MGIC Investment Corporation (MTG) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the MGIC Investment Corporation Second Quarter 2026 Earnings Call. [Operator Instructions] I will now turn the conference over to Dianna Higgins, Head of Investor Relations. Please go ahead.

Thank you, Ari. Good morning, and welcome, everyone. Thank you for your interest in MGIC. Joining me on the call today to discuss our results for the second quarter are Tim Mattke, Chief Executive Officer; and Nathan Colson, Chief Financial Officer. Our press release, which contains MGIC's second quarter financial results, was issued yesterday and is available on our website at mtg.mgic.com under Newsroom. It includes additional information about our quarterly results that we will refer to during the call today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk in force and other information you may find valuable. As a reminder, from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website. Before getting started today, I want to remind everyone that 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. Our 8-K and 10-Q filed yesterday includes additional information about the factors that could cause actual results to differ materially from those discussed on the call today. If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. No one 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 our 8-K or 10-Q. With that, I now have the pleasure to turn the call over to Tim.

Thanks, Dianna, and good morning, everyone. Our deep industry expertise, strong balance sheet, and unwavering focus on our customers continue to drive long-term value creation. Our results reflect the strength of our business model and our disciplined execution across the business. In the second quarter, we generated net income of $182 million, delivering an annualized return on equity of 14.5%. Our consistent execution, combined with the strength of our balance sheet, drove book value per share to $24.27, an increase of 10% year-over-year. While we also paid $0.60 per share in dividends in the last 12 months. We wrote $18 billion of new insurance in the second quarter, an increase of 8.5% from the second quarter of 2025, and our highest NIW since the third quarter of 2022. We expect the increase is due to a slightly larger mortgage origination market, driven by seasonal growth in the purchase market. Insurance in force ended of the quarter at $305 billion, up slightly in the quarter and up 2.6% from a year ago. At the end of the second quarter, annual persistency was 83%, down slightly from 84% last quarter. Both insurance in force and annual persistency were in line with the expectations we previously shared. We continue to see solid performance across our well-balanced portfolio, supported by strong credit quality and disciplined underwriting practices. Early payment defaults continue to track at low levels, reinforcing our confidence in near-term credit expectations. Our capital structure remains robust, with $6 billion of balance sheet capital and a well-established reinsurance program that continues to be a core component of our risk and capital management strategy. Reinsurance agreements with a panel of highly rated reinsurers reduce loss volatility and stress scenarios, while providing capital diversification and flexibility at attractive costs. During the second quarter, we further enhanced our reinsurance program by executing a traditional excess of loss reinsurance transaction that provides up to $168 million of protection on eligible NIW in 2027. At the end of the second quarter, our reinsurance program reduced our PMIERs required assets by $3.1 billion or approximately 52%. With that, let me turn it over to Nathan to provide more details on our financial results and capital management activities for the quarter.

Thanks, Tim, and good morning. As Tim discussed, we had solid financial results for the second quarter. We earned net income of $0.86 per diluted share compared to $0.81 per diluted share last year. Our reestimation of ultimate losses on prior delinquencies resulted in $43 million of favorable loss reserve development in the quarter. This favorable development primarily reflects better-than-expected cure activity on delinquency notices received in 2025. As a reminder, delinquency notices in any quarter span multiple book year vintages. For new delinquency notices received in the second quarter, we continue to apply our initial claim rate assumption of 7.5%. In the quarter, our count-based delinquency rate decreased 7 basis points, which we expect was driven by seasonal trends. Compared to a year ago, the delinquency rate increased 16 basis points to 2.37%. While we expect seasonality to lead to an increase in delinquencies in the second half of the year, the delinquency trends through the second quarter remain consistent with the credit normalization we have been experiencing for the past 3 years. And the delinquency rate remains 43 basis points below the second quarter of 2019. The in-force premium yield was 38 basis points in the quarter, down a little less than 1 basis point in the past 3 years. With high persistency expected in 2026. And MI origination trends similar to last year, we expect the in-force premium yield to continue on a similar path to the past couple of years. Investment income totaled $59 million in the second quarter, and the book yield on our investment portfolio remains approximately 4%. During the quarter, reinvestment rates on our fixed income portfolio continued to exceed our book yield, but our capital return activities have limited the growth in the investment portfolio and the resulting investment income. Underwriting and other expenses in the quarter were $46 million, down from $52 million in the second quarter last year, as we remain focused on disciplined expense management. We now expect operating expenses for the full year to be toward the low end of the $190 million to $200 million range we previously shared. Our approach to capital management remains unchanged. We prioritize prudent insurance in-force growth over capital return. Market conditions have constrained insurance in-force growth in recent years. And against that backdrop, our capital return activity reflects continued strong mortgage credit performance and our robust financial position. In the second quarter, we paid a common stock dividend of $0.15 per share. We also repurchased 6.6 million shares of stock for $177 million. Over the prior 4 quarters, share repurchases totaled $746 million, and shareholder dividends totaled $135 million. Combined, they represented a 124% payout of the net income earned over the period. The strong financial position of both the holding company and the operating company was a key factor in the Board's decision last week to approve an increase to our quarterly common stock dividend to $0.17 per share. This marks 6 consecutive years of dividend increases, representing a compound annual growth rate of 19% over that period. With that, let me turn it back over to Tim.

Thanks, Nathan. Last month, I assumed the role of Chairman of USMI, our industry's trade association. Through decades of economic cycles, mortgage insurance has consistently demonstrated its value to homeowners, lenders, and the broader housing finance system. Mortgage insurance is at the center of several important policy discussions, and we're committed to ensuring those conversations are informed by data, experience, and a proven track record. I look forward to working with our great team at USMI and being able to represent the industry in those conversations. Turning back to MGIC, our second quarter results demonstrate the benefits of disciplined execution and the strategy we've thoughtfully refined over time. This long-term approach has supported our competitive position, driven strong business performance, and generated meaningful returns for shareholders. Combined with our continued commitment to our customers, we believe we are well positioned to capitalize on opportunities, manage through evolving market conditions and deliver long-term value. With that, Ari, let's take questions.

[Operator Instructions] Our first question comes from the line of Terry Ma of Barclays.

Just want to get your latest thoughts on credit. I think, Nathan, last quarter, you called out a 10 to 15 basis point year-over-year increase in the delinquency rate as consistent with credit normalization. We're certainly in that ballpark the last 2 quarters. So is there any color you can kind of provide on new notices by region or even vintage that can maybe just inform our view of credit going forward?

Terry, it's Nathan. Thanks for the question. It is something that we look at closely, not just quarterly, but really on a monthly basis, what is the mix of new delinquencies? What are we seeing in maybe early payment default trends? What are we seeing across any of the -- certainly any of the single dimension variables, but even multiple dimensions? And as we look at it, other than kind of the continuous roll forward to more recent vintages, which is what you would expect, when we look at it across other key credit variables, we really don't see a lot of difference in the mix, and we're not seeing it geographically. We're not seeing it really correlated to, say, home price changes in various states. So again, something that makes us feel confident that we're looking at a broad-based credit normalization versus kind of real deterioration in any segment or anything that is going to lead to changes that we feel like we need to make.

Got it. And if we think about the cure rate, all the post-COVID vintages, about 90% of new notices cure within 4 quarters. I think, Tim, when I had you on stage at my conference a few years ago, you gave a number pre-pandemic that was lower than 90%. I'm just wondering, like as we track all the data, like everything is kind of tracking toward that 90% mark. Like do you expect normalization like going forward lower than 90% at any given point? Just trying to think about that.

Terry, it's Nathan. I maybe think about it less at a particular point in time in terms of maybe 12 months after delinquency. What we're really focused on is what is the ultimate claim rate going to be on a group of new notices. So when we set our initial expectations at 7.5%, that's looking on a fully developed basis, what percent of those new notices are ultimately going to result in a claim? And the consistent favorable development that we've had as a result of actual claim rates being quite a bit lower than that 7.5% that we're putting up initially. I will say, and we've talked about this over the last couple of calls, too, we're coming off the kind of lowest point for us for the new notice claim rate was the second quarter of 2020, the kind of peak COVID quarter, which ultimate claim rates are less than 1% out of that group. So we're certainly not running at that level anymore. But today, it looks like fully developed notice quarters, maybe from, say, 2 or 3 years ago are more in that 2% to 3% range. And more recent, maybe trending slightly higher than that. So fully developed notice quarters today, we might be thinking 3% to 4% ultimate claim rate. So still quite a bit lower than what we're expecting on new notices. And I think that's because the actual conditions have played out quite favorably over the last 2 or 3 years, although there's been a lot of uncertainty at every point along the way. So I think we still feel quite comfortable with our initial new notice expectations. But if credit conditions remain what they are today, we likely will have additional reserve redundancy that will be released through favorable development in the future.

Our next question comes from the line of Bose George of KBW.

Just first, wanted to just ask about competitive trends in the market. Anything to call out there? And then your gross premium yield, it looks like it ticked down a tiny bit. Is that just noise?

Yes, Bose. I mean both, I mean, from competitive dynamics, again, it's a competitive marketplace, right? With 6 active participants. I wouldn't say anything stands on this quarter. As you said, the -- when we look at sort of the gross premium rate, which is what we really focus on, it did grind down a little bit more this quarter, and that's sort of been the trend over the last couple of years, quite frankly. So not any major changes quarter-to-quarter, but the trend has been slightly downward, not unexpected from our standpoint. So again, nothing that has changed in the sort of competitive marketplace that's caused that. But it has been the general sort of form of direction, but not anything that's sort of steepening or anything in that regard.

Okay. Great. And then actually on reinsurance, you guys did the transaction. Just can you compare the execution in the traditional reinsurance versus the ILN market? Is the benefit here more structural? Or is the pricing better here? Or just can you just contrast the 2?

Yes. Bose, it's Nathan. I think the biggest thing, the XOL that we just did is really -- is covering 2027 in NIW, whereas the ILN market is all on a kind of a warehoused already in-force loan. So we have to spend time to build a pool. I think there's also a lot of fixed costs associated with doing those deals and kind of size requirements that are expected in the market, whereas you can do smaller reinsurance deals. So our intention is to be programmatic in both the excess of loss and ILN markets. But the ILN deals are individually a little bit larger. And since we have to warehouse the risk, just happen at a slightly less frequent cadence. But we've done deals pretty consistently. We've had fill-up periods as short as 5 months in the ILN market and as long as maybe 2 years, just depending on volume. So, it's a market that we want to continue to operate in, but I don't view the excess of loss deal that we did covering our 2027 NIW as indicative of we're not interested in the ILN market. They're just kind of different executions in different parts of our program.

Our next question comes from the line of Mihir Bhatia of Bank of America.

I just wanted to maybe first just start big picture, just given the -- I think you talked a little bit about credit conditions, but just given moving rates, housing, and your view on like the housing fundamentals, maybe talk about industry NIW this year? And related to that, I just wanted to understand the underwriting posture. Are you tightening, loosening anywhere on the margin? Just your thoughts around that.

Yes, No, Mihir, I appreciate the question. I mean I think as far as the market goes, the size has been fairly consistent what we had expected coming into the year, right? Like there's modest home price appreciation out there in certain parts. Purchase again, it was our second largest NIW since 2022, and up from where we were a year ago. So again, you continue to see positive signs in the purchase market. Refi market, obviously, is going to be really stunted by where rates are right now. And so again, I don't think we bank on that changing. But again, for us, that's normally churn in the portfolio as opposed to things that really helps us grow in force. Affordability definitely continues to be stretched, again, with where interest rates are and where home prices are. I think it makes it difficult to see. A large change in sort of people coming to be buyers in this market. I think you can see there probably -- there's some thawing in sort of lock-in effect as far as people willing to sell their homes that have good interest rates. But again, as interest rates remain high generally, that makes it tougher to see that really sort of break loose in any meaningful way. So again, I'm a general believer that sort of the market we felt for this quarter and feels like we've been in for the last year for the most part in the little mini refi waves is sort of what we're in for the foreseeable future. So that doesn't create a lot of growth for us. But as Nathan said, we'd love to grow the in-force portfolio. But really, we want to do that if the overall sort of pie is growing. And if it's not growing, like we're content to return that capital to shareholders if we think that's the right answer.

And then just from a credit perspective, is there any loosening or tightening going on at the margin? Maybe any thoughts around just how a softer home price backdrop could flow through or?