MGIC Investment Corporation Reports Third Quarter 2012 Results

Nov 09, 2012, 07:00 ET from MGIC Investment Corporation

MILWAUKEE, Nov. 9, 2012 /PRNewswire/ -- MGIC Investment Corporation (NYSE: MTG) today reported a net loss for the quarter ended September 30, 2012 of $246.9 million, compared with a net loss of $165.2 million for the same quarter a year ago. Diluted loss per share was $1.22 for the quarter ending September 30, 2012, compared to diluted loss per share of $0.82 for the same quarter a year ago.  The net loss for the first nine months of 2012 was $540.4 million compared with a net loss of $350.6 million for the same period last year.

Total revenues for the third quarter were $306.2 million, compared with $337.2 million in the third quarter last year. Net premiums written for the quarter were $263.5 million, compared with $255.7 million for the same period last year. Realized gains in the third quarter of 2012 were $6.2 million compared to $11.4 million for the same period last year. 

New insurance written in the third quarter was $7.0 billion, compared to $3.9 billion in the third quarter of 2011. In addition, the Home Affordable Refinance Program accounted for $3.7 billion of insurance that is not included in the new insurance written total due to these transactions being treated as a modification of the coverage on existing insurance in force compared to $0.6 billion in the third quarter of 2011. New insurance written for the first nine months of 2012 was $17.1 billion compared to $10.0 billion for the same period last year.  HARP activity for the first nine months of 2012 totaled $7.7 billion compared to $2.1 billion in the first nine months of 2011.  Persistency, or the percentage of insurance remaining in force from one year prior, was 80.2 percent at September 30, 2012, compared with 82.9 percent at December 31, 2011, and 83.7 percent at September 30, 2011.

As of September 30, 2012, MGIC's primary insurance in force was $164.9 billion, compared with $172.9 billion at December 31, 2011, and $179.0 billion at September 30, 2011. The fair value of MGIC Investment Corporation's investment portfolio, cash and cash equivalents was $5.7 billion at September 30, 2012, compared with $6.8 billion at December 31, 2011, and $7.3 billion at September 30, 2011.

At September 30, 2012, the percentage of loans that were delinquent, excluding bulk loans, was 12.34 percent, compared with 13.79 percent at December 31, 2011, and 13.49 percent at September 30, 2011. Including bulk loans, the percentage of loans that were delinquent at September 30, 2012 was 14.51 percent, compared to 16.11 percent at December 31, 2011, and 15.85 percent at September 30, 2011.

Losses incurred, which does not include any estimated loss related to a resolution of the Freddie Mac dispute, in the third quarter were $490.1 million up from $462.7 million reported for the same period last year primarily due to an increase in the claim rate.  Net underwriting and other expenses were $50.7 million in the third quarter as compared to $52.5 million reported for the same period last year. 

Conference Call and Webcast Details

MGIC Investment Corporation will hold a conference call today, November 9, 2012, 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 1-866-847-7859. The call is being webcast and can be accessed at the company's website at http://mtg.mgic.com/. The webcast is also being distributed over CCBN's Investor Distribution Network to both institutional and individual investors.  Investors can listen to the call through CCBN's individual investor center at http://www.companyboardroom.com/ or by visiting any of the investor sites in CCBN's Individual Investor Network. The webcast will be available for replay on the company's website through December 9, 2012 under Investor Information.

About MGIC

MGIC (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, is the nation's largest private mortgage insurer as measured by $164.9 billion primary insurance in force covering 1.0 million mortgages as of September 30, 2012. MGIC 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.

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.

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

2012

2011

(Unaudited)

 (In thousands, except per share data)

Net premiums written

$         263,505

$         255,745

$            757,096

$            800,607

Net premiums earned

$         266,432

$         275,094

$            771,465

$            848,094

Investment income

30,394

48,898

99,980

160,931

Realized gains, net

6,184

11,405

110,356

38,900

Total other-than-temporary impairment losses

-

(253)

(339)

(253)

Portion of loss recognized in other comprehensive

income (loss), before taxes

-

-

-

-

Net impairment losses recognized in earnings

-

(253)

(339)

(253)

Other revenue

3,209

2,025

25,530

9,617

Total revenues

306,219

337,169

1,006,992

1,057,289

Losses and expenses:

Losses incurred

490,121

462,654

1,378,617

1,232,637

Change in premium deficiency reserve

(9,144)

(12,388)

(50,685)

(32,441)

Underwriting and other expenses, net

50,678

52,477

149,931

164,070

Interest expense

24,478

25,761

74,017

78,129

Total losses and expenses

556,133

528,504

1,551,880

1,442,395

Loss before tax 

(249,914)

(191,335)

(544,888)

(385,106)

Benefit from income taxes

(2,972)

(26,130)

(4,500)

(34,508)

Net Loss

$       (246,942)

$       (165,205)

$          (540,388)

$          (350,598)

Diluted weighted average common shares outstanding

202,014

201,109

201,851

200,983

Diluted loss per share

$             (1.22)

$             (0.82)

$                (2.68)

$                (1.74)

NOTE: See "Certain Non-GAAP Financial Measures" for diluted earnings per share contribution from realized gains and losses.

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET AS OF

September 30,

December 31,

September 30,

2012

2011

2011

(Unaudited)

(In thousands, except per share data)

ASSETS

Investments (1)

$      4,926,764

$         5,823,647

$         6,458,220

Cash and cash equivalents

730,404

995,799

866,614

Reinsurance recoverable on loss reserves (2)

117,859

154,607

166,874

Prepaid reinsurance premiums

1,174

1,617

1,782

Home office and equipment, net

26,891

28,145

28,527

Deferred insurance policy acquisition costs

10,451

7,505

7,696

Other assets

195,347

204,910

217,590

$      6,008,890

$         7,216,230

$         7,747,303

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

Loss reserves (2)

$      4,004,001

$         4,557,512

$         4,791,560

Unearned premiums

140,137

154,866

166,703

Premium deficiency reserve

84,132

134,817

146,525

Senior notes

99,891

170,515

244,259

Convertible senior notes

345,000

345,000

345,000

Convertible junior debentures

370,164

344,422

336,694

Other liabilities

297,589

312,283

327,737

Total liabilities

5,340,914

6,019,415

6,358,478

Shareholders' equity

667,976

1,196,815

1,388,825

$      6,008,890

$         7,216,230

$         7,747,303

Book value per share (3)

$               3.31

$                  5.95

$                  6.90

(1) Investments include net unrealized gains on securities

130,330

120,087

199,779

(2) Loss reserves, net of reinsurance recoverable on loss reserves

3,886,142

4,402,905

4,624,686

(3) Shares outstanding

202,032

201,172

201,172

CERTAIN NON-GAAP FINANCIAL MEASURES 

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

2012

2011

(Unaudited)

(In thousands, except per share data)

Diluted earnings per share contribution from realized gains (losses):

Realized gains and impairment losses

$              6,184

$            11,152

$             110,017

$               38,647

Income taxes at 35% (1)

-

-

-

-

After tax realized gains 

6,184

11,152

110,017

38,647

Weighted average shares

202,014

201,109

201,851

200,983

Diluted EPS contribution from realized gains and

impairment losses

$                0.03

$                0.06

$                   0.55

$                   0.19

(1)

Due to the establishment of a valuation allowance, income taxes provided are not currently affected by realized gains or losses.

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. 

 

 

Additional Information

 Q2 2011 

 Q3 2011 

 Q4 2011 

 Q1 2012 

 Q2 2012 

 Q3 2012 

New primary insurance written (NIW) (billions)

$           3.1

$           3.9

$           4.2

$           4.2

$           5.9

$           7.0

New primary risk written (billions)

$           0.8

$           1.0

$           1.0

$           1.0

$           1.5

$           1.8

Product mix as a % of primary flow NIW

    >95% LTVs

2%

2%

2%

2%

3%

3%

    ARMs

1%

1%

1%

1%

1%

1%

    Refinances

16%

20%

39%

42%

32%

32%

Primary Insurance In Force (IIF) (billions) (1)

$      182.4

$      179.0

$      172.9

$      169.0

$      166.7

$      164.9

     Flow 

$      160.9

$      158.3

$      153.5

$      150.3

$      148.6

$      147.5

     Bulk 

$        21.5

$        20.7

$        19.4

$        18.7

$        18.1

$        17.4

     Prime (620 & >)

$      153.3

$      150.9

$      146.3

$      143.5

$      142.3

$      141.7

     A minus (575 - 619)

$        10.4

$        10.1

$          9.7

$          9.3

$          8.9

$          8.5

     Sub-Prime (< 575)

$          2.7

$          2.7

$          2.6

$          2.5

$          2.4

$          2.3

     Reduced Doc (All FICOs)

$        16.0

$        15.3

$        14.3

$        13.7

$        13.1

$        12.4

Annual Persistency

83.3%

83.7%

82.9%

82.2%

81.4%

80.2%

Primary Risk In Force (RIF) (billions) (1)

$        46.8

$        46.0

$        44.5

$        43.5

$        42.9

$        42.5

     Prime (620 & >)

$        38.9

$        38.3

$        37.2

$        36.5

$        36.2

$        36.1

     A minus (575 - 619)

$          2.8

$          2.7

$          2.6

$          2.6

$          2.4

$          2.3

     Sub-Prime (< 575)

$          0.8

$          0.8

$          0.8

$          0.7

$          0.7

$          0.7

     Reduced Doc (All FICOs)

$          4.3

$         4.2

$          3.9

$          3.7

$          3.6

$          3.4

RIF by FICO

    FICO 620 & >

91.5%

91.5%

91.5%

91.7%

91.9%

92.1%

    FICO 575 - 619

6.6%

6.6%

6.6%

6.4%

6.3%

6.1%

    FICO < 575

1.9%

1.9%

1.9%

1.9%

1.8%

1.8%

Average Coverage Ratio (RIF/IIF) (1)

     Total

25.6%

25.7%

25.7%

25.7%

25.8%

25.8%

     Prime (620 & >)

25.3%

25.4%

25.4%

25.4%

25.5%

25.5%

     A minus (575 - 619)

27.1%

27.2%

27.3%

27.3%

27.4%

27.4%

     Sub-Prime (< 575)

28.8%

28.8%

28.9%

28.9%

28.9%

29.0%

     Reduced Doc (All FICOs)

27.1%

27.3%

27.2%

27.3%

27.2%

27.2%

Average Loan Size (thousands) (1)

     Total IIF

$    156.22

$    156.79

$    158.59

$    158.89

$    159.59

$    160.70

     Flow

$    155.13

$    155.72

$    157.87

$    158.28

$    159.20

$    160.62

     Bulk

$    164.89

$    165.42

$    164.55

$    163.99

$    162.80

$    161.38

     Prime (620 & >)

$    156.03

$    156.55

$    158.87

$    159.29

$    160.26

$    161.69

     A minus (575 - 619)

$    129.57

$    130.60

$    130.70

$    130.37

$    129.86

$    129.43

     Sub-Prime (< 575)

$    116.73

$    120.73

$    121.13

$    120.98

$    120.65

$    120.01

     Reduced Doc (All FICOs)

$    195.71

$    196.26

$    194.06

$    193.54

$    192.23

$    191.18

Primary IIF - # of loans (1)

1,167,476

1,141,442

1,090,086

1,063,797

1,044,342

1,026,200

     Prime (620 & >)

982,658

964,011

921,112

901,300

887,967

875,953

     A minus (575 - 619)

80,231

77,548

74,036

71,250

68,538

65,878

     Sub-Prime (< 575)

22,958

22,252

21,391

20,633

20,003

19,371

     Reduced Doc (All FICOs)

81,629

77,631

73,547

70,614

67,834

64,998

 Q2 2011 

 Q3 2011 

 Q4 2011 

 Q1 2012 

 Q2 2012 

 Q3 2012 

Primary IIF - Delinquent Roll Forward - # of Loans

     Beginning Delinquent Inventory

195,885

184,452

180,894

175,639

160,473

153,990

     Plus:  New Notices

39,972

44,342

41,796

34,781

32,241

34,432

     Less: Cures 

(35,832)

(34,335)

(33,837)

(37,144)

(26,368)

(27,384)

     Less:  Paids (including those charged to a deductible or captive)

(13,553)

(12,033)

(12,086)

(11,909)

(11,738)

(11,344)

     Less:  Rescissions and denials (6)

(2,020)

(1,532)

(1,128)

(894)

(618)

(809)

     Ending Delinquent Inventory

184,452

180,894

175,639

160,473

153,990

148,885

Primary claim received inventory included in ending delinquent inventory (6)

14,504

13,799

12,610

12,758

13,421

12,508

Composition of Cures

  Reported delinquent and cured intraquarter

8,996

10,240

9,333

11,353

7,104

8,097

  Number of payments delinquent prior to cure

      3 payments or less

14,457

12,663

13,883

16,523

11,875

10,593

      4-11 payments

7,952

6,840

6,298

6,277

5,349

5,433

      12 payments or more

4,427

4,592

4,323

2,991

2,040

3,261

  Total Cures in Quarter

35,832

34,335

33,837

37,144

26,368

27,384

Composition of Paids

  Number of payments delinquent at time of claim payment

      3 payments or less

26

55

38

44

50

71

      4-11 payments

1,848

1,317

1,600

1,776

1,840

1,771

      12 payments or more

11,679

10,661

10,448

10,089

9,848

9,502

  Total Paids in Quarter

13,553

12,033

12,086

11,909

11,738

11,344

Aging of Primary Delinquent Inventory

  Consecutive months in default 

      3 months or less

30,107

16%

33,167

18%

31,456

18%

22,516

14%

24,488

16%

25,593

17%

      4-11 months

48,148

26%

45,110

25%

46,352

26%

45,552

28%

38,400

25%

35,029

24%

      12 months or more

106,197

58%

102,617

57%

97,831

56%

92,405

58%

91,102

59%

88,263

59%

  Number of payments delinquent

      3 payments or less

40,968

22%

43,312

24%

42,804

24%

33,579

21%

33,677

22%

35,130

24%

      4-11 payments

51,523

28%

47,929

26%

47,864

27%

45,539

28%

39,744

26%

36,359

24%

      12 payments or more

91,961

50%

89,653

50%

84,971

49%

81,355

51%

80,569

52%

77,396

52%

Primary IIF - # of Delinquent Loans (1)

184,452

180,894

175,639

160,473

153,990

148,885

     Flow

139,032

137,084

134,101

121,959

116,798

113,339

     Bulk

45,420

43,810

41,538

38,514

37,192

35,546

     Prime (620 & >)

115,980

114,828

112,403

102,884

98,447

95,517

     A minus (575 - 619)

26,878

26,600

25,989

23,002

22,428

21,865

     Sub-Prime (< 575)

9,725

9,562

9,326

8,434

8,175

7,999

     Reduced Doc (All FICOs)

31,869

29,904

27,921

26,153

24,940

23,504

Primary IIF Delinquency Rates (1)

15.80%

15.85%

16.11%

15.09%

14.75%

14.51%

     Flow

13.40%

13.49%

13.79%

12.84%

12.51%

12.34%

     Bulk

34.91%

35.02%

35.33%

33.82%

33.50%

32.97%

     Prime (620 & >)

11.80%

11.91%

12.20%

11.42%

11.09%

10.90%

     A minus (575 - 619)

33.50%

34.30%

35.10%

32.28%

32.72%

33.19%

     Sub-Prime (< 575)

42.36%

42.97%

43.60%

40.88%

40.87%

41.29%

     Reduced Doc (All FICOs)

39.04%

38.52%

37.96%

37.04%

36.77%

36.16%

 Q2 2011 

 Q3 2011 

 Q4 2011 

 Q1 2012 

 Q2 2012 

 Q3 2012 

Reserves

  Primary

      Direct Loss Reserves (millions)

$      4,504

$      4,403

$      4,249

$      3,985

$      3,934

$      3,855

      Average Direct Reserve Per Default

$    24,416

$    24,342

$    24,193

$    24,835

$    25,547

$    25,890

  Pool

      Direct Loss Reserves (millions)

$         570

$         379

$         299

$         216

$         168

$         144

      Ending Delinquent Inventory

36,552

33,792

32,971

26,601

25,178

9,337

(7)

      Pool claim received inventory included in ending delinquent inventory

1,836

1,345

1,398

893

1,154

255

  Other Gross Reserves (millions) (5)

$             9

$            10

$            10

$              8

$              7

$              5

Net Paid Claims (millions) (1) (2)

$         818

$         751

$         704

$         673

$         636

$         587

     Flow

$         562

$         475

$         484

$         459

$         466

$         430

     Bulk

$         115

$         137

$         135

$         124

$         113

$         115

     Pool - with aggregate loss limits

$         167

$         138

$           90

$           95

$           64

$           42

     Pool - without aggregate loss limits

$             3

$              6

$              4

$             4

$              6

$             7

     Reinsurance

$         (44)

$          (20)

$          (28)

$          (24)

$          (25)

$         (21)

     Other (5)

$           15

$            15

$            19

$           15

$            12

$           14

     Reinsurance terminations (2)

$           (2)

$          (36)

$               -

$              -

$               -

$               -

     Prime (620 & >)

$         472

$         419

$         430

$         408

$         402

$         378

     A minus (575 - 619)

$           77

$           68

$           62

$           64

$            63

$           57

     Sub-Prime (< 575)

$           20

$           17

$           14

$           18

$            18

$           16

     Reduced Doc (All FICOs)

$         108

$         108

$         113

$           93

$            96

$           94

Primary Average Claim Payment (thousands) (1)

$        49.9

$        50.9

$        51.1

$        48.9

$        49.3

$        48.0

     Flow

$        47.9

$        48.0

$        48.3

$        46.2

$        46.8

$        44.8

     Bulk

$        62.3

$        64.2

$        64.5

$        62.6

$        63.2

$        65.4

     Prime (620 & >)

$        48.3

$        49.5

$        49.6

$        47.4

$        47.6

$        45.9

     A minus (575 - 619)

$        46.0

$        46.1

$        44.3

$        44.5

$        44.6

$        42.5

     Sub-Prime (< 575)

$        46.7

$        43.9

$        40.7

$        44.9

$        44.4

$        46.2

     Reduced Doc (All FICOs)

$        63.0

$        63.9

$        66.8

$        62.6

$       64.3

$        65.6

Risk sharing Arrangements - Flow Only

    % insurance inforce subject to risk sharing 

16.8%

14.4%

13.8%

13.1%

12.7%

12.2%

    % Quarterly NIW subject to risk sharing

4.8%

5.6%

5.3%

5.4%

5.6%

5.6%

    Premium ceded (millions)

$        13.3

$        11.4

$           9.9

$           9.2

$           8.7

$           8.2

    Captive trust fund assets (millions) (2)

$         451

$         392

$         386

$         371

$         360

$         350

Captive Reinsurance Ceded Losses Incurred - Flow Only (millions)

$        12.9

$        17.4

$        15.5

$        13.5

$        12.2

$        12.2

  Active excess of Loss

      Book Year

2005

$           2.3

$           4.4

$           3.5

$           2.5

$           3.2

$           2.2

2006

$           0.7

$           1.6

$           1.5

$           1.5

$           0.8

$           0.5

2007

$           0.7

$           0.9

$           0.8

$           0.6

$           0.8

$           0.2

2008

$           2.2

$           2.3

$           1.8

$           1.9

$           1.5

$           0.3

  Active quota Share

      Book Year

2005

$           1.3

$           1.0

$          1.4

$          1.1

$          1.2

$           1.6

2006

$           1.4

$           1.2

$          1.5

$          1.2

$          1.0

$           1.5

2007

$           2.5

$           4.2

$          4.3

$          3.7

$          3.4

$           5.2

2008

$           1.5

$           1.1

$          0.6

$          0.9

$          0.3

$           0.6

2009

$              -

$              -

$          0.1

$          0.1

$             -

$              -

2010

$              -

$              -

$             -

$             -

$             -

$           0.1

 Terminated agreements

$          0.3

$           0.7

$             -

$             -

$             -

$             -

 Q2 2011 

 Q3 2011 

 Q4 2011 

 Q1 2012 

 Q2 2012 

 Q3 2012 

Direct Pool RIF (millions)

    With aggregate loss limits 

$         905

$         770

$         674

$         569

$         508

$         469

    Without aggregate loss limits

$      1,324

$      1,260

$      1,177

$      1,092

$      1,024

$         945

Mortgage Guaranty Insurance Corporation - Risk to Capital

20.4:1

22.2:1

20.3:1

20.3:1

27.8:1

31.5:1

(3)

Combined Insurance Companies - Risk to Capital

23.4:1

24.0:1

22.2:1

22.2:1

30.0:1

34.1:1

(3)

GAAP loss ratio (insurance operations only) (4)

161.6%

168.2%

174.8%

128.5%

227.3%

184.0%

GAAP underwriting expense ratio (insurance operations only)

16.5%

16.4%

14.9%

16.7%

16.6%

13.6%

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.

(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)  Net paid claims, as presented, does not include amounts received in conjunction with termination of reinsurance agreements.  In a termination, the agreement is cancelled, with no future premium ceded and funds for any incurred but unpaid losses transferred to us.  The transferred funds result in an increase in the investment portfolio (including cash and cash equivalents) and there is a corresponding decrease in reinsurance recoverable on loss reserves.  This results in an increase in net loss reserves, which is offset by a decrease in net losses paid.

(3)  Preliminary

(4)  As calculated, does not reflect any effects due to premium deficiency.

(5)  Includes Australian operations

(6) Refer to our risk factor titled "Our losses could increase if rescission rates decrease faster than we are projecting, we do not prevail in proceedings challenging whether our rescissions were proper or we enter into material resolution arrangements" in our Form 10-Q filed with the Securities and Exchange Commission on November 9, 2012 for information about our suspension of certain rescissions and the number of rescissions suspended as of September 30, 2012.

(7) During the third quarter of 2012, approximately 15,600 pool notices were removed from the pool notice inventory due to the exhaustion of the aggregate loss on a pool policy we have with Freddie Mac. See our risk factor titled "We are defendants in private and government litigation and are subject to the risk of additional private litigation, government litigation and regulatory proceedings in the future" in our Form 10-Q filed with the Securities and Exchange Commission on November 9, 2012 for a discussion of our interpretation of the appropriate aggregate loss.

SOURCE MGIC Investment Corporation



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