MILWAUKEE, July 16, 2015 /PRNewswire/ -- MGIC Investment
Corporation (NYSE:MTG) today reported operating and financial
results for the quarter ended June
30, 2015.
Net income for the quarter ended June 30,
2015 was $113.7 million,
compared with a net income of $45.5
million for the same quarter a year ago. Diluted net income
per share was $0.28 for the quarter
ending June 30, 2015, compared to
diluted net income per share of $0.12
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 second quarter of 2015 the company
continued to grow our insurance in force by adding another
$11.8 billion of high quality new
insurance." Sinks added, "At the same time, I am encouraged by the
positive trends we continue to experience on pre-2009 business
relative to new delinquent notices, paid claims, and the declining
delinquent inventory. The combination of profitable new
business, the continued runoff of the older books, and a
strengthened housing market, positions us well to provide credit
enhancement solutions to our customers now and in the future."
Notable items for the quarter include:
|
|
Q2 2015
|
Q2 2014
|
%
Change
|
|
|
|
|
New Insurance Written
(billions)
|
$11.8
|
$8.3
|
+42.2%
|
Insurance In Force
(billions)
|
$168.8
|
$159.3
|
+5.9%
|
Primary Delinquent
Inventory (# loans)
|
66,357
|
85,416
|
-22.3%
|
Annual
Persistency
|
80.4%
|
82.4%
|
|
Consolidated
Risk-to-Capital Ratio
|
14.8:1(1)
|
17.3:1
|
|
GAAP Loss
Ratio
|
42.3%
|
68.0%
|
|
GAAP Underwriting
Expense Ratio (2)
|
15.0%
|
14.4%
|
|
|
1) preliminary as of June 30, 2015, 2) insurance
operations
|
Total revenues for the second quarter were $243.1 million, compared with $231.2 million for the same quarter last year.
Net premiums written for the quarter were $226.8 million, compared with $213.4 million for the same quarter last
year.
New insurance written in the second quarter was $11.8 billion, compared to $8.3 billion for the same quarter last year.
Persistency, or the percentage of insurance remaining in force from
one year prior, was 80.4 percent at June 30,
2015, compared with 82.8 percent at December 31, 2014, and 82.4 percent at
June 30, 2014.
As of June 30, 2015, MGIC's
primary insurance in force was $168.8
billion, compared with $164.9
billion at December 31, 2014,
and $159.3 billion at June 30, 2014. The fair value of the
investment portfolio, cash and cash equivalents was $4.8 billion at June 30,
2015, compared with $4.8
billion at December 31, 2014,
and $5.0 billion at June 30, 2014.
At June 30, 2015, the percentage
of loans that were delinquent, excluding bulk loans, was 5.48
percent, compared with 6.65 percent at December 31, 2014, and 7.30 percent at
June 30, 2014. Including bulk
loans, the percentage of loans that were delinquent at June 30, 2015 was 6.78 percent, compared to 8.25
percent at December 31, 2014, and
8.98 percent at June 30, 2014.
Losses incurred in the second quarter were $90.2 million, compared to $141.1 million in the second 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. Net underwriting and other expenses were
$37.9 million in the second quarter,
compared to $33.9 million reported
for the same period last year; the increase was primarily a result
of employee costs.
Outlook
For the full year of 2015 MGIC expects that new insurance
written will exceed the level written in 2014, however, the year
over year percentage increase, as measured on a quarterly basis, is
expected to be lower in the second half of 2015 when compared to
the first half of 2015. For the full year annual persistency
is forecasted to be 80-85%. The number of loans in the
delinquent inventory is expected to continue to decline modestly
and the claim rate applied to new delinquent notices is expected to
gradually decrease throughout the balance of the year. The
underwriting expense ratio is expected to stay relatively stable
for the second half of 2015. MGIC expects that it will be in
compliance with PMIERS when they become effective at December 31, 2015.
Conference Call and Webcast Details
MGIC Investment Corporation will hold a conference call today,
July 16, 2015, at 10 a.m. ET to allow securities analysts and
shareholders the opportunity to hear management discuss the
company's quarterly results. The conference call number is
1-866-793-1299. The call is being webcast and can be accessed
at the company's website at http://mtg.mgic.com/ by clicking on the
"Investor Information" button. A replay of the webcast will be
available on the company's website through August 16, 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 June 30, 2015, MGIC had $168.8 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 Company's 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
June 30, 2015.
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended June
30,
|
(In thousands, except
per share data)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Net premiums
written
|
$ 226,775
|
|
$ 213,385
|
|
$ 461,231
|
|
$ 431,405
|
Net premiums
earned
|
$ 213,508
|
|
$ 207,486
|
|
$ 430,796
|
|
$ 421,747
|
Investment
income
|
25,756
|
|
21,180
|
|
49,876
|
|
41,336
|
Net realized
investment gains:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary impairment losses
|
-
|
|
-
|
|
-
|
|
-
|
Portion of loss
recognized in other comprehensive
|
|
|
|
|
|
|
|
income (loss), before
taxes
|
-
|
|
-
|
|
-
|
|
-
|
Net impairment losses
recognized in earnings
|
-
|
|
-
|
|
-
|
|
-
|
Other realized
investment gains
|
166
|
|
522
|
|
26,493
|
|
291
|
Net realized
investment gains
|
166
|
|
522
|
|
26,493
|
|
291
|
Other
revenue
|
3,699
|
|
2,048
|
|
6,179
|
|
2,944
|
Total
revenues
|
243,129
|
|
231,236
|
|
513,344
|
|
466,318
|
|
|
|
|
|
|
|
|
|
|
Losses and
expenses:
|
|
|
|
|
|
|
|
Losses
incurred
|
90,238
|
|
141,141
|
|
172,023
|
|
263,749
|
Change in premium
deficiency reserve
|
(17,333)
|
|
(7,833)
|
|
(23,751)
|
|
(13,006)
|
Underwriting and
other expenses, net
|
37,875
|
|
33,914
|
|
78,900
|
|
73,314
|
Interest
expense
|
17,373
|
|
17,374
|
|
34,735
|
|
34,913
|
Total losses and
expenses
|
128,153
|
|
184,596
|
|
261,907
|
|
358,970
|
Income before
tax
|
114,976
|
|
46,640
|
|
251,437
|
|
107,348
|
Provision for income
taxes
|
1,322
|
|
1,118
|
|
4,707
|
|
1,844
|
Net income
|
$ 113,654
|
|
$ 45,522
|
|
$ 246,730
|
|
$ 105,504
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$ 0.28
|
|
$
0.12
|
|
$
0.60
|
|
$
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
EARNINGS PER SHARE
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended June
30,
|
(In thousands, except
per share data)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$ 113,654
|
|
$ 45,522
|
|
$ 246,730
|
|
$ 105,504
|
Interest
expense:
|
|
|
|
|
|
|
|
Convertible Senior
Notes due 2020
|
3,049
|
|
3,049
|
|
6,098
|
|
6,098
|
Convertible Senior
Notes due 2017
|
4,692
|
|
-
|
|
9,385
|
|
-
|
Diluted net
income
|
$ 121,395
|
|
$ 48,571
|
|
$ 262,213
|
|
$ 111,602
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding - basic
|
339,705
|
|
338,626
|
|
339,406
|
|
338,419
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
Unvested restricted
stock
|
1,831
|
|
2,913
|
|
2,203
|
|
3,013
|
Convertible Senior
Notes due 2020
|
71,942
|
|
71,942
|
|
71,942
|
|
71,942
|
Convertible Senior
Notes due 2017
|
25,670
|
|
-
|
|
25,670
|
|
-
|
Weighted average
common shares outstanding - diluted
|
439,148
|
|
413,481
|
|
439,221
|
|
413,374
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$ 0.28
|
|
$
0.12
|
|
$
0.60
|
|
$
0.27
|
|
|
|
|
|
|
|
|
|
|
Certain Non-GAAP
Financial Measures:
|
|
|
|
|
|
|
|
Diluted earnings per
share (EPS) contribution from realized gains:
|
|
|
|
|
|
|
Net realized
investment gains:
|
$ 166
|
|
$
522
|
|
$
26,493
|
|
$
291
|
Income taxes at 35%
(1)
|
-
|
|
-
|
|
-
|
|
-
|
After tax realized
gains, net
|
166
|
|
522
|
|
26,493
|
|
291
|
Weighted average
common shares outstanding - diluted
|
439,148
|
|
413,481
|
|
439,221
|
|
413,374
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
contribution from net realized gains
|
$
-
|
|
$
-
|
|
$
0.06
|
|
$
-
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
June 30,
|
|
December
31,
|
|
June 30,
|
(In thousands, except
per share data)
|
|
|
2015
|
|
2014
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Investments
(1)
|
|
|
$ 4,552,110
|
|
$ 4,612,669
|
|
$ 4,614,479
|
Cash and cash
equivalents
|
|
|
215,770
|
|
215,094
|
|
359,803
|
Prepaid reinsurance
premiums
|
|
|
58,085
|
|
47,623
|
|
40,261
|
Reinsurance
recoverable on loss reserves (2)
|
|
|
53,456
|
|
57,841
|
|
57,763
|
Home office and
equipment, net
|
|
|
28,925
|
|
28,693
|
|
28,336
|
Deferred insurance
policy acquisition costs
|
|
|
14,160
|
|
12,240
|
|
10,676
|
Other
assets
|
|
|
324,276
|
|
292,274
|
|
267,826
|
Total
assets
|
|
|
$ 5,246,782
|
|
$ 5,266,434
|
|
$ 5,379,144
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Loss reserves
(2)
|
|
|
$ 2,110,761
|
|
$ 2,396,807
|
|
$ 2,675,594
|
Premium deficiency
reserve
|
|
|
-
|
|
23,751
|
|
35,455
|
Unearned
premiums
|
|
|
244,288
|
|
203,414
|
|
168,200
|
Senior
notes
|
|
|
61,941
|
|
61,918
|
|
61,894
|
Convertible senior
notes
|
|
|
845,000
|
|
845,000
|
|
845,000
|
Convertible junior
debentures
|
|
|
389,522
|
|
389,522
|
|
389,522
|
Other
liabilities
|
|
|
356,986
|
|
309,119
|
|
271,864
|
Total
liabilities
|
|
|
4,008,498
|
|
4,229,531
|
|
4,447,529
|
Shareholders'
equity
|
|
|
1,238,284
|
|
1,036,903
|
|
931,615
|
Total liabilities and
shareholders' equity
|
|
|
$ 5,246,782
|
|
$ 5,266,434
|
|
$ 5,379,144
|
Book value per share
(3)
|
|
|
$
3.65
|
|
$
3.06
|
|
$
2.75
|
|
|
|
|
|
|
|
|
|
|
(1) Investments
include net unrealized gains (losses) on securities
|
|
|
(37,249)
|
|
7,152
|
|
(155)
|
(2) Loss reserves,
net of reinsurance recoverable on loss reserves
|
|
|
2,057,305
|
|
2,338,966
|
|
2,617,831
|
(3) Shares
outstanding
|
|
|
339,639
|
|
338,560
|
|
338,560
|
|
Q1
2014
|
|
Q2
2014
|
|
Q3
2014
|
|
Q4
2014
|
|
Q1
2015
|
|
Q2
2015
|
|
New primary insurance
written (NIW) (billions)
|
$ 5.2
|
|
$ 8.3
|
|
$ 10.4
|
|
$ 9.5
|
|
$ 9.0
|
|
$ 11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New primary risk
written (billions)
|
$ 1.3
|
|
$ 2.1
|
|
$ 2.7
|
|
$ 2.4
|
|
$ 2.2
|
|
$ 3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product mix as a % of
primary flow NIW
|
|
|
|
|
|
|
|
|
|
|
|
|
>95% LTVs
|
2%
|
|
2%
|
|
2%
|
|
2%
|
|
3%
|
|
5%
|
|
Singles
|
13%
|
|
13%
|
|
15%
|
|
17%
|
|
23%
|
|
20%
|
|
Refinances
|
15%
|
|
10%
|
|
12%
|
|
17%
|
|
29%
|
|
20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Insurance In
Force (IIF) (billions) (1)
|
$ 157.9
|
|
$ 159.3
|
|
$ 162.4
|
|
$ 164.9
|
|
$ 166.1
|
|
$ 168.8
|
|
Flow
|
$ 145.0
|
|
$ 146.8
|
|
$ 150.2
|
|
$ 153.0
|
|
$ 154.5
|
|
$ 157.5
|
|
Bulk
|
$ 12.9
|
|
$ 12.5
|
|
$ 12.2
|
|
$ 11.9
|
|
$ 11.6
|
|
$ 11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (620 &
>)
|
$ 140.8
|
|
$ 142.9
|
|
$ 146.5
|
|
$ 149.6
|
|
$ 151.2
|
|
$ 154.5
|
|
A minus (575 -
619)
|
$ 6.7
|
|
$ 6.4
|
|
$ 6.2
|
|
$ 6.0
|
|
$ 5.8
|
|
$ 5.6
|
|
Sub-Prime (<
575)
|
$ 1.9
|
|
$ 1.8
|
|
$ 1.8
|
|
$ 1.7
|
|
$ 1.7
|
|
$ 1.6
|
|
Reduced Doc (All
FICOs)
|
$ 8.5
|
|
$ 8.2
|
|
$ 7.9
|
|
$ 7.6
|
|
$ 7.4
|
|
$ 7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Persistency
|
81.1%
|
|
82.4%
|
|
82.8%
|
|
82.8%
|
|
81.6%
|
|
80.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Risk In Force
(RIF) (billions) (1)
|
$ 40.9
|
|
$ 41.4
|
|
$ 42.3
|
|
$ 42.9
|
|
$ 43.2
|
|
$ 44.0
|
|
Prime (620 &
>)
|
$ 36.3
|
|
$ 36.9
|
|
$ 38.0
|
|
$ 38.7
|
|
$ 39.1
|
|
$ 40.1
|
|
A minus (575 -
619)
|
$ 1.8
|
|
$ 1.8
|
|
$ 1.7
|
|
$ 1.6
|
|
$ 1.6
|
|
$ 1.5
|
|
Sub-Prime (<
575)
|
$ 0.5
|
|
$ 0.5
|
|
$ 0.5
|
|
$ 0.5
|
|
$ 0.5
|
|
$ 0.5
|
|
Reduced Doc (All
FICOs)
|
$ 2.3
|
|
$ 2.2
|
|
$ 2.1
|
|
$ 2.1
|
|
$ 2.0
|
|
$ 1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RIF by
FICO
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO 620 & >
|
93.5%
|
|
93.7%
|
|
94.1%
|
|
94.4%
|
|
94.6%
|
|
94.9%
|
|
FICO 575 - 619
|
5.0%
|
|
4.8%
|
|
4.5%
|
|
4.3%
|
|
4.1%
|
|
3.9%
|
|
FICO < 575
|
1.5%
|
|
1.5%
|
|
1.4%
|
|
1.3%
|
|
1.3%
|
|
1.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Coverage
Ratio (RIF/IIF) (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
25.9%
|
|
26.0%
|
|
26.0%
|
|
26.0%
|
|
26.0%
|
|
26.0%
|
|
Prime (620 &
>)
|
25.7%
|
|
25.8%
|
|
25.9%
|
|
25.9%
|
|
25.9%
|
|
25.9%
|
|
A minus (575 -
619)
|
27.5%
|
|
27.6%
|
|
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%
|
|
27.0%
|
|
26.9%
|
|
27.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Loan Size
(thousands) (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total IIF
|
$ 166.33
|
|
$ 167.61
|
|
$ 169.05
|
|
$ 170.24
|
|
$ 171.05
|
|
$ 172.37
|
|
Flow
|
$ 167.75
|
|
$ 169.17
|
|
$ 170.74
|
|
$ 172.07
|
|
$ 172.88
|
|
$ 174.23
|
|
Bulk
|
$ 151.95
|
|
$ 151.24
|
|
$ 150.77
|
|
$ 149.75
|
|
$ 149.90
|
|
$ 149.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (620 &
>)
|
$ 168.79
|
|
$ 170.17
|
|
$ 171.72
|
|
$ 172.99
|
|
$ 173.84
|
|
$ 175.17
|
|
A minus (575 -
619)
|
$ 127.14
|
|
$ 127.10
|
|
$ 126.81
|
|
$ 126.42
|
|
$ 126.14
|
|
$ 125.93
|
|
Sub-Prime (<
575)
|
$ 118.41
|
|
$ 118.26
|
|
$ 117.97
|
|
$ 117.31
|
|
$ 116.85
|
|
$ 116.93
|
|
Reduced Doc (All
FICOs)
|
$ 182.75
|
|
$ 182.31
|
|
$ 182.02
|
|
$ 181.48
|
|
$ 181.26
|
|
$ 181.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF - # of
loans (1)
|
949,384
|
|
950,731
|
|
960,849
|
|
968,748
|
|
970,931
|
|
979,202
|
|
Prime (620 &
>)
|
834,375
|
|
839,745
|
|
853,488
|
|
864,842
|
|
869,805
|
|
881,935
|
|
A minus (575 -
619)
|
52,252
|
|
50,377
|
|
48,727
|
|
47,165
|
|
45,755
|
|
44,015
|
|
Sub-Prime (<
575)
|
16,087
|
|
15,690
|
|
15,264
|
|
14,853
|
|
14,577
|
|
13,978
|
|
Reduced Doc (All
FICOs)
|
46,670
|
|
44,919
|
|
43,370
|
|
41,888
|
|
40,794
|
|
39,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF - Default
Roll Forward - # of Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Default
Inventory
|
103,328
|
|
91,842
|
|
85,416
|
|
83,154
|
|
79,901
|
|
72,236
|
|
New
Notices
|
23,346
|
|
21,178
|
|
22,927
|
|
21,393
|
|
18,896
|
|
17,451
|
|
Cures
|
(27,318)
|
|
(21,182)
|
|
(19,582)
|
|
(19,196)
|
|
(21,767)
|
|
(17,897)
|
|
Paids (including
those charged to a deductible or captive)
|
(7,064)
|
|
(6,068)
|
|
(5,288)
|
|
(5,074)
|
|
(4,573)
|
|
(4,140)
|
|
Rescissions and
denials
|
(450)
|
|
(354)
|
|
(319)
|
|
(183)
|
|
(221)
|
|
(172)
|
|
Items removed from
inventory resulting from rescission settlement (5)
|
-
|
|
-
|
|
-
|
|
(193)
|
|
-
|
|
(1,121)
|
|
Ending Default
Inventory (4)
|
91,842
|
|
85,416
|
|
83,154
|
|
79,901
|
|
72,236
|
|
66,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary claim
received inventory included in ending default inventory
(4)
|
5,990
|
|
5,398
|
|
5,194
|
|
4,746
|
|
4,448
|
|
3,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of Cures
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
delinquent and cured intraquarter
|
8,554
|
|
5,409
|
|
6,205
|
|
5,674
|
|
6,887
|
|
4,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
payments delinquent prior to cure
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
11,543
|
|
9,375
|
|
7,989
|
|
8,420
|
|
9,516
|
|
7,721
|
|
4-11
payments
|
4,920
|
|
4,496
|
|
3,651
|
|
3,463
|
|
3,688
|
|
3,789
|
|
12 payments or
more
|
2,301
|
|
1,902
|
|
1,737
|
|
1,639
|
|
1,676
|
|
1,767
|
|
Total Cures in
Quarter
|
27,318
|
|
21,182
|
|
19,582
|
|
19,196
|
|
21,767
|
|
17,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of Paids
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
payments delinquent at time of claim payment
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
33
|
|
19
|
|
25
|
|
11
|
|
12
|
|
16
|
|
4-11
payments
|
965
|
|
750
|
|
550
|
|
528
|
|
550
|
|
435
|
|
12 payments or
more
|
6,066
|
|
5,299
|
|
4,713
|
|
4,535
|
|
4,011
|
|
3,689
|
|
Total Paids in
Quarter
|
7,064
|
|
6,068
|
|
5,288
|
|
5,074
|
|
4,573
|
|
4,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aging of Primary
Default Inventory (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consecutive
months in default
|
|
|
|
|
|
|
|
|
|
|
|
|
3 months or
less
|
14,313
|
16%
|
15,297
|
18%
|
16,209
|
19%
|
15,319
|
19%
|
11,604
|
16%
|
12,545
|
19%
|
4-11 months
|
23,305
|
25%
|
19,362
|
23%
|
18,890
|
23%
|
19,710
|
25%
|
18,940
|
26%
|
15,487
|
23%
|
12 months or
more
|
54,224
|
59%
|
50,757
|
59%
|
48,055
|
58%
|
44,872
|
56%
|
41,692
|
58%
|
38,325
|
58%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
payments delinquent
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
23,035
|
25%
|
22,867
|
27%
|
23,769
|
28%
|
23,253
|
29%
|
19,159
|
27%
|
19,274
|
29%
|
4-11
payments
|
22,766
|
25%
|
19,666
|
23%
|
18,985
|
23%
|
19,427
|
24%
|
18,372
|
25%
|
15,710
|
24%
|
12 payments or
more
|
46,041
|
50%
|
42,883
|
50%
|
40,400
|
49%
|
37,221
|
47%
|
34,705
|
48%
|
31,373
|
47%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1
2014
|
|
Q2
2014
|
|
Q3
2014
|
|
Q4
2014
|
|
Q1
2015
|
|
Q2
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF - # of
Delinquent Loans (1)
|
91,842
|
|
85,416
|
|
83,154
|
|
79,901
|
|
72,236
|
|
66,357
|
|
Flow
|
68,473
|
|
63,308
|
|
61,323
|
|
59,111
|
|
53,390
|
|
49,507
|
|
Bulk
|
23,369
|
|
22,108
|
|
21,831
|
|
20,790
|
|
18,846
|
|
16,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (620 &
>)
|
57,965
|
|
53,651
|
|
52,301
|
|
50,307
|
|
45,416
|
|
42,233
|
|
A minus (575 -
619)
|
14,518
|
|
13,699
|
|
13,474
|
|
13,021
|
|
11,639
|
|
10,921
|
|
Sub-Prime (<
575)
|
5,814
|
|
5,555
|
|
5,477
|
|
5,228
|
|
4,654
|
|
4,274
|
|
Reduced Doc (All
FICOs)
|
13,545
|
|
12,511
|
|
11,902
|
|
11,345
|
|
10,527
|
|
8,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF Default
Rates (1)
|
9.67%
|
|
8.98%
|
|
8.65%
|
|
8.25%
|
|
7.44%
|
|
6.78%
|
|
Flow
|
7.92%
|
|
7.30%
|
|
6.97%
|
|
6.65%
|
|
5.98%
|
|
5.48%
|
|
Bulk
|
27.46%
|
|
26.60%
|
|
26.89%
|
|
26.23%
|
|
24.33%
|
|
22.42%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (620 &
>)
|
6.95%
|
|
6.39%
|
|
6.13%
|
|
5.82%
|
|
5.22%
|
|
4.79%
|
|
A minus (575 -
619)
|
27.78%
|
|
27.19%
|
|
27.65%
|
|
27.61%
|
|
25.44%
|
|
24.81%
|
|
Sub-Prime (<
575)
|
36.14%
|
|
35.40%
|
|
35.88%
|
|
35.20%
|
|
31.93%
|
|
30.58%
|
|
Reduced Doc (All
FICOs)
|
29.02%
|
|
27.85%
|
|
27.44%
|
|
27.08%
|
|
25.81%
|
|
22.74%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Loss Reserves
(millions)
|
$ 2,629
|
|
$ 2,491
|
|
$ 2,362
|
|
$ 2,246
|
|
$ 2,112
|
|
$ 1,993
|
|
Average Direct Reserve
Per Default
|
$ 28,630
|
|
$ 29,160
|
|
$ 28,404
|
|
$ 28,107
|
|
$ 29,233
|
|
$ 30,033
|
|
Pool
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Loss Reserves
(millions)
|
$ 87
|
|
$ 77
|
|
$ 69
|
|
$ 65
|
|
$ 57
|
|
$ 52
|
|
Ending Default
Inventory
|
5,646
|
|
5,271
|
|
4,525
|
|
3,797
|
|
3,350
|
|
3,129
|
|
Pool claim received
inventory included in ending default inventory
|
144
|
|
173
|
|
86
|
|
99
|
|
88
|
|
97
|
|
Reserves related to
Freddie Mac settlement
|
$ 115
|
|
$ 105
|
|
$ 94
|
|
$ 84
|
|
$ 73
|
|
$ 63
|
|
Other Gross
Reserves (millions) (3)
|
$
4
|
|
$
3
|
|
$
3
|
|
$
2
|
|
$
3
|
|
$
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Paid Claims
(millions) (1)
|
$ 343
|
|
$ 300
|
|
$ 263
|
|
$ 248
|
|
$ 232
|
|
$ 222
|
|
Flow
|
$ 265
|
|
$ 225
|
|
$ 196
|
|
$ 189
|
|
$ 167
|
|
$ 150
|
|
Bulk
|
$ 59
|
|
$ 52
|
|
$ 46
|
|
$ 36
|
|
$ 50
|
|
$ 46
|
|
Prior rescission settlement
(5)
|
$
-
|
|
$
-
|
|
$
-
|
|
$
6
|
|
$
-
|
|
$ 10
|
|
Pool - with aggregate loss
limits
|
$
9
|
|
$
9
|
|
$
6
|
|
$
3
|
|
$
4
|
|
$
5
|
|
Pool - without aggregate
loss limits
|
$
5
|
|
$
4
|
|
$
3
|
|
$
3
|
|
$
2
|
|
$
3
|
|
Pool - Freddie Mac
settlement
|
$ 10
|
|
$ 11
|
|
$ 11
|
|
$ 10
|
|
$ 11
|
|
$ 10
|
|
Reinsurance
|
$ (12)
|
|
$ (8)
|
|
$ (7)
|
|
$ (7)
|
|
$ (8)
|
|
$ (8)
|
|
Other (3)
|
$
7
|
|
$
7
|
|
$
8
|
|
$
8
|
|
$
6
|
|
$
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (620 &
>)
|
$ 228
|
|
$ 191
|
|
$ 168
|
|
$ 168
|
|
$ 146
|
|
$ 132
|
|
A minus (575 -
619)
|
$ 39
|
|
$ 33
|
|
$ 28
|
|
$ 25
|
|
$ 27
|
|
$ 24
|
|
Sub-Prime (<
575)
|
$ 11
|
|
$ 10
|
|
$
9
|
|
$
7
|
|
$
9
|
|
$ 12
|
|
Reduced Doc (All
FICOs)
|
$ 46
|
|
$ 43
|
|
$ 37
|
|
$ 31
|
|
$ 35
|
|
$ 38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Average Claim
Payment (thousands) (1)
|
$ 45.9
|
|
$ 45.5
|
|
$ 45.8
|
|
$ 45.0
|
|
$ 47.4
|
|
$ 48.6
|
|
Flow
|
$ 43.9
|
|
$ 43.4
|
|
$ 43.5
|
|
$ 44.6
|
|
$ 44.2
|
|
$ 45.1
|
|
Bulk
|
$ 58.1
|
|
$ 57.8
|
|
$ 59.2
|
|
$ 47.3
|
|
$ 61.8
|
|
$ 63.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (620 &
>)
|
$ 44.1
|
|
$ 43.8
|
|
$ 43.7
|
|
$ 45.0
|
|
$ 44.7
|
|
$ 45.9
|
|
A minus (575 -
619)
|
$ 43.9
|
|
$ 44.0
|
|
$ 43.3
|
|
$ 43.4
|
|
$ 47.8
|
|
$ 44.5
|
|
Sub-Prime (<
575)
|
$ 46.9
|
|
$ 42.3
|
|
$ 45.7
|
|
$ 46.0
|
|
$ 48.4
|
|
$ 53.6
|
|
Reduced Doc (All
FICOs)
|
$ 59.8
|
|
$ 58.5
|
|
$ 63.1
|
|
$ 59.4
|
|
$ 62.1
|
|
$ 67.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
%
insurance inforce subject to reinsurance
|
55.9%
|
|
57.6%
|
|
59.4%
|
|
60.8%
|
|
61.3%
|
|
63.3%
|
|
%
Quarterly NIW subject to reinsurance
|
93.0%
|
|
91.6%
|
|
90.1%
|
|
87.4%
|
|
85.2%
|
|
97.9%
|
|
Ceded premium written (millions)
|
$ 26.6
|
|
$ 28.3
|
|
$ 32.5
|
|
$ 32.2
|
|
$ 31.3
|
|
$ 34.9
|
|
Ceding commissions (millions)
|
$ 9.1
|
|
$ 9.6
|
|
$ 10.3
|
|
$ 10.4
|
|
$ 10.5
|
|
$ 12.0
|
|
Captive trust fund assets (millions)
|
$ 240
|
|
$ 228
|
|
$ 211
|
|
$ 207
|
|
$ 201
|
|
$ 172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Pool RIF
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
With aggregate loss limits
|
$ 346
|
|
$ 338
|
|
$ 331
|
|
$ 303
|
|
$ 287
|
|
$ 282
|
|
Without aggregate loss limits
|
$ 601
|
|
$ 570
|
|
$ 536
|
|
$ 505
|
|
$ 479
|
|
$ 456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Guaranty
Insurance Corporation - Risk to Capital
|
15.3:1
|
|
15.2:1
|
|
15.0:1
|
|
14.6:1
|
|
13.7:1
|
|
13.2:1
|
(7)
|
MGIC Indemnity
Corporation - Risk to Capital
|
1.2:1
|
|
1.2:1
|
|
1.1:1
|
|
1.1:1
|
|
1.0:1
|
|
0.9:1
|
(7)
|
Combined Insurance
Companies - Risk to Capital
|
17.6:1
|
|
17.3:1
|
|
17.0:1
|
|
16.4:1
|
|
15.4:1
|
|
14.8:1
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP loss ratio
(insurance operations only) (2)
|
57.2%
|
|
68.0%
|
|
55.1%
|
|
54.8%
|
|
37.6%
|
|
42.3%
|
|
GAAP underwriting
expense ratio (insurance operations only)
|
15.7%
|
|
14.4%
|
|
14.9%
|
|
13.9%
|
|
16.4%
|
|
15.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: The FICO
credit score for a loan with multiple borrowers is the lowest of
the borrowers' "decision FICO scores." A borrower's "decision
FICO score" is determined as follows: if there are three FICO
scores available, the middle FICO score is used; if two FICO scores
are available, the lower of the two is used; if only one FICO score
is available, it is used.
|
|
Note: The
results of our operations in Australia are included in the
financial statements in this document but the additional
information in this document does not include our Australian
operations, unless otherwise noted, which are
immaterial.
|
|
Note: 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 June 30, 2015,
rescissions of coverage on approximately 430 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 2014 and Q2 2015
excludes items associated with rescission settlements.
|
|
(7)
|
Preliminary
|
Risk Factors
As used below, "we," "our" and "us" refer to MGIC Investment
Corporation's consolidated operations or to MGIC Investment
Corporation, as the context requires; "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 insurer's
"Available Assets" (generally only the most liquid assets of an
insurer) must meet or exceed "Minimum Required Assets" (which are
based on an insurer's 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. This expectation is based on our interpretation of the
GSE Financial Requirements and assumes that the risk in force and
assets of MGIC's MIC subsidiary will be repatriated to MGIC and
that we will receive substantially all of the benefit available
under the PMIERs for our existing reinsurance transaction, upon the
effectiveness of its restructure, which has been agreed between
MGIC and the reinsurers, subject to final documentation. The
effectiveness of the restructured transaction is subject to
approval by the GSEs and the Office of the Commissioner of
Insurance of the State of
Wisconsin ("OCI"). Although it has not yet been approved,
neither the GSEs nor the OCI has raised material objections to the
restructured transaction.
If additional Available Assets are required, we believe that a
portion of our holding company's $463
million of cash and investments at June 30, 2015, may be available for future
contribution to MGIC.
Factors that may negatively impact MGIC's 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 the amount of benefit we expect
under the GSE Financial Requirements.
- 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.
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.
In the first quarter of 2015, the FHA accounted for 33.1% of all
low down payment residential mortgages that were subject to FHA, VA
or primary private mortgage insurance, up from 31.8% in the fourth
quarter of 2014. In the past ten years, the FHA's share has been as
low as 15.6% in 2006 and as high as 70.8% in 2009. Factors that
influence the FHA's market share include relative underwriting
guidelines, loan limits, and rates and fees of the FHA, VA, private
mortgage insurers and the GSEs; flexibility for the FHA to
establish new products as a result of federal legislation and
programs; returns obtained by lenders for Ginnie Mae securitization of FHA-insured loans
compared to those obtained from selling loans to Fannie Mae or
Freddie Mac for securitization; and differences in policy terms,
such as the ability of a borrower to cancel insurance coverage
under certain circumstances. We cannot predict how these factors or
the FHA's share of new insurance written will change in the future.
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 FHA's pricing
for a substantial majority of borrowers with credit and loan
characteristics similar to those whose loans we insured in
2014.
In the first quarter of 2015, the VA accounted for 30.4% of all
low down payment residential mortgages that were subject to FHA, VA
or primary private mortgage insurance, its highest level in ten
years and up from 29.1% in the fourth quarter of 2014. The VA's
lowest market share in the past ten years was 5.4% in 2007. We
believe that the VA's market share has been increasing 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 VA's program.
Competition or changes in our relationships with our
customers could reduce our revenues, reduce our premium yields
and/or increase our losses.
Our private mortgage insurance competitors include:
- Arch Mortgage Insurance Company,
- Essent Guaranty, Inc.,
- Genworth Mortgage Insurance Corporation,
- National Mortgage Insurance Corporation,
- 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 card's 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). In
June 2015, the OCI issued letters to
mortgage insurers inquiring about their discounted lender paid
mortgage insurance practices. 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, 20% in the first quarter of 2015 and 17%
in the second quarter of 2015. The increases compared to 2014 were
primarily a result of us selectively matching reduced rates. Prior
to the fourth quarter of 2014, we did not use our rate card's
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, 13% in the first
quarter of 2015 and 11% in the second quarter of 2015. Given the
current pricing environment, an increase in the percentage of
business written as lender-paid single premium policies, all other
things equal, will decrease our weighted average premium rates on
new insurance written. If we reduce or discount prices on any
premium plan in response to future price competition, all other
things equal, it will decrease our weighted average premium
rates.
On June 30, 2015, the GSEs
announced a modification to the PMIERs that will increase the
Minimum Required Assets that must be maintained by a private
mortgage insurer for loans dated on or after January 1, 2016, that are insured under
lender-paid mortgage insurance policies or other policies that are
not subject to automatic termination under the Homeowners
Protection Act ("HPA") or an automatic termination consistent with
HPA's termination requirements for borrower-paid mortgage
insurance. The modification may reduce our future returns because
we will be required to maintain more Available Assets in connection
with a portion of our business.
During 2014 and the first half 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
MGIC's 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 Moody's is Ba1 (with a positive outlook) and from
Standard & Poor's is BB+ (with a positive outlook). It is
possible that MGIC's and MIC's 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 lender's selection of
the mortgage insurer providing coverage and, if so, any
transactions that are related to that selection,
- the underwriting standards that determine what loans are
eligible for purchase by the GSEs, which can affect the quality of
the risk insured by the mortgage insurer and the availability of
mortgage loans,
- the terms on which mortgage insurance coverage can be canceled
before reaching the cancellation thresholds established by
law,
- the programs established by the GSEs intended to avoid or
mitigate loss on insured mortgages and the circumstances in which
mortgage servicers must implement such programs,
- the terms that the GSEs require to be included in mortgage
insurance policies for loans that they purchase,
- the extent to which the GSEs intervene in mortgage insurers'
rescission practices or rescission settlement practices with
lenders. For additional information, see our risk factor titled
"We are involved in legal proceedings and are subject to the
risk of additional legal proceedings in the future," and
- the maximum loan limits of the GSEs in comparison to those of
the FHA and other investors.
The FHFA is the conservator of the GSEs and has the authority to
control and direct their operations. The increased role that the
federal government has assumed in the residential 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 government's
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 borrower's 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. Because there is a temporary category
of QMs for mortgages that satisfy the general product feature
requirements of QMs and meet the GSEs' underwriting requirements,
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 2014 and the first
half of 2015, 83% and 85%, respectively, was for loans that would
have met the CFPB's general QM definition and, therefore, the QRM
definition. We estimate that approximately 99% of our new risk
written in each of 2014 and the first half of 2015, was for loans
that would have met the temporary category in CFPB's 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 2014 and the first
half 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 June 30, 2015, we had
approximately $2.2 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 corporation's subsequent use
of net operating loss carryovers that arose from pre-ownership
change periods and use of losses that are subsequently recognized
with respect to assets that had a built-in-loss on the date of the
ownership change. 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 half of 2015, curtailments
reduced our average claim paid by approximately 6.7% and 7.4%,
respectively. 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. Certain
settlements require GSE approval. 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.
In December 2009, we entered into
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 April 2013, MGIC entered into
separate settlement agreements with CHL and BANA, pursuant to which
the parties agreed to settle the Countrywide litigation as it
relates to MGIC's rescission practices (as amended from time to
time, the "Agreements"). 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.
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 CHL covers loans that were
purchased by non-GSE investors, including securitization
trusts. The original Agreement addressed rescission and denial
rights; the amended and restated Agreement also addresses
curtailment rights. Implementation of that Agreement occurred in
June 2015 with respect to loans for
which consent to the Agreement was received.
The estimated impact of the Agreements has been recorded in our
financial statements. The pending arbitration proceedings
concerning the loans covered by the Agreements have been dismissed,
the mutual releases regarding loans for which consent was received
have become effective and the litigation between the parties
regarding loans covered by the Agreements has been dismissed.
Consent was received for approximately 89% of the dollar amount of
exposure on loans covered by the Agreement with CHL; the holders of
loans that did not consent retain their rights to assert claims
with respect to such loans.
The estimated impact of other probable settlements has
also been recorded in our financial statements. The estimated
impact that we recorded for other probable settlements is our
best estimate of our loss from these matters. We estimate that as
of June 30, 2015, the maximum
exposure above the best estimate provision we recorded is
$122 million. If we are not able to implement 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 consensual proceedings with
insureds with respect to our claims paying practices. In addition,
holders of loans that did not consent to the Agreement with CHL may
bring legal proceedings against MGIC with respect to such loans.
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
$218 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. MGIC's 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,
was 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 alleged 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. As of the end of the first quarter of 2015, MGIC
has been dismissed from all twelve cases. 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 MGIC's
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. In June 2015, MGIC
executed a Consent Order with the MN Department that resolved the
MN Department's investigation of captive reinsurance matters
without making any findings of wrongdoing. The Consent Order
provides, among other things, that MGIC is prohibited from entering
into any new captive reinsurance agreement or reinsuring any new
loans under any existing captive reinsurance agreement for a period
of ten years.
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.
Various regulators, including the CFPB, state insurance
commissioners and state attorneys general may bring actions seeking
various forms of relief in connection with alleged violations of
RESPA. The insurance law provisions of many states prohibit paying
for the referral of insurance business and provide various
mechanisms to enforce this prohibition. While we believe our
practices are in conformity with applicable laws and regulations,
it is not possible to predict the eventual scope, duration or
outcome of any such reviews or investigations nor is it possible to
predict their effect on us or the mortgage insurance industry.
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 Department's Federal Insurance Office released a report
that calls for federal standards and oversight for mortgage
insurers to be developed and implemented. It is uncertain what form
the standards and oversight will take and when they will become
effective.
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, had 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. As of June
5, 2015, all of these lawsuits have been dismissed without
any further opportunity to appeal.
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 June
30, 2015, there would also be interest related to these
matters of approximately $175.5
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
June 30, 2015, those state taxes and
interest would approximate $48.1
million. In addition, there could also be state tax
penalties. Our total amount of unrecognized tax benefits as of
June 30, 2015 is $106.7 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 reserves for insurance losses and
loss adjustment expenses only when notices of default on insured
mortgage loans are received and for loans we estimate are in
default but for which notices of default have not yet been reported
to us by the servicers (this is often referred to as "IBNR").
Because our reserving method does not take account of losses that
could occur from loans that are not delinquent, such losses are not
reflected in our financial statements, except in the case where a
premium deficiency exists. As a result, future losses on loans that
are not currently delinquent may have a material impact on future
results as such losses emerge.
Because loss reserve estimates are subject to
uncertainties, paid claims may be substantially different than our
loss reserves.
When we establish reserves, we estimate the ultimate loss on
delinquent loans using estimated claim rates and claim amounts. The
estimated claim rates and claim amounts represent our best
estimates of what we will actually pay on the loans in default as
of the reserve date and incorporate anticipated mitigation from
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. The deterioration in conditions may include an
increase in unemployment, reducing borrowers' income and thus their
ability to make mortgage payments, and a decrease 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 allows
each reinsurer to terminate such reinsurer's 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. The
restructured reinsurance transaction contains a similar
provision.
Loan modification and other similar programs may not
continue to provide benefits to us and our losses on loans that
re-default can be higher than what we would have paid had the loan
not been modified.
Beginning in the fourth quarter of 2008, the federal government,
including through the 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 half 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 $0.3 billion, respectively, of estimated claim
payments.
One loan modification program is the Home Affordable
Modification Program ("HAMP"). We are aware of approximately 5,440
loans in our primary delinquent inventory at June 30, 2015 for which the HAMP trial period has
begun and which trial periods have not been reported to us as
completed or cancelled. Through June 30,
2015, approximately 62,510 delinquent primary loans have
cured their delinquency after entering HAMP and are not in default.
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"), 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 June 30,
2015, approximately 14% of our primary insurance in force
had benefitted from HARP and was still in force.
In each of 2014 and the first half of 2015, approximately 16% of
our primary cures were the result of modifications, with HAMP
accounting for approximately 67% of those modifications in 2014 and
68% in the first half of 2015. Although the HAMP and HARP programs
have been extended through December
2016, we believe that we have realized the majority of the
benefits from them because the number of loans insured by us that
we are aware are entering those programs 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.
Our loss reserves do not account for potential re-defaults of
current loans. 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 the volume of low down payment home mortgage
originations declines, the amount of insurance that we write could
decline, which would reduce our revenues.
The factors that affect the volume of low down payment mortgage
originations include:
- restrictions on mortgage credit due to more stringent
underwriting standards, liquidity issues and risk-retention
requirements associated with non-QRM loans affecting lenders,
- the level of home mortgage interest rates and the deductibility
of mortgage interest for income tax purposes,
- the health of the domestic economy as well as conditions in
regional and local economies and the level of consumer
confidence,
- housing affordability,
- population trends, including the rate of household
formation,
- the rate of home price appreciation, which in times of heavy
refinancing can affect whether refinanced loans have loan-to-value
ratios that require private mortgage insurance, and
- government housing policy encouraging loans to first-time
homebuyers.
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 June 30, 2015, MGIC's
preliminary risk-to-capital ratio was 13.2 to 1, below the maximum
allowed by the jurisdictions with State Capital Requirements, and
its policyholder position was $914 million above the required
MPP of $1.1 billion. As noted 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 are party to a reinsurance
transaction with a group of unaffiliated reinsurers that reduces
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 substantially all of the
benefit available 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 June 30, 2015, the preliminary
risk-to-capital ratio of our combined insurance operations (which
includes reinsurance affiliates) was 14.8 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
lender's assessment of the future ability of our insurance
operations to meet the Financial Requirements may affect its
willingness to procure insurance from us. In this regard, see our
risk factor titled "Competition or changes in our relationships
with our customers could reduce our revenues, 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 MGIC's
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 borrower's 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 June 30,
2015, approximately 17.4% of our primary risk in force
consisted of loans with loan-to-value ratios greater than 95%, 5.2%
had FICO credit scores below 620, and 5.2% 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; and whether the loans were insured under lender
paid mortgage insurance policies or other policies that are not
subject to automatic termination consistent with the Homeowners
Protection Act's requirements for borrower paid mortgage insurance.
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, or if we insure more loans under lender paid
mortgage insurance policies, 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. 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 half 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 "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 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, was written under our new master
policy. As of June 30, 2015,
approximately 39% of our flow, primary insurance in force was
written under our Gold Cert Endorsement or our new master
policy.
As of June 30, 2015, approximately
2.6% 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 80.4% at June
30, 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
expect to meet the GSE Financial Requirements upon their
effectiveness. However, there can be no assurance that we would not
seek to issue non-dilutive debt capital or to raise additional
equity capital to manage our capital position under the GSE
Financial Requirements 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 holder's 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 holder's 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 6 —
"Earnings per Share" to our consolidated financial statements in
our Quarterly Report on Form 10-Q filed with the SEC on
May 7, 2015.
Our debt obligations materially exceed our holding company
cash and investments.
At June 30, 2015, we had
approximately $463 million in cash
and investments at our holding company and our holding company's
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 June 30, 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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SOURCE MGIC Investment Corporation