MGIC Investment Corporation

Ladies and gentlemen, thank you for standing by and welcome to the MGIC Investment Corporation third quarter 2025 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, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. I will now turn the conference over to Diana Higgins, Head of Investor Relations, please go ahead.

Thank you, Josh. Good morning and welcome, everyone. Thank you for your interest in MGIC. 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 and Chief Risk 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 remember, 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 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 Form 8-K and 10-Q files yesterday also. 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 other time than the time of this call or the issuance of our 8K or 10Q. Now, with that, I now have the pleasure to turn the call over to Tim.

Thanks, Diana. Good morning, everyone. We maintain our strong momentum in the third quarter, delivering solid financial results and meaningful capital returns to our shareholders. For the quarter, we recorded net income of $191 million and an annualized return on equity of 14.8%, once again demonstrating the durability of our business model and the rigor around our risk management and capital strategies. Our consistent performance reflects our leadership in the market and the ongoing support and confidence our stakeholders place in us. We remain focused on operational excellence, discipline execution, and sustainable long-term value for our stakeholders. Our solid operating results, together with our robust balance sheet, enabled us to grow book value per share to $22.87, up 11% compared to a year ago. During that same period, we returned $918 million of capital to shareholders through dividends and share repurchases and reduced outstanding shares by 12%. In the third quarter, we achieved another significant milestone in our company's history as an industry first, ending the quarter with more than $300 billion of insurance in force. This milestone reflects our historical and ongoing leadership in the market. This achievement also reflects the dedication and excellence of our talented team. Their integrity, adaptability, and focus sets us apart from others and propels our success. We continue to be pleased with the credit quality and strong performance of our insurance portfolio. Our prudent risk management and underwriting standards remain key drivers in the quality of our portfolio. During the quarter, our NIW was $16.5 billion of high-quality business with strong credit characteristics. Shifting to capital management, our strategy remains consistent and grounded in maintaining financial strength and flexibility to support our long-term success across economic cycles. Key objectives included supporting prudent growth through strong capital levels at both the operating and holding company, maintaining a low to mid-teens debt-to-capital ratio, and maintaining a healthy liquidity buffer. Our adherence to these strategies has put us in a position to return excess capital to shareholders through share repurchases and common stock dividends. In the quarter, share repurchases totaled 7 million shares for $188 million. We also paid a quarterly common stock dividend of 15 cents per share, totaling $34 million. Taking a longer view, Over the prior four quarters, share repurchases totaled $786 million and shareholder dividends totaled $132 million. Combined, this represents a 122% payout of the net income we earned in that period. This share repurchase activity reflects both our capital strength and excellent financial results. We continue to expect share repurchases will remain our primary method of returning capital to shareholders, while at the same time continuing to pay a quarterly common stock dividend. As announced on October 23rd, the board approved a quarterly common stock dividend of 15 cents per share payable on November 20th. Additionally, earlier this week, MGIC paid a $400 million dividend to the holding company, reflecting capital levels at MGIC that were above our target. This dividend further enhances our liquidity position and financial flexibility of the holding company. Our capital structure remains robust, with $6 billion in balance sheet capital, along with our well-established reinsurance program, which remains a core element of our risk and capital management approach. Our reinsurance program reduces loss, volatility, and stress scenarios, while also providing capital diversification and flexibility at attractive costs. We were active in the reinsurance market in the third quarter, and Nathan will provide more detail on that shortly. At the end of the third quarter, our reinsurance program reduced our PMIRES required assets by $2.5 billion, or approximately 43%. Now let me turn it over to Nathan to provide more details on our financial results for the quarter.

Thanks, Tim, and good morning. As Tim discussed, we had excellent financial results for the third quarter. We earned net income and adjusted net operating income of $0.83 per diluted share compared to $0.77 per diluted share during the same period last year. A detailed reconciliation of GAAP net income to adjusted net operating income can be found in our earnings release. In the quarter, our re-estimation of ultimate losses on prior delinquencies resulted in $47 million of favorable loss reserve development. The favorable development this quarter primarily came from delinquency notices we received in 2024 and early 2025, as cure rates on recent new notices continue to exceed our expectations. For new delinquency notices received in the quarter, we continue to use the initial claim rate assumption of 7.5%, which is consistent with recent periods. Looking at delinquency trends, our count-based delinquency rate increased 11 basis points in the quarter to 2.32%, in line with what we expected and consistent with the seasonal trends we have discussed on past calls. We received 13,600 new delinquency notices in the third quarter, slightly less than the third quarter last year, and 3% less than the third quarter of 2019, just prior to the onset of the COVID-19 pandemic. The delinquency rate at the end of the third quarter was eight basis points higher than a year ago, and the number of new notices and delinquency rate continue to remain low by historical standards. As we look ahead, we continue to expect that the combination of seasonality and the aging of our large 2021 and 2022 book years will result in an increase in new delinquency notices received and the delinquency rate. Turning to our revenue, the enforced premium yield was 38.3 basis points in the quarter, remaining relatively flat during the year, consistent with what we expected at the beginning of the year. Investment income was $62 million in the third quarter, contributing meaningfully to our revenue again. The book yield on our investment portfolio was 4% at the end of the quarter. Investment income remained relatively flat sequentially and year over year, as both the book yield and the size of the investment portfolio have also remained relatively flat. During the quarter, reinvestment rates on our fixed income portfolio continued to exceed our book yield. However, we anticipate the overall book yield will remain relatively flat for the remainder of the year. The unrealized loss position on our portfolio narrowed by $57 million in the quarter, primarily driven by a decrease in interest rates. Operating expenses were $50 million this quarter, down from $53 million in the third quarter last year. Through the first three quarters of 2025, operating expenses decreased 8.5% compared to the same period last year. We continue to expect the full year operating expenses to fall within our previously communicated range of $195 million to $205 million, but now expect we will be toward the higher end of that range due primarily to the pension settlement charges we discussed last quarter. As Tim mentioned, we have been very busy in the reinsurance market. We further bolstered our reinsurance program with a $250 million seasoned excess of loss transaction covering our 2021 NIW. and a 40% quarter share transaction that will cover most of our 2027 NIW. In addition, we amended the terms on our quarter share treaties covering our 2022 NIW with most participants from the existing reinsurance panel. The amended terms will reduce the ongoing costs by approximately 40% starting in 2026. Because they are all effective in the future, none of these reinsurance transactions impact our reinsurance program at the end of the third quarter, but all set us up for continued success and are all consistent with our long-term reinsurance strategy and follow the same approach we have taken in recent years to managing our overall risk and capital positions. With that, let me turn it back over to Tim.

Thanks, Nathan. We are beginning to see some modest improvements in home affordability, driven by easing mortgage rates and slower national home price appreciation. Housing inventory remains tight, but like affordability, it has improved since last year, and there has been a slow but steady increase in purchase applications. With that said, affordability challenges do remain, but private mortgage insurance continues to play a critical role in helping low-down payment borrowers access the American dream of homeownership sooner. Last year, Private MI helped more than 800,000 borrowers achieve their dream of homeownership. We are proud of the vital role private mortgage insurance plays in the housing finance system. We remain committed to working with FHFA, the GSEs, and other industry stakeholders to responsibly serve low-down payment borrowers and make homeownership more accessible for Americans, while also protecting taxpayers from mortgage credit risk. In closing, we delivered a strong quarter and continue to build on the momentum we have established over the past few years. We are committed to delivering high-quality offerings and solutions and best-in-class service to our customers. I remain confident in our talented team leadership and position in the market, and the ability to execute and deliver on our business strategies. With that, Josh, let's take questions.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions. Our first question comes from Graham Bundy with KBW. You may proceed.

Hey, guys. This is Bose. Hey, Bose. In terms of your provision, what was your provision per loan on the new notices? And then from an accounting standpoint, does your provision for new notices for the quarter just net out the new notices that were, that were new notice from the year that were also cured during the year?

Yep, close to statement. You know, from a new notice perspective, we had very similar assumptions for the provision this quarter. I mentioned the prepared remarks, New notice claim rate was 7.5% and we followed a similar methodology for the severity on new notices, really tracking to the exposure. You know, the total provision is inclusive of the favorable reserve development that we had, which was $47 million in the quarter. And, you know, we've got some details of that in our portfolio supplement that's on the website as well in terms of the kind of new notice reserving assumptions and the full notice inventory.

Okay, great. Thanks. And then, actually, I wanted to just ask about the debate on the credit scores that's going on. You know, can you just talk about how you're looking at it and just in terms of PMIRES, does PMIRES just use FICO and, you know, what happens if VantageScore becomes part of the, you know, part of what lenders are starting to use at some point?

Yeah, it's Tim. Obviously, we're paying close attention. I think it's safe to say that, you know, we try to be active in the conversations, but we know that we're just one part of the ecosystem. So for us, it's really important to understand, you know, example, how the GSEs are going to utilize it, what they're going to do. You referenced P. Myers, right? Would they make any changes in regards to that? We haven't heard anything definitive in that regard, but we stand sort of ready to incorporate whatever the industry sort of moves to and are very supportive of what makes the industry stronger. So, again, I don't think we have a lot of exact answers at this point, but we've had a lot of good dialogue. And I think, you know, we're ready to sort of move as the rest of the industry moves.

Okay, great. Thanks.

Sure. Thank you. Our next question comes from Doug Harder with UBS. You may proceed.

Thanks. This is actually Will Nasta on for Doug today. And I guess just given some recent industry news about potential new entrants into the MI space, I was curious your thoughts on how you guys are thinking about potential increased competition in the space and any real impact this could have on MAGIC.

Yeah, we're aware that someone's looking potentially into the market, and we've seen that in the past to varying degrees. The question I most often get asked is, is six too many? So whether another ultimately joins, they'd have all the PMI requirements, things like that, and having to raise the capital and have all the operational requirements that we have. So, again, it's tough to say. I think it's, at this point, speculation, but we're definitely aware of it. But, you know, assume they'd be on the same playing field, et cetera. But, again, I more often get asked, you know, should there be fewer than should there be more? So I think that that's something that they might have to ultimately overcome on top of sort of GSE approval for PMIRs.

Got it. Thanks. And then I guess just moving to capital return, I know you guys mentioned a 122% payout recently. I'm just curious about how you guys are thinking about that going forward. Then obviously the balance between repurchases and dividends within that payout.

Yeah. Well, Nathan, thanks for the question. I think our approach has been pretty consistent over time. which is really around maintaining the right financial strength at the operating company. Once we've achieved that and have capital levels above our targets, using that to pay dividends to the holding company, and we did that again recently with another $400 million dividend, At the holding company level, we've been targeting payout ratios given the valuation of the stock, which we found to be attractive in recent periods, and the strength of the financial results. The payout ratio has been a little bit elevated where the share repurchase level has approximated our net income over the last four quarters. And then the dividend is a little bit above that. So I think that's given these market conditions right now with very good credit performance, not a lot of growth in the in-force book, really strong capital levels at MGIC. This feels like a comfortable payout ratio given those conditions, but obviously if those conditions change, we've maintained the flexibility to react to that as well.

Got it. Thanks.

Thank you. Our next question comes from Mahir Bhatia with Bank of America. You may proceed.

Hey, this is Caroline on for me here. So it looks like persistency was actually modestly up quarter over quarter despite the rate cut. Is there anything to call out there? And then also with rates coming down prospectively, how can we think about persistency moving forward? Like how fast and how much can it come down?

Hey, Caroline, it's Nathan. You know, in the quarter, I would view it more as flat than up. I mean, I think it was up maybe a couple of tenths of a percentage point, but you know, I think that's, you know, we would view it as pretty flat over the year. And really, the impact of rates coming down, you know, if you think about our NIW for the third quarter and then cancellation activity for the third quarter, you know, that really would reflect the rate environment, say, in, you know, June and July more than the rate environments in September and October. So, you know, we have seen a recent uptick in recent weeks in the number of refinance transactions that are coming through, you know, from a quote and application standpoint for us. So, you know, if there is some headwind to persistency, you know, it's likely to be at least somewhat offset by increased NIW or at least increased refinance volume, you know, in the third quarter and beyond. But in terms of the magnitude of the persistency change, you know, I do think it's obviously very rate dependent and we've had periods you know, where persistency was much lower. We've been in the stable range for now. But I think our history shows that in the periods where persistency trends lower, they tend to be also the periods where NIW trends higher.

Okay, awesome. That's really helpful. And then just are there any markets you're seeing good opportunity in and you're leaning in on? Or similarly, are there any markets that you're more cautious on and pulling back on?

It's Nathan again. I think this is something that we're doing on a continuous basis. So the approach that we have given the strong capital levels is really to try to find the places where we think there's the most economic value. And that's a combination of risk factors and kind of the market rate for risk for that opportunity. So we don't really have you know, a strategy to lean in or out of any one thing. It's more, you know, let kind of our models, let our views of economic value dictate where we want to go without a lot of, you know, say capital overlays on that, just given the robust capital position that we've developed over the last few years.

Okay, great. Thanks.

Thank you.

Thank you. There are no further questions. I will now turn the call back over to management for closing remarks.

Thanks, Josh. I want to thank everyone for your participation in today's call on interest in MGIC. Have a great rest of your week.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.