FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
[ ] 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 (I.R.S. Employer
incorporation or organization) 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)
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 X NO
--------- --------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OF STOCK PAR VALUE DATE NUMBER OF SHARES
- -------------- --------- ---- ----------------
Common stock $1.00 7/31/99 109,126,978
PAGE 1
MGIC INVESTMENT CORPORATION
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet as of
June 30, 1999 (Unaudited) and December 31, 1998 3
Consolidated Statement of Operations for the Three and Six
Month Periods Ended June 30, 1999 and 1998 (Unaudited) 4
Consolidated Statement of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 22-23
Item 5. Other Information 23-24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
INDEX TO EXHIBITS 26
PAGE 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1999 (Unaudited) and December 31, 1998
June 30, December 31,
1999 1998
-------- ------------
ASSETS (In thousands of dollars)
- ------
Investment portfolio:
Securities, available-for-sale, at market value:
Fixed maturities $2,661,837 $2,602,870
Equity securities 18,728 4,627
Short-term investments 142,865 172,209
---------- ----------
Total investment portfolio 2,823,430 2,779,706
Cash 3,994 4,650
Accrued investment income 43,440 41,477
Reinsurance recoverable on loss reserves 40,450 45,527
Reinsurance recoverable on unearned premiums 6,879 8,756
Home office and equipment, net 33,688 32,400
Deferred insurance policy acquisition costs 23,105 24,065
Investments in joint ventures 97,856 75,246
Other assets 45,494 38,714
---------- ----------
Total assets $3,118,336 $3,050,541
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Loss reserves $ 686,634 $ 681,274
Unearned premiums 173,500 183,739
Notes payable (note 2) 417,000 442,000
Other liabilities 65,561 102,937
---------- ----------
Total liabilities 1,342,695 1,409,950
---------- ----------
Contingencies (note 3)
Shareholders' equity:
Common stock, $1 par value, shares authorized
300,000,000; shares issued 121,110,800;
shares outstanding, 6/30/99 - 109,077,962;
1998 - 109,003,032 121,111 121,111
Paid-in surplus 215,994 217,022
Treasury stock (shares at cost, 6/30/99 - 12,032,838;
1998 - 12,107,768) (479,476) (482,465)
Accumulated other comprehensive income - unrealized
appreciation in investments, net of tax 19,762 94,572
Retained earnings 1,898,250 1,690,351
---------- ----------
Total shareholders' equity 1,775,641 1,640,591
---------- ----------
Total liabilities and shareholders' equity $3,118,336 $3,050,541
========== ==========
See accompanying notes to consolidated financial statements.
PAGE 3
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three and Six Month Periods Ended June 30, 1999 and 1998
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(In thousands of dollars,
except per share data)
Revenues:
Premiums written:
Direct $200,989 $187,733 $389,335 $365,530
Assumed 1,166 2,168 1,604 4,137
Ceded (5,781) (3,238) (10,554) (6,517)
-------- -------- -------- --------
Net premiums written 196,374 186,663 380,385 363,150
(Increase) decrease in
unearned premiums (1,608) 2,585 8,362 15,919
-------- -------- -------- --------
Net premiums earned 194,766 189,248 388,747 379,069
Investment income, net of
expenses 38,627 35,325 75,542 69,714
Realized investment gains, net 1,212 946 3,353 11,241
Other revenue 15,326 12,507 28,956 21,968
-------- -------- -------- --------
Total revenues 249,931 238,026 496,598 481,992
-------- -------- -------- --------
Losses and expenses:
Losses incurred, net 30,941 52,514 75,173 111,952
Underwriting and other
expenses 51,949 45,532 105,182 90,690
Interest expense 4,644 3,456 10,042 7,086
Ceding commission (565) (929) (926) (1,266)
-------- -------- -------- --------
Total losses and expenses 86,969 100,573 189,471 208,462
-------- -------- -------- --------
Income before tax 162,962 137,453 307,127 273,530
Provision for income tax 50,028 42,241 93,775 84,271
-------- -------- -------- --------
Net income $112,934 $ 95,212 $213,352 $189,259
======== ======== ======== ========
Earnings per share (note 4):
Basic $ 1.04 $ 0.83 $ 1.96 $ 1.66
======== ======== ======== ========
Diluted $ 1.02 $ 0.82 $ 1.94 $ 1.64
======== ======== ======== ========
Weighted average common shares
outstanding - diluted (shares
in thousands, note 4) 110,254 115,713 110,129 115,727
======== ======== ======== ========
Dividends per share $ 0.025 $ 0.025 $ 0.050 $ 0.050
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
PAGE 4
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1999 and 1998
(Unaudited)
Six Months Ended
June 30,
--------------------
1999 1998
---- ----
(In thousands of dollars)
Cash flows from operating activities:
Net income $213,352 $189,259
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred insurance policy
acquisition costs 8,180 11,249
Increase in deferred insurance policy
acquisition costs (7,220) (9,358)
Depreciation and amortization 4,723 3,503
Increase in accrued investment income (1,963) (3,798)
Decrease in reinsurance recoverable on loss
reserves 5,077 4,304
Decrease in reinsurance recoverable on unearned
premiums 1,877 2,092
Increase in loss reserves 5,360 32,268
Decrease in unearned premiums (10,239) (18,012)
Equity earnings in joint venture (9,150) (4,920)
Other (469) (8,765)
-------- --------
Net cash provided by operating activities 209,528 197,822
-------- --------
Cash flows from investing activities:
Purchase of equity securities (14,101) (3,886)
Purchase of fixed maturities (662,732) (503,774)
Additional investment in joint venture (13,460) (15,000)
Proceeds from sale of equity securities - 116,164
Proceeds from sale or maturity of fixed maturities 490,989 247,210
-------- --------
Net cash used in investing activities (199,304) (159,286)
-------- --------
Cash flows from financing activities:
Dividends paid to shareholders (5,453) (5,705)
Net (decrease) increase in notes payable (25,000) 7,500
Interest payments on notes payable (11,265) (7,342)
Reissuance of treasury stock 1,494 12,210
Repurchase of common stock - (29,300)
-------- --------
Net cash used in financing activities (40,224) (22,637)
-------- --------
Net (decrease) increase in cash and short-term
investments (30,000) 15,899
Cash and short-term investments at beginning
of period 176,859 119,626
-------- --------
Cash and short-term investments at end of period $146,859 $135,525
======== ========
See accompanying notes to consolidated financial statements.
PAGE 5
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
Note 1 - Basis of presentation
The accompanying unaudited consolidated financial
statements of MGIC Investment Corporation (the "Company") and
its wholly-owned subsidiaries have been prepared in accordance
with the instructions to Form 10-Q and do not include all of
the other information and disclosures required by generally
accepted accounting principles. These statements should be
read in conjunction with the consolidated financial statements
and notes thereto for the year ended December 31, 1998
included in the Company's Annual Report on Form 10-K for that
year.
The accompanying consolidated financial statements have
not been audited by independent accountants in accordance with
generally accepted auditing standards, but in the opinion of
management such financial statements include all adjustments,
consisting only of normal recurring accruals, necessary to
summarize fairly the Company's financial position and results
of operations. The results of operations for the six months
ended June 30, 1999 may not be indicative of the results that
may be expected for the year ending December 31, 1999.
Note 2 - Notes payable
At June 30, 1999, the Company's outstanding balance of the
notes payable on the 1997 and 1998 credit facilities were $200
million and $217 million, respectively, which approximated
market value. The interest rate on the notes payable varies
based on LIBOR and at June 30, 1999 and December 31, 1998 the
rate was 5.23% and 5.80%, respectively. The weighted average
interest rate on the notes payable for borrowings under the
1997 and 1998 credit agreements was 5.26% per annum for the
six months ended June 30, 1999.
During the first half of 1999, the Company utilized three
interest rate swaps each with a notional amount of $100
million to reduce and manage interest rate risk on a portion
of the variable rate debt under the credit facilities. With
respect to all such transactions, the notional amount of $100
million represents the stated principal balance used as a
basis for calculating payments. On the swaps, the Company
receives a floating rate based on various floating rate
indices and pays fixed rates ranging from 3.74% to 4.13%. Two
of the swaps renew monthly and one expires in October 2000.
Earnings in the first half of 1999 on the swaps of
approximately $1.8 million are netted against interest expense
in the Consolidated Statement of Operations.
PAGE 6
Note 3 - Contingencies
The Company is involved in litigation in the ordinary
course of business. In the opinion of management, the
ultimate disposition of the pending litigation will not have a
material adverse effect on the financial position of the
Company.
Note 4 - Earnings per share
The Company's basic and diluted earnings per share ("EPS")
have been calculated in accordance with Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS 128").
The following is a reconciliation of the weighted-average
number of shares used for basic EPS and diluted EPS.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
(Shares in thousands)
Weighted-average shares
- Basic EPS 109,059 114,144 109,031 114,067
Common stock equivalents 1,195 1,569 1,098 1,660
------- ------- ------- -------
Weighted-average shares
- Diluted EPS 110,254 115,713 110,129 115,727
======= ======= ======= =======
Note 5 - Comprehensive income
The Company's total comprehensive income, as calculated
per Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
(In thousands of dollars)
Net income $112,934 $ 95,212 $213,352 $189,259
Other comprehensive
(loss) gain (57,594) 4,188 (74,810) (6,604)
-------- -------- -------- --------
Total comprehensive
income $ 55,340 $ 99,400 $138,542 $182,655
======== ======== ======== ========
The difference between the Company's net income and total
comprehensive income for the three and six months ended June
30, 1999 and 1998 is due to the change in unrealized
appreciation on investments, net of tax.
PAGE 7
Note 6 - New accounting standards
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"), which will be effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. The
statement establishes accounting and reporting standards for
derivative instruments and for hedging activities.
Management does not anticipate the adoption of SFAS 133 will
have a significant effect on the Company's results of
operations or its financial position due to its limited use of
derivative instruments. (See note 2.)
Note 7 - Subsequent events
The Company adopted a Shareholder Rights Plan on July 22,
1999. Under terms of the plan, on August 9, 1999, Common
Share Purchase Rights were distributed as a dividend at the
rate of one Common Share Purchase Right for each outstanding
share of the Company's Common Stock. The "Distribution Date"
occurs ten days after an announcement that a person has
acquired 15 percent or more of the Company's Common Stock (the
date on which such an acquisition occurs is the "Shares
Acquisition Date" and a person who makes such an acquisition
is an "Acquiring Person"), or ten business days after a person
announces or begins a tender offer in which consummation of
such offer would result in ownership by a person of 15 percent
or more of the Common Stock. The Rights are not exercisable
until the Distribution Date. Each Right will initially
entitle shareholders to buy one-half of one share of the
Company's Common Stock at a Purchase Price of $225 per full
share (equivalent to $112.50 for each one-half share), subject
to adjustment. If there is an Acquiring Person, then each
Right (subject to certain limitations) will entitle its holder
to purchase, at the Rights' then-current Purchase Price, a
number of shares of Common Stock of the Company (or if after
the Shares Acquisition Date, the Company is acquired in a
business combination, common shares of the acquiror) having a
market value at the time equal to twice the Purchase Price.
The Rights will expire on July 22, 2009, subject to extension.
The Rights are redeemable at a price of $.001 per Right at any
time prior to the time a person becomes an Acquiring Person.
Other than certain amendments, the Board of Directors may
amend the Rights in any respect without the consent of the
holders of the Rights.
PAGE 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Consolidated Operations
Three Months Ended June 30, 1999 Compared With Three Months
Ended June 30, 1998
Net income for the three months ended June 30, 1999 was
$112.9 million, compared to $95.2 million for the same period
of 1998, an increase of 19%. Diluted earnings per share for
the three months ended June 30, 1999 was $1.02 compared to
$0.82 in the same period last year, an increase of 24%. The
percentage increase in diluted earnings per share was
favorably affected by the lower adjusted shares outstanding at
June 30, 1999 as a result of common stock repurchased by the
Company during the second half of 1998. See note 4 to the
consolidated financial statements. As used in this report,
the term "Company" means the Company and its consolidated
subsidiaries which do not include joint ventures in which the
Company has an equity interest.
The amount of new primary insurance written by Mortgage
Guaranty Insurance Corporation ("MGIC") during the three
months ended June 30, 1999 was $12.2 billion, compared to
$10.7 billion in the same period of 1998. Refinancing activity
accounted for 27% of new primary insurance written in the
second quarter of 1999, compared to 32% in the second quarter
of 1998.
The $12.2 billion of new primary insurance written during
the second quarter of 1999 was offset by the cancellation of
$10.2 billion of insurance in force, and resulted in a net
increase of $2.0 billion in primary insurance in force,
compared to new primary insurance written of $10.7 billion,
the cancellation of $11.5 billion, and a net decrease of $0.8
billion in primary insurance in force during the second
quarter of 1998. Direct primary insurance in force was $140.2
billion at June 30, 1999 compared to $138.0 billion at
December 31, 1998 and $137.5 billion at June 30, 1998. In
addition to providing direct primary insurance coverage, the
Company also insures pools of mortgage loans. New pool risk
written during the three months ended June 30, 1999 and June
30, 1998, which was virtually all agency pool insurance, was
$177 million and $148 million, respectively. The Company's
direct pool risk in force at June 30, 1999 was $1.5 billion
compared to $1.1 billion at December 31, 1998 and is expected
to increase as a result of outstanding commitments to write
additional agency pool insurance.
Cancellation activity has historically been affected by
the level of mortgage interest rates and remained high during
the second quarter of 1999 due to favorable mortgage interest
rates which resulted in a decrease in the MGIC persistency
rate (percentage of insurance remaining in force from one
year prior) to 66.6% at June 30, 1999 from 74.7% at June
30, 1998. However, the number of cancellations decreased
during the second quarter resulting in the persistency rate
increasing from 65.8% at March 31, 1999. Future cancellation
activity could also be affected as a result of legislation
that went into effect in July 1999 regarding cancellation of
mortgage insurance.
PAGE 9
Net premiums written were $196.4 million during the second
quarter of 1999, compared to $186.7 million during the second
quarter of 1998. Net premiums earned were $194.8 million for
the second quarter of 1999 compared to $189.2 million for the
same period in 1998. The increase was primarily a result of a
higher percentage of renewal premiums on mortgage loans with
deeper coverages.
Effective March 1, 1999, Fannie Mae changed its mortgage
insurance requirements for certain fixed-rate mortgages
approved by Fannie Mae's automated underwriting service. The
changes permit lower coverage percentages on these loans than
the deeper coverage percentages that went into effect in 1995.
In March 1999, Freddie Mac announced that it was implementing
similar changes. MGIC's premium rates vary with the depth of
coverage. While lower coverage percentages result in lower
premium revenue, lower coverage percentages should also result
in lower incurred losses at the same level of claim incidence.
MGIC's premium revenues could also be affected to the extent
Fannie Mae and Freddie Mac are compensated for assuming
default risk that would otherwise be insured by the private
mortgage insurance industry. These Government Sponsored
Enterprises (GSEs) introduced programs in 1998 and 1999 under
which a delivery fee could be paid to them, with mortgage
insurance coverage reduced below the coverage that would be
required in the absence of the delivery fee.
In March 1999, the Office of Federal Housing Enterprise
Oversight ("OFHEO") released a proposed risk-based capital
stress test for the GSEs. One of the elements of the proposed
stress test is that future claim payments made by a private
mortgage insurer on GSE loans are reduced below the amount
provided by the mortgage insurance policy to reflect the risk
that the insurer will fail to pay. Claim payments from an
insurer whose claims-paying ability rating is "AAA" are
subject to a 10% reduction over the 10-year period of the
stress test, while claim payments from a "AA" rated insurer,
such as MGIC, are subject to a 20% reduction. The effect of
the differentiation among insurers is to require the GSEs to
have additional capital for coverage on loans provided by a
private mortgage insurer whose claims-paying rating is less
than "AAA." As a result, there is an incentive for the GSEs to
use private mortgage insurance provided by a "AAA" rated
insurer. The Company does not believe there should be a
reduction in claim payments from private mortgage insurance
nor should there be a distinction between "AAA" and "AA" rated
private mortgage insurers. The proposed stress test covers
many topics in addition to capital credit for private mortgage
insurance. The stress test as a whole has been controversial
in the home mortgage finance industry and is not expected to
become final for some time. The Company cannot predict
whether the portion of the stress test discussed above will be
adopted in its present form.
PAGE 10
Mortgages (newly insured during the first half of 1999 or
in previous periods) equal to approximately 24% of MGIC's new
insurance written during the second quarter of 1999 were
subject to captive mortgage reinsurance and similar
arrangements compared to 12% during the same period in 1998.
Such arrangements entered into during a quarter customarily
include loans newly insured in a prior quarter. As a result,
the percentages cited above would be lower if only the current
quarter's newly insured mortgages subject to such arrangements
were included. The percentage of new insurance written subject
to captive mortgage reinsurance arrangements is expected to
increase during the remainder of 1999 as new transactions
are consummated. At June 30, 1999 approximately 10% of MGIC's
risk in force was subject to captive reinsurance and similar
arrangements compared to 7% at December 31, 1998. In a
February 1999 circular letter, the New York Department of
Insurance said it was in the process of developing guidelines
that would articulate the parameters under which captive
mortgage reinsurance is permissible under New York insurance
law.
Investment income for the second quarter of 1999 was $38.6
million, an increase of 9% over the $35.3 million in the
second quarter of 1998. This increase was primarily the
result of an increase in the amortized cost of average
invested assets to $2.8 billion for the second quarter of 1999
from $2.4 billion for the second quarter of 1998, an increase
of 13%. The portfolio's average pre-tax investment yield was
5.5% for the second quarter of 1999 and 5.8% for the same
period in 1998. The portfolio's average after-tax investment
yield was 4.7% for the second quarter of 1999 and 4.9% for the
same period in 1998. The Company realized gains of $1.2
million during the three months ended June 30, 1999 compared
to realized gains of $0.9 million during the same period in
1998 resulting primarily from the sale of fixed maturities in
both periods.
Other revenue was $15.3 million for the second quarter of
1999, compared with $12.5 million for the same period in 1998.
The increase is primarily the result of an increase in equity
earnings from Credit-Based Asset Servicing and
Securitization LLC and Litton Loan Servicing LP
(collectively, "C-BASS"), a joint venture with Enhance
Financial Services Group Inc. In accordance with generally
accepted accounting principles, each quarter C-BASS is
required to estimate the value of its mortgage-related assets
and recognize in earnings the resulting net unrealized gains
and losses. Including open trades, C-BASS's mortgage-related
assets were $682 million at June 30, 1999 and are expected to
increase in the future. Substantially all of C-BASS's
mortgage-related assets do not have readily ascertainable
market values and as a result their value for financial
statement purposes is estimated by the management of C-BASS.
Net losses incurred decreased 41% to $30.9 million during
the second quarter of 1999 from $52.5 million during the
second quarter of 1998. Such decrease was primarily attributed
to an increase in the redundancy in prior year loss reserves,
a decline in losses paid and notice inventory, continued
improvement in California and generally strong economic
conditions throughout the country. The redundancy results from
actual claim rates and actual claim amounts being lower than
those estimated by the Company when originally establishing
the reserve at December 31, 1998. The primary notice
inventory declined from 28,165 at March 31, 1999 to 25,573 at
June 30, 1999. The pool notice inventory increased from 7,382
at March 31, 1999 to 8,015 at June 30, 1999, attributable to
defaults on new agency pool insurance written during 1997 and
1998. At June 30,
PAGE 11
1999, 68% of MGIC's insurance in force was written during the
preceding fourteen quarters, compared to 63% at June 30, 1998.
The highest claim frequency years have typically been the
third through fifth year after the year of loan origination.
However, the pattern of claims frequency for refinance loans
may be different from the historical pattern of other loans.
Underwriting and other expenses increased to $51.9
million in the second quarter of 1999 from $45.5 million in
the second quarter of 1998, an increase of 14%. This increase
was primarily due to increases associated with contract and
field office underwriting expenses.
Interest expense increased to $4.6 million in the second
quarter of 1999 from $3.5 million during the same period in
1998 due to higher outstanding notes payable, the proceeds of
which were used to repurchase common stock during the second
half of 1998.
The Company utilized financial derivative transactions
during the second quarter of 1999 consisting of interest rate
swaps to reduce and manage interest rate risk on its notes
payable. During the second quarter of 1999, earnings on such
transactions aggregated approximately $1.2 million and were
netted against interest expense. See note 2 to the
consolidated financial statements.
The consolidated insurance operations loss ratio was 15.9%
for the second quarter of 1999 compared to 27.7% for the
second quarter of 1998. The consolidated insurance operations
expense and combined ratios were 20.4% and 36.3%,
respectively, for the second quarter of 1999 compared to 19.1%
and 46.8% for the second quarter of 1998.
The effective tax rate was 30.7% in the second quarter of
1999 and 1998. During both periods, the effective tax rate
was below the statutory rate of 35%, reflecting the benefits
of tax-preferenced investment income.
Six Months Ended June 30, 1999 Compared With Six Months Ended
June 30, 1998
Net income for the six months ended June 30, 1999 was
$213.4 million, compared to $189.3 million for the same period
of 1998, an increase of 13%. Diluted earnings per share for
the six months ended June 30, 1999 was $1.94 compared to $1.64
in the same period last year, an increase of 18%. The
percentage increase in diluted earnings per share was
favorably affected by the lower adjusted shares outstanding at
June 30, 1999 as a result of common stock repurchased by the
Company during the second half of 1998. See note 4 to the
consolidated financial statements.
The amount of new primary insurance written by MGIC during
the six months ended June 30, 1999 was $24.2 billion, compared
to $19.2 billion in the same period of 1998. Refinancing
activity accounted for 34% of new primary insurance written in
both the first half of 1999 and 1998.
PAGE 12
The $24.2 billion of new primary insurance written during
the first half of 1999 was offset by the cancellation of $22.0
billion of insurance in force, and resulted in a net increase
of $2.2 billion in primary insurance in force, compared to new
primary insurance written of $19.2 billion, the cancellation
of $20.2 billion, and a net decrease of $1.0 billion in
primary insurance in force during the first half of 1998.
Direct primary insurance in force was $140.2 billion at June
30, 1999 compared to $138.0 billion at December 31, 1998 and
$137.5 billion at June 30, 1998. In addition to providing
direct primary insurance coverage, the Company also insures
pools of mortgage loans. New pool risk written during the six
months ended June 30, 1999 and June 30, 1998, which was
virtually all agency pool insurance, was $374 million and $292
million, respectively. The Company's direct pool risk in force
at June 30, 1999 was $1.5 billion compared to $1.1 billion at
December 31, 1998 and is expected to increase as a result of
outstanding commitments to write additional agency pool
insurance.
Cancellation activity has historically been affected by
the level of mortgage interest rates and remained high during
the first half of 1999 due to favorable mortgage interest
rates which resulted in a decrease in the MGIC persistency
rate (percentage of insurance remaining in force from one
year prior) to 66.6% at June 30, 1999 from 74.7% at June
30, 1998. However, the number of cancellations decreased
during the second quarter resulting in the persistency rate
increasing from 65.8% at March 31, 1999. Future cancellation
activity could also be affected as a result of legislation
that went into effect in July 1999 regarding cancellation of
mortgage insurance.
Net premiums written were $380.4 million during the first
half of 1999, compared to $363.2 million during the first half
of 1998. Net premiums earned were $388.7 million for the
first half of 1999 compared to $379.1 million for the same
period in 1998. The increase was primarily a result of a
higher percentage of renewal premiums on mortgage loans with
deeper coverages.
For a discussion of certain programs with the GSEs
regarding reduced mortgage insurance requirements and for a
discussion of proposed capital regulations for the GSEs, see
second quarter discussion.
Mortgages (newly insured during the first half of 1999 or
in previous periods) equal to approximately 27% of MGIC's new
insurance written during the first half of 1999 were subject
to captive mortgage reinsurance and similar arrangements
compared to 15% during the same period in 1998. Such
arrangements entered into during a reporting period
customarily include loans newly insured in a prior reporting
period. As a result, the percentages cited above would be
lower if only the current reporting period's newly insured
mortgages subject to such arrangements were included. The
percentage of new insurance written subject to captive
mortgage reinsurance arrangements is expected to increase
during the remainder of 1999 as new transactions are
consummated. At June 30, 1999 approximately 10% of MGIC's
risk in force was subject to captive reinsurance and similar
arrangements compared to 7% at December 31, 1998. In a
February 1999 circular letter, the New York Department of
Insurance said it was in the process of developing guidelines
that would articulate the parameters under which captive
mortgage reinsurance is permissible under New York insurance
law.
PAGE 13
Investment income for the first half of 1999 was $75.5
million, an increase of 8% over the $69.7 million in the first
half of 1998. This increase was primarily the result of an
increase in the amortized cost of average invested assets to
$2.7 billion for the first half of 1999 from $2.4 billion for
the first half of 1998, an increase of 15%. The portfolio's
average pre-tax investment yield was 5.5% for the first half
of 1999 and 5.8% for the same period in 1998. The portfolio's
average after-tax investment yield was 4.7% for the first half
of 1999 and 4.9% for the same period in 1998. The Company
realized gains of $3.4 million during the six months ended
June 30, 1999 resulting primarily from the sale of fixed
maturities compared to realized gains of $11.2 million during
the same period in 1998 resulting primarily from the sale of
equity securities.
Other revenue was $29.0 million for the first half of
1999, compared with $22.0 million for the same period in 1998.
The increase is primarily the result of an increase in equity
earnings from C-BASS, a joint venture with Enhance Financial
Services Group Inc. and an increase in contract underwriting
revenue. In accordance with generally accepted accounting
principles, each quarter C-BASS is required to estimate the
value of its mortgage-related assets and recognize in earnings
the resulting net unrealized gains and losses. Including open
trades, C-BASS's mortgage-related assets were $682 million at
June 30, 1999 and are expected to increase in the future.
Substantially all of C-BASS's mortgage-related assets do not
have readily ascertainable market values and as a result
their value for financial statement purposes is estimated by
the management of C-BASS.
Net losses incurred decreased 33% to $75.2 million during
the first half of 1999 from $112.0 million during the first
half of 1998. Such decrease was primarily attributed to an
increase in the redundancy in prior year loss reserves, a
decline in losses paid and notice inventory, continued
improvement in California and generally strong economic
conditions throughout the country. The redundancy results
from actual claim rates and actual claim amounts being lower
than those estimated by the Company when originally
establishing the reserve at December 31, 1998. The primary
notice inventory declined from 29,253 at December 31, 1998 to
25,573 at June 30, 1999. The pool notice inventory increased
from 6,524 at December 31, 1998 to 8,015 at June 30, 1999,
attributable to defaults on new agency pool insurance written
during 1997 and 1998. At June 30, 1999, 68% of MGIC's
insurance in force was written during the preceding fourteen
quarters, compared to 63% at June 30, 1998. The highest claim
frequency years have typically been the third through fifth
year after the year of loan origination. However, the pattern
of claims frequency for refinance loans may be different from
the historical pattern of other loans.
Underwriting and other expenses increased to $105.2
million in the first half of 1999 from $90.7 million in the
first half of 1998, an increase of 16%. This increase was
primarily due to increases associated with contract and field
office underwriting expenses.
Interest expense increased to $10.0 million in the first
half of 1999 from $7.1 million during the same period in 1998
due to higher outstanding notes payable, the proceeds of which
were used to repurchase common stock during the second half of
1998.
PAGE 14
The Company utilized financial derivative transactions
during the first half of 1999 consisting of interest rate
swaps to reduce and manage interest rate risk on its notes
payable. During the first half of 1999, earnings on such
transactions aggregated approximately $1.8 million and were
netted against interest expense. See note 2 to the
consolidated financial statements.
The consolidated insurance operations loss ratio was 19.3%
for the first half of 1999 compared to 29.5% for the first
half of 1998. The consolidated insurance operations expense
and combined ratios were 21.6% and 40.9%, respectively, for
the first half of 1999 compared to 19.5% and 49.0% for the
first half of 1998.
The effective tax rate was 30.5% in the first half of
1999, compared to 30.8% in the first half of 1998. During
both periods, the effective tax rate was below the statutory
rate of 35%, reflecting the benefits of tax-preferenced
investment income. The lower effective tax rate in 1999
resulted from a higher percentage of total income before tax
being generated from tax-preferenced investments.
Liquidity and Capital Resources
The Company's consolidated sources of funds consist
primarily of premiums written and investment income. The
Company generated positive cash flows from operating
activities of $209.5 million for the six months ended June 30,
1999, as shown on the Consolidated Statement of Cash Flows.
Funds are applied primarily to the payment of claims and
expenses. The Company's business does not require significant
capital expenditures on an ongoing basis. Positive cash flows
are invested pending future payments of claims and other
expenses; cash flow shortfalls, if any, could be funded
through sales of short-term investments and other investment
portfolio securities.
Consolidated total investments were $2.8 billion at both
June 30, 1999 and December 31, 1998. The investment portfolio
includes unrealized gains on securities marked to market at
June 30, 1999 and December 31, 1998 of $30.4 million and
$145.5 million, respectively. As of June 30, 1999, the
Company had $142.9 million of short-term investments with
maturities of 90 days or less. In addition, at June 30,
1999, based on amortized cost, the Company's total
investments, which were primarily comprised of fixed
maturities, were approximately 99% invested in "A" rated and
above, readily marketable securities, concentrated in
maturities of less than 15 years.
The Company's investments in C-BASS and Sherman Financial
Group LLC ("joint ventures") were $97.9 million in aggregate
at June 30, 1999, which includes the Company's share of the
joint ventures' earnings since their inception. MGIC had
guaranteed one half of a $50 million credit facility for C-
BASS that was repaid in July 1999. Sherman Financial Group
LLC, another joint venture with Enhance Financial Services
Group Inc., is engaged in the business of purchasing,
servicing and securitizing delinquent unsecured consumer
assets such as credit card loans, Chapter 13 bankruptcy debt,
telecommunications receivables, student loans and auto
deficiencies. Effective in May 1999, MGIC began guaranteeing
one half of a $50 million Sherman credit facility that will
expire in December 1999. The Company expects that it will
provide additional funding to the joint ventures.
PAGE 15
Consolidated loss reserves increased slightly to $686.6
million at June 30, 1999 from $681.3 million at December 31,
1998 reflecting an increase in the estimated number of loans
in default. The primary notice inventory has declined as
mentioned earlier, offset by an increase in management's
estimate of the number of defaults incurred but not reported.
Consistent with industry practices, the Company does not
establish loss reserves for future claims on insured loans
which are not currently in default.
Consolidated unearned premiums decreased $10.2 million
from $183.7 million at December 31, 1998 to $173.5 million at
June 30, 1999, primarily reflecting the continued high level
of monthly premium policies written, for which there is no
unearned premium. Reinsurance recoverable on unearned
premiums decreased $1.9 million to $6.9 million at June 30,
1999 from $8.8 million at December 31, 1998, primarily
reflecting the reduction in unearned premiums.
Consolidated shareholders' equity increased to $1.8
billion at June 30, 1999, from $1.6 billion at December 31,
1998, an increase of 8%. This increase consisted of $213.4
million of net income during the first six months of 1999 and
$1.9 million from the reissuance of treasury stock offset by a
decrease in net unrealized gains on investments of $74.8
million, net of tax, and dividends declared of $5.5 million.
MGIC is the principal insurance subsidiary of the Company.
MGIC's risk-to-capital ratio was 11.9:1 at June 30, 1999
compared to 12.9:1 at December 31, 1998. The decrease was due
to MGIC's increased policyholders' reserves, partially offset
by the net additional risk in force of $737.9 million, net of
reinsurance, during the first six months of 1999.
The Company's combined insurance risk-to-capital
ratio was 12.8:1 at June 30, 1999, compared to 13.6:1 at
December 31, 1998. The decrease was due to the same reasons
as described above.
The risk-to-capital ratios set forth above have been
computed on a statutory basis. However, the methodology used
by the rating agencies to assign claims-paying ability ratings
permits less leverage than under statutory requirements. As a
result, the amount of capital required under statutory
regulations may be lower than the capital required for rating
agency purposes. In addition to capital adequacy, the rating
agencies consider other factors in determining a mortgage
insurer's claims-paying rating, including its competitive
position, business outlook, management, corporate strategy,
and historical and projected operating performance.
For certain material risks of the Company's business, see
"Risk Factors" below.
Risk Factors
The Company and its business may be materially affected by
the factors discussed below. These factors may also cause
actual results to differ materially from the results
contemplated by forward looking statements that the Company
may make.
PAGE 16
Reductions in the volume of low down payment home mortgage
----------------------------------------------------------
originations may adversely affect the amount of private
- --------------------------------------------------------------
mortgage insurance (PMI) written by the PMI industry. The
- --------------------------------------------------------
factors that affect the volume of low down payment mortgage
originations include:
- the level of home mortgage interest rates,
- the health of the domestic economy as well as
conditions in regional and local economies; housing
affordability; population trends, including the rate of
household formation,
- the rate of home price appreciation, which in times of
heavy refinancing affects whether refinance loans have
loan-to-value ratios that require PMI, and
- government housing policy encouraging loans to first-
time homebuyers.
By selecting alternatives to PMI, lenders and investors
---------------------------------------------------------
may adversely affect the amount of PMI written by the PMI
- --------------------------------------------------------------
industry. These alternatives include:
- ---------
- government mortgage insurance programs, including
those of the Federal Housing Administration and the
Veterans Administration,
- holding mortgages in portfolio and self-insuring,
- use of credit enhancements by investors, including
Fannie Mae and Freddie Mac, other than PMI or using
other credit enhancements in conjunction with reduced
levels of PMI coverage, and
- mortgage originations structured to avoid PMI, such as
a first mortgage with an 80% loan-to-value ratio and a
second mortgage with a 10% loan-to-value ratio (referred
to as an 80-10-10 loan) rather than a first mortgage
with a 90% loan-to-value ratio.
Fannie Mae and Freddie Mac have a material impact on the
----------------------------------------------------------
PMI industry. Because Fannie Mae and Freddie Mac are the
- --------------
largest purchasers of low down payment conventional mortgages,
the business practices of these GSEs have a direct effect on
private mortgage insurers. These practices affect the entire
relationship between the GSEs and mortgage insurers and
include:
- the level of PMI coverage, subject to the limitations
of the GSE's charters when PMI is used as the required
credit enhancement on low down payment mortgages,
PAGE 17
- whether the mortgage lender or the GSE chooses the
mortgage insurer providing coverage,
- whether a GSE will give mortgage lenders an incentive
to select a mortgage insurer which has a "AAA" claims-
paying ability rating to benefit from the lower capital
required of the GSE under OFHEO's proposed stress test
when a mortgage is insured by a "AAA" company,
- the underwriting standards that determine what loans
are eligible for purchase by the GSEs, which thereby
affect the quality of the risk insured by the mortgage
insurer, as well as the availability of mortgage loans,
- the terms on which mortgage insurance coverage can be
canceled before reaching the cancellation thresholds
established by law, and
- the circumstances in which mortgage servicers must
perform activities intended to avoid or mitigate loss on
insured mortgages that are delinquent.
The Company expects the level of competition within the
---------------------------------------------------------
PMI industry to remain intense. Competition for PMI premiums
- --------------------------------
occurs not only among private mortgage insurers but
increasingly with mortgage lenders through captive mortgage
reinsurance transactions in which a lender's affiliate
reinsures a portion of the insurance written by a private
mortgage insurer on mortgages originated by the lender. The
level of competition within the PMI industry has also
increased as many large mortgage lenders have reduced the
number of private mortgage insurers with whom they do business
at the same time as consolidation among mortgage lenders has
increased the share of the mortgage lending market held by
large lenders.
Changes in interest rates, house prices and cancellation
---------------------------------------------------------
policies may materially affect persistency. In each year,
- ---------------------------------------------
most of MGIC's premiums are from insurance that has been
written in prior years. As a result, the length of time
insurance remains in force is an important determinant of
revenues. The factors affecting persistency of the insurance
in force include:
- the level of current mortgage interest rates compared
to the mortgage coupon rates on the insurance in force,
which affects the vulnerability of the insurance in
force to refinancings, and
- mortgage insurance cancellation policies of mortgage
investors along with the rate of home price appreciation
experienced by the homes underlying the mortgages in the
insurance in force.
PAGE 18
The strong economic climate that has existed throughout
---------------------------------------------------------
the United States for some time has favorably impacted losses
- --------------------------------------------------------------
and encouraged competition to assume default risk. Losses
- ------------------------------------------------------
result from events that adversely affect a borrower's ability
to continue to make mortgage payments, such as unemployment,
and whether the home of a borrower who defaults on his
mortgage can be sold for an amount that will cover unpaid
principal and interest and the expenses of the sale.
Favorable economic conditions generally reduce the likelihood
that borrowers will lack sufficient income to pay their
mortgages and also favorably affect the value of homes,
thereby reducing and in some cases even eliminating a loss
from a mortgage default. A significant deterioration in
economic conditions would adversely affect MGIC's losses. The
low level of losses that has recently prevailed in the private
mortgage insurance industry has encouraged competition to
assume default risk through captive reinsurance arrangements,
self-insurance, 80-10-10 loans and other means.
Litigation against mortgage lenders and settlement service
----------------------------------------------------------
providers has been increasing. In recent years, consumers
- --------------------------------
have brought a growing number of lawsuits against home
mortgage lenders and settlement service providers seeking
monetary damages. The Real Estate Settlement Procedures Act
gives home mortgage borrowers the right to bring lawsuits
seeking damages of three times the amount of the charge paid
for a settlement service involved in a violation of this law.
Under rules adopted by the United States Department of Housing
and Urban Development, "settlement services" are services
provided in connection with settlement of a mortgage loan,
including services involving mortgage insurance.
The pace of change in the home mortgage lending and
---------------------------------------------------------
mortgage insurance industries will likely accelerate. The
- --------------------------------------------------------
Company expects the processes involved in home mortgage
lending will continue to evolve through greater use of
technology. This evolution could effect fundamental changes
in the way home mortgages are distributed. Lenders who are
regulated depositary institutions could gain expanded
insurance powers if financial modernization proposals become
law. The capital markets are beginning to emerge as providers
of insurance in competition with traditional insurance
companies. These trends and others increase the level of
uncertainty attendant to the PMI business, demand rapid
response to change and place a premium on innovation.
PAGE 19
Year 2000 Compliance
All of the Company's information technology systems ("IT
Systems"), including all of its "business critical" IT
Systems, have been assessed, reprogrammed, if necessary, and
tested for Year 2000 compliance. The Company completed
internal testing of all IT Systems for Year 2000 compliance in
the second quarter of 1999. All reprogrammed systems have
been implemented, i.e., are currently in use at the Company.
In order to maintain Year 2000 compliance during the second
half of 1999, the Company will be testing all changes which it
makes to its systems under Year 2000 conditions.
Some of the Company's "business critical" IT Systems
interface with computer systems of third parties. The
Company, Fannie Mae, Freddie Mac and many of these third
parties participated in the Mortgage Bankers Association Year
2000 Readiness Test (the "MBA Test"). The MBA Test, conducted
during the first half of 1999, was designed to help mortgage
industry participants evaluate interaction of their computer
systems in a Year 2000 environment. Through the MBA Test and
additional independent testing efforts, the Company has
completed the Year 2000 readiness evaluation of its key
automated interfaces with customers representing more than 90%
of the Company's in-force policies.
All costs incurred through June 1999 for IT Systems for
Year 2000 compliance have been expensed and were immaterial.
The costs of the remaining retesting and implementation are
expected to be immaterial.
Telecommunications services and electricity are essential
to the Company's ability to conduct business. The Company's
long-distance voice and data telecommunications suppliers and
the local telephone company serving the Company's owned
headquarters and warehouse facilities have written to the
Company to the effect that their respective systems will be
Year 2000 compliant. The electric company serving these
facilities has given the Company assurance that it will also
be Year 2000 compliant. In addition, the Company has made
arrangements to acquire back-up power for its headquarters.
The Company has received written assurance regarding Year 2000
compliance from landlords of the Company's underwriting
service centers and local telephone companies.
The Company has long practiced contingency planning to
address business disruption risks and has procedures for
planning and executing contingency measures to provide for
business continuity in the event of any circumstance that
results in disruption to the Company's headquarters, warehouse
facilities and leased workplace environments, including lack
of utility services, transportation disruptions, and service
provider failures. The Company has developed additional plans
for the "special case" of business disruption due to Year 2000
compliance issues. These plans address continuity measures in
five areas: physical building environment, including
conducting operations at off-site facilities; business
operations units, as discussed below; external factors over
which the Company does not have control but can implement
measures to minimize adverse impact on the Company's business;
application system restoration priorities for the Company's
computer systems; and contingencies specifically targeted
towards monitoring Company facilities and systems at year-end
1999.
PAGE 20
The business unit recovery plans address resumption of
business in the worst case scenario of a total loss to a
Company facility, including the inability to utilize
computerized systems.
In view of the timing and scope of the MBA Test and other
testing, the Company's contingency planning does not currently
include developing special procedures with individual third
parties if they are not themselves Year 2000 compliant. If
the Company is unable to do business with such third parties
electronically, it would seek to do business with them on a
paper basis. Without knowing the identity of non-compliant
third parties and the amount of transactions occurring between
the Company and them, the Company cannot evaluate the effects
on its business if it were necessary to substitute paper
business processes for electronic business processes with such
third parties. Among other effects, Year 2000 non-compliance
by such third parties could delay receipt of renewal premiums
by the Company or the reporting to the Company of mortgage
loan delinquencies and could also affect the amount of the
Company's new insurance written.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
At June 30, 1999, the Company had no derivative financial
instruments in its investment portfolio. The Company places
its investments in instruments that meet high credit quality
standards, as specified in the Company's investment policy
guidelines; the policy also limits the amount of credit
exposure to any one issue, issuer and type of instrument. At
June 30, 1999, the effective duration of the Company's
investment portfolio was 6.0 years. The effect of a 1%
increase/decrease in market interest rates would result in a
6.0% decrease/increase in the value of the Company's
investment portfolio.
The Company's borrowings under the credit facilities are
subject to interest rates that are variable. Changes in
market interest rates would have minimal impact on the value
of the notes payable. See note 2 to the consolidated
financial statements.
PAGE 21
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of the
Company was held on May 6, 1999.
(b) At the Annual Meeting, the following Directors
were elected to the Board of Directors, for a term
expiring at the Annual Meeting of Shareholders
to be held in 2002 or until a successor is
duly elected and qualified:
Mary K. Bush
David S. Engelman
Kenneth M. Jastrow, II
Daniel P. Kearney
William H. Lacy
Directors with continuing terms of office are:
Term expiring 2000:
Karl E. Case
Curt S. Culver
William A. McIntosh
Leslie M. Muma
Peter J. Wallison
Term expiring 2001:
James A. Abbott
James D. Ericson
Daniel Gross
Sheldon B. Lubar
Edward J. Zore
PAGE 22
(c) Matters voted upon at the Annual Meeting and
the number of shares voted for, against, withheld,
abstaining from voting and broker non-votes were as
follows:
(1) Election of five Directors for a term
expiring in 2002.
FOR WITHHELD
--- --------
Mary K. Bush 93,267,389 366,860
David S. Engelman 93,240,717 393,532
Kenneth M.Jastrow, II 93,240,942 393,307
Daniel P. Kearney 93,241,922 392,327
William H. Lacy 93,232,394 401,855
(2) Ratification of the appointment of
PricewaterhouseCoopers LLP as independent public
accountants for the Company for 1999.
For: 93,423,500
Against: 50,128
Abstaining from Voting: 160,621
There were no broker non-votes on any matter.
(d) Not applicable
ITEM 5. OTHER INFORMATION
Under amendments to the Corporation's Bylaws adopted in
July 1999, a shareholder who desires to bring business before
the Annual Meeting of Shareholders or who desires to nominate
directors at the Annual Meeting must satisfy the following
requirements:
- be a shareholder of record entitled to vote at the Annual
Meeting; and
- give notice to the Company's Secretary in writing that is
received at the Company's principal offices not less than
45 days nor more than 70 days before the first anniversary
of the date set forth in the Company's proxy statement for
the prior Annual Meeting as the date on which the Company
first mailed such proxy materials to shareholders. For the
2000 Annual Meeting, the relevant dates are no later than
February 10, 2000 and no earlier than January 16, 2000.
PAGE 23
In the case of business other than nominations for directors,
the notice must, among other requirements, briefly describe
such business, the reasons for conducting the business and any
material interest of the shareholder in such business. In the
case of director nominations, the notice must, among other
requirements, give various information about the nominees,
including information that would be required to be included in
a proxy statement of the Company had each such nominee been
proposed for election by the Board of Directors of the
Company.
Under such amendments to the Bylaws, a Special Meeting may
consider only the business included in the notice of meeting
sent to shareholders by the Company. Shareholders who desire
to call a Special Meeting of Shareholders must be holders of
record of shares having at least 10% of the votes entitled to
be cast at the Special Meeting and follow procedures specified
in the Bylaws, which include the Company's Secretary receiving
a written description of the purpose for which the Special
Meeting is to be held.
If a purpose of a Special Meeting is to elect directors, a
shareholder who desires to nominate directors at the Special
Meeting must satisfy the following requirements:
- be a shareholder of record at the time notice of the
Special Meeting is given by the Company and be entitled
to vote at the Special Meeting; and give notice to the
Company's Secretary in writing that is received at the
Company's principal offices no earlier than 90 days
before the Special Meeting and no later than the later
of (i) 60 days before the Special Meeting and (ii) 10
days after the date on which there is a public
announcement of the date of the Special Meeting and
the nominees for director by the Board of Directors
of the Company.
The notice must, among other requirements, give various
information about the nominees, including information that
would be required to be included in a proxy statement of the
Company had each nominee been proposed for election by the
Board of Directors of the Company.
The Company's Bylaws are filed as Exhibit 3. The
description set forth above is qualified in its entirety by
reference to the actual text of the Bylaws.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The exhibits listed in the
accompanying Index to Exhibits are filed as part
of this Form 10-Q.
(b) Reports on Form 8-K - A report on Form 8-K
dated July 22, 1999 was filed reporting under
Item 5 the adoption of a Shareholder Rights Plan.
PAGE 24
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
August 12, 1999.
MGIC INVESTMENT CORPORATION
\s\ J. Michael Lauer
-------------------------------
J. Michael Lauer
Executive Vice President and
Chief Financial Officer
\s\ Patrick Sinks
-------------------------------
Patrick Sinks
Vice President, Controller and
Chief Accounting Officer
PAGE 25
INDEX TO EXHIBITS
(Item 6)
Exhibit
Number Description of Exhibit
- ------- ----------------------
3 By-laws, as amended
10 1991 Stock Incentive Plan, as amended
11.1 Statement Re Computation of Net Income
Per Share
27 Financial Data Schedule
PAGE 26