UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Date of Report (Date of Earliest Event Reported):
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April 21, 2015
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MGIC Investment Corporation
__________________________________________
(Exact name of registrant as specified in its charter)
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Wisconsin
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1-10816
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39-1486475
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_____________________
(State or other jurisdiction
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_____________
(Commission
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______________
(I.R.S. Employer
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of incorporation)
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File Number)
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Identification No.)
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250 E. Kilbourn Avenue, Milwaukee, Wisconsin
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53202
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_________________________________
(Address of principal executive offices)
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___________
(Zip Code)
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Registrants telephone number, including area code:
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414-347-6480
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Not Applicable
______________________________________________
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any
of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
The Company issued a press release on April 21, 2015 announcing its results of operations for the quarter ended March 31, 2015 and certain other information. The press release is furnished as Exhibit 99.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Pursuant to General Instruction B.2 to Form 8-K, the Company's April 21, 2015 press release is furnished as Exhibit 99 and is not filed.
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 hereunto duly authorized.
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MGIC INVESTMENT CORPORATION |
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Date: April 21, 2015
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By: s Julie K. Sperber |
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Julie K. Sperber |
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Vice President, Controller and Chief Accounting Officer |
Exhibit Index
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Exhibit No.
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Description
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99
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Press Release dated April 21, 2015. (Pursuant to General Instruction B.2 to Form 8-K, this press release is furnished and is not filed.)
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Exhibit 99
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Investor Contact:
Media Contact:
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Michael J. Zimmerman, Investor Relations, (414) 347-6596, mike.zimmerman@mgic.com
Katie Monfre, Corporate Communications, (414) 347-2650, katie.monfre@mgic.com |
MGIC Investment Corporation Reports First Quarter 2015 Results
Records First Quarter 2015 Net Income of $133.1 Million
MILWAUKEE (April 21, 2015) ¾ MGIC Investment Corporation (NYSE:MTG) today
reported net income for the quarter ended March 31, 2015 of $133.1 million, compared with a net
income of $60.0 million for the same quarter a year ago. Diluted net income per share was $0.32 for
the quarter ending March 31, 2015, compared to diluted net income per share of $0.15 for the same
quarter a year ago.
Patrick Sinks, CEO of MTG and Mortgage Guaranty Insurance Corporation (MGIC), said, I am
pleased to report that in the first quarter of 2015 the company continued to generate high quality
new insurance which contributed to an increase in insurance in force. Sinks added, I am
encouraged by the positive trends we continue to experience relative to new delinquent notices,
paid claims, and the delinquent inventory.
Total revenues for the first quarter were $270.2 million, compared with $235.1 million in the
first quarter last year. Net premiums written for the quarter were $234.5 million, compared with
$218.0 million for the same period last year. Total revenues in the first quarter of 2015 include
$26.3 million of net realized gains compared to $0.2 million of net realized losses for the same
period last year.
New insurance written in the first quarter was $9.0 billion, compared to $5.2 billion in the
first quarter of 2014. Persistency, or the percentage of insurance remaining in force from one year
prior, was 81.6 percent at March 31, 2015, compared with 82.8 percent at December 31, 2014, and
81.1 percent at March 31, 2014.
As of March 31, 2015, MGICs primary insurance in force was $166.1 billion, compared with
$164.9 billion at December 31, 2014, and $157.9 billion at March 31, 2014. The fair value of MGIC
Investment Corporations investment portfolio, cash and cash equivalents was $4.8 billion at March
31, 2015, compared with $4.8 billion at December 31, 2014, and $5.1 billion at March 31, 2014.
At March 31, 2015, the percentage of loans that were delinquent, excluding bulk loans, was
5.98 percent, compared with 6.65 percent at December 31, 2014, and 7.92 percent at March 31, 2014.
Including bulk loans, the percentage of loans that were delinquent at March 31, 2015 was 7.44
percent, compared to 8.25 percent at December 31, 2014, and 9.67 percent at March 31, 2014.
Losses incurred in the first quarter were $81.8 million, compared to $122.6 million in the
first quarter of 2014. The decrease in losses incurred is primarily a result of fewer new
delinquency notices received and a lower claim rate on new notices. During the quarter, there was
a $20 million reduction in losses incurred due to a re-estimation of previously recorded reserves
relating to disputes about our claims paying practices and adjustments to incurred but not reported
losses (IBNR). Net underwriting and other expenses were $41.0 million in the first quarter,
compared to $39.4 million reported for the same period last year; the increase was primarily a
result of higher employee costs.
Conference Call and Webcast Details
MGIC Investment Corporation will hold a conference call today, April 21, 2015, at 10 a.m. ET to
allow securities analysts and shareholders the opportunity to hear management discuss the companys
quarterly results. The conference call number is 1-866-238-1422. The call is being webcast and can
be accessed at the companys website at http://mtg.mgic.com/ by clicking on the Investor
Information button. A replay of the webcast will be available on the companys website through May
21, 2015 under Investor Information.
About MGIC
MGIC (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, serves
lenders throughout the United States, Puerto Rico, and other locations helping families achieve
homeownership sooner by making affordable low-down-payment mortgages a reality. At March 31, 2015,
MGIC had $166.1 billion of primary insurance in force covering approximately one million mortgages.
This press release, which includes certain additional statistical and other information, including
non-GAAP financial information and a supplement that contains various portfolio statistics are both
available on the Companys website at http://mtg.mgic.com/ under Investor Information,
Press Releases or Presentations/Webcasts.
From time to time MGIC Investment Corporation releases important information via postings on its
corporate website without making any other disclosure and intends to continue to do so in the
future. Investors and other interested parties are encouraged to enroll to receive automatic email
alerts and Really Simple Syndication (RSS) feeds regarding new postings. Enrollment information
can be found at http://mtg.mgic.com under Investor Information.
Safe Harbor Statement
Forward Looking Statements and Risk Factors:
Our actual results could be affected by the risk factors below. These risk factors should be
reviewed in connection with this press release and our periodic reports to the Securities and
Exchange Commission (SEC). These risk factors may also cause actual results to differ materially
from the results contemplated by forward looking statements that we may make. Forward looking
statements consist of statements which relate to matters other than historical fact, including
matters that inherently refer to future events. Among others, statements that include words such as
believe, anticipate, will or expect, or words of similar import, are forward looking
statements. We are not undertaking any obligation to update any forward looking statements or other
statements we may make even though these statements may be affected by events or circumstances
occurring after the forward looking statements or other statements were made. No investor should
rely on the fact that such statements are current at any time other than the time at which this
press release was issued.
In addition, the current period financial results included in this press release may be
affected by additional information that arises prior to the filing of our Form 10-Q for the quarter
ended March 31, 2015.
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended March 31, |
(In thousands, except per share data) |
|
2015 |
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2014 |
|
|
|
|
|
|
|
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Net premiums written |
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$ |
234,456 |
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$ |
218,020 |
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|
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Net premiums earned |
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$ |
217,288 |
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$ |
214,261 |
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Investment income |
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|
24,120 |
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|
20,156 |
|
Realized gains (losses), net |
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26,327 |
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(231 |
) |
Total other-than-temporary impairment losses |
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Portion of loss recognized in other comprehensive |
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income (loss), before taxes |
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|
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Net impairment losses recognized in earnings |
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|
|
|
|
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Other revenue |
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2,480 |
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|
|
896 |
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|
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|
|
|
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Total revenues |
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270,215 |
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|
235,082 |
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Losses and expenses: |
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|
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Losses incurred |
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81,785 |
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|
122,608 |
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Change in premium deficiency reserve |
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|
(6,418 |
) |
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|
(5,173 |
) |
Underwriting and other expenses, net |
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|
41,025 |
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|
39,400 |
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Interest expense |
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17,362 |
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17,539 |
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Total losses and expenses |
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133,754 |
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174,374 |
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Income before tax |
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136,461 |
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60,708 |
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Provision for income taxes |
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|
3,385 |
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|
726 |
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Net income |
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$ |
133,076 |
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$ |
59,982 |
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|
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Diluted earnings per share |
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$ |
0.32 |
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$ |
0.15 |
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MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
EARNINGS PER SHARE (UNAUDITED)
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Three Months Ended March 31, |
(In thousands, except per share data) |
|
2015 |
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2014 |
|
|
|
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|
|
|
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Net income |
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$ |
133,076 |
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$ |
59,982 |
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Interest expense: |
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Convertible Senior Notes due 2020 |
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3,049 |
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3,049 |
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Convertible Senior Notes due 2017 |
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4,692 |
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Convertible Junior Debentures due 2063 |
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8,765 |
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|
|
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|
|
|
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|
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Diluted net income |
|
$ |
149,582 |
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|
|
|
|
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$ |
63,031 |
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|
|
|
|
|
|
|
|
|
|
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Weighted average common shares outstanding basic |
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|
339,107 |
|
|
|
|
|
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|
338,213 |
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Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
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Unvested restricted stock |
|
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2,569 |
|
|
|
|
|
|
|
3,025 |
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Convertible Senior Notes due 2020 |
|
|
71,942 |
|
|
|
|
|
|
|
71,942 |
|
Convertible Senior Notes due 2017 |
|
|
25,670 |
|
|
|
|
|
|
|
|
|
Convertible Junior Debentures due 2063 |
|
|
28,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average common shares outstanding diluted |
|
|
468,141 |
|
|
|
|
|
|
|
413,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.32 |
|
|
|
|
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Certain Non-GAAP Financial Measures: |
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|
|
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Diluted earnings per share (EPS) contribution from realized gains (losses):
|
|
|
|
|
|
|
|
|
Realized gains (losses), net |
|
$ |
26,327 |
|
|
|
|
|
|
$ |
(231 |
) |
Income taxes at 35% (1) |
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After tax realized gains (losses), net |
|
|
26,327 |
|
|
|
|
|
|
|
(231 |
) |
Weighted average common shares outstanding diluted |
|
|
468,141 |
|
|
|
|
|
|
|
413,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS contribution from net realized gains (losses) |
|
$ |
0.06 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
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Note: Management believes the diluted earnings per share contribution from realized gains or losses
provides useful information to investors because it shows the after-tax effect of these items,
which can be discretionary.
(1) |
|
Due to the establishment of a valuation allowance, income taxes provided are not currently
affected by realized gains or losses. |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
March 31, |
(In thousands, except per share data) |
|
2015 |
|
2014 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
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ASSETS |
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|
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|
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|
Investments (1) |
|
$ |
4,597,763 |
|
|
$ |
4,612,669 |
|
|
$ |
4,761,481 |
|
Cash and cash equivalents |
|
|
232,623 |
|
|
|
215,094 |
|
|
|
314,331 |
|
Prepaid reinsurance premiums |
|
|
50,119 |
|
|
|
47,623 |
|
|
|
57,618 |
|
Reinsurance recoverable on loss reserves (2) |
|
|
55,415 |
|
|
|
57,841 |
|
|
|
38,071 |
|
Home office and equipment, net |
|
|
28,565 |
|
|
|
28,693 |
|
|
|
28,650 |
|
Deferred insurance policy acquisition costs |
|
|
13,251 |
|
|
|
12,240 |
|
|
|
10,154 |
|
Other assets |
|
|
304,996 |
|
|
|
292,274 |
|
|
|
254,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,282,732 |
|
|
$ |
5,266,434 |
|
|
$ |
5,464,995 |
|
|
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|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
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Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss reserves (2) |
|
$ |
2,244,624 |
|
|
$ |
2,396,807 |
|
|
$ |
2,834,559 |
|
Premium deficiency reserve |
|
|
17,333 |
|
|
|
23,751 |
|
|
|
160,097 |
|
Unearned premiums |
|
|
223,053 |
|
|
|
203,414 |
|
|
|
43,288 |
|
Senior notes |
|
|
61,930 |
|
|
|
61,918 |
|
|
|
61,883 |
|
Convertible senior notes |
|
|
845,000 |
|
|
|
845,000 |
|
|
|
845,000 |
|
Convertible junior debentures |
|
|
389,522 |
|
|
|
389,522 |
|
|
|
389,522 |
|
Other liabilities |
|
|
315,710 |
|
|
|
309,119 |
|
|
|
289,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
4,097,172 |
|
|
|
4,229,531 |
|
|
|
4,624,280 |
|
Shareholders equity |
|
|
1,185,560 |
|
|
|
1,036,903 |
|
|
|
840,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,282,732 |
|
|
$ |
5,266,434 |
|
|
$ |
5,464,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share (3) |
|
$ |
3.49 |
|
|
$ |
3.06 |
|
|
$ |
2.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Investments include net unrealized gains (losses) on securities |
|
|
26,869 |
|
|
|
7,152 |
|
|
|
(44,973 |
) |
(2) Loss reserves, net of reinsurance recoverable on loss reserves |
|
|
2,189,209 |
|
|
|
2,338,966 |
|
|
|
2,776,941 |
|
(3) Shares outstanding |
|
|
339,639 |
|
|
|
338,560 |
|
|
|
338,516 |
|
Additional Information
|
|
|
|
|
|
|
|
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|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q4 2013 |
|
|
|
|
|
Q1 2014 |
|
|
|
|
|
Q2 2014 |
|
|
|
|
|
Q3 2014 |
|
|
|
|
|
Q4 2014 |
|
|
|
|
|
Q1 2015 |
|
|
|
|
New primary insurance written (NIW) (billions) |
|
$ |
6.7 |
|
|
|
|
|
|
$ |
5.2 |
|
|
|
|
|
|
$ |
8.3 |
|
|
|
|
|
|
$ |
10.4 |
|
|
|
|
|
|
$ |
9.5 |
|
|
|
|
|
|
$ |
9.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New primary risk written (billions) |
|
$ |
1.7 |
|
|
|
|
|
|
$ |
1.3 |
|
|
|
|
|
|
$ |
2.1 |
|
|
|
|
|
|
$ |
2.7 |
|
|
|
|
|
|
$ |
2.4 |
|
|
|
|
|
|
$ |
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
Product mix as a % of primary flow NIW |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
>95% LTVs |
|
|
6 |
% |
|
|
|
|
|
|
2 |
% |
|
|
|
|
|
|
2 |
% |
|
|
|
|
|
|
2 |
% |
|
|
|
|
|
|
2 |
% |
|
|
|
|
|
|
3 |
% |
|
|
|
|
Singles |
|
|
11 |
% |
|
|
|
|
|
|
13 |
% |
|
|
|
|
|
|
13 |
% |
|
|
|
|
|
|
15 |
% |
|
|
|
|
|
|
17 |
% |
|
|
|
|
|
|
23 |
% |
|
|
|
|
Refinances |
|
|
13 |
% |
|
|
|
|
|
|
15 |
% |
|
|
|
|
|
|
10 |
% |
|
|
|
|
|
|
12 |
% |
|
|
|
|
|
|
17 |
% |
|
|
|
|
|
|
29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Insurance In Force (IIF) (billions) (1) |
|
$ |
158.7 |
|
|
|
|
|
|
$ |
157.9 |
|
|
|
|
|
|
$ |
159.3 |
|
|
|
|
|
|
$ |
162.4 |
|
|
|
|
|
|
$ |
164.9 |
|
|
|
|
|
|
$ |
166.1 |
|
|
|
|
|
Flow |
|
$ |
145.5 |
|
|
|
|
|
|
$ |
145.0 |
|
|
|
|
|
|
$ |
146.8 |
|
|
|
|
|
|
$ |
150.2 |
|
|
|
|
|
|
$ |
153.0 |
|
|
|
|
|
|
$ |
154.5 |
|
|
|
|
|
Bulk |
|
$ |
13.2 |
|
|
|
|
|
|
$ |
12.9 |
|
|
|
|
|
|
$ |
12.5 |
|
|
|
|
|
|
$ |
12.2 |
|
|
|
|
|
|
$ |
11.9 |
|
|
|
|
|
|
$ |
11.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (620 & >) |
|
$ |
141.0 |
|
|
|
|
|
|
$ |
140.8 |
|
|
|
|
|
|
$ |
142.9 |
|
|
|
|
|
|
$ |
146.5 |
|
|
|
|
|
|
$ |
149.6 |
|
|
|
|
|
|
$ |
151.2 |
|
|
|
|
|
A minus (575 - 619) |
|
$ |
6.9 |
|
|
|
|
|
|
$ |
6.7 |
|
|
|
|
|
|
$ |
6.4 |
|
|
|
|
|
|
$ |
6.2 |
|
|
|
|
|
|
$ |
6.0 |
|
|
|
|
|
|
$ |
5.8 |
|
|
|
|
|
Sub-Prime (< 575) |
|
$ |
1.9 |
|
|
|
|
|
|
$ |
1.9 |
|
|
|
|
|
|
$ |
1.8 |
|
|
|
|
|
|
$ |
1.8 |
|
|
|
|
|
|
$ |
1.7 |
|
|
|
|
|
|
$ |
1.7 |
|
|
|
|
|
Reduced Doc (All FICOs) |
|
$ |
8.9 |
|
|
|
|
|
|
$ |
8.5 |
|
|
|
|
|
|
$ |
8.2 |
|
|
|
|
|
|
$ |
7.9 |
|
|
|
|
|
|
$ |
7.6 |
|
|
|
|
|
|
$ |
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Persistency |
|
|
79.5 |
% |
|
|
|
|
|
|
81.1 |
% |
|
|
|
|
|
|
82.4 |
% |
|
|
|
|
|
|
82.8 |
% |
|
|
|
|
|
|
82.8 |
% |
|
|
|
|
|
|
81.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Risk In Force (RIF) (billions) (1) |
|
$ |
41.1 |
|
|
|
|
|
|
$ |
40.9 |
|
|
|
|
|
|
$ |
41.4 |
|
|
|
|
|
|
$ |
42.3 |
|
|
|
|
|
|
$ |
42.9 |
|
|
|
|
|
|
$ |
43.2 |
|
|
|
|
|
Prime (620 & >) |
|
$ |
36.2 |
|
|
|
|
|
|
$ |
36.3 |
|
|
|
|
|
|
$ |
36.9 |
|
|
|
|
|
|
$ |
38.0 |
|
|
|
|
|
|
$ |
38.7 |
|
|
|
|
|
|
$ |
39.1 |
|
|
|
|
|
A minus (575 - 619) |
|
$ |
1.9 |
|
|
|
|
|
|
$ |
1.8 |
|
|
|
|
|
|
$ |
1.8 |
|
|
|
|
|
|
$ |
1.7 |
|
|
|
|
|
|
$ |
1.6 |
|
|
|
|
|
|
$ |
1.6 |
|
|
|
|
|
Sub-Prime (< 575) |
|
$ |
0.6 |
|
|
|
|
|
|
$ |
0.5 |
|
|
|
|
|
|
$ |
0.5 |
|
|
|
|
|
|
$ |
0.5 |
|
|
|
|
|
|
$ |
0.5 |
|
|
|
|
|
|
$ |
0.5 |
|
|
|
|
|
Reduced Doc (All FICOs) |
|
$ |
2.4 |
|
|
|
|
|
|
$ |
2.3 |
|
|
|
|
|
|
$ |
2.2 |
|
|
|
|
|
|
$ |
2.1 |
|
|
|
|
|
|
$ |
2.1 |
|
|
|
|
|
|
$ |
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RIF by FICO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO 620 & > |
|
|
93.3 |
% |
|
|
|
|
|
|
93.5 |
% |
|
|
|
|
|
|
93.7 |
% |
|
|
|
|
|
|
94.1 |
% |
|
|
|
|
|
|
94.4 |
% |
|
|
|
|
|
|
94.6 |
% |
|
|
|
|
FICO 575 - 619 |
|
|
5.1 |
% |
|
|
|
|
|
|
5.0 |
% |
|
|
|
|
|
|
4.8 |
% |
|
|
|
|
|
|
4.5 |
% |
|
|
|
|
|
|
4.3 |
% |
|
|
|
|
|
|
4.1 |
% |
|
|
|
|
FICO < 575 |
|
|
1.6 |
% |
|
|
|
|
|
|
1.5 |
% |
|
|
|
|
|
|
1.5 |
% |
|
|
|
|
|
|
1.4 |
% |
|
|
|
|
|
|
1.3 |
% |
|
|
|
|
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Coverage Ratio (RIF/IIF) (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
25.9 |
% |
|
|
|
|
|
|
25.9 |
% |
|
|
|
|
|
|
26.0 |
% |
|
|
|
|
|
|
26.0 |
% |
|
|
|
|
|
|
26.0 |
% |
|
|
|
|
|
|
26.0 |
% |
|
|
|
|
Prime (620 & >) |
|
|
25.7 |
% |
|
|
|
|
|
|
25.7 |
% |
|
|
|
|
|
|
25.8 |
% |
|
|
|
|
|
|
25.9 |
% |
|
|
|
|
|
|
25.9 |
% |
|
|
|
|
|
|
25.9 |
% |
|
|
|
|
A minus (575 - 619) |
|
|
27.5 |
% |
|
|
|
|
|
|
27.5 |
% |
|
|
|
|
|
|
27.6 |
% |
|
|
|
|
|
|
27.6 |
% |
|
|
|
|
|
|
27.6 |
% |
|
|
|
|
|
|
27.6 |
% |
|
|
|
|
Sub-Prime (< 575) |
|
|
29.0 |
% |
|
|
|
|
|
|
29.0 |
% |
|
|
|
|
|
|
29.0 |
% |
|
|
|
|
|
|
29.0 |
% |
|
|
|
|
|
|
29.0 |
% |
|
|
|
|
|
|
29.0 |
% |
|
|
|
|
Reduced Doc (All FICOs) |
|
|
26.9 |
% |
|
|
|
|
|
|
26.9 |
% |
|
|
|
|
|
|
26.9 |
% |
|
|
|
|
|
|
26.9 |
% |
|
|
|
|
|
|
27.0 |
% |
|
|
|
|
|
|
26.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Loan Size (thousands) (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total IIF |
|
$ |
165.31 |
|
|
|
|
|
|
$ |
166.33 |
|
|
|
|
|
|
$ |
167.61 |
|
|
|
|
|
|
$ |
169.05 |
|
|
|
|
|
|
$ |
170.24 |
|
|
|
|
|
|
$ |
171.05 |
|
|
|
|
|
Flow |
|
$ |
166.59 |
|
|
|
|
|
|
$ |
167.75 |
|
|
|
|
|
|
$ |
169.17 |
|
|
|
|
|
|
$ |
170.74 |
|
|
|
|
|
|
$ |
172.07 |
|
|
|
|
|
|
$ |
172.88 |
|
|
|
|
|
Bulk |
|
$ |
152.48 |
|
|
|
|
|
|
$ |
151.95 |
|
|
|
|
|
|
$ |
151.24 |
|
|
|
|
|
|
$ |
150.77 |
|
|
|
|
|
|
$ |
149.75 |
|
|
|
|
|
|
$ |
149.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (620 & >) |
|
$ |
167.66 |
|
|
|
|
|
|
$ |
168.79 |
|
|
|
|
|
|
$ |
170.17 |
|
|
|
|
|
|
$ |
171.72 |
|
|
|
|
|
|
$ |
172.99 |
|
|
|
|
|
|
$ |
173.84 |
|
|
|
|
|
A minus (575 - 619) |
|
$ |
127.28 |
|
|
|
|
|
|
$ |
127.14 |
|
|
|
|
|
|
$ |
127.10 |
|
|
|
|
|
|
$ |
126.81 |
|
|
|
|
|
|
$ |
126.42 |
|
|
|
|
|
|
$ |
126.14 |
|
|
|
|
|
Sub-Prime (< 575) |
|
$ |
118.51 |
|
|
|
|
|
|
$ |
118.41 |
|
|
|
|
|
|
$ |
118.26 |
|
|
|
|
|
|
$ |
117.97 |
|
|
|
|
|
|
$ |
117.31 |
|
|
|
|
|
|
$ |
116.85 |
|
|
|
|
|
Reduced Doc (All FICOs) |
|
$ |
183.05 |
|
|
|
|
|
|
$ |
182.75 |
|
|
|
|
|
|
$ |
182.31 |
|
|
|
|
|
|
$ |
182.02 |
|
|
|
|
|
|
$ |
181.48 |
|
|
|
|
|
|
$ |
181.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF # of loans (1) |
|
|
960,163 |
|
|
|
|
|
|
|
949,384 |
|
|
|
|
|
|
|
950,731 |
|
|
|
|
|
|
|
960,849 |
|
|
|
|
|
|
|
968,748 |
|
|
|
|
|
|
|
970,931 |
|
|
|
|
|
Prime (620 & >) |
|
|
841,004 |
|
|
|
|
|
|
|
834,375 |
|
|
|
|
|
|
|
839,745 |
|
|
|
|
|
|
|
853,488 |
|
|
|
|
|
|
|
864,842 |
|
|
|
|
|
|
|
869,805 |
|
|
|
|
|
A minus (575 - 619) |
|
|
54,245 |
|
|
|
|
|
|
|
52,252 |
|
|
|
|
|
|
|
50,377 |
|
|
|
|
|
|
|
48,727 |
|
|
|
|
|
|
|
47,165 |
|
|
|
|
|
|
|
45,755 |
|
|
|
|
|
Sub-Prime (< 575) |
|
|
16,516 |
|
|
|
|
|
|
|
16,087 |
|
|
|
|
|
|
|
15,690 |
|
|
|
|
|
|
|
15,264 |
|
|
|
|
|
|
|
14,853 |
|
|
|
|
|
|
|
14,577 |
|
|
|
|
|
Reduced Doc (All FICOs) |
|
|
48,398 |
|
|
|
|
|
|
|
46,670 |
|
|
|
|
|
|
|
44,919 |
|
|
|
|
|
|
|
43,370 |
|
|
|
|
|
|
|
41,888 |
|
|
|
|
|
|
|
40,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF Default Roll Forward # of Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Default Inventory |
|
|
111,587 |
|
|
|
|
|
|
|
103,328 |
|
|
|
|
|
|
|
91,842 |
|
|
|
|
|
|
|
85,416 |
|
|
|
|
|
|
|
83,154 |
|
|
|
|
|
|
|
79,901 |
|
|
|
|
|
New Notices |
|
|
25,779 |
|
|
|
|
|
|
|
23,346 |
|
|
|
|
|
|
|
21,178 |
|
|
|
|
|
|
|
22,927 |
|
|
|
|
|
|
|
21,393 |
|
|
|
|
|
|
|
18,896 |
|
|
|
|
|
Cures |
|
|
(23,713 |
) |
|
|
|
|
|
|
(27,318 |
) |
|
|
|
|
|
|
(21,182 |
) |
|
|
|
|
|
|
(19,582 |
) |
|
|
|
|
|
|
(19,196 |
) |
|
|
|
|
|
|
(21,767 |
) |
|
|
|
|
Paids (including those charged to a
deductible or captive) |
|
|
(7,583 |
) |
|
|
|
|
|
|
(7,064 |
) |
|
|
|
|
|
|
(6,068 |
) |
|
|
|
|
|
|
(5,288 |
) |
|
|
|
|
|
|
(5,074 |
) |
|
|
|
|
|
|
(4,573 |
) |
|
|
|
|
Rescissions and denials |
|
|
(469 |
) |
|
|
|
|
|
|
(450 |
) |
|
|
|
|
|
|
(354 |
) |
|
|
|
|
|
|
(319 |
) |
|
|
|
|
|
|
(183 |
) |
|
|
|
|
|
|
(221 |
) |
|
|
|
|
Items removed from inventory resulting
from rescission settlement (5) |
|
|
(2,273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Ending Default Inventory (4) |
|
|
103,328 |
|
|
|
|
|
|
|
91,842 |
|
|
|
|
|
|
|
85,416 |
|
|
|
|
|
|
|
83,154 |
|
|
|
|
|
|
|
79,901 |
|
|
|
|
|
|
|
72,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary claim received inventory included in
ending default inventory (4) |
|
|
6,948 |
|
|
|
|
|
|
|
5,990 |
|
|
|
|
|
|
|
5,398 |
|
|
|
|
|
|
|
5,194 |
|
|
|
|
|
|
|
4,746 |
|
|
|
|
|
|
|
4,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of Cures (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported delinquent and cured intraquarter |
|
|
6,364 |
|
|
|
|
|
|
|
8,554 |
|
|
|
|
|
|
|
5,409 |
|
|
|
|
|
|
|
6,205 |
|
|
|
|
|
|
|
5,674 |
|
|
|
|
|
|
|
6,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments delinquent prior to cure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or less |
|
|
9,975 |
|
|
|
|
|
|
|
11,543 |
|
|
|
|
|
|
|
9,375 |
|
|
|
|
|
|
|
7,989 |
|
|
|
|
|
|
|
8,420 |
|
|
|
|
|
|
|
9,516 |
|
|
|
|
|
4-11 payments |
|
|
4,688 |
|
|
|
|
|
|
|
4,920 |
|
|
|
|
|
|
|
4,496 |
|
|
|
|
|
|
|
3,651 |
|
|
|
|
|
|
|
3,463 |
|
|
|
|
|
|
|
3,688 |
|
|
|
|
|
12 payments or more |
|
|
2,686 |
|
|
|
|
|
|
|
2,301 |
|
|
|
|
|
|
|
1,902 |
|
|
|
|
|
|
|
1,737 |
|
|
|
|
|
|
|
1,639 |
|
|
|
|
|
|
|
1,676 |
|
|
|
|
|
Total Cures in Quarter |
|
|
23,713 |
|
|
|
|
|
|
|
27,318 |
|
|
|
|
|
|
|
21,182 |
|
|
|
|
|
|
|
19,582 |
|
|
|
|
|
|
|
19,196 |
|
|
|
|
|
|
|
21,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of Paids (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments delinquent at time of
claim payment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or less |
|
|
42 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
4-11 payments |
|
|
1,067 |
|
|
|
|
|
|
|
965 |
|
|
|
|
|
|
|
750 |
|
|
|
|
|
|
|
550 |
|
|
|
|
|
|
|
528 |
|
|
|
|
|
|
|
550 |
|
|
|
|
|
12 payments or more |
|
|
6,474 |
|
|
|
|
|
|
|
6,066 |
|
|
|
|
|
|
|
5,299 |
|
|
|
|
|
|
|
4,713 |
|
|
|
|
|
|
|
4,535 |
|
|
|
|
|
|
|
4,011 |
|
|
|
|
|
Total Paids in Quarter |
|
|
7,583 |
|
|
|
|
|
|
|
7,064 |
|
|
|
|
|
|
|
6,068 |
|
|
|
|
|
|
|
5,288 |
|
|
|
|
|
|
|
5,074 |
|
|
|
|
|
|
|
4,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aging of Primary Default Inventory (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consecutive months in default |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 months or less |
|
|
18,941 |
|
|
|
18 |
% |
|
|
14,313 |
|
|
|
16 |
% |
|
|
15,297 |
|
|
|
18 |
% |
|
|
16,209 |
|
|
|
19 |
% |
|
|
15,319 |
|
|
|
19 |
% |
|
|
11,604 |
|
|
|
16 |
% |
4-11 months |
|
|
24,514 |
|
|
|
24 |
% |
|
|
23,305 |
|
|
|
25 |
% |
|
|
19,362 |
|
|
|
23 |
% |
|
|
18,890 |
|
|
|
23 |
% |
|
|
19,710 |
|
|
|
25 |
% |
|
|
18,940 |
|
|
|
26 |
% |
12 months or more |
|
|
59,873 |
|
|
|
58 |
% |
|
|
54,224 |
|
|
|
59 |
% |
|
|
50,757 |
|
|
|
59 |
% |
|
|
48,055 |
|
|
|
58 |
% |
|
|
44,872 |
|
|
|
56 |
% |
|
|
41,692 |
|
|
|
58 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments delinquent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or less |
|
|
28,095 |
|
|
|
27 |
% |
|
|
23,035 |
|
|
|
25 |
% |
|
|
22,867 |
|
|
|
27 |
% |
|
|
23,769 |
|
|
|
28 |
% |
|
|
23,253 |
|
|
|
29 |
% |
|
|
19,159 |
|
|
|
27 |
% |
4-11 payments |
|
|
24,605 |
|
|
|
24 |
% |
|
|
22,766 |
|
|
|
25 |
% |
|
|
19,666 |
|
|
|
23 |
% |
|
|
18,985 |
|
|
|
23 |
% |
|
|
19,427 |
|
|
|
24 |
% |
|
|
18,372 |
|
|
|
25 |
% |
12 payments or more |
|
|
50,628 |
|
|
|
49 |
% |
|
|
46,041 |
|
|
|
50 |
% |
|
|
42,883 |
|
|
|
50 |
% |
|
|
40,400 |
|
|
|
49 |
% |
|
|
37,221 |
|
|
|
47 |
% |
|
|
34,705 |
|
|
|
48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q4 2013 |
|
|
|
|
|
|
|
Q1 2014 |
|
|
|
|
|
|
|
Q2 2014 |
|
|
|
|
|
|
|
Q3 2014 |
|
|
|
|
|
|
|
Q4 2014 |
|
|
|
|
|
|
|
Q1 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF # of Delinquent Loans (1) |
|
|
103,328 |
|
|
|
|
|
|
|
91,842 |
|
|
|
|
|
|
|
85,416 |
|
|
|
|
|
|
|
83,154 |
|
|
|
|
|
|
|
79,901 |
|
|
|
|
|
|
|
72,236 |
|
|
|
|
|
Flow |
|
|
77,851 |
|
|
|
|
|
|
|
68,473 |
|
|
|
|
|
|
|
63,308 |
|
|
|
|
|
|
|
61,323 |
|
|
|
|
|
|
|
59,111 |
|
|
|
|
|
|
|
53,390 |
|
|
|
|
|
Bulk |
|
|
25,477 |
|
|
|
|
|
|
|
23,369 |
|
|
|
|
|
|
|
22,108 |
|
|
|
|
|
|
|
21,831 |
|
|
|
|
|
|
|
20,790 |
|
|
|
|
|
|
|
18,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (620 & >) |
|
|
65,724 |
|
|
|
|
|
|
|
57,965 |
|
|
|
|
|
|
|
53,651 |
|
|
|
|
|
|
|
52,301 |
|
|
|
|
|
|
|
50,307 |
|
|
|
|
|
|
|
45,416 |
|
|
|
|
|
A minus (575 - 619) |
|
|
16,496 |
|
|
|
|
|
|
|
14,518 |
|
|
|
|
|
|
|
13,699 |
|
|
|
|
|
|
|
13,474 |
|
|
|
|
|
|
|
13,021 |
|
|
|
|
|
|
|
11,639 |
|
|
|
|
|
Sub-Prime (< 575) |
|
|
6,391 |
|
|
|
|
|
|
|
5,814 |
|
|
|
|
|
|
|
5,555 |
|
|
|
|
|
|
|
5,477 |
|
|
|
|
|
|
|
5,228 |
|
|
|
|
|
|
|
4,654 |
|
|
|
|
|
Reduced Doc (All FICOs) |
|
|
14,717 |
|
|
|
|
|
|
|
13,545 |
|
|
|
|
|
|
|
12,511 |
|
|
|
|
|
|
|
11,902 |
|
|
|
|
|
|
|
11,345 |
|
|
|
|
|
|
|
10,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF Default Rates (1) |
|
|
10.76 |
% |
|
|
|
|
|
|
9.67 |
% |
|
|
|
|
|
|
8.98 |
% |
|
|
|
|
|
|
8.65 |
% |
|
|
|
|
|
|
8.25 |
% |
|
|
|
|
|
|
7.44 |
% |
|
|
|
|
Flow |
|
|
8.92 |
% |
|
|
|
|
|
|
7.92 |
% |
|
|
|
|
|
|
7.30 |
% |
|
|
|
|
|
|
6.97 |
% |
|
|
|
|
|
|
6.65 |
% |
|
|
|
|
|
|
5.98 |
% |
|
|
|
|
Bulk |
|
|
29.32 |
% |
|
|
|
|
|
|
27.46 |
% |
|
|
|
|
|
|
26.60 |
% |
|
|
|
|
|
|
26.89 |
% |
|
|
|
|
|
|
26.23 |
% |
|
|
|
|
|
|
24.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (620 & >) |
|
|
7.82 |
% |
|
|
|
|
|
|
6.95 |
% |
|
|
|
|
|
|
6.39 |
% |
|
|
|
|
|
|
6.13 |
% |
|
|
|
|
|
|
5.82 |
% |
|
|
|
|
|
|
5.22 |
% |
|
|
|
|
A minus (575 - 619) |
|
|
30.41 |
% |
|
|
|
|
|
|
27.78 |
% |
|
|
|
|
|
|
27.19 |
% |
|
|
|
|
|
|
27.65 |
% |
|
|
|
|
|
|
27.61 |
% |
|
|
|
|
|
|
25.44 |
% |
|
|
|
|
Sub-Prime (< 575) |
|
|
38.70 |
% |
|
|
|
|
|
|
36.14 |
% |
|
|
|
|
|
|
35.40 |
% |
|
|
|
|
|
|
35.88 |
% |
|
|
|
|
|
|
35.20 |
% |
|
|
|
|
|
|
31.93 |
% |
|
|
|
|
Reduced Doc (All FICOs) |
|
|
30.41 |
% |
|
|
|
|
|
|
29.02 |
% |
|
|
|
|
|
|
27.85 |
% |
|
|
|
|
|
|
27.44 |
% |
|
|
|
|
|
|
27.08 |
% |
|
|
|
|
|
|
25.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Loss Reserves (millions) |
|
$ |
2,834 |
|
|
|
|
|
|
$ |
2,629 |
|
|
|
|
|
|
$ |
2,491 |
|
|
|
|
|
|
$ |
2,362 |
|
|
|
|
|
|
$ |
2,246 |
|
|
|
|
|
|
$ |
2,112 |
|
|
|
|
|
Average Direct Reserve Per Default |
|
$ |
27,425 |
|
|
|
|
|
|
$ |
28,630 |
|
|
|
|
|
|
$ |
29,160 |
|
|
|
|
|
|
$ |
28,404 |
|
|
|
|
|
|
$ |
28,107 |
|
|
|
|
|
|
$ |
29,233 |
|
|
|
|
|
Pool |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Loss Reserves (millions) |
|
$ |
99 |
|
|
|
|
|
|
$ |
87 |
|
|
|
|
|
|
$ |
77 |
|
|
|
|
|
|
$ |
69 |
|
|
|
|
|
|
$ |
65 |
|
|
|
|
|
|
$ |
57 |
|
|
|
|
|
Ending Default Inventory |
|
|
6,563 |
|
|
|
|
|
|
|
5,646 |
|
|
|
|
|
|
|
5,271 |
|
|
|
|
|
|
|
4,525 |
|
|
|
|
|
|
|
3,797 |
|
|
|
|
|
|
|
3,350 |
|
|
|
|
|
Pool claim received inventory included in
ending default inventory |
|
|
173 |
|
|
|
|
|
|
|
144 |
|
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
86 |
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
88 |
|
|
|
|
|
Reserves related to Freddie Mac settlement |
|
$ |
126 |
|
|
|
|
|
|
$ |
115 |
|
|
|
|
|
|
$ |
105 |
|
|
|
|
|
|
$ |
94 |
|
|
|
|
|
|
$ |
84 |
|
|
|
|
|
|
$ |
73 |
|
|
|
|
|
Other Gross Reserves (millions) (3) |
|
$ |
2 |
|
|
|
|
|
|
$ |
4 |
|
|
|
|
|
|
$ |
3 |
|
|
|
|
|
|
$ |
3 |
|
|
|
|
|
|
$ |
2 |
|
|
|
|
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Paid Claims (millions) (1) |
|
$ |
481 |
|
|
|
|
|
|
$ |
343 |
|
|
|
|
|
|
$ |
300 |
|
|
|
|
|
|
$ |
263 |
|
|
|
|
|
|
$ |
248 |
|
|
|
|
|
|
$ |
232 |
|
|
|
|
|
Flow |
|
$ |
302 |
|
|
|
|
|
|
$ |
265 |
|
|
|
|
|
|
$ |
225 |
|
|
|
|
|
|
$ |
196 |
|
|
|
|
|
|
$ |
189 |
|
|
|
|
|
|
$ |
167 |
|
|
|
|
|
Bulk |
|
$ |
55 |
|
|
|
|
|
|
$ |
59 |
|
|
|
|
|
|
$ |
52 |
|
|
|
|
|
|
$ |
46 |
|
|
|
|
|
|
$ |
36 |
|
|
|
|
|
|
$ |
50 |
|
|
|
|
|
Prior rescission settlement (5) |
|
$ |
105 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
6 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
Pool with aggregate loss limits |
|
$ |
7 |
|
|
|
|
|
|
$ |
9 |
|
|
|
|
|
|
$ |
9 |
|
|
|
|
|
|
$ |
6 |
|
|
|
|
|
|
$ |
3 |
|
|
|
|
|
|
$ |
4 |
|
|
|
|
|
Pool without aggregate loss limits |
|
$ |
5 |
|
|
|
|
|
|
$ |
5 |
|
|
|
|
|
|
$ |
4 |
|
|
|
|
|
|
$ |
3 |
|
|
|
|
|
|
$ |
3 |
|
|
|
|
|
|
$ |
2 |
|
|
|
|
|
Pool Freddie Mac settlement |
|
$ |
10 |
|
|
|
|
|
|
$ |
10 |
|
|
|
|
|
|
$ |
11 |
|
|
|
|
|
|
$ |
11 |
|
|
|
|
|
|
$ |
10 |
|
|
|
|
|
|
$ |
11 |
|
|
|
|
|
Reinsurance |
|
$ |
(11 |
) |
|
|
|
|
|
$ |
(12 |
) |
|
|
|
|
|
$ |
(8 |
) |
|
|
|
|
|
$ |
(7 |
) |
|
|
|
|
|
$ |
(7 |
) |
|
|
|
|
|
$ |
(8 |
) |
|
|
|
|
Other (3) |
|
$ |
8 |
|
|
|
|
|
|
$ |
7 |
|
|
|
|
|
|
$ |
7 |
|
|
|
|
|
|
$ |
8 |
|
|
|
|
|
|
$ |
8 |
|
|
|
|
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (620 & >) |
|
$ |
254 |
|
|
|
|
|
|
$ |
228 |
|
|
|
|
|
|
$ |
191 |
|
|
|
|
|
|
$ |
168 |
|
|
|
|
|
|
$ |
168 |
|
|
|
|
|
|
$ |
146 |
|
|
|
|
|
A minus (575 - 619) |
|
$ |
39 |
|
|
|
|
|
|
$ |
39 |
|
|
|
|
|
|
$ |
33 |
|
|
|
|
|
|
$ |
28 |
|
|
|
|
|
|
$ |
25 |
|
|
|
|
|
|
$ |
27 |
|
|
|
|
|
Sub-Prime (< 575) |
|
$ |
9 |
|
|
|
|
|
|
$ |
11 |
|
|
|
|
|
|
$ |
10 |
|
|
|
|
|
|
$ |
9 |
|
|
|
|
|
|
$ |
7 |
|
|
|
|
|
|
$ |
9 |
|
|
|
|
|
Reduced Doc (All FICOs) |
|
$ |
55 |
|
|
|
|
|
|
$ |
46 |
|
|
|
|
|
|
$ |
43 |
|
|
|
|
|
|
$ |
37 |
|
|
|
|
|
|
$ |
31 |
|
|
|
|
|
|
$ |
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Average Claim Payment (thousands) (1) |
|
$ |
47.1 |
|
|
|
|
|
|
$ |
45.9 |
|
|
|
|
|
|
$ |
45.5 |
|
|
|
|
|
|
$ |
45.8 |
|
|
|
|
|
|
$ |
45.0 |
|
|
|
|
|
|
$ |
47.4 |
|
|
|
|
|
Flow |
|
$ |
45.2 |
|
|
|
|
|
|
$ |
43.9 |
|
|
|
|
|
|
$ |
43.4 |
|
|
|
|
|
|
$ |
43.5 |
|
|
|
|
|
|
$ |
44.6 |
|
|
|
|
|
|
$ |
44.2 |
|
|
|
|
|
Bulk |
|
$ |
60.8 |
|
|
|
|
|
|
$ |
58.1 |
|
|
|
|
|
|
$ |
57.8 |
|
|
|
|
|
|
$ |
59.2 |
|
|
|
|
|
|
$ |
47.3 |
|
|
|
|
|
|
$ |
61.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (620 & >) |
|
$ |
45.2 |
|
|
|
|
|
|
$ |
44.1 |
|
|
|
|
|
|
$ |
43.8 |
|
|
|
|
|
|
$ |
43.7 |
|
|
|
|
|
|
$ |
45.0 |
|
|
|
|
|
|
$ |
44.7 |
|
|
|
|
|
A minus (575 - 619) |
|
$ |
42.9 |
|
|
|
|
|
|
$ |
43.9 |
|
|
|
|
|
|
$ |
44.0 |
|
|
|
|
|
|
$ |
43.3 |
|
|
|
|
|
|
$ |
43.4 |
|
|
|
|
|
|
$ |
47.8 |
|
|
|
|
|
Sub-Prime (< 575) |
|
$ |
44.1 |
|
|
|
|
|
|
$ |
46.9 |
|
|
|
|
|
|
$ |
42.3 |
|
|
|
|
|
|
$ |
45.7 |
|
|
|
|
|
|
$ |
46.0 |
|
|
|
|
|
|
$ |
48.4 |
|
|
|
|
|
Reduced Doc (All FICOs) |
|
$ |
64.3 |
|
|
|
|
|
|
$ |
59.8 |
|
|
|
|
|
|
$ |
58.5 |
|
|
|
|
|
|
$ |
63.1 |
|
|
|
|
|
|
$ |
59.4 |
|
|
|
|
|
|
$ |
62.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% insurance inforce subject to reinsurance |
|
|
55.4 |
% |
|
|
|
|
|
|
55.9 |
% |
|
|
|
|
|
|
57.6 |
% |
|
|
|
|
|
|
59.4 |
% |
|
|
|
|
|
|
60.8 |
% |
|
|
|
|
|
|
61.3 |
% |
|
|
|
|
% Quarterly NIW subject to reinsurance |
|
|
92.3 |
% |
|
|
|
|
|
|
93.0 |
% |
|
|
|
|
|
|
91.6 |
% |
|
|
|
|
|
|
90.1 |
% |
|
|
|
|
|
|
87.4 |
% |
|
|
|
|
|
|
85.2 |
% |
|
|
|
|
Ceded premium written (millions) |
|
$ |
42.0 |
|
|
|
|
|
|
$ |
26.6 |
|
|
|
|
|
|
$ |
28.3 |
|
|
|
|
|
|
$ |
32.5 |
|
|
|
|
|
|
$ |
32.2 |
|
|
|
|
|
|
$ |
31.3 |
|
|
|
|
|
Ceding commissions (millions) |
|
$ |
7.6 |
|
|
|
|
|
|
$ |
9.1 |
|
|
|
|
|
|
$ |
9.6 |
|
|
|
|
|
|
$ |
10.3 |
|
|
|
|
|
|
$ |
10.4 |
|
|
|
|
|
|
$ |
10.5 |
|
|
|
|
|
Captive trust fund assets (millions) |
|
$ |
249 |
|
|
|
|
|
|
$ |
240 |
|
|
|
|
|
|
$ |
228 |
|
|
|
|
|
|
$ |
211 |
|
|
|
|
|
|
$ |
207 |
|
|
|
|
|
|
$ |
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Pool RIF (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With aggregate loss limits |
|
$ |
376 |
|
|
|
|
|
|
$ |
346 |
|
|
|
|
|
|
$ |
338 |
|
|
|
|
|
|
$ |
331 |
|
|
|
|
|
|
$ |
303 |
|
|
|
|
|
|
$ |
287 |
|
|
|
|
|
Without aggregate loss limits |
|
$ |
636 |
|
|
|
|
|
|
$ |
601 |
|
|
|
|
|
|
$ |
570 |
|
|
|
|
|
|
$ |
536 |
|
|
|
|
|
|
$ |
505 |
|
|
|
|
|
|
$ |
479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Guaranty Insurance Corporation Risk
to Capital |
|
|
15.8:1 |
|
|
|
|
|
|
|
15.3:1 |
|
|
|
|
|
|
|
15.2:1 |
|
|
|
|
|
|
|
15.0:1 |
|
|
|
|
|
|
|
14.6:1 |
|
|
|
|
|
|
|
13.7:1 |
|
|
|
(7 |
) |
MGIC Indemnity Corporation Risk to Capital |
|
|
1.3:1 |
|
|
|
|
|
|
|
1.2:1 |
|
|
|
|
|
|
|
1.2:1 |
|
|
|
|
|
|
|
1.1:1 |
|
|
|
|
|
|
|
1.1:1 |
|
|
|
|
|
|
|
1.0:1 |
|
|
|
(7 |
) |
Combined Insurance Companies Risk to Capital |
|
|
18.4:1 |
|
|
|
|
|
|
|
17.6:1 |
|
|
|
|
|
|
|
17.3:1 |
|
|
|
|
|
|
|
17.0:1 |
|
|
|
|
|
|
|
16.4:1 |
|
|
|
|
|
|
|
15.4:1 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP loss ratio (insurance operations only) (2) |
|
|
86.6 |
% |
|
|
|
|
|
|
57.2 |
% |
|
|
|
|
|
|
68.0 |
% |
|
|
|
|
|
|
55.1 |
% |
|
|
|
|
|
|
54.8 |
% |
|
|
|
|
|
|
37.6 |
% |
|
|
|
|
GAAP underwriting expense ratio (insurance
operations only) |
|
|
20.7 |
% |
|
|
|
|
|
|
15.7 |
% |
|
|
|
|
|
|
14.4 |
% |
|
|
|
|
|
|
14.9 |
% |
|
|
|
|
|
|
13.9 |
% |
|
|
|
|
|
|
16.4 |
% |
|
|
|
|
Note: The FICO credit score for a loan with multiple borrowers is the lowest of the borrowers
decision FICO scores. A borrowers decision FICO score is determined as follows: if there are
three FICO scores available, the middle FICO score is used; if two FICO scores are available, the
lower of the two is used; if only one FICO score is available, it is used.
Note: The results of our operations in Australia are included in the financial statements in this
document but the additional information in this document does not include our Australian
operations, unless otherwise noted, which are immaterial.
Note: Average claim paid may vary from period to period due to amounts associated with mitigation
efforts.
(1) |
|
In accordance with industry practice, loans approved by GSE and other automated underwriting
(AU) systems under doc waiver programs that do not require verification of borrower income
are classified by MGIC as full doc. Based in part on information provided by the GSEs, MGIC
estimates full doc loans of this type were approximately 4% of 2007 NIW. Information for
other periods is not available. MGIC understands these AU systems grant such doc waivers for
loans they judge to have higher credit quality. MGIC also understands that the GSEs
terminated their doc waiver programs in the second half of 2008. Reduced documentation
loans only appear in the reduced documentation category and do not appear in any of the other
categories. |
(2) |
|
As calculated, does not reflect any effects due to premium deficiency. |
(3) |
|
Includes Australian operations |
(4) |
|
As of March 31, 2015, rescissions of coverage on approximately 1,470 loans had been
voluntarily suspended, as we believed those loans could be covered by a settlement. |
(5) |
|
Refer to our risk factor titled We are involved in legal proceedings and are subject to the
risk of additional legal proceedings in the future for information about our rescission
settlements. |
(6) |
|
Q4 2013 excludes items and dollars and Q4 2014 excludes items associated with rescission
settlements. |
Risk Factors
As used below, we, our and us refer to MGIC Investment Corporations consolidated
operations or to MGIC Investment Corporation, as the context requires; MGIC refers to Mortgage
Guaranty Insurance Corporation; and MIC refers to MGIC Indemnity Corporation.
We may not continue to meet the GSEs mortgage insurer eligibility requirements and our returns may
decrease as we are required to maintain more capital in order to maintain our eligibility.
Since 2008, substantially all of our insurance written has been for loans sold to Fannie Mae
and Freddie Mac (the GSEs). In April 2015, the GSEs each released revised private mortgage
insurer eligibility requirements (the PMIERs) that become effective December 31, 2015. The PMIERs
include revised financial requirements for mortgage insurers (the GSE Financial Requirements)
under which a mortgage insurers Available Assets (generally only the most liquid assets of an
insurer) must meet or exceed Minimum Required Assets (which are based on an insurers book and
are calculated from tables of factors with several risk dimensions and are subject to a floor
amount).
We expect that MGIC will be in compliance with the PMIERs, including the GSE Financial
Requirements, when they become effective.
We estimate that as of March 31, 2015, before considering the effects of reinsurance, MGIC has
a shortfall in Available Assets of approximately $230 million. This shortfall estimate is based on
our interpretation of the GSE Financial Requirements and assumes that the risk in force and assets
of MGICs MIC subsidiary will be repatriated to MGIC. This shortfall estimate does not reflect the
benefits from MGICs existing quota share reinsurance transaction or the anticipated restructure of
that transaction; capital contributions from our holding company to MGIC; or the transfer of assets
(including the $45 million discussed below) from regulated insurance affiliates of MGIC that,
subject to regulatory authorization, could increase the assets of MGIC. We believe that these
benefits will eliminate our shortfall in Available Assets and each is discussed below.
As we previously disclosed, we did not expect to receive full credit under the PMIERs for our
existing reinsurance transaction. However, we and the reinsurers have reached agreement to
restructure the transaction in a manner that we believe will result in MGIC receiving full credit
under the PMIERs. The effectiveness of the restructured transaction will be subject to approval by
the GSEs and the Office of the Commissioner of Insurance of the State of Wisconsin (OCI). In
addition, in April 2015, we received regulatory authorization to transfer to MGIC $45 million of
assets from regulated insurance affiliates of MGIC; such transfer will increase the Available
Assets of MGIC. Furthermore, we believe that a portion of our holding companys $494 million of
cash and investments at March 31, 2015, may be available for future contribution to MGIC. In
addition, we could seek non-dilutive debt capital to mitigate a shortfall.
As noted above, we expect to be in compliance with the PMIERs, including the GSE Financial
Requirements, by their effective date. However, if we are not in compliance with the GSE Financial
Requirements by then, we could submit to the GSEs for approval, a transition plan having milestones
for actions to achieve compliance. If the plan were approved, the GSEs would monitor our progress
and we could have until June 2017 to meet the GSE Financial Requirements (the transition period).
During the transition period, MGIC would be considered to be in remediation (a status similar to
the one under which it has been operating with the GSEs for over five years) and eligible to
provide mortgage insurance on loans acquired by the GSEs.
Factors that may negatively impact MGICs ability to comply with the GSE Financial
Requirements before their effective date include the following:
|
|
The GSEs may not approve our restructured reinsurance transaction or they may not allow
full credit under the GSE Financial Requirements for that transaction. |
|
|
We may not obtain regulatory authorization to transfer assets from MIC to MGIC to the
extent we are assuming because regulators project higher losses than we project or require a
level of capital be maintained in MIC higher than we are assuming. |
|
|
MGIC may not receive additional capital contributions from our holding company due to
competing demands on the holding company resources, including for repayment of debt. |
|
|
Our future operating results may be negatively impacted by the matters discussed in the
rest of these risk factors. Such matters could decrease our revenues, increase our losses or
require the use of assets, thereby increasing our shortfall in Available Assets. |
|
|
We may not be able to access the non-dilutive debt markets due to market conditions,
concern about our creditworthiness, or other factors, in a manner sufficient to provide the
funds we may seek. |
There can be no assurance that the GSEs will not make the GSE Financial Requirements more
onerous in the future; in this regard, the PMIERs provide that the tables of factors that determine
Minimum Required Assets will be updated every two years and may be updated more frequently to
reflect changes in macroeconomic conditions or loan performance. The GSEs will provide notice 180
days prior to the effective date of table updates. In addition, the GSEs may amend the PMIERs at
any time. If MGIC ceases to be eligible to insure loans purchased by one or both of the GSEs, it
would significantly reduce the volume of our new business writings.
While on an overall basis, the amount of Available Assets we must hold in order to continue to
insure GSE loans has increased under the PMIERs over what state regulation currently provides,
reinsurance is one option we have to mitigate the effect of PMIERs on our returns. In this regard,
see the first bullet point above.
The amount of insurance we write could be adversely affected if lenders and investors select
alternatives to private mortgage insurance.
Alternatives to private mortgage insurance include:
|
|
lenders using government mortgage insurance programs, including those of the FHA and VA, |
|
|
lenders and other investors holding mortgages in portfolio and self-insuring, |
|
|
investors (including the GSEs) using risk mitigation techniques other than private mortgage
insurance, such as obtaining insurance from non-mortgage insurers and engaging in
credit-linked note transactions executed in the capital markets; using other risk mitigation
techniques in conjunction with reduced levels of private mortgage insurance coverage; or
accepting credit risk without credit enhancement, and |
|
|
lenders originating mortgages using piggyback structures to avoid private mortgage
insurance, such as a first mortgage with an 80% loan-to-value ratio and a second mortgage with
a 10%, 15% or 20% loan-to-value ratio (referred to as 80-10-10, 80-15-5 or 80-20 loans,
respectively) rather than a first mortgage with a 90%, 95% or 100% loan-to-value ratio that
has private mortgage insurance. |
The FHAs market share substantially increased from 2008 to 2011, due to a combination of
factors including tightened underwriting guidelines of private mortgage insurers, increased loan
level price adjustments of the GSEs, increased flexibility for the FHA to establish new products as
a result of federal legislation and programs, and higher returns obtained by lenders for Ginnie Mae
securitization of FHA-insured loans than for selling loans to Fannie Mae or Freddie Mac for
securitization. The FHAs market share declined from 2011 to 2014, due to a combination of factors
including changes to the prices and fees of the FHA, the GSEs and the private mortgage insurers. In
January 2015, the FHA significantly reduced its annual mortgage insurance premiums. Absent any
other changes, the reduction in FHA premiums will make private mortgage insurance less competitive
with the FHA for borrowers with certain credit characteristics. However, we believe our pricing
continues to be more attractive than the FHAs pricing for a substantial majority of borrowers with
credit and loan characteristics similar to those whose loans we insured in 2014. We cannot predict
how these factors or the FHAs share of new insurance written will change in the future.
From 2009 through 2012 the VAs market share increased and it has remained stable since 2012.
We believe that the VAs market share increased because the VA offers 100% LTV loans and charges a
one-time funding fee that can be included in the loan amount but no additional monthly expense, and
because of an increase in the number of borrowers that are eligible for the program. We do not
expect any material changes in the VA market share in the future.
Competition or changes in our relationships with our customers could reduce our revenues, reduce
our premium yields and/or increase our losses.
Our private mortgage insurance competitors include:
|
|
Arch Mortgage Insurance Company, |
|
|
Genworth Mortgage Insurance Corporation, |
|
|
National Mortgage Insurance Corporation, |
|
|
Radian Guaranty Inc., and |
|
|
United Guaranty Residential Insurance Company. |
The level of competition within the private mortgage insurance industry is intense and is not
expected to diminish. Price competition has been present for some time: in the third quarter of
2014, we reduced many of our standard lender-paid single premium rates to match competition; and in
the fourth quarter of 2013, we reduced all of our standard borrower-paid monthly premium rates and
most of our standard single premium rates to match competition. Currently, we are seeing price
competition in the form of lender-paid single premium programs customized for individual lenders by
using a rate cards authority to set premiums or adjust premiums on individual loans within a range
of premiums. This has resulted in rates materially discounted from those on the standard rate card
(i.e., one that does not use such authority). During most of 2013, when almost all of our
lender-paid single premium rates were above those most commonly used in the market, lender-paid
single premium policies were approximately 4% of our total new insurance written; they were
approximately 11% in 2014 and 20% in the first quarter of 2015, primarily as a result of us
selectively matching reduced rates. Prior to the fourth quarter of 2014, we did not use our rate
cards authority to adjust premiums to offer significant discounts from our standard lender-paid
single premium policy rate card. The average discount from our rate card on lender-paid single
premium policies was 5% in the fourth quarter of 2014 and 13% in the first quarter of 2015. As a
result of the recent increase in the percentage of our new business written as lender-paid single
premium policies, our weighted average premium rate on new insurance written has decreased from
2013 to 2014. As the percentage of business written as lender-paid single premium policies
increases, all other things equal, our weighted average premium rates on new insurance written will
decrease. If we reduce or discount prices on any premium plan in response to future price
competition, it may further decrease our weighted average premium rates.
During 2014 and the first quarter of 2015, approximately 4% and 5%, respectively, of our new
insurance written was for loans for which one lender was the original insured. Our relationships
with our customers could be adversely affected by a variety of factors, including premium rates
higher than can be obtained from competitors, tightening of and adherence to our underwriting
requirements, which may result in our declining to insure some of the loans originated by our
customers, and insurance rescissions that affect the customer. We have ongoing discussions with
lenders who are significant customers regarding their objections to our rescissions.
In the past several years, we believe many lenders considered financial strength and
compliance with the State Capital Requirements as important factors when selecting a mortgage
insurer. Lenders may consider compliance with the GSE Financial Requirements important when
selecting a mortgage insurer in the future. As noted above, we expect MGIC to be in compliance with
the GSE Financial Requirements when they become effective and we expect MGICs risk-to-capital
ratio to continue to comply with the current State Capital Requirements discussed below. However,
we cannot assure you that we will comply with such requirements or that we will comply with any
revised State Capital Requirements proposed by the National Association of Insurance Commissioners
(NAIC). For more information, see our risk factors titled We may not continue to meet the GSEs
mortgage insurer eligibility requirements and our returns may decrease as we are required to
maintain more capital in order to maintain our eligibility and State capital requirements may
prevent us from continuing to write new insurance on an uninterrupted basis.
We believe that financial strength ratings may be a significant consideration for participants
seeking to secure credit enhancement in the non-GSE mortgage market, which includes most loans that
are not Qualified Mortgages (for more information about Qualified Mortgages, see our risk
factor titled Changes in the business practices of the GSEs, federal legislation that changes
their charters or a restructuring of the GSEs could reduce our revenues or increase our losses).
While this market has been limited since the financial crisis, it may grow in the future. The
financial strength ratings of our insurance subsidiaries are lower than those of some competitors
and below investment grade levels; therefore, we may be competitively disadvantaged with some
market participants. For each of MGIC and MIC, the financial strength rating from Moodys is Ba3
(with a stable outlook) and from Standard & Poors is BB+ (with a positive outlook). It is possible
that MGICs and MICs financial strength ratings could decline from these levels. Our ability to
participate in the non-GSE market could depend on our ability to secure investment grade ratings
for our mortgage insurance subsidiaries.
If the GSEs no longer operate in their current capacities, for example, due to legislative or
regulatory action, we may be forced to compete in a new marketplace in which financial strength
ratings play a greater role. If we are unable to compete effectively in the current or any future
markets as a result of the financial strength ratings assigned to our mortgage insurance
subsidiaries, our future new insurance written could be negatively affected.
Changes in the business practices of the GSEs, federal legislation that changes their charters or a
restructuring of the GSEs could reduce our revenues or increase our losses.
Since 2008, substantially all of our insurance written has been for loans sold to Fannie Mae
and Freddie Mac. The business practices of the GSEs affect the entire relationship between them,
lenders and mortgage insurers and include:
|
|
the level of private mortgage insurance coverage, subject to the limitations of the GSEs
charters (which may be changed by federal legislation), when private mortgage insurance is
used as the required credit enhancement on low down payment mortgages, |
|
|
the amount of loan level price adjustments and guaranty fees (which result in higher costs
to borrowers) that the GSEs assess on loans that require mortgage insurance, |
|
|
whether the GSEs influence the mortgage lenders selection of the mortgage insurer
providing coverage and, if so, any transactions that are related to that selection, |
|
|
the underwriting standards that determine what loans are eligible for purchase by the GSEs,
which can affect the quality of the risk insured by the mortgage insurer and the availability
of mortgage loans, |
|
|
the terms on which mortgage insurance coverage can be canceled before reaching the
cancellation thresholds established by law, |
|
|
the programs established by the GSEs intended to avoid or mitigate loss on insured
mortgages and the circumstances in which mortgage servicers must implement such programs, |
|
|
the terms that the GSEs require to be included in mortgage insurance policies for loans
that they purchase, |
|
|
the extent to which the GSEs intervene in mortgage insurers rescission practices or
rescission settlement practices with lenders. For additional information, see our risk factor
titled We are involved in legal proceedings and are subject to the risk of additional legal
proceedings in the future, and |
|
|
the maximum loan limits of the GSEs in comparison to those of the FHA and other investors. |
The FHFA is the conservator of the GSEs and has the authority to control and direct their
operations. The increased role that the federal government has assumed in the residential housing
finance system through the GSE conservatorship may increase the likelihood that the business
practices of the GSEs change in ways that have a material adverse effect on us and that the
charters of the GSEs are changed by new federal legislation. The financial reform legislation that
was passed in July 2010 (the Dodd-Frank Act or Dodd-Frank) required the U.S. Department of the
Treasury to report its recommendations regarding options for ending the conservatorship of the
GSEs. This report did not provide any definitive timeline for GSE reform; however, it did recommend
using a combination of federal housing policy changes to wind down the GSEs, shrink the
governments footprint in housing finance (including FHA insurance), and help bring private capital
back to the mortgage market. Since then, Members of Congress introduced several bills intended to
change the business practices of the GSEs and the FHA; however, no legislation has been enacted. As
a result of the matters referred to above, it is uncertain what role the GSEs, FHA and private
capital, including private mortgage insurance, will play in the residential housing finance system
in the future or the impact of any such changes on our business. In addition, the timing of the
impact of any resulting changes on our business is uncertain. Most meaningful changes would require
Congressional action to implement and it is difficult to estimate when Congressional action would
be final and how long any associated phase-in period may last.
Dodd-Frank requires lenders to consider a borrowers ability to repay a home loan before
extending credit. The Consumer Financial Protection Bureau (CFPB) rule defining Qualified
Mortgage (QM) for purposes of implementing the ability to repay law became effective in
January 2014 and included a temporary category of QMs for mortgages that satisfy the general
product feature requirements of QMs and meet the GSEs underwriting requirements (the temporary
category). The temporary category will phase out when the GSEs conservatorship ends, or if
sooner, on January 21, 2021.
Dodd-Frank requires a securitizer to retain at least 5% of the risk associated with mortgage
loans that are securitized, and in some cases the retained risk may be allocated between the
securitizer and the lender that originated the loan. The final rule implementing that requirement
will become effective on December 24, 2015 for asset-backed securities collateralized by
residential mortgages. The final rule exempts securitizations of qualified residential mortgages
(QRMs) from the risk retention requirement and generally aligns the QRM definition with that of
QM. As noted above, there is a temporary category of QMs for mortgages that satisfy the general
product feature requirements of QMs and meet the GSEs underwriting requirements. As a result,
lenders that originate loans that are sold to the GSEs while they are in conservatorship would not
be required to retain risk associated with those loans. The final rule requires the agencies to
review the QRM definition no later than four years after its effective date and every five years
thereafter, and allows each agency to request a review of the definition at any time.
We estimate that for our new risk written in 2013, 2014 and the first quarter of 2015, 87%,
83% and 85%, respectively, was for loans that would have met the CFPBs general QM definition and,
therefore, the QRM definition. We estimate that approximately 99% of our new risk written in each
of 2013, 2014 and the first quarter of 2015, was for loans that would have met the temporary
category in CFPBs QM definition. Changes in the treatment of GSE-guaranteed mortgage loans in the
regulations defining QM and QRM, or changes in the conservatorship or capital support provided to
the GSEs by the U.S. Government, could impact the manner in which the risk-retention rules apply to
GSE securitizations, originators who sell loans to GSEs and our business.
The GSEs have different loan purchase programs that allow different levels of mortgage
insurance coverage. Under the charter coverage program, on certain loans lenders may choose a
mortgage insurance coverage percentage that is less than the GSEs standard coverage and only the
minimum required by the GSEs charters, with the GSEs paying a lower price for such loans. In 2013,
2014 and the first quarter of 2015, nearly all of our volume was on loans with GSE standard or
higher coverage. We charge higher premium rates for higher coverage percentages. To the extent
lenders selling loans to the GSEs in the future choose lower coverage for loans that we insure, our
revenues would be reduced and we could experience other adverse effects.
The benefit of our net operating loss carryforwards may become substantially limited.
As of March 31, 2015, we had approximately $2.3 billion of net operating losses for tax
purposes that we can use in certain circumstances to offset future taxable income and thus reduce
our federal income tax liability. Our ability to utilize these net operating losses to offset
future taxable income may be significantly limited if we experience an ownership change as
defined in Section 382 of the Internal Revenue Code of 1986, as amended (the Code). In general,
an ownership change will occur if there is a cumulative change in our ownership by 5-percent
shareholders (as defined in the Code) that exceeds 50 percentage points over a rolling three-year
period. A corporation that experiences an ownership change will generally be subject to an annual
limitation on the corporations subsequent use of net operating loss carryovers that arose from
pre-ownership change periods and use of losses that are subsequently recognized with respect to
assets that had a built-in-loss on the date of the ownership change. The amount of the annual
limitation generally equals the fair value of the corporation immediately before the ownership
change multiplied by the long-term tax-exempt interest rate (subject to certain adjustments). To
the extent that the limitation in a post-ownership-change year is not fully utilized, the amount of
the limitation for the succeeding year will be increased.
While we have adopted a shareholder rights agreement to minimize the likelihood of
transactions in our stock resulting in an ownership change, future issuances of equity-linked
securities or transactions in our stock and equity-linked securities that may not be within our
control may cause us to experience an ownership change. If we experience an ownership change, we
may not be able to fully utilize our net operating losses, resulting in additional income taxes and
a reduction in our shareholders equity.
We are involved in legal proceedings and are subject to the risk of additional legal proceedings in
the future.
Before paying a claim, we review the loan and servicing files to determine the appropriateness
of the claim amount. All of our insurance policies provide that we can reduce or deny a claim if
the servicer did not comply with its obligations under our insurance policy, including the
requirement to mitigate our loss by performing reasonable loss mitigation efforts or, for example,
diligently pursuing a foreclosure or bankruptcy relief in a timely manner. We call such reduction
of claims submitted to us curtailments. In 2014 and the first quarter of 2015, curtailments
reduced our average claim paid by approximately 6.7% and 8.2%, respectively. In addition, the
claims submitted to us sometimes include costs and expenses not covered by our insurance policies,
such as hazard insurance premiums for periods after the claim date and losses resulting from
property damage that has not been repaired. These other adjustments reduced claim amounts by less
than the amount of curtailments. After we pay a claim, servicers and insureds sometimes object to
our curtailments and other adjustments. We review these objections if they are sent to us within 90
days after the claim was paid.
When reviewing the loan file associated with a claim, we may determine that we have the right
to rescind coverage on the loan. In recent quarters, approximately 5% of claims received in a
quarter have been resolved by rescissions, down from the peak of approximately 28% in the first
half of 2009. We estimate rescissions mitigated our incurred losses by approximately $2.5 billion
in 2009 and $0.2 billion in 2010 and have not significantly mitigated our incurred losses since
then. Our loss reserving methodology incorporates our estimates of future rescissions and
reversals of rescissions. Historically, reversals of rescissions have been immaterial. A variance
between ultimate actual rescission and reversal rates and our estimates, as a result of the outcome
of litigation, settlements or other factors, could materially affect our losses.
If the insured disputes our right to rescind coverage, we generally engage in discussions in
an attempt to settle the dispute. As part of those discussions, we may voluntarily suspend
rescissions we believe may be part of a settlement. In 2011, Freddie Mac advised its servicers that
they must obtain its prior approval for rescission settlements, Fannie Mae advised its servicers
that they are prohibited from entering into such settlements and Fannie Mae notified us that we
must obtain its prior approval to enter into certain settlements. Since those announcements, the
GSEs have consented to our settlement agreements with two customers, one of which is Countrywide,
as discussed below, and have rejected other settlement agreements. We have reached and implemented
settlement agreements that do not require GSE approval, but they have not been material in the
aggregate.
If we are unable to reach a settlement, the outcome of a dispute ultimately would be
determined by legal proceedings. Under our policies in effect prior to October 1, 2014, legal
proceedings disputing our right to rescind coverage may be brought up to three years after the
lender has obtained title to the property (typically through a foreclosure) or the property was
sold in a sale that we approved, whichever is applicable, and under our master policy effective
October 1, 2014, such proceedings may be brought up to two years from the date of the notice of
rescission. In a few jurisdictions there is a longer time to bring such proceedings.
Until a liability associated with a settlement agreement or litigation becomes probable and
can be reasonably estimated, we consider our claim payment or rescission resolved for financial
reporting purposes even though discussions and legal proceedings have been initiated and are
ongoing. Under ASC 450-20, an estimated loss from such discussions and proceedings is accrued for
only if we determine that the loss is probable and can be reasonably estimated.
Since December 2009, we have been involved in legal proceedings with Countrywide Home Loans,
Inc. (CHL) and its affiliate, Bank of America, N.A., as successor to Countrywide Home Loans
Servicing LP (BANA and collectively with CHL, Countrywide) in which Countrywide alleged that
MGIC denied valid mortgage insurance claims. (In our SEC reports, we refer to insurance rescissions
and denials of claims collectively as rescissions and variations of that term.) In addition to
the claim amounts it alleged MGIC had improperly denied, Countrywide contended it was entitled to
other damages of almost $700 million as well as exemplary damages. We sought a determination in
those proceedings that we were entitled to rescind coverage on the applicable loans.
In April 2013, MGIC entered into separate settlement agreements with CHL and BANA, pursuant to
which the parties will settle the Countrywide litigation as it relates to MGICs rescission
practices (as amended, the Agreements). The original Agreements are described in our Form 8-K
filed with the SEC on April 25, 2013 and are filed as exhibits to that Form 8-K. Amendments to the
Agreement with BANA were filed with our Forms 10-Q for the quarters ended September 30, 2013 and
June 30, 2014. The Company has filed with its periodic reports from time to time various amendments
to the Agreement with CHL. On March 2, 2015, the parties to the Agreement with CHL amended and
restated that Agreement. The amended and restated Agreement is described in our Form 8-K filed
March 5, 2015 and is filed as an exhibit to that Form 8-K. Certain portions of the Agreements are
redacted and covered by confidential treatment requests that have been granted.
The Agreement with BANA covers loans purchased by the GSEs. That original Agreement was
implemented beginning in November 2013 and we resolved all related suspended rescissions in
November and December 2013 by paying the associated claim or processing the rescission. The pending
arbitration proceedings concerning the loans covered by that agreement have been dismissed, the
mutual releases between the parties regarding such loans have become effective and the litigation
between the parties regarding such loans is to be dismissed.
The Agreement with CHL covers loans that were purchased by non-GSE investors, including
securitization trusts (the other investors). The original Agreement addressed rescission and
denial rights; the amended and restated Agreement also addresses curtailment rights. That Agreement
will be implemented only as and to the extent that it is consented to by or on behalf of the other
investors. While there can be no assurance that the Agreement with CHL will be implemented, we have
determined that its implementation is probable.
The estimated impact of the Agreements and other probable settlements have been recorded in
our financial statements. The estimated impact that we recorded for probable settlements is our
best estimate of our loss from these matters. We estimate that the maximum exposure above the best
estimate provision we recorded is $441 million, of which about 72% is related to claims paying
practices subject to the Agreement with CHL. If we are not able to implement the Agreement with CHL
or the other settlements we consider probable, we intend to defend MGIC vigorously against any
related legal proceedings.
The flow policies at issue with Countrywide are in the same form as the flow policies that we
used with all of our customers during the period covered by the Agreements, and the bulk policies
at issue vary from one another, but are generally similar to those used in the majority of our Wall
Street bulk transactions.
We are involved in discussions and legal and consensual proceedings with customers with
respect to our claims paying practices. Although it is reasonably possible that when these
discussions or proceedings are completed we will not prevail in all cases, we are unable to make a
reasonable estimate or range of estimates of the potential liability. We estimate the maximum
exposure associated with these discussions and proceedings to be approximately $29 million,
although we believe we will ultimately resolve these matters for significantly less than this
amount.
The estimates of our maximum exposure referred to above do not include interest or
consequential or exemplary damages.
Consumers continue to bring lawsuits against home mortgage lenders and settlement service
providers. Mortgage insurers, including MGIC, have been involved in litigation alleging violations
of the anti-referral fee provisions of the Real Estate Settlement Procedures Act, which is commonly
known as RESPA, and the notice provisions of the Fair Credit Reporting Act, which is commonly known
as FCRA. MGICs settlement of class action litigation against it under RESPA became final in
October 2003. MGIC settled the named plaintiffs claims in litigation against it under FCRA in
December 2004, following denial of class certification in June 2004. Since December 2006, class
action litigation has been brought against a number of large lenders alleging that their captive
mortgage reinsurance arrangements violated RESPA. Beginning in December 2011, MGIC, together with
various mortgage lenders and other mortgage insurers, has been named as a defendant in twelve
lawsuits, alleged to be class actions, filed in various U.S. District Courts. The complaints in all
of the cases allege various causes of action related to the captive mortgage reinsurance
arrangements of the mortgage lenders, including that the lenders captive reinsurers received
excessive premiums in relation to the risk assumed by those captives, thereby violating RESPA.
Seven of those cases had been dismissed prior to February 2015 without any further opportunity to
appeal. The remaining five cases were dismissed with prejudice in the first quarter of 2015
pursuant to stipulations of dismissal from the plaintiffs. There can be no assurance that we will
not be subject to further litigation under RESPA (or FCRA) or that the outcome of any such
litigation, including the lawsuits mentioned above, would not have a material adverse effect on us.
In 2013, the U.S. District Court for the Southern District of Florida approved a settlement
with the CFPB that resolved a federal investigation of MGICs participation in captive reinsurance
arrangements in the mortgage insurance industry. The settlement concluded the investigation with
respect to MGIC without the CFPB or the court making any findings of wrongdoing. As part of the
settlement, MGIC agreed that it would not enter into any new captive reinsurance agreement or
reinsure any new loans under any existing captive reinsurance agreement for a period of ten years.
MGIC had voluntarily suspended most of its captive arrangements in 2008 in response to market
conditions and GSE requests. In connection with the settlement, MGIC paid a civil penalty of $2.65
million and the court issued an injunction prohibiting MGIC from violating any provisions of RESPA.
We received requests from the Minnesota Department of Commerce (the MN Department) beginning
in February 2006 regarding captive mortgage reinsurance and certain other matters in response to
which MGIC has provided information on several occasions, including as recently as May 2011. Since
August 2013, MGIC and several competitors have exchanged drafts of a proposed Consent Order with
the MN Department, containing terms and conditions, including unspecified civil penalties, that
would resolve the MN Departments investigation. We received the latest draft of the Consent Order
from the MN Department in March 2015. We continue to be engaged in discussions with the MN
Department regarding the draft Consent Order. We also received a request in June 2005 from the New
York Department of Financial Services for information regarding captive mortgage reinsurance
arrangements and other types of arrangements in which lenders receive compensation. Other insurance
departments or other officials, including attorneys general, may also seek information about,
investigate, or seek remedies regarding captive mortgage reinsurance.
Various regulators, including the CFPB, state insurance commissioners and state attorneys
general may bring actions seeking various forms of relief in connection with violations of RESPA.
The insurance law provisions of many states prohibit paying for the referral of insurance business
and provide various mechanisms to enforce this prohibition. While we believe our practices are in
conformity with applicable laws and regulations, it is not possible to predict the eventual scope,
duration or outcome of any such reviews or investigations nor is it possible to predict their
effect on us or the mortgage insurance industry.
We are subject to comprehensive, detailed regulation by state insurance departments. These
regulations are principally designed for the protection of our insured policyholders, rather than
for the benefit of investors. Although their scope varies, state insurance laws generally grant
broad supervisory powers to agencies or officials to examine insurance companies and enforce rules
or exercise discretion affecting almost every significant aspect of the insurance business. State
insurance regulatory authorities could take actions, including changes in capital requirements,
that could have a material adverse effect on us. In addition, the CFPB may issue additional rules
or regulations, which may materially affect our business.
In December 2013, the U.S. Treasury Departments Federal Insurance Office released a report
that calls for federal standards and oversight for mortgage insurers to be developed and
implemented. It is uncertain what form the standards and oversight will take and when they will
become effective.
We understand several law firms have, among other things, issued press releases to the effect
that they are investigating us, including whether the fiduciaries of our 401(k) plan breached their
fiduciary duties regarding the plans investment in or holding of our common stock or whether we
breached other legal or fiduciary obligations to our shareholders. We intend to defend vigorously
any proceedings that may result from these investigations. With limited exceptions, our bylaws
provide that our officers and 401(k) plan fiduciaries are entitled to indemnification from us for
claims against them.
A non-insurance subsidiary of our holding company is a shareholder of the corporation that
operates the Mortgage Electronic Registration System (MERS). Our subsidiary, as a shareholder of
MERS, has been named as a defendant (along with MERS and its other shareholders) in eight lawsuits
asserting various causes of action arising from allegedly improper recording and foreclosure
activities by MERS. Seven of these lawsuits have been dismissed without any further opportunity to
appeal. The remaining lawsuit had also been dismissed by the U.S. District Court, however, the
plaintiff in that lawsuit filed a motion for reconsideration by the U.S. District Court and to
certify a related question of law to the Supreme Court of the State in which the U.S. District
Court is located. That motion for reconsideration was denied, however, in May 2014, the plaintiff
appealed the denial. The damages sought in this remaining case are substantial. We deny any
wrongdoing and intend to defend ourselves vigorously against the allegations in the lawsuit.
In addition to the matters described above, we are involved in other legal proceedings in the
ordinary course of business. In our opinion, based on the facts known at this time, the ultimate
resolution of these ordinary course legal proceedings will not have a material adverse effect on
our financial position or results of operations.
Resolution of our dispute with the Internal Revenue Service could adversely affect us.
As previously disclosed, the Internal Revenue Service (IRS) completed examinations of our
federal income tax returns for the years 2000 through 2007 and issued proposed assessments for
taxes, interest and penalties related to our treatment of the flow-through income and loss from an
investment in a portfolio of residual interests of Real Estate Mortgage Investment Conduits
(REMICs). The IRS indicated that it did not believe that, for various reasons, we had established
sufficient tax basis in the REMIC residual interests to deduct the losses from taxable income. We
appealed these assessments within the IRS and in August 2010, we reached a tentative settlement
agreement with the IRS which was not finalized.
On September 10, 2014, we received Notices of Deficiency (commonly referred to as 90 day
letters) covering the 2000-2007 tax years. The Notices of Deficiency reflect taxes and penalties
related to the REMIC matters of $197.5 million and at March 31, 2015, there would also be interest
related to these matters of approximately $171.9 million. In 2007, we made a payment of $65.2
million to the United States Department of the Treasury which will reduce any amounts we would
ultimately owe. The Notices of Deficiency also reflect additional amounts due of $261.4 million,
which are primarily associated with the disallowance of the carryback of the 2009 net operating
loss to the 2004-2007 tax years. We believe the IRS included the carryback adjustments as a
precaution to keep open the statute of limitations on collection of the tax that was refunded when
this loss was carried back, and not because the IRS actually intends to disallow the carryback
permanently.
We filed a petition with the U.S. Tax Court contesting most of the IRS proposed adjustments
reflected in the Notices of Deficiency and the IRS has filed an answer to our petition which
continues to assert their claim. Litigation to resolve our dispute with the IRS could be lengthy
and costly in terms of legal fees and related expenses. We can provide no assurance regarding the
outcome of any such litigation or whether a compromised settlement with the IRS will ultimately be
reached and finalized. Depending on the outcome of this matter, additional state income taxes and
state interest may become due when a final resolution is reached. As of March 31, 2015, those state
taxes and interest would approximate $47.7 million. In addition, there could also be state tax
penalties. Our total amount of unrecognized tax benefits as of March 31, 2015 is $106.4 million,
which represents the tax benefits generated by the REMIC portfolio included in our tax returns that
we have not taken benefit for in our financial statements, including any related interest. We
continue to believe that our previously recorded tax provisions and liabilities are appropriate.
However, we would need to make appropriate adjustments, which could be material, to our tax
provision and liabilities if our view of the probability of success in this matter changes, and the
ultimate resolution of this matter could have a material negative impact on our effective tax rate,
results of operations, cash flows, available assets and statutory capital. In this regard, see our
risk factors titled We may not continue to meet the GSEs mortgage insurer eligibility
requirements and our returns may decrease as we are required to maintain more capital in order to
maintain our eligibility and State capital requirements may prevent us from continuing to write
new insurance on an uninterrupted basis.
Because we establish loss reserves only upon a loan default rather than based on estimates of our
ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings
in certain periods.
In accordance with accounting principles generally accepted in the United States, commonly
referred to as GAAP, we establish loss reserves only for loans in default. Reserves are established
for insurance losses and loss adjustment expenses when notices of default on insured mortgage loans
are received. Reserves are also established for insurance losses and loss adjustment expenses for
loans we estimate are in default but for which notices of default have not yet been reported to us
by the servicers (this is often referred to as IBNR). We establish reserves using estimated claim
rates and claim amounts. Because our reserving method does not take account of losses that could
occur from loans that are not delinquent, such losses are not reflected in our financial
statements, except in the case where a premium deficiency exists. As a result, future losses on
loans that are not currently delinquent may have a material impact on future results as such losses
emerge.
Because loss reserve estimates are subject to uncertainties, paid claims may be substantially
different than our loss reserves.
We establish reserves using estimated claim rates and claim amounts in estimating the ultimate
loss on delinquent loans. The estimated claim rates and claim amounts represent our best estimates
of what we will actually pay on the loans in default as of the reserve date and incorporate
anticipated mitigation from rescissions. We rescind coverage on loans and deny claims in cases
where we believe our policy allows us to do so. Therefore, when establishing our loss reserves, we
do not include additional loss reserves that would reflect a possible adverse development from
ongoing dispute resolution proceedings regarding rescissions and denials unless we have determined
that a loss is probable and can be reasonably estimated. For more information regarding our legal
proceedings, see our risk factor titled We are involved in legal proceedings and are subject to
the risk of additional legal proceedings in the future.
The establishment of loss reserves is subject to inherent uncertainty and requires judgment by
management. The actual amount of the claim payments may be substantially different than our loss
reserve estimates. Our estimates could be adversely affected by several factors, including a
deterioration of regional or national economic conditions, including unemployment, leading to a
reduction in borrowers income and thus their ability to make mortgage payments and a drop in
housing values, which may affect borrower willingness to continue to make mortgage payments when
the value of the home is below the mortgage balance. Changes to our estimates could have a material
impact on our future results, even in a stable economic environment. In addition, historically,
losses incurred have followed a seasonal trend in which the second half of the year has weaker
credit performance than the first half, with higher new default notice activity and a lower cure
rate.
We rely on our management team and our business could be harmed if we are unable to retain
qualified personnel or successfully develop and/or recruit their replacements.
Our industry is undergoing a fundamental shift following the mortgage crisis: long-standing
competitors have gone out of business and two newly capitalized start-ups that are not encumbered
with a portfolio of pre-crisis mortgages have been formed. Former executives from other mortgage
insurers have joined these two new competitors. In addition, in 2014, a worldwide insurer and
reinsurer with mortgage insurance operations in Europe completed the purchase of a competitor. Our
success depends, in part, on the skills, working relationships and continued services of our
management team and other key personnel. The unexpected departure of key personnel could adversely
affect the conduct of our business. In such event, we would be required to obtain other personnel
to manage and operate our business. In addition, we will be required to replace the knowledge and
expertise of our aging workforce as our workers retire. In either case, there can be no assurance
that we would be able to develop or recruit suitable replacements for the departing individuals,
that replacements could be hired, if necessary, on terms that are favorable to us or that we can
successfully transition such replacements in a timely manner. We currently have not entered into
any employment agreements with our officers or key personnel. Volatility or lack of performance in
our stock price may affect our ability to retain our key personnel or attract replacements should
key personnel depart. Without a properly skilled and experienced workforce, our costs, including
productivity costs and costs to replace employees may increase, and this could negatively impact
our earnings.
Our reinsurance agreement with unaffiliated reinsurers allow each reinsurer to terminate such
reinsurers portion of the transactions on a run-off basis if during any six month period prior to
July 1, 2015, two or more of our top five executives depart, the departures result in a material
adverse impact on our underwriting and risk management practices or policies, and such reinsurer
timely objects to the replacements of such executives. We view such a termination as unlikely.
Loan modification and other similar programs may not continue to provide benefits to us and our
losses on loans that re-default can be higher than what we would have paid had the loan not been
modified.
Beginning in the fourth quarter of 2008, the federal government, including through the Federal
Deposit Insurance Corporation and the GSEs, and several lenders implemented programs to modify
loans to make them more affordable to borrowers with the goal of reducing the number of
foreclosures. During 2013, 2014 and the first quarter of 2015, we were notified of modifications
that cured delinquencies that had they become paid claims would have resulted in approximately $1.0
billion, $0.8 billion and $0.2 billion, respectively, of estimated claim payments. Based on
information that is provided to us, most of the modifications resulted in reduced payments from
interest rate and/or amortization period adjustments; from 2013 through the first quarter of 2015,
approximately 10% resulted in principal forgiveness.
One loan modification program is the Home Affordable Modification Program (HAMP). We do not
receive all of the information from servicers and the GSEs that is required to determine with
certainty the number of loans that are participating in, have successfully completed, or are
eligible to participate in, HAMP. We are aware of approximately 6,110 loans in our primary
delinquent inventory at March 31, 2015 for which the HAMP trial period has begun and which trial
periods have not been reported to us as completed or cancelled. Through March 31, 2015,
approximately 56,380 delinquent primary loans have cured their delinquency after entering HAMP and
are not in default. Although the majority of loans modified through HAMP are current, we cannot
predict with a high degree of confidence what the ultimate re-default rate on these modifications
will be. Our loss reserves do not account for potential re-defaults unless at the time the reserve
is established, the re-default has already occurred.
In 2014 and the first quarter of 2015, approximately 16% and 13%, respectively, of our primary
cures were the result of modifications, with HAMP accounting for approximately 67% and 70%,
respectively, of those modifications. Although the HAMP program has been extended through December
2016, we believe that we have realized the majority of the benefits from HAMP because the number of
loans insured by us that we are aware are entering HAMP trial modification periods has decreased
significantly since 2010. The interest rates on certain loans modified under HAMP are subject to
adjustment five years after the modification was entered into. Such adjustments are limited to an
increase of one percentage point per year.
The GSEs Home Affordable Refinance Program (HARP), currently scheduled to expire December
31, 2015, allows borrowers who are not delinquent but who may not otherwise be able to refinance
their loans under the current GSE underwriting standards, to refinance their loans. We allow HARP
refinances on loans that we insure, regardless of whether the loan meets our current underwriting
standards, and we account for the refinance as a loan modification (even where there is a new
lender) rather than new insurance written. As of March 31, 2015, approximately 15% of our primary
insurance in force had benefitted from HARP and was still in force. We believe that we have
realized the majority of the benefits from HARP because the number of loans insured by us that we
are aware are entering HARP has decreased significantly.
We cannot determine the total benefit we may derive from loan modification programs,
particularly given the uncertainty around the re-default rates for defaulted loans that have been
modified through these programs. Re-defaults can result in losses for us that could be greater than
we would have paid had the loan not been modified. Eligibility under certain loan modification
programs can also adversely affect us by creating an incentive for borrowers who are able to make
their mortgage payments to become delinquent in an attempt to obtain the benefits of a
modification. New notices of delinquency increase our incurred losses. If legislation is enacted to
permit a portion of a borrowers mortgage loan balance to be reduced in bankruptcy and if the
borrower re-defaults after such reduction, then the amount we would be responsible to cover would
be calculated after adding back the reduction. Unless a lender has obtained our prior approval, if
a borrowers mortgage loan balance is reduced outside the bankruptcy context, including in
association with a loan modification, and if the borrower re-defaults after such reduction, then
under the terms of our policy the amount we would be responsible to cover would be calculated net
of the reduction.
If the volume of low down payment home mortgage originations declines, the amount of insurance that
we write could decline, which would reduce our revenues.
The factors that affect the volume of low down payment mortgage originations include:
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restrictions on mortgage credit due to more stringent underwriting standards, liquidity
issues and risk-retention requirements associated with non-QRM loans affecting lenders, |
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the level of home mortgage interest rates and the deductibility of mortgage interest for
income tax purposes, |
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the health of the domestic economy as well as conditions in regional and local economies
and the level of consumer confidence, |
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population trends, including the rate of household formation, |
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the rate of home price appreciation, which in times of heavy refinancing can affect whether
refinanced loans have loan-to-value ratios that require private mortgage insurance, and |
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government housing policy encouraging loans to first-time homebuyers. |
A decline in the volume of low down payment home mortgage originations could decrease demand
for mortgage insurance, decrease our new insurance written and reduce our revenues. For other
factors that could decrease the demand for mortgage insurance, see our risk factor titled The
amount of insurance we write could be adversely affected if lenders and investors select
alternatives to private mortgage insurance.
State capital requirements may prevent us from continuing to write new insurance on an
uninterrupted basis.
The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a
mortgage insurer to maintain a minimum amount of statutory capital relative to the 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 and, together with the GSE
Financial Requirements, the Financial Requirements. While they vary among jurisdictions, the most
common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1. A
risk-to-capital ratio will increase if (i) the percentage decrease in capital exceeds the
percentage decrease in insured risk, or (ii) the percentage increase in capital is less than the
percentage increase in insured risk. Wisconsin does not regulate capital by using a risk-to-capital
measure but instead requires a minimum policyholder position (MPP). The policyholder position
of a mortgage insurer is its net worth or surplus, contingency reserve and a portion of the
reserves for unearned premiums.
At March 31, 2015, MGICs preliminary risk-to-capital ratio was 13.7 to 1, below the maximum
allowed by the jurisdictions with State Capital Requirements, and its policyholder position was
$805 million above the required MPP of $1.0 billion. In 2013, we entered into a quota share
reinsurance transaction with a group of unaffiliated reinsurers that reduced our risk-to-capital
ratio. We and the reinsurers have reached agreement to restructure the transaction in a manner that
we believe will result in MGIC receiving full credit under the GSE Financial Requirements. The
effectiveness of the restructured transaction will be subject to approval by the GSEs and the OCI.
It is possible that under the revised State Capital Requirements discussed below, MGIC will not be
allowed full credit for the risk ceded to the reinsurers. If MGIC is not allowed an agreed level of
credit under either the State Capital Requirements or the GSE Financial Requirements, MGIC may
terminate the reinsurance agreement, without penalty. At this time, we expect MGIC to continue to
comply with the current State Capital Requirements; however, you should read the rest of these risk
factors for information about matters that could negatively affect such compliance.
At March 31, 2015, the preliminary risk-to-capital ratio of our combined insurance operations
(which includes reinsurance affiliates) was 15.4 to 1. Reinsurance transactions with affiliates
permit MGIC to write insurance with a higher coverage percentage than it could on its own under
certain state-specific requirements. A higher risk-to-capital ratio on a combined basis may
indicate that, in order for MGIC to continue to utilize reinsurance arrangements with its
affiliates, unless a waiver of the State Capital Requirements of Wisconsin continues to be
effective, additional capital contributions to the reinsurance affiliates could be needed.
The NAIC previously announced that it plans to revise the minimum capital and surplus
requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model
Act. A working group of state regulators is drafting the revisions, although no date has been
established by which the NAIC must propose revisions to such requirements. Depending on the scope
of revisions made by the NAIC, MGIC may be prevented from writing new business in the jurisdictions
adopting such revisions.
If MGIC fails to meet the State Capital Requirements of Wisconsin and is unable to obtain a
waiver of them from the OCI, MGIC could be prevented from writing new business in all
jurisdictions. If MGIC fails to meet the State Capital Requirements of a jurisdiction other than
Wisconsin and is unable to obtain a waiver of them, MGIC could be prevented from writing new
business in that particular jurisdiction. It is possible that regulatory action by one or more
jurisdictions, including those that do not have specific State Capital Requirements, may prevent
MGIC from continuing to write new insurance in such jurisdictions. If we are unable to write
business in all jurisdictions, lenders may be unwilling to procure insurance from us anywhere. In
addition, a lenders assessment of the future ability of our insurance operations to meet the
Financial Requirements may affect its willingness to procure insurance from us. In this regard, see
our risk factor titled Competition or changes in our relationships with our customers could reduce
our revenues, reduce our premium yields and/or increase our losses.A possible future failure by
MGIC to meet the Financial Requirements will not necessarily mean that MGIC lacks sufficient
resources to pay claims on its insurance liabilities. While we believe MGIC has sufficient claims
paying resources to meet its claim obligations on its insurance in force on a timely basis, you
should read the rest of these risk factors for information about matters that could negatively
affect MGICs claims paying resources.
Downturns in the domestic economy or declines in the value of borrowers homes from their value at
the time their loans closed may result in more homeowners defaulting and our losses increasing.
Losses result from events that reduce a borrowers ability or willingness to continue to make
mortgage payments, such as unemployment, and whether the home of a borrower who defaults on his
mortgage can be sold for an amount that will cover unpaid principal and interest and the expenses
of the sale. In general, favorable economic conditions reduce the likelihood that borrowers will
lack sufficient income to pay their mortgages and also favorably affect the value of homes, thereby
reducing and in some cases even eliminating a loss from a mortgage default. A deterioration in
economic conditions, including an increase in unemployment, generally increases the likelihood that
borrowers will not have sufficient income to pay their mortgages and can also adversely affect
housing values, which in turn can influence the willingness of borrowers with sufficient resources
to make mortgage payments to do so when the mortgage balance exceeds the value of the home. Housing
values may decline even absent a deterioration in economic conditions due to declines in demand for
homes, which in turn may result from changes in buyers perceptions of the potential for future
appreciation, restrictions on and the cost of mortgage credit due to more stringent underwriting
standards, higher interest rates generally or changes to the deductibility of mortgage interest for
income tax purposes, or other factors. The residential mortgage market in the United States had for
some time experienced a variety of poor or worsening economic conditions, including a material
nationwide decline in housing values, with declines continuing into early 2012 in a number of
geographic areas. Although housing values in most markets have recently been increasing, in some
markets they remain significantly below their peak levels. Changes in housing values and
unemployment levels are inherently difficult to forecast given the uncertainty in the current
market environment, including uncertainty about the effect of actions the federal government has
taken and may take with respect to tax policies, mortgage finance programs and policies, and
housing finance reform.
The mix of business we write affects the likelihood of losses occurring, our Minimum Required
Assets for purposes of the GSE Financial Requirements, and our premium yields.
Even when housing values are stable or rising, mortgages with certain characteristics have
higher probabilities of claims. These characteristics include loans with loan-to-value ratios over
95% (or in certain markets that have experienced declining housing values, over 90%), FICO credit
scores below 620, limited underwriting, including limited borrower documentation, or higher total
debt-to-income ratios, as well as loans having combinations of higher risk factors. As of March 31,
2015, approximately 18.1% of our primary risk in force consisted of loans with loan-to-value ratios
greater than 95%, 5.5% had FICO credit scores below 620, and 5.3% had limited underwriting,
including limited borrower documentation, each attribute as determined at the time of loan
origination. A material number of these loans were originated in 2005 2007 or the first half of
2008. In accordance with industry practice, loans approved by GSEs and other automated underwriting
systems under doc waiver programs that do not require verification of borrower income are
classified by us as full documentation. For additional information about such loans, see footnote
(1) to the Additional Information contained in this press release.
The Minimum Required Assets for purposes of the GSE Financial Requirements are, in part, a
function of the direct risk-in-force and the risk profile of the loans we insure, considering
loan-to-value ratio, credit score, vintage, HARP status and delinquency status. Therefore, if our
direct risk-in-force increases through increases in new insurance written, or if our mix of
business changes to include loans with higher loan-to-value ratios or lower credit scores, for
example, we will be required to hold more Available Assets in order to maintain GSE eligibility.
From time to time, in response to market conditions, we change the types of loans that we
insure and the requirements under which we insure them. In 2013, we liberalized our underwriting
guidelines somewhat, in part through aligning most of our underwriting requirements with Fannie Mae
and Freddie Mac for loans that receive and are processed in accordance with certain approval
recommendations from a GSE automated underwriting system. As a result of the liberalization of our
underwriting requirements and other factors, our business written beginning in the second half of
2013 is expected to have a somewhat higher claim incidence than business written in from 2009
through the first half of 2013. However, we believe this business presents an acceptable level of
risk. Although the GSEs recently lowered their minimum downpayment requirements for certain loans
from 5% to 3%, we may not insure a significant number of those loans in the near future because the
FHA pricing on those loans may be more favorable for borrowers. Our underwriting requirements are
available on our website at http://www.mgic.com/underwriting/index.html. We monitor the competitive
landscape and will make adjustments to our pricing and underwriting guidelines as warranted. We
also make exceptions to our underwriting requirements on a loan-by-loan basis and for certain
customer programs. Together, the number of loans for which exceptions were made accounted for fewer
than 2% of the loans we insured in 2014 and the first quarter of 2015.
As noted above in our risk factor titled We may not continue to meet the GSEs mortgage
insurer eligibility requirements and our returns may decrease as we are required to maintain more
capital in order to maintain our eligibility, we have recently increased the percentage of our
business from lender-paid single premium policies. 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. Currently, we expect
to receive less lifetime premium from a new lender-paid single premium policy than we would from a
new borrower-paid monthly premium policy.
As noted above in our risk factor titled State capital requirements may prevent us from
continuing to write new insurance on an uninterrupted basis, in 2013, we entered into a quota
share reinsurance transaction with a group of unaffiliated reinsurers that we anticipate will be
restructured. Although the transaction, as currently structured and as proposed to be restructured,
reduces our premiums, it has a lesser impact on our overall results, as losses ceded under the
transaction reduce our losses incurred and the ceding commission we receive reduces our
underwriting expenses.
The circumstances in which we are entitled to rescind coverage have narrowed for insurance we
have written in recent years. During the second quarter of 2012, we began writing a portion of our
new insurance under an endorsement to our then existing master policy (the Gold Cert
Endorsement), which limited our ability to rescind coverage compared to that master policy. The
Gold Cert Endorsement is filed as Exhibit 99.7 to our quarterly report on Form 10-Q for the quarter
ended March 31, 2012 (filed with the SEC on May 10, 2012).
To comply with requirements of the GSEs, in 2014 we introduced a new master policy. Our
rescission rights under our new master policy are comparable to those under our previous master
policy, as modified by the Gold Cert Endorsement, but may be further narrowed if the GSEs permit
modifications to them. Our new master policy is filed as Exhibit 99.19 to our quarterly report on
Form 10-Q for the quarter ended September 30, 2014 (filed with the SEC on November 7, 2014). All of
our primary new insurance on loans with mortgage insurance application dates on or after October 1,
2014, will be written under our new master policy. As of March 31, 2015, approximately 34% of our
flow, primary insurance in force was written under our Gold Cert Endorsement or our new master
policy.
As of March 31, 2015, approximately 2.7% of our primary risk in force consisted of adjustable
rate mortgages in which the initial interest rate may be adjusted during the five years after the
mortgage closing (ARMs). We classify as fixed rate loans adjustable rate mortgages in which the
initial interest rate is fixed during the five years after the mortgage closing. If interest rates
should rise between the time of origination of such loans and when their interest rates may be
reset, claims on ARMs and adjustable rate mortgages whose interest rates may only be adjusted after
five years would be substantially higher than for fixed rate loans. In addition, we have insured
interest-only loans, which may also be ARMs, and loans with negative amortization features, such
as pay option ARMs. We believe claim rates on these loans will be substantially higher than on
loans without scheduled payment increases that are made to borrowers of comparable credit quality.
Although we attempt to incorporate these higher expected claim rates into our underwriting and
pricing models, there can be no assurance that the premiums earned and the associated investment
income will be adequate to compensate for actual losses even under our current underwriting
requirements. We do, however, believe that given the various changes in our underwriting
requirements that were effective beginning in the first quarter of 2008, our insurance written
beginning in the second half of 2008 will generate underwriting profits.
The premiums we charge may not be adequate to compensate us for our liabilities for losses and as a
result any inadequacy could materially affect our financial condition and results of operations.
We set premiums at the time a policy is issued based on our expectations regarding likely
performance over the long-term. Our premiums are subject to approval by state regulatory agencies,
which can delay or limit our ability to increase our premiums. Generally, we cannot cancel mortgage
insurance coverage or adjust renewal premiums during the life of a mortgage insurance policy. As a
result, higher than anticipated claims generally cannot be offset by premium increases on policies
in force or mitigated by our non-renewal or cancellation of insurance coverage. The premiums we
charge, and the associated investment income, may not be adequate to compensate us for the risks
and costs associated with the insurance coverage provided to customers. An increase in the number
or size of claims, compared to what we anticipate, could adversely affect our results of operations
or financial condition.
We continue to experience elevated losses on our 2005-2008 books and our current expectation
is that the incurred losses from these books, although declining, will continue to generate a
material portion of our total incurred losses for a number of years. The ultimate amount of these
losses will depend in part on general economic conditions, including unemployment, and the
direction of home prices, which in turn will be influenced by general economic conditions and other
factors. Because we cannot predict future home prices or general economic conditions with
confidence, there is uncertainty surrounding what our ultimate losses will be on each of our books,
including our 2005-2008 books.
We are susceptible to disruptions in the servicing of mortgage loans that we insure.
We depend on reliable, consistent third-party servicing of the loans that we insure. Over the
last several years, the mortgage loan servicing industry has experienced consolidation. The
resulting reduction in the number of servicers could lead to disruptions in the servicing of
mortgage loans covered by our insurance policies. In addition, the increases in the number of
delinquent mortgage loans requiring servicing since 2007 have strained the resources of servicers,
reducing their ability to undertake mitigation efforts that could help limit our losses, and have
resulted in an increasing amount of delinquent loan servicing being transferred to specialty
servicers. The transfer of servicing can cause a disruption in the servicing of delinquent loans.
Future housing market conditions could lead to additional increases in delinquencies. Managing a
substantially higher volume of non-performing loans could lead to increased disruptions in the
servicing of mortgages.
Changes in interest rates, house prices or mortgage insurance cancellation requirements may change
the length of time that our policies remain in force.
The premium from a single premium policy is collected upfront and generally earned over the
estimated life of the policy. In contrast, premiums from a monthly premium policy are received and
earned each month over the life of the policy. In each year, most of our premiums received are from
insurance that has been written in prior years. As a result, the length of time insurance remains
in force, which is also generally referred to as persistency, is a significant determinant of our
revenues. Future premiums on our monthly paid insurance policies in force represent a material
portion of our claims paying resources and a low persistency rate will reduce those future
premiums. In contrast, a higher than expected persistency rate will decrease the profitability from
single premium policies because they will remain in force longer than was estimated when the
policies were written.
Our persistency rate was 81.6% at March 31, 2015, compared to 82.8% at December 31, 2014, and
79.5% at December 31, 2013. During the 1990s, our year-end persistency ranged from a high of 87.4%
at December 31, 1990 to a low of 68.1% at December 31, 1998. Since 2000, our year-end persistency
ranged from a high of 84.7% at December 31, 2009 to a low of 47.1% at December 31, 2003.
Our persistency rate is primarily affected by the level of current mortgage interest rates
compared to the mortgage coupon rates on our insurance in force, which affects the vulnerability of
the insurance in force to refinancing. Our persistency rate is also affected by mortgage insurance
cancellation policies of mortgage investors along with the current value of the homes underlying
the mortgages in the insurance in force.
Your ownership in our company may be diluted by additional capital that we raise or if the holders
of our outstanding convertible debt convert that debt into shares of our common stock.
As noted above under our risk factor titled We may not continue to meet the GSEs mortgage
insurer eligibility requirements and our returns may decrease as we are required to maintain more
capital in order to maintain our eligibility, we would consider seeking non-dilutive debt capital
for the purpose of managing our capital position under the GSE Financial Requirements. However,
there can be no assurance that we would not seek to raise additional equity capital for such
purposes or for other purposes. Any future issuance of equity securities may dilute your ownership
interest in our company. In addition, the market price of our common stock could decline as a
result of sales of a large number of shares or similar securities in the market or the perception
that such sales could occur.
We have $389.5 million principal amount of 9% Convertible Junior Subordinated Debentures
outstanding. The principal amount of the debentures is currently convertible, at the holders
option, at an initial conversion rate, which is subject to adjustment, of 74.0741 common shares per
$1,000 principal amount of debentures. This represents an initial conversion price of approximately
$13.50 per share. We have the right, and may elect, to defer interest payable under the debentures
in the future. If a holder elects to convert its debentures, the interest that has been deferred on
the debentures being converted is also convertible into shares of our common stock. The conversion
rate for such deferred interest is based on the average price that our shares traded at during a
5-day period immediately prior to the election to convert the associated debentures. We may elect
to pay cash for some or all of the shares issuable upon a conversion of the debentures. We also
have $345 million principal amount of 5% Convertible Senior Notes and $500 million principal amount
of 2% Convertible Senior Notes outstanding. The 5% Convertible Senior Notes are convertible, at the
holders option, at an initial conversion rate, which is subject to adjustment, of 74.4186 shares
per $1,000 principal amount at any time prior to the maturity date. This represents an initial
conversion price of approximately $13.44 per share. Prior to January 1, 2020, the 2% Convertible
Senior Notes are convertible only upon satisfaction of one or more conditions. One such condition
is that conversion may occur during any calendar quarter commencing after March 31, 2014, if the
last reported sale price of our common stock for each of at least 20 trading days during the 30
consecutive trading days ending on, and including, the last trading day of the immediately
preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on
each applicable trading day. The notes are convertible at an initial conversion rate, which is
subject to adjustment, of 143.8332 shares per $1,000 principal amount. This represents an initial
conversion price of approximately $6.95 per share. 130% of such conversion price is $9.03. On or
after January 1, 2020, holders may convert their notes irrespective of satisfaction of the
conditions. We do not have the right to defer interest on our Convertible Senior Notes. For a
discussion of the dilutive effects of our convertible securities on our earnings per share, see
Note 3 Summary of Significant Accounting Policies Earnings per Share to our consolidated
financial statements in our Annual Report on Form 10-K filed with the SEC on February 27, 2015.
Our debt obligations materially exceed our holding company cash and investments.
At March 31, 2015, we had approximately $494 million in cash and investments at our holding
company and our holding companys debt obligations were $1,297 million in aggregate principal
amount, consisting of $62 million of Senior Notes due in November 2015, $345 million of Convertible
Senior Notes due in 2017, $500 million of Convertible Senior Notes due in 2020 and $390 million of
Convertible Junior Debentures due in 2063. Annual debt service on the debt outstanding as of March
31, 2015, is approximately $66 million.
The Senior Notes, Convertible Senior Notes and Convertible Junior Debentures are obligations
of our holding company, MGIC Investment Corporation, and not of its subsidiaries. Our holding
company has no material sources of cash inflows other than investment income. The payment of
dividends from our insurance subsidiaries, which other than raising capital in the public markets
is the principal source of our holding company cash inflow, is restricted by insurance regulation.
MGIC is the principal source of dividend-paying capacity. Since 2008, MGIC has not paid any
dividends to our holding company. At this time, MGIC cannot pay any dividends to our holding
company without authorization from the OCI and the GSEs. Any additional capital contributions to
our subsidiaries would decrease our holding company cash and investments.
We could be adversely affected if personal information on consumers that we maintain is improperly
disclosed and our information technology systems may become outdated and we may not be able to make
timely modifications to support our products and services.
We rely on the efficient and uninterrupted operation of complex information technology
systems. All information technology systems are potentially vulnerable to damage or interruption
from a variety of sources. As part of our business, we maintain large amounts of personal
information on consumers. While we believe we have appropriate information security policies and
systems to prevent unauthorized disclosure, there can be no assurance that unauthorized disclosure,
either through the actions of third parties or employees, will not occur. Unauthorized disclosure
could adversely affect our reputation and expose us to material claims for damages.
In addition, we are in the process of upgrading certain of our information systems that have
been in place for a number of years. The implementation of these technological improvements is
complex, expensive and time consuming. If we fail to timely and successfully implement the new
technology systems, or if the systems do not operate as expected, it could have an adverse impact
on our business, business prospects and results of operations.
Our Australian operations may suffer significant losses.
We began international operations in Australia, where we started to write business in June
2007. Since 2008, we are no longer writing new business in Australia. Our existing risk in force in
Australia is subject to the risks described in the general economic and insurance business-related
factors discussed above. In addition to these risks, we are subject to a number of other risks from
having deployed capital in Australia, including foreign currency exchange rate fluctuations and
interest-rate volatility particular to Australia.
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