MGIC Investment Corporation · NYSE:MTG
MGIC Investment — Q2 2018 Earnings Presentation
28 slides from MGIC Investment's earnings presentation, August 2018
Slide 1: Investor Presentation Q2 2018
Investor Presentation Q2 2018 MGIC Investment Corporation (NYSE: MTG)
Slide 2: Forward Looking Statements
Forward Looking Statements 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 statem
Slide 3: Key Financial Metrics Q2 2018
MGIC Investment Corporation Key Financial Metrics Q2 2018 ▪ $186.8 million GAAP net income in Q2 18; $189.2 million adjusted net operating income(1) in Q2 18 ▪ Benefited from positive primary loss reserve development, lower new notice activity and lower claim rate on those notices, and reduced feder
Slide 4: Primary Components of Net Losses Incurred
MGIC Investment Corporation Key Financial Metrics Quality NIW and Steady Market Share Increasing Persistency and Growing IIF Net Premium Yield Declines as Higher Premium and Loss Content of Legacy Book is Favorable Trends for New Delinquent Notices Received and A Steady Improvement in the Replaced b
Slide 5: Return on Equity Being Driven by Quality NIW, Growing IIF and Improved Credit Profile
Return on Equity Being Driven by Quality NIW, Growing IIF and Improved Credit Profile 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Q4 15 Q1 16 Q2 Q3 Q4 Q1 17 Q2 Q3 Q4 Q1 18 Q2 18 GAAP return on beginning shareholders equity Adjusted return on beginning shareholders' equity 1. GAAP return on no beginning shareh
Slide 6: Capital Management Objectives
Capital Management Objectives ▪ Enhance holding company liquidity; ▪ Target low to mid 20s leverage ratio; ▪ Retain flexibility to pursue new business opportunities; ▪ Continue positive ratings trajectory; ▪ Cover claim obligations arising from our underlying mortgage insurance activities; ▪ Maintai
Slide 7: Strong Balance Sheet Investment Portfolio Overview
Strong Balance Sheet Investment Portfolio Overview At June 30, 2018 Commentary Invested Assets By Type 3% 2% Corporates Tax-Exempt Munis • $5.1 billion of cash and investments (consolidated) 10% Taxable Munis Loan Backed 42% − Includes $191 million at holding company 13% GNMA Treasury/Gov't Agency •
Slide 8: Strong Statutory Capital Position
Strong Statutory Capital Position MGIC Risk-to-Capital Ratio MGIC Statutory Capital (in millions) (for periods ending)) $3,567 $1,893 $1,654 15.8 14.6 $1,181 $691 12.1 $0 10.7 $247 9.5 9.1 $1,521 $1,518 $1,574 $1,620 $1,674 $1,505 2013 2014 2015 2016 2017 Q2 18 2013 2014 2015 2016 2017 Q2 18 Policyh
Slide 9: PMIERs 1.0 Asset Trends
PMIERs 1.0 Asset Trends Declining Required Assets for Legacy and Non-Performing Risk Partially Offset by Increased Required Assets For NIW 2009 and > PMIERs Minimum Required Assets $6,000 $4,464 $3,844 $3,792 Components of PMIERS Minimum Required Assets $5,000 Pool/Other Non Perfroming Reinsured $4,
Slide 10: Debt Outstanding
Debt Outstanding As of June 30, 2018 • MGIC: • $155 million 1.91% Fixed Rate Advance from FHLB due in Feb-2023 • MTG: • $425 million of 5.75% Senior Notes due in Aug-2023 • $257 million 9% Covertible Junior Subordinated Debentures due in Apr-2063 (1) •Debt to Total Capital(2) ratio ~20% at June 30,
Slide 11: Key Drivers of MGIC's Strategy
Key Drivers of MGIC’s Strategy • Largest customer base in industry (~5,000 lenders/servicers) Continued MI Leadership • Established market player positioned to take advantage of current environment • Exceptional customer service with industry-leading low expense ratio • Focus on increasing holding c
Slide 12: Good Progress on Executing Business Strategies
Good Progress on Executing Business Strategies At June 30, 2018 Prudently grow Pursue new business Preserve and expand Develop and diversify the Manage and insurance in force opportunities that the role of MGIC and talents of co-workers deploy capital to leverage our core Private MI in housing optim
Slide 13: Summary
Summary • Enables private investment in mortgage credit risk • Established market player positioned to take advantage of current environment Unique Company • Solid capital position and positive ratings momentum • Proven track record of execution with strong management team • Growing Insurance in for
Slide 14: MGIC at a Glance
MGIC at a Glance as of June 30, 2018 Ready, willing and able to expand our role in a robust mortgage finance system Credit trends continue to $200.7 bn Insurance in force develop favorably Experienced sales and Exceptional customer service operations staff supporting while being low cost provider ~5
Slide 15: Appendix
Hd [oxe) el MGIC Appendix 15
Slide 16: MGIC Investment Corporation Overview
MGIC Investment Corporation Overview ✓ Who we are • The nation’s oldest private mortgage insurer, with insurance in force of $200.7 billion • In 1957 Max Karl founded the modern MI industry and MGIC in Milwaukee, WI • ~800 employees, including an experienced sales and underwriting team covering the
Slide 17: Solid Demographic Trends Are Positively Influencing Housing Markets
Solid Demographic Trends Are Positively Influencing Housing Markets ✓ Increasing household formations ✓ Increase in owner-occupied partially offset by a decline in renters ✓ ~45 million households between ages 25 and 34 ✓ (Homeownership rate is ~35% for < 35 year olds and ~60% for 35 – 44 year olds)
Slide 18: Mortgage Origination Outlook
Mortgage Origination Outlook Origination Forecasts ✓ 2018 origination forecasts range from $1.6 to $1.7 trillion 2018 2019 2020 ✓ Overall market down due to lower refinance volume $1,701 $1,691 $1,689 $1,686 $2,000 $1,677 $1,612 $1,608 $1,600 ✓ GSEs and MBA all forecasting modest $406 $ in billions
Slide 19: High LTV Lending Trends
High LTV Lending Trends Private and Government Insured Loans as % of Total Origination Market (1) Private MI Market Share of Insured Loans (2) 100.0% 3.7% 2.9% 3.6% 2.8% 2.5% 2.8% 2.5% 3.9% 4.4% 40% 90.0% 80.0% 32.4% 35.5% 35.6% 33.9% 39.1% 39.3% 43.4% 70.0% 53.4% 27% 65.7% 60.0% 50.0% 24.4% 24.1% 2
Slide 20: Solid Market Share Leads to Growing Insurance in Force
Solid Market Share Leads to Growing Insurance in Force Market Share by NIW (1) • Ready, willing and able to expand our role in a robust mortgage finance system • Solid market share position of ~18% • $200.7 billion Insurance in force is up ~7% year over year at June 30, 2018 MGIC Primary IIF $200.0
Slide 21: Well Positioned to Serve the Market
Well Positioned to Serve the Market MGIC’s Strong Positioning Increasing Risk in Force and Improving Credit Profile • Exceptional customer service with industry- $55.0 $51.7 12.0% leading low expense ratio $Risk In Force (Billions) Loss Reserves as % of RIF $50.0 10.0% 8.0% $45.0 • Growing risk in f
Slide 22: Well Positioned to Serve the Market
Well Positioned to Serve the Market (as of June 30, 2018) Primary Risk in Force Risk in Force By FICO Score at Time of Origination (as of period ending) $51.7 Billion ~88% of RIF is >2008 or HARP 100.00% 2% 19% 31% 760 & > 80.00% 37% 10% 11% 740-759 7% <2005 11% 13% 720-739 60.00% 2005-2008 12% 15%
Slide 23: Positive Credit Trends
Positive Credit Trends (as of June 30, 2018) New Notices as Percent of Primary Loans Insured Cures as Percent of Primary Delinquent Inventory New Notices as % of Beginning Total New Notices as % of Beginning Current 42% 6.0% 40% 5.5% 38% 36% 5.0% 34% 4.5% 32% 30% 4.0% 28% 3.5% 26% 2017 hurricane imp
Slide 24: Delinquency Trends
Delinquency Trends (as of June 30, 2018) 24
Slide 25: High Quality Business Leads to Lower Losses and Solid Returns
High Quality Business Leads to Lower Losses and Solid Returns Ever to Date Loss Ratio of Individual Book Years (1), (2) 13.6% 6.6% 5.0% 4.3% 4.6% 3.4% 2.8% 2009 2010 2011 2012 2013 2014 2015 1. Ever to date loss ratio is the sum of paid losses plus established primary loss reserves (not including IB
Slide 26: Reconciliation of GAAP Net Income to Adjusted Net Operating Income
Reconciliation of GAAP Net Income to Adjusted Net Operating Income (Millions) Q4 15 Q1 16 Q2 Q3 Q4 Q1 17 Q2 Q3 Q4 Q1 18 Q2 GAAP Net Income $ 102.42 $ 69.19 $ 109.22 $ 56.62 $ 107.49 $ 89.80 $ 118.62 $ 120.03 $ 27.31 $ 143.64 $ 186.81 Effect of change in deferred tax asset valuation allowance $ (25.3
Slide 27: Summary of Risk Factors
Summary of Risk Factors The below is a brief summary of some of the risk factors that could cause the issuer’s results to differ materially from those expressed in, or implied by, the forward looking statements included in this presentation. Before investing in the issuer’s securities, investors sho
Slide 28: Company Contact: Michael Zimmerman
Company Contact: Michael Zimmerman Senior Vice President - Investor Relations Direct: (414) 347-6596 [email protected] 28