MGIC Investment Corporation (MTG)

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MGIC Investment (MTG)

Q4 2012 Earnings Call

February 28, 2013 10:00 am ET

Executives

Michael J. Zimmerman - Senior Vice President of Investor Relations

Curt S. Culver - Executive Chairman, Chief Executive Officer, Chairman of Executive Committee, Chairman of MGIC and Chief Executive Officer of MGIC

Lawrence J. Pierzchalski - Executive Vice President of Risk Management - Mortgage Garuanty Insurance Corporation

J. Michael Lauer - Chief Financial Officer, Executive Vice President, Chief Financial Officer of Mortgage Guaranty Insurance Corporation and Executive Vice President of Mortgage Guaranty Insurance Corporation

Analysts

Geoffrey M. Dunn - Dowling & Partners Securities, LLC

Randy Raisman

Scott Frost - BofA Merrill Lynch, Research Division

Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division

Douglas Harter - Crédit Suisse AG, Research Division

Matthew Howlett - UBS Investment Bank, Research Division

Jordan Hymowitz

Jasper Burch - Macquarie Research

Craig William Perry - Sabretooth Capital Management, LLC

Jack Micenko - Susquehanna Financial Group, LLLP, Research Division

Shawn Faurot

Presentation

Operator

Good day, ladies and gentlemen and welcome to the MGIC Investment Corporation Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, this program is being recorded. I would now like to introduce your host for today's program, Mr. Mike Zimmerman, Senior Vice President, Investor Relations for MGIC. Sir, you may begin.

Michael J. Zimmerman

Thanks, Jonathan. Good morning, and thank you for joining us this morning and for your interest in MGIC Investment Corporation. Joining me on the call today to discuss the results for the fourth quarter of 2012 are Chairman and CEO, Curt Culver; Executive Vice President and CFO, Mike Lauer; and Executive Vice President of Risk Management, Larry Pierzchalski.

I want to remind all participants that our earnings release of this morning, which may be accessed on our website, which is located at mtg.mgic.com, under Investor Information, includes additional information about the company's quarterly results that we will refer to during the call and includes certain non-GAAP financial measures.

As we have indicated in this morning's press release, we have posted on our website the supplemental information containing characteristics of our primary risk in force, new insurance written and a summary of excess claims-paying resources, which we think you will find valuable.

During the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about those factors that could cause actual results to differ materially from those discussed on the call are contained in the Form 8-K that was filed earlier this morning. If the company makes any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. Further, no interested party should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of the Form 8-K. With that, let me turn the call over to Curt.

Curt S. Culver

Thanks, Mike, and good morning. As reported in the press release we issued this morning, the net loss for the fourth quarter was USD 386.7 million or USD 1.91 a share, and the net loss for the full year was USD 4.59 per share. Included in the quarterly results is a onetime charge of USD 267.5 million that relates to the previously disclosed Freddie Mac settlement. Additionally, we established a USD 100 million reserve to reflect probable settlements of 2 rescission disputes, one with Countrywide and the other was another lender. While we do not have agreements with Countrywide or this lender, we believe these settlements are probable. So while these charges adversely affected our reported results for the quarter, I'm pleased that we have settled our Freddie Mac dispute and that we have made substantial progress towards resolving the Countrywide dispute. In tandem with these efforts, we are continuing to execute our strategy of writing new business through a combination of MGIC and, as needed, MIC. We continue to be an eligible insurer of both Fannie Mae and Freddie Mac and are pleased to be in a position to be able to continue to provide borrowers with a more affordable insurance option for higher-quality loans than they could find with the FHA.

In the fourth quarter, which is typically a slower period for new writings, new insurance written was USD 7 billion, up 67% from the same period last year and flat to last quarter. More recently, in January we wrote USD 2.4 billion of new insurance and February, after considering the number of working days, appears to be tracking close to January's level. The new business written since mid-2008 now accounts for approximately 33% of our risk in force. And as I have discussed on past calls, this new business augments our existing claims paying ability as each USD 20 billion of insurance we write is expected to add approximately USD 400 million of premiums in excess of losses over the estimated life of the book.

An additional USD 3.5 billion of HARP-refinanced transactions were completed during the quarter, bringing the total to USD 11.2 billion for the year and USD 18 billion since the inception of the program. All in, approximately 11% of our primary insurance in force has benefited from HARP or similar refinance programs, and more than 98% of them are current. Additionally, approximately 11% of the insurance in force has been modified through HAMP or other loan modification programs. Our industry continues to regain market share from the FHA. We estimate the private mortgage insurance industry's market share at approximately 10% in the fourth quarter, up from approximately 6% a year ago. Within our industry, MGIC's reported market share was approximately 18% for the full year and 17% for the fourth quarter. We estimate that approximately 75% of the private mortgage insurance market is comprised of the more profitable monthly premium plans and, within that segment, we estimate our market share to be 21% in the fourth quarter.

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