MTG - NYSE

Ladies and gentlemen, thank you for standing by, and welcome to the MGIC Investment Corporation First Quarter 2025 Earnings Call. At this time, all lines have been placed on mute to prevent any background noise. At the end of today’s presentation, we’ll have a question-and-answer session. I will now turn the conference over to Dianna Higgins, Head of Investor Relations. Please go ahead.

Good morning, and welcome, everyone. Thank you for your interest in MGIC. Joining me on the call today to discuss our results for the first quarter are Tim Mattke, Chief Executive Officer; and Nathan Colson, Chief Financial Officer and Chief Risk Officer. Our press release, which contains MGIC’s first quarter financial results was issued yesterday and is available on our website at mtg.mgic.com under Newsroom, includes additional information about our quarterly results that we will refer to during the call today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk in force and other information you may find valuable. As a reminder, from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website. Before getting started today, I want to remind everyone that during the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results to differ materially from those discussed on the call today are contained in our Form 8-K and 10-Q also filed yesterday. If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. No one should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of our 8-K or 10-Q. With that, I now have the pleasure to turn the call over to Tim.

Thank you, Dianna, and good morning, everyone. We are very pleased with our first quarter financial results, a strong start to the year, which builds on the momentum we’ve sustained over the past few years. For the first quarter, we reported net income of $186 million and generated an annualized 14.3% return on equity. At the same time, we continue to return meaningful capital to our shareholders while creating long-term value for all of our stakeholders. Our performance reflects our position as a market leader in our disciplined and balanced approach to the market. We demonstrate our discipline in the way in which we acquire, manage and distribute risk, enhancing both capital efficiency and risk mitigation and thoughtfully and prudently allocating capital for the benefit of stakeholders. During the quarter, we wrote $10 billion of new insurance. Insurance in force, the primary driver of our revenue ended the quarter at $294 billion with annual persistency ending the quarter at 85%. Both have remained relatively flat over the past several quarters, consistent with what we expected. We are pleased with the credit quality and performance of our portfolio. Our underwriting standards remain strong, and the new insurance we write continues to have solid credit characteristics. We remain focused on maintaining a high-quality, well-balanced insurance portfolio. Turning to capital management. The foundation of our strategy is to maintain financial strength and flexibility and position ourselves for success across a wide range of economic environments. Key objectives include maintaining capital to support growth at the operating company, at the holding company, maintaining a low to mid-teens debt-to-capital ratio and liquidity buffer while returning excess capital to shareholders in the form of share repurchases and common stock dividends. We continue to allocate excess capital to share repurchases, which totaled 9.2 million shares for $224 million in the first quarter. We also paid a quarterly common stock dividend of $33 million. Over the prior four quarters, share repurchases totaled $698 million and shareholder dividends totaled $130 million. Combined, they represented a 107% payout of the net income we earned over that period. The holding company ended the quarter with $824 million in liquidity. In the second quarter, through April 25, we repurchased an additional 2.8 million shares of common stock for $66 million. The share repurchase activity I just discussed continues to reflect our capital strength, solid financial results and share price levels that we believe are attractive to generating long-term value for our shareholders. We expect share repurchases to remain our primary method of returning capital to shareholders, while at the same time continuing to pay a quarterly common stock dividend. Also in April, and as previously announced, the Board approved an additional $750 million share repurchase program and a $0.13 per share common stock dividend payable on May 21. Earlier this week, we paid a $400 million dividend from MGIC to the holding company. These actions are consistent with our overall capital management strategy. While we prioritize prudent growth over capital return, market conditions have remained – have constrained growth in our insurance in force over the last few years, which we expect will persist this year. Therefore, the credit performance stays strong, we’d expect capital levels at both MGIC and the holding company to stay above targets, supporting continued elevated payout ratios. Looking more broadly at the macro environment, we recognize that there are uncertainties around the current economic and geopolitical conditions. However, we remain confident in the solid fundamentals of the housing market. Several key trends continue to support its resilience. Demographic tailwinds, particularly from millennials are driving sustained strong demand and desire for homeownership. Housing inventory is gradually increasing and home price growth is moderating. These factors have contributed to housing market that has remained stable. Although housing affordability continues to pose challenges for homebuyers, private mortgage insurance enables low down payment borrowers to achieve the American dream of homeownership sooner. With that, let me turn it over to Nathan to get into more details on our financial results and capital management activities for the quarter.

Thanks, Tim, and good morning. As Tim discussed, we had solid financial results for the first quarter. We earned net income of $0.75 per diluted share compared to $0.64 per diluted share last year. Adjusted net operating income was $0.75 per diluted share compared to $0.65 last year. A detailed reconciliation of GAAP net income to adjusted net operating income can be found in our earnings release. In the quarter, our reestimation of ultimate losses on prior delinquencies resulted in $50 million of favorable loss reserve development. The favorable development this quarter primarily came from delinquency notices received in 2023 and 2024. Cure rates on those delinquency notices continue to exceed our expectations. As a result, we adjusted our ultimate loss expectations accordingly. A quick reminder, delinquency notices we received during the quarter span across various book-year vintages. For new delinquency notices, we established an initial claim rate loss assumption of 7.5%, which is consistent with recent quarters, except the fourth quarter where the initial claim rate assumption was impacted by hurricane-related delinquencies that have historically resolved more favorably than other delinquencies. Looking at delinquency trends, our count-based delinquency rate decreased 10 basis points in the quarter to 2.3%, which is consistent with the seasonal trends we have discussed on past calls. Historically, February, March and April are seasonally the best months for mortgage credit performance. The pandemic significantly disrupted mortgage credit seasonality, but we continue to see evidence that pre-pandemic seasonal trends are returning. As a result, we do not expect a decrease in delinquency rate we had in the first quarter will repeat in subsequent quarters this year. We received 13,000 new delinquency notices this quarter, down from 14,200 last quarter. Cures outpaced new notices in the quarter, reflecting the seasonality I just discussed. Overall, the number of new notices and the delinquency rate remained low by historical standards, while the 2.3% delinquency rate at the end of the first quarter was 15 basis points higher than a year ago. Looking ahead, we expect that the level of new delinquency notices may increase modestly due to the aging of the larger 2021 and 2022 book years being in what are historically higher loss emergence years. The in-force premium yield was 38.4 basis points in the quarter, relatively flat sequentially and with the first quarter last year, consistent with what we expected. As I mentioned last quarter, with high persistency expected again this year and MI origination trends similar to last year, we expect the in-force premium yields to remain relatively flat for the year. Our solid operating results and strong balance sheet enabled us to grow book value per share to $21.40, up 13% compared to a year ago while also returning $828 million of capital to shareholders during that same time through share repurchases and quarterly common stock dividends. Investment income continues to contribute meaningfully to our revenue. The book yield on the portfolio was 3.8% at the end of the first quarter, relatively flat quarter-over-quarter, but up 15 basis points from a year ago. Net investment income was $61 million in the quarter unchanged from the prior quarter and up $1 million as compared to the first quarter last year. Reinvestment rates on our fixed income portfolio during the quarter continued to be above our book yield. We expect the overall book yield to remain relatively flat for the rest of the year due to declines in shorter-term interest rates and the recent higher levels of capital return, which are limiting the growth of the investment portfolio. The unrealized loss position in our portfolio decreased by $66 million in the quarter, primarily driven by a decrease in interest rates. We continue to keep a close eye on expenses and operational efficiency. Operating expenses were $53 million this quarter, down from $61 million in the first quarter last year. We continue to expect operating expenses for the full year will be in the range of $195 million to $205 million as shared in February. As Tim mentioned earlier, our capital management strategy is built to maintain flexibility and resilience in different macroeconomic environments. Our capital structure includes $6 billion of balance sheet capital and our well-established reinsurance program remains a key component of our risk and capital management strategies. In addition to reducing the volatility of losses in stress scenarios, our reinsurance agreements provide capital diversification and flexibility at attractive costs and reduce our PMIERs required assets by $2.4 billion or approximately 42% at the end of the first quarter. We further bolstered our reinsurance program in the first quarter with a seasoned excess of loss transaction covering our 2020 NIW with a panel of highly rated reinsurers providing $251 million in tail risk reinsurance coverage. This reinsurance transaction complements our programmatic quota share in excess of loss transactions covering recent or future NIW. With that, let me turn it back over to Tim.

Thanks, Nathan. Two additional comments before we open it up for questions. I recently had the opportunity and pleasure of meeting with the new FHFA Director, Bill Pulte. We are looking forward to building our relationship with a new director and continuing to work with the FHFA, the GSEs and the other key industry stakeholders to responsibly serve lower down payment borrowers, while advocating for the use of private mortgage insurance in order to protect the taxpayers from mortgage credit risk. Also, we support the introduction of the Middle Class Mortgage Insurance Premium Act. This bipartisan legislation would restore, make permanent and expand eligibility for borrowers to deduct mortgage insurance premiums from their taxes. This will be a positive step towards putting money back in the pockets of low and moderate income borrowers and helping make homeownership more affordable for families. In closing, we are very pleased with the financial results we achieved in the first quarter. As we look ahead, we are confident in our position and leadership in the market as well as our ability to execute on our business strategies capitalize on opportunities and continue building on our momentum. With that, Rifka, let’s take questions.

Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from the line of Terry Ma of Barclays. Your line is now open.

Hey, thank you. Good morning. I was curious, just given all the uncertainty around the macro and the headlines we’re seeing around tariffs, have you done anything on the pricing or underwriting side to adjust for that? And then maybe just more broadly, how are you thinking about credit loss expectations going forward?

Yes. It’s a very timely question. I’d say it’s tough to know exactly what’s specifically going to happen on tariffs and sustain. But I think when we think about our business and our pricing, we think about a wide range of different sort of scenarios and environments that we can perform under. And so we have to take that into account when we do pricing. And that’s consistent, no matter if it feels like it’s a benign environment, if it’s something that feels like it’s changing more now. So I think it’s fair to say we think about a wide range of potential environments that we could be operating in probably less specific to tariffs itself, but just more of the broader economic environment. So it’s something we’re highly mindful of. But I don’t think it changes anything that we do from a normal sort of operation standpoint, I would say.

Got it. And then on the new notice claim rate of 7.5%. Is there some level of unemployment rate that’s contemplated either directly or indirectly? Like how should we kind of think about that across kind of different economic scenarios? Thank you.

Yes. Terry, it’s Nathan. I think the 7.5% new notice claim rate is something that we have used for some time barring the fourth quarter where we had the hurricane-related notices. And I think for us, it’s a good level for a wide range of outcomes. Obviously, with the unemployment rate that we’ve had and the other macroeconomic variables, we’ve had consistent favorable reserve development. So we try to set reserves so that they’re not just sufficient in a base case or better environment, but sufficient across a wide range of outcomes. But we don’t target a specific unemployment rate or home price path when we’re setting our loss reserve assumptions. So I think if the economic environment deteriorated, the first thing that would happen is we would likely have less favorable development. And at some point, we’d be closer to that level. But at that point, we would consider whether 7.5% is the appropriate number, whether it needs to be increased. So again, don’t peg to a specific unemployment rate, but feel like we’re establishing reserves not just for kind of good environments, but for a wide range of potential future environments.

[Operator Instructions] Our next question comes from the line of Doug Harter of UBS. Your line is now open.

Thanks. Hoping you could talk a little bit about kind of volume, you guys have seen a little bit of volatility in market share over the past couple of quarters. Just wondering what you were kind of seeing in the market this quarter that kind of had little bit more of a pullback in your volume than some of your peers?

Yes. Thanks. Appreciate the question, Doug. I mean, again, I probably will sound a little bit like a broken record and market share is a little bit of an output of ultimately what’s happened, and we don’t necessarily target a specific spot to be at versus making sure we’re getting good returns. I think it’s safe to say, and I think I’d say probably every call, it’s highly competitive industry, I think you’re going to see a little bit of ebbs and flows from quarter-to-quarter. But I think from an overall standpoint, I think we’ve been in a relatively narrow range. So I don’t think there’s anything thing specific to call out. Again, it can be pricing related, it can be customer related as far as the volume that they’re doing. There’s a number of different things that can sort of play into it. It’s safe to say we monitor that. I don’t think it doesn’t come a surprise to us that we did lose some share this quarter. But I don’t think it’s necessarily a trend.

Got it. Was there any particular areas that, that you kind of saw a bigger pullback, particular customers or types of product or any more detail you could provide around that?

Nothing really specific. I mean, if you look at the different sort of dimensions that you look at and that we disclosed, I don’t think there’s any one area that really stands out. I think there can be really minor changes that ultimately impact sort of that share, which again, I think, shows how competitive the industry is.

Great. Appreciate the answers. Thank you.

Thank you.

[Operator Instructions] Our next question comes from the line of Bose George of KBW. Your line is now open.

Hey, good morning, guys. This is Bose. Tim, you mentioned that meeting with Bill Pulte, he’s obviously got a lot of things potentially on his plate. Where does sort of mortgage insurance fit? Is that something he feels like there’s any need to address? Or that’s – he’s got a lot of other things to focus on at the moment?

Bose, it’s tough to know. I think he was kind enough to meet with us as an industry. I think it’s something we wanted to do, just to establish the relationship and very much more of a meet and greet, I would say. So I can only go based upon what he said more publicly as far as where his focus is. And I don’t think its MI nor what I expect to be for any FHFA director, quite frankly. But we just really want to establish a relationship and it was much more of a meet and greet. And I think we’ll have a really productive relationship with him as the Director.

Okay. Great. Thanks. And then actually, I don’t think there’s a read through, but I’m just curious the Rocket-Cooper merger, whether you think there’s anything there that potentially impacts the mortgage insurers?

I – it’s tough to know exactly how they’ll operationalize everything. But obviously, you’ve got Rocket being a substantial player in this market and Mr. Cooper especially from their servicing platform. I’ve read some of the reports you probably have about some of the benefits that we might be able to achieve from that. But I don’t think there’s any direct impact that I think is a read-through for us or for the MI industry per se. Although, again, it’s something that we obviously follow closely when you have customers that are changing a little bit of how they might do business are coming together.

Okay. Great. Thanks.

There are no further questions. I will now turn the call back over to management for closing remarks.

Thank you, Rifka. I want to thank everyone for your participation in today’s call and interest in MGIC. We will be participating in the KBW Virtual Real Estate Finance and Technology Conference on Tuesday, May 20. I look forward to talking to you all in the near future. Have a great rest of your week.