MGIC Investment Corporation (MTG)

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MGIC Investment Corp. (MTG)

Q2 2008 Earnings Call

July 17, 2008 10:00 am ET


Mike Zimmerman - IR

Curt Culver - Chairman and CEO

Larry Pierzchalski - EVP of Risk Management


Dave Katz - JPMorgan

Donna Halverstadt - Goldman Sachs

David Hoxton - Buckingham Research

Howard Shapiro - Fox-Pitt

Eric Wasserstrom - UBS

John Ferro - Deutsche Bank

James Gilligan - Equity Group

David Steadman - Winetrub Capital

Otis Nath - KBW

Dan Johnson - Citadel

Mike Grasher - Piper Jaffray

Jim Delisle - Cambridge Place Investments

Al Copersino - Madoff Investments

Bruce Harting - Lehman Brothers

Amanda Lyman - Goldman Sachs

Jeffery Dunn - Dowing & Partners



Good day, ladies and gentlemen, and welcome to the MGIC Investment Corporation Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (Operator instructions). As a reminder this conference call is been recorded. I would now like to introduce to your host for today's conference, Mr. Mike Zimmerman. Mr. Zimmerman, you may 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 to discuss the second quarter of 2008 results 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 MGIC's website which is located at 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, supplemental information containing characteristics of our primary risk in force, loans and new insurance written as well of their 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 on the call are contained in the quarterly earnings release. 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 investor 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 now I would like to introduce Curt.

Curt Culver

Thanks, Mike and good morning. For the quarter, we reported a net loss of $97.9 million with a diluted loss per share of $0.79. During the quarter we insured $14 billion of new business down 27% from last quarter, $13.4 billion of the business was flow with $600 million of bulk and like last quarter the bulk business was a large transaction of GSE eligible business that was insured on the back end basis by a large lender. For the first half of the year, flow business was up 14% versus last year while bulk is down 60% from last year. Persistency improved during the quarter to 79.7% with flow at 80.7% and bulk at 75.9% versus 74% and 72.5% respectively last quarter. The quarterly persistency run-rate for the combined portfolio was 83.8% which was up from 82% last quarter and 75% a year ago of that flow was 84% and bulk was 81.8%. As a result of the strength of the persistency growth in our flow business insurance in force grew to $226.4 billion which is up 22% from a year ago. Our flow insurance in force is up 30% from last to our bulk insurance in forces down 10%.

The average premium yield on insurance portfolio fell slightly to 62.6 basis points as compared to 63.8 basis points last quarter, the decline reflects the continued movement of our portfolio to launch with lower LTV's, improved FICOs and full documentation. The details of this business mix improvement are contained within the supplement to the earnings release. Losses incurred in the quarter were $688 million, down slightly from last quarter and up from $235 million a year ago; claims paid in the quarter was $385 million up slightly from $371 million last quarter and through the first half of the year, totaled $756 million.

While we will stick to our year end claims paid guidance of $1.8 billion to $2 billion, it now looks like we will be at the lower end of the range. The reality is that the change has been slowed due to the various state and lender foreclosure moratoriums, servicing delays, fraud investigations, mitigation opportunities and a lack of capacity of our court system.

The delinquency inventory increased in the quarter by 14,641 cases to 128,231 the quarterly increase is somewhat overstated however as 4400 new cases or 30% in the quarter were due to a reporting change by one large servicer who changed their reporting methodology and were already reflected in our reserves.

During the quarter we made further changes to improve our operating flexibility and underwriting profitability, including amending the revolving credit facility, making additional underwriting changes, increasing premiums on all our products and entering a reinsurance contract with the HCC which provides us with loss protection on new books of business as well as a $150 million to $200 million annually of Credit Agency stress capital. Our discussions with the GSEs relative to our remediation plans have been positive with Freddie Mac announcing their approval of our plan while Fannie has not yet completed their review. Competitively, we continue to be in a strong market share position with a share of $23.6% in May, and as an industry while we are losing share to FHA, I would add that I believe a large majority of the business we are losing reflects significant changes we have made in our underwriting guidelines to return to profitability.

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