Executive Summary / Key Takeaways

• MGIC Investment (MTG) demonstrates robust financial health and capital generation, significantly exceeding regulatory requirements (PMIERs excess $2.6 billion, risk-to-capital 9.8x) and enabling substantial capital return to shareholders.
• Exceptional credit performance, characterized by low new delinquency notices and higher-than-expected cure rates on prior delinquencies, continues to drive favorable loss reserve development and strong profitability despite a constrained mortgage market.
• The company is executing a disciplined capital management strategy, prioritizing share repurchases ($750 million additional authorization approved in April 2025) and consistent quarterly dividends ($0.13 per share), reflecting confidence in future earnings and a commitment to long-term value creation.
• Operational efficiency initiatives and strategic investments in IT infrastructure are contributing to lower operating expenses, enhancing profitability in a competitive environment.
• While market growth is expected to remain modest in 2025, MTG's strong balance sheet, effective risk management, and strategic reinsurance program position it well to navigate potential economic uncertainties and maintain solid financial results.

A Foundation of Resilience: Navigating the Mortgage Landscape

MGIC Investment Corporation, through its principal subsidiary Mortgage Guaranty Insurance Corporation (MGIC), stands as a prominent player in the U.S. private mortgage insurance (PMI) market. For over six decades, the company has provided essential credit protection to lenders and government-sponsored entities (GSEs) on low down payment residential mortgages, facilitating homeownership while shielding taxpayers from undue risk. This core mission has evolved, with subsidiaries like MAC and MIC now participating in GSE credit risk transfer (CRT) programs, though the focus remains firmly on primary mortgage insurance, having written no new pool insurance since 2008.

The company operates within a dynamic and highly competitive landscape. Direct rivals such as Essent Group (ESNT), Radian Group (RDN), Genworth Financial (GNW), and Enact Holdings (ACT) vie for market share, alongside indirect competition from government programs like FHA/VA loans and increasingly agile fintech lenders. This environment necessitates a disciplined approach to risk selection, pricing, and operational efficiency. While the industry has seen premium rates decline over recent years due to competitive pressures, MTG leverages its broad customer base and risk-based pricing capabilities to capture business at what it deems attractive returns.

MTG's overarching strategy is anchored in maintaining financial strength and flexibility across varying economic cycles. This is achieved through stringent underwriting standards, proactive risk management, and a sophisticated capital management framework. A key component of this framework is a robust reinsurance program, utilizing both quota share and excess-of-loss structures. This program is strategically designed to reduce volatility, diversify capital sources, and significantly lower PMIERs required assets, providing a substantial competitive advantage. Recent actions, including a multiyear 40% quota share for 2025-2026 NIW and a seasoned excess-of-loss transaction for 2020 NIW, underscore the dynamic nature of this strategy, prioritizing coverage on recent and future business while potentially recapturing seasoned risk.

Underpinning these strategic pillars is an ongoing focus on operational efficiency, supported by investments in information technology infrastructure. While specific details on proprietary technology names or quantifiable performance metrics versus competitors appear limited, management highlights that investments made in IT systems over recent years are now yielding benefits, contributing to lower run-rate external costs and enhancing overall operational effectiveness. This focus on efficiency is critical in maintaining a competitive cost structure within the industry.

The current market environment presents both opportunities and challenges. Demographic tailwinds, particularly from the millennial generation, continue to fuel demand for homeownership. However, this demand is tempered by housing affordability challenges stemming from elevated mortgage rates and limited housing inventory. Despite these headwinds constraining overall market growth, MTG's focus on disciplined execution has allowed it to maintain a strong position.

Performance Reflecting Discipline and Favorable Trends

MTG's recent financial performance underscores the effectiveness of its strategy, particularly its strong credit risk management. For the first quarter of 2025, the company reported net income of $185.5 million, or $0.75 per diluted share, an increase from $174.1 million, or $0.64 per diluted share, in the prior year period. This improvement was primarily driven by changes in investment gains/losses and a decrease in other underwriting and operating expenses, partially offset by higher losses incurred and income tax provision.

Revenue generation remains solid, with net premiums earned relatively flat at $243.7 million in Q1 2025 compared to $242.6 million in Q1 2024. Investment income continues to be a meaningful contributor, rising to $61.4 million in Q1 2025 from $59.7 million in the prior year quarter, benefiting from reinvestment rates that have been above the portfolio's book yield. The in-force premium yield has remained relatively flat, expected to continue this trend in 2025 due to anticipated high persistency and a stable market size.

A significant driver of recent profitability has been exceptional credit performance. Losses incurred, net, were $9.6 million in Q1 2025, an increase from $4.6 million in Q1 2024. While new delinquency notices added approximately $59.5 million to losses incurred in Q1 2025, this was substantially offset by $49.9 million in favorable development from the re-estimation of loss reserves on previously received delinquencies. This favorable trend, also observed in Q1 2024 ($48.9 million favorable development), is primarily attributed to higher-than-expected cure rates on prior delinquencies, often facilitated by home price appreciation allowing borrowers to sell their properties. The overall delinquency rate remains low by historical standards, although management anticipates a modest increase in new notices as larger book years from 2020-2022 season into historically higher loss emergence periods.

Operational efficiency efforts are also yielding results. Other underwriting and operating expenses, net, decreased to $51.4 million in Q1 2025 from $59.0 million in Q1 2024, primarily due to lower employee costs. This contributed to a decrease in the underwriting expense ratio. Management expects full-year 2025 operating expenses to be in the range of $195 million to $205 million, lower than 2024 levels, reflecting the cumulative impact of efficiency initiatives.

The balance sheet remains robust. As of March 31, 2025, total assets stood at $6.54 billion, with a significant investment portfolio of $5.90 billion primarily composed of highly rated fixed income securities. The company maintains a strong capital position, comfortably exceeding regulatory requirements. As of March 31, 2025, MGIC's Available Assets under PMIERs totaled approximately $5.9 billion, representing a $2.6 billion excess over Minimum Required Assets. The company's risk-to-capital ratio was 9.8 to 1.00, well below the maximum allowed by state regulations, and its policyholder position exceeded the required Minimum Policyholder Position by $3.8 billion. Over the past five years, the company has significantly strengthened its capital base, with GAAP equity increasing by $1.1 billion and PMIERs excess growing from $1.1 billion to $2.4 billion, even while returning substantial capital to shareholders.

Capital Deployment and Shareholder Value

MTG's strong capital position and consistent profitability have enabled a significant return of capital to shareholders, a key component of its value creation strategy. Recognizing that market conditions have constrained growth in insurance in force in recent years, leading to capital levels above internal targets, the company has prioritized returning excess capital.

Share repurchases have been the primary method of capital return. In the first quarter of 2025, the company repurchased 9.2 million shares for $224.3 million. This follows substantial repurchase activity in 2024, where approximately 25.3 million shares were repurchased for $566.6 million. As of March 31, 2025, the company had $232.9 million remaining under its existing share repurchase authorization. Demonstrating continued commitment, the Board of Directors approved an additional $750 million share repurchase program in April 2025, extending through December 31, 2027. Management views these repurchases as accretive and believes current share price levels remain attractive for generating long-term value.

In addition to buybacks, MTG maintains a consistent quarterly cash dividend. In Q1 2025, the company paid $0.13 per share, totaling $32.5 million, and declared the same amount payable in May 2025. Over the prior four quarters, combined share repurchases and dividends represented a payout ratio of 107% of net income, highlighting the elevated level of capital return.

The company's holding company liquidity is robust, ending Q1 2025 with $824 million in cash and investments. This liquidity is primarily maintained to service debt obligations (including interest payments on the $650 million aggregate principal amount of 5.25% Senior Notes due 2028), fund share repurchases, and pay dividends. A recent $400 million dividend from the operating subsidiary (MGIC) to the holding company in April 2025 further bolstered this position. Management believes the holding company has sufficient liquidity to meet its obligations for the foreseeable future.

Outlook and Risk Considerations

Looking ahead, MTG anticipates a mortgage insurance market in 2025 that is relatively similar in size to 2024. The company expects its new insurance written (NIW) in 2025 to be higher than in 2024. Persistency is expected to remain high due to elevated mortgage rates, contributing to a relatively flat in-force premium yield. The book yield on the investment portfolio is also expected to remain relatively flat for the remainder of 2025, influenced by potential declines in shorter-term interest rates and the impact of capital returns on portfolio growth. Operating expenses are guided lower for 2025, reflecting ongoing efficiency gains.

While overall credit performance is expected to remain strong, management anticipates a modest increase in the level of new delinquency notices as the 2021 and 2022 book years, which are larger vintages, enter periods historically associated with higher loss emergence. However, the favorable trend in cure rates is expected to continue, although the extent and timing of potential increases in average claims paid (as newer delinquencies may have experienced less home price appreciation) remain uncertain.

The company operates under the conservatorship of the GSEs, and potential changes in their business practices or restructuring could impact the industry. Regulatory changes, such as the adoption of the revised NAIC Mortgage Guaranty Insurance Model Act by various states (including Wisconsin, where MGIC is domiciled), also present potential shifts in requirements, although the final form and impact are uncertain. MTG is actively engaged with stakeholders, including the new FHFA Director, advocating for the role of private mortgage insurance and supporting initiatives like the Middle Class Mortgage Insurance Premium Act to enhance housing affordability.

Operational risks, including cybersecurity threats and the potential impact of natural disasters or pandemics, are also acknowledged. The company maintains information security policies and systems, but the reliance on IT systems and third-party vendors, coupled with the sensitivity of the data handled, presents ongoing challenges.

Despite these potential headwinds and uncertainties, MTG''s strong capital position, disciplined risk management, and focus on operational efficiency provide a solid foundation. The strategic use of reinsurance further mitigates potential volatility. The company's ability to generate significant capital from its existing book, even in a constrained growth environment, supports its strategy of returning value to shareholders while maintaining financial strength.

Conclusion

MGIC Investment stands out for its robust financial foundation and consistent ability to generate value, even amidst a challenging mortgage market characterized by limited growth opportunities. The core of the investment thesis lies in the company's disciplined approach to risk and capital management, which has resulted in exceptional credit performance, significant capital accumulation well above regulatory minimums, and the capacity to return substantial capital to shareholders.

While the near-term outlook points to continued modest market growth and a potential modest increase in new delinquency notices as the portfolio seasons, the underlying credit quality remains strong, and favorable cure trends are expected to persist. The company's strategic investments in operational efficiency and its sophisticated reinsurance program further enhance its resilience. With a clear commitment to returning excess capital through share repurchases and dividends, MTG offers investors a compelling combination of financial strength, profitability driven by effective risk management, and shareholder-friendly capital allocation in the current environment. The ability to navigate competitive pressures and potential regulatory shifts from a position of capital strength reinforces the long-term value proposition.