MGIC Investment Corporation

Ladies and gentlemen, thank you for standing by and welcome to the MGIC Investment Corporation first quarter earnings call. At this time, all participants are in a listen-only mode. As of the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mr. Mike Zimmerman. Please go ahead, sir.

Thank you, Shawn. Good morning and thank you for joining us this morning and for your interest in MGIC Investment Corporation. Joining me on the call today to discuss the results for the first quarter of 2020 are Chief Executive Officer Tim Mattke and Chief Financial Officer Nathan Colson. I want to remind all participants that our earnings release of this morning, which may be accessed on MGIC's website, which is located at mtg.mgic.com under newsroom, includes additional information about the company's quarterly results that we will refer to during the call and includes certain non-GAAP financial measures. We have posted on our website a presentation that contains information pertaining to our primary risk and force and new insurance written and other information we think you will find valuable. I also want to remind listeners that from time to time we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website that investors and other Interested parties may find valuable as well. During the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about those factors, including COVID-19, that could cause actual results to differ materially from those discussed in the call, are contained in the Form 8K and PENQ that was filed last night. If the company makes any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. Further, no interested party should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of the form 8K or 10Q. At this time, I will turn the call over to Tim Mattke, our CEO.

Tim? Thanks, Mike, and good morning, everyone. I want to start by saying that I hope everyone who is listening is safe and well. Next, I want to express my gratitude and admiration to my fellow MGIC coworkers and their families. Your efforts day in and day out over the last several weeks to support our customers, your local communities, and your fellow coworkers while coping with your own personal circumstances is what has always defined the culture of MGIC, so thank you. The safety and health of our coworkers and their families is a responsibility I do not take lightly. On a Friday afternoon in mid-March, we made the decision to transition our operations to a remote work environment. Certain teams had operated remotely for some time, while others had done it only occasionally and typically for a weather-related event. But by the Monday following our decision, nearly the entire organization logged down remotely and was standing by ready to serve our customers. I am proud to say that MGIC has continued to serve our customers every day since then as well. And perhaps a sign of our resiliency, working remotely is slowly becoming a matter of routine as we adapt to the current environment. In addition to the health and safety of our employees, as we navigate through the current environment, we are focused on, one, continuing to provide critical support to the current housing market, and two, positioning our company to prosper over the long term. We strive to achieve those goals by, among other things, working with the GFCs and servicers on loss avoidance programs, offering competitive products and services to our customers, and maintaining a sharp focus on the sources and uses of our capital. We think this is the best approach for all stakeholders, and is particularly relevant as we manage through the current situation. More on the future in a minute, but first I want to spend a few minutes providing a high-level summary of our financial results for the first quarter and our current financial position. Then Nathan will cover some more details of the financial results. During the first quarter, the favorable new business and credit trends we had experienced for the last few years continued. Our insurance and force increased approximately 6.7% year-over-year and the number of loans delinquent declined. GAAP net income for the quarter was $149.8 million. Losses incurred is typically what creates the variability in our results in any given period. The favorable activity of new delinquency notice activity and cures of previously reported notices continued in the first quarter. However, to reflect the current environment, we did make some modest changes to our loss reserve estimates that Nathan will cover in more detail. From a new business perspective, through April, our current pipeline of applications remained robust. The combination of our applications, lender reports, and the MBA indices provide us with reasonable visibility into NIW over the next couple of months. However, although our current pipeline remains robust, there is considerably less visibility regarding the future business, especially in the current environment. Discussions with lenders, as well as the most recent MBA application index data, despite the recent increases, point to a meaningful contraction in purchase applications while refinance transactions remain up more than 200% year over year. Given the high level of activity to date and the uncertainty of when purchase activity will fully recover and the ultimate size of the refinance market, it is still too early to draw any meaningful conclusions about the full year impact on new insurance written, persistency, and insurance enforced growth. We expect that the increase in unemployment and economic uncertainty resulting from initiatives to reduce the transmission of COVID-19, including shelter in place restrictions, will negatively impact our business. In the current environment, because of many uncertainties pertaining to COVID-19, as we discussed in our risk factors and in the 10Q, it is very difficult to confidently forecast the impact to our financial results and capital position. However, as we enter this period of uncertainty with a book of business that is of high quality with low delinquencies, and we are supported by a balance sheet that has a low debt-to-capital ratio, a nearly $6 billion investment portfolio, Contractual Premium Flow, and a robust reinsurance program. We estimate at the end of March, we had approximately $1 billion in excess of the minimum required assets that are required by the Privates Mortgage Insurance Eligibility Requirements, or PMIRES, of the GSEs, Fannie Mae and Freddie Mac. We also had $2.8 billion in excess of the minimum state capital requirements. During the quarter, we repurchased 9.6 million shares of our common stock. While there is $291 million remaining under the authorization that expires at the end of 2021, and approximately $563 million of cash and investments at the holding company, due to the uncertainty surrounding COVID-19, we have temporarily suspended share repurchases. During the first quarter, we received fewer new notices than the same period last year, but reflecting the current environment, we used a slightly higher claim rate on those notices. Not surprisingly, delinquency notices received in April increased from the number received in March and we anticipate that more significant increase will occur in May and June, especially in light of the reported forbearance rates on GSE loans over the past several weeks. As a result, we expect our losses incurred will increase, as will our PMIRES minimum required assets. The magnitude of any increase to loss incurred will be a function of the number of notices received that eventually result in a claim paid. Understandably, there are a lot of questions about the potential impacts to our business caused by COVID-19. Notably, the potential for higher incurred and ultimately higher paid losses. Unfortunately, today we do not have sufficient data available to address some of the level of confidence we would like. With that, let me turn it over to Nathan.