MGIC Investment Corporation (MTG)

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MGIC Investment Corporation (MTG)

Q3 2012 Earnings Call

November 9, 2012 10:00 AM ET


Mike Zimmerman – SVP, IR

Curt Culver – Chairman and CEO

Mike Lauer – EVP and CFO

Larry Pierzchalski – EVP, Risk Management


Jasper Burch – Macquarie

Douglas Harter – Credit Suisse

Randy Raseman – Marathon

Craig Perry – Planning Capital

Shawn Faurot – Deutsche Bank

David Epsteen – VRT

John Benda – Susquehanna

Stewart Ink – Bernard Road

Dan Vasquez – RBS

Scott Frost – Merrill Lynch



Good day, ladies and gentlemen. Welcome to MGIC Investment Corporation Third 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. Please go ahead, sir.

Mike Zimmerman

Great. Thanks, Jonathan. Good morning. 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 third quarter of 2012 our 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 will include certain non-GAAP financial measures. As we indicated in this morning’s press release, we have posted on our website the supplemental information containing characteristics of our primary risk in force and new insurance written, 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 on the call are contained in the Form 10-Q 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 events. Further no interest or 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 10-Q.

With that, let me turn the call over to Curt.

Curt Culver

Thanks, Mike. Good morning. As reflected by the net loss for the third quarter of $246.9 million or $1.22 a share, the elevated level of new deli quint notices we receive, although trending lower on a year-over-year basis and as a percentage of the performing in-force book of business, as well as the slow improvement in the cure rate continue to pressure our company’s capital position and financial results.

And while the quality of the new business remains outstanding and our industry continues to grow its share of new business, the lack of a meaningful economic recovery has caused the overall purchase origination market to be depressed, and thus limits our new business writings and the resulting premiums written.

I know most of you are anxious to hear about our discussions with Freddie Mac, so let me provide an overview of where things stand. As we disclosed in our 10-Q that was filed this morning, MGIC and Freddie Mac have agreed on all terms and language of the definitive settlement agreement with a possible exception of some minor drafting issues. The agreement is subject to approval by the boards of directors of MGIC, Freddie Mac and FHFA. MGIC is to pay Freddie Mac $265.5 million in settlement of any further obligations of MGCI under the policies in dispute. $100 million is to be paid upon effectiveness of the settlement and $167.5 million over the next four years.

However we are unwilling to sign the agreement unless MIC is approved by Freddie Mac and Fannie Mae to write business and jurisdictions where Magic cannot write due to a failure to meet the capital requirements and for a period in which all parties agree. Also any definitive settlement agreements would only be signed concurrently with the satisfaction of the condition in the September Freddie Mac letter that Freddie Mac and the OCI agree Magic having access to mix capital as needed to pay claims.

If it a definitive settlement agreement is signed we are willing to contribute $100 million to Magic from our holding company. As a result we have not made any loss provision for a settlement and we are unable to predict whether it will go into effect. As a reminder, Fannie Mae’s approval of MIC, which expires at the end of 2013 previously approved MIC to write in all states that have capital requirements in which Magic does not have a waiver. So the bottom line is that Magic Freddie Mac and MIC are eligible insurers for both Fannie Mae and Freddie Mac.

As of September 30 the combined insurance companies’ preliminary risk to capital ratio was 34.1 to one while Magic on a standalone basis was 31.5 to one and MIC’s preliminary risk to capital ratio was 0.3 to one. The increase in Magic’s risk to capital above the 25:1 threshold was expected by us and by our regulators and is exactly why we established in 2009 our plan to utilized MIC which allows Magic to manage through the risk to capital issues it currently faces.

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