MGIC Investment Corporation

Ladies and gentlemen, thank you for standing by and welcome to the MGIC Investment Corporation third 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 will have a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I will now turn the conference over to Diana Higgins, Head of Investor Relations. Please go ahead.

Thank you, Kurt. Good morning and welcome, everyone. Thank you for your interest in MGIC Investment Corporation. Joining me on the call today to discuss our results for the third quarter are Tim Mackey, Chief Executive Officer, and Nathan Colson, Chief Financial Officer. Our press release, which contains MGIC's third 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 today. 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 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 developments. No one should rely on the fact that such guidance or forward-looking statements are current at any other time 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.

Thanks, Diana. Good morning, everyone. I'm pleased to report that we had another strong quarter and continued the solid financial results we delivered in the first half of the year. During the quarter, we remained focused on executing our business strategies, including providing critical support to the housing market by making it easier for individuals and families to achieve affordable and sustainable home ownership. We'll get into more details on the financial results throughout this call, but in summary, we once again demonstrated the strength of our capital position by continuing to grow our insurance in force, paying a common stock dividend, decreasing our leverage ratio, repurchasing stock, and producing an annualized 21.8% return on equity. In the quarter, we earned $250 million of GAAP net income. Insurance and force at the end of the quarter stood at more than $293 billion, a 9.4% increase from a year ago and a 2.4% increase from the end of the second quarter. The growth in insurance and force during the third quarter reflects an increased persistency rate. Taking a look at the performance of our enforced portfolio, our loss ratio was a negative 41.7% in the quarter. This reflects the loss reserves established on the number of new delinquencies reported to us in the quarter, more than offset by a re-estimation of ultimate losses on delinquencies in prior quarters. In addition, approximately 60% of our insurance enforced is from the 2020 and 2021 book years, and the credit quality of those books remains strong. To date, we have not seen a material change in the credit performance of our portfolio overall. We remain encouraged by the positive credit trends we are experiencing on our existing portfolio. In the quarter, we not only deployed capital to support new business and grow our insurance in force, we used our holding company's strong liquidity position to redeem our senior notes due in 2023, reducing our leverage ratio and future interest expense. We also paid a quarterly common stock dividend, and we purchased 6.1 million shares for $84 million. Additionally, in October, our board authorized a $0.10 per share common stock dividend payable on November 23rd, and we repurchased an additional 2.5 million shares for $33 million. Earlier this week, the operating company paid a $400 million dividend to the holding company. The dividend enhances liquidity position of the holding company and the financial flexibility of the company overall. Retiring debt and delevering has been a significant use of holding company cash in the past year. but with our debt-to-capital ratio near our target and with the expectations of a challenging economic environment in the near term, we expect to retain higher levels of liquidity at the holding company. In light of the current environment, let me take a few minutes to further discuss our capital management strategy. First, our capital management strategy is dynamic, and we strive to be prudent and thoughtful in our capital allocation decision-making. This is particularly important as we navigate changing economic environments. We routinely consider the level of capital of both the operating company and holding company including the level of capital that we retain for future deployment versus return to shareholders and other capital providers. Our balanced approach for maintaining a strong and flexible capital position involves the use of several types of reinsurance, including forward commitment quarter share transactions and excess to loss transactions in both the traditional reinsurance market and the capital market through our ILN transactions. This approach is designed to maximize the long-term value of both the operating company and the holding company. We began entering into quota share reinsurance agreements in 2013 and have entered into ILN transactions covering most of our 2016 through 2021 books of business. And as mentioned during last quarter's call, in April we completed our first excess of loss transaction in the traditional reinsurance market, which will cover most of the policies written in 2022, in addition to the 30% quota share we had in place to cover 2022 NIW at the start of the year. In addition to diversifying our sources of capital, These transactions reduce the volatility of losses in weaker economic environments and have the potential to enhance our returns. Before turning it over to Nate to provide more details on our financial results and our capital management activities, I would like to share a few additional thoughts on the current environment. First, the volume of mortgage originations has continued to decline due to the rapid increase in interest rates over the past few months. As I mentioned last quarter, the overall market opportunity for new private mortgage insurance is smaller than the record volumes of the last two years. We expect new insurance written volume to remain high by historical standards, but this year's volume will be behind the record set during the last two years. While our new insurance written is slowing, persistency on our insurance and force continues to increase, extending the existing revenue stream. Persistency increased to approximately 76% at the end of the quarter, up from approximately 72% at June 30th. As a result, our insurance and force portfolio continues to grow, albeit at a slower pace. As many of you are aware, persistency, along with the insurance in force, are two long-term drivers of future revenue. Lastly, affordability challenges and the significant increase in interest rates have put downward pressure on home prices. Annual home price growth remains at historically high rates, but the rate of growth is softening in some areas and declining in others. While decreases in home values have the potential to increase our losses, the strong credit quality of the 2020 and 2021 book years and the equity created for many homeowners due to the significant home price growth over the last couple of years should help reduce the incidence of claims on the related mortgages on much of our risk and force. Our reinsurance agreements will also help mitigate our losses. We continue to believe that a gradual normalization of home prices is healthy for the housing market and overall economy, and we are encouraged as we look forward that demographic trends suggest meaningful long-term MI opportunities. With that, let me turn it over to Nathan.