MGIC Investment Corporation Q4 FY2025 earnings call

• Delivered solid financial results, closing 2025 strong with net income of $169 million in Q4 and $738 million for the full year.
• Insurance in force ended the year at over $303 billion, up 3% y/y, with $17 billion of new insurance written in Q4 and $60 billion full-year, up 8% y/y.
• Reinsurance program bolstered with various transactions, including a $250 million excess of loss transaction and a 40% quota share transaction, reducing PMIERs required by $2.8 billion or 47%.
• Returned $915 million to shareholders in 2025 through share repurchases and dividends, with a quarterly common stock dividend of $0.15 per share approved in January.
• Focus on housing affordability, supporting responsible policy changes, and private mortgage insurance's role in enabling low down payment borrowers.

In the fourth quarter, MGIC Investment Corporation earned net income of $169 million, with an annualized 13% return on equity. For the full year, net income was $738 million and return on equity was 14.3%. Book value per share grew to $23.47, 13% higher year over year. Insurance in force ended the year at more than $303 billion, up 3% from the prior year. Annual persistency was 85%. The company wrote $17 billion of new insurance in the fourth quarter and $60 billion for the full year, an increase of 8% from the prior year. The in-force premium yield was 38 basis points in the quarter, and investment income totaled $62 million in the fourth quarter with a book yield on the investment portfolio of 4%. Underwriting and other expenses in the quarter were $46 million, down from $49 million in the prior year's fourth quarter.

• Expect insurance in force to remain relatively flat in 2026; if mortgage rates drop more than predicted, MI market could benefit but growth in insurance in force would be offset by lower persistency.
• Expect operating expenses to decline further to a range of $190 to $200 million in 2026 due to higher expected ceding commissions from renegotiated reinsurance treaties.

• Variability in credit performance of the insurance portfolio, though early payment defaults remain low.
• Market conditions affecting the size of the MI market and persistency, which could impact insurance in force growth.
• Uncertainty around future losses and their impact on profit commissions related to quota share deals, making modeling of ceded premiums challenging.

Q: Any price competition or changes seen in the industry?

A: Timothy James Mattke stated they feel good about premium stability, with no major adjustments in the quarter.

Q: Thoughts on potential reduction in FHA premiums?

A: Timothy James Mattke said there's no imminent indication of FHA premium reduction, but external pressure exists for affordability.

Q: Credit trends by region or state?

A: Nathaniel Howe Colson said no significant geographic movement in new delinquencies seen.

Q: Reserve release composition and drivers?

A: Nathaniel Howe Colson explained reserve development driven by cure rates on recent delinquency notices, with cure rates exceeding expectations.

Q: Composition of NODs and impact of newer vintages?

A: Nathaniel Howe Colson noted no major divergence in cure activity by vintage, with recent vintages tracking close to prior trends.

Q: Levers to improve returns on capital?

A: Nathaniel Howe Colson mentioned reinsurance program bolstered to improve risk-adjusted returns on equity.

Q: In-force premium yield decline?

A: Nathaniel Howe Colson said it was due to temporary factors like insurance in force dollars increasing at quarter end.

Q: Insurance in force flatness and persistency?

A: Timothy James Mattke noted refi activity can have downward pressure on persistency even with market growth.

Q: Credit trends for 2026-2027?

A: Nathaniel Howe Colson said next vintages may be modestly higher, with potential upside risk to NIW from refi volume.

Q: Modeling ceded premium and profit commission?

A: Nathaniel Howe Colson said profit commission is dependent on future loss expectations, with variability due to business nature.