Mgic Investment Corporation · NYSE:MTG
Mgic Investment — Investor Presentation (April 2010)
25 slides from Mgic Investment's investor presentation, Apr 20, 2010
Slide 1: MGIC Investment Corporation Investor Presentation April 2010
MGIC Investment Corporation (NYSE: MTG) Investor Presentation April 2010
Slide 2: Forward Looking Statements and Risk Factors
Forward Looking Statements Forward-Looking Statements and Risk Factors Our revenues and losses may be affected by the risk factors discussed at the end of this presentation, which should be considered integral to this presentation. These factors may also cause actual results to differ materially fro
Slide 3: 1st Quarter Update
MGIC 1st Quarter Update Premiums declined Originations MI penetration Market share Losses incurred declined for the first time since Q1 2007 Inventory, notices and cures by vintage showed improvement $6.6bn of gross reserves Expense ratio increase due to lower production 1 Refers to Mortgage Guarant
Slide 4: Improving Macroeconomic and Housing Conditions
Improving Macroeconomic and Housing Conditions Home prices appear to be stabilizing Unemployment appears to have peaked HAMP and other loan modifications gaining traction Cure rates improving 1 Source: S&P Composite-20 Seasonally Adjusted index 2 Source: Mortgage Bankers Association 3 Source: MICA 4
Slide 5: Rescissions Have Contributed to Loss Mitigation
Rescissions Have Contributed to Loss Mitigation Bulk Rescissions Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 $ Rescinded 33.9 61.8 77.1 112.3 143.6 122.9 125.89 % Rescinded of Claims Recd in a Qtr 0.241 0.282 0.336 0.341 0.309 ~100% of claims received in 2008 resolved ~95% of Q3 2009 claims resolved Q
Slide 6: Improved Performance of Existing Book of Business
Improved Performance of Existing Book of Business New Notices Cures Default Inventory Source: Company Data See Risk Factors in Appendix
Slide 7: Delinquency Performance by Vintage Improving
Delinquency Performance by Vintage Improving Notices Notices Cures Cures Flow Bulk Source: Company Data See Risk Factors in Appendix
Slide 8: Analysis of Potential Losses in Existing Book
Analysis of Potential Losses in Existing Book Key Assumptions Home prices and employment have bottomed with modest recovery beginning early 2010 Steady cure rate improvement from current levels to historic norms by early 2013 excluding impact of rescissions From current levels of 60-65% to 90-95% Re
Slide 9: Better Positioned to Weather Losses Amongst Public Monoline Peers
Better Positioned to Weather Losses Amongst Public Monoline Peers Source: Company filings, websites and financial supplements. 1 For MGIC and PMI, claims paying resources include statutory surplus, contingency reserves and statutory loss reserves as at 12/31/2009. Risk in force represents gross prim
Slide 10: Well Positioned to Take Advantage of the Current Environment
MGIC is Well Positioned to Take Advantage of the Current Environment Consistent Market Leader1 Ability to Write Business Going Forward Highly Efficient and Low Cost Platform2 1 Source: Inside Mortgage Finance. MGIC estimated market share ~20% for Jan - Feb 2010. 2 For Radian, expense ratio represent
Slide 11: Current Environment is Conducive to Write Attractive New Business
Current Environment is Conducive to Write Attractive New Business Mortgage Originations ($bn)1 Fewer competing products Less capacity in industry Stricter underwriting Sustainability of FHA market share? 2009 FHA FICO3 1. Source: Private MI insurance written data from Inside Mortgage Finance. Mortga
Slide 12: Underwriting Standards Have Improved Dramatically
Underwriting Standards Have Improved Dramatically Not eligible: Cash-out refinances Investment properties 3 to 4- unit properties Manufactured homes Reduced Documentation FICOs < 660 Loans with potential negative amortization Third Party Originator Policy - tracking and monitoring performance of TPO
Slide 13: Potential for Attractive Returns on New Business
Potential for Attractive Returns on New Business Illustrative Returns on New Business 2007 NIW1 LTV FICO 65bps 60bps Average Net Premium % 2009 NIW1 1 Includes flow and bulk business in 2007. In 2009, MGIC did not write any bulk business. Moving to risk based pricing in May 2010 which will improve o
Slide 14: Historically Profitable Prior to the Housing Downturn
Prior to the Recent Housing Downturn that Resulted in Significant Losses in 2007 through Q1 2010, MGIC Has Historically been Profitable 1 ROE calculated as net income divided by average shareholder's equity (ex. AOCI). Source: Company filings. 2 See Return on Capital on page 16. See Risk Factors in
Slide 15: Appendix - MGIC Risk Factors
Appendix Appendix - MGIC Risk Factors
Slide 16: Plan to write new insurance in MIC and risk-to-capital requirements
MGIC Risk Factors Risk Related to Our Business Even though our plan to write new insurance in MIC has received approval from the Office of the Commissioner of Insurance of the State of Wisconsin ("OCI") and the GSEs, because MGIC is not expected to meet statutory risk-to-capital requirements to writ
Slide 17: Net losses for the last three years and expected to continue
MGIC Risk Factors Risk Related to Our Business We have reported net losses for the last three years, expect to continue to report net losses and cannot assure you when we will return to profitability. For the years ended December 31, 2009, 2008 and 2007, respectively, we had a net loss of $1.3 billi
Slide 18: Risk of private litigation and regulatory proceedings
MGIC Risk Factors Risk Related to Our Business We are subject to the risk of private litigation and regulatory proceedings. (Continued) The anti-referral fee provisions of RESPA provide that HUD as well as the insurance commissioner or attorney general of any state may bring an action to enjoin viol
Slide 19: Changes in GSE business practices or charters
MGIC Risk Factors Risk Related to Our Business Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses. (Continued) In September 2008, the Federal Housing Finance Agency ("FHFA") wa
Slide 20: Competition or changes in customer relationships
MGIC Risk Factors Risk Related to Our Business Competition or changes in our relationships with our customers could reduce our revenues or increase our losses. In recent years, the level of competition within the private mortgage insurance industry has been intense as many large mortgage lenders red
Slide 21: Mix of business affects likelihood of losses
MGIC Risk Factors Risk Related to Our Business The mix of business we write also affects the likelihood of losses occurring. (Continued) From time to time, in response to market conditions, we increase or decrease the types of loans that we insure. In addition, we make exceptions to our underwriting
Slide 22: Premiums may not be adequate to compensate for liabilities
MGIC Risk Factors Risk Related to Our Business The premiums we charge may not be adequate to compensate us for our liabilities for losses and as a result any inadequacy could materially affect our financial condition and results of operations. We set premiums at the time a policy is issued based on
Slide 23: Loan modification programs may not provide material benefits
MGIC Risk Factors Risk Related to Our Business Loan modification and other similar programs may not provide material benefits to us and our losses on loans that re-default can be higher than what we would have paid had the loan not been modified. Beginning in the fourth quarter of 2008, the federal
Slide 24: Decline in low down payment mortgage originations
MGIC Risk Factors Risk Related to Our Business If the volume of low down payment home mortgage originations declines, the amount of insurance that we write could decline, which would reduce our revenues. The factors that affect the volume of low-down-payment mortgage originations include: restrictio
Slide 25: MGIC Investment Corporation
Investor Presentation April 2010 MGIC Investment Corporation (NYSE: MTG)