MGIC Investment Corporation Reports Third Quarter 2017 Results - 18.10.17 - News

MILWAUKEE, Oct. 18, 2017

Adjusted net operating income for the quarter ended September 30, 2017 was $120.7 million or $0.32 per diluted share. Adjusted net operating income for the quarter ended September 30, 2016 was $102.4 million or $0.25 per diluted share. We present the non-GAAP financial measure "Adjusted net operating income" to increase the comparability between periods of our financial results. See "Use of Non-GAAP Financial Measures" below.

Patrick Sinks, CEO of MTG and Mortgage Guaranty Insurance Corporation ("MGIC"), said, "I am pleased to report that we continue to make good progress in executing on our business strategies. Over the last year we prudently grew our insurance in force by 6 percent, and during the quarter we were able to increase the dividend payment from MGIC to the holding company to $40 million. Further, we maintained our traditionally low expense ratio." Sinks added that, "Reflecting the current economic conditions and underwriting quality of recently written business, new delinquent notices received in the third quarter, and the estimated claim rate associated with those notices declined compared to the same period last year."

Notable items for the quarter include:

Q3 2017

Q3 2016

Change

ARIVA.DE Börsen-Geflüster

Kurse

Mgic Investment

18,90 €

-0,53%

New Insurance Written (billions)

$

14.1

$

14.2

(0.7)

%

Insurance in force (billions) (1)

$

191.0

$

180.1

6.1

%

Primary Delinquent Inventory (# loans) (1)

41,235

51,433

(19.8)

%

Annual Persistency (1)

78.8

%

78.3

%

Consolidated Risk-to-Capital Ratio

11.1:1

(2)

12:6:1

(1)

GAAP Loss Ratio

12.5

%

25.7

%

GAAP Underwriting Expense Ratio (3)

15.7

%

14.7

%

Book Value per Share (4)

$

8.45

$

7.48

13.0

%

1) As of September 30, 2) preliminary as of September 30, 2017, 3) insurance operations, 4) based on shares outstanding

Total revenues for the third quarter of 2017 were $270.4 million, compared to $273.9 million in the third quarter last year. Total revenues in the third quarter of 2017 included $0.05 million of net realized investment losses compared to $5.09 million of net realized investment gains in the third quarter of 2016. Net premiums written for the quarter were $255.9 million, compared to $250.3 million for the same period last year. Net premiums earned were $237.1 million compared to $237.4 million for the same period last year.

New insurance written in the third quarter was $14.1 billion, compared to $14.2 billion in the third quarter of 2016. Persistency, or the percentage of insurance remaining in force from one year prior, was 78.8 percent at September 30, 2017, compared to 76.9 percent at December 31, 2016, and 78.3 percent at September 30, 2016. As of September 30, 2017, MGIC's primary insurance in force was $191.0 billion, compared to $182.0 billion at December 31, 2016, and $180.1 billion at September 30, 2016.

The fair value of MGIC Investment Corporation's investment portfolio, cash and cash equivalents was $5.0 billion at September 30, 2017, compared to $4.8 billion at December 31, 2016, and $5.0 billion at September 30, 2016.

At September 30, 2017, the percentage of loans that were delinquent, excluding bulk loans, was 3.19 percent, compared to 4.05 percent at December 31, 2016, and 4.14 percent at September 30, 2016. Including bulk loans, the percentage of loans that were delinquent at September 30, 2017 was 4.07 percent, compared to 5.04 percent at December 31, 2016, and 5.16 percent at September 30, 2016.

Losses incurred in the third quarter of 2017 were $29.7 million, compared to $60.9 million in the third quarter of 2016. During the third quarter of 2017 there was a $38 million reduction in losses incurred due to positive development on our primary loss reserves for previously received delinquencies compared to a reduction of $30 million in the third quarter of 2016. Losses incurred in the quarter associated with delinquent notices received in the quarter reflect a lower level of new notices received and a lower claim rate when compared to the same quarter last year.

Net underwriting and other expenses were $42.9 million in the third quarter of 2017, compared to $40.4 million reported for the same period last year.

Conference Call and Webcast Details

MGIC Investment Corporation will hold a conference call today, October 18, 2017, at 10 a.m. ET to allow securities analysts and shareholders the opportunity to hear management discuss the company's quarterly results. The conference call number is 1-844-231-8825. The call is being webcast and can be accessed at the company's website at http://mtg.mgic.com/. A replay of the webcast will be available on the company's website through November 18, 2017 under "Newsroom."

About MGIC

MGIC (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, serves lenders throughout the United States, Puerto Rico, and other locations helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality. At September 30, 2017, MGIC had $191.0 billion of primary insurance in force covering approximately one million mortgages.

This press release, which includes certain additional statistical and other information, including non-GAAP financial information, and a supplement that contains various portfolio statistics are both available on the Company's website at https://mtg.mgic.com/ under "Newsroom."

From time to time MGIC Investment Corporation releases important information via postings on its corporate website without making any other disclosure and intends to continue to do so in the future. Investors and other interested parties are encouraged to enroll to receive automatic email alerts and Really Simple Syndication (RSS) feeds regarding new postings. Enrollment information can be found at https://mtg.mgic.com under "Newsroom."

Safe Harbor Statement

Forward Looking Statements and Risk Factors:

Our actual results could be affected by the risk factors below. These risk factors should be reviewed in connection with this press release and our periodic reports to the Securities and Exchange Commission ("SEC"). These risk factors may also cause actual results to differ materially from the results contemplated by forward looking statements that we may make. Forward looking statements consist of statements which relate to matters other than historical fact, including matters that inherently refer to future events. Among others, statements that include words such as "believe," "anticipate," "will" or "expect," or words of similar import, are forward looking statements. We are not undertaking any obligation to update any forward looking statements or other statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. No investor should rely on the fact that such statements are current at any time other than the time at which this press release was issued.

In addition, the current period financial results included in this press release may be affected by additional information that arises prior to the filing of our Form 10-Q for the quarter ended September 30, 2017.

While we communicate with security analysts from time to time, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report, and such reports are not our responsibility.

Use of Non-GAAP Financial Measures

We believe that use of the Non-GAAP measures of adjusted pre-tax operating income (loss), adjusted net operating income (loss) and adjusted net operating income (loss) per diluted share facilitate the evaluation of the company's core financial performance thereby providing relevant information to investors. These measures are not recognized in accordance with accounting principles generally accepted in the United States of America (GAAP) and should not be viewed as alternatives to GAAP measures of performance. The measures described below have been established to increase transparency for the purpose of evaluating our fundamental operating trends.

Adjusted pre-tax operating income (loss) is defined as GAAP income (loss) before tax, excluding the effects of net realized investment gains (losses), gain (loss) on debt extinguishment, net impairment losses recognized in income (loss) and infrequent or unusual non-operating items where applicable.

Adjusted net operating income (loss) is defined as GAAP net income (loss) excluding the after-tax effects of net realized investment gains (losses), gain (loss) on debt extinguishment, net impairment losses recognized in income (loss), and infrequent or unusual non-operating items where applicable. The amounts of adjustments to components of pre-tax operating income (loss) are tax effected using a federal statutory tax rate of 35%.

Adjusted net operating income (loss) per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net operating income (loss) after making adjustments for interest expense on convertible debt, whenever the impact is dilutive, by (ii) diluted weighted average common shares outstanding, which reflects share dilution from unvested restricted stock units and from convertible debt when dilutive under the "if-converted" method.

Although adjusted pre-tax operating income (loss) and adjusted net operating income (loss) exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items represent items that are: (1) not viewed as part of the operating performance of our primary activities; or (2) impacted by both discretionary and other economic factors and are not necessarily indicative of operating trends, or both. These adjustments, along with the reasons for their treatment, are described below. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these adjustments. Other companies may calculate these measures differently. Therefore, their measures may not be comparable to those used by us.

(1)	Net realized investment gains (losses). The recognition of net realized investment gains or losses can vary significantly across periods as the timing of individual securities sales is highly discretionary and is influenced by such factors as market opportunities, our tax and capital profile, and overall market cycles.

(2)	Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt.

(3)	Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles, individual issuer performance, and general economic conditions.

(4)	Infrequent or unusual non-operating items. Income tax expense related to our IRS dispute is related to past transactions which are non-recurring in nature and are not part of our primary operating activities.

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands, except per share data)

2017

2016

2017

2016

Net premiums written

$

255,896

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