MGIC Investment Corporation

Ladies and gentlemen, and thank you for standing by. Welcome to the MGIC Investment Corporation fourth quarter 2023 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. To withdraw your question, please press star 1-1 again. I will now turn the conference over to Diana Higgins, Head of Investor Relations. Please go ahead. Good morning.

Welcome, everyone. Thank you for joining us today and for your interest in MGIC. Joining me on the call 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 getting started today, I want to remind everybody 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 are contained in our 8 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 development. 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 8 . So with that, let's get started. I now have the pleasure to turn the call over to Tim.

Thanks, Diana, and good morning, everyone. I'm happy to report we again delivered a solid quarter, capping another year of excellent financial results while returning meaningful capital to our shareholders. Our performance is a testament to the dedication and hard work of each member of our team. Their ability to adapt to market dynamics has been instrumental in our success. During the year, we continue to benefit from favorable credit trends, prudent risk management strategies, a disciplined approach to the market, and a focus on through-the-cycle performance. We remain committed to delivering long-term value for our shareholders as we begin the new year. Turning to a few highlights, in the fourth quarter, we earned $185 million of net income and produced an annualized 15.2% return on equity. For the full year, we earned $713 million. At the end of the quarter, insurance and force, the main driver of future revenue, stood strong at $294 billion. The overall credit quality of our insurance portfolio remains solid, with an average FICO origination of 746 and an average original LTV of 93%. We wrote $11 billion of NAW in the fourth quarter and $46 billion of NAW for the full year. The level of NAW in the year is primarily a reflection of the smaller MI origination market. Underwriting standards remain strong, and our NAW continues to have strong credit characteristics. We continue to experience the headwinds of small origination market driven by current interest rates and affordability challenges. The supply of homes for sale remains limited due to the lock-in effect for homeowners with mortgages that have interest rates well below the current market rate. These same borrowers are also significantly out of the money to refinance, which has led to historically low refinance volumes across the mortgage origination industry, including the MI market. Those headwinds are offset by the tailwinds that higher interest rates have on persistency on our insurance and force. Annual persistency ended the fourth quarter at 86%, up from 82% a year ago and 66% at the end of 2021. The net result of lower NAW and increased persistency is that our insurance and force has remained relatively flat during the year, consistent with what we expected at the start of the year. Home prices continue to be resilient despite affordability challenges and high interest rates. Although the current supply-demand dynamic creates challenges for first-time homebuyers, This dynamic continues to support home prices and helps mitigate the downside risk of home prices. Many economic forecasts indicate home prices being relatively flat in 2024, which we believe would be a long-term positive for our industry. While there is still some uncertainty, the housing market remains resilient, and the outlook for it and the economy is generally positive. Although the supply of homes available for sale is low, there is pent-up demand, and demographic trends suggest meaningful long-term MI opportunities as the millennial and Gen Z populations continue to demonstrate a strong desire for homeownership. Given the cross-currents I just discussed, we expect the MI market to be roughly the same size in 2024 as it was in 2023. Taking a look at the credit performance of our insurance portfolio, our delinquency inventory and rate continue to be at historic lows. To date, we have not seen a material change in the credit performance of our portfolio overall, and early payment defaults remain at very low levels, which we believe is a good indicator of near-term credit performance. As a result of the strength and flexibility of our capital position during the year, we paid $600 million in dividends from MGIC to the holding company, including a previously announced $300 million dividend in the fourth quarter. We also returned approximately $460 million of capital to our shareholders through a combination of repurchasing common stock and paying a quarterly common stock dividend, which was increased by 15% in the third quarter. As I mentioned on our last call, with our debt-to-capital ratio in our target range and with the ventures being fully retired, we have completed our planned delivering activities, and we expect our capital return payout to increase from a level in quarters. That was the case in the fourth quarter as we repurchased 7 million shares of common stock for $123 million and paid a quarterly 11.5 cents per share dividend to our shareholders for a total of $32 million. We continue to expect share repurchases will remain a primary means of returning capital to shareholders. In 2024 through January 26, we purchased an additional 1.8 million shares of common stock for a total of $34 million. Our recent share repurchase activity reflects the capital strength and financial results previously highlighted and share price levels that we believe are attractive to generate long-term value for remaining shareholders. As of January 26, we had $240 million remaining on our current share repurchase authorization. The board authorized 11.5 cents per common stock dividend to be paid on March 5th. We were very active across our reinsurance program during the fourth quarter, and Nathan will share details on our reinsurance activities. Before turning it over to Nathan, I'd like to share a few more comments. I'm happy to report that in January, S&P upgraded MJC's financial strength and credit ratings to A-, and upgraded the credit rating of the holding company to BBB-, and the holding company is now fully investment-grade. The outlook for the ratings is stable. S&P's rationale for the upgrades include an improved view of MGIC's capital adequacy, resulting from the implementation of S&P's revised capital adequacy methodology, MGIC's risk management, disciplined approach to underwriting, resulting in strong portfolio quality, and prudent use of reinsurance. Lastly, as many of you know, Steve Thompson, our Chief Risk Officer, will be embarking on a well-earned retirement in March after serving the company for more than 25 years. I am proud to have Steve serve as my first CRO and my 10-year CEO. Thank you, Steve, for your passion and the dedication and leadership that you demonstrated every day. Nathan will assume the responsibility for overseeing the Risk Management Department in addition to the Finance Department upon Steve's retirement. With that, let me turn it over to Nathan.