MGIC Investment Corporation Q3 FY2025 earnings call

Key Points

• Recorded net income of $191 million and annualized return on equity of 14.8%.
• Book value per share grew to $22.87, up 11% year-over-year.
• Returned $980 million of capital to shareholders through dividends and share repurchases, reducing outstanding shares by 12%.
• Ended Q3 with over $300 billion of insurance in-force, an industry first.
• Earned net income and adjusted net operating income of $0.83 per diluted share, with $47 million favorable loss reserve development.
• Investment income was $62 million, operating expenses were $50 million in Q3, with full year operating expenses expected toward the higher end of $195 million to $205 million due to pension settlement charges.
• Active in reinsurance market with $250 million seasoned excess of loss and 40% quota share transactions, and amended quota share treaties for 2022 NIW.
• Modest improvements in home affordability noted, with private mortgage insurance continuing to play a critical role for low down payment borrowers.

No specific product segment breakdown mentioned. Key financial results include net income of $191 million, annualized return on equity of 14.8%, book value per share grew to $22.87, and ended the quarter with over $300 billion of insurance in-force.

Guidance

• Full year operating expenses expected to be toward the higher end of $195 million to $205 million due to pension settlement charges.
• Share repurchases expected to remain primary method of returning capital to shareholders while continuing to pay quarterly common stock dividend.
• Capital strategy focused on maintaining financial strength and flexibility, with adherence to strategies enabling return of excess capital to shareholders.

Risks

• Actual results could differ materially from forward-looking statements due to factors in Form 8-K and 10-Q.
• Potential increased competition in the private mortgage insurance space, with uncertainty regarding new entrants and their impact.

Q: In terms of your provision, what was your provision per loan on the new notices? And just from an accounting standpoint, does your provision for new notices for the quarter just net out the new notices that were -- new notices from the year that were also cured during the year?

A: From a new notice perspective, had similar assumptions for the provision this quarter. New notice claim rate was 7.5%, and total provision inclusive of $47 million favorable reserve development. Details in portfolio supplement on website.

Q: Can you just talk about how you're looking at the debate on credit scores? And just -- in terms of PMIERs, does PMIERs just use FICO and what happens if Vantage score becomes part of what lenders are starting to use or at some point?

A: Paying close attention, trying to be active in conversations. Uncertainty on GSE utilization of new scores, but ready to incorporate industry moves and supportive of industry strength.

Q: Thoughts on potential increased competition in the MI space and any real impact this could have on MGIC?

A: Aware of potential new entrants, but tough to say. Speculation, but assume they'd be on same playing field. More often asked if there should be fewer or more participants.

Q: How are you guys thinking about capital return going forward and the balance between repurchases and dividends within that payout?

A: Approach consistent, maintaining right financial strength at operating company. Using excess capital to pay dividends to holding company. Payout ratio elevated with share repurchases approximating net income over last 4 quarters and dividend above that, comfortable given current conditions but flexible to change if conditions alter.

Q: Persistency was modestly up quarter-over-quarter despite rate cut. Any callouts? And any markets you're seeing good opportunity in or cautious on?

A: Viewed as flat rather than up, up a couple tenths of a percentage point. Impact of rates coming down reflects prior periods. Focus on finding places with most economic value based on risk factors and market rate for risk, no strategy to lean in or out of specific markets.