Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- MGIC Investment Corp (MTG, Financial) reported a net income of $204 million for the second quarter, generating an annualized 16% return on equity.
- The company repurchased 7.6 million shares of common stock for $157 million and paid a quarterly common stock dividend totaling $31 million.
- MGIC Investment Corp (MTG) has maintained a strong and balanced insurance portfolio with excellent credit performance, leading to favorable financial results.
- The company has increased its insurance in force by $78 billion over the last five years, demonstrating robust growth.
- MGIC Investment Corp (MTG) has a strong balance sheet and liquidity, with $990 million of liquidity at the holding company by the end of the quarter.
Negative Points
- The mortgage origination industry continues to face challenges due to higher interest rates, resulting in affordability issues and limited supply of homes for sale.
- Annual persistency ended the first quarter at 85%, down slightly in the quarter.
- The level of new delinquency notices may increase in the second half of 2024 due to seasonality and higher loss emergence years from 2020 through 2022.
- Higher interest rates have led to lower valuations for fixed income investments, posing a headwind for book value per share.
- Operating expenses for the full year are expected to be in the range of $215 million to $225 million, indicating ongoing cost pressures.
Q & A Highlights
Q: Can you provide insights on your reinsurance strategy and its impact on your funding profile?
A: Nathan Colson, CFO & Chief Risk Officer: We focus our reinsurance on the most recent and future new insurance written (NIW). We don't target a specific funding level from reinsurance but concentrate on covering the most recent business, such as our 2024 NIW.
Q: How are you planning for potential downside scenarios given the current strong credit performance?
A: Tim Mattke, CEO: We always focus on the downside when executing in the market and pricing. We remain diligent and ready to adjust quickly if needed. Our tools allow us to make rapid pricing changes to maintain a healthy company over the long run.
Q: Can you discuss the trends in new insurance written and market share?
A: Tim Mattke, CEO: We are likely gaining a bit of market share this quarter, but we focus on ensuring we get the right return for the capital deployed. Our broad customer base allows us to win business and deploy capital at good returns.
Q: How do you balance share repurchases versus dividends in your capital return strategy?
A: Nathan Colson, CFO & Chief Risk Officer: Share price is an important consideration. We have been returning more capital through share repurchases, even at current share prices, as we believe they are still at attractive levels for long-term value creation.
Q: Can you provide details on the characteristics of new delinquency notices?
A: Nathan Colson, CFO & Chief Risk Officer: The provision per new notice has increased due to higher average exposure on new notices. This is expected as we shift towards more recent vintages with higher loan balances and coverage levels.
Q: What are your expectations for pricing and in-force yield over the next 12 months?
A: Tim Mattke, CEO: We expect the in-force premium yield to remain relatively stable over the year. The current market allows us to get good returns for the capital deployed, but we remain cautious about downside scenarios.
Q: What factors could impact the current strong cure rates and delinquency trends?
A: Nathan Colson, CFO & Chief Risk Officer: Factors like unemployment, wage growth, and home prices are key. If these come under pressure, it could impact new notices and cure rates. We expect some seasonal softening in the second half of the year.
Q: How do you view the current payout ratio in terms of capital returns?
A: Nathan Colson, CFO & Chief Risk Officer: We don't target a specific payout ratio. It starts with ensuring enough capital at the operating company. If the environment remains similar, with excellent credit performance and limited growth, higher payout ratios are likely.
Q: Was there anything unusual in Q2 that drove an uptick in market share?
A: Tim Mattke, CEO: No bulk deals or unusual activities. The uptick is more reflective of our broad customer base and winning business every day.
Q: Can you provide commentary on the performance of new notices from recent vintages?
A: Nathan Colson, CFO & Chief Risk Officer: We monitor vintage-level performance and haven't seen significant differences in post-delinquency cure rates. The overall performance remains favorable compared to historical stress vintages.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
