MGIC Investment Corporation

Ladies and gentlemen, thank you for standing by and welcome to the MGIC Investment Corporation fourth 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'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I will now turn the conference over to Diana Higgins, Head of Investor Relations. Please go ahead.

Thank you, Justin. 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 fourth quarter are Tim Mackey, Chief Executive Officer, and Nathan Colson, Chief Financial Officer. Our press release which contains MGIC's fourth 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 that was 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 time other than the time of this call or issuance of our 8K. 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 great quarter. For that matter, we delivered exceptional financial results for the entire year while providing meaningful capital returns to our shareholders. Simply put, we had the best financial results in our 65-year history. We will get into details of the financial results throughout this call, but we again demonstrated the strength and flexibility of our capital position in the quarter and produced an annualized 16.9% return on equity. In the quarter, we earned $191 million of net income, an increase of 10% compared to the same period last year. For the full year, net income increased 36% to $865 million, an all-time high, compared to $635 million in 2021. Insurance in force at the end of the quarter stood at more than $295 billion, a 7.6% increase from a year ago. The growth in insurance in force during the year reflects an increased persistency rate offset by lower volumes of new insurance written. Persistency increased to 80% at the end of the quarter, up from 63% a year ago. In the quarter, we wrote $13 billion of NIW, and we finished the year with $76 billion of NIW. Although the volume of NIW is lower than the record volumes of the prior two years, 2022 was another great year, the third largest year in our 65-year history. We expect the reduction in our NIW volume for the fourth quarter is a reflection of the smaller MI market, but also reflective of our market position as we continue to take actions based upon the increased risk in the current environment with a focus on the continued long-term success of our company. Turning to the performance of our insurance and force portfolio, approximately 80% of our insurance and force is from the 2020 and later book years, and the credit quality of those books remains strong. To date, we have not seen a material change in credit performance in our portfolio overall. We remain encouraged by the continued favorable employment trends and the positive credit trends we continue to experience, including the low level of early payment defaults, which we believe is a good indicator of near-term credit performance. I also want to highlight that the rapid home price appreciation experience in the past couple years allowed homeowners to build up significant equity. This equity, combined with the strong credit quality of our insured portfolio, should help reduce the incidence of claims on the related mortgages on much of our risk and force, even with the modest declines of home prices in recent months. Our comprehensive reinsurance program will also help mitigate potential losses. As a result of the strength and flexibility of our capital position, During the year, we not only deployed capital to support new business and grow our insurance in force, we also paid $800 million in dividends from MGIC to the holding company. We used our strong capital position to repurchase most of the remaining convertible junior debentures due in 2063, repay MGIC's federal home loan bank advance, and redeem our senior notes due in 2023, reducing our leverage ratio to approximately 12% in annual interest expense by $25 million. We also returned approximately $500 million of capital to our shareholders through a combination of repurchasing common stock and paying common stock dividends, including a 25% increase in the quarterly dividend beginning in the third quarter. As I mentioned during last quarter's call, retiring debt and delevering has been a significant use to holding company cash in 2022. But with our debt to capital ratio in our target range and with the uncertainties and potential challenges in the economic environment in the near term, we continue to expect to retain higher levels of liquidity at the holding company. Our approach to capital management is dynamic so that we may continue to achieve our objectives in changing or stressed economic environments. We continually assess and evaluate 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. As part of our assessment, we consider the operating environment we are or expect to be in. We strive to be prudent and thoughtful in our capital allocation decision making so that both the operating company and the holding company are positioned to achieve success in varying environments. Our balanced approach to capital management includes the use of forward commitment quota share reinsurance agreements and excess of loss reinsurance agreements. These agreements reduce the volatility of losses in weaker economic environments and provide diversification and flexibility of sources of capital. Approximately 85% of our risk and force was covered to some extent by reinsurance transactions at the end of the fourth quarter. Drilling down further, approximately 97% of the risk and force relating to the 2020 and later books was covered to some extent by reinsurance transactions at the end of the fourth quarter. We agreed to terms on a quota share agreement that will cover most of the policies written in 2023. This is in addition to the 15% quota share reinsurance agreement we already had in place to cover the 2023 NIW. bringing the total quota share that will cover most of the policies written in 2023 to 25%. In light of the current economic environment and near-term uncertainties, let me take a few minutes to provide some detail on our approach to credit risk. We employ a comprehensive risk management framework that includes our proprietary risk-based pricing engine for the majority of our customers, MIQ. MIQ allows for frequent and granular pricing changes including those to address our view of emerging and evolving market conditions and risk. We take actions intended to manage the mix of our portfolio, including expected returns, with a goal of positioning ourselves for continued success in changing environments. The timing between taking actions in the resulting NIW is not immediate, as pricing leaves NIW by a month or two on average. So what you see in the Q4 NIW is primarily a reflection of our views of risk return from last fall. While we won't comment on current market position and giving competitive considerations, our internal analytics indicate that our lower Q4 NIW was likely impacted by both the smaller MI market and a market share that was down a couple percentage points in the fourth quarter. Our market position continued to be defensive in recent months, which we expect will lead to further declines in our market share in the first quarter of 2023 and may be larger than the expected decline in the fourth quarter. We are comfortable with our actions and the results because it's reflective of our views of risk return while maintaining focus on our customer relationships and the continued long-term success of our company. With that, let me turn it over to Nathan.