MGIC Investment (MTG) - 2025 Q2 - Quarterly Results

Second Quarter 2025 Results Overview MGIC Investment Corporation reports strong Q2 2025 results with solid net income, adjusted operating income, and a 15% annualized return on equity, returning $212 million to shareholders Executive Summary MGIC reported Q2 2025 net income of $192.5 million and adjusted net operating income of $194.0 million, achieving a 15% annualized return on equity and returning $212 million to shareholders - MGIC reported Q2 2025 net income of $192.5 million, adjusted net operating income of $194.0 million, and an annualized return on equity of 15%[2][3] - The company returned $212 million to shareholders through share repurchases and dividends, and announced a 15% increase in its common stock dividend[3] Summary Financial Metrics Q2 2025 key financial metrics include $192.5 million net income, $0.81 diluted EPS, $16.4 billion new insurance written, and 15.0% annualized return on equity | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--------------------------------- | :------ | :------ | :------ | | Net income (millions) | $192.5 | $185.5 | $204.2 | | Net income per diluted share | $0.81 | $0.75 | $0.77 | | Adjusted net operating income (millions) | $194.0 | $185.2 | $204.9 | | Adjusted net operating income per diluted share | $0.82 | $0.75 | $0.77 | | New insurance written (NIW) (billions) | $16.4 | $10.2 | $13.5 | | Net premiums earned (millions) | $244.3 | $243.7 | $243.5 | | Insurance in force (billions) | $297.0 | $293.8 | $291.6 | | Annual persistency | 84.7 % | 84.7 % | 85.4 % | | Losses incurred, net (millions) | $(2.8) | $9.6 | $(18.3) | | Loss ratio | (1.2 %) | 3.9 % | (7.5 %) | | Annualized return on equity | 15.0 % | 14.3 % | 16.0 % | | Book value per common share outstanding | $22.11 | $21.40 | $19.58 | Capital and Liquidity As of June 30, 2025, MGIC's PMIERs available assets were $5.7 billion, exceeding minimum requirements by $2.4 billion, with holding company liquidity at $1,046 million | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------- | :------------ | | PMIERs available assets (billions) | $5.7 | $5.9 | $5.8 | | PMIERs excess (billions) | $2.4 | $2.6 | $2.4 | | Holding company liquidity (millions) | $1,046 | $824 | $990 | Quarterly Highlights MGIC completed reinsurance transactions, repurchased shares, paid dividends to shareholders, and issued a $400 million dividend to its holding company Second Quarter 2025 Highlights Q2 2025 highlights include two excess-of-loss reinsurance transactions, $180.7 million in share repurchases, and a $400 million dividend to the holding company - Two traditional excess-of-loss reinsurance transactions were completed, providing up to $160 million (2025) and $184 million (2026) in reinsurance coverage[8] - 7.1 million common shares were repurchased for $180.7 million, and a common stock dividend of $0.13 per share was paid[8] - MGIC paid a $400 million dividend to its holding company[8] Third Quarter 2025 Highlights (as of July 25, 2025) As of July 25, 2025, the board approved a $750 million share repurchase program, with additional repurchases totaling $68 million, and declared a $0.15 per share common stock dividend - The Board of Directors approved an additional share repurchase program, authorizing the purchase of up to $750 million of common stock through December 31, 2027[8] - As of July 25, 2025, an additional 2.6 million common shares were repurchased for $68 million[8] - A common stock dividend of $0.15 per share was declared, payable to shareholders on August 21, 2025[8] Company Information & Disclosures This section details conference call information, company overview, additional data availability, safe harbor statements, and non-GAAP financial measure usage Conference Call and Webcast Details A conference call for Q2 2025 results is scheduled for July 31, 2025, at 9:30 AM ET, with webcast and replay available online - The conference call is scheduled for July 31, 2025, at 9:30 AM ET to discuss quarterly results[9] - A webcast and replay will be available on the company's website under "Newsroom"[9] About MGIC MGIC, a subsidiary of MGIC Investment Corporation, provides private mortgage insurance, with $297.0 billion of primary insurance in force covering 1.1 million mortgages as of June 30, 2025 - MGIC provides private mortgage insurance to lenders nationwide, helping families achieve homeownership[10] - As of June 30, 2025, MGIC had $297.0 billion of primary insurance in force, covering 1.1 million mortgages[10] Additional Information Availability Additional statistics, non-GAAP financial information, and portfolio data are available on the company's website, which also provides important updates and email alerts - Additional statistics and non-GAAP financial information, including portfolio statistics, are available on the company's website[11] - MGIC Investment Corporation posts important information via its corporate website and encourages investors to sign up for automated email alerts[11] Safe Harbor Statement Actual results may differ from forward-looking statements due to SEC-reported risk factors, and the company disclaims any obligation to update these statements - Actual results may differ materially from forward-looking statements due to risk factors detailed in SEC reports[12] - The company disclaims any obligation to update any forward-looking statements, and investors should not rely on them being current beyond their release date[12] - Company policy prohibits disclosing any material non-public or confidential information to securities analysts, and investors should not assume the company concurs with any analyst reports[13] Use of Non-GAAP Financial Measures MGIC uses non-GAAP measures like adjusted operating income to assess core financial performance, excluding non-operating or non-recurring items for investor clarity - Non-GAAP measures (adjusted pre-tax operating income, adjusted net operating income) are used to assess core financial performance, excluding items not part of primary operations or representative of operating trends[14][17] - Adjusted pre-tax operating income is defined as GAAP income (loss) before tax, excluding net realized investment gains (losses), gains (losses) on extinguishment of debt, and unusual or non-recurring non-operating items[15][17] - Adjusted net operating income is defined as GAAP net income (loss), excluding the after-tax impact of net realized investment gains (losses), gains (losses) on extinguishment of debt, and unusual or non-recurring non-operating items, with adjustments tax-effected at a 21% federal statutory tax rate[16][17] Condensed Consolidated Financial Statements (Unaudited) This section presents unaudited condensed consolidated financial statements, including statements of operations, earnings per share, non-GAAP reconciliations, and balance sheets Statements of Operations Q2 2025 total revenues were $304.2 million, with net premiums earned at $244.3 million, leading to $192.5 million net income | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net premiums written | $237,384 | $233,478 | $472,730 | $467,278 | | Net premiums earned | $244,322 | $243,528 | $488,041 | $486,172 | | Net investment income | $60,995 | $61,479 | $122,438 | $121,223 | | Total revenues | $304,245 | $305,277 | $610,479 | $599,638 | | Losses incurred, net | $(2,835) | $(18,272) | $6,756 | $(13,717) | | Underwriting and other expenses, net | $52,092 | $54,825 | $105,155 | $115,852 | | Total losses and expenses | $58,156 | $45,452 | $129,709 | $119,933 | | Income before tax | $246,089 | $259,825 | $480,770 | $479,705 | | Provision for income taxes | $53,607 | $55,597 | $102,828 | $101,380 | | Net income | $192,482 | $204,228 | $377,942 | $378,325 | Earnings Per Share Q2 2025 diluted EPS increased to $0.81 from $0.77 in Q2 2024, driven by fewer diluted weighted average common shares outstanding | (In thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income - basic and diluted | $192,482 | $204,228 | $377,942 | $378,325 | | Diluted weighted average common shares outstanding | 237,971 | 266,872 | 242,209 | 269,990 | | Diluted earnings per share | $0.81 | $0.77 | $1.56 | $1.40 | Non-GAAP Reconciliations Q2 2025 adjusted net operating income was $194.0 million, with adjusted diluted net operating income per share at $0.82, primarily excluding net realized investment losses | (In thousands, except per share amounts) | Q2 2025 (Pre-tax) | Q2 2025 (Net after-tax) | Q2 2024 (Pre-tax) | Q2 2024 (Net after-tax) | | :--------------------------------------- | :---------------- | :---------------------- | :---------------- | :---------------------- | | Income before tax / Net income | $246,089 | $192,482 | $259,825 | $204,228 | | Net realized investment (gains) losses | $1,944 | $1,536 | $822 | $649 | | Adjusted pre-tax operating income / Adjusted net operating income | $248,033 | $194,018 | $260,647 | $204,877 | | (Per diluted share) | Q2 2025 | Q2 2024 | | :------------------------------------ | :------ | :------ | | Net income per diluted share | $0.81 | $0.77 | | Net realized investment (gains) losses | $0.01 | $0.00 | | Adjusted net operating income per diluted share | $0.82 | $0.77 | Balance Sheets As of June 30, 2025, total assets were $6.542 billion, total liabilities $1.387 billion, shareholders' equity $5.155 billion, and book value per share $22.11 | (In thousands) | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :------------------------------------ | :------------ | :---------------- | :------------ | | Total assets | $6,542,327 | $6,547,235 | $6,523,922 | | Total liabilities | $1,387,383 | $1,374,860 | $1,407,001 | | Shareholders' equity | $5,154,944 | $5,172,375 | $5,116,921 | | Book value per share | $22.11 | $20.82 | $19.58 | | Shares outstanding | 233,138 | 248,449 | 261,390 | - As of June 30, 2025, investments included $224.917 million in unrealized losses on securities, an improvement from $326.428 million at December 31, 2024[29] Additional Operational Statistics This section provides additional operational statistics, including new insurance written, insurance in force, delinquency data, reserves, and reinsurance metrics New Insurance Written (NIW) Q2 2025 new primary insurance written (NIW) significantly increased to $16.4 billion, with year-to-date NIW at $26.6 billion | (billions) | Q2 2025 | Q1 2025 | Q2 2024 | Year-to-date 2025 | Year-to-date 2024 | | :-------------------------- | :------ | :------ | :------ | :---------------- | :---------------- | | New primary insurance written | $16.4 | $10.2 | $13.5 | $26.6 | $22.6 | | New primary risk written | $4.3 | $2.6 | $3.5 | $6.9 | $5.9 | | Product mix as a % of primary NIW | Q2 2025 | Q1 2025 | Q2 2024 | Year-to-date 2025 | Year-to-date 2024 | | :-------------------------------- | :------ | :------ | :------ | :---------------- | :---------------- | | FICO < 680 | 4 % | 4 % | 4 % | 4 % | 4 % | | >95% LTVs | 13 % | 13 % | 14 % | 13 % | 15 % | | >45% DTI | 26 % | 31 % | 29 % | 28 % | 29 % | | Refinances | 6 % | 6 % | 2 % | 6 % | 2 % | Insurance In Force (IIF) and Risk In Force (RIF) Primary insurance in force (IIF) reached $297.0 billion in Q2 2025, with net premium yield at 33.0 bps and primary risk in force (RIF) at $79.5 billion | (billions) | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------------------------- | :------ | :------ | :------ | | Primary Insurance In Force (IIF) | $297.0 | $293.8 | $291.6 | | Primary Risk In Force (RIF) | $79.5 | $78.5 | $77.3 | | Premium Yield (bps) | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------------------- | :------ | :------ | :------ | | In force portfolio yield | 38.3 | 38.4 | 38.4 | | Net premium yield | 33.0 | 33.0 | 33.4 | - Annual persistency for Q2 2025 was 84.7%, consistent with Q1 2025 but slightly lower than Q2 2024's 85.4%[31] Delinquency Statistics Q2 2025 delinquent inventory decreased to 24,444 loans, reducing the primary IIF delinquency rate to 2.21%, with 11,970 new notices and 12,588 cures | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :------------------------------------ | :------ | :------ | :------ | | Ending Delinquent Inventory ( of Loans) | 24,444 | 25,438 | 23,370 | | Primary IIF Delinquency Rate (count based) | 2.21 % | 2.30 % | 2.09 % | | New Notices | 11,970 | 12,965 | 11,444 | | Cures | (12,588) | (13,981) | (11,786) | | Paid claims | (341) | (312) | (313) | - The aging distribution of primary delinquent inventory shows 35% of loans are 3 months or less delinquent, 36% are 4-11 months, and 29% are 12 months or longer[35] Reserves and Claims Paid Q2 2025 total gross loss reserves were $452 million, with net paid claims stable at $12 million and primary average claim payment at $36.5 thousand | (millions) | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------------------- | :------ | :------ | :------ | | Total Gross Loss Reserves | $452 | $465 | $478 | | Net Paid Claims | $12 | $12 | $12 | | (thousands) | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------------------- | :------ | :------ | :------ | | Primary Average Direct Reserve Per Delinquency | $18,395 | $18,167 | $20,307 | | Primary Average Claim Payment | $36.5 | $38.8 | $30.6 | Reinsurance and MI Ratios Q2 2025 saw 87.7% of NIW reinsured, with a GAAP loss ratio of (1.2%) and MGIC's risk-to-capital ratio at 10.0:1 | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :------------------------------------ | :------ | :------ | :------ | | % NIW subject to reinsurance | 87.7 % | 86.8 % | 86.9 % | | Ceded premiums written and earned (millions) | $28.1 | $29.9 | $26.7 | | Ceded losses incurred (millions) | $4.0 | $6.4 | $4.0 | | GAAP loss ratio | (1.2 %) | 3.9 % | (7.5 %) | | GAAP underwriting expense ratio | 21.9 % | 22.5 % | 23.1 % | | Mortgage Guaranty Insurance Corporation - Risk to Capital | 10.0:1 | 9.8:1 | 10.0:1 | Risk Factors This section details risks from global events, industry-specific challenges like economic downturns and regulatory changes, and general business risks Risk Factors Relating to Global Events Global events like wars can negatively impact the U.S. economy, increasing inflation, supply chain strains, and financial market volatility, potentially raising loan delinquencies - Wars and global events may adversely affect the U.S. economy, leading to increased inflation, supply chain strains, and heightened volatility in domestic and global financial markets[41] - Potential impacts include increased loan delinquencies, negative effects on portfolio performance, and reinsurance terms that may become limited or unattractive[45] Risk Factors Relating to the Mortgage Insurance Industry and its Regulation This section details mortgage insurance industry risks, including economic downturns, GSE changes, PMIERs compliance, regulatory scrutiny, natural disasters, and reinsurance availability Economic Downturns and Home Price Declines Economic downturns or home price declines can increase homeowner defaults and company losses, as falling prices hinder sales or refinancing - A domestic economic downturn or decline in home prices could lead to more homeowner defaults, increased company losses, and reduced returns[42] - Falling home prices may make it harder for borrowers to sell or refinance their homes, increasing the likelihood of default and potentially leading to loan balances exceeding home values, discouraging continued payments[43] - National home prices decreased 0.2% month-over-month in May 2025 and 0.1% year-to-date through May 2025, following increases of 4.8%, 6.7%, and 6.8% in 2024, 2023, and 2022, respectively[43] Changes in GSE Business Practices and Regulation Changes in GSE business practices or regulation could reduce revenue or increase losses, as most new insurance written is for GSE-purchased loans - GSE business practices significantly impact the company's business, as the vast majority of new insurance written (NIW) is for loans purchased by the GSEs[44] - FHFA's review of the GSEs' mission and potential changes to GSE business practices and policies, including mortgage insurance coverage, cost, and cancellations, could negatively affect the mortgage insurance industry and the company's financial performance[46][47] - The future role of the GSEs, FHA, and private capital in the residential housing finance system remains uncertain, as do the timing and impact of any resulting changes on the company's business[48] PMIERs Compliance and Capital Requirements PMIERs compliance is crucial; MGIC's available assets exceed requirements, but future calculation updates and increased delinquencies could impact compliance - The company must comply with the GSEs' PMIERs, including financial, operational, quality control, and certain transaction approval requirements, to maintain eligibility[49] - As of June 30, 2025, MGIC's available assets totaled $5.7 billion, exceeding minimum required assets by $2.4 billion, meeting PMIERs requirements[51] - Updates to the GSEs' available assets calculation, fully effective September 30, 2026, could reduce MGIC's available assets by approximately 1% or $60 million; increased loan delinquencies could cause minimum required assets to exceed available assets, adversely affecting business and operating results[51][53] Uncertainty of Loss Reserve Estimates Loss reserve estimates are inherently uncertain, requiring significant management judgment, as actual claims may differ materially and economic factors can impact claim rates - Establishing loss reserves involves inherent uncertainty and requires significant management judgment, as actual claims paid may differ materially from loss reserve estimates[56][57] - Factors such as economic conditions, the duration of loan delinquencies, and foreclosure moratorium programs can impact claim rates and severity, potentially having a significant effect on future performance[57] Comprehensive Regulation and Compliance The company faces extensive state and federal regulations, with increased scrutiny on risk-based pricing and AI use, potentially leading to litigation or regulatory action - The company is subject to comprehensive regulation, including by state insurance departments, with many regulations designed to protect insured policyholders and consumers[58] - The private mortgage insurance industry's increasing use of risk-based pricing systems, algorithms, artificial intelligence, and data analytics has led to additional regulatory scrutiny on matters such as premium rates, pricing discrimination, underwriting, data privacy, and access to insurance[60] - Failure to satisfy applicable contractual or regulatory standards exposes the company to potential litigation or regulatory action[59][61] Impact of Pandemics and Disasters Pandemics and natural disasters can trigger economic downturns, leading to home price declines, increased claim rates, and potentially higher reinsurance costs or reduced availability - Pandemics and other disasters could trigger economic downturns in affected areas, leading to home price declines, increased claim rates, and greater claim severity[62] - Increased frequency and severity of natural disasters may cause some homeowners insurance companies to raise premiums or withdraw from high-risk areas, indirectly affecting home prices and delinquency rates[62] - Pandemics and disasters could also lead to higher reinsurance rates or reduced availability, and impact portfolio values, potentially negatively affecting compliance with state capital requirements and PMIERs financial requirements[63][64] Reinsurance Availability and Capital Credit Reinsurance reduces risk and capital needs, but market conditions affect its availability and cost, and changes in GSEs' PMIERs credit for ceded risk could impact returns - Reinsurance transactions reduce tail risk and risk-based capital requirements, but market conditions affect the availability and cost of reinsurance[66] - The GSEs may change the credit given for ceded risk under PMIERs, which could reduce returns unless premium rates are increased, potentially leading to a decrease in new insurance written (NIW)[68] - Reinsurance transactions expose the company to counterparty risk, and failure to recover losses from reinsurers could materially affect operating results and financial condition[67] Loss Reserve Accounting Practices Loss reserves are established only for reported or estimated delinquencies, not for non-delinquent loans, potentially impacting future earnings disproportionately when delinquencies arise - Under GAAP, the company establishes loss reserves only upon receipt of a delinquency notice (two or more payments past due) or for estimated incurred but not reported (IBNR) delinquencies, not for non-delinquent loans[69] - Consequently, future losses on currently non-delinquent loans could materially impact future performance when delinquencies arise, disproportionately affecting earnings in certain periods[69] - As of June 30, 2025, the company had case reserves for 24,444 delinquent loans and total IBNR reserves of $29 million, but the number of delinquent loans could increase due to economic conditions or other factors[69] State Capital Requirements State capital requirements mandate minimum capital-to-risk ratios; MGIC's ratio is 10.0:1, exceeding minimums, but failure to comply could prohibit new business underwriting - Insurance laws in 16 jurisdictions require mortgage insurers to maintain minimum statutory capital-to-risk-in-force ratios, typically with a maximum risk-to-capital ratio of 25:1[70] - As of June 30, 2025, MGIC's risk-to-capital ratio was 10.0:1, below the maximum ratio allowed by jurisdictions, and its policyholders' position exceeded the minimum required policyholders' position by $3.6 billion[71] - If MGIC fails to meet state capital requirements, it could be prohibited from underwriting new business in all or specific jurisdictions, potentially affecting lenders' willingness to choose the company's insurance[73] Decline in Low Down Payment Mortgage Originations A decline in low down payment mortgage originations, influenced by economic factors and credit standards, could reduce mortgage insurance demand and limit new insurance written - Factors influencing low down payment mortgage originations include the health of the U.S. economy, interest rate levels, housing affordability, and credit standards[74] - A decline in low down payment mortgage originations could reduce demand for mortgage insurance and limit the company's new insurance written (NIW)[74] Alternatives to Private Mortgage Insurance Competition from GSE credit risk transfer, lender self-insurance, and government programs, along with proposed regulatory capital rules, could negatively impact new insurance written - Alternatives to private mortgage insurance include investors using risk mitigation and credit risk transfer techniques other than private mortgage insurance, lender self-insurance, and the use of FHA, VA, and other government mortgage insurance programs[75][76][77] - FHA's market share was 33.5% in 2024, and VA's was 24.5%; the FHA mortgage insurance premium rate reduction announced in February 2023 has negatively impacted the company's new insurance written (NIW)[79][80] - Proposed regulatory capital rules could impose higher capital standards on large U.S. banks, where affected banks would no longer receive risk capital relief for mortgage insurance, which is expected to negatively impact the company's new insurance written (NIW)[81] Impact of Policy Persistency on Results Policy persistency significantly impacts revenue; high persistency can reduce single-premium profitability, while low persistency reduces future premiums for monthly and annual policies - The duration of insurance policies (annual persistency) significantly impacts the company's revenue, as most earned premiums each year are from insurance underwritten in prior years[82] - Higher-than-expected persistency could reduce the profitability of single-premium policies as they remain in force longer and potentially increase claim incidence; conversely, low persistency for monthly and annual premium policies will reduce future premiums[82] - As of June 30, 2025, annual persistency was 84.7%, primarily influenced by current mortgage interest rates relative to the mortgage coupon rates of insurance in force and the amount of equity borrowers have in their homes[83] Disruptions in Mortgage Loan Servicing and Third-Party Reliance Reliance on third-party servicers for mortgage servicing and reporting exposes the company to risks from servicer liquidity issues, operational burdens, and inaccurate reporting - The company relies on third-party servicers for reliable and consistent servicing of insured mortgage loans and on third-party reporting for information, which may contain omissions or inaccuracies[84][88] - Servicer liquidity issues or operational burdens from increased delinquent loans could disrupt servicing, reduce servicers' loss mitigation efforts, and affect premium income[84][85][86] - The company has delegated authority for certain loss mitigation options to the GSEs, who in turn delegate to most approved servicers, and these loss mitigation decisions may be adverse to the company and increase the incidence of paid claims[87] Risk Factors Relating to Our Business Generally This section covers general business risks, including risk management, IT failures, cybersecurity, underwriting, premium adequacy, financial instability, personnel, competition, ratings, legal, investments, and stock price Effectiveness of Risk Management Programs and Model Accuracy Risk management programs may not effectively mitigate all risks, and models used for forecasting and pricing rely on uncertain assumptions, with errors potentially impacting financial performance - The company's enterprise risk management program may not effectively identify or adequately control and mitigate the risks faced in its business[89] - The models used by the company rely on inherently uncertain estimates, forecasts, and assumptions and may not always perform as expected, especially during unusual events[91] - Changes in models or model assumptions, errors in model design, implementation, or use, and incorrect or inaccurate underlying input data, assumptions, and calculations could lead to significant changes in future expectations, returns, or financial performance[91] Information Technology System Failures The company's business heavily relies on IT systems; failures or disruptions could impact service delivery, efficiency, and operations, while system upgrades are complex and costly - The company's business is highly dependent on information technology systems, and failures or disruptions to these systems or disaster recovery and business continuity plans could affect the company's ability to provide products and services to customers, reduce efficiency, or cause operational delays[92] - Upgrades, automation, and transformation of information systems are complex, expensive, and time-consuming, and failure to successfully implement and integrate them in a timely manner could materially and adversely affect the business and operating results[93] Cybersecurity Breach and Information Security The company is vulnerable to cyberattacks and security breaches, including AI-driven threats, which could result in reputational damage, financial losses, and regulatory penalties - The company maintains a large volume of confidential and proprietary information and is vulnerable to cyberattacks, ransomware, unauthorized access, and system failures[94][95] - The development and use of artificial intelligence (AI) may increase information security risks, such as being used to create attacks or bypass security measures, and hybrid work models may be more susceptible to security breaches[96] - If unauthorized information disclosure or a cyberattack occurs, some costs may not be recoverable through insurance or legal proceedings, potentially materially and adversely affecting operating results[98] Underwriting Practices and Business Mix Underwriting practices and business mix directly impact PMIERs capital requirements, premium yield, and loss likelihood, with reliance on delegated underwriting affecting pricing and risk assessment - Underwriting practices and business mix (such as LTV ratios, credit scores, loan terms, HARP status, and delinquency status) affect minimum required assets under PMIERs, premium yield, and the likelihood of losses[99] - The company relies on information provided by loan originators through delegated underwriting programs (approximately 69% of NIW for the first six months of 2025) and GSE automated underwriting systems, which can affect pricing and risk assessment[107][108] - The widespread use of risk-based pricing systems in the private mortgage insurance industry makes rate comparisons with competitors more difficult and can lead to volatility in new insurance written (NIW)[109] Adequacy of Premiums Premiums set at issuance may be insufficient to cover liabilities, as coverage cannot be canceled or adjusted, and regulatory delays for increases could reduce returns - Premiums set at policy issuance may be insufficient to cover loss liabilities, as mortgage insurance coverage generally cannot be canceled or renewal premiums adjusted during the policy term[111] - Premiums are subject to state regulatory approval, which may delay or limit the company's ability to increase premiums on future policies; if required capital increases or actual losses exceed expectations, returns may be lower than anticipated[111] - If changes in state or federal regulations relax mortgage loan standards, or lenders seek alternative business, it could lead to underwriting more high-risk loans, and claim rates could be higher than anticipated by current underwriting and pricing models[111] Instability in Financial Services Industry and Counterparty Risk Instability in the financial services industry or counterparty defaults could significantly impact the company's business, leading to market disruptions and increased regulatory pressure - Actual or perceived instability in the financial services industry, or non-performance by financial institutions or counterparties, could materially affect the company's business[112] - These conditions could lead to disruptions in mortgage markets, delayed access to deposits or other financial assets, reduced or more costly access to funding sources and credit arrangements, increased regulatory pressure, and the inability of counterparties and/or customers to fulfill their obligations to the company[112][113] Management Team and Personnel Retention Company success depends on key personnel; unexpected departures or failure to recruit replacements could adversely affect business and increase costs - The company's success depends in part on the skills, working relationships, and continued service of its management team and other key personnel[114] - Unexpected departures of key personnel or failure to successfully recruit and develop replacements, as well as replacing the knowledge and expertise of an aging workforce, could adversely affect the company's business and increase costs[114] - Fluctuations or underperformance in the company's stock price could affect its ability to retain key personnel or attract replacements[114] Competition and Customer Relationships The mortgage insurance industry is highly competitive, with rivals including government agencies; changes in competition or risk-based pricing could affect revenue and market share - The mortgage insurance industry is highly competitive, with key competitors including other private mortgage insurance companies and government agencies (FHA and VA)[115] - The widespread use of risk-based pricing systems in the private mortgage insurance industry makes rate comparisons with competitors more difficult and can lead to volatility in new insurance written (NIW)[117] - For the twelve months ended June 30, 2025, the top ten customers accounted for approximately 35% of the company's new insurance written (NIW), with the largest customer accounting for approximately 19%[118] Adverse Rating Agency Actions Financial strength ratings are crucial; downgrades could impact PMIERs eligibility, new insurance written, and capital market access, with MGIC currently rated A, A3, and A- - Financial strength ratings are critical to maintaining public confidence in mortgage insurance coverage and the company's competitive position, and a downgrade could materially affect business and operating results[122][124] - MGIC's financial strength ratings are A (A.M. Best, stable outlook), A3 (Moody's, positive outlook), and A- (S&P, stable outlook)[124] - A ratings downgrade could adversely affect the company's cost of funds, liquidity, and access to capital markets[124] Legal Proceedings Operating in a highly regulated industry, the company faces legal and regulatory proceedings, with future litigation potentially leading to significant expenditures or adverse business impacts - The company operates in a highly regulated industry and faces legal and regulatory proceedings, including litigation related to claims payment practices[125] - While current disputes in the ordinary course of business are not expected to have a material adverse effect on financial condition or operating results, future legal and regulatory proceedings could result in adverse judgments, settlements, fines, injunctions, or other relief, requiring significant expenditures or materially and adversely affecting the business[125][126] Investment Portfolio Risks The investment portfolio, a key income and claims resource, is vulnerable to macroeconomic conditions, market volatility, and regulatory restrictions, with current higher rates impacting fair value - The investment portfolio is a significant source of income and a primary source of resources for claims payments, subject to general economic conditions and tax policies that may adversely affect credit and interest-rate sensitive securities markets[127] - Currently prevailing higher market interest rates have resulted in a decrease in the fair value of the investment portfolio's held securities relative to their amortized cost; portfolio values may also be adversely affected by ratings downgrades, increased bankruptcies, and widening credit spreads[127] - Insurance regulations limit the types and scope of investments, and PMIERs reduce available assets through exclusions, limitations, and deductions, which are generally higher for investments with greater credit risk or lower liquidity[129] Subsidiary Dividend Limitations MGIC Investment Corporation relies on subsidiary dividends, primarily from MGIC, to meet cash needs, but these payments are subject to regulatory approval and restrictions - MGIC Investment Corporation, as a holding company, has its principal assets in the capital stock and cash investments of its insurance subsidiary (MGIC), and dividends from MGIC are the primary source for the holding company to meet its cash needs[132] - MGIC's dividend payments are subject to regulatory approval and restrictions; for the twelve months ended June 30, 2025, MGIC paid $800 million in dividends to the holding company[132] - If MGIC is unable to pay dividends in sufficient amounts, it could adversely affect the company's operations, ability to repay debt, repurchase stock, and/or pay dividends to shareholders[133] Dilution from Additional Capital Future issuance of additional debt or equity capital could dilute existing ownership interests and potentially decrease common stock market price - The company may issue additional debt capital or equity/equity-related capital to manage its capital position under PMIERs or for other purposes[135] - Any future issuance of equity securities could dilute existing ownership interests, and the market price of the company's common stock could decline due to the sale of a large number of shares or similar securities or the anticipation that such sales could occur[135] Common Stock Price Fluctuations Common stock price can fluctuate significantly due to economic conditions, housing market trends, company performance, analyst expectations, and institutional investor activity - The market price of the company's common stock can fluctuate significantly, influenced by changes in general economic or housing market conditions, the mortgage insurance industry, or the stability of financial markets and the financial services industry[136] - Factors such as actual or anticipated quarterly and annual operating results, changes in securities analyst or rating agency expectations, and actual or anticipated changes in share repurchase programs or dividends could adversely affect the market price of common stock[136] - Holdings by investors such as index funds and exchange-traded funds may affect stock price and trading volume when these investors experience significant cash inflows or outflows, index rebalancing, or when the company's common stock is added to or removed from an index[136]