Mgic Investment Corporation · NYSE:MTG
Mgic Investment — KBW Financial Services Conference 2014
38 slides from Mgic Investment's conference presentation, Jun 2, 2014
Slide 1: KBW Financial Services Conference June 3, 2014
KBW Financial Services Conference June 3, 2014 MGIC Investment Corporation (NYSE: MTG)
Slide 2: Forward Looking Statements and Risk Factors
* As used below, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as the context requires; “MGIC” refers to our consolidated insurance operations. This presentation contains forward looking statements. Our actual results could be
Slide 3: MGIC Investment Corporation Overview
* Who we are The nation’s oldest private mortgage insurer, with insurance in force of $159.2 billion In 1957 Max Karl founded the modern MI industry and MGIC in Milwaukee, WI 820+ employees, including an experienced sales and underwriting team covering the U.S. and other locations What we do Take fi
Slide 4: 2014 Q1 Highlights
2014 Q1 Highlights Insurance Companies 9% fewer new delinquent notices received in Q114 than in Q413 Improved cure rate on new and seasoned delinquencies 2009 & > vintages and HARP are 60% of total IIF(1) $5.2 billion of NIW (1) MGIC risk-to-capital is 15.3:1 $2.8 billion in loss reserves - average
Slide 5: MGIC Investment Corporation 1st Quarter 2014 Update
MGIC Investment Corporation 1st Quarter 2014 Update Purchase NIW up year over year MI Share increasing vs. FHA ~18.5% market share within industry Reduced claim rate drove the reduction of incurred losses Paid losses down 27% year over year Default inventory down 27% year over year Net impact of rei
Slide 6: Fewer New Notices & Improving Cure Rates Equals Lower Inventory
* Approximately 85% of Q1 2014 new notices are prior delinquencies Delinquent inventory declined 11% in quarter Claims received down 29% y/o/y Paid losses down 27% y/o/y Fewer New Notices & Improving Cure Rates Equals Lower Inventory (1) Trailing 12 month cure/default ratio is the sum of the last 12
Slide 7: A Transitioning Book of Business
* Risk in Force as of 03/31/2014 Total Flow Total RIF: $37.5 billion Total RIF: $40.9 billion A Transitioning Book of Business 2009 & > + HARP Now 60% of In Force Source: Company filings Source: Company data Note: Includes bulk in force, which has been in run-off since 2008, risk in force is before
Slide 8: Loan Modifications and HARP Are Performing Well
Loan Modifications and HARP Are Performing Well * Note: Company data , includes bulk in force, which has been in run-off since 2008, risk in force is before reinsurance
Slide 9: Private MI Gaining Share from FHA
* Private MI is less expensive than FHA for low down payment loans(1) MIs more aligned with GSE underwriting guidelines Level of New Business EXCEL SOURCE copied at 16-Apr-10 02:50:06: MGICMKT\2010\Capital Raise materials\Roadshow\Excel\Mortgage Originations_04.xls (Chart1) EXCEL SOURCE copied at 19
Slide 10: MGIC is Growing Share While Maintaining Cost Advantages
* Industry Market Share (1) Highly Efficient and Low Cost Platform (2) MGIC is Growing Share While Maintaining Cost Advantages Source: 1) Company data and Inside Mortgage Finance, excludes HARP 2) Expense Ratio is full year 2013; for RDN, GNW and UG, the expense ratio is for MI business only from co
Slide 11: Demographic Drivers of Demand
* Demographic Drivers of Demand Sources: National Assoc of Realtors, Joint Center for Housing Studies, Harvard, PEW Research Center and FBR Research Expected 10 year average of 1.2 – 1.4 million households formed annually, a majority of which will eventually become homeowners Source: The Joint Cente
Slide 12: Many Borrowers Require High LTV Loans
* Many Borrowers Require High LTV Loans Down payment cited as one of the main obstacles to home ownership ~30% of home purchasers are 1st time home buyers who typically lack a 20% down payment ~60% of FTHB put less than 6% down ~45% of ALL home buyers use a down payment of less than 20% Source: Nati
Slide 13: Mortgage Origination Outlook
Mortgage Origination Outlook Environment for Private MI Persistency increasing Purchase demand higher y/o/y 14% market share at March 31, 2014 38% of low down payment market Housing remains affordable Rates still quite low FHFA Puchase Only Index up 7% @ Feb-14 Nationally the average supply is ~5 mo
Slide 14: Housing Policy and Regulatory Update
Housing Policy and Regulatory Update Senate and House have introduced different bills that could impact GSEs and FHA Federal agencies re-proposed QRM rule FHFA/GSEs expected to issue new MI eligibility requirements in 2014 New Master Policy agreed upon with GSEs and in process of being implemented W
Slide 15: Summary
* Improving financial position as newer vintages grow as a percentage of insurance in force and legacy losses recede Established market participant with large nationwide customer base Industry’s lowest expense ratio Meaningful short and long term growth opportunities Summary
Slide 16: Risk Factors
* Risk Factors You should read the legends on page 2, which are an integral part of these Risk Factors We may not continue to meet the GSEs’ mortgage insurer eligibility requirements. Since 2008, substantially all of our insurance written has been for loans sold to Fannie Mae and Freddie Mac (the “G
Slide 17: Requirements, although we cannot assure you of such compliance. You should read the rest
Requirements, although we cannot assure you of such compliance. You should read the rest of these risk factors for information about matters that could negatively affect such compliance. At March 31, 2014, the risk-to-capital ratio of our combined insurance operations (which includes reinsurance aff
Slide 18: strength of our insurance operations may affect its willingness to procure insurance from us.
strength of our insurance operations may affect its willingness to procure insurance from us. In this regard, see our risk factor titled “Competition or changes in our relationships with our customers could reduce our revenues or increase our losses.” The amount of insurance we write could be advers
Slide 19: 70%. Neither of the revised definitions of QRM considers the use of mortgage insurance
70%. Neither of the revised definitions of QRM considers the use of mortgage insurance for purposes of calculating LTV. While substantially all of our new risk written in 2013 and in the first quarter of 2014 was on loans that met the QM definition (and, therefore, the proposed general QRM definitio
Slide 20: FHA and the GSEs; future increases in guaranty fees charged by the GSEs; changes
FHA and the GSEs; future increases in guaranty fees charged by the GSEs; changes to the FHA’s annual premiums; and the total profitability that may be realized by mortgage lenders from securitizing loans through Ginnie Mae when compared to securitizing loans through Fannie Mae or Freddie Mac. Change
Slide 21: housing policy changes to wind down the GSEs, shrink the government’s footprint in housing
housing policy changes to wind down the GSEs, shrink the government’s footprint in housing finance (including FHA insurance), and help bring private capital back to the mortgage market. Since then, Members of Congress introduced several bills intended to change the business practices of the GSEs and
Slide 22: mitigate our loss by performing reasonable loss mitigation efforts or, for example, diligently pursuing
mitigate our loss by performing reasonable loss mitigation efforts or, for example, diligently pursuing a foreclosure or bankruptcy relief in a timely manner. We call such reduction of claims submitted to us “curtailments.” In 2013 and the first quarter of 2014, curtailments reduced our average clai
Slide 23: which a dispute may be brought has not ended for approximately 26% of our
which a dispute may be brought has not ended for approximately 26% of our post-2008 rescissions that are not subject to a settlement agreement. Until a liability associated with a settlement agreement or litigation becomes probable and can be reasonably estimated, we consider our claim payment or re
Slide 24: The flow policies at issue with Countrywide are in the same form as the
The flow policies at issue with Countrywide are in the same form as the flow policies that we used with all of our customers during the period covered by the Agreements, and the bulk policies at issue vary from one another, but are generally similar to those used in the majority of our Wall Street b
Slide 25: 2011. In August 2013, MGIC and several competitors received a draft Consent Order from
2011. In August 2013, MGIC and several competitors received a draft Consent Order from the MN Department containing proposed conditions to resolve its investigation, including unspecified penalties. We are engaged in discussions with the MN Department regarding the draft Consent Order. We also recei
Slide 26: remaining case are substantial. We deny any wrongdoing and intend to defend ourselves vigorously
remaining case are substantial. We deny any wrongdoing and intend to defend ourselves vigorously against the allegations in the lawsuits. In addition to the matters described above, we are involved in other legal proceedings in the ordinary course of business. In our opinion, based on the facts know
Slide 27: are not delinquent, such losses are not reflected in our financial statements, except in
are not delinquent, such losses are not reflected in our financial statements, except in the case where a premium deficiency exists. As a result, future losses on loans that are not currently delinquent may have a material impact on future results as such losses emerge. Because loss reserve estimate
Slide 28: officers or key personnel. Volatility or lack of performance in our stock price may
officers or key personnel. Volatility or lack of performance in our stock price may affect our ability to retain our key personnel or attract replacements should key personnel depart. Our reinsurance transactions with unaffiliated reinsurers allow each reinsurer, under certain circumstances, to term
Slide 29: certain loans modified under HAMP are subject to adjustment five years after the modification
certain loans modified under HAMP are subject to adjustment five years after the modification was entered into. Such adjustments are limited to an increase of one percentage point per year. In 2009, the GSEs began offering the Home Affordable Refinance Program (“HARP”). HARP, which has been extended
Slide 30: government housing policy encouraging loans to first-time homebuyers. As noted above, the CFPB rules
government housing policy encouraging loans to first-time homebuyers. As noted above, the CFPB rules implementing laws requiring mortgage lenders to make ability-to-pay determinations prior to extending credit became effective in January 2014. We are uncertain whether this Bureau will issue any othe
Slide 31: writing mortgage insurance; and in January 2014, a worldwide insurer and reinsurer with mortgage
writing mortgage insurance; and in January 2014, a worldwide insurer and reinsurer with mortgage insurance operations in Europe announced that it had completed the purchase of a competitor, CMG Mortgage Insurance Company, and that it had received approval as an eligible insurer from both GSEs. The p
Slide 32: changes to the deductibility of mortgage interest for income tax purposes, or other factors.
changes to the deductibility of mortgage interest for income tax purposes, or other factors. The residential mortgage market in the United States had for some time experienced a variety of poor or worsening economic conditions, including a material nationwide decline in housing values, with declines
Slide 33: exceptions to our underwriting requirements on a loan-by-loan basis and for certain customer programs.
exceptions to our underwriting requirements on a loan-by-loan basis and for certain customer programs. Together, the number of loans for which exceptions were made accounted for fewer than 2% of the loans we insured in 2013 and the first quarter of 2014. As noted above in our risk factor titled “Sta
Slide 34: requirements. We do, however, believe that given the various changes in our underwriting requirements
requirements. We do, however, believe that given the various changes in our underwriting requirements that were effective beginning in the first quarter of 2008, our insurance written beginning in the second quarter of 2008 will generate underwriting profits. The premiums we charge may not be adequa
Slide 35: We are susceptible to disruptions in the servicing of mortgage loans that we insure.
We are susceptible to disruptions in the servicing of mortgage loans that we insure. We depend on reliable, consistent third-party servicing of the loans that we insure. Over the last several years, the mortgage loan servicing industry has experienced consolidation. The resulting reduction in the nu
Slide 36: We have $389.5 million principal amount of 9% Convertible Junior Subordinated Debentures outstanding. The
We have $389.5 million principal amount of 9% Convertible Junior Subordinated Debentures outstanding. The principal amount of the debentures is currently convertible, at the holder’s option, at an initial conversion rate, which is subject to adjustment, of 74.0741 common shares per $1,000 principal
Slide 37: We could be adversely affected if personal information on consumers that we maintain is
We could be adversely affected if personal information on consumers that we maintain is improperly disclosed. As part of our business, we maintain large amounts of personal information on consumers. While we believe we have appropriate information security policies and systems to prevent unauthorize
Slide 38: Company Contact
Company Contact: Michael Zimmerman Senior Vice President Investor Relations Direct: (414) 347-6596 mike_zimmerman@mgic.com
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