MGIC INVESTMENT CORP Q4 FY2024 earnings call

Key Points

• Ended the year with solid Q4 financial results, generating mid-teen returns on equity and returning meaningful capital to shareholders.
• Favorable credit trends and disciplined risk/capital management contributed to 2024 results. Net income for full year was $763 million vs $730 million prior year.
• Insurance in force stood at over $295 billion at quarter end. Wrote $16 billion in Q4 and $56 billion full year, up 21% y-o-y.
• Capital position supported $750 million in dividends to holding company and ~$700 million returned to shareholders via repurchases and dividends (92% payout ratio).
• Reinsurance program remained key, with a multiyear 40% quota share transaction covering 2025-2026 policies and amended terms on existing reinsurance to reduce costs.
• Housing market remains resilient with favorable supply-demand dynamics; consensus forecasts project PMI market in 2025 similar in size to 2024 with high persistency expected.

In the fourth quarter, MGIC earned net income of $185 million and produced an annualized 14% return on equity. For the full year, net income was $763 million. Insurance in force at the end of the quarter was over $295 billion. New insurance written was $16 billion in Q4 and $56 billion for the full year, which was up 21% from the prior year. The overall credit quality of the insurance portfolio remained solid with an average FICO of 747 at origination. Annual persistency ended at 85%.

Forward-Looking

• Expect operating expenses in 2025 to be in the range of $195 million to $205 million.
• Continue share repurchase program with $372 million remaining on current authorization as of January 31st. In January, repurchased 3.5 million shares for $85 million.
• Board authorized a $0.13 per share common stock dividend to be paid on March 5th.
• Reinsurance program bolstered with a multiyear 40% quota share transaction covering 2025-2026 policies and amended existing reinsurance terms to reduce costs.

Risks

• Potential impact of economic environment on credit performance of the insurance portfolio.
• Changes in the housing market that could affect PMI volume and persistency.
• Uncertainty around GSE reform and its impact on the volume of mortgage insurance business.
• Adverse developments in reinsurance contracts that could affect risk management and capital positions.

Q: Terry Ma asked about the new notice claim rate coming down due to hurricane related delinquencies and new notice severity ticking up.

A: Nathan Colson responded it's due to higher exposures on new delinquencies received, with more notices from 2022-2024 vintages having higher loan amounts. Still targeting same severity to exposure ratio but exposures increasing.

Q: Mihir Bhatia asked about GSE reform privatization and its impact on MTG.

A: Tim Mattke said there are various paths, emphasizing the importance of right guard rails and that private MI can benefit taxpayers over FHA.

Q: Mihir Bhatia asked about normalized delinquency rate and normal credit costs for MI.

A: Nathan Colson said to think less in terms of delinquency rate, with underwriting expectations being worse than recent experience, and loss ratios typically in 20-40 range over time.

Q: Bose George asked about debt-to-income trends and underwriting offsets.

A: Tim Mattke said it's due to affordability issues from high home prices and interest rates, with other credit characteristics remaining stable and favorable. Nathan Colson added it's a function of higher interest rates, expected to come down if rates revert, and addressed via credit policy and pricing.

Q: Douglas Harter asked about pricing environment for NIW and competitive dynamics.

A: Tim Mattke said risk return remains favorable and Q4 NIW was a continuation of earlier trends with a bit more refi volume.

Q: Scott Heleniak asked about NIW growth and optimism.

A: Tim Mattke said it's a continuation of business, with Q4 having a bit more refi volume from interest rate blip.

Q: Geoffrey Dunn asked about operating expense guidance, claim rate, and tech spend.

A: Nathan Colson discussed expense reductions from changes in outside services, coworker count, and repositioning work; Tim Mattke talked about continuing tech platform investment with dividends from prior investments.