MGIC Investment Corporation (MTG) Earnings & Analysis

Latest quarter

MGIC reported third-quarter revenue of $299.1 million, down from $304.5 million a year earlier, while diluted earnings per share rose to $0.85 from $0.83. The company’s filing attributed the increase in per-share earnings primarily to fewer diluted shares outstanding, partly offset by lower net income.

The filing said net income fell mainly because losses incurred rose and net premiums earned declined, partly offset by lower underwriting and other expenses. It attributed the premium decline primarily to higher premiums ceded to reinsurers. The increase in current-year losses reflected more new delinquencies and higher estimated severity on those delinquencies.

MGIC reported new insurance written of $17.1 billion in the quarter, compared with $16.5 billion a year earlier. Its operating margin was 77.0%, compared with 80.1% a year earlier, while gross margin was 77.4%, compared with 80.7%. Free cash flow was $216.3 million, compared with $215.1 million in the prior-year quarter.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Tim Mattke said market conditions had constrained growth in insurance in force in recent years. MGIC wrote $17 billion of new insurance in the third quarter, and insurance in force ended the quarter at $307 billion, he said. Annual persistency, a measure of insurance retained, was 83%, flat with the prior quarter.

CFO Nathan Colson said the in-force premium yield was 38 basis points, down less than half a basis point from a year earlier. He expects it to follow a similar path to the past couple of years, reflecting expectations for consistent persistency and continued challenges to mortgage insurance origination growth. Investment income was $61 million in the quarter; Colson said capital returns had limited growth in the investment portfolio and its income.

On credit, Colson said the loss ratio was 10%, benefiting from $34 million of favorable reserve development as MGIC revised its estimates for prior delinquencies. He attributed that development primarily to more delinquent borrowers curing their loans than expected. The count-based delinquency rate ended the quarter at 2.52%, up from both the prior quarter and a year earlier.

Asked about credit trends, Colson said newer vintages accounted for a growing share of the book. He expects a slow rise in the delinquency rate, although he said those newer vintages were performing somewhat better than expected. MGIC continued to apply a 7.5% initial claim-rate assumption to new third-quarter delinquency notices.

Mattke said an executive order includes provisions for the Federal Housing Finance Agency to explore a mortgage insurance cancellation pilot. Asked how cancellations work today, Colson described eligibility requirements and the servicer’s role in processing borrower requests. The filing said the timing, scope and operating procedures of any resulting program remain uncertain.

Colson also said MGIC had agreed to quota-share reinsurance terms covering eligible new insurance written in 2028 and 2029. He said amendments to agreements covering 2023 business would reduce their ongoing cost by approximately 35% beginning in 2027.

Guidance

In July, MGIC expected full-year 2026 operating expenses toward the low end of its $190 million to $200 million range. CFO Nathan Colson now expects full-year operating expenses to be slightly below the low end of that previously shared range.