MGIC Investment Corporation

Ladies and gentlemen, thank you for standing by and welcome to the MGIC Investment Corporation 4th Quarter 2021 Earnings Hall. At this time, all lines have been placed on mute to prevent any background noise. At the end of today's presentation, we will have a question and answer session. To ask your question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Mike Zimmerman. Please go ahead.

Thanks, Jay. 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 fourth quarter of 2021 are Chief Executive Officer Tim Matkey and Chief Financial Officer Nathan Colson. I want to remind all participants that our earnings release of last evening, which may be accessed on MGIC's website, which is located at mtg.mgic.com, includes additional information about the company's quarterly results that we'll refer to during the call, and includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. We have posted on our website a presentation that contains information pertaining to our primary risk and force, new insurance written, reinsurance transactions, and other information which we think you'll find valuable. I also wanted to remind, and always wanted 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. 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 and that could cause actual results to differ materially from those discussed in the call are contained in the form 8K that was filed last night. If the company makes any forward-looking statements, we're not undertaking an obligation to update those statements in the future in light of subsequent development. 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 8K. With that, I'd like to turn the call over to Tim Matke.

Thanks, Mike, and good morning, everyone. I'm pleased to report that we achieved very strong financial results in the fourth quarter, and for that matter, the full year of 2021. These results reflect the solid credit quality of our growing insurance and force, a strong housing market, the decreasing delinquency rate, and our market presence, as well as the current favorable economic conditions. After my opening remarks, Nathan will provide more detail about our financial results and review the progress we have made executing in our capital management strategy. Then, before we open the line for questions, I will wrap up by discussing the current operating environment, including activities related to housing finance policy. During the quarter, we earned GAAP net income of $174 million, nearly 15% more than the same period last year. For the full year of 2021, GAAP net income increased 42% to $635 million, compared to $446 million in 2020. These strong quarterly and annual financial results improved primarily because losses incurred were materially lower when compared to the same periods of 2020. The improved credit performance reflects the lower level of new delinquency notices received throughout 2021 compared to 2020, and the improved cure rates on policies previously reported delinquent. I am optimistic that the favorable delinquency trends that we have been experiencing will continue throughout 2022. In addition to our improvement in losses incurred, In 2021, we capitalized on one of the largest mortgage insurance markets in the company's 65-year history by writing a record $120 billion of new insurance, including $27 billion in the fourth quarter. This level of new business writings combined with a higher annual persistency resulted in our insurance in force increasing to $274 billion, 11% higher than the same period last year. Going into 2022, Single-family housing demand remains strong, and interest rates, despite rising off recent lows, are still attractive by historical standards. The FHFA and the GSEs are increasing their focus on improving access to mortgages, especially for first-time and low- and moderate-income borrowers. The combination of these factors leads us to expect that the robust purchase market conditions will persist. That said, we do expect the overall market opportunity for private mortgage insurance will be smaller in 2022, ranking just below the last two years of record volume. This reduction will be driven primarily by a decline in the number of refinance transactions compared to 2021. For some context, refis accounted for 20% of our total NIW in 2021, ranging from 40% in the first quarter to less than 10% in the fourth quarter. Based on the expected path of interest rates, we expect refinances to remain on the low end of the spectrum in 2022. The composition of our current application pipeline with more than 90% purchase transaction supports that expectation. We currently expect that the new business we write, combined with increasing annual persistency, will result in our insurance-enforced portfolio growing at a modestly slower pace than what we have recently experienced. Taking a look at the performance of our enforced portfolio, our loss ratio was a negative 10% in the quarter. This result reflects two things. First, our re-estimation of loss reserves on prior delinquencies resulted in favorable loss reserve development. primarily to reflect better than expected cure rates on loans that were delinquent in the third quarter of 2020 and prior. Second, the number of new delinquencies in the fourth quarter was low, reflecting the high quality of our insurance in force. I continue to be encouraged by the current business environment and the strength of our new business writing and the low level of new delinquent notices, which has persisted throughout January. Last quarter, we discussed that our capital management strategy centers on maintaining financial flexibility of both the holding company and the writing company to protect our policyholders and to create long-term value for shareholders. We believe this value can be created by writing more primary mortgage insurance, pursuing new business opportunities, retiring debt, paying dividends, or repurchasing stock. During the quarter, reflecting our liquidity position, the strength of our balance sheet, and our expectations for continued favorable financial results, we execute on several of these options to increase the long-term value to shareholders of our company while maintaining exceptional financial strength. Specifically, MGIC paid a $250 million dividend to the holding company. We also returned a significant amount of capital to our shareholders through the repurchase of 9 million shares of common stock for $141 million, the repurchase of $99 million of par value of the 9% junior convertible to ventures due in 2063, eliminating approximately 7.5 million potentially dilutive shares, and the payment of our quarterly common stock dividends of $26 million. Finally, the board also recently declared an $0.08 per share dividend payable on March 2nd of 2022. In the last two years, despite navigating through all the COVID-related challenges, we reduced the number of fully diluted shares outstanding by 10%, increasing the common stock dividend by 33%, and increased book value per share by more than 22% after distributing $172 million in common stock dividends. Nathan will go over more detail on these actions in a minute. We believe that our capital management strategy will allow us to take advantage of near-term opportunities to write significant amount of new business that meets our return objectives while continuing to create long-term value for shareholders and remaining a well-capitalized insurance counterparty. In summary, we have a strong and dynamic balance sheet. We're confident in our positioning in this market, and we like the risk-reward equation that the current business conditions offer and are excited about the future. So with that, let me turn it over to Nathan.