MGIC INVESTMENT CORP

BALANCE SHEET REVIEW

The following sections focus on the assets and liabilities experiencing major developments in 2024.

INVESTMENT PORTFOLIO

The investment portfolio increased to $5.9 billion as of December 31, 2024 (2023: $5.7 billion), primarily due to a decrease in the prevailing market interest rates.

The return we generate on our investment portfolio is an important component of our consolidated financial results. Our investment portfolio primarily consists of a diverse mix of highly rated fixed income securities. The investment portfolio is designed to achieve the following objectives:

(1)Primarily MGIC

To achieve our portfolio objectives, our asset allocation considers the risk and return parameters of the various asset classes in which we invest. This asset allocation is informed by, and based on, the following factors:

The average duration and embedded investment yield of our investment portfolio as of December 31, 2024 and 2023 is shown in the following table.

(1)Embedded investment yield is calculated on a yield-to-worst basis.

The credit risk of a security is evaluated through analysis of the security's underlying fundamentals, including the issuer's sector, scale, profitability, debt coverage, and ratings. Our investment policy guidelines limit the amount of our credit exposure to any one issue, issuer and type of instrument. The following table shows the security ratings of our fixed income investments as of December 31, 2024 and 2023.

(1)Ratings are provided by one or more of: Moody's, Standard & Poor's and Fitch Ratings. If three ratings are available, the middle rating is used, otherwise the lowest rating is used.

Our investment portfolio was invested in comparable security types for the years ended December 31, 2024 and December 31, 2023. See Note 5 – “Investments” to our consolidated financial statements for additional disclosure on our investment portfolio.

Investments outlook

The Federal Open Market Committee (“FOMC”) reduced the federal funds rate three times throughout 2024 from 5.50% to 4.50% as it balanced maintaining a sufficiently restrictive monetary policy to return inflation to its long-run target, while also achieving its employment goals. In January, 2025, the FOMC held the federal funds rate at 4.25% to 4.50%. The FOMC acknowledged inflation data has demonstrated moderation to the 2% inflation target, and expressed support for further rate cuts in 2025 provided disinflationary progress continues across a broad range of core goods and services prices. The forward curve, which currently includes rate cuts this year indicates a less restrictive FOMC policy through the end of 2025. The lagged effects of the FOMC’s actions and other ongoing macroeconomic and geopolitical factors could create significant economic uncertainty and alter forward rate expectations, which may result in interest rate and credit spread volatility. Market volatility resulting from these factors, particularly the absolute level of rates and the rate of change, will continue to impact our investment valuations and returns.

The changes in unrealized investment gains and losses generally do not alter the management of our investment portfolio. We seek to manage our exposure to interest rate risk and volatility by maintaining a diverse mix of securities with an intermediate duration profile and generally hold fixed income investments until maturity. The quality of our fixed income portfolio remains very high and changes in unrealized gains and losses have little impact on our cash flows, statutory surplus, or other capital requirements.

While a higher interest rate environment may continue to adversely impact the fair values of existing fixed income investments, it presents an opportunity for continued investment into securities with yields in excess of the book yield on our portfolio. Increases in market-based portfolio yields are expected to result in higher net investment income in future periods if the basis of invested assets is stable or increases in size. In addition to fixed income securities, we also hold cash and cash equivalents which yield returns that generally reflect the federal funds rate.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents decreased to $229.5 million, as of December 31, 2024 (2023: $363.7 million), as net cash generated from operating activities was substantially used in financing activities.

DEFERRED INCOME TAXES

Our net deferred tax asset was $69.9 million as of December 31, 2024 (2023: $79.8 million). The change to our deferred tax asset during 2024 was primarily due to the change in other comprehensive income attributable to our benefit plans. We owned $968.2 million and $848.6 million of tax and loss bonds at December 31, 2024 and December 31, 2023, respectively. See Note 12 – “Income Taxes” to our consolidated financial statements for additional disclosure on the components of our deferred tax assets and liabilities.

LOSS RESERVES AND REINSURANCE RECOVERABLE ON LOSS RESERVES

Our loss reserves include estimates of losses and settlement expenses on (1) loans in our delinquency inventory (known as case reserves), (2) IBNR delinquencies, and (3) LAE. Our gross reserves are reduced by reinsurance recoverable on loss reserves to calculate a net reserve balance. Loss reserves decreased to $462.7 million as of December 31, 2024, from $505.4 million of December 31, 2023. Reinsurance recoverables on loss reserves were $47.3 million and $33.3 million as of December 31, 2024 and December 31, 2023, respectively. The decrease in loss reserves is primarily due to favorable development of $212.5 million on previously received delinquency notices, partially offset by loss reserves established on new delinquency notices. The reinsurance recoverable on loss reserves is impacted by the change in direct reserves and the percentage of our delinquency inventory covered by reinsurance transactions.

UNEARNED PREMIUM

Our unearned premium decreased to $120.4 million as of December 31, 2024 from $157.8 million as of December 31, 2023 primarily due to the run-off of unearned premium on our existing portfolio of single premium policies, partially offset by new premium written on single premium policies.

SHAREHOLDER'S EQUITY

The increase in shareholders' equity is primarily due to net income and a decrease in the accumulated other comprehensive losses reported in shareholders' equity related to the fair value of our investment portfolio and net changes in our benefit plan assets and obligations, partially offset by repurchases of our common stock and dividends paid to shareholders in 2024.

Prior to November 15, 2024, shares we repurchased were held in treasury stock unless they were reissued under the discretion of our Board of Directors. As of November 15, 2024, we retired all shares of our treasury stock. There was no change to our shareholders' equity as a result of the retirement. Subsequent to the retirement of the treasury stock, all shares of our common stock that we repurchase are immediately retired. See Note 13 - "Shareholders' Equity" to our consolidated financial statements for additional information on our retirement of treasury stock.