MGIC Investment Corporation

Ladies and gentlemen, thank you for standing by and welcome to the NGIC Investment Corporation second quarter 2026 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 1 1 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 Dianna Higgins, Head of Investor Relations. Please go ahead.

Thank you, Ari. Good morning and welcome everyone. Thank you for your interest in MGIC. Joining me on the call today to discuss our results for the second quarter are Tim Mackey, 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. It 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 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. Our 8K and 10Q files yesterday includes additional information about the factors that could cause actual results to differ materially from those discussed on the call today. 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 the issuance of our 8K or 10Q. With that, I now have the pleasure to turn the call over to Tim.

Thanks, Dianna, and good morning, everyone. Our deep industry expertise, strong balance sheet, and unwavering focus on our customers continue to drive long-term value creation. Our results reflect the strength of our business model and our disciplined execution across the business. In the second quarter, we generated net income of $182 million, delivering an annualized return on equity of 14.5%. Our consistent execution, combined with the strength of our balance sheet, drove book value per share to $24.27, an increase of 10% year over year, while we also paid $0.60 per share in dividends in the last 12 months. We wrote $18 billion of new insurance in the second quarter, an increase of 8.5% from the second quarter of 2025 and our highest NIW since the third quarter of 2022. We expect the increase was due to a slightly larger mortgage origination market driven by seasonal growth in the purchase market. Insurance in force end of the quarter at $305 billion, up slightly in the quarter and up 2.6% from a year ago. At the end of the second quarter, Annual persistency was 83%, down slightly from 84% last quarter. Both insurance and force and annual persistency were in line with the expectations we previously shared. We continue to see solid performance across our well-balanced portfolio, supported by strong credit quality and disciplined underwriting practices. Early payment defaults continue to track at low levels, reinforcing our confidence in near-term credit expectations. Our capital structure remains robust with $6 billion of balance sheet capital and a well-established reinsurance program that continues to be a core component of our risk and capital management strategy. Reinsurance agreements with a panel of highly rated reinsurers reduce loss volatility and stress scenarios while providing capital diversification and flexibility at attractive costs. During the second quarter, we further enhanced our reinsurance program by executing a traditional excess of loss reinsurance transaction that provides up to $168 million of protection on eligible NIW in 2027. At the end of the second quarter, our reinsurance program reduced our PMIRES required assets by $3.1 billion, or approximately 52%. With that, let me turn it over to Nathan to provide more details on our financial results and capital management activities for the quarter.

Thanks, Tim, and good morning. As Tim discussed, we had solid financial results for the second quarter. We earned net income of 86 cents per diluted share compared to 81 cents per diluted share last year. Our re-estimation of ultimate losses on prior delinquencies resulted in $43 million of favorable loss reserve development in the quarter. This favorable development primarily reflects better-than-expected cure activity on delinquency notices received in 2025. As a reminder, delinquency notices in any quarter span multiple book year vintages. For new delinquency notices received in the second quarter, we continue to apply our initial claim rate assumption of 7.5%. In the quarter, our count-based delinquency rate decreased 7 basis points, which we expect was driven by seasonal trends. Compared to a year ago, the delinquency rate increased 16 basis points to 2.37%. While we expect seasonality to lead to an increase in delinquencies in the second half of the year, the delinquency trends through the second quarter remain consistent with the credit normalization we have been experiencing for the past three years, and the delinquency rate remains 43 basis points below the second quarter of 2019. The in-force premium yield was 38 basis points in the quarter, down a little less than one basis point in the past three years. With high persistency expected in 2026 and MI origination trends similar to last year, we expect the enforced premium yield to continue on a similar path to the past couple years. Investment income totaled $59 million in the second quarter, and the book yield on our investment portfolio remains approximately 4%. During the quarter, reinvestment rates on our fixed income portfolio continue to exceed our book yield, but our capital return activities have limited the growth in the investment portfolio and the resulting investment income. Underwriting and other expenses in the quarter were $46 million, down from $52 million in the second quarter last year as we remain focused on disciplined expense management. We now expect operating expenses for the full year to be toward the low end of the $190 million to $200 million range we previously shared. Our approach to capital management remains unchanged. We prioritize prudent insurance and forced growth over capital return. Market conditions have constrained insurance and forced growth in recent years, and against that backdrop, our capital return activity reflects continued strong mortgage credit performance and our robust financial position. In the second quarter, we paid a common stock dividend of 15 cents per share. We also repurchased 6.6 million shares of stock for $177 million. Over the prior four quarters, share repurchases totaled $746 million and shareholder dividends totaled $135 million. Combined, they represented a 124% payout of the net income earned over the period. The strong financial position of both the holding company and the operating company was a key factor in the board's decision last week to approve an increase to our quarterly common stock dividend to 17 cents per share. This marks six consecutive years of dividend increases, representing a compound annual growth rate of 19% over that period. With that, let me turn it back over to Tim.

Thanks, Nathan. Last month, I assumed the role of chairman of USMI, our industry's trade association. Through decades of economic cycles, mortgage insurance has consistently demonstrated its value to homeowners, lenders, and the broader housing finance system. Mortgage insurance is at the center of several important policy discussions, and we're committed to ensuring those conversations are informed by data, experience, and a proven track record. I look forward to working with our great team at USMI and being able to represent the industry in those conversations. Turning back to MGIC, our second quarter results demonstrate the benefits of discipline execution and the strategy we've thoughtfully refined over time. This long-term approach has supported our competitive position driven strong business performance and generated meaningful returns for shareholders. Combined with our continued commitment to our customers, we believe we are well positioned to capitalize on opportunities, manage through evolving market conditions, and deliver long-term value. With that, Ari, let's take questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to 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. Our first question comes from the line of Terry Ma of Barclays. Your line is now open.

Hey, thank you. Good morning. Just want to get your latest thoughts on credit. I think, Nathan, last quarter you called out a 10 to 15 basis point year-over-year increase in the delinquency rate as consistent with credit normalization. We're certainly in that ballpark the last two quarters. So is there any color you can kind of provide on new notices by region or even vintage that can maybe just inform our view of credit going forward?

Yes. Terry, it's Nathan. Thanks for the question. You know, it is something that we look at closely, you know, not just quarterly, but really on a monthly basis. What is the mix of new delinquencies? What are we seeing in maybe early payment default trends? What are we seeing, you know, across any of the, certainly any of the single dimension variables, but even multiple dimensions? And, you know, as we look at it, other than kind of the continuous roll forward to more recent vintages, which is what you would expect, When we look at it across other key credit variables, we really don't see a lot of difference in the mix, and we're not seeing it geographically. We're not seeing it really correlated to, say, home price changes in various states. So, again, something that makes us feel confident that we're looking at a broad-based credit normalization versus kind of real deterioration in any segment or anything that is going to lead to changes that we feel like we need to make.

And if we think about the cure rate, all the post-COVID vintages, about 90% of new notices cure within four quarters. I think, Tim, when I had you on stage at my conference a few years ago, you gave a number pre-pandemic that was lower than 90%. I'm just wondering, as we track all the data, everything's kind of tracking toward that 90% mark. Do you expect normalization going forward, lower than 90% at any given point? Just trying to think about that.

Terrius, Nathan, maybe think about it less at a particular point in time in terms of maybe 12 months after delinquency. What we're really focused on is what is the ultimate claim rate going to be on a group of new notices. So when we set our initial expectations at 7.5%, That's looking on a fully developed basis what percent of those new notices are ultimately going to result in a claim. And the consistent favorable development that we've had as a result of actual claim rates being quite a bit lower than that 7.5% that we were putting up initially. I will say, and we've talked about this over the last couple of calls too, we're coming off the kind of lowest point for us for the new notice claim rate was the second quarter of 2020, the kind of peak COVID quarter, which ultimate claim rates are less than 1% out of that group. So we're certainly not running at that level anymore, but today it looks like fully developed notice quarters, maybe from say two or three years ago, are more in that two to 3% range and more recent, maybe trending slightly higher than that. So fully developed notice quarters today, we might be thinking, 3% to 4% ultimate claim rate. So still quite a bit lower than what we're expecting on new notices. And I think that's because the actual conditions have played out quite favorably over the last Thank you. Thank you.

Our next question comes from the line of Bose George of KBW. Your line is now open.

Hey, guys. Good morning. First, I wanted to just ask about competitive trends in the market, anything to call out there. And then your gross premium yield, it looked like it ticked down a tiny bit. Is that just noise?

Yeah. In Bose, I mean, from competitive dynamics, again, it's a competitive marketplace, right, with six active participants. I wouldn't say anything stands on this quarter. As you said, when we look at the gross premium rate, which is what we really focus on, it did grind down a little bit more this quarter. And that's been the trend over the last couple of years, quite frankly. So not any major changes quarter to quarter, but the trend has been slightly downward. Not unexpected from our standpoint. So again, nothing that has changed in the competitive marketplace that's caused that. But It has been the general sort of form of direction, but not anything that's sort of steepening or anything in that regard.

Okay, great. Thanks. And then actually on reinsurance, so you guys did the transaction. Can you compare the execution in the traditional reinsurance versus the ILN market? Is the benefit here more structural or is the pricing better here? Or can you just contrast the two? Yep.

Boses, Nathan. I think the biggest thing, you know, the XOL that we just did is really is covering 2027 and IW, whereas the ILN market is all on a, you know, kind of a warehoused already enforced loan. So we have to spend time to build a pool. I think there's also a lot of fixed costs associated with doing those deals and kind of size requirements that are expected in the market, whereas you can do smaller reinsurance deals. So our intention is to be programmatic in both the excess of loss and ILN markets. and Dianna Higgins. We want to continue to operate in, but I don't view the excess of loss deal that we did covering our 2027 NIW as indicative of, you know, we're not interested in the ILN market. They're just kind of different executions in different parts of our program.

Okay, great.

Thank you. Our next question comes from the line of Mihir Bhatia of Think of America. Your line is now open.

Good morning. Thank you for taking my question. I just wanted to maybe first just start, you know, big picture, just given the, I think you talked a little bit about credit conditions, but just given, you know, moving rates, housing, your view on like the housing fundamentals, maybe talk about industry, NIW this year, and Related to that, I just wanted to understand the underwriting posture. Are you tightening, loosening, anywhere on the margin? Just your thoughts around that. Thank you.

Yeah, I'm over here. Appreciate the question. I mean, I think as far as the market goes, the size has been fairly consistent with what we'd expected coming into the year, right? Like there's modest home price appreciation out there in certain parts. Purchase, again, it was our second largest, or it was our largest NAW since, you know, 2022. and up from where we were a year ago. So again, you continue to see positive signs in the purchase market. Refi market obviously is going to be really stunted by where rates are right now. And so again, I don't think we bank on that changing. But again, for us, that's normally churn in the portfolio as opposed to things that really helps us grow in force. Affordability definitely continues to be stretched, again, with where interest rates are and where home prices are. I think it makes it difficult to see a large change in sort of people coming to be buyers in this market. I think you can see that probably there's some thawing and sort of lock-in effect as far as people willing to sell their homes that have good interest rates. But again, as interest rates remain high, generally, that makes it tougher to see that really, you know, sort of break loose in a meaningful way. So again, I'm a general believer that sort of the market we felt for this quarter and feel like we've been in for the last year for the most part of the little mini refi ways is sort of what we're in for the foreseeable future. So that doesn't create a lot of growth for us. But as Nathan said, you know, we'd love to grow the Unforced portfolio. But really, we want to do that if the overall sort of sort of pie is growing. And if it's not growing, we're content to return that capital to shareholders if we think that's the right answer.

And then just from a credit perspective, is there any loosening or tightening going on at the margin? Any thoughts around how a softer home price backdrop could flow through?

Yeah, here's Nathan. I mean, I would say from a From an actual underwriting guideline perspective, there really hasn't been meaningful changes in quite some time from our guidelines. And the mix of business has been quite consistent as well. I think if anything, over the last two years, there's been a slight decrease in the amount of above 45 DTI business that's been done. But that's maybe the most notable change that I would say that wasn't necessarily a result of You know, guideline changes by us. I think just what was what was getting done in the market changed a little bit. So, you know, I think we're quite comfortable with the mix that we're getting and the risk adjusted returns really across the spectrum. So I don't feel a need to make any meaningful underwriting changes right now, given, you know, expected performance or actual performance to date.

And then just my last question, just around buybacks. Obviously, you have a new authorization in place. Could we view that as a signal of an acceleration or is it more just continuing the current steady pace because you've been returning a fair amount of capital already? So, yeah.

Yeah, I wouldn't view it as an acceleration. I think it'd be, I view it as a continuation. And we always want to make sure we have authorized shares to continue to execute the way we have been. And as Nathan talked over time, we've tried to size it appropriately based upon sort of earnings and capital generation. And so I think, you know, when we talked with the board about sort of the authorization, it was much more of a continuance of what we've been doing as opposed to sort of any acceleration of what we have been doing.

All right. Thank you. Thank you very much.

Thank you. Our next question comes from the line of Roland Mayer of RBC Capital Markets. Your line is now open.

Hi. Good morning. I guess just going quickly off Mihir's question, on the quarter-to-date disclosure on the buyback, is that just slowed down because you're in blackout and that was set prior to the stock moving higher?

Yeah, Roland, it's Nathan. I think what we've been talking about for some time is really trying to size the share repurchases. In this market where we aren't really growing the in-force, credit conditions remain good, we're generating a lot of organic capital that we don't think we can prudently redeploy into the business, trying to size the share repurchases approximately equal to the net income. and that's you know we're not we're not exactly sure what the net income is going to be obviously in any period but I think if you look on a We've done a pretty good job of triangulating the share repurchases to be approximately equal to that and then slowly drawing down the excess liquidity and capital at the holding company via the shareholder dividend every quarter. So it's not going to be possible, I think, for us to get it exactly right each quarter, but we're largely targeting share repurchases to approximate net income in this kind of environment.

Thank you. And then I guess a lot of your risk and force remains in the pre-22 years. As those policies age, are we approaching any sort of cliff where larger portions detach as the LTV hits 78?

It's Nathan again. I appreciate the question. And it's something that we actually talked about quite a bit internally lately. And if you think about a book of business for us, it's really across the LTV spectrum, a lot of 85s, 90s, 95, and a significant still amount of 97 business, even in those years. Most of the 85 LTV loans from those book years have already that were borrower paid subject to the Homeowners Protection Act have already canceled their coverage. So it becomes more concentrated in the higher LTVs, but there's really no cliff event because there's a distribution of Thank you for joining us. about five percentage points of that 17 that's falling off is due to the Homeowners Protection Act. And it's really been that way for the last, we started tracking this more closely in the last several years, but four or five years ago, it was about the same. So this is something that's kind of in the background, but I think it's pretty embedded in persistency and has been over time. So we don't see a big cliff coming or anything like that. It's just something that's happening every month.

Thank you, and then if I could just sneak one more. It's a soft P&C market, and I'm just curious if excess capital in reinsurance markets is helping you secure better terms on your own purchases.

I think from reinsurance, anything markets that are adjacent or that reinsurers are trying to think about how to deploy their capital and where returns are, it can have an impact. I think our continued sort of activities in the market and sort of programmatically of going about it helps us as well. And I think it's true that from a broader MI industry standpoint, the fact that GSEs have laid off less risk Thank you. Have a great rest of your summer. Sure. You too. Thank you.

Our next question comes from the line of Joffrey Dunn of Dowling and Partners. Your line is now open.

Thanks. Good morning. I have another question on reinsurance. How do you go about approaching the incremental level of reinsurance you want to put on a forward book? So, you know, obviously you don't have a crystal ball about future credit. Just on the 27XOL, for example, how did you decide on the loss band that you wanted to achieve? Does capital management come into play on that excess capital? Just some color on how you think about approaching incremental reinsurance, whether it's XOL or ILN.

Jeff, it's Nathan. Appreciate the question. And I mentioned before, We really think about our reinsurance program across three, you know, the three key dimensions are quota share reinsurance, traditional, XOL, and the ILN market. And, you know, it's not exactly the case every book year, but, you know, we try to do about a third of the risk sharing across each of those three categories. So, you know, we've done up to, say, 40% quota shares. The excess of lost deals that we've done in recent years have allocated about 30%. Thank you for joining us. Thank you for joining us. We'll be right back. So, you know, detachment points, you know, across maybe ILN and excess of loss structures where if the PMIRS requirement, let's say, is 7%, you know, traditional structure would be the MIs, MGIC, and others that we observe in the market, you know, retaining the first, say, 2.5% to 3% of that and then seeding the next, say, 3.5% to 4% up to the PMIRS level. And I think that has emerged that way because that works quite well for reinsurers. It's quite risk remote. And then the cost of capital is very attractive from our perspective. So I think a combination of those factors leads to kind of a normalization in what structures look like. I don't think it means that you can't do other things, but those other things come with additional costs. And right now we feel like we're putting a lot of protection on the recent vintages, which is our goal.

And how does the layering of XOL and ILN work? If you're attaching at 3% on an ILN, are you laying off the 2% to 3% band through the traditional XOL? How does that mechanically work?

Yeah, if you think about it in maybe the quota share terms, so in a 40% quota share, we're ceding 40% of the premium and 40% of the losses and 40% of the associated capital requirement. Most deals obviously have a profit commission, which makes them in attractive times more beneficial than a straight quota share to us. But we're still retaining at a loan level the remaining 60% of the risk. We then have that 60% at the loan level to allocate to other deals. So when I say 30%, it's not 30% say of the layer or 30% of the loans. It's really 30% of our retention of our risk and force at the loan level is going into the excess of loss deal. So the same loan on our say 2024 vintage where we have or 2025 where we have Quota Share, Excessive Loss, and ILN coverage. The same loan would be in all three of those deals. Just maybe 40% of the risk of that loan in one deal, 30% in another, and 30% in another. So we don't have to sit side by side versus maybe being below or on top of one another.

Okay, great. Thank you.

Thank you.

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

Thank you Ari. I want to thank everyone for your 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.