MGIC Investment Corporation (MTG)

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MGIC Investment Corporation (MTG)

Q4 2009 Earnings Call

January 26, 2010 10:00 am ET

Executives

Mike Zimmerman – SVP, IR

Curt Culver – Chairman and CEO

Mike Lauer – EVP and CFO

Larry Pierzchalski – EVP, Risk Management

Analysts

Donna Halverstadt – Goldman Sachs

Mike Grasher – Piper Jaffray

Steve Stelmach – Friedman, Billings, Ramsey

Alex Pivlong [ph]

Sean Faro [ph]

Matthew Howlett – Macquarie Research Equities

Mike Grondahl – Northland Securities

Nath Otis – Keefe, Bruyette & Woods

Mahmoud Reza [ph]

Sam Martini [ph]

Chris Owens [ph]

Jacob Miller [ph]

Jordan Hammett [ph]

Beth Malone [ph]

Bryan Hyre [ph]

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the fourth quarter earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Mike Zimmerman, Senior Vice President, Investor Relations. Please begin.

Mike Zimmerman

Thank you. Good morning, and thank you for joining us this morning and for your interest in MGIC Investment Corporation. Joining me on the call today for to discuss the results for the fourth quarter of 2009, our Chairman and CEO, Curt Culver; Executive Vice President and CFO, Mike Lauer; and, Executive Vice President – Risk Management, Larry Pierzchalski.

I want to remind all participants that our earnings release of this morning, which can be accessed on MGIC’s Web site, 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 Web site supplemental information containing characteristics of our primary risk-in-force and new insurance risks as well as other information 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 in the call are contained in the quarterly earnings release.

The company may state forward-looking statements, but are not undertaking obligations 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 press release. And with that, I'd like turn over the call to Curt.

Curt Culver

Thanks, Mike, and good morning. In the fourth quarter, we reported net losses of $280.1 million with a diluted loss per share of $2.25. New insurance written in the quarter totaled $3 billion. Market share totaled 26.3% during November as December numbers are not yet available.

Persistency was down slightly in the quarter to 84.7% from 85.2% last quarter. And with the lower volumes of new insurance written and the slight drop in persistency, insurance in force fell to $212 billion from $217 billion last quarter and $227 billion a year ago.

The average premium yield was 57 basis points, compared to 53.7 basis points last quarter. Underwriting expenses totaled $56.2 million in the quarter versus $59 million last quarter and $63.7 million a year ago. Cash and investments at year-end totaled $8.4 billion.

Paid claims in the quarter were $515 million, compared to $417 million last quarter and $310 million a year ago. The average claim paid was $52,600, down slightly from $53,000 in the third quarter. For the year, we paid $1.7 billion, compared to $1.4 billion in 2008.

In the fourth quarter, losses incurred were $881 million, compared to $971 million last quarter, with the loss reserve now totaling $6.7 billion. The delinquency notice inventory totaled $250,448 year-end, up from $235,610 last quarter and $182,188 a year ago.

Total primary and full loss mitigation savings for the quarter was $506 million, of which $366 million were in rescission/denials, down slightly from the third quarter total of $530 million, of which $390 million were in rescissions or denials. Total loss mitigation savings for 2009 was $1.7 billion, compared to $621 million in 2008. The breakdown on the $1.7 billion mitigated this year was $1.2 billion in rescission or denials, $400 million in loan modifications, and $100 million in pre-sales.

Loan modifications, including HAMP modifications totaled $120 million in the fourth quarter, compared to $105 million in the third. The increase in modifications in the fourth quarter was due to a significant increase in HAMP modifications, which totaled $63 million versus $30 million last quarter.

Regarding HAMP, we have approximately 35,000 loans that have started the HAMP trial periods since April, of which 25,000 have cured. To date, we a have 25% cure rate than trial loans from April, May, and June. Ten percent of those loans have re-defaulted. Approximately 30,000 of the 35,000 loans in the trial period are in our delinquency inventory at year-end. So if this program gains more traction, it will have a positive impact on our financials.

Looking at next year, we are tracking origination market to be down approximating $1.5 trillion versus $1.9 trillion this – in 2009, and our market share to be down somewhat reflecting a new entrant in our business as well as a loss of business from customers who have gone out of business or where we have differences of opinion relative to business matters.

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