MGIC Investment (MTG)

Q2 2012 Earnings Call

August 02, 2012 10:00 am ET


Michael J. Zimmerman - Senior Vice President of Investor Relations

Curt S. Culver - Executive Chairman, Chief Executive Officer, Chairman of Executive Committee, Chairman of MGIC and Chief Executive Officer of MGIC

J. Michael Lauer - Chief Financial Officer, Executive Vice President, Chief Financial Officer of Mortgage Guaranty Insurance Corporation and Executive Vice President of Mortgage Guaranty Insurance Corporation


Conor Ryan

Shawn Faurot

Douglas Harter - Crédit Suisse AG, Research Division

Jasper Burch - Macquarie Research

Alex Lieblong

Scott Frost - BofA Merrill Lynch, Research Division

Steve Stelmach - FBR Capital Markets & Co., Research Division

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Edwin G. Groshans - Height Analytics, LLC

John R. Benda - Susquehanna Financial Group, LLLP, Research Division

Ethan Auerbach

Geoffrey M. Dunn - Dowling & Partners Securities, LLC

Mark C. DeVries - Barclays Capital, Research Division

Stephen Trusa



Good day, ladies and gentlemen, and welcome to the MGIC Investment Corporation Second Quarter Earning Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Mike Zimmerman, Senior Vice President of Investor Relations. Mr. Zimmerman, you may begin your conference.

Michael J. Zimmerman

Thanks, Sandy. Good morning, and thank you for joining us this morning and your interest in MGIC Investment Corporation.

Joining me on the call today to discuss the results for the second quarter of 2012 are 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 this call and includes certain non-GAAP financial measures. As we have indicated in this morning's press release, we have posted on our website the supplemental information containing the characteristics of our primary risk in force and flow new insurance written, as well as other information that 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 the actual results to differ materially from those discussed on the call are contained in the quarterly earnings release. 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 developments.

Further, no interested 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 press release.

And with that, I'd like to turn the call over to Curt.

Curt S. Culver

Thank you, Mike, and good morning. As reflected by the net loss for the second quarter of $273.9 million or $1.36 a share, our company's capital position on financial results continued to be adversely affected by the lackluster economic recovery the country continues to experience and particularly the lack of meaningful job creation. The bottom line is that the economy has not progressed as much we would've expected over the past year and at a pace that promotes sustained growth in the accompanying improvement in consumer credit performance. For our company, that means that new notices as a percentage of the in force continued to decline albeit slowly. But unfortunately, the cure rate is not recovering as fast as anticipated. This has caused us to extend the time frame of when we expect long-term cure rates to return to historic levels. So while we continue to monitor the macroeconomic environment, engaging conversations on the housing policy front, we spent most of our time on those variables that we can have more control over, those being credit quality, allocation of capital, maximizing the profitability of the new business, prudently and thoughtfully mitigating losses and minimizing operating expenses to maintain our cost advantage.

As of June 30, the combined insurance company's preliminary risk to capital ratio was a little over 30:1, and MGIC was 27.8:1. This means that beginning in the third quarter, we will begin to use MIC, which has approximately $440 million of capital where MGIC is not able to ultimately obtain a waiver of regulatory capital requirements. The plan to utilize MIC, which has been in place since 2009. It's designed to allow MGIC to manage through the risk-to-capital issue it faces. There is no liquidity issue at the insurance operations as we believe we have sufficient claim-paying resources to meet all obligations to policyholders even under stress loss scenarios.

We are pleased to report that Freddie Mac has recently expanded the use of MIC to include 7 additional states. The states are California, Florida, New Jersey, North Carolina, Ohio, Oregon and Texas and account for 33% of our new insurance written in 2012. In addition, will be using MIC for Idaho, New York and Puerto Rico, which were previously approved by Freddie Mac and account for about 5% of our business. Freddie's expanded approval provides that by September 30, the holding company will contribute $200 million of cash to MGIC; that by October 31, MGIC and Freddie Mac reached agreement on substantially all terms regarding the pool insurance dispute; and that by December 31, 2012, the OCI will provide Freddie Mac written confirmation that mix of capital will be available to pay MGIC's claims in full and on an uninterrupted basis.

As does the MIC approval given earlier this year, the approval for the additional states may be withdrawn at any time and ends December 31, 2012. Freddie Mac's letter is an exhibit to our 8-K filed earlier today, and you should read it in full for the complete terms. 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 MGIC does not get a waiver.

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