MGIC INVESTMENT CORP

CONSOLIDATED RESULTS OF OPERATIONS

The following section of the MD&A provides a comparative discussion of our Consolidated Results of Operations for the two-year period ended December 31, 2024. For a discussion of the Critical Accounting Estimates used by us that affect the Consolidated Results of Operations, see"Critical Accounting Estimates" below.

REVENUES

NET PREMIUMS WRITTEN AND EARNED

Net premiums written and earned increased 2% in 2024 compared with the prior year. The increase in premiums written and earned in 2024 compared to the prior year is primarily dueto a decrease in ceded premiums.

Premium yields

Premium yield is net premiums earned divided by average IIF during the year and is influenced by a number of key drivers, which have a varying impact from period to period. The following table provides information related to our premium yield for 2024, and 2023.

(1) Total direct premiums earned, excluding premium refunds and accelerated premiums from single premium policy cancellations divided by average primary insurance in force.

(2) Ceded premiums for reinsurance cancellation activities resulted in a decrease of 0.5 bps in 2023. Assumed premiums include those from our participation in GSE CRT programs, of which the impact on the net premium yield was 0.5 bps in 2024 and 0.4 bps in 2023.

Changes in the net premium yields when compared to the respective prior year periods reflect the following:

As discussed in our risk factor titled "Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and/or increase our losses," the private mortgage insurance industry is highly competitive and premium rates have declined over the past several years. We expect our in force portfolio premium yield will remain relatively flat in 2025 driven by sustained high credit quality and an elevated annual persistency.

See "Overview – Factors Affecting Our Results" above for additional factors that also influence the amount of net premiums written and earned in a year.

REINSURANCE TRANSACTIONS

Quota Share Reinsurance

Our quota share reinsurance affects various lines of our statements of operations and therefore we believe it should be analyzed by reviewing its total effect on our pre-tax income, described as follows.

The following table provides information related to our QSR Transactions for 2024 and 2023.

Ceded premiums written and earned, net of profit commission decreased in 2024 when compared with the prior year primarily due to a decrease in the average amount of our IIF subject to our QSR Transactions throughout the year in comparison to the prior year. Ceded losses incurred are impacted by the delinquencies covered by our QSR Transactions, our estimates of payments that will be ultimately made on those delinquencies, and claim payments covered by our QSR Transactions.

In the fourth quarter of 2024 we exercised the early termination option on our 2021 quota share reinsurance transaction. After providing reinsurers the termination notice but prior to the termination date, we agreed to amended terms with certain participants from the existing reinsurance panel that effectively reduced the quota share cede rate from 30% to 26% on the remaining eligible insurance. We paid a termination fee of approximately $1 million to the non-participating reinsurers. The amended agreement is effective December 31, 2024. We terminated our 2020 QSR Transaction effective December 31, 2023 and incurred an early termination fee of $5 million.

We executed a 40% QSR transaction with a group of unaffiliated reinsurers covering most of our new insurance written in 2025 and 2026.

Covered Risk

The percentages of our NIW, new risk written, IIF, and RIF subject to our QSR Transactions as shown in the following table will vary from period to period in part due to the mix of our risk written during the period and the number of active QSR Transactions.

The increase in IIF and RIF subject to QSR Transactions was primarily due to the increase in IIF subject to our 2024 QSR Transaction throughout 2024 offset by the termination of our 2020 QSR Transaction at December 31, 2023.

Excess of Loss Reinsurance

We have excess of loss reinsurance (“XOL Transactions”) with panels of unaffiliated reinsurers executed through the traditional reinsurance market (“Traditional XOL Transaction”) and with unaffiliated special purpose insurers (“Home Re Transactions”).

For policies covered by our Traditional XOL Transactions, we retain the first layer of the aggregate losses paid, and the reinsurers will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses paid in excess of the outstanding reinsurance coverage amount. The reinsurance coverage is subject to adjustment based on the risk characteristics of the covered loans until the initial excess of loss reinsurance coverage layer has been finalized.

The Home Re Transactions are executed through the issuance of insurance linked notes (“ILNs”). At December 31, 2024 our Home Re Transactions provided $829.4 million of loss coverage on a portfolio of policies having an in force date from August 1, 2020 through December 31, 2021, and from June 1, 2022 through August 31, 2023; all dates inclusive. For this reinsurance coverage, we retain the first layer of the respective aggregate losses paid, and a Home Re Entity will then provide second layer coverage up to the outstanding reinsurance amount.

The current attachment, current detachment, and PMIERs required asset credit for each of our XOL Transactions as of December 31, 2024, are as follows:

(1) The percentage represents the cumulative losses as a percentage of adjusted risk in force that MGIC retains prior to the XOL taking losses.

(2) The percentage represents the cumulative losses as a percentage of adjusted risk in force that must be reached before MGIC begins absorbing losses after the XOL layer

In 2024, we exercised our option to terminate the reinsurance agreement with Home Re 2020-1, Ltd. and Home Re 2018-1, Ltd. In connection with the terminations, the insurance linked notes issued by Home Re 2020-1 Ltd. and Home Re 2018-1, Ltd. were redeemed in full. We also terminated our reinsurance agreement with Home Re 2019-1, Ltd.

We ceded premiums on our XOL Transactions of $66.6 million and $78.9 million for the years ended December 31, 2024 and 2023, respectively.

See Note 9 - "Reinsurance," to our consolidated financial statements for additional discussion of our XOL Transactions.

INVESTMENT INCOME, NET

Net investment income increased 14% to $244.6 million in 2024 compared to $214.7 million in 2023. The increase in net investment income was primarily due to an increase of approximately 42 basis points in average investment yields.

See"Balance Sheet Review" in this MD&A for further discussion regarding our investment portfolio.

LOSSES AND EXPENSES

LOSSES INCURRED, NET

As discussed in “Critical Accounting Estimates” below and consistent with industry practices, we establish case loss reserves for future claims on delinquent loans that were reported to us as two payments past due and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case loss reserves are established based on estimating the number of loans in our delinquency inventory that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.

IBNR reserves are established for estimated losses from delinquencies we estimate have occurred prior to the close of an accounting period, but have not yet been reported to us. IBNR reserves are also established using estimated claim rates and claim severities.

Estimation of losses is inherently judgmental. Even in a stable environment, changes to our estimates could result in a material impact to our consolidated results of operations and financial position. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment, and the current and future strength of local housing markets; exposure on insured loans; the amount of time between delinquency and claim filing (all else being equal, the longer the period between delinquency and claim filing, the greater the severity); and curtailments and rescissions. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment, leading to a reduction in borrowers’ income and thus their ability to make mortgage payments, the impact of past and future government initiatives and actions taken by the GSEs (including mortgage forbearance programs and foreclosure moratoriums), and a drop in housing values which may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. Loss reserves in future periods will also be dependent on the number of loans reported to us as delinquent.

Generally, losses follow a seasonal trend in which the second half of the year has weaker credit performance than the first half, with higher new notice activity and a lower cure rate. The state of the economy, local housing markets, pandemics, natural disasters, and various other factors, may result in delinquencies not following the typical pattern.

For information on how pandemics and natural disasters could affect losses incurred, net see our risk factors titled “Pandemics, hurricanes and other disasters may adversely impact our results of operations and financial condition". As discussed in our risk factor titled “Because we establish loss reserves only upon a loan delinquency 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” if we have not received a notice of delinquency with respect to a loan and if we have not estimated the loan to be delinquent as of December 31, 2024, through our IBNR reserve, then we have not yet recorded an incurred loss with respect to that loan.

Losses incurred, net increased to $(14.9) million compared to $(20.9) million in 2023. 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 approximately $212.5 million. In 2023, new delinquency notices added $187.7 million to losses incurred, our re-estimation of loss reserves on previously received delinquency notices resulted in favorable development on previously received delinquency notices 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.

See "New notice activity" and "Claims severity" below for additional factors and trends that impact these loss reserve assumptions.

Loss ratio

The loss ratio is the ratio, expressed as a percentage, of the sum of losses incurred, net to net premiums earned. The increase in the loss ratio in 2024 when compared to 2023 was primarily due to an increase in losses incurred as discussed above.

Delinquency inventory

A roll-forward of our primary delinquency inventory for the years ended December 31, 2024 and 2023 appears in the table below. The information concerning new notices and cures is compiled from monthly reports received from loan servicers. The level of new notice and cure activity reported in a particular month can be influenced by, among other things, the date on which a servicer generates its report, the number of business days in a month and transfers of servicing between loan servicers.

New notice activity

The table below presents our new delinquency notices received, delinquency inventory, and the average number of missed payments for the loans in our delinquency inventory by policy year:

Claims severity

Factors that impact claim severity include:

As discussed in Note 8 - "Loss Reserves," our loss reserves estimates take into consideration trends over time, because the development of the delinquencies may vary from period to period without establishing a meaningful trend. An increase in third party property sales, prior to claim settlement has resulted in a decrease in the average claim paid and the average claim paid as a percentage of exposure in recent years. We expect average claims paid as a percentage of exposure to increase as we receive delinquencies that have not experienced the same level of home price appreciation as in recent years. The extent and timing of these increases are uncertain.

The majority of loans insured prior to 2014 (which represent 29% of the loans in the delinquency inventory) are covered by master policy terms that, except under certain circumstances, do not limit the number of years that an insured can include interest when filing a claim. Under our current master policy terms, an insured can include accumulated interest when filing a claim only for the first three years the loan is delinquent. In each case, the insured must comply with its obligations under the terms of the applicable master policy.

See Note 8 – “Loss Reserves” to our consolidated financial statements and “Critical Accounting Estimates” below for a discussion of our losses incurred and claims paying practices (including curtailments).

The table below shows the number of consecutive months a borrower is delinquent. Historically as a delinquency ages it is more likely to result in a claim.

(1)Approximately 27% and 37% of the delinquent inventory that has been delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of December 31, 2024 and 2023, respectively.

The length of time a loan is in the delinquency inventory can differ from the number of payments that the borrower has not made or is considered delinquent. These differences typically result from a borrower making monthly payments that do not result in the loan becoming fully current. Generally, a defaulted loan with more missed payments is more likely to result in a claim. The number of payments that a borrower is delinquent is shown in the following table.

(1)Approximately 25% and 34% of the loans in the primary delinquency inventory with 12 payments or more delinquent have at least 36 payments delinquent as of December 31, 2024, and 2023, respectively.

NET LOSSES AND LAE PAID

Net losses and LAE paid in 2024 were consistent with 2023. The primary average claim paid can vary materially from period to period based upon a variety of factors, including the local market conditions, average loan amount, average coverage percentage, the amount of time between delinquency and claim filing, and our loss mitigation efforts on loans for which claims are paid. Net losses and LAE paid have been positively impacted by home price appreciation in recent years that has allowed more delinquent loans to cure through the sale of the 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.

The table below presents our net losses and LAE paid for 2024 and 2023.

(1)See Note 9 - "Reinsurance" for additional information on our reinsurance terminations

(2)Excludes amounts paid in NPL settlements

The primary average RIF on delinquent loans as of December 31, 2024 and 2023 and for the top 5 jurisdictions (based on December 31, 2024 delinquency inventory) appears in the following table.

The primary average RIF on all loans was $70,475 and $67,705 at December 31, 2024 and December 31, 2023, respectively. The increase is primarily due to an increase in loans from recent years having generally larger loan balances.

The gross reserves as of December 31, 2024, and 2023 appear in the table below.

(1)Other gross loss reserves includes direct and assumed reserves that are not included within our primary loss reserves.

The primary delinquency inventory for the top 15 jurisdictions (based on December 31, 2024 delinquency inventory) at December 31, 2024, and 2023 appears in table the below.

The primary delinquency inventory by policy year at December 31, 2024 and 2023 appears in the following table.

On our primary business, the highest claim frequency years have typically been the third and fourth year after loan origination. However, the pattern of claim frequency can be affected by many factors, including persistency and deteriorating economic conditions. Deteriorating economic conditions can result in increasing claims following a period of declining claims. 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.

UNDERWRITING AND OTHER EXPENSES, NET

Underwriting and other expenses includes items such as employee compensation costs, outside service expenses, premium taxes, and depreciation and maintenance expense, and are reported net of ceding commissions. See Note 18. - "Segment Reporting" to our consolidated financial statements for a discussion around significant segment expenses.

Underwriting and other expenses, net for 2024 decreased to $209.3 million from $226.0 million in 2023. The decrease was primarily due to a decrease in pension expenses, and a decrease in outside service expenses. Pension expenses were higher in 2023 due to settlement accounting charges.

The underwriting expense ratio is the ratio, expressed as a percentage, of the underwriting and operating expenses, net and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance subsidiaries) to net premiums written. The underwriting expense ratio decreased in 2024 compared with 2023 due to a decrease in underwriting and operating expenses, net, and an increase in net premiums written.

INCOME TAX EXPENSE AND EFFECTIVE TAX RATE

The increase in our provision for income taxes for 2024 compared to 2023 was primarily due to an increase in income before tax. Our effective tax rate for 2024 and 2023 approximated the federal statutory income tax rate of 21%.

See Note 12 – “Income Taxes” to our consolidated financial statements for a discussion of our tax position.