What MGIC Investment (MTG) Said on Its Q3 Earnings Call

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MGIC maintained its initial claim rate assumption of 7.5% for new delinquency notices. Colson said ultimate claim rates on nearly fully developed notice quarters have risen from historically low levels but remain below that assumption. He said the next change to the initial assumption is more likely to be an increase than a decrease, although strong credit performance could continue to produce favorable reserve development.

Capital returns and reinsurance

MGIC repurchased 5.1 million shares for $152.5 million during the quarter and paid a dividend of $0.17 per share. Over the preceding four quarters, it returned $711 million through buybacks and $135 million through dividends, equivalent to 122% of net income earned during that period, Mattke said. The board also approved another quarterly dividend of $0.17 per share.

Colson said the company prefers to invest capital in organic growth, but muted market conditions and strong business performance have supported returns at or above net income. He said repurchases remain price-sensitive: The pace slowed in the third quarter but accelerated in October as the share price moved closer to book value.

MGIC also outlined changes to its reinsurance program. The company executed an excess-of-loss transaction providing up to $168 million of coverage on eligible 2027 new insurance written. Amendments to quota-share agreements covering 2023 business are expected to reduce their ongoing cost by about 35% beginning in 2027.

The company agreed to terms for a 40% quota-share transaction covering eligible 2028 business and a separate 20% quota share for eligible 2029 business. Colson estimated the after-tax cost of capital for the forward transactions at around 3%, while noting that future risk, pricing and return conditions will ultimately determine the cost.

Expenses, premium yield and cancellation policy

Underwriting and other expenses fell to $45 million from $50 million a year earlier. MGIC now expects full-year operating expenses to come in slightly below the low end of its previous $190 million to $200 million range. Colson said a larger quota-share program and associated ceding commissions accounted for an estimated couple of million dollars of the quarterly year-over-year decline.

The in-force premium yield was 38 basis points, down less than half a basis point from a year earlier. Colson expects the yield to continue gradually declining at a pace similar to that of recent years. He declined to forecast net premium yield, saying it is substantially affected by near-term losses and profit commissions under quota-share agreements.

Executives also discussed a recent executive order that calls for the Federal Housing Finance Agency to explore a mortgage-insurance cancellation pilot. Mattke said it was too early to determine MGIC’s response without details of a potential pilot, including eligibility requirements. He said the company supports efforts to lower costs for new homeowners and hopes to share its views with regulators and the government-sponsored enterprises.

Colson estimated that roughly 40,000 to 50,000 policies a year in MGIC’s book are canceled at borrowers’ request while the underlying loans continue. The estimate is based on cancellations occurring more than 180 days before the expected Homeowners Protection Act cancellation date. He said the company already incorporates both statutory and borrower-requested cancellations into its models.

About MGIC Investment (NYSE:MTG)

MGIC Investment Corporation (NYSE:MTG) is a holding company whose principal subsidiary is Mortgage Guaranty Insurance Corporation (MGIC), a provider of private mortgage insurance in the United States. MGIC’s insurance helps protect mortgage lenders and investors against losses when borrowers default, enabling qualified homebuyers to obtain mortgages with smaller down payments.

MGIC primarily offers primary mortgage insurance for residential loans, working with mortgage lenders, banks and other housing-finance institutions.

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