a | |
| | (In thousands) | (In thousands) | | Cost | | Gross Gains | | Gross Losses | | Fair Value | (In thousands) | | Cost | | Gross Gains | | Gross Losses | | Fair Value |
| Equity securities | Equity securities | | $ | 16,006 | | | $ | — | | | $ | (2,121) | | | $ | 13,885 | | Equity securities | | $ | 15,998 | | | $ | — | | | $ | (2,049) | | | $ | 13,949 | |
| | Details of equity security investments as of December 31, 2021 | |
| Details of equity security investments as of December 31, 2022 | | Details of equity security investments as of December 31, 2022 |
| Table | Table | 7.3b | | Table | 7.3b | |
| | (In thousands) | (In thousands) | | Cost | | Gross Gains | | Gross Losses | | Fair Value | (In thousands) | | Cost | | Gross Gains | | Gross Losses | | Fair Value |
| Equity securities | Equity securities | | $ | 15,838 | | | $ | 264 | | | $ | (34) | | | $ | 16,068 | | Equity securities | | $ | 15,924 | | | $ | — | | | $ | (1,784) | | | $ | 14,140 | |
Net gains (losses) on investments and other financial instruments
The net gains (losses) on investments and other financial instruments and the proceeds from the sale of fixed income securities classified as available-for-sale and equity securities are shown in table 7.4 below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Details of net gains (losses) on investments and other financial instruments | | | | |
| Table | 7.4 | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| Fixed income securities | | | | | | | |
| Gains on sales | 1,667 | | | 1,389 | | | 6,788 | | | 6,680 | |
| Losses on sales | (7,040) | | | (259) | | | (12,790) | | | (1,004) | |
| Change in credit allowance | — | | | (1) | | | — | | | 48 | |
| Impairments | (1,415) | | | — | | | (1,415) | | | — | |
| Equity securities gains (losses) | (617) | | | (108) | | | (2,351) | | | (308) | |
| Change in embedded derivative on Home Re Transactions | 4,199 | | | (397) | | | 983 | | | 376 | |
| Other | (52) | | | (12) | | | 9 | | | (19) | |
| Net gains (losses) on investments and other financial instruments | (3,258) | | | 612 | | | (8,776) | | | 5,773 | |
| | | | | | | | |
| Proceeds from sales of fixed income securities | 125,186 | | | 106,765 | | | 388,740 | | | 246,827 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Details of net gains (losses) on investments and other financial instruments | | | | |
| Table | 7.4 | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | |
| Fixed income securities | | | | | | | |
| Gains on sales | 2,581 | | | 1,667 | | | 2,747 | | | 6,788 | |
| Losses on sales | (2,814) | | | (7,040) | | | (13,362) | | | (12,790) | |
| | | | | | | |
| Impairments | — | | | (1,415) | | | — | | | (1,415) | |
| Equity securities gains (losses) | | | | | | | |
| | | | | | | |
| Market adjustment | (462) | | | (617) | | | (266) | | | (2,351) | |
| Change in embedded derivative on Home Re Transactions | (7) | | | 4,199 | | | (2,486) | | | 983 | |
| Other | | | | | | | |
| Gains (losses) on sales | (4) | | | (66) | | | (4) | | | (18) | |
| Market adjustment | 11 | | | 14 | | | (9) | | | 27 | |
| Net gains (losses) on investments and other financial instruments | (695) | | | (3,258) | | | (13,380) | | | (8,776) | |
| | | | | | | | |
| Proceeds from sales of fixed income securities | 24,434 | | | 125,186 | | | 293,392 | | | 388,740 | |
| | | | | | | |
MGIC Investment Corporation - Q3 20222023 | 2223
Other invested assets
At December 31, 2021, the FHLB Advance amount was secured by $167.2 million of eligible collateral. As a result of the prepayment of the outstanding principal balance on the FHLB Advance we are no longer required to maintain collateral. Our other invested assets balance includes an investment in 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.facility, subject to certain conditions, which includes requirements to post collateral and to maintain a minimum investment in FHLB stock.
Unrealized investment losses
Tables 7.5a and 7.5b below summarize, for all available-for-sale investments in an unrealized loss position at September 30, 20222023 and December 31, 2021,2022, the aggregate fair value and gross unrealized loss by the length of time those securities have been continuously in an unrealized loss position. The fair value amounts reported in tables 7.5a and 7.5b are estimated using the process described in Note 8 - “Fair Value Measurements” to these consolidated financial statements and in Note 3 - “Significant Accounting Policies” to the consolidated financial statements in our 20212022 Annual Report on Form 10-K. | | Unrealized loss aging for securities by type and length of time as of September 30, 2022 | |
| Unrealized loss aging for securities by type and length of time as of September 30, 2023 | | Unrealized loss aging for securities by type and length of time as of September 30, 2023 |
| Table | Table | 7.5a | | Table | 7.5a | |
| | | | Less Than 12 Months | | 12 Months or Greater | | Total | | | Less Than 12 Months | | 12 Months or Greater | | Total |
| (In thousands) | (In thousands) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | (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 | U.S. Treasury securities and obligations of U.S. government corporations and agencies | | $ | 91,057 | | | $ | (4,565) | | | $ | 52,868 | | | $ | (5,729) | | | $ | 143,925 | | | $ | (10,294) | | U.S. Treasury securities and obligations of U.S. government corporations and agencies | | $ | 64,850 | | | $ | (538) | | | $ | 111,833 | | | $ | (9,227) | | | $ | 176,683 | | | $ | (9,765) | |
| Obligations of U.S. states and political subdivisions | Obligations of U.S. states and political subdivisions | | 1,993,265 | | | (229,380) | | | 122,240 | | | (35,787) | | | 2,115,505 | | | (265,167) | | Obligations of U.S. states and political subdivisions | | 674,000 | | | (14,743) | | | 1,226,433 | | | (259,414) | | | 1,900,433 | | | (274,157) | |
| Corporate debt securities | Corporate debt securities | | 1,897,128 | | | (164,708) | | | 307,124 | | | (62,701) | | | 2,204,252 | | | (227,409) | | Corporate debt securities | | 600,174 | | | (12,938) | | | 1,745,339 | | | (187,712) | | | 2,345,513 | | | (200,650) | |
| ABS | ABS | | 96,910 | | | (3,741) | | | 32,673 | | | (2,078) | | | 129,583 | | | (5,819) | | ABS | | 74,002 | | | (950) | | | 92,013 | | | (4,101) | | | 166,015 | | | (5,051) | |
| RMBS | RMBS | | 124,775 | | | (13,598) | | | 93,453 | | | (14,774) | | | 218,228 | | | (28,372) | | RMBS | | 116,145 | | | (6,082) | | | 172,590 | | | (28,645) | | | 288,735 | | | (34,727) | |
| CMBS | CMBS | | 183,053 | | | (13,797) | | | 66,755 | | | (7,283) | | | 249,808 | | | (21,080) | | CMBS | | 33,176 | | | (2,433) | | | 241,908 | | | (20,403) | | | 275,084 | | | (22,836) | |
| CLOs | CLOs | | 266,139 | | | (9,355) | | | 59,359 | | | (2,974) | | | 325,498 | | | (12,329) | | CLOs | | — | | | — | | | 320,534 | | | (2,256) | | | 320,534 | | | (2,256) | |
| Foreign government debt | Foreign government debt | | — | | | — | | | 3,572 | | | (914) | | | 3,572 | | | (914) | | Foreign government debt | | — | | | — | | | 3,627 | | | (859) | | | 3,627 | | | (859) | |
| | Total | Total | | $ | 4,652,327 | | | $ | (439,144) | | | $ | 738,044 | | | $ | (132,240) | | | $ | 5,390,371 | | | $ | (571,384) | | Total | | $ | 1,562,347 | | | $ | (37,684) | | | $ | 3,914,277 | | | $ | (512,617) | | | $ | 5,476,624 | | | $ | (550,301) | |
| | Unrealized loss aging for securities by type and length of time as of December 31, 2021 | |
| Unrealized loss aging for securities by type and length of time as of December 31, 2022 | | Unrealized loss aging for securities by type and length of time as of December 31, 2022 |
| Table | Table | 7.5b | | Table | 7.5b | |
| | | Less Than 12 Months | | 12 Months or Greater | | Total | | Less Than 12 Months | | 12 Months or Greater | | Total |
| (In thousands) | (In thousands) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | (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 | U.S. Treasury securities and obligations of U.S. government corporations and agencies | | $ | 91,154 | | | $ | (790) | | | $ | 2,616 | | | $ | (78) | | | $ | 93,770 | | | $ | (868) | | U.S. Treasury securities and obligations of U.S. government corporations and agencies | | $ | 67,531 | | | $ | (3,583) | | | $ | 76,246 | | | $ | (6,100) | | | $ | 143,777 | | | $ | (9,683) | |
| Obligations of U.S. states and political subdivisions | Obligations of U.S. states and political subdivisions | | 452,021 | | | (7,189) | | | 15,540 | | | (207) | | | 467,561 | | | (7,396) | | Obligations of U.S. states and political subdivisions | | 1,344,272 | | | (157,903) | | | 360,956 | | | (98,170) | | | 1,705,228 | | | (256,073) | |
| Corporate debt securities | Corporate debt securities | | 865,085 | | | (13,260) | | | 10,997 | | | (516) | | | 876,082 | | | (13,776) | | Corporate debt securities | | 1,488,255 | | | (109,976) | | | 758,732 | | | (86,401) | | | 2,246,987 | | | (196,377) | |
| ABS | ABS | | 100,064 | | | (998) | | | 1,552 | | | (10) | | | 101,616 | | | (1,008) | | ABS | | 53,201 | | | (1,008) | | | 67,073 | | | (5,033) | | | 120,274 | | | (6,041) | |
| RMBS | RMBS | | 180,586 | | | (2,548) | | | 31,641 | | | (730) | | | 212,227 | | | (3,278) | | RMBS | | 77,563 | | | (8,572) | | | 136,179 | | | (17,172) | | | 213,742 | | | (25,744) | |
| CMBS | CMBS | | 89,889 | | | (1,887) | | | 1,511 | | | (49) | | | 91,400 | | | (1,936) | | CMBS | | 166,973 | | | (12,951) | | | 70,792 | | | (7,640) | | | 237,765 | | | (20,591) | |
| CLOs | CLOs | | 177,663 | | | (71) | | | 21,973 | | | (35) | | | 199,636 | | | (106) | | CLOs | | 213,461 | | | (4,644) | | | 114,459 | | | (3,185) | | | 327,920 | | | (7,829) | |
| Foreign government debt | Foreign government debt | | 13,649 | | | (99) | | | — | | | — | | | 13,649 | | | (99) | | Foreign government debt | | — | | | — | | | 3,787 | | | (699) | | | 3,787 | | | (699) | |
| Commercial paper | | Commercial paper | | — | | | — | | | 3,816 | | | (3) | | | 3,816 | | | (3) | |
| Total | Total | | $ | 1,970,111 | | | $ | (26,842) | | | $ | 85,830 | | | $ | (1,625) | | | $ | 2,055,941 | | | $ | (28,467) | | Total | | $ | 3,411,256 | | | $ | (298,637) | | | $ | 1,592,040 | | | $ | (224,403) | | | $ | 5,003,296 | | | $ | (523,040) | |
There were 1,315 and 1,226 securities in an unrealized loss position at September 30, 2023 and December 31, 2022, respectively. Based on current facts and circumstances, we believe the unrealized losses as of September 30, 20222023 presented in table 7.5a above are not indicative of the ultimate collectability of the current amortized cost of the securities. The unrealized losses in all categories of our investments at September 30, 20222023 were primarily caused by an increase in prevailing interest rates. 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. All of the securities in an unrealized loss position are current with respect to their interest obligations.
There were 1,346 and 610 securities in an unrealized loss position at September 30, 2022 and December 31, 2021, respectively.
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Note 8. Fair Value Measurements
Recurring fair value measurements
The 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.
•Fixed income securities:
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies: Securities with valuations derived from quoted prices for identical instruments in active markets that we can access are categorized in Level 1 of the fair value hierarchy. Securities valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information in the valuation process are categorized as Level 2 of the fair value hierarchy.
Corporate Debt BondsSecurities are valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process. These securities are generally categorized in Level 2 of the fair value hierarchy.
Obligations of U.S. States & Political Subdivisions are 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. These securities are generally categorized in Level 2 of the fair value hierarchy.
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. These securities are generally categorized in Level 2 of the fair value hierarchy.
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. These securities are generally categorized in Level 2 of the fair value hierarchy.
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. These securities are generally categorized in Level 2 of the fair value hierarchy.
Collateralized loan obligations ("CLOs") 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. These securities are generally categorized in Level 2 of the fair value hierarchy.
Foreign government debt is valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process. These securities are generally categorized in Level 2 of the fair value hierarchy.
Commercial Paper, which has an original maturity greater than 90 days, is valued using market data for comparable instruments of similar maturity and average yields. These securities are generally categorized in Level 2 of the fair value hierarchy.
•Equity securities: Consist of actively traded, exchange-listed equity securities, including exchange traded funds (“ETFs”) and Bond Mutual Funds, with valuations derived from quoted prices for identical assets in active markets that we can access. These securities are valued in Level 1 of the fair value hierarchy.
•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. These securities are valued in level 1 of the fair value hierarchy. Instruments in this category valued using market data for comparable instruments are classified as level 2 in the fair value hierarchy.
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Assets measured at fair value, by hierarchy level, as of September 30, 20222023 and December 31, 20212022 are shown in tables 8.1a and 8.1b below. The fair value of the assets is estimated using the process described above, and more fully in Note 3 - “Significant Accounting Policies” to the consolidated financial statements in our 20212022 Annual Report on Form 10-K.
| | Assets carried at fair value by hierarchy level as of September 30, 2022 | |
| Assets carried at fair value by hierarchy level as of September 30, 2023 | | Assets carried at fair value by hierarchy level as of September 30, 2023 |
| Table | Table | 8.1a | | | Table | 8.1a | | |
| (In thousands) | (In thousands) | | Total Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | (In thousands) | | Total Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | U.S. Treasury securities and obligations of U.S. government corporations and agencies | | $ | 170,672 | | | $ | 151,741 | | | $ | 18,931 | | | U.S. Treasury securities and obligations of U.S. government corporations and agencies | | $ | 210,834 | | | $ | 140,891 | | | $ | 69,943 | | |
| Obligations of U.S. states and political subdivisions | Obligations of U.S. states and political subdivisions | | 2,151,038 | | | — | | | 2,151,038 | | | Obligations of U.S. states and political subdivisions | | 1,905,650 | | | — | | | 1,905,650 | | |
| Corporate debt securities | Corporate debt securities | | 2,165,845 | | | — | | | 2,165,845 | | | Corporate debt securities | | 2,364,665 | | | — | | | 2,364,665 | | |
| ABS | ABS | | 128,495 | | | — | | | 128,495 | | | ABS | | 167,220 | | | — | | | 167,220 | | |
| RMBS | RMBS | | 202,640 | | | — | | | 202,640 | | | RMBS | | 272,682 | | | — | | | 272,682 | | |
| CMBS | CMBS | | 245,645 | | | — | | | 245,645 | | | CMBS | | 274,320 | | | — | | | 274,320 | | |
| CLOs | CLOs | | 325,498 | | | — | | | 325,498 | | | CLOs | | 331,727 | | | — | | | 331,727 | | |
| Foreign government debt | Foreign government debt | | 3,572 | | | — | | | 3,572 | | | Foreign government debt | | 3,627 | | | — | | | 3,627 | | |
| Commercial paper | Commercial paper | | 7,577 | | | — | | | 7,577 | | | Commercial paper | | 50,812 | | | — | | | 50,812 | | |
| Total fixed income securities | Total fixed income securities | | 5,400,982 | | | 151,741 | | | 5,249,241 | | | Total fixed income securities | | 5,581,537 | | | 140,891 | | | 5,440,646 | | |
| Equity securities | Equity securities | | 13,885 | | | 13,885 | | | — | | | Equity securities | | 13,949 | | | 13,949 | | | — | | |
| Cash equivalents | Cash equivalents | | 236,940 | | | 198,397 | | | 38,543 | | | Cash equivalents | | 271,924 | | (1) | 255,772 | | | 16,152 | | |
| Total | Total | | $ | 5,651,807 | | | $ | 364,023 | | | $ | 5,287,784 | | | Total | | $ | 5,867,410 | | | $ | 410,612 | | | $ | 5,456,798 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets carried at fair value by hierarchy level as of December 31, 2021 |
| Table | 8.1b | | | | | | | | |
| (In thousands) | | Total Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | | $ | 133,407 | | | $ | 102,153 | | | $ | 31,254 | | | |
| Obligations of U.S. states and political subdivisions | | 2,534,653 | | | — | | | 2,534,653 | | | |
| Corporate debt securities | | 2,765,982 | | | — | | | 2,765,982 | | | |
| ABS | | 150,710 | | | — | | | 150,710 | | | |
| RMBS | | 309,110 | | | — | | | 309,110 | | | |
| CMBS | | 319,130 | | | — | | | 319,130 | | | |
| CLOs | | 360,939 | | | — | | | 360,939 | | | |
| Foreign government debt | | 13,650 | | | — | | | 13,650 | | | |
| Total fixed income securities | | 6,587,581 | | | 102,153 | | | 6,485,428 | | | |
| Equity securities | | 16,068 | | | 16,068 | | | — | | | |
| Cash equivalents | | 254,230 | | | 254,230 | | | — | | | |
| Total | | $ | 6,857,879 | | | $ | 372,451 | | | $ | 6,485,428 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets carried at fair value by hierarchy level as of December 31, 2022 |
| Table | 8.1b | | | | | | | | |
| (In thousands) | | Total Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | |
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | | $ | 135,900 | | | $ | 116,897 | | | $ | 19,003 | | | |
| Obligations of U.S. states and political subdivisions | | 2,149,054 | | | — | | | 2,149,054 | | | |
| Corporate debt securities | | 2,221,141 | | | — | | | 2,221,141 | | | |
| ABS | | 120,687 | | | — | | | 120,687 | | | |
| RMBS | | 198,009 | | | — | | | 198,009 | | | |
| CMBS | | 237,216 | | | — | | | 237,216 | | | |
| CLOs | | 329,832 | | | — | | | 329,832 | | | |
| Foreign government debt | | 3,787 | | | — | | | 3,787 | | | |
| Commercial paper | | 14,072 | | | — | | | 14,072 | | | |
| Total fixed income securities | | 5,409,698 | | | 116,897 | | | 5,292,801 | | | |
| Equity securities | | 14,140 | | | 14,140 | | | — | | | |
| Cash equivalents | | 328,756 | | (1) | 324,129 | | | 4,627 | | | |
| Total | | $ | 5,752,594 | | | $ | 455,166 | | | $ | 5,297,428 | | | |
| (1) Includes restricted cash equivalents | | | | |
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 7 – “Investments.”
In addition to the assets carried at fair value discussed above, we have embedded derivatives carried at fair value related to our Home Re Transactions that are classified as Other liabilities“Other liabilities” or Other assets“Other assets” in our consolidated balance sheets. The estimated fair value related to our embedded derivatives reflects the present value impact of the variation in investment income on the assets held by the reinsurance trusts and the contractual reference rate on the Home Re Transactions used to calculate the reinsurance premiums we estimate we will pay.pay over the estimated remaining life. These liabilities or assets are categorized in Level 3 of the fair value hierarchy. At September 30, 20222023 and December 31, 2021,2022, the fair value of the embedded derivatives was a liability of $0.8less than $0.1 million and $1.8an asset of $2.5 million, respectively. (See Note 4 - "Reinsurance" for more information about our reinsurance programs.)
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Real estate acquired through claim settlement is carried at fair values and is reported in “Other assets” on the consolidated balance sheet. These assets are categorized as Level 3 of the fair value hierarchy.
Activity related to For the Level 3 assets and liabilities (including realized and unrealized gains and losses, purchases and sales) were immaterial for the three and nine months ended September 30, 2023, and 2022, purchases of real estate acquired were $0.1 million and 2021.$2.9 million, respectively. For the nine months ended September 30, 2023, and 2022, sales of real estate acquired were $1.6 million and $3.2 million, respectively.
Financial assets and liabilities not measured 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 include our outstanding debt obligations. The fair values of our 5.75% and 5.25% Notes and 9% Debentures were based on observable market prices. In all cases the fair values of the financial liabilities below are categorized as Levellevel 2.
Table 8.2 presents the carrying value and fair value of our financial assets and liabilities disclosed, but not carried, at fair value at September 30, 20222023 and December 31, 2021.2022.
| | Financial assets and liabilities not measured at fair value | Financial assets and liabilities not measured at fair value | Financial assets and liabilities not measured at fair value |
| Table | Table | 8.2 | | Table | 8.2 | |
| | | September 30, 2022 | | December 31, 2021 | | | September 30, 2023 | | December 31, 2022 |
| (In thousands) | (In thousands) | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | (In thousands) | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Financial assets | Financial assets | | Financial assets | |
| Other invested assets | Other invested assets | | $ | 850 | | | $ | 850 | | | $ | 3,100 | | | $ | 3,100 | | Other invested assets | | $ | 850 | | | $ | 850 | | | $ | 850 | | | $ | 850 | |
| | Financial liabilities | Financial liabilities | | Financial liabilities | |
| FHLB Advance | | — | | | — | | | 155,000 | | | 157,585 | | |
| 5.75% Senior Notes | | — | | | — | | | 241,255 | | | 256,213 | | |
| 5.25% Senior Notes | 5.25% Senior Notes | | 641,357 | | | 580,931 | | | 640,253 | | | 686,875 | | 5.25% Senior Notes | | 642,828 | | | 605,976 | | | 641,724 | | | 600,938 | |
| 9% Convertible Junior Subordinated Debentures | 9% Convertible Junior Subordinated Debentures | | 21,296 | | | 28,475 | | | 110,204 | | | 151,000 | | 9% Convertible Junior Subordinated Debentures | | — | | | — | | | 21,086 | | | 28,085 | |
| Total financial liabilities | Total financial liabilities | | $ | 662,653 | | | $ | 609,406 | | | $ | 1,146,712 | | | $ | 1,251,673 | | Total financial liabilities | | $ | 642,828 | | | $ | 605,976 | | | $ | 662,810 | | | $ | 629,023 | |
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Note 9. Other Comprehensive Income
The pretax and related income tax benefit (expense) components of our other comprehensive income (loss) for the three and nine months ended September 30, 20222023 and 20212022 are included in table 9.1 below.
| | Components of other comprehensive income (loss) | Components of other comprehensive income (loss) | | Components of other comprehensive income (loss) | |
| Table | Table | 9.1 | | Table | 9.1 | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands) | (In thousands) | | 2022 | | 2021 | | 2022 | | 2021 | (In thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
| Net unrealized investment (losses) gains arising during the period | Net unrealized investment (losses) gains arising during the period | | $ | (194,449) | | | $ | (34,937) | | | $ | (759,409) | | | $ | (97,057) | | Net unrealized investment (losses) gains arising during the period | | $ | (95,216) | | | $ | (194,449) | | | $ | (31,387) | | | $ | (759,409) | |
| Total income tax benefit (expense) | Total income tax benefit (expense) | | 40,834 | | | 7,337 | | | 159,476 | | | 20,382 | | Total income tax benefit (expense) | | 19,995 | | | 40,834 | | | 6,591 | | | 159,476 | |
| Net of taxes | Net of taxes | | (153,615) | | | (27,600) | | | (599,933) | | | (76,675) | | Net of taxes | | (75,221) | | | (153,615) | | | (24,796) | | | (599,933) | |
| | Net changes in benefit plan assets and obligations | Net changes in benefit plan assets and obligations | | (20,471) | | | 7,548 | | | (19,353) | | | 9,492 | | Net changes in benefit plan assets and obligations | | 4,067 | | | (20,471) | | | 11,914 | | | (19,353) | |
| Total income tax benefit (expense) | Total income tax benefit (expense) | | 4,299 | | | (1,585) | | | 4,064 | | | (1,993) | | Total income tax benefit (expense) | | (854) | | | 4,299 | | | (2,502) | | | 4,064 | |
| Net of taxes | Net of taxes | | (16,172) | | | 5,963 | | | (15,289) | | | 7,499 | | Net of taxes | | 3,213 | | | (16,172) | | | 9,412 | | | (15,289) | |
| | Total other comprehensive income (loss) | Total other comprehensive income (loss) | | (214,920) | | | (27,389) | | | (778,762) | | | (87,565) | | Total other comprehensive income (loss) | | $ | (91,149) | | | (214,920) | | | (19,473) | | | (778,762) | |
| Total income tax benefit (expense) | Total income tax benefit (expense) | | 45,133 | | | 5,752 | | | 163,540 | | | 18,389 | | Total income tax benefit (expense) | | 19,141 | | | 45,133 | | | 4,089 | | | 163,540 | |
| Total other comprehensive income (loss), net of tax | Total other comprehensive income (loss), net of tax | | $ | (169,787) | | | $ | (21,637) | | | $ | (615,222) | | | $ | (69,176) | | Total other comprehensive income (loss), net of tax | | $ | (72,008) | | | $ | (169,787) | | | $ | (15,384) | | | $ | (615,222) | |
The pretax and related income tax benefit (expense) components of the amounts reclassified from our accumulated other comprehensive income (loss) (“AOCI”) to our consolidated statements of operations for the three and nine months ended September 30, 20222023 and 20212022 are included in table 9.2 below.
| | Reclassifications from AOCI | Reclassifications from AOCI | | Reclassifications from AOCI | |
| Table | Table | 9.2 | | Table | 9.2 | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands) | (In thousands) | | 2022 | | 2021 | | 2022 | | 2021 | (In thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
Reclassification adjustment for net realized (losses) gains(1) | Reclassification adjustment for net realized (losses) gains(1) | | $ | (6,681) | | | $ | 1,045 | | | $ | (4,273) | | | $ | 7,462 | | Reclassification adjustment for net realized (losses) gains(1) | | $ | (3,085) | | | $ | (6,681) | | | $ | (13,020) | | | $ | (4,273) | |
| Income tax benefit (expense) | Income tax benefit (expense) | | 1,403 | | | (219) | | | 897 | | | (1,566) | | Income tax benefit (expense) | | 648 | | | 1,403 | | | 2,734 | | | 897 | |
| Net of taxes | Net of taxes | | (5,278) | | | 826 | | | (3,376) | | | 5,896 | | Net of taxes | | (2,437) | | | (5,278) | | | (10,286) | | | (3,376) | |
| Reclassification adjustment related to benefit plan assets and obligations (2) | Reclassification adjustment related to benefit plan assets and obligations (2) | | (6,228) | | | (971) | | | (7,346) | | | (2,915) | | Reclassification adjustment related to benefit plan assets and obligations (2) | | (2,376) | | | (6,228) | | | (12,379) | | | (7,346) | |
| Income tax benefit (expense) | Income tax benefit (expense) | | 1,308 | | | 204 | | | 1,543 | | | 612 | | Income tax benefit (expense) | | 499 | | | 1,308 | | | 2,600 | | | 1,543 | |
| Net of taxes | Net of taxes | | (4,920) | | | (767) | | | (5,803) | | | (2,303) | | Net of taxes | | (1,877) | | | (4,920) | | | (9,779) | | | (5,803) | |
| | Total reclassifications | Total reclassifications | | (12,909) | | | 74 | | | (11,619) | | | 4,547 | | Total reclassifications | | (5,461) | | | (12,909) | | | (25,399) | | | (11,619) | |
| Income tax benefit (expense) | Income tax benefit (expense) | | 2,711 | | | (15) | | | 2,440 | | | (954) | | Income tax benefit (expense) | | 1,147 | | | 2,711 | | | 5,334 | | | 2,440 | |
| Total reclassifications, net of tax | Total reclassifications, net of tax | | $ | (10,198) | | | $ | 59 | | | $ | (9,179) | | | $ | 3,593 | | Total reclassifications, net of tax | | $ | (4,314) | | | $ | (10,198) | | | $ | (20,065) | | | $ | (9,179) | |
(1)Increases (decreases) Net realized investment gains (losses) on the consolidated statements of operations.
(2)Decreases (increases) Other underwriting and operating expenses, net on the consolidated statements of operations.
A rollforward of AOCI for the nine months ended September 30, 2022,2023, including amounts reclassified from AOCI, are included in table 9.3 below.
| | Rollforward of AOCI | Rollforward of AOCI | Rollforward of AOCI |
| Table | Table | 9.3 | | Table | 9.3 | |
| | Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2023 |
| (In thousands) | (In thousands) | | Net unrealized gains and (losses) on available-for-sale securities | | Net benefit plan assets and (obligations) recognized in shareholders' equity | | Total accumulated other comprehensive income (loss) | (In thousands) | | Net unrealized gains and (losses) on available-for-sale securities | | Net benefit plan assets and (obligations) recognized in shareholders' equity | | Total accumulated other comprehensive income (loss) |
| Balance at December 31, 2021, net of tax | | $ | 150,038 | | | $ | (30,341) | | | $ | 119,697 | | |
| Balance at December 31, 2022, net of tax | | Balance at December 31, 2022, net of tax | | $ | (408,496) | | | $ | (73,015) | | | $ | (481,511) | |
| Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | (603,309) | | | (21,092) | | | (624,401) | | Other comprehensive income (loss) before reclassifications | | (35,082) | | | (367) | | | (35,449) | |
| Less: Amounts reclassified from AOCI | Less: Amounts reclassified from AOCI | | (3,376) | | | (5,803) | | | (9,179) | | Less: Amounts reclassified from AOCI | | (10,286) | | | (9,779) | | | (20,065) | |
| Balance, September 30, 2022, net of tax | | $ | (449,895) | | | $ | (45,630) | | | $ | (495,525) | | |
| Balance, September 30, 2023, net of tax | | Balance, September 30, 2023, net of tax | | $ | (433,292) | | | $ | (63,603) | | | $ | (496,895) | |
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Note 10. Benefit Plans
Tables 10.1 and 10.2 provide the components of net periodic benefit cost for our pension, supplemental executive retirement and other postretirement benefit plans for the three and nine months ended September 30, 20222023 and 2021.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Components of net periodic benefit cost |
| Table | 10.1 | | | | | | | | |
| | Three Months Ended September 30, |
| | Pension and Supplemental Executive Retirement Plans | | Other Postretirement Benefit Plans |
| (In thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
| Company service cost | | $ | — | | | $ | 1,813 | | | $ | 374 | | | $ | 327 | |
| Interest cost | | 3,297 | | | 2,863 | | | 409 | | | 173 | |
| Expected return on plan assets | | (3,426) | | | (4,907) | | | (2,059) | | | (2,625) | |
| Amortization of: | | | | | | | | |
| Net actuarial losses (gains) | | 529 | | | 1,266 | | | (38) | | | (776) | |
| Prior service cost (credit) | | 87 | | | (57) | | | 465 | | | 123 | |
| Cost of settlements and curtailments | | 334 | | | 5,671 | | | — | | | — | |
| Net periodic benefit cost (benefit) | | $ | 821 | | | $ | 6,649 | | | $ | (849) | | | $ | (2,778) | |
| | | | | | | | | |
| Components of net periodic benefit cost |
| Table | 10.2 | | | | | | | | |
| | Nine Months Ended September 30, |
| | Pension and Supplemental Executive Retirement Plans | | Other Postretirement Benefit Plans |
| (In thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
| Company service cost | | $ | — | | | $ | 5,439 | | | $ | 1,122 | | | $ | 981 | |
| Interest cost | | 10,278 | | | 8,588 | | | 1,225 | | | 521 | |
| Expected return on plan assets | | (10,432) | | | (14,723) | | | (6,176) | | | (7,876) | |
| Amortization of: | | | | | | | | |
| Net actuarial losses (gains) | | 1,656 | | | 3,798 | | | (113) | | | (2,328) | |
| Prior service cost (credit) | | 259 | | | (163) | | | 1,396 | | | 367 | |
| Cost of settlements and curtailments | | 9,181 | | | 5,671 | | | — | | | — | |
| Net periodic benefit cost (benefit) | | $ | 10,942 | | | $ | 8,610 | | | $ | (2,546) | | | $ | (8,335) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Components of net periodic benefit cost |
| Table | 10.1 | | | | | | | | |
| | Three Months Ended September 30, |
| | Pension and Supplemental Executive Retirement Plans | | Other Postretirement Benefit Plans |
| (In thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Service cost | | $ | 1,813 | | | $ | 1,908 | | | $ | 327 | | | $ | 377 | |
| Interest cost | | 2,863 | | | 2,794 | | | 173 | | | 163 | |
| Expected return on plan assets | | (4,907) | | | (5,229) | | | (2,625) | | | (2,216) | |
| Amortization of net actuarial losses (gains) | | 1,266 | | | 1,403 | | | (776) | | | (425) | |
| Amortization of prior service cost (credit) | | (57) | | | (60) | | | 123 | | | 53 | |
| Settlements and curtailments | | 5,671 | | | 4,732 | | | — | | | — | |
| Net periodic benefit cost (benefit) | | $ | 6,649 | | | $ | 5,548 | | | $ | (2,778) | | | $ | (2,048) | |
| | | | | | | | | |
| Components of net periodic benefit cost |
| Table | 10.2 | | | | | | | | |
| | Nine Months Ended September 30, |
| | Pension and Supplemental Executive Retirement Plans | | Other Postretirement Benefit Plans |
| (In thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Service cost | | $ | 5,439 | | | $ | 5,724 | | | $ | 981 | | | $ | 1,131 | |
| Interest cost | | 8,588 | | | 8,383 | | | 521 | | | 487 | |
| Expected return on plan assets | | (14,723) | | | (15,687) | | | (7,876) | | | (6,647) | |
| Amortization of net actuarial losses (gains) | | 3,798 | | | 4,208 | | | (2,328) | | | (1,273) | |
| Amortization of prior service cost (credit) | | (163) | | | (179) | | | 367 | | | 159 | |
| Settlements and curtailments | | 5,671 | | | 4,732 | | | — | | | — | |
| Net periodic benefit cost (benefit) | | $ | 8,610 | | | $ | 7,181 | | | $ | (8,335) | | | $ | (6,143) | |
Contributions of $6.3 million have been made to our qualified pension plan in 2022.
BeginningEffective January 1, 2023, participants in the defined benefit pension plan and supplemental executive retirement plan will not accrue anyare frozen (no future benefits will be accrued for participants due to pay and/or service. As a result of freezing plan benefitsemployment and lump sum settlements paid through September 2022, we recorded a pension settlement accounting charge, net of curtailments, of $5.7 millionno new participants will be added). Participants in the third quarter of 2022. The net curtailment credit relates to the recognition of prior service costs (credits) previously recognizedthese plans are fully vested in accumulated other comprehensive income. We recorded a pension settlement accounting charge of $4.7 million in the third quarter of 2021.their benefits.
MGIC Investment Corporation - Q3 20222023 | 2829
Note 11. Loss Reserves
We establish case reserves and LAE reserves on delinquent loans that were reported to us as two or more payments past due and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case 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.
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. Even in a stable environment, changes to our estimates could result in a material impact to our consolidated results of operations and financial position. 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 delinquency and claim filing (all else being equal, the longer the period between delinquency and claim filing, the greater the severity); 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, 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 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. Given the uncertainty of the macroeconomic environment, including the effectiveness of loss mitigation efforts, change in home prices, and changes in unemployment, our loss reserve estimates 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 claim 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 September 30, 2022,2023, 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 +/- $11$9 million. A one percentage point increase/decrease in the average claim rate reserve factor would change the loss reserve amount by approximately +/- $15 million.
The “Losses incurred” section of table 11.1 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 claim severity associated with those delinquencies resolved in the current year compared to the estimated claim rate and claim 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 claim severity is the result of our review of current trends in the delinquency inventory, such as percentages of delinquencies 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 for the nine months ended September 30, 2022,2023, compared to the same period last year. The increase is primarily due to a decreasean increase in IBNR reserve estimates by $5.9 millionestimated severity on current year delinquencies and an increase in the nine months ended September 30, 2021, while IBNR reserve estimates remained flat for the nine months ended September 30, 2022.new delinquencies reported.
For the nine months ended September 30, 2023 and September 30, 2022 we experienced favorable loss development of $148.9 million and $327.5 million, respectively, on previously received noticesdelinquencies. The favorable development for both periods primarily related toresulted from a decrease in the estimatedexpected claim rate. The favorable development primarily resulted from greater than expected cure rates on delinquencies received during and prior to the COVID-19 pandemic, as forbearance plans and loss mitigation efforts have resulted in more cures than originally estimated. For the nine months ended September 30, 2021 we experienced favorable loss development of $6.0 millionrate on previously received notices primarily duedelinquencies. Home price appreciation experienced in recent years has allowed some borrowers to cure their delinquencies through the decrease in the claim rate on delinquencies received prior to the COVID-19 pandemic. This was offset by the recognitionsale of a probable loss of $6.3 million related to litigation of our claims paying practices and adverse development on LAE reserves and reinsurance.their property.
MGIC Investment Corporation - Q3 20222023 | 2930
The “Losses paid” section of table 11.1 below shows the amount of losses paid on delinquencies that occurred in the current year and losses paid on delinquencies that occurred in prior years. The foreclosure moratoriums and forbearance plans in place have increased the average time it takes to receive a claim,.
Table 11.1 provides a reconciliation of beginning and ending loss reserves as of and for the nine months ended September 30, 20222023 and 2021.2022.
| | Development of reserves for losses and loss adjustment expenses | Development of reserves for losses and loss adjustment expenses | Development of reserves for losses and loss adjustment expenses |
| Table | Table | 11.1 | | Table | 11.1 | |
| | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands) | (In thousands) | | 2022 | | 2021 | (In thousands) | | 2023 | | 2022 |
| Reserve at beginning of period | Reserve at beginning of period | | $ | 883,522 | | | $ | 880,537 | | Reserve at beginning of period | | $ | 557,988 | | | $ | 883,522 | |
| Less reinsurance recoverable | Less reinsurance recoverable | | 66,905 | | | 95,042 | | Less reinsurance recoverable | | 28,240 | | | 66,905 | |
| Net reserve at beginning of period | Net reserve at beginning of period | | 816,617 | | | 785,495 | | Net reserve at beginning of period | | 529,748 | | | 816,617 | |
| | Losses incurred: | Losses incurred: | | Losses incurred: | |
| Losses and LAE incurred in respect of delinquency notices received in: | Losses and LAE incurred in respect of delinquency notices received in: | | Losses and LAE incurred in respect of delinquency notices received in: | |
| Current year | Current year | | 104,086 | | | 95,534 | | Current year | | 137,626 | | | 104,086 | |
Prior years (1) | Prior years (1) | | (327,512) | | | (5,968) | | Prior years (1) | | (148,948) | | | (327,512) | |
| Total losses incurred | Total losses incurred | | (223,426) | | | 89,566 | | Total losses incurred | | (11,322) | | | (223,426) | |
| | Losses paid: | Losses paid: | | Losses paid: | |
| Losses and LAE paid in respect of delinquency notices received in: | Losses and LAE paid in respect of delinquency notices received in: | | Losses and LAE paid in respect of delinquency notices received in: | |
| Current year | Current year | | 116 | | | 339 | | Current year | | 153 | | | 116 | |
| Prior years | Prior years | | 36,089 | | | 48,842 | | Prior years | | 33,679 | | | 36,089 | |
| | Total losses paid | Total losses paid | | 36,205 | | | 49,181 | | Total losses paid | | 33,832 | | | 36,205 | |
| Net reserve at end of period | Net reserve at end of period | | 556,986 | | | 825,880 | | Net reserve at end of period | | 484,594 | | | 556,986 | |
| Plus reinsurance recoverable | Plus reinsurance recoverable | | 46,384 | | | 107,029 | | Plus reinsurance recoverable | | 40,934 | | | 46,384 | |
| Reserve at end of period | Reserve at end of period | | $ | 603,370 | | | $ | 932,909 | | Reserve at end of period | | $ | 525,528 | | | $ | 603,370 | |
(1)A positive number for prior year loss reserve development indicates a deficiency of prior year reserves. A negative number for prior year loss reserve development indicates a redundancy of prior year loss reserves. See the following table for more information about prior year loss reserve development.
The prior year loss reserve development for the nine months ofended September 30, 2023 and 2022 and 2021 is reflectedshown in table 11.2 below.
| | Reserve development on previously received delinquencies | Reserve development on previously received delinquencies | Reserve development on previously received delinquencies |
| Table | Table | 11.2 | | Table | 11.2 | |
| | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands) | (In thousands) | | 2022 | | 2021 | (In thousands) | | 2023 | | 2022 |
| Increase (decrease) in estimated claim rate on primary defaults | Increase (decrease) in estimated claim rate on primary defaults | | $ | (324,556) | | | $ | (18,147) | | Increase (decrease) in estimated claim rate on primary defaults | | $ | (142,764) | | | $ | (324,556) | |
| Increase (decrease) in estimated severity on primary defaults | | (18,682) | | | (105) | | |
| Change in estimates related to pool reserves, LAE reserves, reinsurance, and other | | 15,726 | | | 12,284 | | |
| | Change in estimates related to severity on primary defaults, pool reserves, LAE reserves, reinsurance, and other | | Change in estimates related to severity on primary defaults, pool reserves, LAE reserves, reinsurance, and other | | (6,184) | | | (2,956) | |
Total prior year loss development (1) | Total prior year loss development (1) | | $ | (327,512) | | | $ | (5,968) | | Total prior year loss development (1) | | $ | (148,948) | | | $ | (327,512) | |
(1)A positive number for prior year loss reserve development indicates a deficiency of prior year loss reserves. A negative number for prior year loss reserve development indicates a redundancy of prior year loss reserves.
MGIC Investment Corporation - Q3 20222023 | 3031
Delinquency inventory
A rollforward of our primary delinquency inventory for the three and nine months ended September 30, 20222023 and 20212022 appears in table 11.3 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 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Delinquency inventory rollforward | | | | |
| Table | 11.3 | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Delinquency inventory at beginning of period | | 26,855 | | | 42,999 | | | 33,290 | | | 57,710 | |
| New notices | | 10,990 | | | 9,862 | | | 31,089 | | | 31,909 | |
| Cures | | (11,494) | | | (14,813) | | | (37,371) | | | (50,901) | |
| Paid claims | | (337) | | | (298) | | | (978) | | | (956) | |
| Rescissions and denials | | (11) | | | (11) | | | (27) | | | (23) | |
| Other items removed from inventory | | (125) | | | (360) | | | (125) | | | (360) | |
| Delinquency inventory at end of period | | 25,878 | | 37,379 | | 25,878 | | 37,379 |
During the three and nine months ended September 30, 2022 and 2021, our losses paid included amounts paid upon commutation of coverage of pools of non-performing loans (“NPLs”). As a result of these payments, 125 and 360 delinquencies, were removed from delinquency inventory with an amount paid of $1.6 million and $6.7 million for 2022 and 2021, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Delinquency inventory rollforward | | | | |
| Table | 11.3 | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Delinquency inventory at beginning of period | | 23,823 | | | 26,855 | | | 26,387 | | | 33,290 | |
| New notices | | 12,240 | | | 10,990 | | | 34,117 | | | 31,089 | |
| Cures | | (10,975) | | | (11,494) | | | (34,738) | | | (37,371) | |
| Paid claims | | (359) | | | (337) | | | (1,018) | | | (978) | |
| Rescissions and denials | | (9) | | | (11) | | | (28) | | | (27) | |
| Other items removed from inventory | | — | | | (125) | | | — | | | (125) | |
| Delinquency inventory at end of period | | 24,720 | | 25,878 | | 24,720 | | 25,878 |
Table 11.4 below shows the number of consecutive months a borrower is delinquent. Historically as a delinquency ages it is more likely to result in a claim.
| | Primary delinquency inventory - consecutive months delinquent | Primary delinquency inventory - consecutive months delinquent | Primary delinquency inventory - consecutive months delinquent |
| Table | Table | 11.4 | | Table | 11.4 | |
| | September 30, 2022 | December 31, 2021 | September 30, 2021 | | September 30, 2023 | December 31, 2022 | September 30, 2022 |
| 3 months or less | 3 months or less | 7,825 | | 7,586 | | 6,948 | | 3 months or less | 8,732 | | 8,820 | | 7,825 | |
| 4-11 months | 4-11 months | 7,619 | | 7,990 | | 9,371 | | 4-11 months | 8,220 | | 8,217 | | 7,619 | |
12 months or more (1) | 12 months or more (1) | 10,434 | | 17,714 | | 21,060 | | 12 months or more (1) | 7,768 | | 9,350 | | 10,434 | |
| Total | Total | 25,878 | | 33,290 | | 37,379 | | Total | 24,720 | | 26,387 | | 25,878 | |
| 3 months or less | 3 months or less | 30 | % | 23 | % | 19 | % | 3 months or less | 35 | % | 33 | % | 30 | % |
| 4-11 months | 4-11 months | 30 | % | 24 | % | 25 | % | 4-11 months | 33 | % | 31 | % | 30 | % |
| 12 months or more | 12 months or more | 40 | % | 53 | % | 56 | % | 12 months or more | 32 | % | 36 | % | 40 | % |
| Total | Total | 100 | % | 100 | % | 100 | % | Total | 100 | % | 100 | % | 100 | % |
| Primary claims received inventory included in ending delinquent inventory | Primary claims received inventory included in ending delinquent inventory | 244 | | 211 | | 154 | | Primary claims received inventory included in ending delinquent inventory | 284 | | 267 | | 244 | |
(1)Approximately 33%39%, 20%36%, and 17%33% of the primary delinquency inventory delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of September 30, 2022,2023, December 31, 2021,2022, and September 30, 2021,2022, respectively.
COVID-19 Pandemic Delinquencies
We experienced an increase in new delinquency notices in the second and third quarters of 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. Forbearance programs enacted by the GSEs provided for payment forbearance on mortgages to borrowers experiencing a hardship during the COVID-19 pandemic. Historically, forbearance plans have reduced the incidence of our losses on affected loans. Through September 30, 2022 the vast majority of the delinquencies received in the second and third quarter of 2020 have cured.
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 $28.1$19.6 million and $37.3$25.5 million at September 30, 20222023 and December 31, 2021,2022, respectively. The decrease is primarily due to a decrease in the delinquency inventory.
MGIC Investment Corporation - Q3 20222023 | 3132
Note 12. Shareholders’ Equity
Change in Accounting Policy
As of January 1, 2021, we adopted the updated guidance for "Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. The application of this guidance resulted in a $68.3 million cumulative effect adjustment to our 2021 beginning retained earnings and paid in capital to reflect the 9% Debentures as if we had always accounted for the debt as a liability in its entirety.
Share repurchase programs
Repurchases of our common stock may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. In the first nine months of 2022,ended September 30, 2023, we repurchased 21.714.7 million shares at an average cost of $14.10$14.83 per share, which included commissions. In 2021,2022, we repurchased approximately 19.027.8 million shares of our common stock, at an average cost of $15.30$13.89 per share, which included commissions. At September 30, 20222023, we had $194$396 million remaining under a $500 million share repurchase program approved by our Board of Directors in 20212023 that expires at year end 2023. Inon July 1, 2025. Through October 2022,27, 2023, we repurchased an additional 2.62.2 million shares totaling $33.2$36.5 million under the remaining authorization.
Cash dividends
In Marchthe first and May 2022, we paid quarterly cash dividendssecond quarters of $0.08 per share which totaled $51.0 million and in August 20222023, we paid quarterly cash dividends of $0.10 per share which totaled $58.8 million. In August 2023, we paid quarterly cash dividends of $0.115 per share to shareholders which totaled $30.5 million$32.9 million. On October 27, 2022,26, 2023, the Board of Directors declared a quarterly cash dividend of to the holders of the company’s common stock of $0.10$0.115 per share to shareholders of record on November 10, 2022, payable9, 2023.
9% Debenture Conversion
In the third quarter of 2023, we exercised our option to redeem the outstanding principal of $21.1 million on November 23, 2022.
our 9% Debentures. Prior to the redemption date, substantially all holders elected to convert into shares of our common stock. We elected to pay cash in lieu of issuing shares. The conversion of our 9% Debentures resulted in a reduction in our shareholders’ equity of $5.3 million, net of tax. See Note 3 – “Debt.”
Note 13. 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, although awards to our non-employee directors vest immediately.
Table 13.1 shows the number of restricted stock units (RSUs) granted to employees and non-employee directors and the weighted average fair value per share during the periods presented (shares in thousands).presented.
| | Restricted stock unit grants | Restricted stock unit grants | Restricted stock unit grants |
| Table | Table | 13.1 | | Table | 13.1 | |
| | Nine months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| | | | RSUs Granted (in thousands) | Weighted Average Share Fair Value | | RSUs Granted (in thousands) | Weighted Average Share Fair Value | | | | RSUs Granted (in thousands) | Weighted Average Share Fair Value | | RSUs Granted (in thousands) | Weighted Average Share Fair Value |
| RSUs subject to performance conditions | RSUs subject to performance conditions | (1) | 848 | | $ | 15.46 | | | 966 | | $ | 12.82 | | RSUs subject to performance conditions | (1) | 949 | | $ | 14.17 | | | 848 | | $ | 15.46 | |
| RSUs subject only to service conditions | RSUs subject only to service conditions | | 319 | | 15.45 | | | 398 | | 12.82 | | RSUs subject only to service conditions | | 354 | | 14.17 | | | 319 | | 15.45 | |
| Non-employee director RSUs | Non-employee director RSUs | | 104 | | 15.32 | | | — | | — | | Non-employee director RSUs | | 106 | | 14.17 | | | 104 | | 15.32 | |
(1)Shares granted are subject to performance conditions under which the target number of shares granted may vest up to 200%.
MGIC Investment Corporation - Q3 20222023 | 3233
Note 14. Statutory Information
Statutory 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, as 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. A risk-to-capital ratio will increase if (i) the percentage decrease in capital exceeds the percentage decrease in insured risk, or (ii) the percentage increase in capital is less than the percentage increase in insured risk. Wisconsin does not regulate capital by using a risk-to-capital measure but instead requires a minimum policyholder position (“MPP”). MGIC’s “policyholder position” includes its net worth or surplus, and its contingency loss reserve.
At September 30, 2022,2023, MGIC’s risk-to-capital ratio was 9.49.6 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.7$3.8 billion above the required MPP of $2.0$2.1 billion.��The calculation of our risk-to-capital ratio and MPP reflect credit for the risk ceded under our reinsurance transactions. 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 agreements without penalty.
Dividend restrictions
In the nine months ended September 30, 2022, MGIC paid a $400 million dividend to our holding company. In November, 2022, MGIC paid a $400 million dividend to our holding company.
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’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 maximum dividend that could be paid, without regulatory approval, is reduced by dividends paid in the twelve months preceding the dividend payment date. Before making any dividend payments, we will notify the OCI to ensure it does not object. In the nine months ended September 30, 2023, MGIC paid a $300 million dividend to MGIC Investment Corporation. In October 2023, MGIC paid a $300 million dividend to our holding company.
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 loss reserves through their income statement as a change in underwriting deduction. As a result, in periods in which MGIC is increasing contingency loss reserves, statutory net income is reduced.
Statutory Financial Information
The statutory net income, policyholders’ surplus, and contingency reserve liabilityloss reserves of our insurance subsidiaries, including MGIC, are shown in table 14.1.
| | | | | | | | | | | | | | |
| Financial information of our insurance subsidiaries (including MGIC) |
| Table 14.1 | | | | |
| | As of and for the Nine Months Ended September 30, |
| (In thousands) | | 2022 | | 2021 |
| Statutory net income | | $ | 284,084 | | | $ | 194,614 | |
| Statutory policyholders' surplus | | 1,231,992 | | | 1,354,268 | |
| Contingency reserve | | 4,533,371 | | | 3,987,786 | |
| | | | |
| | | | | | | | | | | | | | |
| Financial information of our insurance subsidiaries (including MGIC) |
| Table 14.1 | | | | |
| | As of and for the Nine Months Ended September 30, |
| (In thousands) | | 2023 | | 2022 |
| Statutory net income | | $ | 207,996 | | | $ | 284,084 | |
| Statutory policyholders' surplus | | 859,083 | | | 1,231,992 | |
| Contingency loss reserves | | 5,071,276 | | | 4,533,371 | |
| | | | |
MGIC Investment Corporation - Q3 20222023 | 3334
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following is management’s discussion and analysis of the financial condition and results of operations of MGIC Investment Corporation for the third quarter of 2022.2023. As used below, “we” and “our” refer to MGIC Investment Corporation’s consolidated operations. This form 10-Q should be read in conjunction with “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, 2021.2022. See the “Glossary of terms and acronyms” for definitions and descriptions of terms used throughout this MD&A. Our revenues and losses could be affected by the Risk Factors referred to under “Forward Looking Statements and Risk Factors” below, and they are an integral part of the MD&A.
Forward Looking and Other Statements
As discussed under “Forward Looking Statements and Risk Factors” below, actual results may differ materially from the results contemplated by forward looking statements. These forward looking statements speak only as of the date of this filing and are subject to change without notice. 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.
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Overview
| | Summary financial results of MGIC Investment Corporation | Summary financial results of MGIC Investment Corporation | | Summary financial results of MGIC Investment Corporation | |
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In millions, except per share data, unaudited) | (In millions, except per share data, unaudited) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change | (In millions, except per share data, unaudited) | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| Selected statement of operations data | Selected statement of operations data | | | Selected statement of operations data | | |
| Net premiums earned | Net premiums earned | $ | 252.1 | | | $ | 254.8 | | | (1) | | | $ | 763.0 | | | $ | 761.4 | | | — | | Net premiums earned | $ | 241.3 | | | $ | 252.1 | | | (4) | | | $ | 726.1 | | | $ | 763.0 | | | (5) | |
| Investment income, net of expenses | Investment income, net of expenses | | 42.5 | | | 38.3 | | | 11 | | | 121.1 | | | 117.3 | | | 3 | | Investment income, net of expenses | | 55.4 | | | 42.5 | | | 30 | | | 156.9 | | | 121.1 | | | 30 | |
| Losses incurred, net | Losses incurred, net | | (105.1) | | | 20.8 | | | (605) | | | (223.4) | | | 89.6 | | | (349) | | Losses incurred, net | | (0.1) | | | (105.1) | | | (100) | | | (11.3) | | | (223.4) | | | (95) | |
| Other underwriting and operating expenses, net | Other underwriting and operating expenses, net | | 58.5 | | | 53.9 | | | 9 | | | 166.7 | | | 155.8 | | | 7 | | Other underwriting and operating expenses, net | | 50.1 | | | 58.5 | | | (14) | | | 174.2 | | | 166.7 | | | 4 | |
| Loss on debt extinguishment | Loss on debt extinguishment | | 11.6 | | | — | | | N/M | | 40.1 | | | — | | | N/M | Loss on debt extinguishment | | — | | | 11.6 | | | N/M | | — | | | 40.1 | | | N/M |
| Income before tax | Income before tax | | 314.3 | | | 199.7 | | | 57 | | | 849.6 | | | 583.2 | | | 46 | | Income before tax | | 234.4 | | | 314.3 | | | (25) | | | 672.4 | | | 849.6 | | | (21) | |
| Provision for income taxes | Provision for income taxes | | 64.6 | | | 41.8 | | | 55 | | | 175.7 | | | 122.2 | | | 44 | | Provision for income taxes | | 51.6 | | | 64.6 | | | (20) | | | 143.9 | | | 175.7 | | | (18) | |
Net income | Net income | | 249.6 | | | 158.0 | | | 58 | | | 673.9 | | | 461.0 | | | 46 | | Net income | | 182.8 | | | 249.6 | | | (27) | | | 528.4 | | | 673.9 | | | (22) | |
| Diluted income per share | Diluted income per share | | $ | 0.81 | | | $ | 0.46 | | | 76 | | | $ | 2.15 | | | $ | 1.33 | | | 62 | | Diluted income per share | | $ | 0.64 | | | $ | 0.81 | | | (21) | | | $ | 1.83 | | | $ | 2.15 | | | (15) | |
| Non-GAAP Financial Measures (1)(2) | Non-GAAP Financial Measures (1)(2) | | Non-GAAP Financial Measures (1)(2) | |
| Adjusted pre-tax operating income | Adjusted pre-tax operating income | | $ | 332.8 | | | $ | 198.6 | | | 68 | | | $ | 897.2 | | | $ | 577.6 | | | 55 | | Adjusted pre-tax operating income | | $ | 234.6 | | | $ | 332.8 | | | (30) | | | $ | 683.0 | | | $ | 897.2 | | | (24) | |
| Adjusted net operating income | Adjusted net operating income | | 264.2 | | | 157.1 | | | 68 | | | 711.5 | | | 456.6 | | | 56 | | Adjusted net operating income | | 183.0 | | | 264.2 | | | (31) | | | 536.8 | | | 711.5 | | | (25) | |
| Adjusted net operating income per diluted share | Adjusted net operating income per diluted share | | $ | 0.86 | | | $ | 0.46 | | | 87 | | | $ | 2.26 | | | $ | 1.32 | | | 71 | | Adjusted net operating income per diluted share | | $ | 0.64 | | | $ | 0.86 | | | (26) | | | $ | 1.86 | | | $ | 2.26 | | | (18) | |
(1) May not foot due to rounding.
Summary of third quarter 20222023 results
Comparative quarterly results
We recorded third quarter 20222023 net income of $182.8 million, or $0.64 per diluted share. Net income decreased by $66.8 million from net income of $249.6 million, or $0.81 per diluted share. Net income increased by $91.6 million from net income of $158.0 millionshare, in the prior year primarily reflecting decreases in losses incurred, partially offset by a higher provision for income taxes and a loss on debt extinguishment. Diluted income per share increasedyear. The decrease is primarily due to an increase in net incomelosses incurred and a decrease in net premiums earned. This was partially offset by a decrease in the provision for income taxes, an increase in investment income, net of expenses, a decrease in loss on debt extinguishment, and a decrease in other underwriting and operating expenses, net. Diluted income per share decreased primarily due to a decrease in net income, partially offset by a decrease in the number of diluted weighted average shares outstanding.
Adjusted net operating income for the third quarter 20222023 was $264.2$183.0 million (Q3 2021: $157.12022: $264.2 million) and adjusted net operating income per diluted share was $0.86$0.64 (Q3 2021: $0.46)2022: $0.86). The increasedecrease in 20222023 adjusted net operating income andcompared to 2022 primarily reflects a decrease in net income. The decrease in 2023 adjusted net operating income per diluted share compared to 20212022 primarily reflects higher net income and a decrease in adjusted net operating income, partially offset by a decrease in the number of diluted weighted average shares outstanding.
Premiums earned for the three months ended September 30, 2023, were $241.3 million, compared with $252.1 million, for the same period last year. The decrease in premiums earned compared with the prior year is primarily due to an increase in ceded premiums that was the result of a decrease in the profit commission earned on our QSR Transactions.
Net investment income in the three months ended September 30, 2023, was $55.4 million, compared with $42.5 million, in the prior year. The increase in net investment income was due to an increase of 80 basis points in the average investment yields.
Losses incurred, net for the third quarter of 20222023 were $(0.1) million, compared with $(105.1) million a decrease of $125.9 million compared tofor the third quarter of 2021 losses incurred of $20.8 million primarily due to favorable loss reserve development.same period last year. While new delinquency notices added approximately $35.9$48.1 million to losses incurred infor the third quarter of 2022,three months ended September 30, 2023, our re-estimation of loss reserves on previously received delinquency notices resulted in favorable development of approximately $140.9$48.2 million. For the three months ended September 30, 2022, new delinquency notices added approximately $35.9 million, primarily related to a decrease in the estimated claim rate on delinquencies. The favorable development primarily resulted from greater than expected cure rates on delinquencies received during and prior to the COVID-19 pandemic, as forbearance plans and loss mitigation efforts have resulted in more cures than originally estimated. In the third quarter of 2021,offset by our re-estimation of loss reserves on previously received delinquency notices resulting in favorable development of approximately $140.9 million. The favorable development for both periods primarily resulted from a decrease in $7.7 millionthe expected claim rate on previously received delinquencies. Home price appreciation experienced in recent years has allowed some borrowers to cure their delinquencies through the sale of favorable loss development.their property.
InUnderwriting and other expenses, net for the third quarter of 2023 were $50.1 million, compared with $58.5 million for the same period last year. The decrease in underwriting and other expenses, net during the three months ended September 30, 2023 was primarily due to a decrease in expenses related to professional and consulting services and pension expenses. Pension expenses were significantly higher in the third quarter of 2022 the $11.6 milliondue to settlement costs.
We did not record a loss on debt extinguishment reflectedfor the three months ended September 30, 2023, associated with the redemption of our 9% Debentures. For the three months ended September 30, 2022, we recorded a loss on debt extinguishment of $11.6 million,
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reflecting a $4.8 million loss on the repurchase of $14.0 million in aggregate principal of our 9% Debentures and a
loss of $6.8 million on the redemption of our 2023 Senior Notes at costs that were in excess of their carrying value.
See Note 3 - “Debt” to our consolidated financial statements for discussion of the 9% Debenture conversion in the third quarter of 2023.
The increasedecrease in our provision for income taxes in the third quarter of 20222023 as compared to the same period in the prior year was primarily due to an increasea decrease in income before tax.
Comparative year to date results
We recorded net income of $ 673.9$528.4 million, or $1.83 per diluted share. Net income decreased by $145.5 million, from net income of $673.9 million, or $2.15 per diluted share, during the first nine months of 2022 compared with $461.0 million, or $1.33 per diluted share duringin the prior year. Net income increased by $212.9 million, or $0.82 per diluted share. The decrease is primarily due to an increase primarily reflectedin losses incurred and a decrease in losses incurred,net premiums earned. This was partially offset by a higherdecrease in loss on debt extinguishment, an increase in investment income, net of expenses, and a decrease in our provision for income taxes and losses on debt extinguishment.
taxes. Diluted income per share increaseddecreased primarily due to the increasea decrease in net income, andpartially offset by a decrease in the number of our diluted weighted average shares outstanding.
Adjusted net operating income for the first nine months of 2022 was $711.5 million (YTDended September 30, 2021: $456.62023, was $536.8 million (2022: $711.5 million) and adjusted net operating income per diluted share was $2.26 (YTD September 30, 2021: $1.32)$1.86 (2022: $2.26). The increasedecrease in 20222023 adjusted net operating income andcompared to 2022 primarily reflects a decrease in net income. The decrease in 2023 adjusted net operating income per diluted share compared to 20212022 primarily reflects higher net income and a decrease in adjusted net operating income, partially offset by a decrease in the number of diluted weighted average shares outstanding.
Premiums earned for the nine months ended September 30, 2023, were $726.1 million, compared with $763.0 million, for the same period last year. The decrease in premiums earned compared with the prior year is primarily due to an increase in ceded premiums that was the result of a decrease in the profit commission earned on our QSR Transactions.
MGIC Investment Corporation - Q3 2022 | 35Net investment income in the nine months ended September 30, 2023, was $156.9 million, compared with $121.1 million, in the prior year. The increase in net investment income was due to an increase of 80 bps in the average investment yields.
Losses incurred, net for the nine months ended September 30, 20222023 were ($223.4) million, a decrease of $313.0$(11.3) million, compared with losses incurred of $89.6$(223.4) million for the prior year primarily due to favorable loss reserve development.year. While new delinquency notices added approximately $104.1$137.6 million to losses incurred, in the first nine months of 2022, our re-estimation of loss reserves on previously received delinquency notices resulted in favorable development of $148.9 million. For the nine months ended September 30, 2022, new delinquency notices added approximately $104.1 million to losses incurred, offset by re-estimation of loss reserves on previously received delinquency notices resulting in favorable development of $327.5 million,million. The favorable development for both periods primarily related toresulted from a decrease in the estimatedexpected claim rate on delinquencies. The favorable development primarily resulted from greater than expected cure rates on delinquencies received during and prior to the COVID-19 pandemic, as forbearance plans and loss mitigation efforts have resulted in more cures than originally estimated. In the first nine months of 2021, our re-estimation of loss reserves previously received delinquency notices resulteddelinquencies. Home price appreciation experienced in $6.0 millionrecent years has allowed some borrowers to cure their delinquencies through the sale of favorable loss development.their property.
In the first nine months of 2022, the $40.1 millionWe did not record a loss on debt extinguishment reflectedin the nine months ended September 30, 2023, associated with the redemption of our 9% Debentures. For the nine months ended September 30, 2022, we recorded a loss on debt extinguishment of $40.1 million, reflecting a loss of $32.0 million on the repurchase of $88.9 in aggregate principal of our 9% Debentures, a loss of $6.8 million on the redemption of our 2023 Senior Notes at costs in excess of their carrying value, and a prepayment fee of $1.3 million on the repayment of our FHLB advance. See Note 3 - “Debt” to our consolidated financial statements for a discussion of the 9% Debenture conversion in 2023.
The increasedecrease in our provision for income taxes for the first nine months of 2022ended September 30, 2023, as compared to the same period in the prior year was primarily due to an increasea decrease in income before tax.
See “Consolidated Results of Operations”below for additional discussion of our results for the three and nine months ended September 30, 2022 compared with the respective prior year period.
Capital
MGIC dividend payments to our holding company
The ability of MGIC to pay dividends is restricted by insurance regulation. Amounts in excess of prescribed limits are deemed “extraordinary” and may not be paid if disapproved by the OCI. A dividend is extraordinary when the proposed dividend amount, plus dividends paid in the twelve months preceding the dividend payment date exceed the ordinary dividend level. In 2022,2023, MGIC can pay $122$92 million of ordinary dividends without OCI approval, before taking into consideration dividends paid in the preceding twelve months. In the nine months ended September 30, 2023, and 2022, MGIC paid $400 million in dividends in cash and investmentswe made dividend payments to the holding company. In November, MGIC paid an additionalcompany of $300 million and $400 million, dividend to the holding company.
We made dividend payments of $150 million to our holding company during the nine months ended September 30, 2021.respectively. Future dividend payments from MGIC to the holding company will continue to be determined in consultation with the board.board and after considering any updated estimates about our business.
Share repurchase programs
Repurchases of our common stock may be made from time to time on the open market including(including through 10b5-1 plans,plans) or through privately negotiated transactions. In the first nine months of 2022,ended September 30, 2023, we repurchased 21.714.7 million shares of common stock, using approximately $306.2$217.8 million of holding company resources. As of September 30, 20222023, we had $194$396 million of authorization remaining to repurchase our common stock through the end of 2023July 1, 2025 under a $500 million share repurchase program approved by our Board of Directors in October 2021.April, 2023. As of September 30, 2022,2023, we had approximately 299279 million shares of common stock outstanding. We repurchased 10.021.7 million shares during the nine months ended September 30, 2021.2022, using approximately $306.2 million of holding company resources.
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Dividends to shareholders
In Marchthe first and May 2022, we paid quarterly cash dividendssecond quarters of $0.08 per share which totaled $51.0 million, and in August 20222023, we paid quarterly cash dividends of $0.10 per share to shareholders which totaled $30.5$58.8 million, in the third quarter we paid quarterly cash dividends of $0.115 per share which totaled $32.9 million. On October 27, 2022, our26, 2023, the Board of Directors declared a quarterly cash dividend of $0.10to the holders of the company’s common stock of $0.115 per common share to shareholders of record on November 10, 2022, payable on November 23, 2022.9, 2023.
GSEs
We must comply with a GSE’s PMIERSPMIERs to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transactionaltransaction 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, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor amount). Based on our applicationinterpretation of the PMIERs as of September 30, 2022,2023, MGIC’s Available Assets totaled $5.9$6.0 billion, or $2.6$2.4 billion in excess of its Minimum Required Assets.
The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases.
If 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, 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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| | | | | |
è
| The GSEs may make the PMIERs more onerous in the future. The PMIERs provide that the GSEs may amend any provision of the PMIERs or impose additional requirements with an effective date specified by the GSEs. |
| è | 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;factors that determine Minimum Required Assets; however, the GSEs may amend any portion of the PMIERs at any time.time, including by imposing restrictions specific to our company. |
è
| The PMIERS may be changed in response to the final regulatory capital framework for the GSEs which was establishedpublished in February 2022. |
| è | 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. |
| è | 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. |
Our reinsurance transactions enable us to earn higher returns on our businessMinimum Required Assets than we would without them because they generally reduce the Minimum Required Assets, we must hold under PMIERs. However, reinsurance may not always be available to us; or available on similar terms, and our reinsurance subjects us to counterparty credit risk. Our access to reinsurance may be disrupted and the terms under which we are able to obtain reinsurance may be less attractive than in the past due to volatility stemming from circumstances such as higher interest rates, increased inflation, global events such as the Russia-Ukraine war,wars, and other factors. In 2022,Since 2020, there have been protracted periods of time during which execution of transactions for XOL reinsurance through the ILN market has been more challenging, with increased pricing, down-sized transactions, being down-sized, and generally fewer transactions being executed by mortgage insurers.
The calculated credit for XOL 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. Our existing reinsurance transactions are subject to periodic review by the GSEs and there is a risk we will not receive our current level of credit in future periods for the risk ceded under them. In addition, we may not receive the same level of credit under future 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 penalties.
GSE reform
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.
It is uncertain what role the GSEs, FHA and private capital, including private mortgage insurance, will play in the residential housing finance system in the future. The timing and impact on our business of any resulting changes is uncertain. Many of the proposed changes would require Congressional action to implement and it is difficult to estimate when Congressional action would be final and how long any associated phase-in period may last.
For additional information about the business practices of the GSEs, see our Risk Factor titled “Changes in the business practices of Fannie Mae and Freddie Mac ("the GSEs,GSEs"), federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.”
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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 instead requires an MPP. MGIC’s “policyholder position” includes its net worth or surplus and its contingency reserve.
At September 30, 2022,2023, MGIC’s risk-to-capital ratio was 9.49.6 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.7$3.8 billion above the required MPP of $2.0$2.1 billion. The calculation of our risk-to-capital ratio and MPP reflect full credit for the risk ceded under our reinsurance transactions. ReferIt 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 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, refer to our Risk Factorrisk factor titled “State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis” for more information about matters that could negatively impact our compliance with State Capital Requirements.
COVID-19 Pandemic
The COVID-19 pandemic materially impacted our 2020 financial results,NAIC established a Mortgage Guaranty Insurance Working Group to determine and make recommendations to the NAIC’s Financial Condition Committee as we reserved for losses associated withto what, if any, changes to make to the increased delinquency notices received. Through September 30, 2022, the vast majoritysolvency and other regulations relating to mortgage guaranty insurers. A draft of those delinquency notices have cured, resulting in a decrease in losses incurred as we recognized favorable loss development.
Foreclosures on mortgages purchased or securitizedrevised Mortgage Guaranty Insurance Model Act was adopted by the GSEs were suspended throughFinancial Condition Committee in July 31, 2021. Under a CFPB rule that was effective through December 31, 2021,2023 and by the Executive Committee and Plenary NAIC in August 2023. The revised Model Act includes requirements relating to, among other things: (i) capital and minimum capital requirements, and contingency reserves; (ii) restrictions on mortgage insurers’ investments in notes secured by mortgages; (iii) prudent underwriting standards and formal underwriting guidelines; (iv) the establishment of formal, internal “Mortgage Guaranty Quality Control Programs” with limited exceptions, servicers were requiredrespect to ensure that at least one temporary procedural safeguard had been met before referring 120-day delinquent loans for foreclosure. Within-force business; and (v) reinsurance and prohibitions on captive reinsurance arrangements. It is uncertain when the expirationrevised Model Act will be adopted in any jurisdiction. The provisions of the CFPB rule, itModel Act, if adopted in their final form, are not expected to have a material adverse effect on our business. It is likely that foreclosuresunknown whether any changes will be made by state legislatures prior to adoption, and claimsthe effect changes, if any, will increase, althoughhave on the timing and magnitude of such increase is uncertain.
For additional information about how the COVID-19 pandemic may impactmortgage guaranty insurance market generally, or on our future financial results, business, liquidity, and/or financial condition, see our Risk Factor titled “The COVID-19 pandemic may materially impact our future financial results, business, liquidity and/or financial condition.”business.
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Factors affecting our results
Our current and future business, results of operations and financial condition are impacted by macroeconomic conditions, such as rising interest rates, home prices, housing demand, level of employment, inflation, pandemics, restrictions and costs on mortgage credit, and other factors. For additional information on how on our business may be impacted see our Risk Factor titled “Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.”
As noted above, the COVID-19 pandemic may adversely affect our future business, results of operations, and financial condition.
The future effects of changing climatic conditions on our business isare uncertain. For information about possible effects, please refer to our Risk Factor titled “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.”
Russia's invasion of Ukraine has increased the already-elevated inflation rate, added more pressure to strained supply chains, and has increased volatility in the domestic and global financial markets. For information about the possible effects of this on our business please refer to our Risk Factor title “The Russia-Ukraine war and/or other global events may adversely affect the U.S. economy and our business.
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. 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 refinancings 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, the percentage of coverage on the insured 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. 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.
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•Premiums ceded, net of profit commission, under our QSR Transactions and premiums ceded under our XOL Transactions are primarily affected by the percentage of our IIF subject to our reinsurance transactions. The profit commission under our QSR Transactions also varies inversely with the level of ceded losses incurred on a “dollar for dollar” basis and can be eliminated at ceded loss levels higher than what we have experienced on our QSR Transactions. As a result, lower levels of losses incurred result in a higher profit commission and less benefit from ceded losses incurred; higher levels of losses incurred result in more benefit from ceded losses incurred and a lower profit commission (or for certain levels of accident year loss ratios, its elimination). (See Note 4 - “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 the factors discussed immediately above.
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 net premiums written, 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, and dividends.
Losses incurred
Losses incurred are the current expense that reflects claim payments, costs of settling claims, and changes in our estimates of payments that will ultimately be made as a result of delinquencies on insured loans. As explained under “Critical Accounting Estimates” in our 20212022 10-K MD&A, except in the case of a premium deficiency reserve, we recognize an estimate of this expense only for delinquent loans. Prior to the COVID-19 pandemic, 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. The state of the economy, local housing markets and various other factors, including the COVID-19 pandemic,pandemics, may result in delinquencies not following the typical pattern. Losses incurred are generally affected by:
MGIC Investment Corporation - Q3 2022 | 38
•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 on delinquent loans tending to increase incurred losses.
•The percentage of coverage on insured loans, with deeper average coverage on delinquent loans tending to increase losses incurred.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 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 transactions. See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance transactions.
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 of NIW). See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of ceding commission on our QSR Transactions.
MGIC Investment Corporation - Q3 2023 | 40
Interest expense
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.
Gains (losses) on investments and other financial instruments
•Fixed income securities. Investment gains and losses reflect 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 and any impairments on securities we intend to sell prior to recovery of its amortized cost basis recognized in earnings.basis. 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. Investment gains and losses are accounted for as a function of the periodic change in fair value.
•Financial instruments. Investment gains and losses on the embedded derivative on our Home Re Transactions reflect the present value impact of the variation in investment income on assets on the insurance-linked notes held by the reinsurance trusts and the contractual reference rate used to calculate the reinsurance premiums we pay.estimate we will pay over the estimated remaining life.
Loss 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. 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, and the write off of unamortized debt issuance costs on the extinguished portion of the debt.
Mortgage 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 incurred 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. The state of the economy, local housing markets and various other factors including the COVID-19 pandemic, may result in delinquencies not following the typical pattern.
Cybersecurity
We are increasingly reliantAs part of our business, we maintain large amounts of confidential and proprietary information, including personal information of consumers and employees, on our servers and those of cloud computing services. Federal and state laws designed to promote the efficientprotection of such information require businesses that collect or maintain personal information to adopt information security programs, and uninterrupted operationto notify individuals, and in some jurisdictions, regulatory authorities, of complex information technology systems.security breaches involving personally identifiable information. All information technology systems are potentially vulnerable to damage or interruption from a variety of sources, including by third-party cyber attacks, includingsuch as those involving ransomware. The Company discovers vulnerabilities and experiences malicious attacks and otherregularly blocks a high volume of attempts to gain unauthorized access to its systems on a regular basis.systems. Globally, attacks are expected to continue accelerating in both frequency and sophistication with increasing use by actors of tools and techniques that willmay hinder the Company’s ability to identify, investigate and recover from incidents. Such attacks may also increase as a result of retaliation by Russia in response to
MGIC Investment Corporation - Q3 2022 | 39
actions taken bythreat actors against the U.S. and other countries in connection with Russia's military invasion of Ukraine. In response to the COVID-19 pandemic, thewars and other global events. The Company transitioned tooperates under a primarily virtualhybrid workforce model and is now operating under a hybrid model. Virtual and hybrid workforce modelssuch model may be more vulnerable to security breaches.
While we have information security policies and systems in place to secure our information technology systems and to prevent unauthorized access to or disclosure of sensitive information, there can be no assurance with respect to our systems and those of our third-party vendors that unauthorized access to the systems or disclosure of the sensitive information, either through the actions of third parties or employees, will not occur.
MGIC Investment Corporation - Q3 20222023 | 4041
Explanation and reconciliation of our use of non-GAAP financial measures
Non-GAAP financial measures
We believe that use of the Non-GAAP financial 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 and losses on debt extinguishment, and infrequent or unusual non-operating items where applicable.
Adjusted net operating income (loss) is defined as GAAP net income (loss) excluding the after-tax effects of net realized investment gains (losses), gain and losses on debt extinguishment and infrequent or unusual non-operating items where applicable. The amounts of adjustments to components of pre-tax operating income (loss) are tax effected using a federal statutory tax rate of 21%.
Adjusted net operating income (loss) per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net operating income (loss) after making adjustments for interest expense on convertible debt, whenever the impact is dilutive by (ii) diluted weighted average common shares outstanding, which reflects share dilution from unvested restricted stock units and from convertible debt when dilutive under the “if-converted” method.
Although adjusted pre-tax operating income (loss) and adjusted net operating income (loss) exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items represent items that are: (1) not viewed as part of the operating performance of our primary activities; or (2) impacted by both discretionary and other economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, along with the reasons for their treatment, are described below. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these adjustments. Other companies may calculate these measures differently. Therefore, their measures may not be comparable to those used by us.
(1)Net realized investment gains (losses). The recognition of net realized investment gains or losses can vary significantly across periods as the timing of individual securities sales is highly discretionary and is influenced by such factors as market opportunities, our tax and capital profile, and overall market cycles.
(2)Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve
our debt profile, and/or reduce potential dilution from our outstanding convertible debt.
(3)Infrequent or unusual non-operating items. Items that are non-recurring in nature and are not part of our primary operating activities.
MGIC Investment Corporation - Q3 2023 | 42
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-GAAP reconciliations | |
| |
| Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income | |
| | Three Months Ended September 30, | |
| | 2023 | | 2022 | |
| (In thousands, except per share amounts) | | Pre-tax | | Tax effect | | Net
(after-tax) | | Pre-tax | | Tax effect | | Net
(after-tax) | |
| Income before tax / Net income | | $ | 234,396 | | | 51,552 | | | $ | 182,844 | | | $ | 314,267 | | | 64,642 | | | $ | 249,625 | | |
| Adjustments: | | | | | | | | | | | | | |
| Loss on debt extinguishment | | — | | | — | | | — | | | 11,632 | | | 2,443 | | | 9,189 | | |
| Net realized investment (gains) losses | | 237 | | | 50 | | | 187 | | | 6,854 | | | 1,439 | | | 5,415 | | |
| Adjusted pre-tax operating income / Adjusted net operating income | | $ | 234,633 | | | $ | 51,602 | | | $ | 183,031 | | | $ | 332,753 | | | $ | 68,524 | | | $ | 264,229 | | |
| | | | | | | | | | | | | |
| Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share | |
| Weighted average diluted shares outstanding | | | | | | 285,600 | | | | | | | 307,194 | | |
| | | | | | | | | | | | | |
| Net income per diluted share | | | | | | $ | 0.64 | | | | | | | $ | 0.81 | | |
| Loss on debt extinguishment | | | | | | — | | | | | | | 0.03 | | |
| Net realized investment (gains) losses | | | | | | — | | | | | | | 0.02 | | |
| Adjusted net operating income per diluted share | | | | | | $ | 0.64 | | | | | | | $ | 0.86 | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income | |
| | Nine Months Ended September 30, | |
| | 2023 | | 2022 | |
| (In thousands, except per share amounts) | | Pre-tax | | Tax effect | | Net
(after-tax) | | Pre-tax | | Tax effect | | Net
(after-tax) | |
| Income before tax / Net income | | $ | 672,382 | | | $ | 143,937 | | | $ | 528,445 | | | $ | 849,597 | | | $ | 175,691 | | | $ | 673,906 | | |
| Adjustments: | | | | | | | | | | | | | |
| Loss on debt extinguishment | | — | | | — | | | — | | | 40,130 | | | 8,427 | | | 31,703 | | |
| Net realized investment (gains) losses | | 10,619 | | | 2,230 | | | 8,389 | | | 7,435 | | | 1,561 | | | 5,874 | | |
| Adjusted pre-tax operating income / Adjusted net operating income | | $ | 683,001 | | | $ | 146,167 | | | $ | 536,834 | | | $ | 897,162 | | | $ | 185,679 | | | $ | 711,483 | | |
| | | | | | | | | | | | | |
| Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share | |
| | | | | | | | | | | | | |
| Weighted average diluted shares outstanding | | | | | | 289,924 | | | | | | | 315,029 | | |
| | | | | | | | | | | | | |
| Net income per diluted share | | | | | | $ | 1.83 | | | | | | | $ | 2.15 | | |
| Loss on debt extinguishment | | | | | | — | | | | | | | 0.10 | | |
| Net realized investment (gains) losses | | | | | | 0.03 | | | | | | | 0.02 | | |
| Adjusted net operating income per diluted share | | | | | | $ | 1.86 | | | | | | | $ | 2.26 | | (1) | |
| (1) Does not foot due to rounding. | | | | | | | | | | | | | |
MGIC Investment Corporation - Q3 20222023 | 41
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-GAAP reconciliations |
|
| Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income |
| | Three Months Ended September 30, |
| | 2022 | | 2021 |
| (In thousands, except per share amounts) | | Pre-tax | | Tax effect | | Net
(after-tax) | | Pre-tax | | Tax effect | | Net
(after-tax) |
| Income before tax / Net income | | $ | 314,267 | | | 64,642 | | | $ | 249,625 | | | $ | 199,732 | | | 41,755 | | | $ | 157,977 | |
| Adjustments: | | | | | | | | | | | | |
| Loss on debt extinguishment | | 11,632 | | | 2,443 | | | 9,189 | | | — | | | — | | | — | |
| Net realized investment (gains) losses | | 6,854 | | | 1,439 | | | 5,415 | | | (1,115) | | | (234) | | | (881) | |
| Adjusted pre-tax operating income / Adjusted net operating income | | $ | 332,753 | | | $ | 68,524 | | | $ | 264,229 | | | $ | 198,617 | | | $ | 41,521 | | | $ | 157,096 | |
| | | | | | | | | | | | |
| Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share |
| Weighted average diluted shares outstanding | | | | | | 307,194 | | | | | | | 353,557 | |
| | | | | | | | | | | | |
| Net income per diluted share | | | | | | $ | 0.81 | | | | | | | $ | 0.46 | |
| Loss on debt extinguishment | | | | | | 0.03 | | | | | | | — | |
| Net realized investment (gains) losses | | | | | | 0.02 | | | | | | | — | |
| Adjusted net operating income per diluted share | | | | | | $ | 0.86 | | | | | | | $ | 0.46 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
| (In thousands, except per share amounts) | | Pre-tax | | Tax effect | | Net
(after-tax) | | Pre-tax | | Tax effect | | Net
(after-tax) |
| Income before tax / Net income | | $ | 849,597 | | | $ | 175,691 | | | $ | 673,906 | | | $ | 583,217 | | | $ | 122,168 | | | $ | 461,049 | |
| Adjustments: | | | | | | | | | | | | |
| Loss on debt extinguishment | | 40,130 | | | 8,427 | | | 31,703 | | | — | | | — | | | — | |
| Net realized investment (gains) losses | | 7,435 | | | 1,561 | | | 5,874 | | | (5,665) | | | (1,190) | | | (4,475) | |
| Adjusted pre-tax operating income / Adjusted net operating income | | $ | 897,162 | | | $ | 185,679 | | | $ | 711,483 | | | $ | 577,552 | | | $ | 120,978 | | | $ | 456,574 | |
| | | | | | | | | | | | |
| Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share |
| | | | | | | | | | | | |
| Weighted average diluted shares outstanding | | | | | | 315,029 | | | | | | | 355,481 | |
| | | | | | | | | | | | |
| Net income per diluted share | | | | | | $ | 2.15 | | | | | | | $ | 1.33 | |
| Loss on debt extinguishment | | | | | | 0.10 | | | | | | | — | |
| Net realized investment (gains) losses | | | | | | 0.02 | | | | | | | (0.01) | |
| Adjusted net operating income per diluted share | | | | | | $ | 2.26 | | (1) | | | | | | $ | 1.32 | |
| (1) Does not foot due to rounding. | | | | | | | | | | | | |
MGIC Investment Corporation - Q3 2022 | 4243
Mortgage Insurance Portfolio
Mortgage originations
The total amount of mortgage originations is generally influenced by the level of home sales, interest rates, the percentage of homes purchased for cash, and the level of refinance activity. PMI market share of total mortgage originations is influenced by the mix of purchase and refinance originations. PMI market share is also impacted by the market share of total originations of the FHA, VA, USDA, and other alternatives to mortgage insurance, including GSE programs that may reduce or eliminate the demand for mortgage insurance.
NIW for the third quarter of 20222023 was $19.6$14.6 billion (Q3 2021: $28.72022: $19.6 billion) and for the nine months ended was $63.5$35.2 billion (YTD 2021: $93.12022: $63.5 billion). TheWe expect the decrease is reflective of a smaller origination market and our market position in NIW, whenthe current year compared with the same period last year, is primarily due to a decrease in the origination market.
prior year. For the remainder of the year, we expect a smaller origination market to drive a decrease in our NIW compared to 2021.2022.
The percentage of our NIW with DTI ratios over 45% and LTVs over 95% will fluctuate based on the mortgage conditions that could include the percentage of NIW from purchase transactions, changes in home prices, changes in mortgage rates, and GSE activities.
The following tables present characteristics of our primary NIW for the three and nine months ended September 30, 20222023 and 2021.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Primary NIW by FICO score | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (% of primary NIW) | | 2023 | | 2022 | | 2023 | | 2022 |
| 760 and greater | | 50.2 | % | | 42.3 | % | | 49.2 | % | | 42.2 | % |
| 740 - 759 | | 18.1 | % | | 17.9 | % | | 18.4 | % | | 18.8 | % |
| 720 - 739 | | 13.4 | % | | 15.0 | % | | 13.5 | % | | 15.0 | % |
| 700 - 719 | | 8.8 | % | | 11.4 | % | | 9.2 | % | | 11.1 | % |
| 680 - 699 | | 5.1 | % | | 7.9 | % | | 5.3 | % | | 7.5 | % |
| 660 - 679 | | 2.9 | % | | 3.4 | % | | 2.9 | % | | 3.4 | % |
| 640 - 659 | | 0.9 | % | | 1.4 | % | | 1.0 | % | | 1.3 | % |
| 639 and less | | 0.6 | % | | 0.7 | % | | 0.5 | % | | 0.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Primary NIW by loan-to-value | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (% of primary NIW) | | 2023 | | 2022 | | 2023 | | 2022 |
| 95.01% and above | | 12.0 | % | | 11.4 | % | | 11.9 | % | | 12.5 | % |
| 90.01% to 95.00% | | 44.1 | % | | 50.0 | % | | 45.8 | % | | 49.7 | % |
| 85.01% to 90.00% | | 32.6 | % | | 28.8 | % | | 31.1 | % | | 27.7 | % |
| 80.01% to 85.00% | | 11.3 | % | | 9.8 | % | | 11.2 | % | | 10.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Primary NIW by debt-to-income ratio | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (% of primary NIW) | 2023 | | 2022 | | 2023 | | 2022 |
| 45.01% and above | 28.2 | % | | 23.6 | % | | 25.3 | % | | 20.7 | % |
| 38.01% to 45.00% | 32.5 | % | | 32.7 | % | | 32.3 | % | | 32.1 | % |
| 38.00% and below | 39.3 | % | | 43.7 | % | | 42.4 | % | | 47.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Primary NIW by policy payment type | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (% of primary NIW) | | 2023 | | 2022 | | 2023 | | 2022 |
| Monthly premiums | | 95.8 | % | | 96.9 | % | | 96.4 | % | | 95.5 | % |
| Single premiums | | 4.2 | % | | 3.0 | % | | 3.6 | % | | 4.4 | % |
| Annual premiums | | 0.0 | % | | 0.1 | % | | 0.0 | % | | 0.1 | % |
| | | | | | | | |
| Primary NIW by type of mortgage | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (% of primary NIW) | 2023 | | 2022 | | 2023 | | 2022 |
| Purchases | 99.0 | % | | 98.8 | % | | 98.4 | % | | 97.2 | % |
| Refinances | 1.0 | % | | 1.2 | % | | 1.6 | % | | 2.8 | % |
MGIC Investment Corporation - Q3 2023 | 44
We consider a variety of loan characteristics when assessing the risk of a loan. The percentagefollowing tables provides information about loans with one or more of the following characteristics associated with our NIWNIW: LTV ratios greater than 95%, mortgages with LTV’s over 95% increased for the nine months ended September 30, 2022 when comparedborrowers having FICO scores below 680, including those with the same period last year. The percentageborrowers having FICO scores of our NIW620-679, and mortgages with borrowers having DTI ratios overgreater than 45% increased for, each attribute as determined at the three and nine months ended September 30, 2022 when compared with the same period last year. The increases were primarily driven by higher home price and interest rates, and a higher percentagetime of NIW from purchase transactions.loan origination.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Primary NIW by FICO score (1) | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (% of primary NIW) | | 2022 | | 2021 | | 2022 | | 2021 |
| 760 and greater | | 42.3 | % | | 46.8 | % | | 42.2 | % | | 45.7 | % |
| 740 - 759 | | 17.9 | % | | 17.4 | % | | 18.8 | % | | 17.5 | % |
| 720 - 739 | | 15.0 | % | | 13.3 | % | | 15.0 | % | | 13.7 | % |
| 700 - 719 | | 11.4 | % | | 10.4 | % | | 11.1 | % | | 11.1 | % |
| 680 - 699 | | 7.9 | % | | 7.1 | % | | 7.5 | % | | 7.3 | % |
| 660 - 679 | | 3.4 | % | | 2.9 | % | | 3.4 | % | | 2.6 | % |
| 640 - 659 | | 1.4 | % | | 1.5 | % | | 1.3 | % | | 1.6 | % |
| 639 and less | | 0.7 | % | | 0.6 | % | | 0.7 | % | | 0.5 | % |
(1) We are aware of an issue of inaccurate reporting of FICO credit scores by a third-party occurring in late Q1 2022 and into the beginning of Q2 2022. We do not expect it to have a material impact on our business.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Primary NIW by loan-to-value | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (% of primary NIW) | | 2022 | | 2021 | | 2022 | | 2021 |
| 95.01% and above | | 11.4 | % | | 13.0 | % | | 12.5 | % | | 10.9 | % |
| 90.01% to 95.00% | | 50.0 | % | | 45.8 | % | | 49.7 | % | | 40.9 | % |
| 85.01% to 90.00% | | 28.8 | % | | 29.0 | % | | 27.7 | % | | 30.9 | % |
| 80.01% to 85.00% | | 9.8 | % | | 12.2 | % | | 10.1 | % | | 17.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Primary NIW by debt-to-income ratio | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (% of primary NIW) | | 2022 | | 2021 | | 2022 | | 2021 |
| 45.01% and above | | 23.6 | % | | 14.7 | % | | 20.7 | % | | 13.1 | % |
| 38.01% to 45.00% | | 32.7 | % | | 29.4 | % | | 32.1 | % | | 29.6 | % |
| 38.00% and below | | 43.7 | % | | 56.0 | % | | 47.2 | % | | 57.3 | % |
| | | | | | | | |
| Primary NIW by policy payment type | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (% of primary NIW) | | 2022 | | 2021 | | 2022 | | 2021 |
| Monthly premiums | | 96.9 | % | | 92.3 | % | | 95.5 | % | | 92.1 | % |
| Single premiums | | 3.0 | % | | 7.6 | % | | 4.4 | % | | 7.9 | % |
| Annual premiums | | 0.1 | % | | 0.1 | % | | 0.1 | % | | 0.0 | % |
| | | | | | | | |
| Primary NIW by type of mortgage | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (% of primary NIW) | 2022 | | 2021 | | 2022 | | 2021 |
| Purchases | 98.8 | % | | 89.7 | % | | 97.2 | % | | 76.0 | % |
| Refinances | 1.2 | % | | 10.3 | % | | 2.8 | % | | 24.0 | % |
| | | | | | | | | | | | | | | | | | | | |
| Primary NIW by number of attributes discussed above |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (% of primary NIW) | | 2023 | 2022 | | 2023 | 2022 |
| One | | 35.1 | % | 32.8 | % | | 33.3 | % | 31.4 | % |
| Two or more | | 4.6 | % | 3.8 | % | | 4.1 | % | 3.6 | % |
Insurance and risk in force
The amount of our IIF and RIF is impacted by the amount of NIW and cancellations of primary IIF during the period. Cancellation activity is primarily due toresults from loan payoff and refinancing activity, but is also impacted by rescissions, cancellations due to claim payment, and policies cancelled whenor borrowers achieveachieving the required amount of home equity. Refinancing activity has historically been affected by the level of mortgage interest rates and the level ofequity through loan amortization, principal curtailment and/or home price appreciation. Claim resolutions also impact cancellations but to a much lesser extent. Cancellations generally move inversely to the change in the direction of interest rates, although they generally lag a change in direction.
MGIC Investment Corporation - Q3 2022 | 43
Annual Persistency
Our annual persistency was 75.7%86.3% at September 30, 20222023 compared to 62.6%82.2% at December 31, 20212022 and 59.5%78.3% at September 30, 2021.2022. Since 2000,2018, our year-endannual persistency ranged from a high of 84.7%86.3% at December 31, 2009September 30, 2023 to a low of 47.1%60.7% at DecemberMarch 31, 2003.2021. Our persistency rate is primarily affected by the level of current mortgage interest rates compared to the mortgage coupon rates on our IIF, which affects the vulnerability of the IIF to refinancing; and the current amount of equity that borrowers have in the homes underlying our IIF.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| IIF and RIF | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In billions) | | 2022 | | 2021 | | 2022 | | 2021 |
| NIW | | $ | 19.6 | | | $ | 28.7 | | | $ | 63.5 | | | $ | 93.1 | |
| Cancellations | | (12.8) | | | (22.3) | | | (44.3) | | | (71.3) | |
| Increase in primary IIF | | $ | 6.8 | | | $ | 6.4 | | | $ | 19.2 | | | $ | 21.8 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Direct primary IIF as of September 30, | | $ | 293.6 | | | $ | 268.4 | | | $ | 293.6 | | | $ | 268.4 | |
| Direct primary RIF as of September 30, | | $ | 75.7 | | | $ | 67.2 | | | $ | 75.7 | | | $ | 67.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| IIF and RIF | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In billions) | | 2023 | | 2022 | | 2023 | | 2022 |
| NIW | | $ | 14.6 | | | $ | 19.6 | | | $ | 35.2 | | | $ | 63.5 | |
| Cancellations | | (12.8) | | | (12.8) | | | (36.2) | | | (44.3) | |
| Increase (decrease) in primary IIF | | $ | 1.8 | | | $ | 6.8 | | | $ | (1.0) | | | $ | 19.2 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Direct primary IIF as of September 30, | | $ | 294.3 | | | $ | 293.6 | | | $ | 294.3 | | | $ | 293.6 | |
| Direct primary RIF as of September 30, | | $ | 77.1 | | | $ | 75.7 | | | $ | 77.1 | | | $ | 75.7 | |
Credit profile of our primary RIF
Our 2009 and later books possess significantly improved risk characteristics when compared to our 2005-2008 books. Modification and refinance programs, such as HAMP and HARP, which expired at the end of 2016 and 2018, respectively, but have been replaced by other GSE modification programs, make outstanding loans more affordable to borrowers with the goal of reducing the number of foreclosures. As of September 30, 2022,2023, loans associated with modification programs accounted for 4.4%3.7% of our total RIF, compared to 5.4%4.2% at December 31, 2021. As2022. Loans associated with 87.4% of all our modifications were current as of September 30, 2022, 87.2% of loans associated with modifications programs were current.2023.
MGIC Investment Corporation - Q3 2023 | 45
The following table sets forth certain statistics associated with our primary IIF and RIF as of September 30, 2022:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Primary insurance in force and risk in force by policy year |
| (in millions) | Insurance in Force | | Risk In Force | | Weighted Avg. Interest Rate | | Delinquency Rate | | Cede Rate % (1) | | % of Original Remaining |
| Policy Year | Total | % of Total | | Total | % of Total | | | | |
| 2004 and prior | $ | 1,537 | | 0.5 | % | | $ | 428 | | 0.6 | % | | 7.3 | % | | 12.6 | % | | 0.4 | % | | NM |
| 2005-2008 | 12,120 | | 4.1 | % | | 3,216 | | 4.2 | % | | 6.9 | % | | 10.9 | % | | 3.6 | % | | 5.0 | % |
| 2009-2015 | 7,135 | | 2.4 | % | | 1,941 | | 2.6 | % | | 4.3 | % | | 4.5 | % | | 14.2 | % | | 4.0 | % |
| 2016 | 7,168 | | 2.4 | % | | 1,919 | | 2.5 | % | | 3.9 | % | | 3.1 | % | | 13.0 | % | | 14.9 | % |
| 2017 | 8,301 | | 2.8 | % | | 2,177 | | 2.9 | % | | 4.2 | % | | 3.7 | % | | 0.0 % | | 16.8 | % |
| 2018 | 8,510 | | 3.0 | % | | 2,178 | | 2.9 | % | | 4.8 | % | | 4.3 | % | | 0.9 | % | | 17.0 | % |
| 2019 | 18,226 | | 6.2 | % | | 4,665 | | 6.2 | % | | 4.1 | % | | 2.1 | % | | 27.5 | % | | 28.0 | % |
| 2020 | 68,623 | | 23.4 | % | | 17,069 | | 22.5 | % | | 3.1 | % | | 0.9 | % | | 28.5 | % | | 60.0 | % |
| 2021 | 103,282 | | 35.2 | % | | 26,528 | | 35.0 | % | | 3.1 | % | | 0.7 | % | | 29.2 | % | | 87.6 | % |
| 2022 | 58,708 | | 20.0 | % | | 15,621 | | 20.6 | % | | 4.6 | % | | 0.2 | % | | 30.4 | % | | 97.3 | % |
| Total | $ | 293,610 | | 100.0 | % | | $ | 75,742 | | 100.0 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Primary insurance in force and risk in force by policy year |
| (in billions) | Insurance in Force (1) | | Risk In Force (1) | | Weighted Avg. Interest Rate | | Delinquency Rate | | Cede Rate % (2) | | % of Original Remaining |
| Policy Year | Total | % of Total | | Total | % of Total | | | | |
| 2004 and prior | $ | 1.3 | | 0.4 | % | | $ | 0.4 | | 0.5 | % | | 7.4 | % | | 12.4 | % | | — | % | | NM |
| 2005-2008 | 10.4 | | 3.5 | % | | 2.8 | | 3.6 | % | | 7.0 | % | | 10.5 | % | | — | % | | 4.3 | % |
| 2009-2015 | 4.6 | | 1.6 | % | | 1.2 | | 1.6 | % | | 4.3 | % | | 4.9 | % | | — | % | | 2.6 | % |
| 2016 | 5.0 | | 1.7 | % | | 1.3 | | 1.7 | % | | 3.9 | % | | 3.1 | % | | — | % | | 10.3 | % |
| 2017 | 6.7 | | 2.3 | % | | 1.8 | | 2.3 | % | | 4.3 | % | | 3.5 | % | | — | % | | 13.5 | % |
| 2018 | 7.0 | | 2.4 | % | | 1.8 | | 2.4 | % | | 4.8 | % | | 4.2 | % | | — | % | | 13.9 | % |
| 2019 | 14.9 | | 5.1 | % | | 3.9 | | 5.0 | % | | 4.1 | % | | 2.0 | % | | 1.6 | % | | 22.9 | % |
| 2020 | 53.8 | | 18.2 | % | | 13.9 | | 18.0 | % | | 3.2 | % | | 1.0 | % | | 29.5 | % | | 47.1 | % |
| 2021 | 90.1 | | 30.6 | % | | 23.6 | | 30.6 | % | | 3.1 | % | | 1.2 | % | | 29.6 | % | | 76.4 | % |
| 2022 | 67.4 | | 22.9 | % | | 17.9 | | 23.2 | % | | 4.9 | % | | 1.0 | % | | 30.5 | % | | 90.8 | % |
| 2023 | 33.1 | | 11.3 | % | | 8.6 | | 11.1 | % | | 6.4 | % | | 0.1 | % | | 26.7 | % | | 97.0 | % |
| Total | $ | 294.3 | | | | $ | 77.1 | | | | | | | | | | |
(1)May not foot due to rounding
(2)Cede Rate % is calculated as the risk in force ceded to our QSR transactions divided by the total risk in force.
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 PMI and customer demands, MGIC may write pool risk in the future. Our direct pool risk in force was $281$259 million ($197187 million on pool policies with aggregate loss limits and $84$72 million on pool policies without aggregate loss limits) at September 30, 20222023 compared to $305$276 million ($206196 million on pool policies with aggregate loss limits and $99$80 million on pool policies without aggregate loss limits) at December 31, 2021.2022. 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 delinquencies under the pool would be removed from our delinquency inventory.
In connection with the GSEs' CRT programs, an insurance subsidiary of MGIC provides insurance and reinsurance covering portions of the credit risk related to certain reference pools of mortgages acquired by the GSEs. Our RIF, as reported to us, related to these programs was approximately $267$317 million and $321$226 million as of September 30, 20222023 and December 31, 2021,2022, respectively.
MGIC Investment Corporation - Q3 20222023 | 4446
Consolidated Results of Operations
The following section of the MD&A provides a comparative discussion of MGIC Investment Corporation’s Consolidated Results of Operations for the three and nine months ended September 30, 20222023 and 2021.2022.
Revenues
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | (in millions) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change | (in millions) | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| Net premiums written | Net premiums written | | $ | 242.3 | | | $ | 247.6 | | | (2) | | | $ | 729.3 | | | $ | 730.8 | | | — | | Net premiums written | | $ | 234.5 | | | $ | 242.3 | | | (3) | | | $ | 695.9 | | | $ | 729.3 | | | (5) | |
| | Net premiums earned | Net premiums earned | | $ | 252.1 | | | $ | 254.8 | | | (1) | | | $ | 763.0 | | | $ | 761.4 | | | — | | Net premiums earned | | $ | 241.3 | | | $ | 252.1 | | | (4) | | | $ | 726.1 | | | $ | 763.0 | | | (5) | |
| Investment income, net of expenses | Investment income, net of expenses | | 42.5 | | | 38.3 | | | 11 | | | 121.1 | | | 117.3 | | | 3 | | Investment income, net of expenses | | 55.4 | | | 42.5 | | | 30 | | | 156.9 | | | 121.1 | | | 30 | |
| Net gains (losses) on investments and other financial instruments | Net gains (losses) on investments and other financial instruments | | (3.3) | | | 0.6 | | | N/M | | (8.8) | | | 5.8 | | | N/M | Net gains (losses) on investments and other financial instruments | | (0.7) | | | (3.3) | | | (79) | | | (13.4) | | | (8.8) | | | 52 | |
| Other revenue | Other revenue | | 1.4 | | | 2.0 | | | (30) | | | 5.1 | | | 7.1 | | | (28) | | Other revenue | | 0.5 | | | 1.4 | | | N/M | | 1.5 | | | 5.1 | | | N/M |
Total revenues | Total revenues | | $ | 292.8 | | | $ | 295.7 | | | (1) | | | $ | 880.5 | | | $ | 891.6 | | | (1) | | Total revenues | | $ | 296.5 | | | $ | 292.8 | | | 1 | | | $ | 871.1 | | | $ | 880.5 | | | (1) | |
(1) May not foot due to rounding | | (1) May not foot due to rounding | |
Net premiums written and earned
Comparative quarterly and year to date results
Premiums earned for the three and nine months ended September 30, 20222023 were $241.3 million and $726.1 million, respectively, compared with $252.1 million and $763.0 million, respectively, compared with $254.8 million and $761.4 million, respectively, for the same comparable periodperiods last year. Net premiums written for the three and nine months ended September 30, 20222023 were $234.5 million and $695.9 million, respectively, compared with $242.3 million and $729.3 million, respectively, compared with $247.6 million and $730.8 million, respectively for the same comparable period last year.
The decrease in premiums written and earned for the quarterthree and nine months ended September 30, 20222023, compared with the prior year period is primarily due to an increase in ceded premiums andthat was the result of a decrease in premium yield. Premiums written andthe profit commission earned for the nine months ended September 30, 2022 were generally flat when compared to the same period last year.on our QSR Transactions
See “Overview - Factors Affecting Our Results” above for additional factors that influenced the amount of net premiums written and earned during the periods. See “Reinsurance Transactions” below for discussion of our ceded premiums written and earned.
Premium yields
Net premium yield is net premiums earned divided by average IIF during the period and is influenced by a number of key drivers.period. The following table presents the key drivers of our net premium yield for each of the three and nine months ended September 30, 20222023 and September 30, 2021.2022.
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| Premium Yield | | | |
| | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in basis points) | | 2022 | 2021 | | 2022 | 2021 |
| In force portfolio yield | (1) | 39.0 | | 41.8 | | | 39.3 | | 42.7 | |
| Premium refunds | | 0.3 | | (1.0) | | | 0.1 | | (0.7) | |
| Accelerated earnings on single premium policies | | 0.5 | | 2.5 | | | 1.1 | | 3.3 | |
| Total direct premium yield | | 39.8 | | 43.3 | | | 40.5 | | 45.3 | |
| Ceded premiums earned, net of profit commission and assumed premiums | (2) | (5.1) | | (4.9) | | | (4.7) | | (5.9) | |
| Net premium yield | | 34.7 | | 38.4 | | | 35.8 | | 39.4 | |
| | | | | | | | | | | | | | | | | | | | |
| Premium Yield | | | |
| | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in basis points) | | 2023 | 2022 | | 2023 | 2022 |
| In force portfolio yield | (1) | 38.6 | | 39.0 | | | 38.4 | | 39.3 | |
| Premium refunds | | 0.2 | | 0.3 | | | — | | 0.1 | |
| Accelerated earnings on single premium policies | | 0.4 | | 0.5 | | | 0.3 | | 1.1 | |
| Total direct premium yield | | 39.2 | | 39.8 | | | 38.7 | | 40.5 | |
| Ceded premiums earned, net of profit commission and assumed premiums | (2) | (6.3) | | (5.1) | | | (5.9) | | (4.7) | |
| Net premium yield | | 32.9 | | 34.7 | | | 32.8 | | 35.8 | |
(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 impact on the net premium yield was 0.4 bps for the nine months ended September 30, 2023 compared to 0.3 bps for the nine months ended September 30, 2022 compared to 0.4 bps for the nine months ended September 30, 2021.2022.
MGIC Investment Corporation - Q3 2022 | 45
Changes in the net premium yield for the three and nine months ended September 30, 20222023 compared to the three and nine months ended September 30, 20212022 reflect the following:
| | | | | |
| In force Portfolio Yield |
è
| A larger percentage of our IIF from book years with lower premium rates due to a decline in premium rates in recent years resulting from pricing competition, an in force book with lower risk characteristics, lower required capital, the availability of reinsurance, and certain policies undergoing premium rate resets on their ten-year anniversaries. |
MGIC Investment Corporation - Q3 2023 | 47
| | | | | |
| Premium Refunds |
è
| Premium refunds are primarily driven by claim activity and our estimate of refundable premiums on our delinquency inventory. The low level of claims received have resulted in a lower level of premium refunds. Our estimate of refundable premium on our delinquency inventory fluctuates with changes in our delinquency inventory and our estimate of the number of loans in our delinquency inventory that will result in a claim. |
| Accelerated earnings on single premium policies |
è
| The lower level of refinance transactions have reduced the benefit from accelerated earned premium from cancellation of single premium policies prior to their estimated policy life. |
| Ceded premiums earned, net of profit commission and assumed premiums |
è
| Ceded premiums earned, net of profit commission adversely impact our net premium yield. Ceded premiums earned, net of profit commission, are associated with the QSR Transactions and the XOL Transactions. Assumed premiums consists primarily of premiums from GSE CRT programs. See “Reinsurance Transactions“ below for further discussion on our reinsurance transactions. |
As 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,” the private mortgage insurance industry is highly competitive and premium rates have declined over the past several years. WeWith the smaller origination market, higher persistency rate, and continued high credit quality for NIW expected in 2023, we expect our in force portfolio premium yield to continue to decline as older insurance policies with higher premium rates run off and are replaced with new insurance policies which generally have lower premium rates.remain relatively flat during 2023.
Reinsurance Transactions
Quota share reinsurance
Our quota share reinsurance affects various lines of our statements of operations and therefore we believe it should be analyzed by reviewing its total effect on our pre-tax income, described as follows.
| | | | | | | | |
| è | | We cede a fixed percentage of premiums on insurance covered by the agreements. |
| 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 incurred on a “dollar for dollar” basis and can be eliminated at loss levels higher than what we are currently experiencing.have experienced. As a result, lower levels of ceded losses incurred result in less benefit from ceded losses incurred and a higher profit commission; higher levels of ceded losses incurred result in more benefit from ceded losses incurred and a lower profit commission (or for certain levels of accident year loss ratios, its elimination). |
| è | | 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). |
| è | | We cede a fixed percentage of losses incurred on insurance covered by the agreements. |
The following table provides information related to our QSR Transactions for each of the three and nine months ended and as of September 30, 20222023 and September 30, 2021.2022.
| | Quota Share Reinsurance | Quota Share Reinsurance | Quota Share Reinsurance |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (Dollars in thousands) | (Dollars in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | (Dollars in thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
| | Ceded premiums written and earned, net of profit commission | Ceded premiums written and earned, net of profit commission | | $19,348 | | $22,911 | | $56,721 | | $90,284 | Ceded premiums written and earned, net of profit commission | | $32,693 | | $19,348 | | $90,012 | | $56,721 |
| % of direct premiums written | % of direct premiums written | | 7% | | 8% | | 7% | | 11% | % of direct premiums written | | 12% | | 7% | | 11% | | 7% |
| % of direct premiums earned | % of direct premiums earned | | 7% | | 8% | | 7% | | 10% | % of direct premiums earned | | 11% | | 7% | | 10% | | 7% |
| Profit commission | Profit commission | | $47,255 | | $45,078 | | $135,049 | | $108,000 | Profit commission | | $30,698 | | $47,255 | | $97,218 | | $135,049 |
| Ceding commissions | Ceding commissions | $13,321 | | $13,599 | | $38,355 | | $39,657 | Ceding commissions | | $12,678 | | $13,321 | | $37,446 | | $38,355 |
| Ceded losses incurred | Ceded losses incurred | | $(7,360) | | $(3,598) | | $(19,775) | | $13,710 | Ceded losses incurred | | $6,724 | | $(7,360) | | $13,359 | | $(19,775) |
| | | | As of September 30, |
| Mortgage insurance portfolio: | Mortgage insurance portfolio: | Mortgage insurance portfolio: | | 2023 | | 2022 |
| Ceded RIF (Dollars in millions) | Ceded RIF (Dollars in millions) | Ceded RIF (Dollars in millions) | |
| 2015 QSR | 2015 QSR | | | $641 | | $1,029 | 2015 QSR | | $— | | $641 |
| 2017 QSR | | — | | 823 | |
| 2018 QSR | | | — | | 827 | |
| 2019 QSR | 2019 QSR | | 1,230 | | 1,771 | 2019 QSR | | — | | 1,230 |
| 2020 QSR | 2020 QSR | | 4,081 | | 5,118 | 2020 QSR | | 3,449 | | 4,081 |
| 2021 QSR | 2021 QSR | | 6,930 | | 5,714 | 2021 QSR | | 6,241 | | 6,930 |
| 2022 QSR | 2022 QSR | | 4,261 | | — | 2022 QSR | | 4,765 | | 4,261 |
| 2023 QSR | | 2023 QSR | | 1,850 | | — |
| Credit Union QSR | Credit Union QSR | | | 2,145 | | 1,418 | Credit Union QSR | | 2,557 | | 2,145 |
| Total ceded RIF | Total ceded RIF | | $19,288 | | $16,700 | Total ceded RIF | | $18,862 | | $19,288 |
Ceded losses incurred forpremiums written and earned, net of profit commission increased in the three and nine months ended September 30, 2022 reflect favorable loss reserve development2023 when compared with the prior year primarily due to a decrease in the profit commission, which increases ceded premiums written and
MGIC Investment Corporation - Q3 2023 | 48
earned. The decrease in profit commission was driven by the increase in losses incurred. Ceded losses incurred are impacted by the delinquencies covered by our QSR Transactions, our estimates of payments that will be ultimately made on previously received delinquency notices. See "Losses Incurred, net” below for discussion ofthose delinquencies, and claim payments covered by our loss reserves.QSR Transactions.
We terminated our 2017 and 2018 QSR Transactions effective December 31, 2021. We have elected to terminate our 2015 QSR and 2019 QSR Transactions effective December 31, 2022. We have elected to terminate our 2020 QSR Transactions effective December 31, 2023. We agreed to terms on a 30% QSR Transaction with a group of unaffiliated reinsurers covering most of our new insurance written in 2024.
Covered risk
The percentages of our NIW, new risk written, IIF, and RIF subject to our QSR Transactions as shown in the following table will vary from period to period in part due to the mix of our risk written during the period.period and the number of active QSR Transactions.
| | Quota Share Reinsurance | Quota Share Reinsurance | Quota Share Reinsurance |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| NIW subject to QSR Transactions | NIW subject to QSR Transactions | | 88.0 | % | | 85.0 | % | | 87.8 | % | | 80.0 | % | NIW subject to QSR Transactions | | 87.2 | % | | 88.0 | % | | 87.1 | % | | 87.8 | % |
| New Risk Written subject to QSR Transactions | New Risk Written subject to QSR Transactions | | 93.2 | % | | 89.5 | % | | 93.2 | % | | 91.9 | % | New Risk Written subject to QSR Transactions | | 92.9 | % | | 93.2 | % | | 92.9 | % | | 93.2 | % |
| IIF subject to QSR Transactions | IIF subject to QSR Transactions | | 76.8 | % | | 77.0 | % | | 76.8 | % | | 77.0 | % | IIF subject to QSR Transactions | | 72.6 | % | | 76.8 | % | | 72.6 | % | | 76.8 | % |
| RIF subject to QSR Transactions | RIF subject to QSR Transactions | | 82.4 | % | | 83.9 | % | | 82.4 | % | | 83.9 | % | RIF subject to QSR Transactions | | 77.1 | % | | 82.4 | % | | 77.1 | % | | 82.4 | % |
MGIC Investment Corporation - Q3 2022 | 46
The increasedecrease in NIWIIF and new risk writtenRIF subject to quota share reinsurance increased for the three and nine months ended September 30, 20222023, compared to the same periods of the prior yearSeptember 30, 2022, is primarily due to a decrease in refinance transactions which resulted in a decrease in NIW with LTVs less than or equal to 85%the termination of our 2015 and amortization terms less than or equal to 20 years, which generally have lower coverage percentages, and are excluded from the2019 QSR Transactions.Transactions at December 31, 2022.
As of September 30, 2022,2023, the weighted average coverage percentage of our QSR transactions was 33%32% based on RIF.
Excess of loss reinsurance
We have Excess-of-loss transactions (“XOL Transactions”)Transactions with a panelpanels of unaffiliated reinsurers executed through the traditional reinsurance market (“Traditional XOL Transaction”) and with unaffiliated special purpose insurers (“Home Re Transactions”).
TheFor policies covered by our Traditional XOL Transaction provides up to $175 million of reinsurance coverage on eligible NIW in 2022. The Traditional XOL Transaction has contractual termination date after approximately ten years, with an optional termination date after seven years and quarterly thereafter. For the covered policies,Transactions, we retain the first layer of the aggregate losses paid, and the reinsurers will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses paid in excess of the outstanding reinsurance coverage amount. The reinsurance coverage is subject to adjustment based on the risk characteristics of the covered loans.loans until the initial excess of loss reinsurance coverage layer has been finalized. The reinsurance premiums ceded to the2022 Traditional XOL Transaction are based off the remainingprovides $142.6 million of reinsurance coverage levels.on eligible NIW in 2022. The 2023 Traditional XOL Transaction provides up to $116.0 million of reinsurance coverage on eligible NIW in 2023.
The Home Re Transactions are executed with unaffiliated special purpose entities (“Home Re Entities”) through the issuance of insurance linked notes (“ILNs”). As of September 30, 20222023 our Home Re Transactions provided $1.7$1.3 billion of loss coverage on a portfolio of policies having an in force date from July 1, 2016 through March 31, 2019, and from January 1, 2020 through December 31, 2023;2021; all dates inclusive. For this reinsurance coverage, we retain the first layer of the respective aggregate losses paid, and a Home Re Entity will then provide second layer coverage up to the outstanding reinsurance amount.
The current attachment, current detachment, and PMIERs required asset credit for each of our Home ReXOL Transactions, excluding the 2023 Traditional XOL which is still in its fill up period, as of September 30, 2022,2023, are as follows.
| | ($ In thousands) | ($ In thousands) | | Initial Attachment % (1) | Initial Detachment % (2) | Current Attachment % (1) | Current Detachment % (2) | PMIERs Required Asset Credit | ($ In thousands) | | Initial Attachment % (1) | Initial Detachment % (2) | Current Attachment % (1) | Current Detachment % (2) | PMIERs Required Asset Credit |
| Home Re 2018-1 | Home Re 2018-1 | | 2.25% | 6.50% | 10.92% | 21.67% | $ | — | | Home Re 2018-1 | | 2.25% | 6.50% | 14.27% | 21.63% | $ | — | |
| Home Re 2019-1 | Home Re 2019-1 | | 2.50% | 6.75% | 14.12% | 30.12% | — | | Home Re 2019-1 | | 2.50% | 6.75% | 17.04% | 36.44% | — | |
| Home Re 2020-1 | Home Re 2020-1 | | 3.00% | 7.50% | 5.91% | 8.76% | 276 | | Home Re 2020-1 | | 3.00% | 7.50% | 7.34% | 8.76% | — | |
| Home Re 2021-1 | Home Re 2021-1 | | 2.25% | 6.50% | 3.09% | 7.58% | 225,851 | | Home Re 2021-1 | | 2.25% | 6.50% | 3.87% | 7.58% | 117,320 | |
| Home Re 2021-2 | Home Re 2021-2 | | 2.10% | 6.50% | 2.49% | 7.31% | 323,991 | | Home Re 2021-2 | | 2.10% | 6.50% | 2.98% | 7.31% | 209,994 | |
| Home Re 2022-1 | Home Re 2022-1 | | 2.75% | 6.75% | 2.91% | 7.15% | 456,562 | | Home Re 2022-1 | | 2.75% | 6.75% | 3.19% | 7.56% | 383,499 | |
| 2022 Traditional XOL | | 2022 Traditional XOL | | 2.60% | 7.10% | 2.75% | 7.50% | 137,547 | |
ILNXOL taking losses.(2) The percentage represents the cumulative losses as a percentage of adjusted risk in force that must be reached before MGIC begins absorbing losses after the ILN layerXOL layer.
We
MGIC Investment Corporation - Q3 2023 | 49
In October, 2023 Home Re 2019-1 Ltd., Home Re 2021-1 Ltd., and Home Re 2021-2 Ltd conducted tender offers for certain tranches of the mortgage insurance-linked notes that supported the reinsurance agreements with MGIC. The tender offer resulted in the reduction in the insurance-linked notes of $187.1 million for the Home Re 2019-1 Ltd, $91.1 million for the Home Re 2021-1 Ltd., and $106.7 million for the Home Re 2021-2 Ltd. The reinsurance coverage corresponding to the tendered notes was terminated. MGIC will incur approximately $8.0 million of additional ceded premium in the fourth quarter associated with the cost of the tender premiums and associated expenses.
Also in October, 2023, MGIC entered into a $330.2 million excess-of-loss reinsurance agreement (executed through an insurance linked note transaction) that covers policies with inforce dates from June 1, 2022 through August 31, 2023.
Ceded premiums on our XOL Transactions ofwere $17.5 million and $51.8 million, respectively, for the three and nine months ended September 30, 2023, and $19.9 million and $50.9 million, respectively, for the three and nine months ended September 30, 2022, and $12.1 million and $32.4 million, respectively, for the three and nine months ended September 30, 2021. The increase, when compared to the prior period, is primarily due to the execution of the Home Re 2021-2 Transaction in August, 2021 and the Home Re 2022-1 Transaction in April, 2022.
See Note 4 - “Reinsurance" to our consolidated financial statements for additional discussion of our QSR and XOL Transactions. Investment income
Comparative quarterly and year to date results
Net investment income in the three and nine months ended September 30, 20222023 was $55.4 million and $156.9 million, respectively, compared with $42.5 million and $121.1 million, respectively, compared with $38.3 million and $117.3 million, respectively forin comparison to the comparativecorresponding periods in the prior year. NetThe increase in net investment income was impacted by higher yields, partially offset by a decreaseprimarily due to an increase of approximately 80 basis points in the average investment portfolio.yields.
MGIC Investment Corporation - Q3 2022 | 47
Losses and expenses
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In millions) | (In millions) | | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change | (In millions) | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
| Losses incurred, net | Losses incurred, net | | $ | (105.1) | | | $ | 20.8 | | | N/M | | $ | (223.4) | | | $ | 89.6 | | | N/M | Losses incurred, net | | $ | (0.1) | | | $ | (105.1) | | | 100 | | | $ | (11.3) | | | $ | (223.4) | | | 95 | |
| Amortization of deferred policy acquisition costs | Amortization of deferred policy acquisition costs | | 3.2 | | | 3.3 | | | (3) | | | 8.9 | | | 9.0 | | | (1) | | Amortization of deferred policy acquisition costs | | 2.8 | | | 3.2 | | | (13) | | | 7.9 | | | 8.9 | | | (11) | |
| Other underwriting and operating expenses, net | Other underwriting and operating expenses, net | | 58.5 | | | 53.9 | | | 9 | | | 166.7 | | | 155.8 | | | 7 | | Other underwriting and operating expenses, net | | 50.1 | | | 58.5 | | | (14) | | | 174.2 | | | 166.7 | | | 4 | |
| Loss on debt extinguishment | Loss on debt extinguishment | | 11.6 | | | — | | | N/M | | 40.1 | | | — | | | N/M | Loss on debt extinguishment | | — | | | 11.6 | | | N/M | | — | | | 40.1 | | | N/M |
| Interest expense | Interest expense | | 10.3 | | | 18.0 | | | (43) | | | 38.7 | | | 54.0 | | | (28) | | Interest expense | | 9.3 | | | 10.3 | | | (10) | | | 28.0 | | | 38.7 | | | (28) | |
Total losses and expenses | Total losses and expenses | | $ | (21.5) | | | $ | 96.0 | | | (122) | | | $ | 30.9 | | | $ | 308.4 | | | (90) | | Total losses and expenses | | $ | 62.1 | | | $ | (21.5) | | | (389) | | | $ | 198.8 | | | $ | 30.9 | | | 543 | |
(1) May not foot due to rounding | | (1) May not foot due to rounding | | | |
Losses incurred, net
As discussed in “Critical Accounting Policies”Estimates” in our 20212022 10-K MD&A, we establish case loss reserves for future claims on delinquent loans that were reported to us as two payments past due 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 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.
IBNR reserves are established for estimated losses from delinquencies estimated towe 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 delinquencies, claim rates and claim severities.
Estimation of losses is inherently judgmental. ChangesEven in a stable environment, 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.position. 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 delinquency and claim filing;filing (all else being equal, the longer the period between delinquency and claim filing, the greater the severity); 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, 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 that could result in, among other things, greater losses on loans, andwhich may affect borrower willingness to continue to make mortgage payments when the net value of the home is below the mortgage balance. Loss reserves in the future periods will also be dependent on the number of loans reported to us as delinquent.
Prior to the COVID-19 pandemic, 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. The state of the economy, local housing markets and various other factors may result in delinquencies not following the typical pattern.
As discussed inFor information on how pandemics and other natural disasters could affect losses incurred, net see our Risk Factors titled “The Covid-19 pandemic“Pandemics, hurricanes and other natural disasters may materially impact our future financial results, business,
liquidity and/or financial condition" and “The future impact of Covid-19 related forbearance and foreclosure mitigation activities is unknown,” the impact of the COVID-19 pandemic on our future incurred losses, is uncertainthe amount and cannot be predicted.timing of paid claims, our inventory of notices of default and our Minimum Required Assets under PMIERs". As discussed in our Risk Factor titled “Because we establish loss reserves
MGIC Investment Corporation - Q3 2023 | 50
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 September 30, 20222023 through our 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.
Comparative quarterly results
Losses incurred, net for the third quarter of 20222023 were ($105.1)$(0.1) million, a decreasean increase of $125.9$105.0 million compared to the secondthird quarter of 20212022 losses incurred, net of $20.8 million primarily due to favorable loss reserve development.$(105.1) million. While new delinquency notices added approximately $35.9$48.1 million to losses incurred infor the third quarter of 2022,three months ended September 30, 2023, our re-estimation of loss reserves on previously received delinquency notices resulted in favorable development of approximately $140.9$48.2 million. For the three months ended September 30, 2022, new delinquency notices added approximately $35.9 million, primarily related to a decrease in the estimated claim rate on delinquencies. The favorable development primarily resulted from greater than expected cure rates on delinquencies received during and prior to the COVID-19 pandemic, as forbearance plans and loss mitigation efforts have resulted in more cures than originally estimated. In the third quarter of 2021,offset by our re-estimation of loss reserves on previously received delinquency notices resulting in favorable development of approximately $140.9 million. The favorable development for both periods primarily resulted from a decrease in $7.7 millionthe expected claim rate on previously received delinquencies. Home price appreciation experienced in recent years has allowed some borrowers to cure their delinquencies through the sale of favorable loss development.their property.
MGIC Investment Corporation - Q3 2022 | 48
Comparative year to date results
Losses incurred, netfor the nine months ended September 30, 20222023 were ($223.4)$(11.3) million, a decreasean increase of $313.0$212.1 million compared with losses incurred of $89.6$(223.4) million for the comparable prior year period primarily due to favorable loss reserve development.nine months ended September 30, 2022. While new delinquency notices added approximately $104.1$137.6 million to losses incurred infor the first nine months of 2022,ended September 30, 2023, our re-estimation of loss reserves on previously received delinquency notices resultedresulting in favorable development of approximately $148.9 million. For the nine months ended September 30, 2022, new delinquency notices added approximately $104.1 million, offset by our re-estimation of loss reserves on previously received delinquency notices resulting in favorable development of approximately $327.5 millionmillion. The favorable development for both periods primarily related toresulted from a decrease in the estimatedexpected claim rate on delinquencies. The favorable development primarily resulted from greater than expected cure rates on delinquencies received during and prior to the COVID-19 pandemic, as forbearance plans and loss mitigation efforts have resulted in more cures than originally estimated. In the first nine months of 2021, our re-estimation of loss reserves previously received delinquency notices resulteddelinquencies. Home price appreciation experienced in $6.0 millionrecent years has allowed some borrowers to cure their delinquencies through the sale of favorable loss development.
| | Composition of losses incurred | Composition of losses incurred | Composition of losses incurred |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | Nine Months Ended September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | | | 2022 | | 2021 | (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Current year / New notices | Current year / New notices | $35.8 | | $28.5 | | $104.1 | | $95.6 | Current year / New notices | $48.1 | | $35.9 | | $137.6 | | $104.1 |
| Prior year reserve development | Prior year reserve development | (140.9) | | (7.7) | | (327.5) | | (6.0) | Prior year reserve development | (48.2) | | (140.9) | | (148.9) | | (327.5) |
Losses incurred, net | Losses incurred, net | $(105.1) | | $20.8 | | $(223.4) | | $89.6 | Losses incurred, net | $(0.1) | | $(105.1) | | $(11.3) | | $(223.4) |
(1) May not foot due to rounding | | (1) May not foot due to rounding | | | |
Loss ratio
The loss ratio is the ratio, expressed as a percentage, of the sum of losses incurred, losses and loss adjustment expensesnet to net premiums earned. The loss ratio was (41.7%)0.0% and (29.3%), respectively(1.6)% for the three and nine months ended September 30, 20222023, compared with 8.1%(41.7%) and 11.8%(29.3%), respectively, for the comparativecorresponding periods in the prior year. The decreaseincrease in the loss ratio for the three and nine months ended September 30, 20222023 compared to the respective prior year periodsperiod was primarily due to the decreaseincrease in losses incurred discussed above.
MGIC Investment Corporation - Q3 20222023 | 4951
New notice claim rate
The table below presents our new delinquency notices received, delinquency inventory, percentage of loans in forbearance, and the average number of missed payments for the loans in our delinquency inventory by policy year: | | | | | | | | | | | | | | |
| | | | |
| New notices and delinquency inventory during the three and nine months ended and as of: |
| September 30, 2023 |
| Policy Year | New Delinquency Notices Received in the Three Months Ended | New Delinquency Notices Received in the Nine Months Ended | Delinquency Inventory | Avg. Number of Missed Payments of Delinquency Inventory |
| 2004 and prior | 883 | | 2,543 | | 2,109 | | 19 |
| 2005-2008 | 2,889 | | 8,158 | | 7,236 | | 18 |
| 2009-2015 | 631 | | 2,009 | | 1,506 | | 11 |
| 2016 | 451 | | 1,346 | | 927 | | 10 |
| 2017 | 666 | | 1,862 | | 1,369 | | 9 |
| 2018 | 786 | | 2,286 | | 1,713 | | 9 |
| 2019 | 772 | | 2,236 | | 1,512 | | 8 |
| 2020 | 1,310 | | 3,662 | | 2,274 | | 6 |
| 2021 | 2,268 | | 6,272 | | 3,806 | | 5 |
| 2022 | 1,426 | | 3,543 | | 2,143 | | 5 |
| 2023 | 158 | | 200 | | 125 | | 3 |
| Total | 12,240 | | 34,117 | | 24,720 | | 11 |
Claim rate on new notices (1) | 7.5 | % | | | |
| | | | |
| September 30, 2022 |
| Policy Year | New Delinquency Notices Received in the Three Months Ended | New Delinquency Notices Received in the Nine Months Ended | Delinquency Inventory | Avg. Number of Missed Payments of Delinquency Inventory |
| 2004 and prior | 937 | | 2,771 | | 2,486 | | 19 |
| 2005-2008 | 2,960 | | 8,815 | | 8,633 | | 19 |
| 2009-2015 | 758 | | 2,308 | | 2,123 | | 13 |
| 2016 | 519 | | 1,549 | | 1,308 | | 11 |
| 2017 | 708 | | 2,064 | | 1,781 | | 11 |
| 2018 | 834 | | 2,387 | | 2,106 | | 10 |
| 2019 | 819 | | 2,363 | | 1,893 | | 10 |
| 2020 | 1,252 | | 3,680 | | 2,498 | | 7 |
| 2021 | 1,781 | | 4,593 | | 2,688 | | 5 |
| 2022 | 422 | | 559 | | 362 | | 3 |
| Total | 10,990 | | 31,089 | | 25,878 | | 13 |
Claim rate on new notices (1) | 7.5 | % | | | |
| | | | |
| (1) Claim rate is the respective year to date weighted average rate. |
| | | | | | | | | | | | | | | | | |
| | | | | |
| New notices and delinquency inventory during the three months ended and as of: |
| September 30, 2022 |
| Policy Year | New Notices for the Three Months Ended | New Notices for the Nine Months Ended | Delinquency Inventory | % of Delinquency Inventory in Forbearance | Avg. Number of Missed Payments of Delinquency Inventory |
| 2004 and prior | 937 | | 2,771 | | 2,486 | | 15.7 | % | 19 |
| 2005-2008 | 2,960 | | 8,815 | | 8,633 | | 13.1 | % | 19 |
| 2009-2015 | 758 | | 2,308 | | 2,123 | | 13.2 | % | 13 |
| 2016 | 519 | | 1,549 | | 1,308 | | 14.4 | % | 11 |
| 2017 | 708 | | 2,064 | | 1,781 | | 16.8 | % | 11 |
| 2018 | 834 | | 2,387 | | 2,106 | | 19.1 | % | 10 |
| 2019 | 819 | | 2,363 | | 1,893 | | 23.8 | % | 10 |
| 2020 | 1,252 | | 3,680 | | 2,498 | | 42.3 | % | 7 |
| 2021 | 1,781 | | 4,593 | | 2,688 | | 47.3 | % | 5 |
| 2022 | 422 | | 559 | | 362 | | 34.8 | % | 3 |
| Total | 10,990 | | 31,089 | | 25,878 | | 21.6 | % | 13 |
Claim rate on new notices (1) | 8 | % | | | | |
| | | | | |
| September 30, 2021 |
| Policy Year | New Notices for the Three Months Ended | New Notices for the Nine Months Ended | Delinquency Inventory | % of Delinquency Inventory in Forbearance | Avg. Number of Missed Payments of Delinquency Inventory |
| 2004 and prior | 941 | | 2,899 | | 2,915 | | 19.1 | % | 20 |
| 2005-2008 | 3,093 | | 9,747 | | 11,854 | | 27.0 | % | 19 |
| 2009-2015 | 946 | | 3,138 | | 4,047 | | 49.3 | % | 12 |
| 2016 | 500 | | 1,867 | | 2,468 | | 59.6 | % | 12 |
| 2017 | 771 | | 2,647 | | 3,656 | | 60.1 | % | 12 |
| 2018 | 848 | | 3,029 | | 4,197 | | 61.7 | % | 11 |
| 2019 | 852 | | 3,272 | | 4,165 | | 68.5 | % | 11 |
| 2020 | 1,286 | | 4,352 | | 3,465 | | 77.1 | % | 8 |
| 2021 | 625 | | 958 | | 612 | | 43.0 | % | 3 |
| Total | 9,862 | | 31,909 | | 37,379 | | 47.6 | % | 14 |
Claim rate on new notices (1) | 8 | % | | | | |
| | | | | |
| (1) Claim rate is the respective quarter to date weighted average rate and is rounded to the nearest whole percent. |
MGIC Investment Corporation - Q3 2022 | 50
Claims severity
Factors that impact claim severity include:
| | | | | | | | |
| è | | economic conditions at time of claim filing, including home prices compared to home prices at the time of placement of coverage, |
| è | | exposure of the loan, which is the unpaid principal balance of the loan times our insurance coverage percentage, |
| è | | length of time between delinquency and claim filing (which impacts the amount of interest and expenses, with a longer time between default and claim filing generally increasing severity), and |
| è | | curtailments. |
As discussed in Note 11 - “Loss Reserves,” 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. In lightAn increase in third party property sales prior to claim settlement has resulted in a decrease in the average claim paid and the average claim paid as a percentage of exposure in recent years. At the forbearance and foreclosure moratorium programs associated withstart of the COVID-19 pandemic, the level of claims received decreased. Claim activity and the average numberclaims paid as a percentage of missed payments at the time a claim is receivedexposure has increased. Although foreclosure moratoriums are expiring, under a CFPB rule that was generally effective through December 31, 2021, with limited exceptions, servicers were requirednot yet returned to ensure that at least one temporary safeguard was met before referring 120-day delinquent loans for foreclosure. Given the expirationpre-COVID-19 levels. The magnitude and timing of the CFPB rule, it is likely that foreclosures and claims will increase, although the timing and magnitude of such increase isincreases are uncertain.
The majority of loans insured prior to 2009 (which represent 43%38% 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 that an insured can include interest when filing a claim.
MGIC Investment Corporation - Q3 2023 | 52
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 its obligations under the terms of the applicable master policy.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Claims severity trend for claims paid during the period |
| Period | | Average exposure on claim paid | | Average claim paid | | % Paid to exposure | | Average number of missed payments at claim received date |
| | | | | | | | |
| | | | | | | | |
| Q3 2022 | | 37,625 | | | 23,461 | | | 62.4 | % | | 46 | |
| Q2 2022 | | 44,106 | | | 27,374 | | | 62.1 | % | | 41 | |
| Q1 2022 | | 38,009 | | | 27,662 | | | 72.8 | % | | 45 | |
| Q4 2021 | | 43,485 | | | 32,722 | | | 75.2 | % | | 42 | |
| Q3 2021 | | 42,468 | | | 36,138 | | | 85.1 | % | | 34 | |
| Q2 2021 | | 40,300 | | | 34,068 | | | 84.5 | % | | 36 | |
| Q1 2021 | | 46,807 | | | 36,725 | | | 78.5 | % | | 34 | |
| Q4 2020 | | 48,321 | | | 40,412 | | | 83.6 | % | | 32 | |
| Q3 2020 | | 47,780 | | | 40,600 | | | 85.0 | % | | 27 | |
| Q2 2020 | | 44,905 | | | 42,915 | | | 95.6 | % | | 32 | |
| Q1 2020 | | 46,247 | | | 47,222 | | | 102.1 | % | | 33 | |
| | | | | | | | |
| Note: Table excludes material settlements. Settlements include amounts paid in settlement disputes for claims paying practices and/or commutations of policies. |
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. At the end of 2021, the average number of missed payments at the time claims were received increased as foreclosure moratoriums expired resulting in an increase in our claims received. However, at September 30, 2022, claims received are still below levels experienced prior to the second quarter of 2020 as servicers work through the impact of foreclosure moratoriums and forbearance plans. As foreclosure moratoriums and forbearance plans end, we expect to see an increase in claims received and we also expect claims paid at exposure levels similar to those experienced prior to the COVID-19 pandemic. The magnitude and timing of the increases are uncertain. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Claims severity trend for claims paid during the period |
| Period | | Average exposure on claim paid | | Average claim paid | | % Paid to exposure | | Average number of missed payments at claim received date |
| Q3 2023 | | 43,414 | | | 28,538 | | | 65.7 | % | | 41 | |
| Q2 2023 | | 40,013 | | | 29,803 | | | 74.5 | % | | 43 | |
| Q1 2023 | | 37,412 | | | 28,227 | | | 75.4 | % | | 42 | |
| Q4 2022 | | 38,903 | | | 28,492 | | | 73.2 | % | | 41 | |
| Q3 2022 | | 37,625 | | | 23,461 | | | 62.4 | % | | 46 | |
| Q2 2022 | | 44,106 | | | 27,374 | | | 62.1 | % | | 41 | |
| Q1 2022 | | 38,009 | | | 27,662 | | | 72.8 | % | | 45 | |
| | | | | | | | |
| Note: Table excludes material settlements. Settlements include amounts paid in settlement disputes for claims paying practices and/or commutations of policies. |
The length of time a loan is in the delinquency inventory (see Note 11- “Loss Reserves,” table 11.4) 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. Generally, a defaulted loan with more missed payments is more likely to result in a claim. The number of payments that a borrower is delinquent is shown in the following table.
MGIC Investment Corporation - Q3 2022 | 51
| | Delinquency inventory - number of payments delinquent | Delinquency inventory - number of payments delinquent | Delinquency inventory - number of payments delinquent |
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2021 | | | September 30, 2023 | | December 31, 2022 | | September 30, 2022 |
| 3 payments or less | 3 payments or less | | 10,137 | | | 9,529 | | | 8,911 | | 3 payments or less | | 11,867 | | | 11,484 | | | 10,137 | |
| 4-11 payments | 4-11 payments | | 7,831 | | | 9,208 | | | 11,165 | | 4-11 payments | | 7,570 | | | 8,026 | | | 7,831 | |
12 payments or more (1) | 12 payments or more (1) | | 7,910 | | | 14,553 | | | 17,303 | | 12 payments or more (1) | | 5,283 | | | 6,877 | | | 7,910 | |
| Total | Total | | 25,878 | | | 33,290 | | | 37,379 | | Total | | 24,720 | | | 26,387 | | | 25,878 | |
| | 3 payments or less | 3 payments or less | | 40 | % | | 28 | % | | 24 | % | 3 payments or less | | 48 | % | | 44 | % | | 40 | % |
| 4-11 payments | 4-11 payments | | 30 | % | | 28 | % | | 30 | % | 4-11 payments | | 31 | % | | 30 | % | | 30 | % |
| 12 payments or more | 12 payments or more | | 30 | % | | 44 | % | | 46 | % | 12 payments or more | | 21 | % | | 26 | % | | 30 | % |
| Total | Total | | 100 | % | | 100 | % | | 100 | % | Total | | 100 | % | | 100 | % | | 100 | % |
(1)Approximately 25%34%, 13%28%, and 11%25% of the primary delinquency inventory with 12 payments or more delinquent has at least 36 payments delinquent as of September 30, 2022,2023, December 31, 2021,2022, and September 30, 2021,2022, respectively.
Net losses and LAE paid
Net losses and LAE paid decreased in the three and nine months ended September 30, 2022 compared2023 were consistent with the same periodsperiod in the prior year. Foreclosures on mortgages purchased or securitized byOur claims paid activity slowed at the GSEs were suspended through July 31, 2021. Under a CFPB rule that was effective through December 31, 2021, with limited exceptions, servicers were requiredstart of the COVID-19 pandemic primarily due to ensure that at least one temporary procedural safeguard had been met before referring 120-day delinquent loans for foreclosure. As the variousforbearance and foreclosure moratoriums cameput in place, and it has not yet appreciably increased from those suppressed levels. Home price appreciation experienced in recent years has allowed some borrowers to cure their delinquencies through the sale of their property. In addition, an endincrease in 2021,third party property sales prior to claim settlement, has resulted in a decrease in the average claim paid on the claims we do receive. We expect net losses and LAE paid to increase, however, the magnitude and timing of the increases are uncertain.
MGIC Investment Corporation - Q3 2023 | 53
The following table presents our net losses and LAE paid for the three and nine months ended September 30, 20222023 and 2021.2022.
| | Net losses and LAE paid | Net losses and LAE paid | | | Net losses and LAE paid | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In millions) | (In millions) | | 2022 | | 2021 | | 2022 | | 2021 | (In millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Total primary (excluding settlements) | Total primary (excluding settlements) | | $ | 8 | | | $ | 11 | | | $ | 26 | | | $ | 34 | | Total primary (excluding settlements) | | $ | 10 | | | $ | 8 | | | $ | 29 | | | $ | 26 | |
Claims paying practices and NPL settlements (1) | Claims paying practices and NPL settlements (1) | | 1 | | | 7 | | | 5 | | | 7 | | Claims paying practices and NPL settlements (1) | | — | | | 1 | | | — | | | 5 | |
| Pool | | — | | | — | | | — | | | — | | |
| | Direct losses paid | Direct losses paid | | 9 | | | 18 | | | 31 | | | 41 | | Direct losses paid | | 10 | | | 9 | | | 29 | | | 31 | |
| Reinsurance | Reinsurance | | — | | | (1) | | | (1) | | | (2) | | Reinsurance | | (1) | | | — | | | (1) | | | (1) | |
| Net losses paid | Net losses paid | | 9 | | | 17 | | | 30 | | | 39 | | Net losses paid | | 9 | | | 9 | | | 28 | | | 30 | |
| LAE | LAE | | 2 | | | 3 | | | 6 | | | 10 | | LAE | | 2 | | | 2 | | | 5 | | | 6 | |
| | Net losses and LAE paid | Net losses and LAE paid | | $ | 11 | | | $ | 20 | | | $ | 36 | | | $ | 49 | | Net losses and LAE paid | | $ | 11 | | | $ | 11 | | | $ | 33 | | | $ | 36 | |
| | Average Claim Paid | Average Claim Paid | | $ | 23,461 | | | $ | 36,138 | | | $ | 26,121 | | | $ | 35,580 | | Average Claim Paid | | $ | 28,538 | | | $ | 23,461 | | | $ | 28,876 | | | $ | 26,121 | |
|
(1) See Note 11 - “Loss Reserves” for additional information on our settlement of disputes for claims paying practices and commutations of NPLs.
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.
The primary average RIF on delinquent loans at September 30, 2022,2023, December 31, 20212022 and September 30, 20212022 for the top 5 jurisdictions (based on the September 30, 20222023 delinquency inventory) appears in the following table.
| | Primary average RIF - delinquent loans | Primary average RIF - delinquent loans | Primary average RIF - delinquent loans |
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2021 | | | September 30, 2023 | | December 31, 2022 | | September 30, 2022 |
| Florida | Florida | $ | 57,393 | | | $ | 56,227 | | | $ | 57,029 | | Florida | $ | 61,596 | | | $ | 59,515 | | | $ | 57,393 | |
| Texas | Texas | 52,111 | | | 51,037 | | | 52,220 | | Texas | 58,582 | | | 53,364 | | | 52,111 | |
| Illinois | Illinois | 41,160 | | | 40,798 | | | 40,947 | | Illinois | 42,603 | | | 41,640 | | | 41,160 | |
| Pennsylvania | Pennsylvania | 40,723 | | | 39,523 | | | 40,766 | | Pennsylvania | 42,858 | | | 40,993 | | | 40,723 | |
| New York | New York | 75,236 | | | 74,836 | | | 75,473 | | New York | 77,444 | | | 74,760 | | | 75,236 | |
| All other jurisdictions | All other jurisdictions | 50,606 | | | 51,652 | | | 52,454 | | All other jurisdictions | 55,229 | | | 51,693 | | | 50,606 | |
| All jurisdictions | All jurisdictions | $ | 51,403 | | | $ | 51,887 | | | $ | 52,744 | | All jurisdictions | $ | 55,717 | | | $ | 52,511 | | | $ | 51,403 | |
The primary average RIF on all loans was $63,951, $59,518,$66,962, $64,784, and $57,867$63,951 at September 30, 2022,2023, December 31, 2021,2022, and September 30, 2021,2022, respectively.
MGIC Investment Corporation - Q3 2022 | 52
Loss reserves
Our primary delinquency inventory was 25,878 loans at September 30, 2022, representing a decrease of 22.3% from December 31, 2021 and 30.8% from September 30, 2021. Generally, a defaulted loan with more missed payments is more likely to result in a claim. We experienced a decrease in the number of delinquencies in inventory with twelve or more missed payments at September 30, 2022 when compared to December 31, 2021 and September 30, 2021. The decrease is primarily due to higher than expected cure activity. (See Note 11- “Loss Reserves,” table 11.4.)
The gross reserves at September 30, 2022,2023, December 31, 2021,2022, and September 30, 20212022 appear in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross reserves |
| | September 30, 2022 | December 31, 2021 | September 30, 2021 |
| Primary: | | | | | | | |
| Direct case loss reserves (in millions) | | $ | 540 | | | $ | 795 | | | $ | 840 | | |
| Direct IBNR and LAE reserves | | 59 | | | 82 | | | 86 | | |
| Total primary direct loss reserves | | $ | 599 | | | $ | 877 | | | $ | 926 | | |
| | | | | | | |
| Ending delinquent inventory | | | 25,878 | | | 33,290 | | | 37,379 | |
| Percentage of loans delinquent (delinquency rate) | | | 2.17 | % | | 2.84 | % | | 3.20 | % |
| Average total primary loss reserves per delinquency | | | $ | 23,128 | | | $ | 26,156 | | | $ | 24,597 | |
| Primary claims received inventory included in ending delinquent inventory | | | 244 | | | 211 | | | 154 | |
| | | | | | | |
Pool (1): | | | | | | | |
| Direct loss reserves (in millions): | | | | | | | |
| With aggregate loss limits | | $ | 3 | | | $ | 4 | | | $ | 5 | | |
| Without aggregate loss limits | | 1 | | | 2 | | | 2 | | |
| Total pool direct loss reserves | | $ | 4 | | | $ | 6 | | | $ | 7 | | |
| | | | | | | |
| Ending default inventory: | | | | | | | |
| With aggregate loss limits | | | 287 | | | 313 | | | 344 | |
| Without aggregate loss limits | | | 122 | | | 185 | | | 195 | |
| Total pool ending delinquent inventory | | | 409 | | | 498 | | | 539 | |
| Pool claims received inventory included in ending delinquent inventory | | | 4 | | | 1 | | | 6 | |
Other gross reserves (2) (in millions) | | $ | — | | | $ | 1 | | | $ | — | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross reserves |
| | September 30, 2023 | December 31, 2022 | September 30, 2022 |
| Primary: | | | | | | | |
| Direct case loss reserves (in millions) | | $ | 467 | | | $ | 498 | | | $ | 540 | | |
| Direct IBNR and LAE reserves | | 55 | | | 56 | | | 59 | | |
| Total primary direct loss reserves | | $ | 522 | | | $ | 554 | | | $ | 599 | | |
| | | | | | | |
| Ending delinquent inventory | | | 24,720 | | | 26,387 | | | 25,878 | |
| Percentage of loans delinquent (delinquency rate) | | | 2.14 | % | | 2.22 | % | | 2.17 | % |
| Average total primary loss reserves per delinquency | | | $ | 21,119 | | | $ | 20,994 | | | $ | 23,128 | |
| Primary claims received inventory included in ending delinquent inventory | | | 284 | | | 267 | | | 244 | |
| | | | | | | |
Other gross reserves (1) (in millions) | | $ | 4 | | | $ | 4 | | | $ | 4 | | |
(1)Since a number of our pool policies include aggregate loss limits and/or deductibles, we do not disclose an average direct reserve per delinquency for our pool business.
(2)Other Gross Reserves includes direct and assumed reserves that are not included within our primary or pool loss reserves.
MGIC Investment Corporation - Q3 20222023 | 5354
The primary delinquency inventory for the top 15 jurisdictions (based on September 30, 20222023 delinquency inventory) at September 30, 2022,2023, December 31, 20212022 and September 30, 20212022 appears in the following table.
| | Primary delinquency inventory by jurisdiction | Primary delinquency inventory by jurisdiction | Primary delinquency inventory by jurisdiction |
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2021 | | | September 30, 2023 | | December 31, 2022 | | September 30, 2022 |
| Florida * | Florida * | | | 2,013 | | | 2,948 | | | 3,401 | | Florida * | | | 2,025 | | | 2,414 | | | 2,013 | |
| Texas | Texas | | | 1,911 | | | 2,572 | | | 2,964 | | Texas | | | 1,909 | | | 1,935 | | | 1,911 | |
| Illinois * | Illinois * | | | 1,708 | | | 2,082 | | | 2,370 | | Illinois * | | | 1,547 | | | 1,640 | | | 1,708 | |
| Pennsylvania * | Pennsylvania * | | | 1,500 | | | 1,672 | | | 1,768 | | Pennsylvania * | | | 1,466 | | | 1,525 | | | 1,500 | |
| New York * | New York * | | | 1,421 | | | 1,674 | | | 1,808 | | New York * | | | 1,370 | | | 1,399 | | | 1,421 | |
| California | California | | | 1,340 | | | 1,852 | | | 2,218 | | California | | | 1,325 | | | 1,336 | | | 1,340 | |
| Ohio * | Ohio * | | | 1,227 | | | 1,458 | | | 1,657 | | Ohio * | | | 1,221 | | | 1,322 | | | 1,227 | |
| Michigan | Michigan | | | 999 | | | 1,144 | | | 1,221 | | Michigan | | | 1,016 | | | 965 | | | 999 | |
| Georgia | Georgia | | | 958 | | | 1,272 | | | 1,439 | | Georgia | | | 940 | | | 954 | | | 958 | |
| New Jersey * | New Jersey * | | | 835 | | | 1,169 | | | 1,325 | | New Jersey * | | | 767 | | | 841 | | | 835 | |
| North Carolina | North Carolina | | | 764 | | | 987 | | | 1,090 | | North Carolina | | | 666 | | | 753 | | | 764 | |
| Maryland | Maryland | | | 715 | | | 929 | | | 1,053 | | Maryland | | | 659 | | | 719 | | | 715 | |
| Virginia | | | 591 | | | 766 | | | 871 | | |
| Indiana | | | 574 | | | 736 | | | 783 | | |
| Indiana * | | Indiana * | | | 617 | | | 622 | | | 574 | |
| Minnesota | Minnesota | | | 574 | | | 725 | | | 840 | | Minnesota | | | 541 | | | 573 | | | 574 | |
| Wisconsin * | | Wisconsin * | | | 528 | | | 542 | | | 555 | |
| All other jurisdictions | All other jurisdictions | | | 8,748 | | | 11,304 | | | 12,571 | | All other jurisdictions | | | 8,123 | | | 8,847 | | | 8,784 | |
| Total | Total | | | 25,878 | | | 33,290 | | | 37,379 | | Total | | | 24,720 | | | 26,387 | | | 25,878 | |
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 delinquency inventory by policy year at September 30, 2022,2023, December 31, 20212022 and September 30, 20212022 appears in the following table.
| | Primary delinquency inventory by policy year | Primary delinquency inventory by policy year | Primary delinquency inventory by policy year |
| | September 30, 2022 | | December 31, 2021 | | September 30, 2021 | | September 30, 2023 | | December 31, 2022 | | September 30, 2022 |
| Policy year: | Policy year: | | Policy year: | |
| 2004 and prior | 2004 and prior | 2,486 | | | 2,829 | | | 2,915 | | 2004 and prior | 2,109 | | | 2,471 | | | 2,486 | |
| 2004 and prior % | 2004 and prior % | 10 | % | | 8 | % | | 8 | % | 2004 and prior % | 9 | % | | 9 | % | | 10 | % |
| 2005 | 2005 | 1,456 | | | 1,703 | | | 1,792 | | 2005 | 1,296 | | | 1,438 | | | 1,456 | |
| 2006 | 2006 | 2,427 | | | 2,928 | | | 3,148 | | 2006 | 2,125 | | | 2,388 | | | 2,427 | |
| 2007 | 2007 | 3,860 | | | 4,973 | | | 5,437 | | 2007 | 3,114 | | | 3,680 | | | 3,860 | |
| 2008 | 2008 | 890 | | | 1,278 | | | 1,477 | | 2008 | 701 | | | 811 | | | 890 | |
| 2005 - 2008 % | 2005 - 2008 % | 33 | % | | 33 | % | | 32 | % | 2005 - 2008 % | 29 | % | | 32 | % | | 33 | % |
| 2009 | 2009 | 52 | | | 84 | | | 97 | | 2009 | 42 | | | 51 | | | 52 | |
| 2010 | 2010 | 43 | | | 56 | | | 67 | | 2010 | 31 | | | 31 | | | 43 | |
| 2011 | 2011 | 52 | | | 79 | | | 96 | | 2011 | 22 | | | 43 | | | 52 | |
| 2012 | 2012 | 81 | | | 143 | | | 188 | | 2012 | 58 | | | 72 | | | 81 | |
| 2013 | 2013 | 270 | | | 441 | | | 551 | | 2013 | 175 | | | 243 | | | 270 | |
| 2014 | 2014 | 668 | | | 1,055 | | | 1,231 | | 2014 | 458 | | | 633 | | | 668 | |
| 2015 | 2015 | 957 | | | 1,542 | | | 1,817 | | 2015 | 720 | | | 944 | | | 957 | |
| 2009 - 2015 % | 2009 - 2015 % | 8 | % | | 10 | % | | 11 | % | 2009 - 2015 % | 6 | % | | 8 | % | | 8 | % |
| 2016 | 2016 | 1,308 | | | 2,004 | | | 2,468 | | 2016 | 927 | | | 1,249 | | | 1,308 | |
| 2017 | 2017 | 1,781 | | | 2,949 | | | 3,656 | | 2017 | 1,369 | | | 1,719 | | | 1,781 | |
| 2018 | 2018 | 2,106 | | | 3,412 | | | 4,197 | | 2018 | 1,713 | | | 2,060 | | | 2,106 | |
| 2019 | 2019 | 1,893 | | | 3,340 | | | 4,165 | | 2019 | 1,512 | | | 1,823 | | | 1,893 | |
| 2020 | 2020 | 2,498 | | | 3,308 | | | 3,465 | | 2020 | 2,274 | | | 2,558 | | | 2,498 | |
| 2021 | 2021 | 2,688 | | | 1,166 | | | 612 | | 2021 | 3,806 | | | 3,307 | | | 2,688 | |
| 2022 | 2022 | 362 | | | — | | | — | | 2022 | 2,143 | | | 866 | | | 362 | |
| 2023 | | 2023 | 125 | | | — | | | — | |
| 2016 and later % | 2016 and later % | 49 | % | | 49 | % | | 49 | % | 2016 and later % | 56 | % | | 51 | % | | 49 | % |
| | Total | Total | 25,878 | | | 33,290 | | | 37,379 | | Total | 24,720 | | | 26,387 | | | 25,878 | |
MGIC Investment Corporation - Q3 2023 | 55
On our primary business, the highest claim frequency years have typically been the third and fourth year after loan origination. However, the pattern of claim frequency can be affected by many factors, including persistency and deteriorating economic conditions. Deteriorating economic conditions including decreasing home prices, can result in increasing claims following a period of declining claims. As of September 30, 2022, 78%2023, 65% of our primary RIF was written subsequent to December 31, 2020, 83% of our primary RIF was written subsequent to December 31, 2019, 84%and 88% of our primary RIF was written subsequent to December 31, 2018, and 87% of our primary RIF was written subsequent to December 31, 2017. We expect the delinquency inventory to increase over the next several quarters primarily due to seasoning of the portfolio.2018.
MGIC Investment Corporation - Q3 2022 | 54
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, net for the three and nine months ended September 30, 20222023, were $50.1 million and $174.2 million, respectively, compared with $58.5 million and $166.7 million, respectively, compared with $53.9 million and $155.8 million, respectively,for the corresponding periods in the prior year periods.year. Underwriting and other expenses, net increaseddecreased during the three and nine months ended September 30, 20222023 compared with the same periodsperiod in the prior year primarily due to increasesa decrease in expenses related to our investmentsprofessional and consulting services as well as a decrease in technologypension expenses related to settlement accounting charges.
The increase in underwriting and dataother expenses, net for the nine months ended September 30, 2023 was primarily due to an increase in performance based employee compensation, and analytics infrastructure,an increase in postretirement benefit expenses, offset partially by a decrease in fees forexpenses related to professional and consulting services.services and a decrease in pension expenses related to settlement accounting charges. We will incur additional settlement accounting charges during the remainder of 2023; however, the magnitude and timing is uncertain.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Underwriting expense ratio | | 24.6 | % | | 21.9 | % | | 23.3 | % | | 21.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Underwriting expense ratio | | 22.2 | % | | 24.6 | % | | 25.8 | % | | 23.3 | % |
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 subsidiaries) to net premiums written. The underwriting expense ratio for the three months ended September 30, 2023, decreased compared with the same period in the threeprior year primarily due to a decrease in underwriting and other expenses, net, partially offset by a decrease in net premiums written. The underwriting expense ratio for the nine months ended September 30, 20222023 increased compared with the same periodsperiod in the prior year primarily due to an increase in underwriting expenses and slight decreasesa decrease in net premiums written.
Loss on debt extinguishment
In the third quarter of 2022, the $11.6 millionWe did not record a loss on debt extinguishment reflects a $4.8 million loss onin the repurchase of $14.0 million in aggregate principal of our 9% Debentures and a loss of $6.8 million onnine months ended September 30, 2023, associated with the redemption of our 2023 Senior Notes at costs that were in excess of their carrying value.
In9% Debenture. For the first nine months ofended September 30, 2022, the $40.1 millionwe recorded a loss on debt extinguishment reflectsof $40.1 million, related to a loss of $32.0 million on the repurchase of $88.9 million in aggregate principal of our 9% Debentures, a loss of $6.8 million on the redemption of our 2023 Senior Notes at costs in excess of their carrying value, and a prepayment fee of $1.3 million on the repayment of our FHLB advance.
See Note 3 - “Debt” to our consolidated financial statements for a discussion of the 9% Debenture conversion in 2023.
Provision for income taxes and effective tax rate
| | Income tax provision and effective tax rate | Income tax provision and effective tax rate | | | Income tax provision and effective tax rate | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In millions, except rate) | (In millions, except rate) | | 2022 | | 2021 | | 2022 | | 2021 | (In millions, except rate) | | 2023 | | 2022 | | 2023 | | 2022 |
| Income before tax | Income before tax | | $ | 314.3 | | | $ | 199.7 | | | $ | 849.6 | | | $ | 583.2 | | Income before tax | | $ | 234.4 | | | $ | 314.3 | | | $ | 672.4 | | | $ | 849.6 | |
| Provision for income taxes | Provision for income taxes | | $ | 64.6 | | | $ | 41.8 | | | $ | 175.7 | | | $ | 122.2 | | Provision for income taxes | | $ | 51.6 | | | $ | 64.6 | | | $ | 143.9 | | | $ | 175.7 | |
| Effective tax rate | Effective tax rate | | 20.6 | % | | 20.9 | % | | 20.7 | % | | 21.0 | % | Effective tax rate | | 22.0 | % | | 20.6 | % | | 21.4 | % | | 20.7 | % |
Our effective tax rate for the three and nine months ended September 30, 20222023 and 20212022 approximated the statutory tax rate of 21%.
MGIC Investment Corporation - Q3 20222023 | 5556
Balance Sheet Review
The following sections mainly focus on the major developments on our Consolidated Balance Sheet since December 31, 2021.2022.
Consolidated balance sheets - Assets
| | (in thousands) | (in thousands) | September 30, 2022 | | December 31, 2021 | | % Change | (in thousands) | September 30, 2023 | | December 31, 2022 | | % Change |
| Investments | Investments | $ | 5,415,717 | | | $ | 6,606,749 | | | (18) | | Investments | $ | 5,596,336 | | | $ | 5,424,688 | | | 3 | |
| Cash and cash equivalents | Cash and cash equivalents | 249,758 | | | 304,958 | | | (18) | | Cash and cash equivalents | 266,543 | | | 327,384 | | | (19) | |
| Premiums receivable | 57,654 | | | 56,540 | | | 2 | | |
| Reinsurance recoverable on loss reserves | Reinsurance recoverable on loss reserves | 46,384 | | | 66,905 | | | (31) | | Reinsurance recoverable on loss reserves | 40,934 | | | 28,240 | | | 45 | |
| Reinsurance recoverable on paid losses | | Reinsurance recoverable on paid losses | 265 | | | 18,081 | | | (99) | |
| Deferred incomes taxes, net | Deferred incomes taxes, net | 122,228 | | | — | | | N/M | Deferred incomes taxes, net | 132,030 | | | 124,769 | | | 6 | |
| Other assets | Other assets | 262,375 | | | 289,856 | | | (9) | | Other assets | 295,571 | | | 290,631 | | | 2 | |
| Total Assets | Total Assets | $ | 6,154,116 | | | $ | 7,325,008 | | | (16) | | Total Assets | $ | 6,331,679 | | | $ | 6,213,793 | | | 2 | |
Investments - Our investments decreasedincreased to $5.4$5.6 billion as of September 30, 20222023 from $6.6$5.4 billion as of December 31, 2021.2022. The decreaseincrease is primarily due to net investment purchases, offset by a decrease in the fair value of our investment portfolio due to the increase in the prevailing market interest rates and the use of our investment portfolio to reduce debt outstanding.rates.
The average duration and investment yield of our investment portfolio as of September 30, 20222023 and December 31, 20212022 are shown in the table below.
| | Portfolio duration and embedded investment yield | Portfolio duration and embedded investment yield | Portfolio duration and embedded investment yield |
| | | September 30, 2022 | | December 31, 2021 | | | September 30, 2023 | | December 31, 2022 |
| Duration (in years) | Duration (in years) | | 4.4 | | 4.5 | Duration (in years) | | 4.1 | | 4.3 |
Pre-tax yield (1) | Pre-tax yield (1) | | 2.9% | | 2.5% | Pre-tax yield (1) | | 3.6% | | 3.0% |
After-tax yield (1) | After-tax yield (1) | | 2.3% | | 2.1% | After-tax yield (1) | | 2.9% | | 2.5% |
(1)Embedded investment yield is calculated on a yield-to-worst basis.
The security ratings of our fixed income investments as of September 30, 20222023 and December 31, 20212022 are shown in the following table.
| | Fixed income security ratings | Fixed income security ratings | Fixed income security ratings |
| | Security Ratings (1) | | Security Ratings (1) |
| Period | Period | AAA | AA | A | BBB | Period | AAA | AA | A | BBB |
| September 30, 2022 | 19% | 27% | 34% | 20% | |
| December 31, 2021 | 18% | 26% | 36% | 20% | |
| September 30, 2023 | | September 30, 2023 | 13% | 34% | 19% |
| December 31, 2022 | | December 31, 2022 | 18% | 28% | 34% | 20% |
(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 used; if two FICO scores are available,used, otherwise the lowerlowest rating is used.
The decrease in fixed income securities with an AAA rating at September 30, 2023 was primarily from the downgrade of the two is used; if only one FICO score is available, it is used.United States government’s credit rating to AA+ by Fitch in the third quarter.
Cash and cash equivalents (including restricted) - Our cash and cash equivalents balance decreased to $250$266.5 million as of September 30, 2022,2023, from $305$327.4 million as of December 31, 2021,2022, as net cash generated from operating activities was offset by cash used in investing and financing activities.
Reinsurance recoverable on paid losses - Reinsurance recoverable on paid losses decreased to $0.3 million at September 30, 2023, from $18.1 million at December 31, 2022. At December 31, 2022 the reinsurance recoverable on paid losses is primarily composed of losses recoverable from reinsurers at the time of termination of the 2015 and 2019 QSR Transactions. Generally, in a reinsurance termination, amounts for any incurred but unpaid losses are due to us from the reinsurers.
Income Taxes - Our current income tax liabilityreceivable was $6.4$8.8 million and $3.3$5.3 million at September 30, 20222023 and December 31, 2021,2022, respectively and is included as a component of other liabilitiesassets in our consolidated balance sheets. Our deferred tax asset was $122.2$132.0 million and $124.8 million at September 30, 2022. Our deferred income tax liability was $39.4 million at2023 and December 31, 2021 and is included as a component of other liabilities in our consolidated balance sheets.2022, respectively. The change in our deferred income tax asset and liability was primarily due to the tax effect of unrealized losses generated by the investment portfolio during the first nine months of 2022.2023. We owned $595.7$806.2 million and $426.3$661.7 million of tax and loss bonds at September 30, 20222023 and December 31, 2021,2022, respectively.
MGIC Investment Corporation - Q3 2023 | 57
Consolidated balance sheets - Liabilities and equity
| | (in thousands) | (in thousands) | September 30, 2022 | | December 31, 2021 | | % Change | (in thousands) | September 30, 2023 | | December 31, 2022 | | % Change |
| Loss reserves | Loss reserves | $ | 603,370 | | | $ | 883,522 | | | (32) | | Loss reserves | $ | 525,528 | | | $ | 557,988 | | | (6) | |
| Unearned premiums | Unearned premiums | 207,935 | | | 241,690 | | | (14) | | Unearned premiums | 165,093 | | | 195,289 | | | (15) | |
| Long-term debt | Long-term debt | 662,653 | | | 1,146,712 | | | (42) | | Long-term debt | 642,828 | | | 662,810 | | | (3) | |
| Other liabilities | Other liabilities | 140,097 | | | 191,702 | | | (27) | | Other liabilities | 143,525 | | | 154,966 | | | (7) | |
| Total Liabilities | Total Liabilities | $ | 1,614,055 | | | $ | 2,463,626 | | | (34) | | Total Liabilities | $ | 1,476,974 | | | $ | 1,571,053 | | | (6) | |
| Common stock | Common stock | 371,353 | | | 371,353 | | | — | | Common stock | 371,353 | | | 371,353 | | | — | |
| Paid-in capital | Paid-in capital | 1,792,043 | | | 1,794,906 | | | — | | Paid-in capital | 1,799,624 | | | 1,798,842 | | | — | |
| Treasury stock | Treasury stock | (970,870) | | | (675,265) | | | 44 | | Treasury stock | (1,260,422) | | | (1,050,238) | | | 20 | |
| Accumulated other comprehensive income (loss), net of tax | Accumulated other comprehensive income (loss), net of tax | (495,525) | | | 119,697 | | | (514) | | Accumulated other comprehensive income (loss), net of tax | (496,895) | | | (481,511) | | | (3) | |
| Retained earnings | Retained earnings | 3,843,060 | | | 3,250,691 | | | 18 | | Retained earnings | 4,441,045 | | | 4,004,294 | | | 11 | |
| Shareholders’ equity | Shareholders’ equity | $ | 4,540,061 | | | $ | 4,861,382 | | | (7) | | Shareholders’ equity | $ | 4,854,705 | | | $ | 4,642,740 | | | 5 | |
Loss reserves and Reinsurance recoverable on 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 loss reserves to calculate a net reserve balance. Loss reserves decreased by 32% to $603$525.5 million as of September 30, 2022,2023, from $884$558.0 million as of December 31, 2021. Reinsurance recoverables on loss reserves were $46 million and $67 million as of September 30, 2022 and December 31, 2021, respectively.2022. The decrease in loss reserves is primarily due tofrom favorable development of $327.5$148.9 million on previously received delinquency notices, partially offset by loss reserves established on new delinquency notices. Reinsurance recoverables on loss reserves were $40.9 million and $28.2 million as of September 30, 2023 and December 31, 2022, respectively.
Long-term debt - OurThe decrease in our long-term debt at September 2023, was the result of the conversion of our 9% Debentures in September 2023. Under the terms of our 9% Debentures, we exercised our option to redeem the outstanding principal of $21.1 million. Prior to the redemption date, substantially all holders elected to convert into shares of our common stock. We elected to pay cash in lieu of issuing shares.
Unearned premiums - Our unearned premium decreased to $662.7$165.1 million as of September 30, 20222023 from $1,146.7$195.3 million as of December 31, 2021. In 2022 we repurchased $88.9 million in aggregate principal amountprimarily due to the run-off of our 9% Debentures, repaidexisting portfolio of single premium policies outpacing the outstanding balancelevel of the FHLB Advance of $155.0 million and we redeemed the $242.3 million of aggregate principal outstanding on our 5.75% Senior Notes due in 2023.NIW from single premium policies.
Shareholder’s equity - The decreaseincrease in shareholders’ equity represents a decrease in the fair value of our investments portfolio,primarily relates to net income, partially offset by repurchases of our common stock and dividends paid partially offset by net incometo shareholders in the first nine months of 2022.ended September 30, 2023.
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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, and dividend payments. The following table summarizes our consolidated cash flows from operating, investing and financing activities:
| | Summary of consolidated cash flows | Summary of consolidated cash flows | Summary of consolidated cash flows |
| | | Nine Months Ended September 30, | | | Nine Months Ended September 30, |
| (In thousands) | (In thousands) | | 2022 | | 2021 | (In thousands) | | 2023 | | 2022 |
| Total cash provided by (used in): | Total cash provided by (used in): | | Total cash provided by (used in): | |
| Operating activities | Operating activities | | $ | 483,793 | | | $ | 512,410 | | Operating activities | | $ | 526,716 | | | $ | 483,793 | |
| Investing activities | Investing activities | | 380,962 | | | (398,173) | | Investing activities | | (240,754) | | | 380,962 | |
| Financing activities | Financing activities | | (919,955) | | | (225,005) | | Financing activities | | (343,750) | | | (919,955) | |
| Increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents | Increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents | | $ | (55,200) | | | $ | (110,768) | | Increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents | | $ | (57,788) | | | $ | (55,200) | |
Net cash provided by operating activities for the nine months ended September 30, 2022 decreased2023 increased when compared towith the same period of 20212022 primarily due to an increasedecreases in income taxes paid, increase ininterest expense paid on our outstanding debt obligations, and underwriting and operating expenses paid, decreaseand an increase in investment income collected. This was offset by an increase in realizedlosses paid, net of the reinsurance recoverable on paid losses and a decrease in net premiums received. This was partially offset by decreases in losses paid and the reinsurance recoverable on paid losses.
We also have purchase obligations totaling approximately $25$17.1 million which consist primarily of contracts related to our continued investment in our information technology infrastructure in the normal course of business. The majority of these obligations are under contracts that give us cancellation rights with notice. In the next twelve months we anticipate we will pay approximately $21.4$5.9 million for our purchase obligations.
Future contributions to our qualified pension plan are impacted by the net funded status (the market value of our plan assets compared to the projected benefit obligation).
Net cash used in investing activities for the nine months ended September 30, 2023 primarily reflects purchases of fixed income securities during the period that exceeded sales and maturities of fixed income securities during the period as cash from operations was available for additional investment. Net cash provided by investing activities for the nine months ended September 30, 2022 primarily reflects sales and maturities of fixed income and equity securities during the period that exceeded purchases as proceeds were used in financing activities. Net cash used in investing activities for the nine months ended September 30, 2021 primarily reflects purchases of fixed income and equity securities during the period that exceeded sales and maturities of fixed income and equity securities during the period as cash from operations was available for additional investment.
Net cash used in financing activities for the nine months ended September 30, 2023 primarily reflects the repurchases of our common stock, dividends to shareholders, and the conversion of our 9% Debentures. Net cash used in financing activities for the nine months ended September 30, 2022 primarily reflects repurchaserepurchases of our common stock, repayment of our 5.75% Notes and our FHLB Advance, the repurchase of a portion of our 9% Debentures, and dividends to shareholders. Net cash used in financing activities for the nine months ended September 30, 2021 primarily reflects share repurchases and dividendspaid to shareholders.
Capitalization
Debt - holding company
As of September 30, 2022,2023, our holding company’s debt obligations were $0.7 billion$650.0 million in aggregate principal amount consisting of our 5.25% Notes and 9% Debentures. Indue in 2028. See Note 7 – “Debt” to our consolidated financial statements in our Annual Report on Form 10-K for the first nine months ofyear ended December 31, 2022 we repurchased $88.9 million in aggregate principal amountfor additional information about the terms of our 9% Debentures resultingindebtedness. The description in a reductionNote 7 - “Debt” to our consolidated financial statements in our potentially dilutive sharesAnnual Report on Form 10-K is qualified in its entirety by approximately 6.8 million shares. We also redeemed the $242.3 millionterms of aggregate principal outstanding on our 5.75% Notes due in 2023.the notes.
Liquidity analysis - holding company
As of September 30, 2022,2023, we had approximately $352$723.0 million in cash and investments at our holding company. These resourcesResources are maintained primarily to service our debt interest expense, pay debt maturities, repurchase shares, repurchase debt, pay dividends to shareholders, and to settle intercompany obligations. We also use holding company resources to repurchase shares and pay dividends to shareholders. While these assets are held, we generate investment income that serves to offset a portion of our cash requirements. The payment of dividends from MGIC are the principal sources of holding company cash inflow and their payment is restricted by insurance regulation. See Note 14 - “Statutory Information” to our consolidated financial statement for additional information about MGIC’s dividend restrictions. The payment of dividends from MGIC is also influenced by our view of the appropriate level of PMIERs Available Assets to maintain in excess of Minimum Required Assets. Other sources of holding company liquidity include raising capital in the public markets. 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.
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In the first nine months of 2022ended September 30, 2023, we paid $81.5$91.1 million in dividends to shareholders. On October 27, 2022, our26, the Board of Directors declared a quarterly cash dividend to the holders of $0.10 per share,the company’s common stock of $0.115 per share to shareholders of record on November 10, 2022, payable on November 23, 2022.9, 2023.
In the first nine months of 2022,ended September 30, 2023, our holding company cash and investments decreasedincreased by $311 million to $352 million as of September 30, 2022.$76.0 million. The net unrealized losses on our holding company investment portfolio were approximately $15.6$9.1 million at September 30, 20222023, and the portfolio had a modified duration of approximately 1.61.3 years.
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Significant cash and investments inflows at our holding company during the first nine months:months ended September 30, 2023:
•$400.0300.0 million dividendsdividend received from MGIC
•$93.8110.2 million intercompany tax receipts, and
•$6.114.6 million of investment income.
Significant cash outflows at our holding company during the first nine months:months ended September 30, 2023:
•$303.1214.6 million of net share repurchase transactions,
•$248.4 million of 5.75% Notes redemption
•$120.9 million of 9% Debenture repurchases,
•$81.391.1 million of cash dividends paid to shareholders, and
•$52.035.1 million of interest payments on our 5.75% Notes, 5.25% Notes,outstanding debt obligations, and
•$28.6 million cash paid in lieu of issuing shares on the conversion of our 9% Debentures.
MGIC paid cash$300.0 million in dividends to our holding company of $400 million in the nine months ended September 30, 2022.2023. Future dividend payments from MGIC to the holding company will be determined in consultation with the board, and after considering any updated estimates about our business. We ask the Wisconsin OCI not to object before MGIC pays dividends to the holding company. In November, 2022,October 2023, MGIC paid a $400$300 million dividend to our holding company.
In the first nine months of 2022,ended September 30, 2023, we repurchased 21.714.7 million shares of our common stock using $306.2$217.8 million of holding company cash. As of September 30, 20222023 we had remaining authorization to repurchase $193.8$396.0 million of our common stock through the end of 2023July 1, 2025 under a share repurchase program approved by our Board of Directors in April 2023. Through October 2021. In October 2022,27, 2023, we repurchased an additional $2.62.2 million shares totaling $33.2$36.5 million under the remaining authorization.
During the nine months ending September 30, 2022, we repurchased $88.9 million in aggregate principal amount of our 9% Debentures at a purchase price of $120.9 million plus accrued interest. We also redeemed the outstanding principal balance of the 5.75% Notes at a purchase price of $248.4 million plus accrued interest.
Scheduled debt maturities beyond the next twelve months include $650.0 million of our 5.25% Notes in 2028, and $21.3 million of our 9% Debentures in 2063. Subject to certain limitations and restrictions, holders of each of the 9% Debentures may convert their notes into shares of our common stock at their option under the terms of their issuance, in which case our corresponding obligation will be eliminated.
Over the next twelve months the principal demand on our holding company resources will be interest payments on our 5.25% Notes and 9% Debentures approximating $36$34.1 million and dividends to shareholders. We believe our holding company has sufficient sources of liquidity to meet its payment obligations for the foreseeable future.
We may also use additional holding company cash to repurchase additional shares or to repurchase our outstanding debt obligations.shares. 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.
See Note 7 – “Debt” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information about the conversion terms of our 9% Debentures and the terms of our indebtedness, including our option to defer interest on our 9% Debentures. The description in Note 7 - “Debt” to our consolidated financial statements in our Annual Report on Form 10-K is qualified in its entirety by the terms of the notes and debentures.
Debt at subsidiaries
MGIC did not have any outstanding debt obligations at September 30, 2023. MGIC is a member of the FHLB, which provides MGIC access to an additional source of liquidity via a secured lending facility. In the first quarter of 2022, we prepaid the outstanding principal balance of $155.0 million onWe may borrow from the FHLB Advance at a prepayment price of $156.3 million, incurring a prepayment fee of $1.3 million.any time.
Capital Adequacy
PMIERs
As of September 30, 2022,2023, MGIC’s Available Assets under the PMIERs totaled approximately $5.9$6.0 billion, an excess of approximately $2.6$2.4 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. Our reinsurance transactions provided an aggregate of approximately $2.5$2.2 billion of capital credit under the PMIERs as of September 30, 2022.2023. Refer to Note 4 - “Reinsurance” to our consolidated financial statements for additional information on our reinsurance transactions.
The PMIERSPMIERs 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.
Refer to “Overview - Capital - GSEs” of this MD&A and 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” for further discussion of PMIERs.
Risk-to-capital
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. While they vary among jurisdictions, the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1.
We compute our risk-to-capital ratio on a separate company statutory basis, as well as on a combined insurance operationoperations basis. The risk-to-capital ratio is our net RIF divided by our policyholders’ position. Our net RIF includes both primary and pool risk in force, net of reinsurance and excludes risk on policies that are currently in default and for which case loss reserves have been established.established and the risk covered by reinsurance. The risk amount includes pools of loans with contractual aggregate loss limits and without these limits. MGIC’s policyholders’ position consists primarily of statutory
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MGIC’s 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 loss reserve. The statutory contingency loss reserve is reported as a liability on the statutory balance sheet. A mortgage insurance company is required to make annual additions to thea contingency loss reserve of approximately 50% of 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 loss reserve when incurred losses exceed 35% of earned premiums in a calendar year.
The table below presents our risk-to-capital calculation:
| | Risk-to-capital - MGIC | Risk-to-capital - MGIC | Risk-to-capital - MGIC |
| (In millions, except ratio) | (In millions, except ratio) | | September 30, 2022 | | December 31, 2021 | (In millions, except ratio) | | September 30, 2023 | | December 31, 2022 |
RIF - net (1) | RIF - net (1) | | 53,699 | | | $ | 50,298 | | RIF - net (1) | | 56,032 | | | $ | 56,292 | |
| Statutory policyholders’ surplus | Statutory policyholders’ surplus | | 1,228 | | | 1,217 | | Statutory policyholders’ surplus | | 855 | | | 921 | |
| Statutory contingency reserve | | 4,461 | | | 4,056 | | |
| Statutory contingency loss reserve | | Statutory contingency loss reserve | | 5,002 | | | 4,597 | |
| Statutory policyholders’ position | Statutory policyholders’ position | | $ | 5,689 | | | $ | 5,273 | | Statutory policyholders’ position | | $ | 5,857 | | | $ | 5,518 | |
| Risk-to-capital | Risk-to-capital | | 9.4:1 | | 9.5:1 | Risk-to-capital | | 9.6:1 | | 10.2:1 |
(1)RIF – net, as shown in the table above is net of reinsurance and exposure on policies currently delinquent ($1.41.5 billion at September 30, 20222023 and $1.8$1.4 billion at December 31, 2021)2022) for which loss reserves have been established.
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.”
Financial Strength Ratings
| | | | | | | | | | | | | | |
| MGIC financial strength ratings |
| Rating Agency | | Rating | | Outlook |
| Moody’s Investor Services | | A3 | | Stable |
| Standard and Poor’s Rating Services | | BBB+ | | Stable |
| A.M. Best | | A- | | StablePositive |
| | | | | | | | | | | | | | |
| MAC financial strength ratings |
| Rating Agency | | Rating | | Outlook |
| A.M. Best | | A- | | StablePositive |
For further information about the importance of MGIC’s ratings, 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.”
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Forward Looking Statements and Risk Factors
General: Our business, results of operations, and financial condition could be affected by the Risk Factors referred to under “Location of Risk Factors” below. These Risk Factors are an integral part of Management’s Discussion and Analysis.
These 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. These Risk Factors speak only as of the date of this filing and are subject to change without notice as the Company cannot predict all risks relating to this evolving set of events. We are not undertaking any obligation to update any forward looking statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking 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.
While we communicate with security analysts from time to time, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report, and such reports are not our responsibility.
Location of Risk Factors: The Risk Factors are in Item 1 A of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, as supplemented by Part II, Item 1 A of our Quarterly Reportquarterly report on Form 10-Q10Q for the quarters ended March 31, 20222023 and June 30, 20222023, and Part II, Item 1 A of this Quarterly Report on Form 10-Q. The Risk Factors in the 10-K, as supplemented by thosethis 10‑Qs and through updating of various statistical and other information, are reproduced in Exhibit 99 to this Quarterly Report on Form 10-Q.
Item 3. 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 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,E, Investment Portfolio" in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
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 this exposure is modified duration. Modified duration measures the price sensitivity of the assets to the changes in spreads. At September 30, 2022,2023, the modified duration of our fixed income investment portfolio was 4.44.1 years, which means that an instantaneous parallel shift in the yield curve of 100 basis points would result in a change of 4.4%4.1% 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. See Note 7 – “Investments” to our consolidated financial statements for additional disclosure surrounding our investment portfolio.
Item 4. Controls and Procedures
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 Quarterly Report on Form 10-Q. 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. There was no change in our internal control over financial reporting that occurred during the third quarter of 20222023 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Certain legal proceedings arising in the ordinary course of business may be filed or pending against us from time to time. For information about such legal proceedings, you should review Note 5 - “Litigation and Contingencies” to our consolidated financial statements and our Risk Factor titled “We are subject to the risk of legal proceedings in the future” below.in Exhibit 99.
Item 1 A. Risk Factors
With the exception of the changes described and set forth below, there have been no material changes in our Risk Factors from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as supplemented by Part II, Item I A of our Quarterly Report on Form 10-Q for the Quarters ended March 31, 2022, June 30, 2022, and September 30, 2022. The risk factors in the 10-K, as supplemented by those 10-Qs and this 10-Q and through updating of various statistical and other information, are reproduced in their entirety in Exhibit 99 to this Quarterly Report on Form 10‑Q.
The ICE Benchmark Administration, the administrator of LIBOR, ceased publishing all USD LIBOR tenors on June 30, 2023. We evaluated the impact of the discontinuance of LIBOR on our consolidated financial statements and determined it will not have a material impact. As such, the risk factor titled “The Company may be adversely impacted by the transition from LIBOR as a reference rate“ has been deleted.
Risk Factors RelatedRelating to Global Events
The COVID-19 pandemicWars and/or other global events may materially impactadversely affect the U.S. economy and our future financial results, business, liquiditybusiness.
Wars and/or financial condition.
The COVID-19 pandemic materially impacted our 2020 financial results. While the initial impact of COVID-19 on our business has moderated, the extent to which COVID-19other global events may materially impact our future financial results, business, liquidity and/or financial condition is uncertainresult in increased inflation rates, strained supply chains, and cannot be predicted. The magnitude of any future impact could be influenced by various factors, including the length and severity of the pandemicincreased volatility in the United States, effortsdomestic and global financial markets. Wars and/or other global events have in the past and may continue to reduce the transmission of COVID-19, the level of unemployment, government initiatives and actions taken by Fannie Mae and Freddie Mac (the "GSEs") (including mortgage forbearance and modification programs), and the overall effects of COVID-19 on the economy.
The COVID-19 pandemic may impact our business in various ways, including the following which are described in more detail in the remainder of these risk factors:
•Our incurred losses will increase if loan delinquencies increase. 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 received (which are included in “IBNR”). In addition, our estimates of the number of delinquencies forThe terms under which we will ultimately receive claims,are able to obtain excess-of-loss ("XOL") reinsurance through the insurance-linked notes ("ILN") market and the amount, or severity, of each claim, may increase.
•Wetraditional reinsurance market may be required to maintain more capital under the private mortgage insurer eligibility requirements ("PMIERs") of the GSEs, which generally require more capital to be held for delinquent loans than for performing loansnegatively impacted 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 we must pay over time will generally increase.
•Our access to the reinsurance and capital markets may be limited and the terms under which we are able to access suchthose markets in the future may be limited or less attractive.
•The risk of a cybersecurity incident that affects our company may increase.
•Wars may negatively impact the domestic economy, which may increase unemployment and inflation, or decrease home prices, in each case leading to an increase in loan delinquencies.
•The volatility in the financial markets may beimpact the performance of our investment portfolio and our investment portfolio may include investments in companies or securities that are negatively impacted.impacted by wars and/or other global events.
Risk Factors Relating to the Mortgage Insurance Industry and its Regulation
Downturns inWe may not continue to meet the domestic economy or declines in home prices may result in more homeowners defaultingGSEs’ private mortgage insurer eligibility requirements and our losses increasing,returns may decrease if we are required to maintain more capital in order to maintain our eligibility.
We must comply with a corresponding decreaseGSE's PMIERs to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transaction approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s “Available Assets” (generally only the most liquid assets of an insurer) to equal or exceed its “Minimum Required Assets” (which are generally based on an insurer’s book of risk in force and calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance agreements).
Based on our interpretation of the PMIERs, as of September 30, 2023, MGIC’s Available Assets totaled $6.0 billion, or $2.4 billion in excess of its Minimum Required Assets. MGIC is in compliance with the PMIERs and eligible to insure loans purchased by the GSEs. Our "Minimum Required Assets" reflect a credit for risk ceded under our quota share reinsurance ("QSR") and XOL reinsurance transactions, which are discussed in our returns.
Losses result from events that reduce a borrower’s ability or willingness to make mortgage payments, such as unemployment, health issues, changes in family status,risk factor titled "The mix of business we write affects our Minimum Required Assets under the PMIERs, our premium yields and decreases in home prices that result in the borrower's mortgage balance exceedinglikelihood of losses occurring." The calculated credit for XOL reinsurance transactions under PMIERs is generally based on the net valuePMIERs requirement of the home. A deteriorationcovered loans and the attachment and detachment points of the coverage, all of which fluctuate over time. PMIERs credit is generally not given for the reinsured risk above the PMIERs requirement. The GSEs have discretion to further limit reinsurance credit under the PMIERs. Refer to “Consolidated Results of Operations – Reinsurance Transactions” in economic conditions, including an increase in unemployment, generally increasesPart I, Item 2 of our Quarterly Report on Form 10-Q for information about the likelihood that borrowerscalculated PMIERs credit for our XOL transactions. There is a risk we will not have sufficient income to pay their mortgages and can also adversely affect home prices.
Highreceive 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 unemploymentcredit under the PMIERs, under certain circumstances, MGIC may result in an increasingterminate the reinsurance transactions without penalty.
The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. If the number of loan delinquencies and an increasingincreases for reasons discussed in these risk factors, or otherwise, it may cause our Minimum Required Assets to exceed our Available Assets. We are unable to predict the ultimate number of insurance claims; however, unemployment is difficult to predict given the uncertainty in the current market environment, including as a result of global events such as the COVID-19 pandemic, the Russia-Ukraine war, and the possibility of an economic recession. Since the beginning of 2021, inflation has increased dramatically. The impactloans that higher inflation rates will have on loan delinquencies is unknown.
The seasonally-adjusted Purchase-Only U.S. Home Price Index of the Federal Housing Finance Agency (the “FHFA”), which is based on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac, indicates that home prices fell nationwide in August 2022, down 0.7% from the previous month. The 12 month change in home prices remains at historically high rates, but the rate of growth is moderating: it increased by 6.6% in the first eight months of 2022, after increasing 8.0% during the first five months of 2022, and 17.9%, 11.7%, and 5.9% in 2021, 2020 and 2019, respectively. The national average price-to-income ratio exceeds its historical average, in part as a result of recent home price appreciation outpacing increases in income. Affordability issues and the significant increase in interest rates in recent months has put downward pressure on home prices. Recent third-party forecasts predict that home prices will decline further. This decline may occur even absent a deterioration in economic conditions due to declines in demand for homes, which in turn may result from changes in buyers’ perceptions of the potential for future appreciation, restrictions on and the cost of mortgage credit due to more stringent underwriting standards, higher interest rates, changes to the tax deductibility of mortgage interest, decreases in the rate of household formations, or other factors.
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Reinsurance may not always be available or its cost may increase.
We have in place QSR and XOL reinsurance transactions providing various amounts of coverage on 94% ofIf our risk in force as of September 30, 2022. Refer to Part 1, Note 4 – “Reinsurance” and Part 1, Item 2 “Consolidated Results of Operations – Reinsurance Transactions” ofAvailable Assets fall below our Quarterly Report on Form 10-Q, for more information about coverage under our reinsurance transactions. The reinsurance transactions reduce the tail-risk associated with stress scenarios. As a result, they reduce the capital that we are required to hold to support the risk and they allow us to earn higher returns on our business thanMinimum Required Assets, we would without them. However, reinsurance may not always be available to us or available on similar terms,in compliance with the reinsurance transactions subject us to counterparty credit risk, andPMIERs. 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 changesuspend or terminate our eligibility to insure loans purchased by them. Such suspension or termination would significantly reduce the credit they allow undervolume of our NIW, the substantial majority of which is for loans delivered to or purchased by the GSEs. In addition to the increase in Minimum Required Assets associated with delinquent loans, factors that may negatively impact MGIC’s ability to continue to comply with the financial requirements of the PMIERs for risk ceded under our reinsurance transactions. Mostinclude the following:
•The GSEs may make the PMIERs more onerous in the future. The PMIERs provide that the GSEs may amend any provision of our XOL transactions were entered intothe PMIERs or impose additional requirements with an effective date specified by the GSEs.
•The PMIERs provide that the factors that determine Minimum Required Assets will be updated periodically, or as needed if there is a significant change in capital market transactions with special purpose insurersmacroeconomic conditions or loan performance. The PMIERs state that issued notes linkedthe GSEs will provide notice 180 days prior to the reinsurance coverage ("Insurance Linked Notes" or "ILNs"). Our accesseffective date of updates to reinsurancethe factors that determine Minimum Required Assets; however, the GSEs may amend the PMIERs at any time, including by imposing restrictions specific to our company.
•The PMIERs may be disrupted andchanged in response to the terms under which we are able to obtain reinsurancefinal regulatory capital framework for the GSEs that was published in February 2022.
•Our future operating results may be less attractive thannegatively impacted by the matters discussed in the pastrest 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 volatility stemming from circumstances such as higher interest rates, increased inflation, global events such as the Russia-Ukraine war, and other factors. In 2022, executioncompeting demands on holding company resources, including for repayment of transactions for XOL reinsurance through the ILN market has been more challenging, with increased pricing, transactions being down-sized, and generally fewer transactions being executed by mortgage insurers. If we are unable to obtain reinsurance for our insurance written, the capital required to support our insurance written will not be reduced as discussed above and our returns may decrease absent an increase in our premium rates. An increase in our premium rates may lead to a decrease in our NIW.debt.
State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis.
The insurance laws of 16 jurisdictions, including Wisconsin, MGIC's domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to its risk in force (or a similar measure) in order for the mortgage insurer to continue to write new business. We refer to these requirements as the “State Capital Requirements.” While they vary among jurisdictions, the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1. A risk-to-capital ratio will increase if (i) the percentage decrease in capital exceeds the percentage decrease in insured risk, or (ii) the percentage increase in capital is less than the percentage increase in insured risk. Wisconsin does not regulate capital by using a risk-to-capital measure but instead requires a minimum policyholder position (“MPP”). MGIC's “policyholder position” includes its net worth, or surplus, and its contingency reserve.
At September 30, 20222023, MGIC’s risk-to-capital ratio was 9.49.6 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.7$3.8 billion above the required MPP of $2.0$2.1 billion. Our risk-to-capital ratio and MPP reflect full credit for the risk ceded under our quota share reinsurance and excess of loss transactions in the ILN market and traditional reinsurance marketand ILN markets 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 itsestablished a Mortgage Guaranty Insurance Model Act. In December 2019, a working group of state regulators released an exposureWorking Group to determine and make recommendations to the NAIC’s Financial Condition Committee as to what, if any, changes to make to the solvency and other regulations relating to mortgage guaranty insurers. A draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage insurers, although certain items were not completely addressedwas adopted by the framework, includingFinancial Condition Committee in July 2023 and by the treatment of ceded riskExecutive Committee and Plenary NAIC in August 2023. The revised Model Act includes requirements relating to, among other things: (i) capital and minimum capital floors. In October 2022,requirements, and contingency reserves; (ii) restrictions on mortgage insurers’ investments in notes secured by mortgages; (iii) prudent underwriting standards and formal underwriting guidelines; (iv) the NAIC working group released aestablishment of formal, internal “Mortgage Guaranty Quality Control Programs” with respect to in-force business; and (v) reinsurance and prohibitions on captive reinsurance arrangements. It is uncertain when the revised exposure draftModel Act will be adopted in any jurisdiction. The provisions of the Mortgage Guaranty Insurance Model Act, that doesif adopted in their final form, are not includeexpected to have a material adverse effect on our business. It is unknown whether any changes will be made by state legislatures prior to adoption, and the capital requirements ofeffect changes, if any, will have on the existing Model Act.mortgage guaranty insurance market generally, or on our business.
While MGIC currently meets the State Capital Requirements of Wisconsin and all other jurisdictions, it could be prevented from writing new business in the future in all jurisdictions if it fails to meet the State Capital Requirements of Wisconsin, or it could be prevented from writing new business in a particular jurisdiction if it fails to meet the State Capital Requirements of that jurisdiction, and in each case if MGIC does not obtain a waiver of such requirements. It is possible that regulatory action by one or more jurisdictions, including those that do not have specific State Capital Requirements, may prevent MGIC from continuing to write new insurance in such jurisdictions. If we are unable to write business in a particular jurisdiction, lenders may be unwilling to procure insurance from us anywhere. In addition, a lender’s assessment of the future ability of our insurance operations to meet the State Capital Requirements or the PMIERs may affect its willingness to procure insurance from us. In this regard, see our risk factor titled “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and/or increase our losses.” A possible future failure by MGIC to meet the State Capital Requirements or the PMIERs will not necessarily mean that MGIC lacks sufficient resources to pay claims on its insurance liabilities. You should read the rest of these risk factors for information about matters that could negatively affect MGIC’s compliance with State Capital Requirements and its claims paying resources.
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Risk Factors Relating to Our Business Generally
We are subject to the risk of legal proceedings.
Before paying an insurance claim, generally we review the loan and servicing files to determine the appropriateness of the claim amount. When reviewing the files, we may determine that we have the right to rescind coverage or deny a claim on the loan (both referred to herein as “rescissions”). In addition, our insurance policies generally provide that we can reduce a claim if the servicer did not comply with its obligations under our insurance policy (such reduction referred to as a “curtailment”). In recent years, an immaterial percentage of claims received have been resolved by rescissions. In the first three quarters of 2022 and in 2021, curtailments reduced our average claim paid by approximately 7.7% and 3.9%, respectively. The COVID-19-related foreclosure moratoriums and forbearance plans decreased our claims paid activity beginning in the second quarter of 2020. It is difficult to predict the level of curtailments once foreclosure activity returns to a more typical level. Our loss reserving methodology incorporates our estimates of future rescissions, curtailments, and reversals of rescissions and curtailments. A variance between ultimate actual rescission, curtailment and reversal rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses.
When the insured disputes our right to rescind coverage or curtail claims, we generally engage in discussions in an attempt to settle the dispute. If we are unable to reach a settlement, the outcome of a dispute ultimately may be determined by legal proceedings. Under ASC 450-20, until a loss associated with settlement discussions or legal proceedings becomes probable and can be reasonably estimated, we consider our claim payment or rescission resolved for financial reporting purposes and do not accrue an estimated loss. When we determine that a loss is probable and can be reasonably estimated, we record our best estimate of our probable loss. In those cases, until settlement negotiations or legal proceedings are concluded (including the receipt of any necessary GSE approvals), it is possible that we will record an additional loss.
We have been named as a third-party defendant in a lawsuit that involves refunds of mortgage insurance premiums under the Homeowners Protection Act. We are monitoring litigation addressing similar issues in which we have not been named a defendant. We are unable to assess the potential impact of any such litigation at this time. In addition, from time to time, we are involved in other disputes and legal proceedings in the ordinary course of business. In our opinion, based on the facts known at this time, the ultimate resolution of these ordinary course disputes and legal proceedings will not have a material adverse effect on our financial position or results of operations.
The mix of business we write affects our Minimum Required Assets under the PMIERs, our premium yields and the likelihood of losses occurring.
The Minimum Required Assets under the PMIERs are, in part, a function of the direct risk-in-force and the risk profile of the loans we insure, considering LTV ratio, credit score, vintage, Home Affordable Refinance Program ("HARP") status and delinquency status; and whether the loans were insured under lender-paid mortgage insurance policies or other policies that are not subject to automatic termination consistent with the Homeowners Protection Act requirements for borrower-paid mortgage insurance. Therefore, if our direct risk-in-force increases through increases in NIW, or if our mix of business changes to include loans with higher LTV ratios or lower FICO scores, for example, all other things equal, we will be required to hold more Available Assets in order to maintain GSE eligibility.
The percentage of our NIW from all single premium policies was 4.4% in the first three quarters of 2022 and 7.4% in full year 2021, and has ranged from 4.4% in 2022 to 19.0% 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.
As discussed in our risk factor titled "Reinsurance may not always be available or its cost may increase," we have in place various QSR transactions. Although the transactions reduce our premiums, they have a lesser impact on our overall results, as losses ceded under the transactions reduce our losses incurred and the ceding commissions we receive reduce our underwriting expenses. The effect of the QSR transactions on the various components of pre-tax income will vary from period to period, depending on the level of ceded losses incurred. We also have in place various XOL reinsurance transactions under which we cede premiums. Under the XOL reinsurance transactions, for the respective reinsurance coverage periods, we retain the first layer of aggregate losses and the reinsurers provide second layer coverage up to the outstanding reinsurance coverage amount.
In addition to the effect of reinsurance on our premiums, we expect a decline in our premium yield because an increasing percentage of our insurance in force is from recent book years whose premium rates had been trending lower.
Our ability to rescind insurance coverage became more limited for new insurance written beginning in mid-2012, and it became further limited for new insurance written under our revised master policy that became effective March 1, 2020. These limitations may result in higher losses paid than would be the case under our previous master policies. In addition, our rescission rights temporarily have become more limited due to accommodations we made in connection with the COVID-19 pandemic. We waived our rescission rights in certain circumstances where the failure to make payments was associated with a COVID-19 pandemic-related forbearance.
From time to time, in response to market conditions, we change the types of loans that we insure. We also may change our underwriting guidelines, including by agreeing with certain approval recommendations from a GSE automated underwriting system. We also make exceptions to our underwriting requirements on a loan-by-loan basis and for certain customer programs. Our underwriting requirements are available on our website at http://www.mgic.com/underwriting/index.html.
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Even when home prices are stable or rising, mortgages with certain characteristics have higher probabilities of claims. As of September 30, 2022, mortgages with these characteristics in our primary risk in force included mortgages with LTV ratios greater than 95% (15.1%), mortgages with borrowers having FICO scores below 680 (7.2%), including those with borrowers having FICO scores of 620-679 (6.3%), mortgages with limited underwriting, including limited borrower documentation (0.8%), and mortgages with borrowers having DTI ratios greater than 45% (or where no ratio is available) (15.2%), each attribute as determined at the time of loan origination. Loans with more than one of these attributes accounted for 4.4% of our primary risk in force as of September 30, 2022, and 3.4% of our NIW in the first three quarters of 2022 and less than one percent of our NIW in the first three quarters of 2021. When home prices increase, interest rates increase and/or the percentage of our NIW from purchase transactions increases, our NIW on mortgages with higher LTV ratios and higher DTI ratios may increase. Our NIW on mortgages with LTV ratios greater than 95% increased from 11% in the first three quarters of 2021 to 13% in the first three quarters of 2022 and our NIW on mortgages with DTI ratios greater than 45% increased from 13% in the first three quarters of 2021 to 21% in the first three quarters of 2022.
From time to time, we change the processes we use to underwrite loans. For example: we rely on information provided to us by lenders that was obtained from certain of the GSEs’ automated appraisal and income verification tools, which may produce results that differ from the results that would have been determined using different methods; we accept GSE appraisal waivers for certain refinance loans, the numbers of which have increased significantly beginning in 2020; and we accept GSE appraisal flexibilities that allow property valuations in certain transactions to be based on appraisals that do not involve an onsite or interior inspection of the property. Our acceptance of automated GSE appraisal and income verification tools, GSE appraisal waivers and GSE appraisal flexibilities may affect our pricing and risk assessment. We also continue to further automate our underwriting processes and it is possible that our automated processes result in our insuring loans that we would not otherwise have insured under our prior processes.
Approximately 72% of our first three quarters 2022 and 72% of our 2021 NIW was originated under delegated underwriting programs pursuant to which the loan originators had authority on our behalf to underwrite the loans for our mortgage insurance. For loans originated through a delegated underwriting program, we depend on the originators' compliance with our guidelines and rely on the originators' representations that the loans being insured satisfy the underwriting guidelines, eligibility criteria and other requirements. While we have established systems and processes to monitor whether certain aspects of our underwriting guidelines were being followed by the originators, such systems may not ensure that the guidelines were being strictly followed at the time the loans were originated.
The widespread use of risk-based pricing systems by the private mortgage insurance industry (discussed in our risk factor titled "Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses") makes it more difficult to compare our premium rates to those offered by our competitors. We may not be aware of industry rate changes until we observe that our mix
of new insurance written has changed and our mix may fluctuate more as a result.
If state or federal regulations or statutes are changed in ways that ease mortgage lending standards and/or requirements, or if lenders seek ways to replace business in times of lower mortgage originations, it is possible that more mortgage loans could be originated with higher risk characteristics than are currently being originated, such as loans with lower FICO scores and higher DTI ratios. The focus of the new FHFA leadership on increasing homeownership opportunities for borrowers is likely to have this effect. Lenders could pressure mortgage insurers to insure such loans, which are expected to experience higher claim rates. Although we attempt to incorporate these higher expected claim rates into our underwriting and pricing models, there can be no assurance that the premiums earned and the associated investment income will be adequate to compensate for actual losses paid even under our current underwriting requirements.
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Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
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 September 30, 2022.2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share repurchases |
| Period Beginning | | Period Ending | | Total number of shares purchased | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under the programs (1) |
| July 1, 2022 | | July 31, 2022 | | 2,097,934 | | | $ | 13.31 | | | 2,097,934 | | | $ | 250,204,754 | |
| August 1, 2022 | | August 31, 2022 | | 1,833,804 | | | $ | 14.75 | | | 1,833,804 | | | $ | 223,163,674 | |
| September 1, 2022 | | September 30, 2022 | | 2,131,690 | | | $ | 13.77 | | | 2,131,690 | | | $ | 193,815,512 | |
| | | | 6,063,428 | | | $ | 13.90 | | | 6,063,428 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share repurchases |
| Period Beginning | | Period Ending | | Total number of shares purchased | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under the programs (1) |
| July 1, 2023 | | July 31, 2023 | | 1,141,205 | | | $ | 16.20 | | | 1,141,205 | | | $ | 444,949,020 | |
| August 1, 2023 | | August 31, 2023 | | 1,341,718 | | | 17.47 | | | 1,341,718 | | | 421,507,117 | |
| September 1, 2023 | | September 30, 2023 | | 1,460,585 | | | 17.17 | | | 1,460,585 | | | $ | 396,431,280 | |
| | | | 3,943,508 | | | $ | 16.99 | | | 3,943,508 | | | |
(1)In October 2021,April 2023, our Board of Directors authorized a share repurchase program under which as of September 30, 2022,2023, we may repurchase up to an additional $194$396 million of our common stock through the end of 2023.July 1, 2025. 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.
Item 5. Other Information
During the three months ended September 30, 2023, none of our officers or directors adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”
Item 6. Exhibits
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-Q. Exhibit 32 is not filed as part of this Form 10-Q but accompanies this Form 10-Q.
(Part II, Item 6)
Index to exhibits
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Exhibit Number | | Description of Exhibit | Form | Exhibit(s) | Filing Date | | | | |
| | Certification of CEO under Section 302 of Sarbanes-Oxley Act of 2002 † | | | | | | | |
| | Certification of CFO under Section 302 of Sarbanes-Oxley Act of 2002 † | | | | | | | |
| | Certification of CEO and CFO under Section 906 of Sarbanes-Oxley Act of 2002 (as indicated in Item 6 of Part II, this Exhibit is not being “filed”) †† | | | | | | | |
| | Risk Factors included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, as supplemented by Part II, Item 1A of our Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, and September 30, 20222023 and through updating of various statistical and other information † | | | | | | | |
| 101.INS | | Inline XBRL Instance Document | | | | | | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | | |
* Denotes a management contract or compensatory plan.
† Filed herewith.
†† Furnished herewith.
MGIC Investment Corporation - Q3 20222023 | 65
SIGNATURES
Pursuant to the requirements 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 November 2, 2022.October 31, 2023.
| | | | | |
| MGIC INVESTMENT CORPORATION |
| |
| /s/ Nathaniel H. Colson |
| Nathaniel H. Colson |
| Executive Vice President and |
| Chief Financial Officer |
| |
| /s/ Julie K. Sperber |
| Julie K. Sperber |
| Vice President, Controller and Chief Accounting Officer |
MGIC Investment Corporation - Q3 20222023 | 66
