MGIC's Q3 2025: Contradictions Emerge on Capital Management, Interest Rates, PMIERs, Provisioning, and Expense Guidance

Date of Call: October 30, 2025

Financials Results

• EPS: $0.83 per diluted share, compared to $0.77 in Q3 2024

Guidance:

• Full-year operating expenses expected to be $195M–$205M, now expected toward the higher end due to pension settlement charges.
• Book yield on the investment portfolio expected to remain relatively flat for the remainder of the year.
• Expect an increase in new delinquency notices and a higher delinquency rate due to seasonality and aging of the 2021/2022 book years.
• Share repurchases remain primary capital-return tool while continuing quarterly dividends; Board approved $0.15/share payable Nov 20.
• Planned reinsurance transactions (seasoned XL and 40% quota share) effective in future; amended 2022 quota share to reduce ongoing costs ~40% starting 2026.

Business Commentary:

* Strong Financial Performance and Capital Returns: - MGIC Investment Corporation reported net income of $191 million in Q3, with an annualized return on equity (ROE) of 14.8%. - The company returned $980 million of capital to shareholders through dividends and share repurchases, increasing book value per share to $22.87, up 11% year-over-year. - This performance was driven by operational excellence, disciplined execution, and a robust balance sheet.

• Insurance In-Force Milestone:
• MGIC ended the quarter with over $300 billion of insurance in-force, marking an industry first and significant milestone.
• The achievement reflects the company's leadership and the strength of its talented team, underwriting standards, and risk management.

• This milestone indicates MGIC's ongoing success and leadership in the market.

• Capital Management and Shareholder Returns:

• The company returned 122% of its net income over the past 4 quarters through share repurchases and dividends.
• MGIC paid a quarterly common stock dividend of $0.15 per share and repurchased 7 million shares for $188 million in Q3.

• The strong capital management and shareholder returns were enabled by the company's robust financial health and flexibility.

• Delinquency Trends and Credit Quality:

• MGIC's count-based delinquency rate increased by 11 basis points to 2.32% in Q3, in line with seasonal trends.
• The company received 13,600 new delinquency notices, which was slightly less than the previous year and 3% less than pre-pandemic levels.

• The stable delinquency trends are attributed to prudent risk management and the quality of the insurance portfolio.

• Growth in Investment Income and Capital Efficiency:

• Investment income was $62 million in Q3, contributing significantly to the company's revenue.
• The book yield on the investment portfolio was 4%, with reinvestment rates exceeding the book yield.
• The stable investment income and unrealized loss position narrowing are due to flat interest rates and efficient capital allocation.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'strong momentum' and 'solid financial results,' reported net income of $191 million and annualized ROE of 14.8%, book value per share up 11% to $22.87, returned $980 million of capital over the prior year, and ended Q3 with >$300 billion insurance in-force — all indicating a positive tone.

Q&A:

• Question from Bose George (Keefe, Bruyette, & Woods): In terms of your provision, what was your provision per loan on the new notices? And just from an accounting standpoint, does your provision for new notices for the quarter just net out the new notices that were -- new notices from the year that were also cured during the year?
  Response: Used a 7.5% new-notice claim rate with similar severity assumptions; total provision reflects $47M of favorable reserve development—details in the portfolio supplement.

• Question from Bose George (Keefe, Bruyette, & Woods): Can you talk about how you're looking at the credit-score debate? And in terms of PMIERs, does PMIERs just use FICO and what happens if Vantage score becomes part of what lenders are starting to use?
  Response: Actively monitoring the debate; no definitive PMIERs changes from GSEs yet, and MGIC stands ready to incorporate industry changes as decisions are made.

• Question from William Nasta (UBS Investment Bank): Given recent industry news about potential new entrants into the MI space, how are you thinking about potential increased competition and any real impact this could have on MGIC?
  Response: Aware of potential entrants but uncertain impact; any new MI competitor would face capital, operational and PMIERs hurdles, so speculation remains and MGIC expects a level regulatory/operational playing field.

• Question from William Nasta (UBS Investment Bank): On capital return, given the 122% payout recently, how are you thinking about that going forward and the balance between repurchases and dividends?
  Response: Prioritize maintaining operating-company strength; when capital is above targets, pay holding-company dividends and prioritize share repurchases as primary return—current elevated payout viewed as comfortable given strong credit and capital, with flexibility to change if conditions shift.

• Question from Unknown Analyst (Bank of America): Persistency looked modestly up quarter-over-quarter despite the rate cut; anything to call out? With rates coming down, how should we think about persistency moving forward—how fast and how much could it come down?
  Response: Persistency essentially flat (up only a few tenths); rate effects lag and recent weeks show increased refinance activity—rate-driven declines in persistency could be offset by higher NIW/refinance volume; magnitude depends on rate moves.

• Question from Unknown Analyst (Bank of America): Are there any markets you're seeing good opportunity in and leaning into, or any markets you are more cautious on and pulling back from?
  Response: No targeted market over/underweights; deployment is continuous and driven by models assessing economic value and market risk pricing rather than explicit geographic or product pullbacks.

Contradiction Point 1

Capital Management and Return Strategy

It involves the company's approach to capital management and return strategies, which are crucial for understanding financial priorities and investor expectations.

Regarding capital returns, you mentioned a 122% payout ratio recently. How do you plan to approach this going forward? And how do you balance share repurchases and dividends within this payout ratio? - William Nasta (UBS Investment Bank, Research Division)

2025Q3: MGIC maintains the flexibility to adjust payout ratios based on market conditions. Current payout levels are deemed appropriate given strong financial performance and capital levels. The company has continued to pay dividends and repurchase shares, returning 122% of net income over the past four quarters. - Nathaniel Colson(CFO)

How are you determining the level of capital returns? What is the target level of holdco liquidity? What are the key factors limiting dividend increases from the MI subsidiary? - Douglas Michael Harter (UBS Investment Bank, Research Division)

2025Q2: At the operating company level, we have been paying dividends twice a year in the range of $300 million to $400 million every 6 months, driven by excellent financial results. Our capital management strategy prioritizes maintaining financial strength and flexibility. - Nathaniel Howe Colson(CFO)

Contradiction Point 2

Interest Rates and Persistency Impact

It highlights differing perspectives on how interest rates affect persistency, which influences business performance and customer retention.

Are there markets where you're increasing investment and others where you're scaling back? - Unknown Analyst (Bank of America)

2025Q3: Persistency was flat, with slight quarter-over-quarter increase. Falling interest rates may negatively impact persistency but could be offset by increased NIW or refinance volume. - Nathaniel Colson(CFO)

Have there been any changes in macroeconomic conditions, particularly interest rates, and how might they impact your business? Are there any other interest rate-related comments you'd like to make? - Douglas Michael Harter (UBS Investment Bank, Research Division)

2025Q2: Lower interest rates may lead to a greater number of refinances, as well as newly originated loans with higher loan-to-value ratios, which may impact persistency. - Nathaniel Howe Colson(CFO)

Contradiction Point 3

PMIERs and Credit Scoring Changes

It involves the company's stance on potential changes in credit scoring systems, which could significantly impact its underwriting and risk management strategies, as well as regulatory compliance.

How are you viewing the ongoing debate on credit scores, and does PMIERs use only FICO? What if Vantage Score becomes more widely adopted by lenders? - Bose George (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q3: MGIC is closely monitoring the credit scoring debate. The company is supportive of changes that strengthen the industry, such as GSEs adopting new scores. MGIC is prepared to adapt to any scoring changes but awaits definitive guidance from regulators regarding PMIERs. - Timothy Mattke(CEO)

Can you discuss the dialogue with FHFA and PMIERs regarding potential changes in credit scoring and their impact on capital requirements? - Doug Harter (UBS)

2025Q1: We don't have any definitive guidance on PMIERs right now on credit scoring. What we have talked about, we think, is making the system stronger, whether that's FICO or another credit score. We're supportive of that. - Timothy Mattke(CEO)

Contradiction Point 4

Provisioning for New Notices

It involves the company's approach to provisioning for new notices and the assumptions made regarding claim rates, which are crucial for financial forecasting and risk management.

What was the provision per loan for new notices? From an accounting perspective, does the quarter's provision for new notices fully offset both new notices issued and those resolved during the year? - Bose George (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q3: For new notices, the claim rate assumption remained at 7.5%, similar to previous periods. - Nathaniel Colson(CFO)

What caused the decrease in new notice claim rates due to hurricanes but new notice severity increased slightly? What is driving this change? - Terry Ma (Barclays)

2024Q4: We are maintaining our 7.5% claim assumption for our new notice accounting estimate. - Nathan Colson(CFO)

Contradiction Point 5

Expense Management and Guidance

It pertains to the company's expense management strategies and guidance, which are important for cost control and financial planning.

How do you plan to approach the 122% payout going forward? How will you balance share repurchases and dividends under this payout? - William Nasta (UBS Investment Bank, Research Division)

2025Q3: The fourth-quarter results reflect cumulative impacts of changes made over the last few years, aligning resources with customer needs and demands. Expense management efforts have been ongoing, with the 2025 guidance at $195 million to $205 million reflecting this. - Nathan Colson(CFO)

What are the drivers behind the decrease in OpEx and the extent of the decrease in the long term? - Terry Ma (Barclays)

2024Q4: We are maintaining 2025 expense guidance at $195 million to $205 million. We expect to achieve this guidance through a combination of ongoing operational efficiencies and structural changes we've made. - Nathan Colson(CFO)