MGIC Investment Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; financial statements are unaudited. MGIC Investment Corporation is a holding company principally engaged in U.S. mortgage insurance through its subsidiaries, including coverage for low-down-payment residential mortgages. The substantial majority of new insurance written (NIW) relates to loans purchased by Fannie Mae and Freddie Mac.
Financial results and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Net premiums earned | $242.6 million | $242.0 million |
| Investment income, net | $59.7 million | $49.2 million |
| Total revenues | $294.4 million | $284.0 million |
| Losses incurred, net | $4.6 million | $6.4 million |
| Other underwriting and operating expenses, net | $59.0 million | $70.1 million |
| Income before tax | $219.9 million | $195.6 million |
| Net income / diluted EPS | $174.1 million / $0.64 | $154.5 million / $0.53 |
| Operating cash flow | $190.5 million | $212.3 million |
- Net income increased 13%; diluted EPS increased 21%, benefiting from higher earnings and fewer weighted-average diluted shares. Adjusted net operating income was $178.4 million, or $0.65 per diluted share, versus $157.8 million, or $0.54.
- Net premium yield was 33.2 basis points versus 32.9; the loss ratio was 1.9% versus 2.7%, and the underwriting expense ratio was 25.7% versus 31.1%.
- At March 31, 2024, total assets were $6.54 billion, shareholders’ equity $5.10 billion, and total liabilities $1.43 billion. Cash and cash equivalents were $431.3 million, up from $363.7 million at year-end 2023. Investment portfolio was $5.69 billion.
- Senior notes had $650 million aggregate principal due in 2028 at 5.25% (carrying value $643.6 million). The company reported compliance with debt covenants. Holding-company cash and investments were approximately $793 million at quarter-end.
- Cash from operations and investing was partly offset by $147.6 million of financing outflows, including share repurchases and dividends. The company repurchased 4.7 million shares for $93.3 million and paid $31.7 million in common dividends during the quarter.
Material changes and business indicators
- Investment income rose 21%, with average investment yields up approximately 58 basis points year over year. The portfolio’s embedded pre-tax yield was 3.8% at quarter-end, compared with 3.7% at December 31, 2023.
- Lower operating expenses reflected reduced pension costs and professional and consulting expenses; Q1 2023 pension costs included settlement-accounting charges.
- NIW increased to $9.1 billion from $8.2 billion. Primary insurance in force was $290.9 billion and risk in force was $76.8 billion. Cancellations exceeded NIW, reducing primary insurance in force by $2.6 billion in the quarter.
- Delinquency inventory fell to 24,142 from 25,650 at year-end 2023. Favorable reserve development on prior-year delinquencies was $48.9 million, partly offset by $53.4 million of losses associated with current-year notices.
- Available Assets under PMIERs were approximately $5.9 billion, or $2.5 billion above Minimum Required Assets. MGIC’s risk-to-capital ratio was 9.8:1; its policyholder position exceeded the required minimum by $3.8 billion.
Outlook, risks and unusual items
- Management expects 2024 NIW to be slightly higher than 2023 and expects the in-force portfolio premium yield to remain relatively flat versus 2023. The filing provides no specific earnings or EPS guidance.
- Management expects net losses and loss-adjustment expenses paid to increase, but says the timing and magnitude are uncertain. Claims paid remain below pre-pandemic levels; recent home-price appreciation and third-party property sales have supported cures and lower average claim payments.
- Loss reserve estimates are sensitive to claim assumptions: holding other factors constant, a $1,000 change in average severity would change reserves by approximately $8 million, and a one-percentage-point change in average claim rate by approximately $16 million.
- Mortgage insurance results are exposed to economic and housing-market conditions, unemployment, interest rates, competition, GSE policy and eligibility requirements, state capital regulation, and the availability and regulatory credit of reinsurance. The revised NAIC model act’s timing and impact remain uncertain.
- Reinsurance structures include Home Re transactions with trigger events on Home Re 2019-1 and Home Re 2023-1. MGIC terminated Home Re 2020-1 in January 2024 and redeemed its notes in full. The company says its exposure to Home Re entities is remote, but timing and extent of future ceded claims cannot be determined.
- In April 2024, MGIC paid a $350 million dividend to the holding company; the board also authorized up to $750 million of additional share repurchases through December 31, 2026. These are post-quarter events. A quarterly dividend of $0.115 per share was declared for payment in May.
- Available-for-sale fixed-income securities had $370.0 million of gross unrealized losses at March 31, primarily attributed to higher interest rates; management said the losses were not indicative of ultimate collectability and securities in loss positions were current on interest. A 100-basis-point parallel yield-curve shift would change fixed-income portfolio fair value by approximately 3.7% in the opposite direction.
- Ordinary-course litigation and disputes were not expected by management to have a material adverse effect based on facts then known. No material risk-factor changes from the 2023 Form 10-K were reported. Management concluded disclosure controls were effective and reported no material first-quarter change in internal control over financial reporting.
Key facts for investors to verify
- Whether NIW and premium yields track management’s 2024 expectations as mortgage originations, competition and cancellations evolve.
- Whether delinquency trends, cures, claim severity and reserve assumptions support continued favorable reserve development; estimates are judgmental and materially sensitive.
- Whether reinsurance remains available on acceptable terms and continues to receive expected PMIERs and state-capital credit, including the effect of Home Re trigger events.
- How the $350 million subsidiary dividend and expanded repurchase authorization affect holding-company liquidity, regulatory capital headroom and share count.
- Whether interest-rate movements or credit spreads change investment values and income, and whether state adoption of the revised NAIC model act or GSE policy changes affect capital or eligibility.