MGIC INVESTMENT CORP

Previous wording

Through MGIC, the principal subsidiary of MGIC Investment Corporation, we serve lenders throughout the United States helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality through the use of private mortgage insurance. At December 31, 2023 MGIC had $293.5 billion of primary IIF.

Current wording

Through MGIC, the principal subsidiary of MGIC Investment Corporation, we serve lenders throughout the United States helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality through the use of private mortgage insurance. At December 31, 2024 MGIC had $295.4 billion of primary IIF.

Previous wording

Net income for 2023 was $712.9 million (2022: $865.3 million) and diluted income per share was $2.49 (2022: $2.79). The decrease in net income is primarily due to an increase in losses incurred and a decrease in net premiums earned. This was partially offset by an increase in investment income, net of expenses, a decrease in loss on debt extinguishment, and a decrease in our provision for income taxes. Diluted income per share decreased primarily due to a decrease in net income, partially offset by a decrease in the number of diluted weighted average shares outstanding.

Current wording

Net income for 2024 was $763.0 million (2023: $712.9 million) and diluted income per share was $2.89 (2023: $2.49). The increase in net income is primarily due to an increase in investment income, net of expenses, an increase in net premiums earned, and a decrease in other underwriting and operating expenses, net. This was partially offset by an increase in losses incurred, net and an increase in our provision for income taxes. Diluted income per share increased primarily due to an increase in net income and a decrease in the number of diluted weighted average shares outstanding.

Previous wording

Adjusted net operating income for 2023 was $724.4 million (2022: $904.8 million) and adjusted net operating income per diluted share was $2.53 (2022: $2.91). The decrease in adjusted net operating income in 2023 compared to 2022 is primarily due to a decrease in net income. The decrease in 2023 adjusted net operating income per diluted share compared to 2022 is primarily due to a decrease in adjusted net operating income, partially offset by a decrease in the number of diluted weighted average shares outstanding.

Current wording

Adjusted net operating income for 2024 was $768.5 million (2023: $724.4 million) and adjusted net operating income per diluted share was $2.91 (2023: $2.53). The increase in adjusted net operating income in 2024 compared to 2023 is primarily due to an increase in net income. The increase in 2024 adjusted net operating income per diluted share compared to 2023 is primarily due to an increase in adjusted net operating income and a decrease in the number of diluted weighted average shares outstanding.

Previous wording

Premiums earned for 2023 were $952.6 million, compared with $1,007.1 million for the same period last year. The decrease in premiums earned compared with the prior year is primarily due to an increase in ceded premiums that was the result of a decrease in the profit commission earned on our QSR Transactions.

Current wording

Premiums earned for 2024 were $970.8 million, compared with $952.6 million in the prior year. The increase in premiums earned compared with the prior year is primarily due to a decrease in ceded premiums.

Previous wording

Net investment income in 2023 was $214.7 million, compared with $167.5 million in the prior year. The increase in net investment income was due to an increase of 80 basis points in the average investment yield.

Current wording

Net investment income in 2024 was $244.6 million, compared with $214.7 million in the prior year. The increase in net investment income was due to an increase of 42 basis points in the average investment yield.

Previous wording

Losses incurred, net were $(20.9) million, compared with $(254.6) million for the prior year. While new delinquency notices added $187.7 million to losses incurred in 2023, our re-estimation of loss reserves on previously received delinquency notices resulted in favorable development of $208.5 million. In 2022, new delinquency notices added approximately $149.6 million to losses incurred, offset by re-estimation of loss reserves on previously received delinquency notices resulted in favorable development of $404.1 million. The favorable development for both periods primarily resulted from a decrease in the expected claim rate on previously received delinquencies. Home price appreciation experienced in recent years has allowed some borrowers to cure their delinquencies through the sale of their property.

Current wording

Losses incurred, net were $(14.9) million, compared with $(20.9) million in the prior year. While new delinquency notices added $197.6 million to losses incurred in 2024, our re-estimation of loss reserves on previously received delinquency notices resulted in favorable development of $212.5 million. For the year ended December 31, 2023, new delinquency notices added approximately $187.7 million, our re-estimation of loss reserves on previously received delinquency notices resulted in favorable development of $208.5 million. The favorable development for both periods primarily resulted from a decrease in the expected claim rate on previously received delinquencies. Home price appreciation in recent years has allowed some borrowers to cure their delinquencies through the sale of their property.

Previous wording

Our provision for income taxes decreased to $189.3 million in 2023 compared to $224.7 million in 2022 primarily due to a decrease in income before tax. Our effective tax rate for 2023 was 21.0% compared to 20.6% for 2022.

Current wording

Our provision for income taxes increased to $205.7 million in 2024 compared to $189.3 million in 2023 primarily due to an increase in income before tax. Our effective tax rate for 2024 was 21.2% compared to 21.0% for 2023.

Previous wording

The level of interest rates and home prices may change in the future. For information about the possible effects of such changes, see our risk factors titled "If the volume of low down payment home mortgage originations declines, the amount of insurance that we write could decline,” “Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns,” and “Changes in interest rates, house prices or mortgage insurance cancellation requirements may change the length of time that our policies remain in force."

Current wording

The level of interest rates and home prices may change in the future. For information about the possible effects of such changes, see our risk factors titled "If the volume of low down payment home mortgage originations declines, the amount of insurance that we write could decline,” and “Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.”

Previous wording

The strong credit quality of our insurance portfolio reflects several years of favorable housing fundamentals and in our view, generally favorable risk characteristics on our recently insured loans. Our insurance in force was relatively flat during the year as a result of a lower NIW, offset by increased annual persistency.

Current wording

The strong credit quality of our insurance portfolio reflects several years of favorable housing fundamentals, and in our view, generally favorable risk characteristics on our recently insured loans. Our insurance in force increased during the year as a result of an increase in NIW offset partially by cancellations.

Previous wording

The percentage of our NIW with DTI ratios over 45% and LTVs over 95% will fluctuate based on the mortgage conditions that could include the percentage of NIW from purchase transactions, changes in home prices, changes in mortgage rates, and GSE activities. Refer to"Mortgage Insurance Portfolio" for information on our NIW mix during 2023.

Current wording

The percentage of our NIW with DTI ratios over 45% and LTVs over 95% will fluctuate based on the mortgage conditions such as the percentage of NIW from purchase transactions, changes in home prices, changes in interest rates, and GSE activities. Refer to"Mortgage Insurance Portfolio" for information on our NIW mix during 2024.

Previous wording

The private mortgage insurance industry is highly competitive and is expected to remain so. We believe that we currently compete with other private mortgage insurers based on premium rates, underwriting requirements, financial strength (including based on credit or financial strength ratings), customer relationships, name recognition, reputation, strength of management teams and field organizations, the ancillary products and services provided to lenders, and the effective use of technology and innovation in the delivery and servicing of our mortgage insurance products.

Current wording

The private mortgage insurance industry is highly competitive and is expected to remain so. Our competitors primarily include other private mortgage insurers and governmental agencies, principally the FHA and VA. We believe that we currently compete with other private mortgage insurers based on premium rates, underwriting requirements, financial strength (including based on credit or financial strength ratings), customer relationships, name recognition, reputation, strength of management teams and field organizations, and the effective use of technology and innovation in the delivery and servicing of our mortgage insurance products.

Previous wording

In recent years, the industry has materially reduced its use of standard rate cards, which were fairly consistent among competitors, and correspondingly increased its use of (i) "risk-based pricing systems" that use a spectrum of filed rates to allow for formulaic, risk-based pricing based on multiple attributes that may be quickly adjusted within certain parameters, and (ii) customized rate plans. We monitor various competitive and economic factors while seeking to balance both profitability and market share considerations in developing our pricing strategies.

Current wording

In recent years, pricing has become a key competitive factor in the private mortgage insurance market, with an increasing number of customers prioritizing the lowest premium rate available for any particular loan. The industry has materially reduced its use of standard rate cards, which were fairly consistent among competitors, and correspondingly increased its use of (i) "risk-based pricing systems" that use a spectrum of filed rates to allow for formulaic, risk-based pricing based on multiple attributes that may be quickly adjusted within certain parameters, and (ii) customized rate plans pursuant to which rates may be available to customers for a defined period of time. We monitor various competitive and economic factors while seeking to balance both profitability and market share considerations in developing our pricing strategies.

Previous wording

The GSEs (and other investors) have also used other forms of credit enhancement that did not involve traditional private mortgage insurance, such as engaging in credit-linked note transactions executed in the capital markets, or using other forms of debt issuances or securitizations that transfer credit risk directly to other investors, including competitors and an affiliate of MGIC; using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage; or accepting credit risk without credit enhancement.

Current wording

The GSEs (and other investors) have also used other forms of credit enhancement that did not involve traditional private mortgage insurance, such as engaging in credit-linked note transactions executed in the capital markets, or using other forms of debt issuances or securitizations that transfer credit risk directly to other investors, including competitors and an affiliate of MGIC; using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage; or accepting credit risk without credit enhancement. For information about the various business practices of the GSEs that may be changed, including through expansion or modification of these programs, see our risk factor titled “Changes in the business practices of Fannie Mae and Freddie Mac ("the GSEs"), federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses” in Item 1A.

Previous wording

We operate under the requirements of the PMIERs of the GSEs in order to insure loans delivered to or purchased by them. The PMIERs include financial requirements as well as business, quality control and certain transactional approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s "Available Assets" (generally only the most liquid assets of an insurer) to equal or exceed its "Minimum Required Assets" (which are based on an insurer's book of risk in force, calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor amount). Based on our application of PMIERs, MGIC's Available Assets under PMIERs totaled $5.8 billion, an excess of $2.4 billion over its Minimum Required Assets at December 31, 2023.

Current wording

We operate under the requirements of the PMIERs of the GSEs in order to insure loans delivered to or purchased by them. The PMIERs include financial requirements as well as business, quality control and certain transactional approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s "Available Assets" (generally only the most liquid assets of an insurer) to equal or exceed its "Minimum Required Assets" (which are based on an insurer's book of risk in force, calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor amount). Based on our application of PMIERs, MGIC's Available Assets under PMIERs totaled $5.8 billion, an excess of $2.2 billion over its Minimum Required Assets at December 31, 2024.

Previous wording

Our NIW is affected by total mortgage originations, the percentage of total mortgage originations using private mortgage insurance (the "PMI penetration rate"), and our market share within the PMI industry. As of January 2024, the total average mortgage origination forecasts from Fannie Mae and the MBA indicate mortgage originations of $2.0 trillion in 2024, compared to an estimated $1.6 trillion in 2023. Both purchase originations and refinance transactions are forecasted to increase in 2024 when compared to 2023. We are expecting NIW to increase slightly in 2024 compared to 2023.

Current wording

Our NIW is affected by total mortgage originations, the percentage of total mortgage originations using private mortgage insurance (the "PMI penetration rate"), and our market share within the PMI industry. As of January 2025, the total average mortgage origination forecasts from Fannie Mae and the MBA indicate mortgage originations of $2.0 trillion in 2025, compared to an estimated $1.7 trillion in 2024. Both purchase originations and refinance transactions are forecasted to increase in 2025 when compared to 2024. We are expecting NIW to increase slightly in 2025 compared to 2024.

Previous wording

Our IIF decreased 0.6% in 2023 and is expected to remain relatively flat in 2024. Our book of IIF is an important driver of our future revenues, and its growth is driven by our ability to generate NIW and the retention of our IIF, as measured by our annual persistency. Interest rates influence both our NIW and persistency. Generally speaking, in a rising rate environment, total mortgage originations may decline; however, we would also expect policy cancellation rates to decline, and in turn increase annual persistency, although the impact generally lags the change in interest rates. In 2024, we expect interest rates to remain elevated compared to recent years and the rate of growth in home prices to continue to moderate.

Current wording

Our IIF increased 0.6% in 2024 and is expected to remain relatively flat in 2025. Our book of IIF is an important driver of our future revenues, and its growth is driven by our ability to generate NIW and the retention of our IIF, as measured by our Annual persistency. Interest rates influence both our NIW and persistency. Generally speaking, in a rising rate environment, total mortgage originations may decline; however, we would also expect policy cancellation rates to decline, and in turn increase Annual persistency, although the impact generally lags the change in interest rates. As of January 2025, forecasts from Fannie Mae and the MBA indicate a modest decrease in interest rates in 2025 compared to 2024 and the slowdown in the rate of home price appreciation.

Previous wording

Our direct premiums written and earned are impacted by our IIF during the period and our in force premium yield, both of which are expected to be relatively flat in 2024 when compared to 2023. Premiums earned are also impacted by the amount of accelerated premiums from single premium policy cancellations, which generally decrease as refinance activity decreases. Our unearned premium decreased to $157.8 million at December 31, 2023 from $195.3 million at December 31, 2022.

Current wording

Our direct premiums written and earned are impacted by our IIF during the period and our in force premium yield. We expect our in force portfolio premium yield to remain relatively flat in 2025 and we expect our net premiums written and earned to decrease in 2025, driven by an increase in ceded premiums. Premiums earned are also impacted by the amount of accelerated premiums from single premium policy cancellations, which generally decrease as refinance activity decreases. Our unearned premium decreased to $120.4 million at December 31, 2024 from $157.8 million at December 31, 2023.

Previous wording

Our net premiums written and earned are primarily impacted by the changes in the direct premiums written and earned noted above and by the amount of premiums we cede under our quota share and excess of loss reinsurance transactions. The amount of premiums we cede in 2024 will be affected by any changes in our reinsurance coverage. Premiums we cede under our quota share transactions are also impacted by the profit commission we receive. The amount of profit commission is variable year-to-year and is dependent on the amount of losses incurred ceded. In 2023, compared to 2022, the increase in ceded losses incurred decreased the profit commission we received, resulting in higher ceded premiums. Increases in ceded losses incurred will benefit our losses incurred line, but will result in lower profit commission and higher ceded premiums.

Current wording

Our net premiums written and earned are primarily impacted by the changes in the direct premiums written and earned noted above and by the amount of premiums we cede under our quota share and excess of loss reinsurance transactions. The amount of premiums we cede in 2025 will be affected by any changes in our reinsurance coverage. Premiums we cede under our quota share transactions are also impacted by the profit commission we receive. The amount of profit commission is variable year-to-year and is dependent on the amount of losses incurred ceded. Increases in ceded losses incurred will benefit our losses incurred line, but will result in lower profit commission and higher ceded premiums.

Previous wording

Net investment income is a material contributor to our results of operations. We expect net investment income in 2024 to increase in comparison to 2023, primarily due to higher average investment yields. The amount of investment income will be impacted by the change in the yield we can earn on investments and the level of invested assets. The level of invested assets will primarily be impacted by the amount of cash we expect to use in financing activities relative to our cash from operations. The magnitude of any change in our invested asset level will be subject to the timing of our financing activities.

Current wording

Net investment income is a material contributor to our results of operations. We expect net investment income in 2025 to be relatively flat in comparison to 2024. The amount of investment income will be impacted by the change in the yield we can earn on investments and the level of invested assets. The level of invested assets will primarily be impacted by the amount of cash we expect to use in financing activities relative to our cash from operations. The magnitude of any change in our invested asset level will be subject to the timing of our financing activities.

Previous wording

Losses incurred, net is impacted by the level of new delinquency notices. Generally, on our primary business, the highest claim frequency years have been the third and fourth year after loan origination. As of December 31, 2023, 67% of our primary RIF was written subsequent to December 31, 2020, 84% of our primary RIF was written subsequent to December 31, 2019, and 89% of our primary RIF was written subsequent to December 31, 2018. The pattern of claim frequency can be affected by many factors, including annual persistency and deteriorating economic conditions.

Current wording

Losses incurred, net is impacted by the level of new delinquency notices. Generally, on our primary business, the highest claim frequency years have been the third and fourth year after loan origination. As of December 31, 2024, 50% of our primary RIF was written subsequent to December 31, 2021, 74% of our primary RIF was written subsequent to December 31, 2020, and 87% of our primary RIF was written subsequent to December 31, 2019. The pattern of claim frequency can be affected by many factors, including annual persistency and deteriorating economic conditions. Home price appreciation in recent years has allowed some borrowers to cure their delinquencies through the sale of their property. In addition, an increase in third party property sales prior to claim settlement has resulted in a decrease in the average claim paid on the claims we do receive. We expect net losses and LAE paid to increase; however, the magnitude and timing of the increases are uncertain.

Previous wording

The ability of MGIC to pay dividends is restricted by insurance regulation. Amounts in excess of prescribed limits are deemed “extraordinary” and may not be paid if disapproved by the OCI. A dividend is extraordinary when the proposed dividend amount, plus dividends paid in the twelve months preceding the dividend payment date exceed the ordinary dividend level. In 2024, MGIC can pay $64 million of ordinary dividends without OCI approval, before taking into consideration dividends paid in the preceding twelve months. In 2023 and 2022, MGIC paid a cash and/or investment security dividend of $600 million and $800 million, respectively, to our holding company. Future dividend payments from MGIC to the holding company will continue to be determined in consultation with the board.

Current wording

The ability of MGIC to pay dividends is restricted by insurance regulation. Amounts in excess of prescribed limits are deemed “extraordinary” and may not be paid if disapproved by the OCI. A dividend is extraordinary when the proposed dividend amount, plus dividends paid in the twelve months preceding the dividend payment date exceed the ordinary dividend level. In 2025, MGIC can pay $97 million of ordinary dividends without OCI approval, before taking into consideration dividends paid in the preceding twelve months. In 2024 and 2023, MGIC paid a cash and/or investment security dividend of $750 million and $600 million, respectively, to our holding company. Future dividend payments from MGIC to the holding company will continue to be determined in consultation with the Board of Directors.

Previous wording

In the first and second quarters of 2023, we paid quarterly cash dividends of $0.10 per share to shareholders which totaled $58.8 million. In the third and fourth quarters of 2023, we paid quarterly cash dividends of $0.115 per share which totaled $65.3 million. On January 23, 2024, the Board of Directors declared a quarterly cash dividend to holders of the company's common stock of $0.115 per share payable on March 5, 2024, to shareholders of record at the close of business on February 15, 2024. We expect to continue to make dividend payments to shareholders in 2024.

Current wording

In the first and second quarters of 2024, we paid quarterly cash dividends of $0.115 per share to shareholders which totaled $63.3 million. In the third and fourth quarters of 2024, we paid quarterly cash dividends of $0.13 per share which totaled $67.8 million. On January 28, 2025, the Board of Directors declared a quarterly cash dividend to holders of the company's common stock of $0.13 per share payable on March 5, 2025, to shareholders of record at the close of business on February 18, 2025. We expect to continue to make dividend payments to shareholders in 2025.

Previous wording

Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase programs may be suspended for periods or discontinued at any time. We repurchased approximately 21.7 million shares in 2023 using approximately $340.6 million of holding company resources. In 2022, we repurchased approximately 27.8 million shares of our common stock using approximately $385.7 million of holding company resources. In 2024, we expect share repurchase programs will remain our primary means of returning capital to shareholders.

Current wording

Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase programs may be suspended for periods or discontinued at any time. We repurchased approximately 25.3 million shares in 2024 for $566.6 million. In 2023, we repurchased approximately 21.7 million shares of our common stock for $340.6 million of holding company resources. In 2025, we expect share repurchase programs will remain our primary means of returning capital to shareholders.

Previous wording

The following table shows details of our share repurchase programs.

Current wording

The following table shows details of our share repurchase program.

Previous wording

As of December 31, 2023, we had approximately 272.5 million shares of common stock outstanding which was a decrease of 7.2% from December 31, 2022.

Current wording

As of December 31, 2024, we had approximately 248.4 million shares of common stock outstanding which was a decrease of 8.8% from December 31, 2023.

Previous wording

We must comply with a GSE's PMIERs to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transaction approval requirements. The PMIERs provide that the GSEs may amend any provision of the PMIERs or impose additional requirements with an effective date specified by the GSEs. If MGIC ceases to be eligible to insure loans purchased by one or both of the GSEs, it would significantly reduce the volume of our NIW, the substantial majority of which is for loans delivered to or purchased by the GSEs.

Current wording

We must comply with a GSE's PMIERs to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transaction approval requirements. The PMIERs provide that the GSEs may amend any provision of the PMIERs or impose additional requirements with an effective date specified by the GSEs. MGIC is in compliance with the PMIERs and eligible to insure loans purchased by the GSEs. In August 2024, the GSEs issued updates to the calculation of Available Assets.

Previous wording

The financial requirements of the PMIERs require a mortgage insurer’s “Available Assets” (generally only the most liquid assets of an insurer) to equal or exceed its “Minimum Required Assets” (which are based on an insurer’s book of risk in force and are calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor amount). Based on our interpretation of the PMIERs as of December 31, 2023, MGIC’s Available Assets totaled $5.8 billion, or $2.4 billion in excess of its Minimum Required Assets.

Current wording

The financial requirements of the PMIERs require a mortgage insurer’s “Available Assets” (generally only the most liquid assets of an insurer) to equal or exceed its “Minimum Required Assets” (which are generally based on an insurer’s book of risk in force and calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance agreements, and subject to a floor amount). Based on our interpretation of the PMIERs as of December 31, 2024, MGIC’s Available Assets totaled $5.8 billion, or $2.2 billion in excess of its Minimum Required Assets. The update will be implemented through a 24-month phased-in approach, with a fully effective date of September 30, 2026. If these changes were effective as of December 31, 2024, without a graduated implementation period, MGIC's Available Assets of $5.8 billion would decrease by approximately 1% or $50 million, and MGIC's PMIERs excess would be $2.1 billion.

Previous wording

The FHFA has been the conservator of the GSEs since 2008 and has the authority to control and direct their operations. Given that the Director of the FHFA is removable by the President at will, the agency's agenda, policies and actions are influenced by the then-current administration. The increased role that the federal government has assumed in the residential housing finance system through the GSE conservatorships may increase the likelihood that the business practices of the GSEs change, including through administration changes and actions. Such changes could have a material adverse effect on us.

Current wording

The FHFA has been the conservator of the GSEs since 2008 and has the authority to control and direct their operations. Given that the Director of the FHFA is removable by the President at will, the agency's agenda, policies and actions are influenced by the current administration. The increased role that the federal government has assumed in the residential housing finance system through the GSE conservatorships may increase the likelihood that the business practices of the GSEs change, including through administration changes and actions. Such changes could have a material adverse effect on us.

Previous wording

At December 31, 2023, MGIC’s risk-to-capital ratio was 10.2 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.6 billion above the required MPP of $2.2 billion. The calculation of our risk-to-capital ratio and MPP reflect full credit for the risk ceded under our reinsurance transactions. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded under such transactions. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the PMIERs, MGIC may terminate the reinsurance transactions, without penalty.

Current wording

At December 31, 2024, MGIC’s risk-to-capital ratio was 10.0 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.6 billion above the required MPP of $2.2 billion. The calculation of our risk-to-capital ratio and MPP reflect full credit for the risk ceded under our reinsurance transactions. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded under such transactions. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the PMIERs, MGIC may terminate the reinsurance transactions, without penalty.

Previous wording

The NAIC established a Mortgage Guaranty Insurance Working Group to determine and make recommendations to the NAIC’s Financial Condition Committee as to what, if any, changes to make to the solvency and other regulations relating to mortgage guaranty insurers. A draft of a revised Mortgage Guaranty Insurance Model Act was adopted by the Financial Condition Committee in July 2023 and by the Executive Committee and Plenary NAIC in August 2023. The revised Model Act includes requirements relating to, among other things: (i) capital and minimum capital requirements, and contingency reserves; (ii) restrictions on mortgage insurers’ investments in notes secured by mortgages; (iii) prudent underwriting standards and formal underwriting guidelines; (iv) the establishment of formal, internal “Mortgage Guaranty Quality Control Programs” with respect to in-force business; and (v) reinsurance and prohibitions on captive reinsurance arrangements. It is uncertain when the revised Model Act will be adopted in any jurisdiction. The provisions of the Model Act, if adopted in their final form, are not expected to have a material adverse effect on our business. It is unknown whether any changes will be made by state legislatures prior to adoption, and the effect changes, if any, will have on the mortgage guaranty insurance market generally, or on our business. At this time, we expect MGIC to continue to comply with the current State Capital Requirements; however, refer to our risk factor titled “State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis” in Item 1A for more information about matters that could negatively impact our compliance with State Capital Requirements.

Current wording

In 2023, the NAIC adopted a revised Mortgage Guaranty Insurance Model Act. The updated Model Act includes requirements relating to, among other things: (i) capital and minimum capital requirements, and contingency reserves; (ii) restrictions on mortgage insurers’ investments in notes secured by mortgages; (iii) prudent underwriting standards and formal underwriting guidelines; (iv) the establishment of formal, internal “Mortgage Guaranty Quality Control Programs” with respect to in-force business; and (v) reinsurance and prohibitions on captive reinsurance arrangements. It is uncertain when the revised Model Act will be adopted in any jurisdiction. The provisions of the Model Act, if adopted in their final form, are not expected to have a material adverse effect on our business. It is unknown whether any changes will be made by state legislatures prior to adoption, and the effect changes, if any, will have on the mortgage guaranty insurance market generally, or on our business. Wisconsin, where MGIC is domiciled, has begun the process to replace current Mortgage Insurance regulations with the Model Act, though it is expected that some changes will be made before formal adoption.

Previous wording

Our current and future business, results of operations and financial condition are impacted by macroeconomic conditions, such as rising interest rates, home prices, housing demand, level of employment, inflation, pandemics, restrictions and costs on mortgage credit, and other factors. For additional information on how our business may be impacted see our Risk Factor titled “Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.”

Current wording

Our current and future business, results of operations and financial condition are impacted by macroeconomic conditions, such as interest rates, home prices, housing demand, level of employment, inflation, pandemics, restrictions on and costs of mortgage credit, and other factors. For additional information on how our business may be impacted see our risk factor titled “Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.”

Previous wording

The future effects of climate change on our business are uncertain. For information about possible effects, please refer to our Risk Factor titled “Pandemics, hurricanes and other disasters may impact our incurred losses, the amount and timing of paid claims, our inventory of notices of default and our Minimum Required Assets under PMIERs.”

Current wording

The future effects of climate change on our business are uncertain. For information about possible effects, please refer to our risk factor titled “Pandemics, hurricanes and other disasters may adversely impact our results of operations and financial condition.”

Previous wording

•NIW, which increases IIF. Many factors affect NIW, including the volume of low down payment home mortgage originations and competition to provide credit enhancement on those mortgages from the FHA, the VA, other mortgage insurers, and other alternatives to mortgage insurance, including GSE programs that may reduce or eliminate the demand for mortgage insurance. NIW does not include loans previously insured by us that are modified, such as loans modified under HARP.

Current wording

•NIW, which increases IIF. Many factors affect NIW, including the volume of low down payment home mortgage originations and competition to provide credit enhancement on those mortgages from the FHA, the VA, and other mortgage insurers. Other alternatives to mortgage insurance also impact NIW, including GSE programs that may reduce or eliminate the demand for mortgage insurance. NIW does not include loans previously insured by us that are modified, such as loans modified under HARP.

Previous wording

•Cancellations, which reduce IIF. Cancellations due to refinancings are affected by the level of current mortgage interest rates compared to the mortgage coupon rates throughout the in force book, current home values compared to values when the loans in the in force book were insured and the terms on which mortgage credit is available. Home price appreciation can give homeowners the right to cancel mortgage insurance on their loans if sufficient home equity is achieved. Cancellations also result from policy rescissions, which require us to return any premiums received on the rescinded policies, and claim payments, which require us to return any premium received on the related policies from the date of default on the insured loans. Cancellations of single premium policies, which are generally non-refundable, result in immediate recognition of any remaining unearned premium.

Current wording

•Cancellations, which reduce IIF. Cancellations from refinancings may occur when borrowers achieve the required amount of home equity through loan amortization, loan payoffs, or home price appreciation. Refinance-related cancellations are influenced by the level of current mortgage interest rates compared to the mortgage coupon rates throughout the in force book, current home values relative to values when the loans in the in force book were insured and the terms on which mortgage credit is available. Policy rescissions also cause cancellations requiring us to return any premiums received, from the date of default, on the rescinded policies and claim payments. Cancellations of single premium policies, which are generally non-refundable, result in immediate recognition of any remaining unearned premium.

Previous wording

•Premium rates, which are affected by product type, competitive pressures, the risk characteristics of the insured loans, the percentage of coverage on the insured loans, and PMIERs capital requirements. The substantial majority of our monthly and annual mortgage insurance premiums are under premium plans for which, for the first ten years of the policy, the amount of premium is determined by multiplying the initial premium rate by the original loan balance; thereafter, the premium rate resets to a lower rate used for the remaining life of the policy. The remainder of our monthly and annual premiums are under premium plans for which premiums are determined by a fixed percentage of the loan’s amortizing balance over the life of the policy.

Current wording

•Premium rates, which vary by product type, the risk characteristics of the insured loans, competitive pressures, the percentage of coverage on the insured loans, and PMIERs capital requirements. The substantial majority of our monthly and annual mortgage insurance premiums are under premium plans for which, for the first ten years of the policy, the amount of premium is determined by multiplying the initial premium rate by the original loan balance; thereafter, the premium rate resets to a lower rate used for the remaining life of the policy. The remainder of our monthly and annual premiums are under premium plans for which premiums are determined by a fixed percentage of the loan’s amortizing balance over the life of the policy.

Previous wording

Losses incurred are the current expense that reflects claim payments, costs of settling claims, and changes in our estimates of payments that will ultimately be made as a result of delinquencies on insured loans. As explained under “Critical Accounting Estimates” below, except in the case of a premium deficiency reserve, we recognize an estimate of this expense only for delinquent loans. The level of new delinquencies has historically followed a seasonal pattern, with new delinquencies in the first part of the year lower than new delinquencies in the latter part of the year. The state of the economy, local housing markets, and various other factors, including pandemics, may result in delinquencies not following the typical pattern. Losses incurred are generally affected by:

Current wording

Losses incurred are the current expense that reflects claim payments, costs of settling claims, and changes in our estimates of payments that will ultimately be made as a result of delinquencies on insured loans. As explained under “Critical Accounting Estimates” below, except in the case of a premium deficiency reserve, we recognize an estimate of this expense only for delinquent loans. The level of new delinquencies has historically followed a seasonal pattern, with new delinquencies in the first half of the year lower than new delinquencies in the latter half of the year. The state of the economy, local housing markets, pandemics, natural disasters, and various other factors may result in delinquencies not following the typical pattern. Losses incurred are generally affected by:

Previous wording

•The distribution of claims over the life of a book. Historically, the first few years after loans are originated are a period of relatively low claims, with claims increasing substantially for several years subsequent and then declining, although annual persistency, the condition of the economy, including unemployment and housing prices, and other factors can affect this pattern. For example, a weak economy or housing value declines can lead to claims from older books increasing, continuing at stable levels or experiencing a lower rate of decline. See further information under “Mortgage insurance earnings and cash flow cycle” below.

Current wording

•The distribution of claims over the life of a book. Historically, the first few years after loans are originated are a period of relatively low claims, with claims increasing substantially for several years subsequent and then declining. Annual persistency, the condition of the economy, including unemployment and housing prices, and other factors can affect this pattern. For example, a weak economy or housing value declines can lead to claims from older books increasing, continuing at stable levels or experiencing a lower rate of decline. See further information under “Mortgage insurance earnings and cash flow cycle” below.

Previous wording

Underwriting and other expenses includes items such as employee compensation, fees for professional and consulting services, depreciation and maintenance expense, and premium taxes, and are reported net of ceding commissions associated with our QSR Transactions. Employee compensation expenses are variable due to share-based compensation, changes in benefits, and changes in headcount (which can fluctuate due to volume of NIW). See Note 9 – “Reinsurance” to our consolidated financial statements for a discussion of ceding commission on our QSR Transactions.

Current wording

Underwriting and other expenses includes items such as employee compensation, fees for professional and consulting services, depreciation and maintenance expense, and premium taxes, and are reported net of ceding commissions associated with our QSR Transactions. Employee compensation expenses are variable due to share-based compensation, changes in benefits, and changes in headcount (which can fluctuate due to volume of NIW). See Note 9 – “Reinsurance” and Note 18 – “Segment Reporting” to our consolidated financial statements for a discussion of ceding commission on our QSR Transactions and discussion on significant segment expenses.

Previous wording

Interest expense reflects the interest associated with our consolidated outstanding debt obligations discussed in Note 7 – “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” below.

Current wording

Interest expense reflects the interest associated with our outstanding debt obligations discussed in Note 7 – “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” below.

Previous wording

•Equity securities. Investment gains and losses are accounted for as a function of the periodic change in fair value.

Current wording

•Equity securities. Investment gains and losses reflect the periodic change in fair value.