MGIC INVESTMENT CORP

CONSOLIDATED CASH FLOW ANALYSIS

We have three primary types of cash flows: (1) operating cash flows, which consist mainly of cash generated by our insurance operations and income earned on our investment portfolio, less amounts paid for claims, interest expense and operating expenses, (2) investing cash flows related to the purchase, sale and maturity of investments and purchases of property and equipment and (3) financing cash flows generally from activities that impact our capital structure, such as changes in debt and shares outstanding, and dividend payments. The following table summarizes these three cash flows on a consolidated basis for the last two years.

Operating activities

The following list highlights the major sources and uses of cash flow from operating activities:

Our largest source of cash is from premiums received from our insurance policies, which we receive on a monthly installment basis for most policies. Premiums are received at the beginning of the coverage period for single premium and annual premium policies. Our largest cash outflow is generally for claims that arise when a delinquency results in an insured loss. Based on historical experience, we expect our future claim payments associated with established case loss reserves to pay out at or within 5 years, with the majority of future claim payments made within one to three years. Net losses and LAE paid in recent years has been positively impacted by home price appreciation 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.

We invest our net cash flow in various investment securities that earn interest. We also use cash to pay for our ongoing expenses such as salaries, debt interest, professional services and occupancy costs.

In connection with our reinsurance transactions, we cede, or pay out, part of the premiums we receive to our reinsurers and collect cash when claims subject to our reinsurance coverage are paid.

Net cash provided by operating activities in 2024 increased compared to 2023 primarily due to an increase in investment income, an increase in premiums written, partially offset by an increase in underwriting and operating expenses paid, and an increase in loss payments.

We also have purchase obligations totaling approximately $11.6 million which consist primarily of contracts related to our continued investment in our information technology infrastructure in the normal course of business. The majority of these obligations are under contracts that give us cancellation rights with notice. In the next twelve months we anticipate we will pay approximately $8.7 million for our purchase obligations.

We do not expect to make a contribution to the pension plan in 2025 and distributions from the supplemental executive retirement plan will be funded as incurred. The net funded status (the market value of our plan assets compared to the projected benefit obligation) will impact future contributions to our qualified pension plan.

Investing activities

The following list highlights the major sources and uses of cash flow from investing activities:

We maintain an investment portfolio that is primarily invested in a diverse mix of fixed income securities. As of December 31, 2024, our portfolio had a fair value of $5.9 billion compared to $5.7 billion at December 31, 2023. Net cash flows used in investing activities in 2024 and 2023, primarily reflects purchases of fixed income securities during the period that exceeded sales and maturities of fixed income securities during the period as cash from operations was available for additional investment.

Financing activities

The following list highlights the major sources and uses of cash flow from financing activities:

Net cash flows used in financing activities in 2024 primarily reflects the repurchases of our common stock, dividends to shareholders, and the payment of withholding taxes related to share-based compensation net share settlement. Net cash flows used in financing activities in 2023 primarily reflects the repurchase of our common stock, dividends to shareholders, and the conversion of our 9% Debentures.

For a further discussion of matters affecting our cash flows, see "Balance Sheet Review" above and "Debt at our Holding Company and Holding Company Liquidity" below.

CAPITALIZATION

Capital Risk

Capital risk is the risk of adverse impact on our ability to comply with capital requirements (regulatory and GSE) and to maintain the level, structure and composition of capital required for meeting financial performance objectives.

A strong capital position is essential to our business strategy and is important to maintain a competitive position in our industry. Our capital strategy focuses on long-term stability, which enables us to build and invest in our business, even in a stressed environment.

Our capital management objectives are to:

These objectives are achieved through ongoing monitoring and management of our capital position, mortgage insurance portfolio stress modeling, and a capital governance framework. Capital management is intended to be flexible in order to react to a range of potential events. The focus we place on any individual objective may change over time due to factors that include, but are not limited to, economic conditions, changes at the GSEs, competition, and alternative transactions to transfer mortgage risk.

Capital Structure

The following table summarizes our capital structure as of December 31, 2024, and 2023.

(1)As of November 15, 2024, we retired all shares of our treasury stock. Effective November 15, 2024, all shares of our common stock that we repurchase are immediately retired and not held as treasury stock.

The increase in shareholders' equity in 2024 primarily relates 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. These changes were partially offset by repurchases of our common stock and dividends paid to shareholders in 2024. See Note 13 - "Shareholders' Equity" for further information.

Debt obligations - holding company

As of December 31, 2024, our holding company's debt obligations was $650 million in aggregate principal amount consisting of our 5.25% Notes due in 2028.

See Note 7 - "Debt" for further information on our outstanding debt obligations and transactions impacting our consolidated financial statements in 2024 and 2023.

Liquidity analysis - holding company

As of December 31, 2024, and December 31, 2023, we had approximately $1.1 billion and $0.9 billion, respectively, in cash and investments at our holding company. These resources are maintained primarily to service our debt interest expense, pay debt maturities, repurchase shares, pay dividends to shareholders, and to settle intercompany obligations. While these assets are held, we generate investment income that serves to offset a portion of our cash requirements. The payment of dividends from MGIC are the principal source of holding company cash inflow and their payment is restricted by insurance regulation. See Note 14 - “Statutory Information” to our consolidated financial statement for additional information about MGIC’s dividend restrictions. The payment of dividends from MGIC is also influenced by our view of the appropriate level of excess PMIERs Available Assets to maintain, which can change over time. Raising capital in the public markets is another potential source of holding company liquidity. The ability to raise capital in the public markets is subject to prevailing market conditions, investor demand for the securities to be issued, and our deemed creditworthiness.

Over the next twelve months the principal demand on holding company resources will be interest payments on our 5.25% Notes approximating $34.0 million, based on the debt outstanding at December 31, 2024. We believe our holding company has sufficient sources of liquidity to meet its payment obligations for the foreseeable future.

During 2024 and 2023, we repurchased 25.3 million and 21.7 million shares of our common stock for $566.6 million and $340.6 million respectively. Through February 21, 2025 we repurchased 5.8 million shares of our common stock for $142.3 million. The repurchase programs may be suspended or discontinued at any time.

In 2024, we paid cash dividends of $130.5 million to shareholders. On January 28, 2025, our Board of Directors declared a quarterly cash dividend of $0.13 per common share to shareholders of record on February 18, 2025, payable on March 5, 2025. We expect to continue to make dividend payments to shareholders in 2025.

We may use additional holding company cash to repurchase additional shares or to repurchase our outstanding debt obligations. Such repurchases may be material, may be made for cash (funded by debt) and/or exchanges for other securities, and may be made in open market purchases (including through 10b5-1 plans), privately negotiated acquisitions or other transactions. In 2025, we expect share repurchase programs will remain our primary means of returning capital to shareholders. See"Overview-Capital" of this MD&A for a discussion of our share repurchase programs.

Significant cash and investments inflows at our holding company during the year were:

•$750.0 million dividends received from MGIC,

•$44.4 million intercompany tax receipts,

•$40.0 million of capital returned from our subsidiary, and

•$29.5 million of investment income.

Significant cash outflows at our holding company during the year were:

•$569.5 million of net share repurchase transactions,

•$130.5 million of cash dividends paid to shareholders, and

•$34.1 million of interest payments on our outstanding debt obligations

The net unrealized losses on our holding company investment portfolio were approximately $3.4 million at December 31, 2024 and the portfolio had a modified duration of approximately 0.8 years.

MGIC paid $750 million in dividends to our holding company in the year ended December 31, 2024. Future dividend payments from MGIC to the holding company will be determined in consultation with the Board of Directors, and after considering any updated estimates about our business. We ask the Wisconsin OCI not to object before MGIC pays dividends to the holding company.

Scheduled debt maturities beyond the next twelve months include $650 million of our 5.25% Notes in 2028.

See Note 7 – “Debt” to our consolidated financial statements for additional information about our long term debt. The description in Note 7 - “Debt" to our consolidated financial statements is qualified in its entirety by the terms of the notes and debentures. The terms of our 5.25% Notes are contained in a Supplemental Indenture, dated as of August 12, 2020, between us and U.S. Bank National Association, as trustee, which is included as an exhibit to our 8-K filed with the SEC on August 12, 2020, and in the Indenture dated as of October 15, 2000 between us and the trustee.

Although not anticipated in the near term, we may also contribute funds to our insurance operations to comply with the PMIERs or the State Capital Requirements. See “Overview – Capital” above for a discussion of these requirements.

DEBT AT SUBSIDIARIES

MGIC did not have any outstanding debt obligations at December 31, 2024. MGIC is a member of the FHLB, which provides MGIC access to an additional source of liquidity through a secured lending facility. We may borrow from the FHLB at any time.

CAPITAL ADEQUACY

PMIERs

As of December 31, 2024, MGIC’s Available Assets under the PMIERs totaled approximately $5.8 billion, an excess of approximately $2.2 billion over its Minimum Required Assets; and MGIC is in compliance with the requirements of the PMIERs and eligible to insure loans delivered to or purchased by the GSEs.

The table below presents the PMIERS capital credit for our reinsurance transactions.

We executed a 2025 and 2026 QSR transaction. Our 2025 and 2026 QSR Transaction is a 40% quota share on most of our new insurance written in 2025 and 2026, respectively, and will also provide PMIERs capital credit. Refer to Note 9 - "Reinsurance" to our consolidated financial statements for additional information on our reinsurance transactions.

The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. Refer to "Overview - Capital - GSEs" of this MD&A and our risk factor titled“We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility” in Item 1A. for further discussion of PMIERs.

We plan to continuously comply with the PMIERs through our operational activities or through the contribution of funds from our holding company, subject to demands on the holding company's resources, as outlined above.

RISK-TO-CAPITAL

We compute our risk-to-capital ratio on a separate company statutory basis, as well as on a combined insurance operations basis. The risk-to-capital ratio is our net RIF divided by our policyholders’ position. Our net RIF includes both primary and pool RIF and excludes risk on policies that are currently in default and for which case loss reserves have been established and the risk covered by reinsurance. The risk amount includes pools of loans with contractual aggregate loss limits and without these limits. MGIC's policyholders’ position consists primarily of statutory policyholders’ surplus (which increases as a result of statutory net income and decreases as a result of statutory net loss and dividends paid), plus the statutory contingency reserve. The statutory contingency reserve is reported as a liability on the statutory balance sheet. A mortgage insurance company is required to make annual additions to a contingency reserve of approximately 50% of earned premiums. These contributions must generally be maintained for a period of ten years. However, with regulatory approval a mortgage insurance company may make early withdrawals from the contingency reserve when incurred losses exceed 35% of earned premiums in a calendar year.

The table below presents MGIC's risk-to-capital calculation.

(1)RIF – net, as shown in the table above, is net of reinsurance and exposure on policies currently delinquent ($1.8 billion at December 31, 2024 and $1.6 billion at December 31, 2023) and for which case loss reserves have been established.

The increase in statutory policyholders' position was primarily due to an increase in net income in 2024, offset by a decrease in statutory contingency reserves and dividends paid to our holding company of $750 million. Our risk-to-capital ratio will increase if the percentage increase in capital exceeds the percentage decrease in insured risk.

For additional information regarding regulatory capital see Note 14 – “Statutory Information” to our consolidated financial statements as well as our risk factor titled“State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis” in Item 1A.

FINANCIAL STRENGTH RATINGS

For further information about the importance of MGIC’s ratings and rating methodologies, see 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” in Item 1A.