SEC Form 10-Q filed by MGIC Investment Corporation

5/1/24 4:07:07 PM ET

Property-Casualty Insurers

Finance

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FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	March 31, 2024
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ______ to ______
	Commission file number	1-10816

MGIC Investment Corporation

(Exact name of registrant as specified in its charter)


Wisconsin		39-1486475
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
250 E. Kilbourn Avenue		53202
Milwaukee,	Wisconsin	(Zip Code)
(Address of principal executive offices)

(414)		347-6480
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock

MTG

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

☐

(Do not check if a smaller reporting company)

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of April 26, 2024, there were 266,587,218 shares of common stock of the registrant, par value $1.00 per share, outstanding.

Forward Looking and Other Statements

All statements in this report that address events, developments or results that we expect or anticipate may occur in the future are “forward looking statements.” Forward looking statements consist of statements that relate to matters other than historical fact. In most cases, forward looking statements may be identified by words such as “believe,” “anticipate” or “expect,” or words of similar import. The Risk Factors referred to in “Forward Looking Statements and Risk Factors – Location of Risk Factors” in Management’s Discussion and Analysis of Financial Condition and Results of Operations below, may cause our actual results to differ materially from the results contemplated by forward looking statements that we may make. We are not undertaking any obligation to update any forward looking statements or other statements we may make in this document even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.

MGIC Investment Corporation - Q1 2024 | 2

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED March 31, 2024


Table of contents
		Page
PART I — FINANCIAL INFORMATION
Item 1	Financial Statements:
	Consolidated Balance Sheets - March 31, 2024 (Unaudited) and December 31, 2023	8
	Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, 2024 and 2023	9
	Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended March 31, 2024 and 2023	10
	Consolidated Statements of Shareholders’ Equity (Unaudited) - Three Months Ended March 31, 2024 and 2023	11
	Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2024 and 2023	12
	Notes to Consolidated Financial Statements (Unaudited)	13
	Note 1 - Nature of Business and Basis of Presentation	13
	Note 2 - Significant Accounting Policies	14
	Note 3 - Debt	14
	Note 4 - Reinsurance	15
	Note 5 - Litigation and Contingencies	19
	Note 6 - Earnings Per Share	20
	Note 7 - Investments	21
	Note 8 - Fair Value Measurements	24
	Note 9 - Other Comprehensive Income	27
	Note 10 - Benefit Plans	28
	Note 11 - Loss Reserves	29
	Note 12 - Shareholders’ Equity	31
	Note 13 - Share-Based Compensation	31
	Note 14 - Statutory Information	32

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3	Quantitative and Qualitative Disclosures about Market Risk	57
Item 4	Controls and Procedures	57

PART II — OTHER INFORMATION
Item 1	Legal Proceedings	58
Item 1A	Risk Factors	58
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 5	Other Information	58
Item 6	Exhibits	59
INDEX TO EXHIBITS		59
SIGNATURES		60

MGIC Investment Corporation - Q1 2024 | 3

Glossary of terms and acronyms

/ A

ARMs

Adjustable rate mortgages

ABS

Asset-backed securities

Annual Persistency

The percentage of our insurance remaining in force from one year prior. As of September 30, 2023, we refined our methodology for calculating our Annual Persistency by excluding the amortization of the principal balance. All prior periods have been revised

ASC

Accounting Standards Codification

Available Assets

Assets, as designated under the PMIERs, that are readily available to pay claims, and include the most liquid investments

/ B

Book or book year

A group of loans insured in a particular calendar year

BPMI

Borrower-paid mortgage insurance

/ C

CECL

Current expected credit losses covered under ASC 326

CFPB

Consumer Financial Protection Bureau

CLO

Collateralized loan obligations

CMBS

Commercial mortgage-backed securities

COVID-19 Pandemic

An outbreak of the novel coronavirus disease, later named COVID-19. The outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency in the United States in March 2020

CRT

Credit risk transfer. The transfer of a portion of mortgage credit risk to the private sector through different forms of transactions and structures

/ D

DAC

Deferred insurance policy acquisition costs

Debt-to-income (“DTI”) ratio

The ratio, expressed as a percentage, of a borrower’s total debt payments to gross income

Delinquent Loan

A loan that is past due on a mortgage payment. A delinquent loan is typically reported to us by servicers when the loan has missed two or more payments. A loan will continue to be reported as delinquent until it becomes current, or a claim payment has been made. A delinquent loan is also referred to as a default

Delinquency Rate

The percentage of insured loans that are delinquent

Direct

Before giving effect to reinsurance

/ E

EPS

Earnings per share

/ F

Fannie Mae

Federal National Mortgage Association

FCRA

Fair Credit Reporting Act

FHA

Federal Housing Administration

FHFA

Federal Housing Finance Agency

FHLB

Federal Home Loan Bank of Chicago, of which MGIC is a member

FICO score

A measure of consumer credit risk provided by credit bureaus, typically produced from statistical models by Fair Isaac Corporation utilizing data collected by the credit bureaus

Freddie Mac

Federal Home Loan Mortgage Corporation

/ G

GAAP

Generally Accepted Accounting Principles in the United States

GSEs

Government Sponsored Enterprise. Collectively, Fannie Mae and Freddie Mac

MGIC Investment Corporation - Q1 2024 | 4

/ H

HAMP

Home Affordable Modification Program

HARP

Home Affordable Refinance Program

Home Re Entities

Unaffiliated special purpose insurers domiciled in Bermuda that participate in our aggregate XOL Transactions through the ILN market

Home Re Transactions

Excess-of-loss reinsurance transactions with the Home Re Entities

HOPA

Homeowners Protection Act

HUD

Housing and Urban Development

/ I

IBNR Reserves

Loss reserves established on loans we estimate are delinquent, but for which the delinquency has not been reported to us

IIF

Insurance in force, which for loans insured by us, is equal to the unpaid principal balance, as reported to us

ILN

Insurance-linked notes

/ L

LAE

Loss adjustment expenses, which includes the costs of settling claims, including legal and other expenses and general expenses of administering the claims settlement process

Loan-to-value ("LTV") ratio

The ratio, expressed as a percentage, of the dollar amount of the first mortgage loan to the value of the property at the time the loan became insured and does not reflect subsequent housing price appreciation or depreciation. Subordinate mortgages may also be present

Long-term debt:

5.25% Notes

5.25% Senior Notes due on August 15, 2028, with interest payable semi-annually on February 15 and August 15 of each year

Loss ratio

The ratio, expressed as a percentage, of losses incurred, net to net premiums earned

Low down payment loans or mortgages

Loans with less than 20% down payments

LPMI

Lender-paid mortgage insurance

/ M

MBS

Mortgage-backed securities

MD&A

Management's discussion and analysis of financial condition and results of operations

MGIC

Mortgage Guaranty Insurance Corporation, a subsidiary of MGIC Investment Corporation

MAC

MGIC Assurance Corporation, a subsidiary of MGIC

Minimum Required Assets

The minimum amount of Available Assets that must be held under the PMIERs which is based on an insurer’s book of RIF and is calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor of $400 million

MPP

Minimum Policyholder Position, as required under certain state requirements. The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve and a portion of the reserves for unearned premiums

/ N

N/A

Not applicable for the period presented

NAIC

The National Association of Insurance Commissioners

NIW

New Insurance Written, is the aggregate original principal amount of the mortgages that are insured during a period

N/M

Data, or calculation, deemed not meaningful for the period presented

NPL Settlement

The commutation of coverage on non-performing loans, which are a delinquent loans, at any stage in their delinquency

/ O

OCI

Office of the Commissioner of Insurance of the State of Wisconsin

/ P

PMI

Private Mortgage Insurance (as an industry or product type)

MGIC Investment Corporation - Q1 2024 | 5

PMIERs

Private Mortgage Insurer Eligibility Requirements issued by each of Fannie Mae and Freddie Mac to set forth requirements that an approved insurer must meet and maintain to provide mortgage guaranty insurance on loans delivered to or acquired by Fannie Mae or Freddie Mac, as applicable

Premium Yield

The ratio of premium earned divided by the average IIF outstanding for the period measured

Premium Rate

The contractual rate charged for coverage under our insurance policies

Primary Insurance

Insurance that provides mortgage default protection on individual loans.

Profit Commission

Payments we receive from reinsurers under each of our quota share reinsurance transactions if the annual loss ratio is below levels specified in the quota share reinsurance transaction

/ Q

QSR Transaction

Quota share reinsurance transaction with a group of unaffiliated reinsurers

2020 QSR

Our QSR transactions that provided coverage on eligible NIW in 2020

2021 QSR

Our QSR transaction that provides coverage on eligible NIW in 2021

2022 QSR

Our QSR transaction that provides coverage on eligible NIW in 2022

2023 QSR

Our QSR transaction that provides coverage on eligible NIW in 2023

2024 QSR

Our QSR transaction that provides coverage on eligible NIW in 2024

Credit Union QSR

Our QSR transaction that provides coverage on eligible NIW from credit union institutions originated from April 1, 2020 through December 31, 2025

/ R

RESPA

Real Estate Settlement Procedures Act

RIF

Risk in force, which for an individual loan insured by us, is equal to the unpaid loan principal balance, as reported to us, multiplied by the insurance coverage percentage. RIF is sometimes referred to as exposure

Risk-to-capital

Under certain state regulations, the ratio of RIF, net of reinsurance and exposure on policies currently in default and for which loss reserves have been established, to the level of statutory capital

RMBS

Residential mortgage-backed securities

/ S

State Capital Requirements

Under certain state regulations, the minimum amount of statutory capital relative to risk in force (or similar measure)

/ T

TILA

Truth in Lending Act

Traditional XOL Transaction

Excess-of-loss reinsurance transaction with a group of unaffiliated reinsurers

2022 Traditional XOL

Our XOL transaction that provides coverage on eligible NIW in 2022

2023 Traditional XOL

Our XOL transaction that provides coverage on eligible NIW in 2023

/ U

Underwriting expense ratio

The ratio, expressed as a percentage, of the other underwriting and operating expenses, net, and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance subsidiaries) to net premiums written

Underwriting profit

Net premiums earned minus losses incurred, net and other underwriting and operating expenses, net

USDA

U.S. Department of Agriculture

/ V

U.S. Department of Veterans Affairs

VIE

Variable interest entity

MGIC Investment Corporation - Q1 2024 | 6

/ X

XOL Transactions

Excess-of-loss reinsurance transactions executed through the Home Re Transactions and the Traditional XOL Transactions

MGIC Investment Corporation - Q1 2024 | 7

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(In thousands)	Note	March 31, 2024		December 31, 2023
		(Unaudited)
ASSETS
Investment portfolio:	7 / 8
Fixed income, available-for-sale, at fair value (amortized cost 2024 - $5,928,057; 2023 - $5,939,483)		$	5,576,997	$	5,601,540
Short-term, fixed income, available-for-sale, at fair value (amortized cost 2024 - $95,721; 2023 - $121,539)		95,717		121,573
Equity securities, at fair value (cost 2024 - $16,053; 2023 - $16,025)		14,697		14,771
Other invested assets, at cost		850		850
Total investment portfolio		5,688,261		5,738,734
Cash and cash equivalents		431,347		363,666
Restricted cash and cash equivalents		8,221		6,978
Accrued investment income		58,093		58,774
Reinsurance recoverable on loss reserves	4	39,200		33,302
Reinsurance recoverable on paid losses	4	555		9,896
Premiums receivable		56,033		58,499
Home office and equipment, net		37,614		38,755
Deferred insurance policy acquisition costs		13,846		14,591
Deferred income taxes, net		76,271		79,782
Other assets		125,805		135,403
Total assets		$	6,535,246	$	6,538,380

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Loss reserves	11	$	504,447	$	505,379
Unearned premiums		148,935		157,779

Senior notes	3	643,563		643,196

Other liabilities		135,958		160,009
Total liabilities		1,432,903		1,466,363
Contingencies	5
Shareholders’ equity:	12
Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2024 - 371,353; 2023 - 371,353; shares outstanding 2024 - 268,990; 2023 - 272,494)		371,353		371,353
Paid-in capital		1,788,050		1,808,113
Treasury stock at cost (shares 2024 - 102,363; 2023 - 98,859)		(1,466,224)		(1,384,293)
Accumulated other comprehensive income (loss), net of tax		(326,134)		(316,281)
Retained earnings		4,735,298		4,593,125
Total shareholders’ equity		5,102,343		5,072,017
Total liabilities and shareholders’ equity		$	6,535,246	$	6,538,380

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - Q1 2024 | 8


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

		Three Months Ended March 31,
(In thousands, except per share data)	Note	2024		2023
Revenues:
Premiums written:
Direct		$	275,203	$	274,247
Assumed		3,416		2,751
Ceded	4	(44,819)		(46,806)
Net premiums written		233,800		230,192
Decrease in unearned premiums, net		8,844		11,823
Net premiums earned		242,644		242,015
Investment income, net of expenses		59,744		49,223
Net gains (losses) on investments and other financial instruments	7/8	(8,509)		(7,698)
Other revenue		482		425
Total revenues		294,361		283,965

Losses and expenses:
Losses incurred, net	11	4,555		6,446
Amortization of deferred insurance policy acquisition costs		2,009		2,478
Other underwriting and operating expenses, net		59,018		70,063

Interest expense		8,899		9,374
Total losses and expenses		74,481		88,361
Income before tax		219,880		195,604
Provision for income tax		45,783		41,057
Net income		$	174,097	$	154,547

Earnings per share:
Basic	6	$	0.64	$	0.53
Diluted	6	$	0.64	$	0.53

Weighted average common shares outstanding - basic	6	270,314		290,989
Weighted average common shares outstanding - diluted	6	273,108		294,712

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - Q1 2024 | 9


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

		Three Months Ended March 31,
(In thousands)	Note	2024		2023
Net income		$	174,097	$	154,547
Other comprehensive income (loss), net of tax:	9
Change in unrealized investment gains and losses	7	(10,392)		80,659
Benefit plan adjustments		539		5,353
Other comprehensive income (loss), net of tax		(9,853)		86,012
Comprehensive income (loss)		$	164,244	$	240,559

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - Q1 2024 | 10


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

		Three Months Ended March 31,
(In thousands)	Note	2024		2023
Common stock
Balance, beginning and end of period		$	371,353	$	371,353



Paid-in capital
Balance, beginning of period		1,808,113		1,798,842


Reissuance of treasury stock, net under share-based compensation plans		(31,168)		(16,912)


Equity compensation		11,105		9,679
Balance, end of period		1,788,050		1,791,609

Treasury stock
Balance, beginning of period		(1,384,293)		(1,050,238)
Reissuance of treasury stock, net under share-based compensation plans		12,122		9,713
Repurchase of common stock	12	(94,053)		(78,523)
Balance, end of period		(1,466,224)		(1,119,048)

Accumulated other comprehensive income (loss)
Balance, beginning of period		(316,281)		(481,511)
Other comprehensive income (loss), net of tax	9	(9,853)		86,012
Balance, end of period		(326,134)		(395,499)

Retained earnings
Balance, beginning of period		4,593,125		4,004,294


Net income		174,097		154,547
Cash dividends	12	(31,924)		(29,612)
Balance, end of period		4,735,298		4,129,229

Total shareholders’ equity		$	5,102,343	$	4,777,644

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - Q1 2024 | 11


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended March 31,
(In thousands)	2024		2023
Cash flows from operating activities:
Net income	$	174,097	$	154,547
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,485		10,192
Deferred tax expense (benefit)	6,131		1,732
Equity compensation	11,105		9,679

Net (gains) losses on investments and other financial instruments	8,509		7,698
Change in certain assets and liabilities:
Accrued investment income	681		628
Reinsurance recoverable on loss reserves	(5,898)		(4,521)
Reinsurance recoverable on paid losses	9,341		17,936
Premiums receivable	2,466		625
Deferred insurance policy acquisition costs	745		965

Loss reserves	(932)		527
Unearned premiums	(8,844)		(11,822)
Return premium accrual	(2,600)		(1,300)
Current income taxes	39,839		39,481
Other, net	(50,588)		(14,081)		(1)
Net cash provided by (used in) operating activities	190,537		212,286

Cash flows from investing activities:
Purchases of investments	(327,757)		(229,198)
Proceeds from sales of investments	14,841		32,991
Proceeds from maturity of fixed income securities	338,885		131,389

Additions to property and equipment	—		(363)
Net cash provided by (used in) investing activities	25,969		(65,181)

Cash flows from financing activities:
Repurchase of common stock	(95,183)		(76,151)
Dividends paid	(33,353)		(30,096)
Payment of withholding taxes related to share-based compensation net share settlement	(19,046)		(7,199)
Net cash provided by (used in) financing activities	(147,582)		(113,446)
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents	68,924		33,659
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	370,644		332,913
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	439,568	$	366,572
(1) Amounts have been reclassified to conform to the current year presentation

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - Q1 2024 | 12

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

Note 1. Nature of Business and Basis of Presentation

MGIC Investment Corporation is a holding company which, through Mortgage Guaranty Insurance Corporation (“MGIC”), is principally engaged in the mortgage insurance business. We provide mortgage insurance to lenders throughout the United States and to government sponsored entities to protect against loss from defaults on low down payment residential mortgage loans. MGIC Assurance Corporation (“MAC”) and MGIC Indemnity Corporation (“MIC”), insurance subsidiaries of MGIC, provide insurance for certain mortgages under Fannie Mae and Freddie Mac (the “GSEs”) credit risk transfer programs.

The accompanying unaudited consolidated financial statements of MGIC Investment Corporation and its wholly-owned subsidiaries have been prepared in accordance with the instructions to Form 10-Q as prescribed by the Securities and Exchange Commission (“SEC”) for interim reporting and do not include all of the other information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2023 included in our 2023 Annual Report on Form 10-K. As used below, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as the context requires.

In the opinion of management, the accompanying financial statements include all adjustments, consisting primarily of normal recurring accruals, necessary to fairly state our consolidated financial position and consolidated results of operations for the periods indicated. The consolidated results of operations for an interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

The substantial majority of our NIW has been for loans purchased by the GSEs. The current private mortgage insurer eligibility requirements ("PMIERs") of the GSEs include financial requirements, as well as business, quality control and certain transactional approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s "Available Assets" (generally only the most liquid assets of an insurer) to equal or exceed its "Minimum Required Assets" (which are based on an insurer's book of risk in force, calculated from tables of factors with several risk dimensions). Based on our application of the PMIERs, as of March 31, 2024, MGIC’s Available Assets are in excess of its Minimum Required Assets; and MGIC is in compliance with the PMIERs and eligible to insure loans purchased by the GSEs.

Subsequent events

We have considered subsequent events through the date of this filing.

MGIC Investment Corporation - Q1 2024 | 13

Note 2. Significant Accounting Policies

Prospective accounting and reporting developments

Relevant new amendments to accounting standards, which are not yet effective or adopted.

Improvements to Income Tax Disclosures: ASU 2023-09

In December 2023, the FASB issued ASU 2023-09 to enhance the transparency and decision usefulness of income tax disclosures. Income tax disclosures will require consistent categories and greater disaggregations of information in the rate reconciliation and disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. We are currently evaluating the impacts the adoption of this guidance will have on our disclosures, but do not expect it will have a material impact.

Note 3. Debt

Debt obligations

The aggregate carrying value of our 5.25% Senior Notes (5.25% Notes) and the par value as of March 31, 2024 and December 31, 2023 is presented in table 3.1 below.


Long-term debt obligation, carrying value
Table	3.1
(In thousands)		March 31, 2024		December 31, 2023
5.25% Notes, due August 2028 (par value: $650 million)		$	643,563	$	643,196

The 5.25% Notes are an obligation of our holding company, MGIC Investment Corporation.

See Note 7 - “Debt” in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information pertaining to our debt obligations. As of March 31, 2024 we are in compliance with our debt covenants.

Interest payments

Interest payments for the three months ended March 31, 2024 and 2023 were $17.1 million.

MGIC Investment Corporation - Q1 2024 | 14

Note 4. Reinsurance

We have in place reinsurance agreements executed under quota share reinsurance (“QSR”) transactions and excess-of-loss (“XOL”) transactions as discussed below. The effect of all of our reinsurance transactions on our consolidated statement of operations is shown in table 4.1 below.


Reinsurance
Table	4.1
		Three Months Ended March 31,
(In thousands)		2024		2023
Premiums earned:
Direct		$	284,021	$	286,034
Assumed		3,442		2,787
Ceded - quota share reinsurance (1)		(28,715)		(29,877)
Ceded - excess-of-loss reinsurance		(16,104)		(16,929)
Total ceded		(44,819)		(46,806)
Net premiums earned		$	242,644	$	242,015

Losses incurred:
Direct		$	10,979	$	11,123
Assumed		29		4
Ceded - quota share reinsurance		(6,453)		(4,681)
Losses incurred, net		$	4,555	$	6,446

Other Reinsurance Impacts:
Profit commission on quota share reinsurance (1)		$	24,584	$	31,711
Ceding commission on quota share reinsurance		10,660		12,318

(1)Ceded premiums earned are shown net of profit commission.

Quota share reinsurance

We have entered into QSR Transactions with panels of third-party reinsurers to cede a fixed percentage of premiums earned and received and losses incurred on insurance covered by the transactions. We receive the benefit of a ceding commission equal to 20% of premiums ceded before profit commission. We also receive the benefit of a profit commission through a reduction of premiums we cede. The profit commission varies inversely with the level of losses on a “dollar for dollar” basis and can be eliminated at certain annual loss ratios as defined below. Ceded losses incurred are impacted by the delinquencies covered by our QSR Transactions, our estimates of payments that will be ultimately made on those delinquencies, and claim payments covered by our QSR Transactions.

Each of our QSR Transactions typically have annual loss ratio caps of 300% and lifetime loss ratio caps of 200%.

Table 4.2 below provides additional detail regarding our QSR Transactions.


Quota Share Reinsurance
Table	4.2

Quota Share Contract		Covered Policy Years	Quota Share %		Annual Loss Ratio to Exhaust Profit Commission (1)		Contractual Termination Date
2020 and 2021 QSR		2021	17.5	%	61.9	%	December 31, 2032
2021 QSR and 2022 QSR		2021	12.5	%	57.5	%	December 31, 2032
2021 QSR and 2022 QSR		2022	15.0	%	57.5	%	December 31, 2033
2022 QSR and 2023 QSR		2022	15.0	%	62.0	%	December 31, 2033
2022 QSR and 2023 QSR		2023	15.0	%	62.0	%	December 31, 2034
2023 QSR		2023	10.0	%	58.5	%	December 31, 2034
2024 QSR		2024	30.0	%	56.0	%	December 31, 2035
Credit Union QSR		2020-2025	65.0	%	50.0	%	December 31, 2039

(1) We will receive a profit commission provided the annual loss ratio on policies covered under the transaction remains below this ratio.

We can elect to terminate the QSR Transactions under specified scenarios without penalty upon prior written notice, including if we will receive less than 90% (80% for the Credit Union QSR Transaction) of the full credit amount under the PMIERs, full financial statement credit or full credit under applicable regulatory capital requirements for the risk ceded in any required calculation period.

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Table 4.3 provides additional details regarding optional termination dates and optional reductions to our quota share percentage which can, in each case, be elected by us for a fee. Under the optional reduction to the quota share percentage, we may reduce our quota share percentage from the original percentage shown in table 4.2 to the percentage shown in table 4.3.

Quota Share Reinsurance

Table

4.3

Quota Share Contract

Covered Policy Years

Optional Termination Date (1)

Optional Quota Share % Reduction Date (2)

Optional Reduced Quota Share %

2020 QSR and 2021 QSR

2021

June 30, 2024

July 1, 2024

14.5% or 12%

2021 QSR and 2022 QSR

2021

June 30, 2024

July 1, 2024

10.5% or 8%

2021 QSR and 2022 QSR

2022

December 31, 2024

July 1, 2024

12.5% or 10%

2022 QSR and 2023 QSR

2022

December 31, 2024

July 1, 2024

12.5% or 10%

2022 QSR and 2023 QSR

2023

December 31, 2025

July 1, 2024

12.5% or 10%

2023 QSR

2023

December 31, 2025

July 1, 2024

8% or 7%

2024 QSR

2024

December 31, 2027

23% or 15%

(1) We can elect early termination of the QSR Transaction beginning on this date, and semi-annually thereafter.

(2) We can elect to reduce the quota share percentage beginning on this date, and semi-annually thereafter.

Under the terms of our QSR Transactions, ceded premiums earned, ceding commissions, profit commission, and ceded paid loss and LAE are settled net on a quarterly basis. The ceded premiums earned due, after deducting the related ceding commission and profit commission, is reported within Other liabilities on the consolidated balance sheets.

The reinsurance recoverable on loss reserves related to our QSR Transactions was $39.2 million as of March 31, 2024 and $33.3 million as of December 31, 2023. The reinsurance recoverable balance is secured by funds on deposit from reinsurers (which does not include letters of credit), the minimum amount of which is based on the greater of 1) a reinsurer's funding requirements under PMIERs or 2) ceded reserves and unpaid losses. Each of the reinsurers under our QSR Transactions described above has an insurer financial strength rating of A- or better (or a comparable rating) by Standard and Poor's Rating Services, A.M. Best, Moody's, or a combination of the three.

Excess of loss reinsurance

We have XOL Transactions with a panel of unaffiliated reinsurers executed through the traditional reinsurance market (“Traditional XOL Transactions”) and with unaffiliated special purpose insurers (“Home Re Transactions”).

For policies covered under our Traditional XOL Transactions, we retain the first layer of the aggregate losses paid, and the reinsurers will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses paid in excess of the outstanding reinsurance coverage amount. The reinsurance coverage is subject to adjustment based on the risk characteristics of the covered loans until the initial excess of loss reinsurance coverage layer has been finalized.

We can elect to terminate our Traditional XOL Transactions under specified scenarios without penalty upon prior written notice, including if we will receive less than the full credit amount under the PMIERs, full financial statement credit or full credit under applicable regulatory capital requirements for the risk ceded in any required calculation period. The reinsurance premiums ceded under the Traditional XOL Transactions are based off the remaining reinsurance coverage levels. The reinsured coverage levels are secured by funds on deposit from reinsurers (which does not include letters of credit), the minimum amount of which is based on the greater of 1) a reinsurer's funding requirements under PMIERs or 2) ceded reserves and unpaid losses. Each of the reinsurers under our Traditional XOL Transactions has an insurer financial strength rating of A- or better (or a comparable rating) by Standard and Poor’s Rating Services, A.M. Best, Moody’s, or a combination of the three.

The Home Re Transactions are executed with unaffiliated special purpose insurers (“Home Re Entities”). For the reinsurance coverage periods, we retain the first layer of the respective aggregate losses paid, and a Home Re Entity will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses paid in excess of the outstanding reinsurance coverage amount. Subject to certain conditions, the reinsurance coverage decreases as the underlying covered mortgages amortize or are repaid, or mortgage insurance losses are paid.

The Home Re Entities financed the coverages by issuing mortgage insurance-linked notes (“ILNs”) to unaffiliated investors in an aggregate amount equal to the initial reinsurance coverage amounts. Each ILN is non-recourse to any assets of MGIC or affiliates. The proceeds of the ILNs, which were deposited into reinsurance trusts for the benefit of MGIC, will be the source of reinsurance claim payments to MGIC and principal repayments on the ILNs.

Payment of principal on the related insurance-linked notes will be suspended and the reinsurance coverage available to MGIC under the transactions will not be reduced by such principal payments until a target level of credit enhancement is obtained or if certain thresholds or “Trigger Events” are reached, as defined in the related insurance-linked notes transaction agreement. As of March 31, 2024, a "Trigger Event" has occurred on our Home Re 2019-1 ILN transaction because the reinsured principal balance of loans that were reported 60 or more days delinquent exceeded a percentage of the total reinsured principal balance of loans specified under each

MGIC Investment Corporation - Q1 2024 | 16

transaction. A “Trigger Event” has also occurred on the Home Re 2023-1 transaction because the target level of credit enhancement on the most senior tranche has not been met.

In January 2024, we exercised our optional call feature to terminate the reinsurance agreement with Home Re 2020-1, Ltd. In connection with the termination, the insurance linked notes issued by Home Re 2020-1 Ltd. were redeemed in full.

Table 4.4a, 4.4b, and 4.4c provide a summary of our XOL Transactions as of March 31, 2024 and December 31, 2023.

Excess of Loss Reinsurance

Table 4.4a

($ in thousands)

Issue Date

Policy In force Dates

Optional Call Date (1)

Legal Maturity

2023 Traditional XOL

April 1, 2023

January 1, 2023 - December 29, 2023

January 1, 2031

10 years

2022 Traditional XOL

April 1, 2022

January 1, 2022 - December 30, 2022

January 1, 2030

10 years

Home Re 2023-1, Ltd.

October 23, 2023

June 1, 2022 - August 31, 2023

October 25, 2028

10 years

Home Re 2022-1, Ltd.

April 26, 2022

May 29, 2021 - December 31, 2021

April 25, 2028

12.5 years

Home Re 2021-2, Ltd.

August 3, 2021

January 1, 2021 - May 28, 2021

July 25, 2028

12.5 years

Home Re 2021-1, Ltd.

February 2, 2021

August 1, 2020 - December 31, 2020

January 25, 2028

12.5 years

Home Re 2019-1, Ltd.

May 25, 2019

January 1, 2018 - March 31, 2019

May 25, 2026

10 years

Home Re 2018-1, Ltd.

October 30, 2018

July 1, 2016 - December 31, 2017

October 25, 2025

10 years

(1) We have the right to terminate the Home Re Transactions under certain circumstances, including an optional call feature that provides us the right to terminate if the outstanding principal balance of the related insurance-linked notes falls below 10% of the initial principal balance of the related insurance-linked notes, and on any payment date on or after the respective Optional Call Date. We can elect early termination of the Traditional XOL Transactions beginning on this date, and quarterly thereafter.


Excess of Loss Reinsurance
Table 4.4b			Remaining First Layer Retention
($ in thousands)	Initial First Layer Retention		March 31, 2024		December 31, 2023
2023 Traditional XOL	$	70,578	$	70,572	$	70,578
2022 Traditional XOL	82,523		82,241		82,346
Home Re 2023-1, Ltd.	272,961		272,961		272,961
Home Re 2022-1, Ltd.	325,589		324,441		325,001
Home Re 2021-2, Ltd.	190,159		189,347		189,403
Home Re 2021-1, Ltd.	211,159		210,546		210,831
Home Re 2020-1, Ltd.	275,283		—		261,280
Home Re 2019-1, Ltd.	185,730		182,563		182,722
Home Re 2018-1, Ltd.	168,691		164,220		164,335


Table 4.4c							Remaining Excess of Loss Reinsurance Coverage (1)
($ in thousands)	Initial Excess of Loss Reinsurance Coverage (1)		Initial Funding Percentage (2)		Funding Percentage at 3/31/2024 (2)		March 31, 2024		December 31, 2023
2023 Traditional XOL	$	96,942	N/A		N/A		$	95,178	$	96,942
2022 Traditional XOL	142,642		N/A		N/A		142,642		142,642
Home Re 2023-1, Ltd.	330,277		97	%	97	%	330,277		330,277
Home Re 2022-1, Ltd.	473,575		100	%	100	%	398,112		420,731
Home Re 2021-2, Ltd. (3)	398,429		100	%	75	%	172,395		173,960
Home Re 2021-1, Ltd. (3)	398,848		100	%	73	%	117,880		117,982
Home Re 2020-1, Ltd.	412,917		100	%	—	%	—		41,846
Home Re 2019-1, Ltd. (3)	315,739		100	%	10	%	21,039		21,039
Home Re 2018-1, Ltd.	318,636		100	%	100	%	58,378		69,762

(1)The initial and remaining excess of loss reinsurance coverage is reduced by the applicable funding percentage.

(2)The funding percentage represents the aggregate outstanding note balances divided by the aggregate ending coverage amounts.

(3)The funding percentage on the 2021-1, 2021-2, and 2019-1 were reduced from 100% after the tender offers were conducted in the fourth quarter of 2023.

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The reinsurance premiums ceded to each Home Re Entity are composed of coverage, initial expense and supplemental premiums. The coverage premiums are generally calculated as the difference between the amount of interest payable by the Home Re Entity on the remaining reinsurance coverage levels, and the investment income collected on the collateral assets held in a reinsurance trust account and used to collateralize the Home Re Entity’s reinsurance obligation to MGIC. The amount of monthly reinsurance coverage premium ceded on will fluctuate due to changes in the reference rate and changes in money market rates that affect investment income collected on the assets in the reinsurance trust. As a result, we concluded that each Home Re Transaction contains an embedded derivative that is accounted for separately as a freestanding derivative. The fair values of the derivatives at March 31, 2024 and December 31, 2023, were not material to our consolidated balance sheet and the change in fair value during the three months ended March 31, 2024 and March 31, 2023 were not material to our consolidated statements of operations. (See Note 7 - “Investments” and Note 8 - “Fair Value Measurements”.)

At the time the Home Re Transactions were entered into, we concluded that each Home Re Entity is a variable interest entity (“VIE”). A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make sufficient decisions relating to the entity’s operations through voting rights or do not substantively participate in gains and losses of the entity. Given that MGIC (1) does not have the unilateral power to direct the activities that most significantly affect each Home Re Entity’s economic performance and (2) does not have the obligation, outside the terms of the reinsurance agreement, to absorb losses or the right to receive benefits of each Home Re Entity that could be significant to the Home Re Entity, consolidation of the Home Re Entities is not required.

We are required to disclose our maximum exposure to loss, which we consider to be an amount that we could be required to record in our statements of operations, as a result of our involvement with the VIEs under our Home Re Transactions. As of March 31, 2024, and December 31, 2023, we did not have material exposure to the VIEs as we have no investment in the VIEs and had no reinsurance claim payments due from the VIEs under our reinsurance transactions. We are unable to determine the timing or extent of claims from losses that are ceded under the reinsurance transactions. The VIE assets are deposited in reinsurance trusts for the benefit of MGIC that will be the source of reinsurance claim payments to MGIC. The purpose of the reinsurance trusts is to provide security to MGIC for the obligations of the VIEs under the reinsurance transactions. The trustee of the reinsurance trusts, a recognized provider of corporate trust services, has established segregated accounts within the reinsurance trusts for the benefit of MGIC, pursuant to the trust agreements. The trust agreements are governed by, and construed in accordance with, the laws of the State of New York. If the trustee of the reinsurance trusts failed to distribute claim payments to us as provided in the reinsurance trusts, we would incur a loss related to our losses ceded under the reinsurance transactions and deemed unrecoverable. We are also unable to determine the impact such possible failure by the trustee to perform pursuant to the reinsurance trust agreements may have on our consolidated financial statements. As a result, we are unable to quantify our maximum exposure to loss related to our involvement with the VIEs. MGIC has certain termination rights under the reinsurance transactions should its claims not be paid. We consider our exposure to loss from our reinsurance transactions with the VIEs to be remote.

Table 4.5 presents the total assets of the Home Re Entities as of March 31, 2024 and December 31, 2023.


Home Re total assets
Table	4.5
(In thousands)		Total VIE Assets
Home Re Entity		March 31, 2024		December 31, 2023

Home Re 2023-1 Ltd.		$	330,277	$	330,277
Home Re 2022-1 Ltd.		406,329		427,279
Home Re 2021-2 Ltd.		172,990		174,431
Home Re 2021-1 Ltd.		117,849		118,043
Home Re 2020-1 Ltd.		—		41,846
Home Re 2019-1 Ltd.		21,039		21,039
Home Re 2018-1 Ltd.		63,949		73,872

The reinsurance trust agreements provide that the trust assets may generally only be invested in certain money market funds that (i) invest at least 99.5% of their total assets in cash or direct U.S. federal government obligations, such as U.S. Treasury bills, as well as other short-term securities backed by the full faith and credit of the U.S. federal government or issued by an agency of the U.S. federal government, (ii) have a principal stability fund rating of “AAAm” by S&P or a money market fund rating of “Aaamf” by Moody’s as of the Closing Date and thereafter maintain any rating with either S&P or Moody’s, and (iii) are permitted investments under the applicable credit for reinsurance laws and applicable PMIERs credit for reinsurance requirements.

The total calculated PMIERs credit for risk ceded under our XOL Transactions are generally based on the PMIERs requirement of the covered policies and the attachment and detachment points of the coverage, all of which fluctuate over time. (See Note 1 - “Nature of Business and Basis of Presentation”.)

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Note 5. Litigation and Contingencies

We operate in a highly regulated industry that is subject to the risk of litigation and regulatory proceedings, including related to our claims paying practices. From time to time, we are involved in disputes and legal proceedings in the ordinary course of business. In our opinion, based on the facts known at this time, the ultimate resolution of these ordinary course disputes and legal proceedings will not have a material adverse effect on our financial position or results of operations.

Under ASC 450-20, until a loss associated with settlement discussions or legal proceedings becomes probable and can be reasonably estimated, we do not accrue an estimated loss. When we determine that a loss is probable and can be reasonably estimated, we record our best estimate of our probable loss. In those cases, until settlement negotiations or legal proceedings are concluded (including the receipt of any necessary GSE approvals), it is possible that we will record an additional loss.

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Note 6. Earnings per Share

Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of shares of common stock outstanding, including participating securities. Our “participating securities” are comprised of vested restricted stock and restricted stock units (“RSUs”) with non-forfeitable rights to dividends. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. The determination of whether components are dilutive is calculated independently for each period. We calculate diluted EPS using the treasury stock method and if-converted method. Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if unvested RSUs result in the issuance of common stock. Under the if-converted method, diluted EPS reflects the potential dilution that would have occurred if our 9% Debentures resulted in the issuance of common stock. The determination of potentially issuable shares does not consider the satisfaction of the conversion requirements and the shares are included in the determination of diluted EPS as of the beginning of the period, if dilutive. In the third quarter of 2023, under the terms of our 9% Debentures, we exercised our option to redeem the outstanding principal.

Table 6.1 reconciles the numerators and denominators used to calculate basic and diluted EPS.


Earnings per share
Table	6.1
		Three Months Ended March 31,
(In thousands, except per share data)		2024		2023
Basic earnings per share:
Net income		$	174,097	$	154,547
Weighted average common shares outstanding - basic		270,314		290,989
Basic earnings per share		$	0.64	$	0.53

Diluted earnings per share:
Net income		$	174,097	$	154,547
Interest expense, net of tax (1):
9% Debentures		—		375
Diluted income available to common shareholders		$	174,097	$	154,922

Weighted average common shares outstanding - basic		270,314		290,989
Effect of dilutive securities:
Unvested RSUs		2,794		2,079
9% Debentures		—		1,644
Weighted average common shares outstanding - diluted		273,108		294,712
Diluted earnings per share		$	0.64	$	0.53

(1) Interest expense has been tax effected at a rate of 21%.

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Note 7. Investments

Fixed income securities

Our fixed income securities classified as available-for-sale at March 31, 2024 and December 31, 2023 are shown in tables 7.1a and 7.1b below.


Details of fixed income securities by category as of March 31, 2024
Table	7.1a
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	147,441	$	66	$	(6,595)	$	140,912
Obligations of U.S. states and political subdivisions		2,079,844		3,042		(191,274)		1,891,612
Corporate debt securities		2,644,912		10,789		(129,340)		2,526,361
ABS		173,761		1,291		(2,536)		172,516
RMBS		345,029		3,338		(24,541)		323,826
CMBS		286,876		5		(14,503)		272,378
CLOs		318,683		415		(482)		318,616
Foreign government debt		4,487		—		(741)		3,746
Commercial paper		22,745		2		—		22,747
Total fixed income securities		$	6,023,778	$	18,948	$	(370,012)	$	5,672,714


Details of fixed income securities by category as of December 31, 2023
Table	7.1b

(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	167,995	$	51	$	(6,364)	$	161,682
Obligations of U.S. states and political subdivisions		2,092,754		5,159		(189,835)		1,908,078
Corporate debt securities		2,626,401		17,391		(128,211)		2,515,581
ABS		173,256		1,292		(3,275)		171,273
RMBS		347,132		4,297		(20,656)		330,773
CMBS		293,204		5		(15,752)		277,457
CLOs		327,467		37		(1,408)		326,096
Foreign government debt		4,486		—		(643)		3,843
Commercial paper		28,327		3		—		28,330
Total fixed income securities		$	6,061,022	$	28,235	$	(366,144)	$	5,723,113

We had $12.1 million and $12.2 million of investments at fair value on deposit with various states as of March 31, 2024 and December 31, 2023, respectively, due to regulatory requirements of those state insurance departments.

In connection with our insurance and reinsurance activities within MAC and MIC, insurance subsidiaries of MGIC, we are required to maintain assets in trusts for the benefit of contractual counterparties, which had investments at fair value of $180.2 million and $156.9 million at March 31, 2024 and December 31, 2023, respectively.

MGIC Investment Corporation - Q1 2024 | 21

The amortized cost and fair values of fixed income securities at March 31, 2024, by contractual maturity, are shown in table 7.2 below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most mortgage and asset-backed securities provide for periodic payments throughout their lives, they are listed in separate categories.


Fixed income securities maturity schedule
Table	7.2
		March 31, 2024
(In thousands)		Amortized cost		Fair Value
Due in one year or less		$	614,805	$	608,478
Due after one year through five years		1,557,863		1,510,968
Due after five years through ten years		1,800,564		1,676,467
Due after ten years		926,197		789,465
		4,899,429		4,585,378

ABS		173,761		172,516
RMBS		345,029		323,826
CMBS		286,876		272,378
CLOs		318,683		318,616
Total		$	6,023,778	$	5,672,714

Equity securities

The cost and fair value of investments in equity securities at March 31, 2024 and December 31, 2023 are shown in tables 7.3a and 7.3b below.


Details of equity security investments as of March 31, 2024
Table	7.3a
(In thousands)		Cost		Fair Value Gains		Fair Value Losses		Fair Value
Equity securities		$	16,053	$	4	$	(1,360)	$	14,697


Details of equity security investments as of December 31, 2023
Table	7.3b
(In thousands)		Cost		Fair Value Gains		Fair Value Losses		Fair Value
Equity securities		$	16,025	$	5	$	(1,259)	$	14,771

Net gains (losses) on investments and other financial instruments

The net gains (losses) on investments and other financial instruments and the proceeds from the sale of fixed income securities classified as available-for-sale and equity securities are shown in table 7.4 below.


Details of net gains (losses) on investments and other financial instruments
Table	7.4	Three Months Ended March 31,
(in thousands)		2024	2023

Fixed income securities
Gains on sales		55	59
Losses on sales		(5,485)	(4,133)


Equity securities gains (losses)

Changes in fair value		(103)	360
Change in embedded derivative on Home Re Transactions		(2,976)	(3,976)
Other
Gains (losses) on sales		1	6
Market adjustment		(1)	(14)
Net gains (losses) on investments and other financial instruments		(8,509)	(7,698)

Proceeds from sales of fixed income securities		14,886	32,181

MGIC Investment Corporation - Q1 2024 | 22

Other invested assets

Our other invested assets balance includes an investment in FHLB stock that is carried at cost, which due to its nature approximates fair value. Ownership of FHLB stock provides access to a secured lending facility, subject to certain conditions, which includes requirements to post collateral and to maintain a minimum investment in FHLB stock.

Unrealized investment losses

Tables 7.5a and 7.5b below summarize, for all available-for-sale investments in an unrealized loss position at March 31, 2024 and December 31, 2023, the aggregate fair value and gross unrealized loss by the length of time those securities have been continuously in an unrealized loss position. The fair value amounts reported in tables 7.5a and 7.5b are estimated using the process described in Note 8 - “Fair Value Measurements” to these consolidated financial statements and in Note 3 - “Significant Accounting Policies” to the consolidated financial statements in our 2023 Annual Report on Form 10-K.


Unrealized loss aging for securities by type and length of time as of March 31, 2024
Table	7.5a
		Less Than 12 Months				12 Months or Greater				Total
(In thousands)		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	33,814	$	(107)	$	93,212	$	(6,488)	$	127,026	$	(6,595)
Obligations of U.S. states and political subdivisions		409,466		(3,795)		1,248,976		(187,479)		1,658,442		(191,274)
Corporate debt securities		536,362		(7,400)		1,408,161		(121,940)		1,944,523		(129,340)
ABS		37,810		(1,079)		57,455		(1,457)		95,265		(2,536)
RMBS		101,418		(6,894)		137,598		(17,647)		239,016		(24,541)
CMBS		35,431		(946)		236,798		(13,557)		272,229		(14,503)
CLOs		45,128		(103)		58,231		(379)		103,359		(482)
Foreign government debt		—		—		3,746		(741)		3,746		(741)

Total		$	1,199,429	$	(20,324)	$	3,244,177	$	(349,688)	$	4,443,606	$	(370,012)


Unrealized loss aging for securities by type and length of time as of December 31, 2023
Table	7.5b
		Less Than 12 Months				12 Months or Greater				Total
(In thousands)		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	26,550	$	(75)	$	98,359	$	(6,289)	$	124,909	$	(6,364)
Obligations of U.S. states and political subdivisions		275,727		(3,622)		1,200,533		(186,213)		1,476,260		(189,835)
Corporate debt securities		270,956		(6,060)		1,604,021		(122,151)		1,874,977		(128,211)
ABS		41,549		(1,234)		62,611		(2,041)		104,160		(3,275)
RMBS		44,867		(872)		176,349		(19,784)		221,216		(20,656)
CMBS		35,249		(391)		244,216		(15,361)		279,465		(15,752)
CLOs		—		—		274,729		(1,408)		274,729		(1,408)
Foreign government debt		—		—		3,843		(643)		3,843		(643)
Total		$	694,898	$	(12,254)	$	3,664,661	$	(353,890)	$	4,359,559	$	(366,144)

There were 1,103 and 1,021 securities in an unrealized loss position at March 31, 2024 and December 31, 2023, respectively. Based on current facts and circumstances, we believe the unrealized losses as of March 31, 2024 presented in table 7.5a above are not indicative of the ultimate collectability of the current amortized cost of the securities. The unrealized losses in all categories of our investments at March 31, 2024 were primarily caused by an increase in prevailing interest rates. We also rely upon estimates of several credit and non-credit factors in our review and evaluation of individual investments to determine whether a credit impairment exists. All of the securities in an unrealized loss position are current with respect to their interest obligations.

MGIC Investment Corporation - Q1 2024 | 23

Note 8. Fair Value Measurements

Recurring fair value measurements

The following describes the valuation methodologies generally used by the independent pricing sources, or by us, to measure financial instruments at fair value, including the general classification of such financial instruments pursuant to the valuation hierarchy.

•Fixed income securities:

U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies: Securities with valuations derived from quoted prices for identical instruments in active markets that we can access are categorized in Level 1 of the fair value hierarchy. Securities valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information in the valuation process are categorized as Level 2 of the fair value hierarchy.

Corporate Debt Securities are valued by obtaining relevant trade data, benchmark quotes and spreads and broker/dealer quotes and incorporating this information into the valuation process. These securities are generally categorized in Level 2 of the fair value hierarchy.

Obligations of U.S. States & Political Subdivisions are valued by tracking, capturing, and analyzing quotes for active issues and trades reported via the Municipal Securities Rulemaking Board records. Daily briefings and reviews of current economic conditions, trading levels, spread relationships, and the slope of the yield curve provide further data for evaluation. These securities are generally categorized in Level 2 of the fair value hierarchy.

Residential Mortgage-Backed Securities ("RMBS") are valued by monitoring interest rate movements, and other pertinent data daily. Incoming market data is enriched to derive spread, yield and/or price data as appropriate, enabling known data points to be extrapolated for valuation application across a range of related securities. These securities are generally categorized in Level 2 of the fair value hierarchy.

Commercial Mortgage-Backed Securities ("CMBS") are valued using techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including quoted prices for similar assets, benchmark yield curves and market corroborated inputs. Evaluation uses regular reviews of the inputs for securities covered, including executed trades, broker quotes, credit information, collateral attributes and/or cash flow waterfall as applicable. These securities are generally categorized in Level 2 of the fair value hierarchy.

Asset-Backed Securities ("ABS") are valued using spreads and other information solicited from market buy-and-sell-side sources, including primary and secondary dealers, portfolio managers, and research analysts. Cash flows are generated for each tranche, benchmark yields are determined, and deal collateral performance and tranche level attributes including trade activity, bids, and offers are applied, resulting in tranche specific prices. These securities are generally categorized in Level 2 of the fair value hierarchy.

Collateralized loan obligations ("CLOs") are valued by evaluating manager rating, seniority in the capital structure, assumptions about prepayment, default and recovery and their impact on cash flow generation. Loan level net asset values are determined and aggregated for tranches and as a final step prices are checked against available recent trade activity. These securities are generally categorized in Level 2 of the fair value hierarchy.

Foreign government debt is valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process. These securities are generally categorized in Level 2 of the fair value hierarchy.

Commercial Paper, which has an original maturity greater than 90 days, is valued using market data for comparable instruments of similar maturity and average yields. These securities are generally categorized in Level 2 of the fair value hierarchy.

•Equity securities: Consist of actively traded, exchange-listed equity securities, including exchange traded funds (“ETFs”) and Bond Mutual Funds, with valuations derived from quoted prices for identical assets in active markets that we can access. These securities are valued in Level 1 of the fair value hierarchy.

•Cash Equivalents: Consist of money market funds and treasury bills with valuations derived from quoted prices for identical assets in active markets that we can access. These securities are valued in level 1 of the fair value hierarchy. Instruments in this category valued using market data for comparable instruments are classified as level 2 in the fair value hierarchy.

MGIC Investment Corporation - Q1 2024 | 24

Assets measured at fair value, by hierarchy level, as of March 31, 2024 and December 31, 2023 are shown in tables 8.1a and 8.1b below. The fair value of the assets is estimated using the process described above, and more fully in Note 3 - “Significant Accounting Policies” to the consolidated financial statements in our 2023 Annual Report on Form 10-K.


Assets carried at fair value by hierarchy level as of March 31, 2024
Table	8.1a
(In thousands)		Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	140,912	$	98,412	$	42,500
Obligations of U.S. states and political subdivisions		1,891,612		—		1,891,612
Corporate debt securities		2,526,361		—		2,526,361
ABS		172,516		—		172,516
RMBS		323,826		—		323,826
CMBS		272,378		—		272,378
CLOs		318,616		—		318,616
Foreign government debt		3,746		—		3,746
Commercial paper		22,747		—		22,747
Total fixed income securities		5,672,714		98,412		5,574,302
Equity securities		14,697		14,697		—
Cash equivalents (1)		434,990		424,383		10,607
Total		$	6,122,401	$	537,492	$	5,584,909


Assets carried at fair value by hierarchy level as of December 31, 2023
Table	8.1b
(In thousands)		Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	161,682	$	95,828	$	65,854
Obligations of U.S. states and political subdivisions		1,908,078		—		1,908,078
Corporate debt securities		2,515,581		—		2,515,581
ABS		171,273		—		171,273
RMBS		330,773		—		330,773
CMBS		277,457		—		277,457
CLOs		326,096		—		326,096
Foreign government debt		3,843		—		3,843
Commercial paper		28,330		—		28,330
Total fixed income securities		5,723,113		95,828		5,627,285
Equity securities		14,771		14,771		—
Cash equivalents (1)		367,517		367,301		216
Total		$	6,105,401	$	477,900	$	5,627,501
(1) Includes restricted cash equivalents

Certain financial instruments, including insurance contracts, are excluded from these fair value disclosure requirements. Additional fair value disclosures related to our investment portfolio are included in Note 7 – “Investments.”

In addition to the assets carried at fair value discussed above, we have embedded derivatives carried at fair value related to our Home Re Transactions that are classified as “Other liabilities” or “Other assets” in our consolidated balance sheets. The estimated fair value related to our embedded derivatives reflects the present value impact of the variation in investment income on the assets held by the reinsurance trusts and the contractual reference rate on the Home Re Transactions used to calculate the reinsurance premiums we estimate we will pay over the estimated remaining life. These liabilities or assets are categorized in Level 3 of the fair value hierarchy. At March 31, 2024 and December 31, 2023, the fair value of the embedded derivatives was a liability of $0.6 million and an asset of $2.4 million, respectively. (See Note 4 - "Reinsurance" for more information about our reinsurance programs.)

Real estate acquired through claim settlement is carried at fair values and is reported in “Other assets” on the consolidated balance sheet. These assets are categorized as Level 3 of the fair value hierarchy. For the three months ended March 31, 2024, and 2023, purchases of real estate acquired were $1.0 million and $0.1 million, respectively. For the three months ended March 31, 2024, and 2023, sales of real estate acquired were zero and $1.2 million, respectively.

MGIC Investment Corporation - Q1 2024 | 25

Financial assets and liabilities not measured at fair value

Other invested assets include an investment in FHLB stock that is carried at cost, which due to restrictions that require it to be redeemed or sold only to the security issuer at par value, approximates fair value. The fair value of other invested assets is categorized as Level 2.

Financial liabilities include our outstanding debt obligations. The fair value of our 5.25% Notes was based on observable market prices and is categorized as level 2.

Table 8.2 presents the carrying value and fair value of our financial assets and liabilities disclosed, but not carried, at fair value at March 31, 2024 and December 31, 2023.


Financial assets and liabilities not measured at fair value
Table	8.2
		March 31, 2024				December 31, 2023
(In thousands)		Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets
Other invested assets		$	850	$	850	$	850	$	850

Financial liabilities
5.25% Senior Notes		643,563		633,373		643,196		634,498

MGIC Investment Corporation - Q1 2024 | 26

Note 9. Other Comprehensive Income

The pretax and related income tax benefit (expense) components of our other comprehensive income (loss) for the three months ended March 31, 2024 and 2023 are included in table 9.1 below.


Components of other comprehensive income (loss)
Table	9.1
		Three Months Ended March 31,
(In thousands)		2024		2023
Net unrealized investment (losses) gains arising during the period		$	(13,154)	$	102,099
Total income tax benefit (expense)		2,762		(21,440)
Net of tax		(10,392)		80,659

Net changes in benefit plan assets and obligations		682		6,776
Total income tax benefit (expense)		(143)		(1,423)
Net of tax		539		5,353

Total other comprehensive income (loss)		$	(12,472)	108,875
Total income tax benefit (expense)		2,619		(22,863)
Total other comprehensive income (loss), net of tax		$	(9,853)	$	86,012

The pretax and related income tax benefit (expense) components of the amounts reclassified from our accumulated other comprehensive income (loss) (“AOCI”) to our consolidated statements of operations for the three months ended March 31, 2024 and 2023 are included in table 9.2 below.


Reclassifications from AOCI
Table	9.2
		Three Months Ended March 31,
(In thousands)		2024		2023
Reclassification adjustment for net realized (losses) gains(1)		$	(9,973)	$	(4,164)
Income tax benefit (expense)		2,094		874
Net of tax		(7,879)		(3,290)

Reclassification adjustment related to benefit plan assets and obligations (2)		(682)		(8,932)
Income tax benefit (expense)		143		1,876
Net of tax		(539)		(7,056)

Total reclassifications		(10,655)		(13,096)
Income tax benefit (expense)		2,237		2,750
Total reclassifications, net of tax		$	(8,418)	$	(10,346)

(1)Increases (decreases) Net realized investment gains (losses) on the consolidated statements of operations.

(2)Decreases (increases) Other underwriting and operating expenses, net on the consolidated statements of operations.

A rollforward of AOCI for the three months ended March 31, 2024, including amounts reclassified from AOCI, are included in table 9.3 below.


Rollforward of AOCI
Table	9.3
		Three Months Ended March 31, 2024
(In thousands)		Net unrealized gains and (losses) on available-for-sale securities		Net benefit plan assets and (obligations) recognized in shareholders' equity		Total accumulated other comprehensive income (loss)
Balance at December 31, 2023, net of tax		$	(266,948)	$	(49,333)	$	(316,281)
Other comprehensive income (loss) before reclassifications		(18,271)		—		(18,271)
Less: Amounts reclassified from AOCI		(7,879)		(539)		(8,418)
Balance, March 31, 2024, net of tax		$	(277,340)	$	(48,794)	$	(326,134)

MGIC Investment Corporation - Q1 2024 | 27

Note 10. Benefit Plans

We have a non-contributory defined benefit pension plan, as well as a supplemental executive retirement plan, that covered eligible employees through December 31, 2022. Effective January 1, 2023, these plans were frozen (no future benefits will be accrued for participants due to employment and no new participants will be added). Participants in these plans were fully vested in their benefits as of December 31, 2022.

Table 10.1 provides the components of net periodic benefit cost for our pension, supplemental executive retirement and other postretirement benefit plans for the three months ended March 31, 2024 and 2023.


Components of net periodic benefit cost
Table	10.1
		Three Months Ended March 31,
		Pension and Supplemental Executive Retirement Plans				Other Postretirement Benefit Plans
(In thousands)		2024		2023		2024		2023
Company service cost		$	—	$	—	$	417	$	386
Interest cost		3,247		3,682		375		398
Expected return on plan assets		(3,644)		(3,581)		(2,494)		(2,063)
Amortization of:
Net actuarial losses (gains)		523		597		(380)		(64)
Prior service cost (credit)		86		86		453		465
Cost of settlements and curtailments		—		7,847		—		—
Net periodic benefit cost (benefit)		$	212	$	8,631	$	(1,629)	$	(878)

In the first quarter of 2024, we made a contribution to our qualified pension plan of $23.0 million.

MGIC Investment Corporation - Q1 2024 | 28

Note 11. Loss Reserves

We establish case reserves and LAE reserves on delinquent loans that were reported to us as two or more payments past due and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case reserves are established by estimating the number of loans in our delinquency inventory that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.

IBNR reserves are established for estimated losses from delinquencies we estimate have occurred prior to the close of an accounting period but have not yet been reported to us. IBNR reserves are also established using estimated claim rates and claim severities.

Estimation of losses is inherently judgmental. Even in a stable environment, changes to our estimates could result in a material impact to our consolidated results of operations and financial position. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment and the current and future strength of local housing markets; exposure on insured loans; the amount of time between delinquency and claim filing (all else being equal, the longer the period between delinquency and claim filing, the greater the severity); and curtailments and rescissions. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment, leading to a reduction in borrowers’ income and thus their ability to make mortgage payments, the impact of past and future government initiatives and actions taken by the GSEs (including mortgage forbearance programs and foreclosure moratoriums), and a drop in housing values which may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. Loss reserves in future periods will also be dependent on the number of loans reported to us as delinquent.

Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment. Given the uncertainty of the macroeconomic environment, including the effectiveness of loss mitigation efforts, changes in home prices, and changes in unemployment, our loss reserve estimates may continue to be impacted.

In considering the potential sensitivity of the factors underlying our estimate of loss reserves, it is possible that even a relatively small change in our estimated claim rate or claim severity could have a material impact on loss reserves and, correspondingly, on our consolidated results of operations even in a stable economic environment. For example, as of March 31, 2024, assuming all other factors remain constant, a $1,000 increase/decrease in the average severity reserve factor would change the loss reserve amount by approximately +/- $8 million. A one percentage point increase/decrease in the average claim rate reserve factor would change the loss reserve amount by approximately +/- $16 million.

The “Losses incurred” section of table 11.1 below shows losses incurred on delinquencies that occurred in the current year and in prior years. The amount of losses incurred relating to delinquencies that occurred in the current year represents the estimated amount to be ultimately paid on such delinquencies. The amount of losses incurred relating to delinquencies that occurred in prior years represents the difference between the actual claim rate and claim severity associated with those delinquencies resolved in the current year compared to the estimated claim rate and claim severity at the prior year-end, as well as a re-estimation of amounts to be ultimately paid on delinquencies continuing from the end of the prior year. This re-estimation of the claim rate and claim severity is the result of our review of current trends in the delinquency inventory, such as percentages of delinquencies that have resulted in a claim, the amount of the claims relative to the average loan exposure, changes in the relative level of delinquencies by geography and changes in average loan exposure.

Losses incurred on delinquencies that occurred in the current year increased for the three months ended March 31, 2024, compared to the same period last year. The increase is primarily due to an increase in estimated severity on current year delinquencies and an increase in new delinquencies reported.

For the three months ended March 31, 2024 and March 31, 2023 we experienced favorable loss development of $48.9 million and $40.8 million, respectively, on previously received delinquencies. The favorable development for both periods primarily resulted from a decrease in the expected claim rate on previously received delinquencies. Home price appreciation experienced in recent years has allowed some borrowers to cure their delinquencies through the sale of their property.

MGIC Investment Corporation - Q1 2024 | 29

The “Losses paid” section of table 11.1 below shows the amount of losses paid on delinquencies that occurred in the current year and losses paid on delinquencies that occurred in prior years.

Table 11.1 provides a reconciliation of beginning and ending loss reserves as of and for the three months ended March 31, 2024 and 2023.


Development of reserves for losses and loss adjustment expenses
Table	11.1
		Three Months Ended March 31,
(In thousands)		2024		2023
Reserve at beginning of period		$	505,379	$	557,988
Less reinsurance recoverable		33,302		28,240
Net reserve at beginning of period		472,077		529,748

Losses incurred:
Losses and LAE incurred in respect of delinquency notices received in:
Current year		53,436		47,212
Prior years (1)		(48,881)		(40,766)
Total losses incurred		4,555		6,446

Losses paid:
Losses and LAE paid in respect of delinquency notices received in:
Current year		—		—
Prior years		11,385		10,440

Total losses paid		11,385		10,440
Net reserve at end of period		465,247		525,754
Plus reinsurance recoverable		39,200		32,761
Reserve at end of period		$	504,447	$	558,515

(1)A positive number for prior year loss reserve development indicates a deficiency of prior year reserves. A negative number for prior year loss reserve development indicates a redundancy of prior year loss reserves. See the following table for more information about prior year loss reserve development.

The prior year loss reserve development for the three months ended March 31, 2024 and 2023 is shown in table 11.2 below.


Reserve development on previously received delinquencies
Table	11.2
		Three Months Ended March 31,
(In thousands)		2024		2023
Increase (decrease) in estimated claim rate on primary defaults		$	(41,079)	$	(43,431)

Change in estimates related to severity on primary defaults, pool reserves, LAE reserves, reinsurance, and other		(7,802)		2,665
Total prior year loss development (1)		$	(48,881)	$	(40,766)

(1)A positive number for prior year loss reserve development indicates a deficiency of prior year loss reserves. A negative number for prior year loss reserve development indicates a redundancy of prior year loss reserves.

Premium refunds

Our estimate of premiums to be refunded on expected claim payments is accrued for separately in “Other Liabilities” on our consolidated balance sheets were $18.5 million and $21.1 million at March 31, 2024 and December 31, 2023, respectively.

MGIC Investment Corporation - Q1 2024 | 30

Note 12. Shareholders’ Equity

Share repurchase programs

Repurchases of our common stock may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. In the three months ended March 31, 2024, we repurchased 4.7 million shares for $93.3 million, which included commissions. In 2023, we repurchased approximately 21.7 million shares of our common stock for $340.6 million, which included commissions. At March 31, 2024, we had $170 million remaining under a $500 million share repurchase program approved by our Board of Directors in 2023 that expires on July 1, 2025. Through April, we repurchased an additional 2.7 million shares totaling $54.8 million under the remaining authorization. In April 2024, our Board of Directors approved an additional share repurchase program, authorizing us to purchase up to $750 million of common stock prior to December 31, 2026.

Cash dividends

In the first quarter of 2024, we paid quarterly cash dividends of $0.115 per share which totaled $31.7 million. On April 25, 2024, the Board of Directors declared a quarterly cash dividend to the holders of the company’s common stock of $0.115 per share payable on May 21, 2024, to shareholders of record on May 9, 2024.

Note 13. Share-Based Compensation

We have certain share-based compensation plans. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period which generally corresponds to the vesting period. Awards under our plans generally vest over periods ranging from one to three years, although awards to our non-employee directors vest immediately.

Table 13.1 shows the number of restricted stock units (RSUs) granted to employees and non-employee directors and the weighted average fair value per share during the periods presented.


Restricted stock unit grants
Table	13.1
			Three months ended March 31,
			2024			2023
			RSUs Granted (in thousands)	Weighted Average Share Fair Value		RSUs Granted (in thousands)	Weighted Average Share Fair Value
RSUs subject to performance conditions		(1)	634	$	19.81	949	$	14.17
RSUs subject only to service conditions			248	19.81		354	14.17
Non-employee director RSUs			76	19.81		106	14.17

(1)Shares granted are subject to performance conditions under which the target number of shares granted may vest from 0% to 200%.

MGIC Investment Corporation - Q1 2024 | 31

Note 14. Statutory Information

Statutory Capital Requirements

The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to the RIF (or a similar measure) in order for the mortgage insurer to continue to write new business. We refer to these requirements as the “State Capital Requirements” and, together with the GSE Financial Requirements, as the “Financial Requirements.” While they vary among jurisdictions, the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1. A risk-to-capital ratio will increase if (i) the percentage decrease in capital exceeds the percentage decrease in insured risk, or (ii) the percentage increase in capital is less than the percentage increase in insured risk. Wisconsin does not regulate capital by using a risk-to-capital measure but instead requires a minimum policyholder position (“MPP”). MGIC’s “policyholder position” includes its net worth or surplus, and its contingency loss reserve.

At March 31, 2024, MGIC’s risk-to-capital ratio was 9.8 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.8 billion above the required MPP of $2.2 billion. The calculation of our risk-to-capital ratio and MPP reflect credit for the risk ceded under our reinsurance transactions. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the financial requirements of the PMIERs, MGIC may terminate the reinsurance agreements without penalty.

The NAIC established a Mortgage Guaranty Insurance Working Group to determine and make recommendations to the NAIC’s Financial Condition Committee as to what, if any, changes to make to the solvency and other regulations relating to mortgage guaranty insurers. A draft of a revised Mortgage Guaranty Insurance Model Act was adopted by the Financial Condition Committee in July 2023 and by the Executive Committee and Plenary NAIC in August 2023. The revised Model Act includes requirements relating to, among other things: (i) capital and minimum capital requirements, and contingency reserves; (ii) restrictions on mortgage insurers’ investments in notes secured by mortgages; (iii) prudent underwriting standards and formal underwriting guidelines; (iv) the establishment of formal, internal “Mortgage Guaranty Quality Control Programs” with respect to in-force business; and (v) reinsurance and prohibitions on captive reinsurance arrangements. It is uncertain when the revised Model Act will be adopted in any jurisdiction. It is unknown whether any changes will be made by state legislatures prior to adoption, and the effect changes, if any, will have on the mortgage guaranty insurance market generally, or on our business.

Dividend restrictions

MGIC is subject to statutory regulations as to payment of dividends. The maximum amount of dividends that MGIC may pay in any twelve-month period without regulatory approval by the OCI is the lesser of adjusted statutory net income or 10% of statutory policyholders’ surplus as of the preceding calendar year end. Adjusted statutory net income is defined for this purpose to be the greater of statutory net income, net of realized investment gains, for the calendar year preceding the date of the dividend or statutory net income, net of realized investment gains, for the three calendar years preceding the date of the dividend less dividends paid within the first two of the preceding three calendar years. The maximum dividend that could be paid, without regulatory approval, is reduced by dividends paid in the twelve months preceding the dividend payment date. Before making any dividend payments, we notify the OCI to ensure it does not object. In April 2024, MGIC paid a $350 million dividend to the holding company.

Statutory Financial Information

The OCI recognizes only statutory accounting principles prescribed, or practices permitted by the State of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company. The OCI has adopted certain prescribed accounting practices that differ from those found in other states. Specifically, Wisconsin domiciled companies record changes in the contingency loss reserves through their income statement as a change in underwriting deduction. As a result, in periods in which MGIC is increasing contingency loss reserves, statutory net income is reduced.

The statutory net income, policyholders’ surplus, and contingency loss reserves of our insurance subsidiaries, including MGIC, are shown in table 14.1.


Financial information of our insurance subsidiaries (including MGIC)
Table 14.1
	As of and for the Three Months Ended March 31,
(In thousands)	2024		2023
Statutory net income	$	72,714	$	54,612
Statutory policyholders' surplus	711,990		992,075
Contingency loss reserves	5,333,024		4,803,752

MGIC Investment Corporation - Q1 2024 | 32

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following is management’s discussion and analysis of the financial condition and results of operations of MGIC Investment Corporation for the first quarter of 2024. As used below, “we” and “our” refer to MGIC Investment Corporation’s consolidated operations. This form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023. See the “Glossary of terms and acronyms” for definitions and descriptions of terms used throughout this MD&A. Our revenues and losses could be affected by the Risk Factors referred to under “Forward Looking Statements and Risk Factors” below, and they are an integral part of the MD&A.

Forward Looking and Other Statements

As discussed under “Forward Looking Statements and Risk Factors” below, actual results may differ materially from the results contemplated by forward looking statements. These forward looking statements speak only as of the date of this filing and are subject to change without notice. We are not undertaking any obligation to update any forward looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.

MGIC Investment Corporation - Q1 2024 | 33

Overview


Summary financial results of MGIC Investment Corporation

	Three Months Ended March 31,
(In thousands, except per share data, unaudited)	2024		2023		% Change
Selected statement of operations data
Net premiums earned	$	242,644	$	242,015	0
Investment income, net of expenses	59,744		49,223		21
Losses incurred, net	4,555		6,446		(29)
Other underwriting and operating expenses, net	59,018		70,063		(16)

Income before tax	219,880		195,604		12
Provision for income taxes	45,783		41,057		12
Net income (1)	174,097		154,547		13
Diluted income per share	$	0.64	$	0.53	21

Non-GAAP Financial Measures (2)
Adjusted pre-tax operating income	$	225,309	$	199,672	13
Adjusted net operating income	178,386		157,761		13
Adjusted net operating income per diluted share	$	0.65	$	0.54	20

(1) May not foot due to rounding.

(2) See “Explanation and reconciliation of our use of Non-GAAP financial measures.”

Summary of first quarter 2024 results

Comparative quarterly results

We recorded first quarter 2024 net income of $174.1 million, or $0.64 per diluted share. Net income increased by $19.6 million from net income of $154.5 million, or $0.53 per diluted share, in the prior year. The increase is primarily due a decrease in other underwriting and operating expenses, net, and an increase in investment income, net of expenses. This was offset partially by an increase in provision for income taxes. Diluted income per share increased primarily due to an increase in net income and a decrease in the number of diluted weighted shares outstanding.

Adjusted net operating income for the first quarter 2024 was $178.4 million (Q1 2023: $157.8 million) and adjusted net operating income per diluted share was $0.65 (Q1 2023: $0.54). The increase in adjusted net operating income primarily reflects an increase in net income. The increase in adjusted net operating income per diluted share primarily reflects an increase in adjusted net operating income and a decrease in the number of diluted weighted shares outstanding.

Net investment income in the three months ended March 31, 2024, was $59.7 million, compared with $49.2 million, in the prior year. The increase in net investment income was due to an increase of 58 basis points in the average investment yields.

Underwriting and other expenses, net in the first quarter of 2024 were $59.0 million, compared with $70.1 million for the same period last year. The decrease in underwriting and other expenses, net during the three months ended March 31, 2024 was primarily due to a decrease in pension expenses and a decrease in expenses related to professional and consulting services. Pension expenses were higher for the three months ended March 31, 2023 due to settlement accounting charges.

The increase in our provision for income taxes in the first quarter of 2024 as compared to the same period in the prior year was primarily due to an increase in income before tax.

Capital

MGIC dividend payments to our holding company

The ability of MGIC to pay dividends is restricted by insurance regulation. Amounts in excess of prescribed limits are deemed “extraordinary” and may not be paid if disapproved by the OCI. A dividend is extraordinary when the proposed dividend amount, plus dividends paid in the twelve months preceding the dividend payment date exceed the ordinary dividend level. In 2024, MGIC can pay $64 million of ordinary dividends without OCI approval, before taking into consideration dividends paid in the preceding twelve months. In the three months ended March 31, 2024, and 2023, we did not make dividends payments to the holding company. Future dividend payments to the holding company will continue to be determined in consultation with the board and after considering any updated estimates about our business. In April 2024, MGIC paid a $350 million dividend to our holding company.

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Share repurchase programs

Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. In the three months ended March 31, 2024, and for the full year of 2023, we repurchased 4.7 million and 21.7 million shares of common stock, using approximately $93.3 million and $340.6 million of holding company resources, respectively. As of March 31, 2024, we had $170 million of authorization remaining to repurchase our common stock through July 1, 2025 under a $500 million share repurchase program approved by our Board of Directors in April, 2023. As of March 31, 2024, we had approximately 269 million shares of common stock outstanding. In April 2024, our Board of Directors approved an additional share repurchase program, authorizing us to repurchase up to $750 million of common stock prior to December 31, 2026.

Dividends to shareholders

In the first quarter of 2024, we paid quarterly cash dividends of $0.115 per share which totaled $31.7 million. On April 25, 2023, the Board of Directors declared a quarterly cash dividend to the holders of the company’s common stock of $0.115 per share to shareholders of record on May 9, 2024.

GSEs

We must comply with a GSE’s PMIERs to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transaction approval requirements. The PMIERs provide that the GSEs may amend any provision of the PMIERs or impose additional requirements with an effective date specified by the GSEs. If MGIC ceases to be eligible to insure loans purchased by one or both of the GSEs, it would significantly reduce the volume of our NIW, the substantial majority of which is for loans delivered to or purchased by the GSEs.

The financial requirements of the PMIERs require a mortgage insurer’s "Available Assets" (generally only the most liquid assets of an insurer) to equal or exceed its "Minimum Required Assets" (which are based on an insurer's book of risk in force, calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor amount). Based on our interpretation of the PMIERs as of March 31, 2024, MGIC’s Available Assets totaled $5.9 billion, or $2.5 billion in excess of its Minimum Required Assets.

Our reinsurance transactions enable us to earn higher returns on our Minimum Required Assets than we must hold under PMIERs. However, reinsurance may not always be available to us, or available only on terms, or costs, that we find unacceptable.

The calculated credit for XOL Transactions under PMIERs is generally based on the PMIERs requirement of the covered loans and the attachment and detachment point of the coverage. PMIERs credit is generally not given for the reinsured risk above the PMIERs requirement. Our existing reinsurance transactions are subject to periodic review by the GSEs and there is a risk we will not receive our current level of credit in future periods for the risk ceded under them. In addition, we may not receive the same level of credit under future transactions that we receive under existing transactions. If MGIC is not allowed certain levels of credit under the PMIERs, under certain circumstances, MGIC may terminate the reinsurance transactions without penalties.

For additional information about our reinsurance transactions, see our Risk Factor titled “Reinsurance may be unavailable at current levels and prices, and/or the GSEs may reduce the amount of capital credit we receive for our reinsurance transactions.”

GSE reform

The FHFA has been the conservator of the GSEs since 2008 and has the authority to control and direct their operations. Given that the Director of the FHFA is removable by the President at will, the agency’s agenda, policies, and actions are influenced by then-current administration. The increased role that the federal government has assumed in the residential housing finance system through the GSE conservatorships may increase the likelihood that the business practices of the GSEs change, including through administration changes and actions. Such changes could have a material adverse effect on us.

It is uncertain what role the GSEs, FHA and private capital, including private mortgage insurance, will play in the residential housing finance system in the future. The timing and impact on our business of any resulting changes is uncertain. Many of the proposed changes would require Congressional action to implement and it is difficult to estimate when Congressional action would be final and how long any associated phase-in period may last.

For additional information about the business practices of the GSEs, see our Risk Factor titled “Changes in the business practices of Fannie Mae and Freddie Mac ("the GSEs"), federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.”

State Regulations

The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to its RIF (or a similar measure) in order for the mortgage insurer to continue to write new business. We refer to these requirements as the “State Capital Requirements.” While they vary among jurisdictions, the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1. A risk-to-capital ratio will increase if (i) the percentage

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decrease in capital exceeds the percentage decrease in insured risk, or (ii) the percentage increase in capital is less than the percentage increase in insured risk. Wisconsin does not regulate capital by using a risk-to-capital measure but instead requires a MPP. MGIC’s “policyholder position” includes its net worth or surplus and its contingency reserve.

At March 31, 2024, MGIC’s risk-to-capital ratio was 9.8 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.8 billion above the required MPP of $2.2 billion. The calculation of our risk-to-capital ratio and MPP reflect full credit for the risk ceded under our reinsurance transactions. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded under such transactions. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the PMIERs, MGIC may terminate the reinsurance transactions, without penalty.

The NAIC established a Mortgage Guaranty Insurance Working Group to determine and make recommendations to the NAIC’s Financial Condition Committee as to what, if any, changes to make to the solvency and other regulations relating to mortgage guaranty insurers. A draft of a revised Mortgage Guaranty Insurance Model Act was adopted by the Financial Condition Committee in July 2023 and by the Executive Committee and Plenary NAIC in August 2023. The revised Model Act includes requirements relating to, among other things: (i) capital and minimum capital requirements, and contingency reserves; (ii) restrictions on mortgage insurers’ investments in notes secured by mortgages; (iii) prudent underwriting standards and formal underwriting guidelines; (iv) the establishment of formal, internal “Mortgage Guaranty Quality Control Programs” with respect to in-force business; and (v) reinsurance and prohibitions on captive reinsurance arrangements. It is uncertain when the revised Model Act will be adopted in any jurisdiction. The provisions of the Model Act, if adopted in their final form, are not expected to have a material adverse effect on our business. It is unknown whether any changes will be made by state legislatures prior to adoption, and the effect changes, if any, will have on the mortgage guaranty insurance market generally, or on our business. At this time, we expect MGIC to continue to comply with the current State Capital Requirements; however, refer to our risk factor titled “State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis” for more information about matters that could negatively impact our compliance with State Capital Requirements.

Factors affecting our results

Our current and future business, results of operations and financial condition are impacted by macroeconomic conditions, such as rising interest rates, home prices, housing demand, level of employment, inflation, pandemics, restrictions and costs on mortgage credit, and other factors. For additional information on how our business may be impacted see our Risk Factor titled “Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.”

The future effects of climate change on our business are uncertain. For information about possible effects, please refer to our Risk Factor titled “Pandemics, hurricanes and other disasters may impact our incurred losses, the amount and timing of paid claims, our inventory of notices of default and our Minimum Required Assets under PMIERs.”

Our results of operations are affected by:

Premiums written and earned

Premiums written and earned in a year are influenced by:

•NIW, which increases IIF. Many factors affect NIW, including the volume of low down payment home mortgage originations and competition to provide credit enhancement on those mortgages from the FHA, the VA, other mortgage insurers, and other alternatives to mortgage insurance, including GSE programs that may reduce or eliminate the demand for mortgage insurance. NIW does not include loans previously insured by us that are modified, such as loans modified under HARP.

•Cancellations, which reduce IIF. Cancellations due to refinancings are affected by the level of current mortgage interest rates compared to the mortgage coupon rates throughout the in force book, current home values compared to values when the loans in the in force book were insured and the terms on which mortgage credit is available. Home price appreciation can give homeowners the right to cancel mortgage insurance on their loans if sufficient home equity is achieved. Cancellations also result from policy rescissions, which require us to return any premiums received on the rescinded policies and claim payments, which require us to return any premium received on the related policies from the date of default on the insured loans. Cancellations of single premium policies, which are generally non-refundable, result in immediate recognition of any remaining unearned premium.

•Premium rates, which are affected by product type, competitive pressures, the risk characteristics of the insured loans, the percentage of coverage on the insured loans, and PMIERs capital requirements. The substantial majority of our monthly and annual mortgage insurance premiums are under premium plans for which, for the first ten years of the policy, the amount of premium is determined by multiplying the initial premium rate by the original loan balance; thereafter, the premium rate resets to a lower rate used for the remaining life of the policy. The remainder of our monthly and annual premiums are under premium plans for which premiums are determined by a fixed percentage of the loan’s amortizing balance over the life of the policy.

•Premiums ceded, net of profit commission, under our QSR Transactions and premiums ceded under our XOL Transactions are primarily affected by the percentage of our IIF subject to our reinsurance transactions. The profit commission under our QSR Transactions also varies inversely with the level of ceded losses incurred on a “dollar for dollar” basis and can be eliminated at ceded loss levels higher than what we have experienced on our QSR Transactions. As a result, lower levels of losses incurred result in a higher profit commission and less benefit from ceded losses incurred; higher levels of losses incurred result in more benefit

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from ceded losses incurred and a lower profit commission (or for certain levels of accident year loss ratios, its elimination). (See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance transactions.)

Premiums earned are generated by the insurance that is in force during all or a portion of the period. A change in the average IIF in the current period compared to an earlier period is a factor that will increase (when the average in force is higher) or reduce (when it is lower) premiums written and earned in the current period, although this effect may be enhanced (or mitigated) by the factors discussed above.

Investment income

Our investment portfolio is composed principally of investment grade fixed income securities. The principal factors that influence investment income are the size of the portfolio and its yield. As measured by amortized cost (which excludes changes in fair value, such as from changes in interest rates), the size of the investment portfolio is mainly a function of cash generated from (or used in) operations, such as net premiums written, investment income, net claim payments and expenses, and cash provided by (or used for) non-operating activities, such as debt or stock issuances or repurchases, and dividends.

Losses incurred

Losses incurred are the current expense that reflects claim payments, costs of settling claims, and changes in our estimates of payments that will ultimately be made as a result of delinquencies on insured loans. As explained under “Critical Accounting Estimates” in our 2023 10-K MD&A, except in the case of a premium deficiency reserve, we recognize an estimate of this expense only for delinquent loans. The level of new delinquencies has historically followed a seasonal pattern, with new delinquencies in the first part of the year lower than new delinquencies in the latter part of the year. The state of the economy, local housing markets and various other factors, including pandemics, may result in delinquencies not following the typical pattern. Losses incurred are generally affected by:

•The state of the economy, including unemployment and housing values, each of which affects the likelihood that loans will become delinquent and whether loans that are delinquent cure their delinquency.

•The product mix of the in force book, with loans having higher risk characteristics generally resulting in higher delinquencies and claims.

•The size of loans insured, with higher average loan amounts on delinquent loans tending to increase incurred losses.

•The percentage of coverage on insured loans, with deeper average coverage on delinquent loans tending to increase incurred losses.

•The rate at which we rescind policies or curtail claims. Our estimated loss reserves incorporate our estimates of future rescissions of policies and curtailments of claims, and reversals of rescissions and curtailments. We collectively refer to such rescissions and denials as “rescissions” and variations of this term. We call reductions to claims “curtailments.”

•The distribution of claims over the life of a book. Historically, the first few years after loans are originated are a period of relatively low claims, with claims increasing substantially for several years subsequent and then declining, although annual persistency, the condition of the economy, including unemployment and housing prices, and other factors can affect this pattern. For example, a weak economy or housing value declines can lead to claims from older books increasing, continuing at stable levels or experiencing a lower rate of decline. See further information under “Mortgage insurance earnings and cash flow cycle” below.

•Losses ceded under reinsurance transactions. See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance transactions.

Underwriting and other expenses

Underwriting and other expenses includes items such as employee compensation, fees for professional and consulting services, depreciation and maintenance expense, and premium taxes, and are reported net of ceding commissions associated with our QSR Transactions. Employee compensation expenses are variable due to share-based compensation, changes in benefits, and changes in headcount (which can fluctuate due to volume of NIW). See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of ceding commission on our QSR Transactions.

Interest expense

Interest expense reflects the interest associated with our consolidated outstanding debt obligations discussed in Note 3 - “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” below.

Other

Certain activities that we do not consider being part of our fundamental operating activities may also impact our results of operations and are described below.

Gains (losses) on investments and other financial instruments

•Fixed income securities. Investment gains and losses reflect the difference between the amount received on the sale of a fixed income security and the fixed income security’s cost basis, as well as any credit allowances and any impairments on securities we intend to sell prior to recovery of its amortized cost basis. The amount received on the sale of fixed income securities is affected by the coupon rate of the security compared to the yield of comparable securities at the time of sale.

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•Equity securities. Investment gains and losses are accounted for as a function of the periodic change in fair value

•Financial instruments. Investment gains and losses on the embedded derivative on our Home Re Transactions reflect the present value impact of the variation in investment income on assets on the insurance-linked notes held by the reinsurance trusts and the contractual reference rate used to calculate the reinsurance premiums we estimate we will pay over the estimated remaining life.

Gains and losses on debt extinguishment

Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, and/or improve our debt profile. Extinguishing our outstanding debt obligations early through these discretionary activities may result in gains or losses primarily driven by differences in the payment of consideration from the carrying value, and the write off of unamortized debt issuance costs on the extinguished portion of the debt.

Refer to “Explanation and reconciliation of our use of Non-GAAP financial measures” below to understand how these items impact our evaluation of our core financial performance.

Mortgage insurance earnings and cash flow cycle

In general, the majority of any underwriting profit that a book generates occurs in the early years of the book, with the largest portion of any underwriting profit realized in the first year following the year the book was written. Subsequent years of a book may result in either underwriting profit or underwriting losses. This pattern of results typically occurs because relatively few of the incurred losses on delinquencies that a book will ultimately experience typically occur in the first few years of the book, when premium revenue is highest, while subsequent years are affected by declining premium revenues, as the number of insured loans decreases (primarily due to loan prepayments) and increasing losses. The typical pattern is also a function of premium rates generally resetting to lower levels after ten years. The state of the economy, local housing markets and various other factors may result in delinquencies not following the typical pattern.

Cybersecurity

As part of our business, we maintain large amounts of confidential and proprietary information both on our own servers and those of cloud computing services. This includes personal information of consumers and our employees. Personal information is subject to an increasing number of federal and state laws and regulations regarding privacy and data security, as well as contractual commitments. Any failure or perceived failure by us, or by the vendors with whom we share this information, to comply with such obligations may result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties or customer dissatisfaction.

All information technology systems are potentially vulnerable to damage or interruption from a variety of sources, including by cyber attacks, such as those involving ransomware. The Company discovers vulnerabilities and regularly blocks a high volume of attempts to gain unauthorized access to its systems. We regularly defend against threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. Threats have the potential to jeopardize the information processed and stored in, and transmitted through, our computer systems and networks and otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties or customer dissatisfaction. We could be similarly affected by threats against our vendors and/or third-parties with whom we share information.

Globally, attacks are expected to continue accelerating in both frequency and sophistication with increasing use by actors of tools and techniques that may hinder the Company’s ability to identify, investigate and recover from incidents. Such attacks may also increase as a result of retaliation by threat actors against actions taken by the U.S. and other countries in connection with wars and other global events. The Company operates under a hybrid workforce model and such model may be more vulnerable to security breaches.

While we have information security policies and systems in place to secure our information technology systems and to prevent unauthorized access to or disclosure of sensitive information, there can be no assurance with respect to our systems and those of our third-party vendors that unauthorized access to the systems or disclosure of the sensitive information, either through the actions of third parties or employees, will not occur. Due to our reliance on information technology systems, including ours and those of our customers and third-party service providers, and to the sensitivity of the information that we maintain, unauthorized access to the systems or disclosure of the information could adversely affect our reputation, severely disrupt our operations, result in a loss of business and expose us to material claims for damages and may require that we provide free credit monitoring services to individuals affected by a security breach.

Should we experience an unauthorized disclosure of information or a cyber attack, including those involving ransomware, some of the costs we incur may not be recoverable through insurance, or legal or other processes, and this may have a material adverse effect on our results of operations.

For additional information about our IT systems and cybersecurity, see our risk factor titled “Information technology system failures or interruptions may materially impact our operations and adversely affect our financial results" and "We could be materially adversely affected by a cyber security breach or failure of information security controls."

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Explanation and reconciliation of our use of non-GAAP financial measures

Non-GAAP financial measures

We believe that use of the Non-GAAP financial 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 GAAP and should not be viewed as alternatives to GAAP measures of performance.

Adjusted pre-tax operating income (loss) is defined as GAAP income (loss) before tax, excluding the effects of net realized investment gains (losses), gain and losses on debt extinguishment, 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 and losses on debt extinguishment 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 21%.

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 or regulatory 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 and/or improve our debt profile.

(3)Infrequent or unusual non-operating items. Items that are non-recurring in nature and are not part of our primary operating activities.

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Non-GAAP reconciliations

Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income
	Three Months Ended March 31,
	2024							2023
(In thousands, except per share amounts)	Pre-tax		Tax effect		Net (after-tax)			Pre-tax		Tax effect		Net (after-tax)
Income before tax / Net income	$	219,880	45,783		$	174,097		$	195,604	41,057		$	154,547
Adjustments:

Net realized investment (gains) losses	5,429		1,140		4,289			4,068		854		3,214
Adjusted pre-tax operating income / Adjusted net operating income	$	225,309	$	46,923	$	178,386		$	199,672	$	41,911	$	157,761

Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share
Weighted average diluted shares outstanding					273,108							294,712

Net income per diluted share					$	0.64						$	0.53

Net realized investment (gains) losses					0.02							0.01
Adjusted net operating income per diluted share					$	0.65	(1)					$	0.54




















(1) Does not foot due to rounding.

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Mortgage Insurance Portfolio

Mortgage originations

Our NIW is affected by the total mortgage originations, the percentage of total mortgage originations using PMI, and our market share within the PMI industry.

The total amount of mortgage originations is generally influenced by the level of home sales, interest rates, the percentage of homes purchased for cash, and the level of refinance activity. PMI market share of total mortgage originations is influenced by the mix of purchase and refinance originations. PMI market share is also impacted by the market share of total originations of the FHA, VA, USDA, and other alternatives to mortgage insurance, including GSE programs that may reduce or eliminate the demand for mortgage insurance.

NIW for the first quarter of 2024 was $9.1 billion (Q1 2023: $8.2 billion). The increase reflects a higher expected market position in the current year compared with the same period in the prior year. For the remainder of the year, we expect our 2024 NIW to be slightly higher than 2023.

The percentage of our NIW with DTI ratios over 45% and LTVs over 95% will fluctuate based on the mortgage conditions that could include the percentage of NIW from purchase transactions, changes in home prices, changes in mortgage rates, and GSE activities.

The following tables present characteristics of our primary NIW for the three months ended March 31, 2024 and 2023.


Primary NIW by FICO score
	Three Months Ended March 31,
(% of primary NIW)	2024		2023
760 and greater	53.4	%	44.8	%
740 - 759	17.0	%	19.0	%
720 - 739	13.3	%	14.8	%
700 - 719	8.4	%	10.4	%
680 - 699	4.6	%	6.0	%
660 - 679	2.2	%	3.0	%
640 - 659	0.7	%	1.4	%
639 and less	0.4	%	0.6	%


Primary NIW by loan-to-value
	Three Months Ended March 31,
(% of primary NIW)	2024		2023
95.01% and above	15.4	%	12.5	%
90.01% to 95.00%	44.9	%	46.8	%
85.01% to 90.00%	29.0	%	29.3	%
80.01% to 85.00%	10.7	%	11.4	%


Primary NIW by debt-to-income ratio
	Three Months Ended March 31,
(% of primary NIW)	2024		2023
45.01% and above	27.9	%	22.7	%
38.01% to 45.00%	31.8	%	33.8	%
38.00% and below	40.3	%	43.5	%


Primary NIW by policy payment type
	Three Months Ended March 31,
(% of primary NIW)	2024		2023
Monthly premiums	96.6	%	96.2	%
Single premiums	3.4	%	3.7	%
Annual premiums	—	%	0.1	%

Primary NIW by type of mortgage
	Three Months Ended March 31,
(% of primary NIW)	2024		2023
Purchases	97.6	%	97.7	%
Refinances	2.4	%	2.3	%

We consider a variety of loan characteristics when assessing the risk of a loan. The following table provides information about loans with one or more of the following characteristics associated with our NIW: LTV ratios greater than 95%, mortgages with borrowers having FICO scores below 680, including those with borrowers having FICO scores of 620-679, and mortgages with borrowers having DTI ratios greater than 45%, each attribute as determined at the time of loan origination.


Primary NIW by number of attributes discussed above
	Three Months Ended March 31,
(% of primary NIW)	2024		2023
One	37.1	%	32.5	%
Two or more	4.7	%	3.8	%

Insurance and risk in force

The amount of our IIF and RIF is impacted by the amount of NIW and cancellations of primary IIF during the period. Cancellation activity primarily results from loan payoff and refinancing activity, or borrowers achieving the required amount of home equity through loan amortization, principal curtailment and/or home price appreciation. Claim resolutions also impact cancellations but to a much lesser extent. Cancellations generally move inversely to the change in the direction of interest rates, although they generally lag a change in direction.

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Annual Persistency

Our annual persistency was 85.7% at March 31, 2024 compared to 86.1% at December 31, 2023 and 84.5% at March 31, 2023. Since 2018, our annual persistency ranged from a high of 86.3% at September 30, 2023 to a low of 60.7% at March 31, 2021. Our persistency rate is primarily affected by the level of current mortgage interest rates compared to the mortgage coupon rates on our IIF, which affects the vulnerability of the IIF to refinancing; and the current amount of equity that borrowers have in the homes underlying our IIF.


IIF and RIF
	Three Months Ended March 31,
(In billions)	2024		2023
NIW	$	9.1	$	8.2
Cancellations	(11.7)		(11.1)
Increase (decrease) in primary IIF	$	(2.6)	$	(2.9)



Direct primary IIF as of March 31,	$	290.9	$	292.4
Direct primary RIF as of March 31,	$	76.8	$	76.0

Credit profile of our primary RIF

Our 2009 and later books possess significantly improved risk characteristics when compared to our 2005-2008 books. Modification and refinance programs, such as HAMP and HARP, which expired at the end of 2016 and 2018, respectively, but have been replaced by other GSE modification programs, make outstanding loans more affordable to borrowers with the goal of reducing the number of foreclosures. As of March 31, 2024, loans associated with modification programs accounted for 3.5% of our total RIF, compared to 3.6% at December 31, 2023. Loans associated with 88.1% of all our modifications were current as of March 31, 2024.

The following table sets forth certain statistics associated with our primary IIF and RIF as of March 31, 2024:


Primary insurance in force and risk in force by policy year
(in billions)	Insurance in Force (1)				Risk In Force (1)				Weighted Avg. Interest Rate		Delinquency Rate		Cede Rate % (2)		% of Original Remaining
Policy Year	Total		% of Total		Total		% of Total
2004 and prior	$	1.2	0.4	%	$	0.3	0.4	%	7.4	%	12.0	%	—	%	NM
2005-2008	9.4		3.2	%	2.5		3.3	%	7.0	%	9.9	%	—	%	3.9	%
2009-2019	33.5		11.5	%	8.9		11.5	%	4.3	%	3.3	%	—	%	8.6	%
2020	47.9		16.5	%	12.6		16.3	%	3.2	%	1.1	%	5.1	%	41.9	%
2021	82.6		28.4	%	22.0		28.6	%	3.1	%	1.3	%	29.9	%	70.1	%
2022	64.9		22.3	%	17.3		22.5	%	4.9	%	1.3	%	30.5	%	87.5	%
2023	43.3		14.9	%	11.2		14.6	%	6.6	%	0.4	%	26.5	%	94.1	%
2024	8.1		2.8	%	2.1		2.8	%	6.7	%	0.0	%	30.6	%	99.4	%
Total	$	290.9			$	76.8

(1)May not foot due to rounding

(2)Cede Rate % is calculated as the risk in force ceded to our QSR transactions divided by the total risk in force.

Pool and other insurance

MGIC has written no new pool insurance since 2008; however, for a variety of reasons, including responding to capital market alternatives to PMI and customer demands, MGIC may write pool risk in the future. Our direct pool risk in force was $236 million ($180 million on pool policies with aggregate loss limits and $56 million on pool policies without aggregate loss limits) at March 31, 2024 compared to $256 million ($186 million on pool policies with aggregate loss limits and $70 million on pool policies without aggregate loss limits) at December 31, 2023. If claim payments associated with a specific pool reach the aggregate loss limit, the remaining IIF within the pool would be cancelled and any remaining delinquencies under the pool would be removed from our delinquency inventory.

In connection with the GSEs' CRT programs, an insurance subsidiary of MGIC provides insurance and reinsurance covering portions of the credit risk related to certain reference pools of mortgages acquired by the GSEs. Our RIF, as reported to us, related to these programs was approximately $358 million and $310 million as of March 31, 2024 and December 31, 2023, respectively.

MGIC Investment Corporation - Q1 2024 | 42

Consolidated Results of Operations

The following section of the MD&A provides a comparative discussion of MGIC Investment Corporation’s Consolidated Results of Operations for the three months ended March 31, 2024 and 2023.

Revenues


	Three Months Ended March 31,
(in thousands)	2024		2023		% Change
Net premiums written	$	233,800	$	230,192	2

Net premiums earned	$	242,644	$	242,015	0
Investment income, net of expenses	$	59,744	$	49,223	21
Net gains (losses) on investments and other financial instruments	$	(8,509)	$	(7,698)	11
Other revenue	$	482	$	425	13
Total revenues	$	294,361	$	283,965	4

Net premiums written and earned

Comparative quarterly results

Premiums earned for the three months ended March 31, 2024 were $242.6 million, compared with $242.0 million, for the same period last year. Net premiums written for three months ended March 31, 2024 were $233.8 million, compared with $230.2 million, for the same period last year.

See “Overview - Factors Affecting Our Results” above for additional factors that influenced the amount of net premiums written and earned during the periods. See “Reinsurance Transactions” below for discussion of our ceded premiums written and earned.

Premium yields

Net premium yield is net premiums earned divided by average IIF during the period. The following table presents the key drivers of our net premium yield for each of the three months ended March 31, 2024 and March 31, 2023.


Premium Yield

		Three Months Ended March 31,
(in basis points)		2024	2023
In force portfolio yield	(1)	38.5	38.7
Premium refunds		0.1	(0.1)
Accelerated earnings on single premium policies		0.3	0.3
Total direct premium yield		38.9	38.9
Ceded premiums earned, net of profit commission and assumed premiums	(2)	(5.7)	(6.0)
Net premium yield		33.2	32.9

(1) Total direct premiums earned, excluding premium refunds and accelerated premiums from single premium policy cancellations divided by average primary insurance in force.

(2) Assumed premiums include those from our participation in GSE CRT programs, of which the impact on the net premium yield was 0.5 bps for the three months ended March 31, 2024 compared to 0.4 bps for the three months ended March 31, 2023.

The following provides more detail on the key drivers of our net premium yield:


In force Portfolio Yield
è			The yield on our current IIF is from book years with lower premium rates primarily due to competition in the industry. The in force yield is also impacted by the risk characteristics and capital requirements of the mortgages we insure.

MGIC Investment Corporation - Q1 2024 | 43


Premium Refunds
è			Premium refunds are primarily driven by claim activity and our estimate of refundable premiums on our delinquency inventory. Lower levels of claims received results in a lower level of premium refunds. Our estimate of refundable premium on our delinquency inventory fluctuates with changes in our delinquency inventory and our estimate of the number of loans in our delinquency inventory that will result in a claim.


Accelerated earnings on single premium policies
è			A low level of refinance transactions reduces the benefit from accelerated earned premium from cancellation of single premium policies prior to their estimated policy life.
Ceded premiums earned, net of profit commission and assumed premiums
è			Ceded premiums earned, net of profit commission adversely impact our net premium yield. Ceded premiums earned, net of profit commission, are associated with the QSR Transactions and the XOL Transactions. Assumed premiums consists primarily of premiums from GSE CRT programs. See “Reinsurance Transactions“ below for further discussion on our reinsurance transactions.

As discussed in our Risk Factor titled “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses,” the private mortgage insurance industry is highly competitive and premium rates have declined over the past several years. With the smaller origination market, higher persistency rate, and continued high credit quality for NIW expected in 2024, we expect our in force portfolio premium yield to remain relatively flat during 2024 compared to 2023.

Reinsurance Transactions

Quota share reinsurance

Our quota share reinsurance affects various lines of our statements of operations and therefore we believe it should be analyzed by reviewing its total effect on our pre-tax income, described as follows.


è						We cede a fixed percentage of premiums on insurance covered by the agreements.
è						We receive the benefit of a profit commission through a reduction in the premiums we cede. The profit commission varies inversely with the level of losses incurred on a “dollar for dollar” basis and can be eliminated at loss levels higher than what we have experienced. As a result, lower levels of ceded losses incurred result in less benefit from ceded losses incurred and a higher profit commission; higher levels of ceded losses incurred result in more benefit from ceded losses incurred and a lower profit commission (or for certain levels of accident year loss ratios, its elimination).
è						We receive the benefit of a ceding commission through a reduction in underwriting expenses equal to 20% of premiums ceded (before the effect of the profit commission).
è						We cede a fixed percentage of losses incurred on insurance covered by the agreements.

The following table provides information related to our QSR Transactions for each of the three months ended and as of March 31, 2024 and March 31, 2023.


Quota Share Reinsurance

	Three Months Ended March 31,
(Dollars in thousands)	2024			2023

Ceded premiums written and earned, net of profit commission	$	28,715		$	29,877
% of direct premiums written	10		%	11		%
% of direct premiums earned	10		%	10		%
Profit commission	$	24,584		$	31,711
Ceding commissions	$	10,660		$	12,318
Ceded losses incurred	$	6,454		$	4,681


	As of March 31,
Mortgage insurance portfolio:	2024		2023
Ceded RIF (Dollars in millions)
2020 QSR	—		3,747
2021 QSR	5,867		6,669
2022 QSR	4,607		4,952
2023 QSR	2,344		439
2024 QSR	609		—
Credit Union QSR	2,645		2,316
Total ceded RIF	$	16,072	$	18,123

The decrease in profit commission was primarily driven by a decrease in the percentage of our IIF covered by the QSR Transactions as discussed below and an increase in ceded losses incurred. Ceded losses incurred are impacted by the delinquencies covered by our QSR Transactions, our estimates of payments that will be ultimately made on those delinquencies, and claim payments covered by our QSR Transactions.

MGIC Investment Corporation - Q1 2024 | 44

We terminated our 2020 QSR Transaction effective December 31, 2023.

Covered risk

The percentages of our NIW, new risk written, IIF, and RIF subject to our QSR Transactions as shown in the following table will vary from period to period in part due to the mix of our risk written during the period and the number of active QSR Transactions.


Quota Share Reinsurance

	Three Months Ended March 31,
	2024		2023
NIW subject to QSR Transactions	87.7	%	86.4	%
New Risk Written subject to QSR Transactions	93.3	%	92.5	%
IIF subject to QSR Transactions	62.1	%	69.3	%
RIF subject to QSR Transactions	65.7	%	74.2	%

The decrease in IIF and RIF subject to QSR Transactions was primarily due to the termination of our 2020 QSR Transaction at December 31, 2023.

As of March 31, 2024, the weighted average coverage percentage of our QSR transactions was 32% based on RIF.

Excess of loss reinsurance

We have XOL Transactions with panels of unaffiliated reinsurers executed through the traditional reinsurance market (“Traditional XOL Transaction”) and with unaffiliated special purpose insurers (“Home Re Transactions”).

For policies covered by our Traditional XOL Transactions, we retain the first layer of the aggregate losses paid, and the reinsurers will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses paid in excess of the outstanding reinsurance coverage amount. The reinsurance coverage is subject to adjustment based on the risk characteristics of the covered loans until the initial excess of loss reinsurance coverage layer has been finalized.

The Home Re Transactions are executed through the issuance of insurance linked notes (“ILNs”). As of March 31, 2024 our Home Re Transactions provided $1.1 billion of loss coverage on a portfolio of policies having an in force date from July 1, 2016 through March 31, 2019, from August 1, 2020 through December 31, 2021, and from June 1, 2022 through August 31, 2023; all dates inclusive. For this reinsurance coverage, we retain the first layer of the respective aggregate losses paid, and a Home Re Entity will then provide second layer coverage up to the outstanding reinsurance amount.

The current attachment, current detachment, and PMIERs required asset credit for each of our XOL Transactions as of March 31, 2024, are as follows.


($ In thousands)	Initial Attachment % (1)	Initial Detachment % (2)	Current Attachment % (1)	Current Detachment % (2)	PMIERs Required Asset Credit
Home Re 2018-1	2.25%	6.50%	15.95%	21.61%	$	—
Home Re 2019-1	2.50%	6.75%	18.49%	39.57%	—
Home Re 2021-1	2.25%	6.50%	4.29%	7.57%	74,290
Home Re 2021-2	2.10%	6.50%	3.31%	7.30%	141,577
Home Re 2022-1	2.75%	6.75%	3.39%	7.55%	316,773
Home Re 2023-1	3.00%	6.75%	3.12%	7.03%	318,694
2022 Traditional XOL	2.60%	7.10%	2.83%	7.75%	137,543
2023 Traditional XOL	2.91%	6.91%	2.97%	6.98%	91,799

(1) The percentage represents the cumulative losses as a percentage of adjusted risk in force that MGIC retains prior to the XOL taking losses.

(2) The percentage represents the cumulative losses as a percentage of adjusted risk in force that must be reached before MGIC begins absorbing losses after the XOL layer.

Ceded premiums on our XOL Transactions were $16.1 million for the three months ended March 31, 2024, and $16.9 million for the three months ended March 31, 2023.

See Note 4 - “Reinsurance" to our consolidated financial statements for additional discussion of our QSR and XOL Transactions.

MGIC Investment Corporation - Q1 2024 | 45

Investment income

Comparative quarterly and year to date results

Net investment income in the three months ended March 31, 2024 was $59.7 million, compared with $49.2 million in the three months ended March 31, 2023. The increase in net investment income was primarily due to an increase of approximately 58 basis points in the average investment yields.

Losses and expenses


	Three Months Ended March 31,
(In thousands)	2024		2023		% Change
Losses incurred, net	$	4,555	$	6,446	(29)
Amortization of deferred policy acquisition costs	$	2,009	$	2,478	(19)
Other underwriting and operating expenses, net	$	59,018	$	70,063	(16)

Interest expense	$	8,899	$	9,374	(5)
Total losses and expenses	$	74,481	$	88,361	(16)

Losses incurred, net

As discussed in “Critical Accounting Estimates” in our 2023 10-K MD&A, we establish case loss reserves for future claims on delinquent loans that were reported to us as two payments past due and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case loss reserves are established based on estimating the number of loans in our delinquency inventory that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.

With the exception of the COVID-19 pandemic and the subsequent governmental response that temporarily disrupted seasonality, losses follow a seasonal trend in which the first quarter of the year has stronger credit performance than the following three quarters, with higher cure rates and lower new notice activity. The state of the economy, local housing markets and various other factors may result in delinquencies not following the typical pattern.

For information on how pandemics and natural disasters could affect losses incurred, net see our Risk Factors titled “Pandemics, hurricanes and other disasters may impact our incurred losses, the amount and timing of paid claims, our inventory of notices of default and our Minimum Required Assets under PMIERs". As discussed in our Risk Factor titled “Because we establish loss reserves only upon a loan delinquency rather than based on estimates of our ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings in certain periods” if we have not received a notice of delinquency with respect to a loan and if we have not estimated the loan to be delinquent as of March 31, 2024 through our IBNR reserve, then we have not yet recorded an incurred loss with respect to that loan.

Our estimates are also affected by any agreements we enter into regarding our claims paying practices.

Comparative quarterly results

Losses incurred, net for the first quarter of 2024 were $4.6 million, a decrease of $1.9 million compared to the first quarter of 2023 losses incurred, net of $6.4 million. While new delinquency notices added approximately $53.4 million for the three months ended March 31, 2024, our re-estimation of loss reserves on previously received delinquency notices resulted in favorable development of approximately $48.9 million. For the three months ended March 31, 2023, new delinquency notices added approximately $47.2 million, offset by our re-estimation of loss reserves on previously received delinquency notices resulting in favorable development of approximately $40.8 million. The favorable development for both periods primarily resulted from a decrease in the expected claim rate on previously received delinquencies. Home price appreciation experienced in recent years has allowed some borrowers to cure their delinquencies through the sale of their property.

MGIC Investment Corporation - Q1 2024 | 46


Composition of losses incurred
	Three Months Ended March 31,
(in millions)	2024		2023
Current year / New notices	$	53,436	$	47,212
Prior year reserve development	(48,881)		(40,766)
Losses incurred, net	$4,555		$6,446

Loss ratio

The loss ratio is the ratio, expressed as a percentage, of the sum of losses incurred, net to net premiums earned. The loss ratio was 1.9% for the three months ended March 31, 2024, compared with 2.7% for the three months ended March 31, 2023. The decrease in the loss ratio for the three months ended March 31, 2024 compared to the prior year was primarily due to the decrease in losses incurred discussed above.

Delinquency inventory

A rollforward of our primary delinquency inventory for the three months ended March 31, 2024 and 2023 appears in the table below. The information concerning new notices and cures is compiled from monthly reports received from loan servicers. The level of new notice and cure activity reported in a particular month can be influenced by, among other things, the date on which a servicer generates its report, the number of business days in a month and transfers of servicing between loan servicers.


Delinquency inventory rollforward
	Three Months Ended March 31,
	2024	2023
Delinquency inventory at beginning of period	25,650	26,387
New notices	12,177	11,297
Cures	(13,314)	(12,607)
Paid claims	(352)	(311)
Rescissions and denials	(19)	(9)

Delinquency inventory at end of period	24,142	24,757

New notice claim rate

The table below presents our new delinquency notices received, delinquency inventory, and the average number of missed payments for the loans in our delinquency inventory by policy year:



New notices and delinquency inventory during the three months ended and as of:
March 31, 2024
Policy Year	New Delinquency Notices Received in the Three Months Ended		Delinquency Inventory	Avg. Number of Missed Payments of Delinquency Inventory
2004 and prior	750		1,888	18
2005-2008	2,484		6,377	17
2009-2015	529		1,245	11
2016	426		846	9
2017	621		1,220	9
2018	757		1,591	8
2019	799		1,459	7
2020	1,308		2,242	6
2021	2,405		4,042	6
2022	1,605		2,729	5
2023	493		503	3
2024	—		—	—
Total	12,177		24,142	11
Claim rate on new notices (1)	7.5	%
(1) Claim rate is the respective year to date weighted average rate.

MGIC Investment Corporation - Q1 2024 | 47


March 31, 2023
Policy Year	New Delinquency Notices Received in the Three Months Ended		Delinquency Inventory	Avg. Number of Missed Payments of Delinquency Inventory
2004 and prior	843		2,247	19
2005-2008	2,700		7,647	20
2009-2015	700		1,762	12
2016	492		1,080	10
2017	628		1,547	10
2018	786		1,855	10
2019	787		1,659	9
2020	1,267		2,355	7
2021	2,056		3,366	5
2022	1,038		1,239	4
2023	—		—	0
Total	11,297		24,757	13
Claim rate on new notices (1)	7.5	%

(1) Claim rate is the respective year to date weighted average rate.

Claims severity

Factors that impact claim severity include:


è						economic conditions at time of claim filing, including home prices compared to home prices at the time of placement of coverage,
è						exposure of the loan, which is the unpaid principal balance of the loan times our insurance coverage percentage,
è						length of time between delinquency and claim filing (which impacts the amount of interest and expenses, with a longer time between default and claim filing generally increasing severity), and
è						curtailments.

As discussed in Note 11 - “Loss Reserves,” our loss reserves estimates take into consideration trends over time, because the development of the delinquencies may vary from period to period without establishing a meaningful trend. An increase in third party property sales prior to claim settlement has resulted in a decrease in the average claim paid and the average claim paid as a percentage of exposure in recent years. With the onset of the COVID-19 pandemic, the level of claims received decreased. Claim activity and the average claims paid as a percentage of exposure has not yet returned to pre-COVID-19 levels. The magnitude and timing of the increases are uncertain.

The majority of loans insured prior to 2014 (which represent 35% of the loans in the delinquency inventory) are covered by master policy terms that, except under certain circumstances, do not limit the number of years that an insured can include interest when filing a claim. Under our current master policy terms, an insured can include accumulated interest when filing a claim only for the first three years the loan is delinquent. In each case, the insured must comply with its obligations under the terms of the applicable master policy.


Claims severity trend for claims paid during the period
Period	Average exposure on claim paid	Average claim paid	% Paid to exposure		Average number of missed payments at claim received date


Q1 2024	45,284	28,267	62.4	%	40
Q4 2023	49,720	31,141	62.6	%	40
Q3 2023	43,271	28,538	66.0	%	41
Q2 2023	40,013	29,803	74.5	%	43
Q1 2023	37,412	28,227	75.4	%	42

Note: Table excludes material settlements. Settlements include amounts paid in settlement disputes for claims paying practices and/or commutations of policies.

MGIC Investment Corporation - Q1 2024 | 48

The table below shows the number of consecutive months a borrower is delinquent. Historically as a delinquency ages it is more likely to result in a claim.


Primary delinquency inventory - consecutive months delinquent
	March 31, 2024		December 31, 2023		March 31, 2023
3 months or less	7,930		9,175		7,573
4-11 months	9,010		8,900		8,563
12 months or more (1)	7,202		7,575		8,621
Total	24,142		25,650		24,757
3 months or less	33	%	36	%	31	%
4-11 months	38	%	35	%	34	%
12 months or more	29	%	29	%	35	%
Total	100	%	100	%	100	%

(1)Approximately 35%, 37%, and 38% of the primary delinquency inventory delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of March 31, 2024, December 31, 2023, and March 31, 2023, respectively.

The length of time a loan is in the delinquency inventory can differ from the number of payments that the borrower has not made or is considered delinquent. These differences typically result from a borrower making monthly payments that do not result in the loan becoming fully current. Generally, a defaulted loan with more missed payments is more likely to result in a claim. The number of payments that a borrower is delinquent is shown in the following table.


Delinquency inventory - number of payments delinquent
	March 31, 2024		December 31, 2023		March 31, 2023
3 payments or less	11,620		12,665		10,453
4-11 payments	7,849		8,064		8,016
12 payments or more (1)	4,673		4,921		6,288
Total	24,142		25,650		24,757

3 payments or less	48	%	50	%	42	%
4-11 payments	33	%	31	%	33	%
12 payments or more	19	%	19	%	25	%
Total	100	%	100	%	100	%

(1)Approximately 32%, 34%, and 32% of the primary delinquency inventory with 12 payments or more delinquent has at least 36 payments delinquent as of March 31, 2024, December 31, 2023, and March 31, 2023, respectively.

Net losses and LAE paid

Net losses and LAE paid in the three months ended March 31, 2024 were consistent with the same period in the prior year. The primary average claim paid can vary materially from period to period based upon a variety of factors, including the local market conditions, average loan amount, average coverage percentage, the amount of time between delinquency and claim filing, and our loss mitigation efforts on loans for which claims are paid.

The following table presents our net losses and LAE paid for the three months ended March 31, 2024 and 2023.


Net losses and LAE paid
	Three Months Ended March 31,
(In millions)	2024		2023
Direct primary (excluding settlements)	$	9	$	9
NPL settlements	—		—
Reinsurance	—		—
LAE and other	1		1
Net losses and LAE paid	$	10	$	10

Average Claim Paid	$	28,267	$	28,227

Our claims paid activity slowed at the start of the COVID-19 pandemic primarily due to forbearance and foreclosure moratoriums put in place, and it has not yet appreciably increased from those suppressed levels. Home price appreciation experienced in recent years has allowed some borrowers to cure their delinquencies through the sale of their property. In addition, an increase in third party property sales prior to claim settlement, has resulted in a decrease in the average claim paid on the claims we do receive. We expect net losses and LAE paid to increase, however, the magnitude and timing of the increases are uncertain.

MGIC Investment Corporation - Q1 2024 | 49

The primary average RIF on delinquent loans at March 31, 2024, December 31, 2023 and March 31, 2023 for the top 5 jurisdictions (based on the March 31, 2024 delinquency inventory) appears in the following table.


Primary average RIF - delinquent loans
	March 31, 2024		December 31, 2023		March 31, 2023
Florida	$	65,769	$	63,885	$	60,334
Texas	60,398		59,841		54,718
Illinois	44,990		44,562		42,325
Pennsylvania	43,913		44,263		42,418
California	103,582		102,145		98,557
All other jurisdictions	55,789		54,723		52,711
All jurisdictions	$	58,179	$	57,143	$	54,032

The primary average RIF on all loans was $68,379, $67,705, and $65,314 at March 31, 2024, December 31, 2023, and March 31, 2023, respectively.

Loss reserves

The gross reserves at March 31, 2024, December 31, 2023, and March 31, 2023 appear in the table below.


Gross reserves
	March 31, 2024			December 31, 2023			March 31, 2023
Primary:
Direct case loss reserves (in millions)	$	447		$	448		$	498
Direct IBNR and LAE reserves	54			54			57
Total primary direct loss reserves	$	501		$	502		$	555

Ending delinquent inventory	24,142			25,650			24,757
Percentage of loans delinquent (delinquency rate)	2.15		%	2.25		%	2.13		%
Average total primary loss reserves per delinquency	$	20,761		$	19,562		$	22,423
Primary claims received inventory included in ending delinquent inventory	266			302			296

Other gross reserves (1) (in millions)	$	3		$	3		$	4

(1)Other Gross Reserves includes direct and assumed reserves that are not included within our primary loss reserves.

The primary delinquency inventory for the top 15 jurisdictions (based on March 31, 2024 delinquency inventory) at March 31, 2024, December 31, 2023 and March 31, 2023 appears in the following table.


Primary delinquency inventory by jurisdiction
	March 31, 2024	December 31, 2023	March 31, 2023
Florida *	1,929	2,100	2,125
Texas	1,920	2,094	1,852
Illinois *	1,604	1,684	1,575
Pennsylvania *	1,382	1,433	1,442
California	1,325	1,354	1,335
New York *	1,267	1,342	1,350
Ohio *	1,166	1,246	1,235
Michigan	1,081	1,115	936
Georgia	899	955	915
New Jersey *	733	774	784
North Carolina	664	705	654
Maryland	641	680	678
Indiana *	614	645	604
Minnesota	544	566	551
Virginia	485	538	500
All other jurisdictions	7,888	8,419	8,221
Total	24,142	25,650	24,757

Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.

MGIC Investment Corporation - Q1 2024 | 50

The primary delinquency inventory by policy year at March 31, 2024, December 31, 2023 and March 31, 2023 appears in the following table.


Primary delinquency inventory by policy year
	March 31, 2024		December 31, 2023		March 31, 2023
Policy year:
2004 and prior	1,888		2,072		2,247
2004 and prior %	8	%	8	%	9	%
2005 - 2008	6,377		7,008		7,647
2005 - 2008 %	26	%	27	%	31	%
2009 - 2015	1,245		1,414		1,762
2009 - 2015 %	5	%	6	%	7	%
2016	846		954		1,080
2017	1,220		1,365		1,547
2018	1,591		1,750		1,855
2019	1,459		1,550		1,659
2020	2,242		2,383		2,355
2021	4,042		4,237		3,366
2022	2,729		2,605		1,239
2023	503		312		—
2024	—		—		—
2016 and later %	61	%	59	%	53	%

Total	24,142		25,650		24,757

On our primary business, the highest claim frequency years have typically been the third and fourth year after loan origination. However, the pattern of claim frequency can be affected by many factors, including persistency and deteriorating economic conditions. Deteriorating economic conditions can result in increasing claims following a period of declining claims. As of March 31, 2024, 40% of our primary RIF was written subsequent to December 31, 2021, 68% of our primary RIF was written subsequent to December 31, 2020, and 85% of our primary RIF was written subsequent to December 31, 2019.

Underwriting and other expenses, net

Underwriting and other expenses includes items such as employee compensation costs, fees for professional and consulting services, depreciation and maintenance expense, and premium taxes, and are reported net of ceding commissions.

Underwriting and other expenses, net for the three months ended March 31, 2024, were $59.0 million, compared with $70.1 million for the three months ended March 31, 2023. The decrease in underwriting and other expenses, net during the three months ended March 31, 2024 was primarily due to a decrease in pension expenses, and a decrease in expenses related to professional and consulting services. Pension expenses were higher for the three months ended March 31, 2023 due to settlement accounting charges.


	Three Months Ended March 31,
	2024		2023
Underwriting expense ratio	25.7	%	31.1	%

The underwriting expense ratio is the ratio, expressed as a percentage, of the underwriting and operating expenses, net and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance subsidiaries) to net premiums written. The underwriting expense ratio for the three months ended March 31, 2024, decreased compared with the same period in the prior year primarily due to a decrease in underwriting and other expenses, net, and an increase in net premiums written.

Provision for income taxes and effective tax rate


Income tax provision and effective tax rate
	Three Months Ended March 31,
(In millions, except rate)	2024			2023
Income before tax	$	219.9		$	195.6
Provision for income taxes	$	45.8		$	41.1
Effective tax rate	20.8		%	21.0		%

Our effective tax rate for the three months ended March 31, 2024 and 2023 approximated the statutory tax rate of 21%.

MGIC Investment Corporation - Q1 2024 | 51

Balance Sheet Review

The following sections mainly focus on the major developments on our Consolidated Balance Sheet since December 31, 2023.

Consolidated balance sheets - Assets


(in thousands)	March 31, 2024		December 31, 2023		% Change
Investments	$	5,688,261	$	5,738,734	(1)
Cash and cash equivalents	431,347		363,666		19
Reinsurance recoverable on loss reserves	39,200		33,302		18
Reinsurance recoverable on paid losses	555		9,896		(94)
Deferred incomes taxes, net	76,271		79,782		(4)
Other assets	299,612		313,000		(4)
Total Assets	$	6,535,246	$	6,538,380	0

Investments - Our investments balance decreased slightly at March 31, 2024 compared to December 31, 2023.

The average duration and investment yield of our investment portfolio as of March 31, 2024 and December 31, 2023 are shown in the table below.


Portfolio duration and embedded investment yield
	March 31, 2024	December 31, 2023
Effective duration (in years)	3.7	3.8
Pre-tax yield (1)	3.8%	3.7%
After-tax yield (1)	3.1%	3.0%

(1)Embedded investment yield is calculated on a yield-to-worst basis.

The security ratings of our fixed income investments as of March 31, 2024 and December 31, 2023 are shown in the following table.


Fixed income security ratings
	Security Ratings (1)
Period	AAA	AA	A	BBB
March 31, 2024	12%	34%	35%	19%
December 31, 2023	12%	34%	35%	19%

(1)Ratings are provided by one or more of: Moody's, Standard & Poor's and Fitch Ratings. If three ratings are available, the middle rating is used, otherwise the lowest rating is used.

Cash and cash equivalents - Our cash and cash equivalents balance increased to $431.3 million as of March 31, 2024, from $363.7 million as of December 31, 2023, as net cash generated from operating activities and investing activities was greater than cash used in financing activities.

Reinsurance recoverable on paid losses - Reinsurance recoverable on paid losses decreased to $0.6 million at March 31, 2024, from $9.9 million at December 31, 2023. At December 31, 2023 the reinsurance recoverable on paid losses was primarily composed of losses recoverable from reinsurers at the time of termination of the 2020 QSR Transaction. Generally, in a reinsurance termination, amounts for any incurred but unpaid losses are due to us from the reinsurers.

MGIC Investment Corporation - Q1 2024 | 52

Consolidated balance sheets - Liabilities and equity


(in thousands)	March 31, 2024		December 31, 2023		% Change
Loss reserves	$	504,447	$	505,379	—
Unearned premiums	148,935		157,779		(6)
Long-term debt	643,563		643,196		—
Other liabilities	135,958		160,009		(15)
Total Liabilities	$	1,432,903	$	1,466,363	(2)
Common stock	371,353		371,353		—
Paid-in capital	1,788,050		1,808,113		(1)
Treasury stock	(1,466,224)		(1,384,293)		6
Accumulated other comprehensive income (loss), net of tax	(326,134)		(316,281)		(3)
Retained earnings	4,735,298		4,593,125		3
Shareholders’ equity	$	5,102,343	$	5,072,017	1

Loss reserves and Reinsurance recoverable on loss reserves - Our loss reserves include estimates of losses and settlement expenses on (1) loans in our delinquency inventory (known as case reserves), (2) IBNR delinquencies, and (3) LAE. Our gross reserves are reduced by reinsurance recoverable on loss reserves to calculate a net reserve balance. Loss reserves decreased slightly to $504.4 million as of March 31, 2024, from $505.4 million as of December 31, 2023. The decrease in loss reserves is primarily from favorable development on previously received delinquency notices, partially offset by loss reserves established on new notices. Reinsurance recoverables on loss reserves were $39.2 million and $33.3 million as of March 31, 2024 and December 31, 2023, respectively. The reinsurance recoverable is impacted by the mix of delinquencies covered by our QSR Transactions.

Unearned premiums - Our unearned premium decreased to $148.9 million as of March 31, 2024 from $157.8 million as of December 31, 2023 primarily due to the run-off of our existing portfolio of single premium policies outpacing the level of NIW from single premium policies.

Income Taxes - Our current income tax liability was $29.0 million at March 31, 2024 and is included as a component of other liabilities in our consolidated balance sheets. Our current tax receivable was $10.8 million at December 31, 2023 and is included as a component of other assets in our consolidated balance sheets. The increase in our current income tax liability was primarily due to our first quarter estimated income tax payment not being due until the second quarter of 2024. Our net deferred tax asset was $76.3 million and $79.8 million at March 31, 2024 and December 31, 2023, respectively. We owned $848.6 million of tax and loss bonds at March 31, 2024 and December 31, 2023.

Shareholder’s equity - The increase in shareholders’ equity primarily relates to net income, partially offset by repurchases of our common stock and dividends paid to shareholders in the three months ended March 31, 2024.

MGIC Investment Corporation - Q1 2024 | 53

Liquidity and Capital Resources

Consolidated Cash Flow Analysis

We have three primary types of cash flows: (1) operating cash flows, which consist mainly of cash generated by our insurance operations and income earned on our investment portfolio, less amounts paid for claims, interest expense and operating expenses, (2) investing cash flows related to the purchase, sale and maturity of investments and purchases of property and equipment and (3) financing cash flows generally from activities that impact our capital structure, such as changes in debt and shares outstanding, and dividend payments. The following table summarizes our consolidated cash flows from operating, investing and financing activities:


Summary of consolidated cash flows
	Three Months Ended March 31,
(In thousands)	2024		2023
Total cash provided by (used in):
Operating activities	$	190,537	$	212,286
Investing activities	25,969		(65,181)
Financing activities	(147,582)		(113,446)
Increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents	$	68,924	$	33,659

Net cash provided by operating activities for the three months ended March 31, 2024 decreased when compared with the same period of 2023 primarily due to an increase in underwriting and operating expenses paid.

We also have purchase obligations totaling approximately $14.2 million which consist primarily of contracts related to our continued investment in our information technology infrastructure in the normal course of business. The majority of these obligations are under contracts that give us cancellation rights with notice. In the next twelve months we anticipate we will pay approximately $6.9 million for our purchase obligations.

Future contributions to our qualified pension plan are impacted by the net funded status (the market value of our plan assets compared to the projected benefit obligation).

Net cash provided by investing activities for the three months ended March 31, 2024 primarily reflects sales and maturities of fixed income securities that exceeded purchases of fixed income securities during the period. Net cash used in investing activities for the three months ended March 31, 2023 primarily reflects purchases of fixed income securities during the period that exceeded sales and maturities of fixed income securities during the period as cash from operations was available for additional investment.

Net cash used in financing activities for the three months ended March 31, 2024 and 2023, primarily reflects repurchases of our common stock, dividends to shareholders and the payment of withholding taxes related to share-based compensation net share settlement.

Capitalization

Debt - holding company

As of March 31, 2024, our holding company’s debt obligations were $650 million in aggregate principal amount consisting of our 5.25% Notes due in 2028. See Note 7 – “Debt” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information about the terms of our indebtedness.

Liquidity analysis - holding company

As of March 31, 2024 and December 31, 2023, we had approximately $793.0 million and $918 million, respectively, in cash and investments at our holding company. These resources are maintained primarily to service our debt interest expense, pay debt maturities, repurchase shares, pay dividends to shareholders, and to settle intercompany obligations. While these assets are held, we generate investment income that serves to offset a portion of our cash requirements. The payment of dividends from MGIC are the principal source of holding company cash inflow and their payment is restricted by insurance regulation. See Note 14 - “Statutory Information” to our consolidated financial statement for additional information about MGIC’s dividend restrictions. The payment of dividends from MGIC is also influenced by our view of the appropriate level of excess PMIERs Available Assets to maintain, which can change over time. Raising capital in the public markets is another potential source of holding company liquidity. The ability to raise capital in the public markets is subject to prevailing market conditions, investor demand for the securities to be issued, and our deemed creditworthiness.

Over the next twelve months the principal demand on our holding company resources will be interest payments on our 5.25% Notes approximating $34.0 million and dividends to shareholders. We believe our holding company has sufficient sources of liquidity to meet its payment obligations for the foreseeable future.

MGIC Investment Corporation - Q1 2024 | 54

In the three months ended March 31, 2024, we repurchased 4.7 million shares of our common stock using $93.3 million of holding company cash. As of March 31, 2024 we had remaining authorization to repurchase $170.0 million of our common stock through July 1, 2025 under a share repurchase program approved by our Board of Directors in April 2023. Through April 2024, we repurchased an additional 2.7 million shares totaling $54.8 million under the remaining authorization. Also in April of 2024, our Board of Directors approved a share repurchase program, authorizing us to repurchase up to $750 million of common stock prior to December 31, 2026.

In the three months ended March 31, 2024, we paid $31.7 million in dividends to shareholders. On April 25, the Board of Directors declared a quarterly cash dividend to the holders of the company’s common stock of $0.115 per share to shareholders of record on May 9, 2024.

We may also use holding company cash to repurchase additional shares, however, our repurchases are subject to variation based on a variety of factors including our capital and liquidity position and the share price of our common stock. Such repurchases may be material, may be made for cash (funded by debt) and/or exchanges for other securities, and may be made in open market purchases (including through 10b5-1 plans), privately negotiated acquisitions or other transactions. See "Overview-Capital" of this MD&A for a discussion of our share repurchase programs.

Significant cash and investments inflows at our holding company during the three months ended March 31, 2024:

•$8.0 million of investment income.

Significant cash outflows at our holding company during the three months ended March 31, 2024:

•$95.2 million of net share repurchase transactions,

•$33.3 million of cash dividends paid to shareholders, and

•$17.1 million of interest payments on our outstanding debt obligations.

The net unrealized losses on our holding company investment portfolio were approximately $1.2 million at March 31, 2024, and the portfolio had an effective duration of approximately 1.4 years.

MGIC did not pay dividends to our holding company in the three months ended March 31, 2024. Future dividend payments from MGIC to the holding company will be determined in consultation with the board, and after considering any updated estimates about our business. We ask the Wisconsin OCI not to object before MGIC pays dividends to the holding company. In April 2024, MGIC paid a $350 million dividend to our holding company.

Debt at subsidiaries

MGIC did not have any outstanding debt obligations at March 31, 2024. MGIC is a member of the FHLB, which provides MGIC access to an additional source of liquidity via a secured lending facility. We may borrow from the FHLB at any time.

Capital Adequacy

PMIERs

As of March 31, 2024, MGIC’s Available Assets under the PMIERs totaled approximately $5.9 billion, an excess of approximately $2.5 billion over its Minimum Required Assets; and MGIC is in compliance with the requirements of the PMIERs and eligible to insure loans delivered to or purchased by the GSEs. Our reinsurance transactions provided an aggregate of approximately $2.2 billion of capital credit under the PMIERs as of March 31, 2024. Refer to Note 4 - “Reinsurance” to our consolidated financial statements for additional information on our reinsurance transactions.

The table below presents the PMIERS capital credit for our reinsurance transactions.


PMIERs - Reinsurance Credit

(In millions)	March 31, 2024		December 31, 2023
QSR Transactions	$	1,093	$	1,081
Home Re Transactions	851		921
Traditional XOL Transactions	230		230
Total capital credit for Reinsurance Transactions	$	2,174	$	2,232

The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. Refer to “Overview - Capital - GSEs” of this MD&A and our risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility” for further discussion of PMIERs.

MGIC Investment Corporation - Q1 2024 | 55

Risk-to-capital

We compute our risk-to-capital ratio on a separate company statutory basis, as well as on a combined insurance operations basis. The risk-to-capital ratio is our net RIF divided by our policyholders’ position. Our net RIF includes both primary and pool risk in force, net of reinsurance and excludes risk on policies that are currently in default and for which case loss reserves have been established and the risk covered by reinsurance. The risk amount includes pools of loans with contractual aggregate loss limits and without these limits. MGIC’s policyholders’ position consists primarily of statutory policyholders’ surplus (which increases as a result of statutory net income and decreases as a result of statutory net loss and dividends paid), plus the statutory contingency loss reserve. The statutory contingency loss reserve is reported as a liability on the statutory balance sheet. A mortgage insurance company is required to make annual additions to a contingency loss reserve of approximately 50% of earned premiums. These contributions must generally be maintained for a period of ten years. However, with regulatory approval a mortgage insurance company may make early withdrawals from the contingency loss reserve when incurred losses exceed 35% of earned premiums in a calendar year.

The table below presents our risk-to-capital calculation:


Risk-to-capital - MGIC
(In millions, except ratio)	March 31, 2024		December 31, 2023
RIF - net (1)	$	58,521	$	58,832
Statutory policyholders’ surplus	708		636
Statutory contingency loss reserve	5,266		5,131
Statutory policyholders’ position	$	5,974	$	5,767
Risk-to-capital	9.8:1		10.2:1

(1)RIF – net, as shown in the table above is net of reinsurance and exposure on policies currently delinquent ($1.5 billion at March 31, 2024 and $1.6 billion at December 31, 2023) for which loss reserves have been established.

For additional information regarding regulatory capital see Note 14 – “Statutory Information” to our consolidated financial statements as well as our Risk Factor titled “State Capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis.”

Financial Strength Ratings

MGIC financial strength ratings

Rating Agency

Rating

Outlook

Moody’s Investor Services

Positive

Standard and Poor’s Rating Services

A-

Stable

A.M. Best

A-

Positive

MAC financial strength ratings

Rating Agency

Rating

Outlook

A.M. Best

A-

Positive

For further information about the importance of MGIC’s ratings, see our Risk Factor titled “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.”

MGIC Investment Corporation - Q1 2024 | 56

Forward Looking Statements and Risk Factors

General: Our business, results of operations, and financial condition could be affected by the Risk Factors referred to under “Location of Risk Factors” below. These Risk Factors are an integral part of Management’s Discussion and Analysis.

These 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. Among others, statements that include words such as we “believe,” “anticipate” or “expect,” or words of similar import, are forward looking statements. These Risk Factors speak only as of the date of this filing and are subject to change without notice as the Company cannot predict all risks relating to this evolving set of events. We are not undertaking any obligation to update any forward looking statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.

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.

Location of Risk Factors: The Risk Factors are in Item 1 A of our Annual Report on Form 10-K for the year ended December 31, 2023, as supplemented by Part II, Item 1 A of this Quarterly Report on Form 10-Q. The Risk Factors in the 10-K, as supplemented by this 10‑Q and through updating of various statistical and other information, are reproduced in Exhibit 99 to this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our investment portfolio is essentially a fixed income portfolio and is exposed to market risk. Important drivers of the market risk are credit spread risk and interest rate risk.

Credit spread risk is the risk that we will incur a loss due to adverse changes in credit spreads. Credit spread is the additional yield on fixed income securities above the risk-free rate (typically referenced as the yield on U.S. Treasury securities) that market participants require to compensate them for assuming credit, liquidity and/or prepayment risks.

We manage credit risk via our investment policy guidelines which primarily place our investments in investment grade securities and limit the amount of our credit exposure to any one issue, issuer and type of instrument. Guideline and investment portfolio detail is available in "Business – Section E, Investment Portfolio" in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2023.

Interest rate risk is the risk that we will incur a loss due to adverse changes in interest rates relative to the characteristics of our interest bearing assets.

One of the measures used to quantify this exposure is modified duration. Modified duration measures the price sensitivity of the assets to the changes in spreads. At March 31, 2024, the effective duration of our fixed income investment portfolio was 3.7 years, which means that an instantaneous parallel shift in the yield curve of 100 basis points would result in a change of 3.7% in the fair value of our fixed income portfolio. For an upward shift in the yield curve, the fair value of our portfolio would decrease and for a downward shift in the yield curve, the fair value would increase. See Note 7 – “Investments” to our consolidated financial statements for additional disclosure surrounding our investment portfolio.

Item 4. Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer concluded that such controls and procedures were effective as of the end of such period. There was no change in our internal control over financial reporting that occurred during the first quarter of 2024 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

MGIC Investment Corporation - Q1 2024 | 57

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Certain legal proceedings arising in the ordinary course of business may be filed or pending against us from time to time. For information about such legal proceedings, you should review Note 5 - “Litigation and Contingencies” to our consolidated financial statements and our Risk Factor titled “We are subject to the risk of legal proceedings” in Exhibit 99.

Item 1 A. Risk Factors

As of March 31, 2024, there have been no material changes in our Risk Factors from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The risk factors in the 10-K, as supplemented by this 10-Q and through updating of various statistical and other information, are reproduced in their entirety in Exhibit 99 to this Quarterly Report on Form 10‑Q.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides information about purchases of MGIC Investment Corporation common stock by us during the three months ended March 31, 2024.


Share repurchases
Period Beginning	Period Ending	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the programs (1)
January 1, 2024	January 31, 2024	1,943,002	$	19.47	1,943,002	$	225,504,313
February 1, 2024	February 29, 2024	1,606,744	19.36		1,606,744	194,395,551
March 1, 2024	March 31, 2024	1,178,690	20.70		1,178,690	$	169,991,173
		4,728,436	$	19.74	4,728,436

(1)In April 2023, our Board of Directors authorized a share repurchase program under which as of March 31, 2024, we may repurchase up to an additional $170 million of our common stock through July 1, 2025. Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time. In April of 2024, our Board of Directors approved an additional share repurchase program, authorizing us to repurchase up to $750 million of common stock prior to December 31, 2026.

Item 5. Other Information

During the three months ended March 31, 2024, none of our officers or directors adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

MGIC Investment Corporation - Q1 2024 | 58

Item 6. Exhibits

The accompanying Index to Exhibits is incorporated by reference in answer to this portion of this Item, and except as otherwise indicated in the next sentence, the Exhibits listed in such Index are filed as part of this Form 10-Q. Exhibit 32 is not filed as part of this Form 10-Q but accompanies this Form 10-Q.

(Part II, Item 6)

Index to exhibits

Exhibit Number

Description of Exhibit

Form

Exhibit(s)

Filing Date

31.1

Certification of CEO under Section 302 of Sarbanes-Oxley Act of 2002 †

31.2

Certification of CFO under Section 302 of Sarbanes-Oxley Act of 2002 †

Certification of CEO and CFO under Section 906 of Sarbanes-Oxley Act of 2002 (as indicated in Item 6 of Part II, this Exhibit is not being “filed”) ††

Risk Factors included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, as supplemented by Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 and through updating of various statistical and other information †

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Denotes a management contract or compensatory plan.

† Filed herewith.

†† Furnished herewith.

MGIC Investment Corporation - Q1 2024 | 59

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on May 1, 2024.


			MGIC INVESTMENT CORPORATION

			/s/ Nathaniel H. Colson
			Nathaniel H. Colson
			Executive Vice President, Chief Financial Officer and
			Chief Risk Officer

			/s/ Julie K. Sperber
			Julie K. Sperber
			Vice President, Controller and Chief Accounting Officer

MGIC Investment Corporation - Q1 2024 | 60

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SEC Form 10-Q filed by MGIC Investment Corporation

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Date	Price Target	Rating	Analyst
2/5/2025	$24.00 → $27.00	Buy → Neutral	Compass Point
12/10/2024	$29.00 → $29.00	Outperform → Mkt Perform	Keefe Bruyette
12/9/2024	$25.00	Buy → Underperform	BofA Securities
6/3/2024	$24.00 → $25.00	Mkt Perform → Outperform	Keefe Bruyette
4/4/2024	$23.50 → $24.00	Outperform → Mkt Perform	Keefe Bruyette
12/6/2023	$18.50	Neutral	UBS
11/15/2023	$19.00	Equal Weight	Barclays
7/6/2023	$17.00 → $15.70	Outperform → Sector Perform	RBC Capital Mkts

SEC Form 10-Q filed by MGIC Investment Corporation

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Director Thompson Michael Leal was granted 0 shares, increasing direct ownership by 0.00% to 18,501 units (SEC Form 4)

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