MGIC Investment Corp. (MTG, Financial) filed Annual Report for the period ended 2010-12-31.
Mgic Investment Corp. has a market cap of $1.72 billion; its shares were traded at around $8.59 with and P/S ratio of 1.1. Hedge Fund Gurus that owns MTG: John Griffin of Blue Ridge Capital, Jim Simons of Renaissance Technologies LLC. Mutual Fund and Other Gurus that owns MTG: RS Investment Management, John Keeley of Keeley Fund Management.
We established the private mortgage insurance industry in 1957 to provide a private market alternative to federal government insurance programs. Private mortgage insurance covers losses from homeowner defaults on residential mortgage loans, reducing and, in some instances, eliminating the loss to the insured institution if the homeowner defaults. Private mortgage insurance plays an important role in the housing finance system by expanding home ownership opportunities through helping people purchase homes with less than 20% down payments, especially first time homebuyers. In this annual report, we refer to loans with less than 20% down payments as “low down payment” mortgages or loans. During 2008, 2009 and 2010, approximately $193 billion, $82 billion and $69 billion, respectively, of mortgages were insured by private mortgage insurance companies.
The U.S. single-family residential mortgage market has historically experienced long-term growth, including an increase in mortgage debt outstanding every year between 1985, when our principal subsidiary, MGIC, began operations, and 2007. The rate of growth in U.S. residential mortgage debt was particularly strong from 2001 through 2006. In 2007, this growth rate began slowing and, since 2007, U.S. residential mortgage debt has decreased. During the last several years of the period of growth and continuing through 2007, the mortgage lending industry increasingly made home loans at higher loan-to-value (“LTV”) ratios, to individuals with higher risk credit profiles and based on less documentation and verification of information regarding the borrower. Beginning in 2007, job creation slowed and the housing markets began slowing in certain areas, with declines in certain other areas. In 2008 and 2009, payroll employment in the U.S. decreased substantially and nearly all geographic areas in the U.S. experienced home price declines. Together, these conditions resulted in significant adverse developments for us and our industry. After earning an average of approximately $580 million annually from 2004 through 2006 and $169 million in the first half of 2007, we had net losses of $1.670 billion for 2007, $525 million for 2008, $1.322 billion for 2009 and $364 million in 2010. In 2008 and 2009, the insurer financial strength rating of MGIC was downgraded a number of times by the rating agencies (although one rating agency changed its ratings outlook for MGIC from negative to positive during 2010). See the risk factor titled “MGIC may not continue to meet the GSEs mortgage insurer eligibility requirements” in Item 1A.
The mortgage insurance industry competes with governmental agencies and products designed to eliminate the need to purchase private mortgage insurance. For flow business, we and other private mortgage insurers compete directly with federal and state governmental and quasi-governmental agencies that sponsor government-backed mortgage insurance programs, principally the FHA and, to a lesser degree, the Veterans Administration (the “VA”). During 2010 and 2009, the FHA and VA accounted for approximately 84.4% and 84.6%, respectively, of the total low down payment residential mortgages that were subject to FHA, VA or private mortgage insurance, a substantial increase from an approximately 22.7% market share in 2007, according to statistics reported by Inside Mortgage Finance. The increase in market share of the FHA and VA, coupled with the decrease in the level of mortgage loan originations overall, has led to a decrease in our new insurance written from $76.8 billion in 2007 to $12.3 billion in 2010.
Primary insurance may be written on a flow basis, in which loans are insured in individual, loan-by-loan transactions, or may be written on a bulk basis, in which each loan in a portfolio of loans is individually insured in a single, bulk transaction. New insurance written on a flow basis was $12.3 billion in 2010 compared to $19.9 billion in 2009 and $46.6 billion in 2008. No new insurance for bulk transactions was written in 2010 or 2009, compared to $1.6 billion written in 2008. As noted in “- Bulk Transactions” below, in the fourth quarter of 2007, we stopped writing bulk insurance for mortgage loans included in home equity (or “private label”) securitizations, which are the terms the market uses to refer to securitizations sponsored by firms other than the GSEs or Ginnie Mae, such as Wall Street investment banks. We refer to portfolios of loans we insured through the bulk channel that we knew would serve as collateral in a home equity securitization as “Wall Street bulk transactions.” While we may continue to insure loans on a bulk basis when we believe that the loans will be sold to a GSE or retained by the lender, we expect the volume of any future business written through the bulk channel will be insignificant to us.
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Mgic Investment Corp. has a market cap of $1.72 billion; its shares were traded at around $8.59 with and P/S ratio of 1.1. Hedge Fund Gurus that owns MTG: John Griffin of Blue Ridge Capital, Jim Simons of Renaissance Technologies LLC. Mutual Fund and Other Gurus that owns MTG: RS Investment Management, John Keeley of Keeley Fund Management.
Highlight of Business Operations:
We are a holding company and through wholly owned subsidiaries we are the leading provider of private mortgage insurance in the United States. In 2010, our net premiums written exceeded $1.1 billion and our new insurance written was $12.3 billion. As of December 31, 2010, our primary insurance in force was $191.3 billion and our primary risk in force was $49.0 billion. For further information about our results of operations, see our consolidated financial statements in Item 8. As of December 31, 2010, our principal subsidiary, Mortgage Guaranty Insurance Corporation (“MGIC”), was licensed in all 50 states of the United States, the District of Columbia, Puerto Rico and Guam. During 2010, MGIC wrote new insurance in each of those jurisdictions. We have capitalized MGIC Indemnity Corporation (“MIC”) to begin writing new insurance in certain jurisdictions if MGIC no longer meets, and is unable to obtain a waiver of, the minimum capital requirements of those jurisdictions. For more information about the formation of MIC and our plans to utilize it to continue writing new insurance in those jurisdictions, see the risk factor titled “Even though our plan to write new insurance in MGIC Indemnity Corporation (“MIC”) has received approval from the Office of the Commissioner of Insurance of the State of Wisconsin (“OCI”) and the GSEs, we cannot guarantee that the implementation of our plan will allow us to continue to write new insurance on an uninterrupted basis” in Item 1A. In addition to mortgage insurance on first mortgage loans, we, through our subsidiaries, provide lenders with various underwriting and other services and products related to home mortgage lending.We established the private mortgage insurance industry in 1957 to provide a private market alternative to federal government insurance programs. Private mortgage insurance covers losses from homeowner defaults on residential mortgage loans, reducing and, in some instances, eliminating the loss to the insured institution if the homeowner defaults. Private mortgage insurance plays an important role in the housing finance system by expanding home ownership opportunities through helping people purchase homes with less than 20% down payments, especially first time homebuyers. In this annual report, we refer to loans with less than 20% down payments as “low down payment” mortgages or loans. During 2008, 2009 and 2010, approximately $193 billion, $82 billion and $69 billion, respectively, of mortgages were insured by private mortgage insurance companies.
The U.S. single-family residential mortgage market has historically experienced long-term growth, including an increase in mortgage debt outstanding every year between 1985, when our principal subsidiary, MGIC, began operations, and 2007. The rate of growth in U.S. residential mortgage debt was particularly strong from 2001 through 2006. In 2007, this growth rate began slowing and, since 2007, U.S. residential mortgage debt has decreased. During the last several years of the period of growth and continuing through 2007, the mortgage lending industry increasingly made home loans at higher loan-to-value (“LTV”) ratios, to individuals with higher risk credit profiles and based on less documentation and verification of information regarding the borrower. Beginning in 2007, job creation slowed and the housing markets began slowing in certain areas, with declines in certain other areas. In 2008 and 2009, payroll employment in the U.S. decreased substantially and nearly all geographic areas in the U.S. experienced home price declines. Together, these conditions resulted in significant adverse developments for us and our industry. After earning an average of approximately $580 million annually from 2004 through 2006 and $169 million in the first half of 2007, we had net losses of $1.670 billion for 2007, $525 million for 2008, $1.322 billion for 2009 and $364 million in 2010. In 2008 and 2009, the insurer financial strength rating of MGIC was downgraded a number of times by the rating agencies (although one rating agency changed its ratings outlook for MGIC from negative to positive during 2010). See the risk factor titled “MGIC may not continue to meet the GSEs mortgage insurer eligibility requirements” in Item 1A.
The mortgage insurance industry competes with governmental agencies and products designed to eliminate the need to purchase private mortgage insurance. For flow business, we and other private mortgage insurers compete directly with federal and state governmental and quasi-governmental agencies that sponsor government-backed mortgage insurance programs, principally the FHA and, to a lesser degree, the Veterans Administration (the “VA”). During 2010 and 2009, the FHA and VA accounted for approximately 84.4% and 84.6%, respectively, of the total low down payment residential mortgages that were subject to FHA, VA or private mortgage insurance, a substantial increase from an approximately 22.7% market share in 2007, according to statistics reported by Inside Mortgage Finance. The increase in market share of the FHA and VA, coupled with the decrease in the level of mortgage loan originations overall, has led to a decrease in our new insurance written from $76.8 billion in 2007 to $12.3 billion in 2010.
Primary insurance may be written on a flow basis, in which loans are insured in individual, loan-by-loan transactions, or may be written on a bulk basis, in which each loan in a portfolio of loans is individually insured in a single, bulk transaction. New insurance written on a flow basis was $12.3 billion in 2010 compared to $19.9 billion in 2009 and $46.6 billion in 2008. No new insurance for bulk transactions was written in 2010 or 2009, compared to $1.6 billion written in 2008. As noted in “- Bulk Transactions” below, in the fourth quarter of 2007, we stopped writing bulk insurance for mortgage loans included in home equity (or “private label”) securitizations, which are the terms the market uses to refer to securitizations sponsored by firms other than the GSEs or Ginnie Mae, such as Wall Street investment banks. We refer to portfolios of loans we insured through the bulk channel that we knew would serve as collateral in a home equity securitization as “Wall Street bulk transactions.” While we may continue to insure loans on a bulk basis when we believe that the loans will be sold to a GSE or retained by the lender, we expect the volume of any future business written through the bulk channel will be insignificant to us.
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