Mgic Investment Corporation · NYSE:MTG
Mgic Investment — Investor Presentation (March 2013)
34 slides from Mgic Investment's investor presentation, Mar 6, 2013
Slide 1: Investor Presentation March 2013
Investor Presentation March 2013 MGIC Investment Corporation (NYSE: MTG)
Slide 2: Forward Looking Statements
2 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 f
Slide 3: The MGIC Investment Opportunity
3 Levered to improving macroeconomic and housing conditions Strong financial position relative to expected losses Pre-crisis vintage losses declining on an absolute basis 2005 – 2008 vintages are expected to represent less than 50% of RIF by year end 2013 Greater certainty with regards to litigation
Slide 4: Improving Home Prices
4 1 Source: S&P Case-Shiller Composite – 20 City Seasonally Adjusted Index. ² Seasonally-adjusted delinquency rate for mortgage loans on one-to-four-unit residential properties as reported by the Mortgage Bankers Association National Delinquency Survey. 3 Months’ Supply of Homes for Sale per Nationa
Slide 5: Recovery in housing market and growing origination volumes
2009 5 Private MI NIW ($ in billions) Recovery in housing market and growing origination volumes Continuing near-term home refinancing Re-emergence of purchase market where MI penetration is higher Pullback of FHA through higher pricing and other changes Entry of new players (e.g., Essent, NMI, Arch
Slide 6: 2005–2008 Vintages are Shrinking as a Percentage of Total Book
6 Risk in Force as of 12/31/2009 Risk in Force as of 12/31/2012 Bulk EXCEL SOURCE copied at 15-Apr-10 07:13:47: MGICMKT\2010\Capital Raise materials\Excel\Cost Effective Platform to Drive Profitable Growth_03.xls (Claims Paying ResourceS) EXCEL SOURCE copied at 17-Apr-10 05:34:04: MGICMKT\2010\Capit
Slide 7: Improved Performance of Existing Book
7 Quarterly New Notices See Risk Factors in Appendix Cure rates on notice with “No Prior Delinquencies” lower than “Prior Delinquencies” 20 – 25% cure rate differential for notices received since 2007¹ Annual Notices from “No Prior Delinquencies” declined 98,586 from peak or ~75% Represent ~24% of c
Slide 8: Updated New Notice Activity by Vintage Improving
8 Flow New Notice Activity by Vintage EXCEL SOURCE copied at 16-Apr-10 07:28:14: CASAEQUITY\Forecast v3.xls (Notices1) EXCEL SOURCE copied at 16-Apr-10 07:35:34: CASAEQUITY\Forecast v3.xls (Notices1 (3)) EXCEL SOURCE copied at 16-Apr-10 07:45:45: CASAEQUITY\Forecast v3.xls (Notices1 (4)) EXCEL SOURC
Slide 9: Cure Rates Have Improved Across the Full Spectrum
9 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-Apr-10 02:05:49: MGICMKT\2010\Capital Raise materials\Roadshow\Excel\FHA Market Share.xls (Mkt Share of Insured Origi
Slide 10: Base Case Scenario Key Assumptions / Runoff Scenario Results
10 Base Case Scenario Key Assumptions Annual home price appreciation for years 2013 - 2017 of 3%, 4%, 4%, 3%, and 4%, respectively Annual employment growth (in millions) for years 2013-2017 of 1.9, 3.3, 3.6, 2.7, and 1.3, respectively Future rescission and claim settlement effects of $600 million; s
Slide 11: One of the Leading Market Players; Highly Efficient and Low Cost Platform
11 One of the Leading Market Players¹ Highly Efficient and Low Cost Platform² EXCEL SOURCE copied at 15-Apr-10 07:13:47: MGICMKT\2010\Capital Raise materials\Excel\Cost Effective Platform to Drive Profitable Growth_03.xls (Claims Paying ResourceS) FY 2012 GAAP Expense Ratios EXCEL SOURCE copied at 1
Slide 12: Diversified Customer Base with Substantial Future Growth Opportunities
12 Strong franchise with leading presence with non-top 10 lenders, which has not eroded due to increased focus from competitors See Risk Factors in Appendix NIW by Customer Size MGIC 2012 NIW Annualized Opportunity for MGIC¹ Customer A $1 $1,129² Customer B 0 1,005² Customer C 167 395³ Customer D 0
Slide 13: Tighter Underwriting Standards Drive Highly Profitable New Business
13 Min FICO = 660 Max LTV = 97% (min 700 FICO); 95% all other FICOs Max DTI = 45% Cash-out Refinance (Max LTV = 85%, Min FICO = 720, Max DTI = 41%) Restrictions: Attached housing, condominiums and cooperatives ineligible in West Palm Beach, FL, Ft. Lauderdale, FL, Miami, FL and Las Vegas, NV Lender
Slide 14: 2009–2012 Vintages are Extremely High Quality
14 See Risk Factors in Appendix Performance Statistics¹ NIW by FICO Score Total 2009 – 2012 NIW: $70.6 bn 2009 – 2012 Vintages are Extremely High Quality Source: Company data ¹ Average premium rate, incurred loss ratio and paid loss ratio through 12/31/12; default rate as of 12/31/12. 740+ 71% 680 -
Slide 15: MGIC Primary NIW Re-emerging from Historic Lows
16 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-Apr-10 02:05:49: MGICMKT\2010\Capital Raise materials\Roadshow\Excel\FHA Market Share.xls (Mkt Share of Insured Orig
Slide 16: Demand Pipeline Strong For Low Down Payment Lending
17 See Risk Factors in Appendix Demand Pipeline Strong For Low Down Payment Lending Sources: Joint Center for Housing Studies, Harvard, PEW Research Center and FBR Research Household Formations Are Projected to Increase 30% of home purchasers are 1st time home buyers who typically lack a 20% down pa
Slide 17: FHA Pricing and Market Share Pullback
18 Pricing by FICO Score for 95% LTV Policies¹ FHA announced its third premium increase within a year, effective April 2013 Removal of ability to cancel FHA coverage beginning June 2013 Capital reserves at FHA continued to fall through 2012 and are below minimum required levels Level of New Business
Slide 18: Tax Benefits and Financial Highlights
19 See Risk Factors in Appendix Tax Benefits Highlights MGIC has total deferred tax assets of $997 million offset by a $966 million valuation allowance Net operating losses of $2.5 billion to be used against future taxable income Ability to realize tax benefits ultimately depends on existence of suf
Slide 19: The MGIC Investment Opportunity
20 Levered to improving macroeconomic and housing conditions Strong financial position relative to expected losses Pre-crisis vintage losses declining on an absolute basis 2005 – 2008 vintages are expected to represent less than 50% of RIF by year end 2013 Greater certainty with regards to litigatio
Slide 20: Appendix – MGIC Risk Factors
21 Appendix – MGIC Risk Factors Appendix
Slide 21: Capital requirements may prevent us from writing new insurance
22 Some factors in this section are forward-looking statements. For a discussion of those statements, see “Cautionary Statement About Forward-Looking Statements”. Capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis. The insurance laws of 16 jurisdicti
Slide 22: Claims paying resources and Capital Requirements
23 MGIC’s failure to meet the Capital Requirements to insure new business does not necessarily mean that MGIC does not have sufficient resources to pay claims on its insurance liabilities. While we believe that MGIC has sufficient claims paying resources to meet its claim obligations on its insuranc
Slide 23: Qualified Residential Mortgage definition risk
24 The amount of insurance we write could be adversely affected if the definition of Qualified Residential Mortgage results in a reduction of the number of low down payment loans available to be insured or if lenders and investors select alternatives to private mortgage insurance. The financial refo
Slide 24: GSE business practices and restructuring
25 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. Substantially all of our insurance written is for loans sold to Fannie Mae and Freddie Mac. The business practices of the
Slide 25: Net losses and return to profitability
26 We have reported net losses for the last six years, expect to continue to report annual net losses, and cannot assure you when we will return to profitability. For the years ended December 31, 2012, 2011, 2010, 2009, 2008 and 2007, we had a net loss of $0.9 billion, $0.5 billion, $0.4 billion, $1
Slide 26: Legal proceedings risk
27 We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future. Consumers continue to bring lawsuits against home mortgage lenders and settlement service providers. Mortgage insurers, including MGIC, have been involved in litigation alleging violati
Slide 27: Countrywide rescission dispute settlement
28 We have made substantial progress in reaching an agreement with Countrywide to settle the dispute we have regarding rescissions. Since December 2009, we have been involved in legal proceedings with Countrywide in which Countrywide alleged that MGIC denied valid mortgage insurance claims. (In our
Slide 28: Loss reserves established only upon default
29 Because we establish loss reserves only upon a loan default rather than based on estimates of our ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings in certain periods. In accordance with accounting principles generally accepted in the United State
Slide 29: Reliance on GSE and servicer information; HAMP
30 We rely on information provided to us by the GSEs and servicers. We do not receive all of the information from such sources that is required to determine with certainty the number of loans that are participating in, or have successfully completed, HAMP. We are aware of approximately 9,300 loans i
Slide 30: Competition in private mortgage insurance
31 In recent years, the level of competition within the private mortgage insurance industry has been intense as many large mortgage lenders reduced the number of private mortgage insurers with whom they do business. At the same time, consolidation among mortgage lenders has increased the share of th
Slide 31: Mix of business and loan risk characteristics
32 The mix of business we write also affects the likelihood of losses occurring. Even when housing values are stable or rising, mortgages with certain characteristics have higher probabilities of claims. These characteristics include loans with loan-to-value ratios over 95% (or in certain markets th
Slide 32: Foreclosure moratoriums and extended timeframes
33 It is uncertain what effect the extended timeframes in the foreclosure process, due to moratoriums, suspensions or issues arising from the investigation of servicers’ foreclosure procedures, will have on us. In response to the significant increase in the number of foreclosures that began in 2009,
Slide 33: Possible NYSE delisting of common stock
34 Our common stock could be delisted from the NYSE. The listing of our common stock on the New York Stock Exchange, or NYSE, is subject to compliance with NYSE’s continued listing standards. Among other things, those standards require that the average closing price of our common stock during any co
Slide 34: MGIC Investment Corporation
Investor Presentation March 2013 MGIC Investment Corporation (NYSE: MTG)