MGIC Investment Corporation

Ladies and gentlemen, thank you for standing by and welcome to the MGIC Investment Corporation second quarter 2022 earnings call. At this time, all lines have been placed on mute to prevent any background noise. At the end of today's presentation, we'll have a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's call is being recorded. I will now turn the conference over to Dianna Higgins, Head of Investor Relations. Please go ahead.

Thank you, Roel. Good morning and welcome everyone. Thank you for your interest in MGIC Investment Corporation. I am very excited to be here today as this is officially my first earnings call in this seat. Joining me on the call today to discuss our results for the second quarter are Tim Mattke, Chief Executive Officer, and Nathan Colson, Chief Financial Officer. Our press release which contains MGIC's second quarter financial results was issued yesterday and is available on our website at mtg.mgic.com under newsroom includes additional information about our quarterly results that we will refer to during the call. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk and force, new insurance written, reinsurance transactions, and other information you may find valuable. As a reminder, from time to time we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website. Before we get started today, I want to remind everyone that 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 the factors that could cause actual results to differ materially from those discussed on the call today are contained in our 8K and 10Q that were also filed yesterday. If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent events. No one 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 our 8K and 10Q. With that, I now have the pleasure to turn the call over to Tim.

Good morning, everyone. And before I start with my prepared mark, I wanted to welcome you, Dianna, to your new role in our quarterly calls. I know that you and Mike Zimmerman spent a lot of time to make the transition as seamless as possible. I know you do great in the new role, and I look forward to the investors getting a chance to know you better through your interactions. With that, I'm pleased to report that we had another great quarter. For that matter, first half of the year, as we delivered exceptional financial results while continuing to return capital to our shareholders. We will get into details throughout this call, but in summary, this quarter we grew our insurance in force, repurchased stock, paid a common stock dividend, decreased our leverage ratio, and increased our financial strength and flexibility, all while earning an annualized 21.6% return on equity. We are encouraged by the positive credit trends we are experiencing, including the low level of early payment defaults, which we believe are good indicators of near-term credit performance, and the continued favorable employment trends. The risk-reward equation that current business conditions offer continues to be attractive, and we are excited about the future. In the second quarter, we earned $249 million of GAAP net income. Insurance in force at the end of the quarter stood at more than $287 billion, a 9.5% increase from a year ago and 3.4% increase during the quarter. The quarterly growth in insurance in force reflects the increased persistency rate in the quarter, offset by lower volumes of new insurance written. Taking a look at the credit performance of our insurance and force portfolio, our loss ratio was a negative 38.7% in the quarter. This reflects the loss reserves established on a low number of new delinquencies reported to us in the quarter, more than offset by our re-estimation of ultimate losses on delinquencies in prior quarters. In order to achieve our objectives in varying business environments, we need a capital management position that maintains the financial strength and flexibility of the holding company, Deploys capital and growth for MGIC, the writing company, so that both are positioned to succeed in the future and can return excess capital to shareholders in a variety of forms. We believe that our current strategy does just that. As a result of the strength and flexibility of our capital position, during the 12 months ending June 30th, we deployed capital to support our new business, while we returned a significant amount of capital to our shareholders through the repurchase of common stock and payment of common stock dividends. We reduced our leverage ratio and interest expense by repurchasing a significant portion of our convertible junior ventures due in 2063 and by repaying MGIC's federal home loan bank advance. Additionally, in July of this year, we redeemed our outstanding senior notes due in 2023, repurchased additional common stock, and our board authorized a $0.10 per share common stock dividend to be paid on August 25th, a 25% increase in the quarterly dividend amount. Before turning it over to Nathan to provide more detail on our financial results and capital management activities, I would like to share three thoughts on the current environment. First, consensus mortgage origination forecasts have been trending lower due to the increase in interest rates and the decrease in refinance activity. We expect refinance activity to remain low for the remainder of the year and purchase activity to continue to be strong, although lower than we expected at the beginning of the year. Overall, the market opportunity for new private mortgage insurance is smaller this year than While we anticipate that our new insurance written will be below record volume for the last two years, we continue to expect new insurance written to remain strong. As we look forward, demographic trends suggest meaningful long-term MI opportunities. Next, we believe MI business is well-hedged to changes in interest rates. The increase in mortgage interest rates has materially reduced the incentive of many borrowers to refinance their first mortgages, whether to tap into built-in equity or lower their monthly payments. So although our new insurance written is slowing, Persistency in our insurance and force is increasing, extending the existing revenue stream. In the second quarter, the result was that our insurance and force portfolio continued to grow, but at a slower pace. Persistency, along with insurance and force, are two long-term drivers of future revenue. Also, while the current rising interest rate environment has increased unrealized losses in our investment portfolio, it has reversed the long-term trend of low reinvestment interest rates. which is resulting in increases in our investment yield. Additionally, while there is potential for losses to increase if there is an increase in unemployment or a decrease in home values, the presence of reinsurance will help mitigate those losses. Lastly, we have seen significant home price depreciation over the last several years, primarily due to a combination of historically low mortgage rates and strong housing demand. The significant home price depreciation over the last two years has created equity for many homeowners, This equity should reduce the incidence of claims on the related mortgages. That being said, there are signs that national home price appreciation may finally be slowing down and some markets may even see some decline. We believe that gradual normalization of home price appreciation is healthy for the market. With that, let me turn it over to Nathan.