MGIC Investment Corporation

Ladies and gentlemen, thank you for standing by. Welcome to MGIC Investment Corporation's fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telethon. If you wish to remove yourself from the queue, please press the count key. If you require any further assistance, please press star 0. Thank you. I would now like to hand the conference over to your host, Mr. Mike Zimmerman, Senior Vice President, Investment Relations. Sir, the floor is yours.

Thanks, Clara. Good morning, and thank you for joining us this morning to hear interest in MGIC Investment Corporation. Joining me on the call today is to discuss the results for the fourth quarter of 2020 and to provide a little bit of outlook for 2021, our Chief Executive Officer, Tim Mattke, and Chief Financial Officer, Nathan Colson. I want to remind all participants that our earnings release of last evening, which may be accessed on our website, which is located at mpg.mjc.com under Newsroom, includes additional information about the company's quarterly results that we will refer to during the call, and includes the reconciliation of non-GAAP financial measures to the most comparable GAAP measures. We've posted on our website a presentation that contains information pertaining to our primary risk-enforced New Risk Written Reinsurance Transactions, and other information which we think you'll 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 and that investors or other interested parties may find valuable. 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 on the call, are contained in the Form 8K and Form 10K that were 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, Any time other than the time of this call or the issuance of the Form 8-K or Form 10-K. With that, I'd like to turn the call over to Tim.

Thanks, Mike. Good morning. I'm pleased to report that we finished 2020 with another quarter of very solid financial results. I'll review the financial results at a high level. Nathan will provide more details on the results in our capital position. And then before we open the line for questions, I will wrap up by discussing the current operating environment, including activities in Washington, D.C., and the potential for change. Throughout our more than 60 years of providing support to first-time homebuyers, our people have been the cornerstone of many accomplishments of MGIC. This was true again in 2020. The efforts and character of our team throughout the unprecedented operating environment of 2020 to support our customers, their local communities, and fellow coworkers, while coping with their own unique circumstances brought about by the COVID-19 pandemic, have been remarkable. I am humbled to lead an organization of such high dedication and integrity. Our main business objective is to continuously align our resources to provide critical support to the housing market, especially first-time and low and moderate wealth homebuyers. Whether we operate remotely or in the office, we strive to achieve that objective by, among other things, offering competitive products and best-in-class service to mortgage originators and servicers, and by maintaining a sharp focus on the sources and uses of our capital. Moving to the financial results, gap net income for the quarter was $151 million, $16 million less than the fourth quarter of 2019, as a result of modestly higher credit losses. For the full year of 2020, net income was still a strong $446 million, but was down from $674 million in 2019. The 2020 financial results were materially impacted by the level of losses incurred in 2020 that resulted from the economic impact of the COVID-19 pandemic. So that is why I am pleased to see that the main driver of losses incurred, the number of new delinquency notices received, has been trending lower for the last several months, including through January. Reflecting this favorable trend, delinquency rates decreased to 5.1% at the end of 2020 and as below 5% as at the end of January. This rate is higher than December 2019. It is down from the 6.4% at the end of June 2020. Approximately 62% of the year-end delinquency inventory has been reported to us as being in a forbearance plan. Of course, we will continue to monitor the loans of forbearance as many will be reaching the end of the forbearance period in the coming quarters. Throughout 2020, the demand for single-family housing stayed strong. and remain strong even as we are now moving through what is traditionally a slower time of year for purchase activity. Our new business writings continue to be weighted more heavily to purchase versus refinance transactions, and purchase transactions accounted for 64% of our new insurance written, or NIW, in the fourth quarter in the full year. The low interest rate environment continues to make refinancing very attractive for many borrowers, and our industry continues to enjoy a relatively larger market share on refinances than in prior periods. These strong housing and mortgage market conditions led to record volumes of both purchase and refinance mortgage originations in 2020. We wrote a record volume of new business, finishing the year with $112.1 billion of NAW, including $33.2 billion of NAW in the fourth quarter. This record amount of new business written more than offset the pressure of lower persistency on our existing books of business, and as a result, our insurance and force increased nearly 11% year over year. In fact, 2020 was the only six times in the last 30 years that insurance in force grew by more than 10%, and we saw that growth continue through January. We estimate that at the end of December, our PMIRES available assets exceeded the PMIRES minimum required assets by $1.8 billion, despite an increase in the number of delinquent loans and the record amount of new business in 2020. In addition, our policyholder position was $3.2 billion more than the minimum state capital requirements. As we look ahead to 2021, we have reasonable visibility into the insurance we expect to write over the next several months. However, beyond that, it becomes more difficult to reliably forecast, especially given the uncertain impact COVID-19 could have both on national and regional economies, as well as the impact of potentially higher interest rates and any changes in the relative pricing of the FHA and the GSEs, if those changes affect the consumer's monthly payments. Coming off what was the largest market opportunity the industry has seen, which resulted in the most NIWR company has ever written, we expect to write approximately 15% less new insurance in 2021, and their primary insurance in force will grow, but perhaps at a slightly slower rate than in 2020. This rate of growth assumes that annual persistency improves over the course of the year from its current level and reflects a smaller mortgage origination market due to fewer expected refinances. While we navigate the short term, we remain focused on long-term success of the company. As I mentioned, we do that by offering competitive products and best-in-class service to our customers, and by maintaining a sharp focus on sources and uses of capital. We think this is a winning strategy for all stakeholders. As we enter 2021, we have a book of business that has strong credit characteristics, perhaps the highest quality in our history. In addition, we have a strong balance sheet with modest leverage, $7 million in cash and investments, Contrastual Premium Flow, and a comprehensive reinsurance program. While we expect 2021 NIW to be robust and of high credit quality, there remains the potential for higher incurred losses than we experienced this quarter, given the uncertainty about the future economic impact of the COVID-19 pandemic. Further, we expect higher pay losses to begin to increase in 2021, assuming foreclosure moratoriums are not extended further. That said, we have seen an improvement in credit performance in the second half of 2020, even as the pandemic continued to impact the economy. We have a strong balance sheet, we are confident in our positioning in the market, and we like the risk-reward equation that the current conditions offer. With that, let me turn it over to Nathan.