Mgic Investment Corporation · NYSE:MTG
Mgic Investment — Susquehanna 2015 Housing Forum
27 slides from Mgic Investment's conference presentation, Aug 10, 2015
Slide 1: Susquehanna 2015 Housing Forum
Susquehanna 2015 Housing ForumAugust 11-12, 2015 MGIC Investment Corporation (NYSE: MTG)
Slide 2: Forward Looking Statements and Risk Factors
2 As used below, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as the context requires, and “MGIC” refers to Mortgage Guaranty Insurance Corporation. This presentation may contain forward looking statements. Our actual results
Slide 3: Table of Contents
3 Private Mortgage Insurance Industry OverviewMGIC Investment Corporation1H 2015 Financial OverviewReinsurance OverviewNew BusinessImproved Credit PerformanceCost AdvantageGrowth OpportunitiesRegulatory EnvironmentSummary Table of Contents
Slide 4: Private Mortgage Insurance Is Prepared for the Future
Private Mortgage InsuranceIs Prepared for the Future 4
Slide 5: Who we are
5 Who we areThe nation’s oldest private mortgage insurer, with insurance in force of $168.8 billionIn 1957 Max Karl founded the modern MI industry and MGIC in Milwaukee, WI~800 employees, including an experienced sales and underwriting team covering the U.S. and other locationsWhat we doTake first-l
Slide 6: 1H 2015 Financial Overview
MGIC Investment Corporation1H 2015 Financial Overview 6 $247 million net incomeRisk to capital improves to 13.2:11H15 market share ~20%$21 billion NIW >2008 vintages and HARP are ~70% of total RIFInsurance in force grows 6% y/o/yIncurred losses down 35% y/o/y~$2.1 billion in loss reserves - average
Slide 7: Reinsurance Overview: Key Terms of Proposed Restructured Transaction
Reinsurance OverviewKey Terms of Proposed Restructured Transaction 30% Quota Share20% Ceding CommissionProfit Commission (variable dependent on losses incurred and ceded) Covers new business through 201610 Year termMTG option for early termination in 2018~75% of in force coveredEffective July 1, 201
Slide 8: Illustrative Example of Proposed Reinsurance Transaction (90% LTV)
Reinsurance Overview Illustrative Example of Proposed Reinsurance Transaction Before Reinsurance After Reinsurance Key Assumptions: 90% 30 Yr FRM with 750 FICO, MGIC borrower paid monthly premium from rate card: 44 basis points, ceding commission rate: 20% , Reinsurer Margin: 20%, Estimated lifetime
Slide 9: Illustrative Example of Proposed Reinsurance Transaction (95% LTV)
Before Reinsurance After Reinsurance Key Assumptions: 95% 30 Yr FRM with 750 FICO, MGIC borrower paid monthly premium from rate card: 62 basis points, ceding commission rate: 20% , Reinsurer Margin: 20%, Estimated lifetime loss ratio of 30% and Expense ratio of 20% Reinsurance has average annual pre
Slide 10: Premium Yield and Expense/Loss Impact in Different Loss Scenarios
Reinsurance Overview Illustrative Example Premium Yield and Expense/Loss Impact in Different Loss Scenarios of Proposed Reinsurance Transaction 10% Loss Ratio 60% Loss Ratio 30% Loss Ratio Key Assumptions: 95% 30 Yr FRM with 760 & > FICO, MGIC borrower paid monthly premium from rate card: 62 basis p
Slide 11: Reasons to Utilize Reinsurance
Reinsurance Overview Reinsurance provided at a reasonable cost of capitalMaterially reduces required assets under PMIERs, therefore increases returnsProvides financial and strategic flexibility Reasons to utilize reinsurance 11
Slide 12: Positive New Business Trends
12 Positive New Business Trends Total refinance originations for the overall origination market includes HARP. Total Private MI purchase and refinance volume estimated using company press releases and Inside Mortgage Finance and does not include HARP
Slide 13: Level of New Business
13 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 14: Risk in Force as of 06/30/2015
14 Risk in Force as of 06/30/2015 Total Flow Total RIF: $40.8 billion Total RIF: $44.0 billion 2009 & > + HARP Now ~70% of In Force Source: Company filings Source: Company dataNote: Includes bulk in force, which has been in run-off since 2008, risk in force is before reinsurance.
Slide 15: Positive Credit Trends
15 Approximately 85% of 1h 2015 new notices are prior delinquenciesDelinquent inventory declined 22% y/o/y @ 6/30/15Claims received down 29% y/o/y @ 6/30/15Paid losses down 26% y/o/y @ 6/30/15 Positive Credit Trends (1) Trailing 12 month cure/default ratio is the sum of the last 12 month’s cures / t
Slide 16: 2009 and Forward Generating Low Level of Delinquencies
16 Source: Company filings Source: Company dataNote: Includes bulk in force, which has been in run-off since 2008, risk in force is before reinsurance. ~4% of Inventory from 2009 -15 Books ~6% of New Notices from 2009-15 Books 2009 and Forward Generating Low Level of Delinquencies
Slide 17: High Quality Business Contained in 2009 and Forward Books
17 Sources: National Assoc of Realtors, Joint Center for Housing Studies, Harvard, PEW Research Center and FBR Research Source: Company Data High Quality Business Contained in 2009 and Forward Books
Slide 18: High Quality Business: Static Pool Delinquency Rates
High Quality Business Contained in 2009 and Forward Books 18 Static Pool Delinquency Rates (1)Based on Loan Count Ever to Date Loss Ratio (2) Static Pool Delinquency Rates = (total number of delinquent loans at the end of the stated reporting period) / (original number of loans insured in the 6 mont
Slide 19: Highly Efficient and Low Cost Platform
19 Highly Efficient and Low Cost Platform (1) MGIC is Maintaining Cost Advantages 1) 2014 Full Year Expense Ratio for MGIC is for insurance operations only; FY 2014 Expense Ratio for RDN, GNW, UG, ESNT, ARCH and NMI as disclosed in press releases MGIC 1H 15 Expense Ratio 15.7%
Slide 20: Investment Portfolio Overview
MGIC Investment CorporationInvestment Portfolio Overview $4.8 billion as of June 30, 2015 including $463 million at holding company100% Investment Grade, ~81% with an underlying rating of “A” or betterEffective Duration of 4.4 years (excludes cash and cash equivalents)Imbedded pre-tax yield, based o
Slide 21: Mortgage Origination Outlook
Mortgage Origination Outlook Housing remains affordable2015 origination forecasts range from $1.3 to $1.4 trillion2016 forecasts 5-16% increase in purchase market offset by decrease in refinance marketDecreasing distressed and cash salesGood environment for Private MI 21 Source: Fannie Mae, Freddie
Slide 22: Demographic Drivers of Demand
22 Demographic Drivers of Demand Source: Joint Center for Housing Studies Harvard University, Baseline Household Projections for the Next Decade and Beyond March 2014 Pent up demandHousehold formations slowed between 2007 and 2012Forecasts estimate that between 1.1 – 1.3 million households will be f
Slide 23: Many Borrowers Require High LTV Loans
23 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~66% of FTHB had a downpayment of 6% or less ~50% of ALL home buyers use a down payment of less than 20% Sou
Slide 24: Regulatory Environment
Regulatory Environment New Master Policy in effectStandardization provides consistent terms of coverage across carriersProvide assurances about the consistent handling and payment of claims Brings greater transparency to contractual protections for lenders and investors New Financial RequirementsGSE
Slide 25: Summary
25 Financial positionSolid statutory capital position2009 – 2015 or “new” books are very profitableNew books plus HARP account for ~70% of Primary RIFGenerating GAAP profitsGrowing insurance in force and premiumsDeclining lossesEstablished market player in a proven industryMarket share for 1H 15: ~2
Slide 26: Summary of Risk Factors
26 Summary of Risk Factors We may not continue to meet the GSEs’ mortgage insurer eligibility requirements and our returns may decrease as we are required to maintain more capital in order to maintain our eligibility. The amount of insurance we write could be adversely affected if lenders and invest
Slide 27: Company Contact
Company Contact:Michael Zimmerman Senior Vice President Investor Relations Direct: (414) 347-6596mike_zimmerman@mgic.com