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MGIC INVESTMENT CORP - Quarter Report: 2021 September (Form 10-Q)


FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2021
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number1-10816
mtg-20210930_g1.jpg
MGIC Investment Corporation
(Exact name of registrant as specified in its charter)
Wisconsin39-1486475
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
250 E. Kilbourn Avenue53202
Milwaukee,Wisconsin(Zip Code)
(Address of principal executive offices) 
(414)347-6480
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stockMTGNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
☒

Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company☐(Do not check if a smaller reporting company)
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of October 29, 2021, there were 325,582,685 shares of common stock of the registrant, par value $1.00 per share, outstanding.




Forward Looking and Other Statements

All statements in this report that address events, developments or results that we expect or anticipate may occur in the future are “forward looking statements.” Forward looking statements consist of statements that relate to matters other than historical fact. In most cases, forward looking statements may be identified by words such as “believe,” “anticipate” or “expect,” or words of similar import. The risk factors referred to in “Forward Looking Statements and Risk Factors – Location of Risk Factors” in Management’s Discussion and Analysis of Financial Condition and Results of Operations below, may cause our actual results to differ materially from the results contemplated by forward looking statements that we may make. We are not undertaking any obligation to update any forward looking statements or other statements we may make in this document even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. Therefore no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.

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MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED September 30, 2021
Table of contents
Page
Consolidated Balance Sheets - September 30, 2021 (Unaudited) and December 31, 2020
Consolidated Statements of Operations (Unaudited) - Three and Nine Months Ended September 30, 2021 and 2020
Consolidated Statements of Comprehensive Income (Unaudited) - Three and Nine Months Ended September 30, 2021 and 2020
Consolidated Statements of Shareholders’ Equity (Unaudited) - Three and Nine Months Ended September 30, 2021 and 2020
Consolidated Statements of Cash Flows (Unaudited) - Three and Nine Months Ended September 30, 2021 and 2020
Item 2Unregistered Sales of Equity Securities and Use of Proceeds

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Glossary of terms and acronyms
/ A
ARMs
Adjustable rate mortgages

ABS
Asset-backed securities

ASC
Accounting Standards Codification

Available Assets
Assets, as designated under the PMIERs, that are readily available to pay claims, and include the most liquid investments

/ B
Book or book year
A group of loans insured in a particular calendar year

BPMI
Borrower-paid mortgage insurance

/ C
CECL
Current expected credit losses covered under ASC 326

CFPB
Consumer Financial Protection Bureau

CLO
Collateralized loan obligations

CMBS
Commercial mortgage-backed securities

COVID-19 Pandemic
An outbreak of the novel coronavirus disease, later named COVID-19, that has spread globally, causing significant adverse effects on populations and economies. The outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency in the United States in March 2020

CRT
Credit risk transfer. The transfer of a portion of mortgage credit risk to the private sector through different forms of transactions and structures

/ D
DAC
Deferred insurance policy acquisition costs

Debt-to-income (“DTI”) ratio
The ratio, expressed as a percentage, of a borrower’s total debt payments to gross income

Delinquent Loan
A loan that is past due on a mortgage payment. A delinquent loan is typically reported to us by servicers when the loan has missed two or more payments. A loan will continue to be reported as delinquent until it becomes current or a claim payment has been made. A delinquent loan is also referred to as a default

Delinquency Rate
The percentage of insured loans that are delinquent

Direct
Before giving effect to reinsurance

/ E
EPS
Earnings per share

/ F
Fannie Mae
Federal National Mortgage Association

FCRA
Fair Credit Reporting Act

FHA
Federal Housing Administration

FHFA
Federal Housing Finance Agency

FHLB
Federal Home Loan Bank of Chicago, of which MGIC is a member

FICO score
A measure of consumer credit risk provided by credit bureaus, typically produced from statistical models by Fair Isaac Corporation utilizing data collected by the credit bureaus

Freddie Mac
Federal Home Loan Mortgage Corporation

/ G
GAAP
Generally Accepted Accounting Principles in the United States

GSEs
Collectively, Fannie Mae and Freddie Mac

/ H
HAMP
Home Affordable Modification Program


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HARP
Home Affordable Refinance Program

Home Re Transactions
Excess-of-loss reinsurance transactions with unaffiliated special purpose insurers domiciled in Bermuda

HOPA
Homeowners Protection Act

HUD
Housing and Urban Development

/ I
IBNR Reserves
Loss reserves established on loans we estimate are delinquent, but for which the delinquency has not been reported to us

IIF
Insurance in force, which for loans insured by us, is equal to the unpaid principal balance reported to us

ILN
Insurance-linked notes

/ L
LAE
Loss adjustment expenses, which includes the costs of settling claims, including legal and other expenses and general expenses of administering the claims settlement process.

Loan-to-value ("LTV") ratio
The ratio, expressed as a percentage, of the dollar amount of the first mortgage loan to the value of the property at the time the loan became insured and does not reflect subsequent housing price appreciation or depreciation. Subordinate mortgages may also be present.

Long-term debt:
5.75% Notes
5.75% Senior Notes due on August 15, 2023, with interest payable semi-annually on February 15 and August 15 of each year

5.25% Notes
5.25% Senior Notes due on August 15, 2028, with interest payable semi-annually on February 15 and August 15 of each year

9% Debentures
9% Convertible Junior Subordinated Debentures due on April 1, 2063, with interest payable semi-annually on April 1 and October 1 of each year

FHLB Advance or the Advance
1.91% Fixed rate advance from the FHLB due on February 10, 2023, with interest payable monthly

Loss ratio
The ratio, expressed as a percentage, of the sum of incurred losses and loss adjustment expenses to NPE

Low down payment loans or mortgages
Loans with less than 20% down payments

LPMI
Lender-paid mortgage insurance

/ M
MBS
Mortgage-backed securities

MD&A
Management's discussion and analysis of financial condition and results of operations

MGIC
Mortgage Guaranty Insurance Corporation, a subsidiary of MGIC Investment Corporation

MAC
MGIC Assurance Corporation, a subsidiary of MGIC

Minimum Required Assets
The minimum amount of Available Assets that must be held under the PMIERs which is based on an insurer’s book of RIF and is calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor of $400 million.

MPP
Minimum Policyholder Position, as required under certain state requirements. The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve and a portion of the reserves for unearned premiums

/ N
N/A
Not applicable for the period presented

NAIC
The National Association of Insurance Commissioners

NIW
New Insurance Written, is the aggregate original principal amount of the mortgages that are insured during a period

N/M
Data, or calculation, deemed not meaningful for the period presented


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NPE
The amount of premiums earned, net of premiums assumed and ceded under reinsurance agreements
NPL
Non-performing loan, which is a delinquent loan, at any stage in its delinquency

NPW
The amount of premiums written, net of premiums assumed and ceded under reinsurance agreements

/ O
OCI
Office of the Commissioner of Insurance of the State of Wisconsin

OTTI
Other than temporary impairment

/ P
Persistency
The percentage of our insurance remaining in force from one year prior

PMI
Private Mortgage Insurance (as an industry or product type)

PMIERs
Private Mortgage Insurer Eligibility Requirements issued by each of Fannie Mae and Freddie Mac to set forth requirements that an approved insurer must meet and maintain to provide mortgage guaranty insurance on loans delivered to or acquired by Fannie Mae or Freddie Mac, as applicable.

Pre-COVID-19 delinquencies
A delinquent loan reported to us prior to the second quarter of 2020.

Premium Yield
The ratio of premium earned divided by the average IIF outstanding for the period measured

Premium Rate
The contractual rate charged for coverage under our insurance policies.

Primary Insurance
Insurance that provides mortgage default protection on individual loans. Primary insurance may be written on a "flow" basis, in which loans are insured in individual, loan-by-loan transactions, or on a "bulk" basis, in which each loan in a portfolio of loans is individually insured in a single bulk transaction.

Profit Commission
Payments we receive from reinsurers under each of our quota share reinsurance transactions if the annual loss ratio is below levels specified in the quota share reinsurance transaction

/ Q
QSR Transaction
Quota share reinsurance transaction with a group of unaffiliated reinsurers

2015 QSR
Our QSR transaction that provides coverage on eligible NIW written prior to 2017

2017 QSR
Our QSR transaction that provides coverage on eligible NIW in 2017

2018 QSR
Our QSR transaction that provides coverage on eligible NIW in 2018

2019 QSR
Our QSR transaction that provides coverage on eligible NIW in 2019

2020 QSR
Our QSR transactions that provide coverage on eligible NIW in 2020

2021 QSR
Our QSR transactions that provide coverage on eligible NIW in 2021

2022 QSR
Our QSR transactions that provide coverage on eligible NIW in 2022

Credit Union QSR
Our QSR transaction that provides coverage on eligible NIW from credit union institutions originated from April 1, 2020 through December 31, 2025

QM
A mortgage loan that satisfies the “qualified mortgage” loan characteristics pursuant to the Consumer Financial Protection Bureau’s ability-to-repay under the Truth in Lending Act. Originating a QM loan may provide a lender with legal protection from lawsuits that claim the lender failed to verify a borrower’s ability to repay.

/ R
RESPA
Real Estate Settlement Procedures Act

RIF
Risk in force, which for an individual loan insured by us, is equal to the unpaid loan principal balance, as reported to us, multiplied by the insurance coverage percentage. RIF is sometimes referred to as exposure.


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Risk-to-capital
Under certain state regulations, the ratio of RIF, net of reinsurance and exposure on policies currently in default and for which loss reserves have been established, to the level of statutory capital

RMBS
Residential mortgage-backed securities

/ S
State Capital Requirements
Under certain state regulations, the minimum amount of statutory capital relative to risk in force (or similar measure)

/ T
TILA
Truth in Lending Act

/ U
Underwriting expense ratio
The ratio, expressed as a percentage, of the underwriting and operating expenses, net and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance subsidiaries) to NPW

Underwriting profit
NPE minus incurred losses and underwriting and operating expenses

USDA
U.S. Department of Agriculture

/ V
VA
U.S. Department of Veterans Affairs

VIE
Variable interest entity

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)NoteSeptember 30, 2021December 31, 2020
(Unaudited)
ASSETS
Investment portfolio: 7 / 8
Fixed income, available-for-sale, at fair value (amortized cost 2021 - $6,650,315; 2020 - $6,317,164)$6,897,734 $6,661,596 
Equity securities, at fair value (cost 2021 - $14,981; 2020 - $17,522)15,361 18,215 
Other invested assets, at cost3,100 3,100 
Total investment portfolio6,916,195 6,682,911 
Cash and cash equivalents176,426 287,953 
Restricted cash and cash equivalents9,486 8,727 
Accrued investment income53,595 49,997 
Reinsurance recoverable on loss reserves4107,029 95,042 
Reinsurance recoverable on paid losses526 669 
Premiums receivable56,388 56,044 
Home office and equipment, net45,303 47,144 
Deferred insurance policy acquisition costs22,284 21,561 
Other assets124,077 104,478 
Total assets$7,511,309 $7,354,526 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Loss reserves$932,909 $880,537 
Unearned premiums256,517 287,099 
Federal Home Loan Bank advance155,000 155,000 
Senior notes880,976 879,379 
Convertible junior subordinated debentures208,814 208,814 
Other liabilities199,673 244,711 
Total liabilities2,633,889 2,655,540 
Contingencies
Shareholders’ equity:
Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2021 - 371,353; 2020 - 371,353; shares outstanding 2021 - 329,335; 2020 - 338,573)371,353 371,353 
Paid-in capital1,789,874 1,862,042 
Treasury stock at cost (shares 2021 - 42,018; 2020 - 32,779)(534,447)(393,326)
Accumulated other comprehensive income, net of tax147,645 216,821 
Retained earnings3,102,995 2,642,096 
Total shareholders’ equity4,877,420 4,698,986 
Total liabilities and shareholders’ equity$7,511,309 $7,354,526 
See accompanying notes to consolidated financial statements.

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MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands, except per share data)Note2021202020212020
Revenues:
Premiums written:
Direct$280,172 $272,990 $846,700 $830,938 
Assumed2,477 2,137 6,810 8,895 
Ceded(35,039)(47,173)(122,664)(144,487)
Net premiums written247,610 227,954 730,846 695,346 
Decrease in unearned premiums, net7,234 28,159 30,582 65,230 
Net premiums earned254,844 256,113 761,428 760,576 
Investment income, net of expenses38,282 37,252 117,304 118,278 
Net realized investment gains1,009 2,259 5,397 10,851 
Other revenue1,611 380 7,426 7,160 
Total revenues295,746 296,004 891,555 896,865 
Losses and expenses:
Losses incurred, net20,766 40,686 89,566 319,016 
Amortization of deferred policy acquisition costs3,295 3,278 9,016 8,697 
Other underwriting and operating expenses, net53,942 45,250 155,763 131,785 
Loss on debt extinguishment— 26,736 — 26,736 
Interest expense18,011 15,725 53,993 41,580 
Total losses and expenses96,014 131,675 308,338 527,814 
Income before tax199,732 164,329 583,217 369,051 
Provision for income taxes41,755 33,518 122,168 74,388 
Net income$157,977 $130,811 $461,049 $294,663 
Earnings per share:
Basic$0.47 $0.39 $1.36 $0.87 
Diluted$0.46 $0.38 $1.33 $0.85 
Weighted average common shares outstanding - basic335,938 338,598 338,045 340,408 
Weighted average common shares outstanding - diluted353,557 357,195 355,481 360,389 

See accompanying notes to consolidated financial statements.

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MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)Note2021202020212020
Net income$157,977 $130,811 $461,049 $294,663 
Other comprehensive income (loss), net of tax:
Change in unrealized investment gains and losses(27,600)33,712 (76,675)104,308 
Benefit plan adjustments5,963 (11,347)7,499 (9,239)
Other comprehensive income (loss), net of tax(21,637)22,365 (69,176)95,069 
Comprehensive income$136,340 $153,176 $391,873 $389,732 

See accompanying notes to consolidated financial statements.

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MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)Note2021202020212020
Common stock
Balance, beginning and end of period$371,353 $371,353 $371,353 $371,353 
Paid-in capital
Balance, beginning of period, as previously reported1,786,260 1,859,195 1,862,042 1,869,719 
Cumulative effect of debt with conversion options accounting standards update2— — (68,289)— 
Balance, beginning of the period, as adjusted1,786,260 1,859,195 1,793,753 1,869,719 
Reissuance of treasury stock, net under share-based compensation plans(211)(140)(15,956)(18,807)
Reacquisition of convertible junior subordinated debentures - equity component— (2,673)— (2,673)
Equity compensation3,825 188 12,077 8,331 
Balance, end of period1,789,874 1,856,570 1,789,874 1,856,570 
Treasury stock
Balance, beginning of period(384,550)(393,425)(393,326)(283,196)
Reissuance of treasury stock, net under share-based compensation plans103 99 8,879 9,867 
Repurchase of common stock(150,000)— (150,000)(119,997)
Balance, end of period(534,447)(393,326)(534,447)(393,326)
Accumulated other comprehensive income (loss)
Balance, beginning of period169,282 145,412 216,821 72,708 
Other comprehensive income (loss), net of tax(21,637)22,365 (69,176)95,069 
Balance, end of period147,645 167,777 147,645 167,777 
Retained earnings
Balance, beginning of period, as previously reported2,972,362 2,400,820 2,642,096 2,278,650 
Cumulative effect of debt with conversion options accounting standards update2— — 68,289 — 
Balance, beginning of the period, as adjusted2,972,362 2,400,820 2,710,385 2,278,650 
Net income157,977 130,811 461,049 294,663 
Cash dividends(27,344)(20,383)(68,439)(62,065)
Balance, end of period3,102,995 2,511,248 3,102,995 2,511,248 
Total shareholders’ equity$4,877,420 $4,513,622 $4,877,420 $4,513,622 

See accompanying notes to consolidated financial statements.



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MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30,
(In thousands)20212020
Cash flows from operating activities:
Net income$461,049 $294,663 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization49,820 40,660 
Deferred tax expense4,591 28,427 
Loss on debt extinguishment— 26,736 
Net realized investment (gains) losses(5,397)(10,851)
Change in certain assets and liabilities:
Accrued investment income(3,598)1,923 
Reinsurance recoverable on loss reserves(11,987)(61,502)
Reinsurance recoverable on paid losses143 459 
Premium receivable(344)1,616 
Deferred insurance policy acquisition costs(723)(2,707)
Profit commission receivable(18,564)13,909 
Loss reserves52,372 285,115 
Unearned premiums(30,582)(65,231)
Return premium accrual7,200 (300)
Current income taxes5,453 (40,855)
Other, net2,977 (3,209)
Net cash provided by operating activities512,410 508,853 
Cash flows from investing activities:
Purchases of investments(1,335,569)(1,994,286)
Proceeds from sales of investments239,483 741,732 
Proceeds from maturity of fixed income securities700,301 776,709 
Additions to property and equipment(2,388)(2,214)
Net cash provided by (used in) investing activities(398,173)(478,059)
Cash flows from financing activities:
Proceeds from issuance of senior notes— 640,250 
Purchase of senior notes — (179,735)
Payment of original issue discount - senior notes— (2,969)
Purchase of convertible junior subordinated debentures— (36,392)
Payment of original issue discount - convertible junior subordinated debentures— (15,049)
Cash portion of loss on debt extinguishment— (25,266)
Payment of debt issuance costs— (1,197)
Repurchase of common stock(150,000)(119,997)
Dividends paid(68,276)(61,745)
Payment of withholding taxes related to share-based compensation net share settlement(6,729)(8,940)
Net cash provided by (used in) financing activities(225,005)188,960 
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents(110,768)219,754 
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period296,680 169,056 
Cash and cash equivalents and restricted cash and cash equivalents at end of period$185,912 $388,810 
See accompanying notes to consolidated financial statements.

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MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)

Note 1. Nature of Business and Basis of Presentation
MGIC Investment Corporation is a holding company which, through Mortgage Guaranty Insurance Corporation (“MGIC”), is principally engaged in the mortgage insurance business. We provide mortgage insurance to lenders throughout the United States and to government sponsored entities to protect against loss from defaults on low down payment residential mortgage loans. MGIC Assurance Corporation (“MAC”) and MGIC Indemnity Corporation (“MIC”), insurance subsidiaries of MGIC, provide insurance for certain mortgages under Fannie Mae and Freddie Mac (the “GSEs”) credit risk transfer programs.

The accompanying unaudited consolidated financial statements of MGIC Investment Corporation and its wholly-owned subsidiaries have been prepared in accordance with the instructions to Form 10-Q as prescribed by the Securities and Exchange Commission (“SEC”) for interim reporting and do not include all of the other information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020 included in our 2020 Annual Report on Form 10-K. As used below, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as the context requires.

In the opinion of management, the accompanying financial statements include all adjustments, consisting primarily of normal recurring accruals, necessary to fairly state our consolidated financial position and consolidated results of operations for the periods indicated. The consolidated results of operations for an interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The substantial majority of our NIW has been for loans purchased by the GSEs. The current private mortgage insurer eligibility requirements ("PMIERs") of the GSEs include financial requirements, as well as business, quality control and certain transactional approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s "Available Assets" (generally only the most liquid assets of an insurer) to equal or exceed its "Minimum Required Assets" (which are based on an insurer's book of risk in force, calculated from tables of factors with several risk dimensions). Based on our application of the PMIERs, as of September 30, 2021, MGIC’s Available Assets are in excess of its Minimum Required Assets; and MGIC is in compliance with the PMIERs and eligible to insure loans purchased by the GSEs.

Subsequent events
We have considered subsequent events through the date of this filing.
Note 2. Significant Accounting Policies

Recent accounting and reporting developments
Accounting standards effective in 2021, or early adopted, and relevant to our financial statements are described below:
Simplifying the Accounting for Income Taxes: ASU 2019-12
Effective January 1, 2021, we adopted FASB guidance which simplifies Accounting for Income Taxes (Topic 740) by removing certain exceptions to Topic 740. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Clarification of Accounting for Equity Securities: ASU 2020-01
Effective January 1, 2021, we adopted ASU 2020-01, which clarifies certain interactions of accounting for equity securities under Topic 321, accounting for equity securities under the equity method of accounting in Topic 323, and accounting for certain forward contracts and purchased options in Topic 815. The amendment clarifies the consideration of observable transactions before applying or discounting the equity method of accounting. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs: ASU 2020-08
Effective January 1, 2021, we adopted Accounting Standards Update No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. FASB standard 2017-08 shortened the amortization period for certain purchased callable debt securities held at a premium by requiring that an entity amortize the premium associated with those callable debt securities within the scope of paragraph 310-20-25-33 to the earliest call date and clarified the FASB’s intent that an entity should reevaluate whether a callable debt security that has multiple call dates is within the scope of paragraph 310-20-35-33 for each reporting period. This guidance clarified that the issuer of a callable debt security should use the next call date versus the earliest call date in amortizing premium. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity: ASU 2020-06
Effective January 1, 2021, we adopted ASU 2020-06 using a modified retrospective basis. ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. It also includes amendments to EPS guidance. The updated guidance reduced the number of accounting models for convertible debt instruments and convertible preferred stock, and eliminated the cash conversion feature within ASU 470. As a result of

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these changes, more convertible instruments will be reported as a single unit on the balance sheet. We previously accounted for our 9% Debentures under the cash conversion feature, which required us to account for the conversion features of our 9% Debentures within Paid-in Capital. The adoption of this guidance resulted in a $68.3 million cumulative effect adjustment to our 2021 beginning Retained Earnings and Paid-in Capital to reflect the 9% Debentures as if we had always accounted for them as a liability in their entirety.
The updated guidance also includes updates to the EPS calculation. It requires an entity to use the if-converted method, assume share settlement when settlement can be in cash or in shares, use an average market price for the period if the number of shares is based on an entity’s share price, and use the weighted average shares from each quarter to calculate the year to date weighted average shares. The guidance also includes improvements to the disclosures for convertible instruments and EPS. The adoption of this guidance did not have a material impact on our consolidated financial statement disclosures.
Reference Rate Reform: ASU 2020-04
In March 2020, the FASB issued ASU 2020-04 to provide temporary optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform. It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This standard may be elected and applied prospectively over time from March 12, 2020 through December 31, 2022 as reference rate reform activities occur. The adoption of, and future elections under, this standard are not expected to have a material impact on our consolidated financial statements as the standard will ease, if warranted, the requirements for accounting for the future effects of reference rate reform. We continue to monitor the impact the discontinuance of LIBOR or other reference rates will have on our contracts and other transactions.


Note 3. Debt
Debt obligations
The aggregate carrying values of our long-term debt obligations and their par values, if different, as of September 30, 2021 and December 31, 2020 are presented in table 3.1 below.
Long-term debt obligations
Table
3.1
(In millions)September 30, 2021December 31, 2020
FHLB Advance - 1.91%, due February 2023$155.0 $155.0 
5.75% Notes, due August 2023 (par value: $242.3 million)241.1 240.6 
5.25% Notes, due August 2028 (par value: $650 million)639.9 638.8 
9% Debentures, due April 2063 (1)
208.8 208.8 
Long-term debt, carrying value$1,244.8 $1,243.2 
(1)Convertible at any time prior to maturity at the holder’s option, at a conversion rate, which is subject to adjustment, of 75.5932 shares per $1,000 principal amount, representing a conversion price of approximately $13.23 per share. The payment of dividends by our holding company results in adjustments to the conversion rate, with such adjustment generally deferred until the end of the year.

The 5.75% Senior Notes (“5.75% Notes”), 5.25% Senior Notes (5.25% Notes) and 9% Convertible Junior Subordinated Debentures (“9% Debentures”) are obligations of our holding company, MGIC Investment Corporation. The Federal Home Loan Bank Advance (the “FHLB Advance”) is an obligation of MGIC.

See Note 7 “Debt” in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information pertaining to our debt obligations and the 2020 repurchase of a portion of our 5.75% Notes and 9% Debentures resulting in a total loss on debt extinguishment of $26.7 million .As of September 30, 2021 we are in compliance with all of our debt covenants.

Interest payments
Interest payments for the nine months ended September 30, 2021 and 2020 were $60.0 million and $44.2 million, respectively.


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Note 4. Reinsurance
The reinsurance agreements to which we are a party, excluding captive agreements (which were immaterial), are discussed below. The effect of all of our reinsurance agreements on premiums earned and losses incurred is shown in table 4.1 below.
Reinsurance
Table
4.1
 Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2021202020212020
Premiums earned:
Direct$287,223 $300,557 $876,541 $896,346 
Assumed 2,660 2,729 7,551 8,719 
Ceded (1)
(35,039)(47,173)(122,664)(144,489)
Net premiums earned$254,844 $256,113 $761,428 $760,576 
Losses incurred:
Direct$17,265 $61,164 $103,319 $383,950 
Assumed(97)229 (43)528 
Ceded3,598 (20,707)(13,710)(65,462)
Losses incurred, net$20,766 $40,686 $89,566 $319,016 
(1) Ceded premiums earned net of profit commission

Quota share reinsurance
We have entered into quota share reinsurance ("QSR") transactions with panels of third-party reinsurers to cede a fixed quota share percentage of premiums earned and received and losses incurred on insurance covered by the transactions. We receive the benefit of a ceding commission equal to 20% of premiums ceded before profit commission. We also receive the benefit of a profit commission through a reduction of premiums we cede. The profit commission varies inversely with the level of losses on a “dollar for dollar” basis and can be eliminated at annual loss ratios higher than we have experienced on our QSR Transactions.

Each of our QSR Transactions typically have annual loss ratio caps of 300% and lifetime loss ratios of 200%.



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Table 4.2 below provides additional detail regarding our QSR Transactions.

Reinsurance
Table4.2
Quota Share ContractCovered Policy YearsQuota Share %
Annual Loss Ratio to Exhaust Profit Commission (1)
Contractual Termination Date
2015 QSRPrior to 201715.0 %68.0 %December 31, 2031
2017 QSR201730.0 %60.0 %December 31, 2028
2018 QSR201830.0 %62.0 %December 31, 2029
2019 QSR201930.0 %62.0 %December 31, 2030
2020 QSR 202012.5 %62.0 %December 31, 2031
2020 QSR and 2021 QSR2020 - 202117.5 %62.0 %December 31, 2032
2021 QSR 202112.5 %57.5 %December 31, 2032
2022 QSR202215.0 %57.5 %December 31, 2033
Credit Union QSR (2)
2020-202565.0 %50.0 %December 31, 2039
(1) We will receive a profit commission provided the annual loss ratio on policies covered under the transaction remains below this ratio.
(2) Eligible credit union business written before April 1, 2020 was covered by our 2019 and prior QSR Transactions.

We can elect to terminate the QSR Transactions under specified scenarios without penalty upon prior written notice, including if we will receive less than 90% (80% for the Credit Union QSR Transaction ) of the full credit amount under the PMIERs, full financial statement credit or full credit under applicable regulatory capital requirements for the risk ceded in any required calculation period.
Table 4.3 provides additional detail regarding optional termination dates and optional reductions to our quota share percentage which can, in each case, be elected by us for a fee. The optional reduction to the quota share percentage would give us an option to reduce our quota share percentage from the original percentage shown in table 4.2 to the percentage shown in table 4.3.

Reinsurance
Table4.3
Quota Share Contract
Optional Termination Date (1)
Optional Quota Share % Reduction Date (2)
Quota Share % Reduction
2015 QSRJune 30, 2021NANA
2017 QSRDecember 31, 2021NANA
2018 QSRDecember 31, 2021NANA
2019 QSRDecember 31, 2021July 1, 202025% or 20%
2020 QSR December 31, 2022July 1, 202110.5% or 8%
2020 QSR and 2021 QSR, 2020 Policy yearDecember 31, 2022July 1, 202114.5% or 12%
2020 QSR and 2021 QSR, 2021 Policy yearDecember 31, 2023July 1, 202214.5% or 12%
2021 QSR December 31, 2023July 1, 202210.5% or 8%
2022 QSRDecember 31, 2024July 1, 202312.5% or 10%
(1) We can elect early termination of the QSR Transaction beginning on this date, and bi-annually thereafter for the 2015 QSR, 2019 QSR, 2020 QSR, 2021 QSR, and 2022 QSR. Early termination of the 2018 QSR can be elected on this date and annually thereafter.
(2) We can elect to reduce the quota share percentage beginning on this date, and bi-annually thereafter.


We have elected to terminate our 2017 QSR and 2018 QSR Transactions effective December 31, 2021 and will incur an early termination fee of $5 million at December 31, 2021.










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Table 4.4 below provides a summary of our QSR Transactions, excluding captive agreements, for the three and nine months ended September 30, 2021 and 2020.
Quota Share Reinsurance
Table4.4
 Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2021202020212020
Ceded premiums written and earned, net of profit commission$22,911 $43,448 $90,284 $131,651 
Ceded losses incurred(3,598)20,707 13,710 65,493 
Ceding commissions (1)
13,599 12,128 39,657 35,518 
Profit commission45,078 17,191 108,000 45,939 
(1)Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.

Ceded losses incurred for the three and nine months ended September 30, 2021 reflect favorable loss reserve development on previously received notices primarily due to the decrease in the claim rate on pre-COVID-19 delinquencies notices and a decrease in new delinquency notices reported on insurance covered by our QSR Transactions. Ceded loss incurred for the three and nine months ended September 30, 2020 reflect the increase in new delinquency notices due to the impact of the COVID-19 pandemic on insurance covered by our QSR Transactions. See Note 11 - “Loss Reserves” for discussion of our loss reserves.
Under the terms of our QSR Transactions, currently in effect, ceded premiums, ceding commissions, profit commission, and ceded paid loss and LAE are settled net on a quarterly basis. The ceded premiums due after deducting the related ceding commission and profit commission is reported within Other liabilities on the consolidated balance sheets.

The reinsurance recoverable on loss reserves related to our QSR Transactions was $107.0 million as of September 30, 2021 and $95.0 million as of December 31, 2020. The reinsurance recoverable balance is secured by funds on deposit from the reinsurers, the minimum amount of which is based on the greater of a reinsurer’s funding requirements under PMIERs or ceded reserves. An allowance for credit losses was not required at September 30, 2021.

Excess of loss reinsurance
We have aggregate excess of loss reinsurance transactions (“Home Re Transactions”) with unaffiliated special purpose insurers domiciled in Bermuda (“Home Re Entities”). For the reinsurance coverage periods, we retain the first layer of the respective aggregate losses paid, and a Home Re Entity will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses paid in excess of the outstanding reinsurance coverage amount. Subject to certain conditions, the reinsurance coverage decreases over a period of either 10 or 12.5 years, depending on the transaction, as the underlying covered mortgages amortize or are repaid, or mortgage insurance losses are paid.

The Home Re Entities financed the coverages by issuing mortgage insurance-linked notes (“ILNs”) to unaffiliated investors in an aggregate amount equal to the initial reinsurance coverage amounts. Each ILN is non-recourse to any assets of MGIC or affiliates. The proceeds of the ILNs, which were deposited into reinsurance trusts for the benefit of MGIC, will be the source of reinsurance claim payments to MGIC and principal repayments on the ILNs.

When a “Trigger Event” is in effect, payment of principal on the related notes will be suspended and the reinsurance coverage available to MGIC under the transactions will not be reduced by such principal payments. As of September 30, 2021 a "Trigger Event" has occurred on our Home Re 2018-1 and Home Re 2019-1 ILN transactions because the reinsured principal balance of loans that were reported 60 or more days delinquent exceeded 4% of the total reinsured principal balance of loans under each transaction. A “Trigger Event” has also occurred on the Home Re 2021-1 and Home Re 2021-2 ILN transactions because the credit enhancement of the most senior tranche is less than the target credit enhancement.


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Table 4.5 provides a summary of our Home Re Transactions as of September 30, 2021 and December 31, 2020.

Excess of Loss Reinsurance
Table 4.5
($ in thousands)Home Re 2021-2, Ltd.Home Re 2021-1, Ltd.Home Re 2020-1, Ltd.Home Re 2019-1, Ltd.Home Re 2018-1, Ltd.
Issue DateAugust 3, 2021February 2, 2021October 29, 2020May 25, 2019October 30, 2018
Policy Inforce DatesJanuary 1, 2021 - May 28, 2021August 1, 2020 - December 31, 2020January 1, 2020 - July 31, 2020January 1, 2018 - March 31, 2019July 1, 2016 - December 31, 2017
Optional Call Date (1)
July 25, 2028January 25, 2028October 25, 2027May 25, 2026October 25, 2025
Legal Maturity12.5 years12.5 years10 years10 years10 years
Initial First Layer Retention190,159211,159275,283185,730168,691
Initial Excess of Loss Reinsurance Coverage398,429398,848412,917315,739318,636
September 30, 2021
   
Remaining First Layer Retention190,159211,159275,268184,007165,434
Remaining Excess of Loss Reinsurance Coverage398,429398,848288,777208,146218,343
December 31, 2020
Remaining First Layer Retention——275,283184,514166,005
Remaining Excess of Loss Reinsurance Coverage——412,917208,146218,343
(1)We have the right to terminate the Home Re Transactions under certain circumstances and on any payment date on or after the respective Optional Call Date.

The reinsurance premiums ceded to each Home Re Entity are composed of coverage, initial expense and supplemental premiums. The coverage premiums are generally calculated as the difference between the amount of interest payable by the Home Re Entity on the remaining reinsurance coverage levels, and the investment income collected on the collateral assets held in a reinsurance trust account and used to collateralize the Home Re Entity’s reinsurance obligation to MGIC. The amount of monthly reinsurance coverage premium ceded will fluctuate due to changes in the reference rate and changes in money market rates that affect investment income collected on the assets in the reinsurance trust. The Home Re 2021-2 Transaction references SOFR, while the remaining Home Re Transactions reference the one-month LIBOR. As a result, we concluded that each Home Re transaction contains an embedded derivative that is accounted for separately as a freestanding derivative. The fair values of the derivatives at September 30, 2021, were not material to our consolidated balance sheet, and the change in fair value during the three and nine months ended September 30, 2021 was not material to our consolidated statements of operations. Total ceded premiums were $12.1 million and $32.4 million for the three and nine months ended September 30, 2021, and $3.7 million and $12.8 million for the three and nine months ended September 30, 2020, respectively.

At the time the Home Re Transactions were entered into, we concluded that each Home Re Entity is a variable interest entity (“VIE”). A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without
additional subordinated financial support or is structured such that equity investors lack the ability to make sufficient decisions relating to the entity’s operations through voting rights or do not substantively participate in gains and losses of the entity. Given that MGIC (1) does not have the unilateral power to direct the activities that most significantly affect each Home Re Entity’s economic performance and (2) does not have the obligation to absorb losses or the right to receive benefits of each Home Re Entity that potentially could be significant to the Home Re Entity, consolidation of the Home Re Entities is not required.

We are required to disclose our maximum exposure to loss, which we consider to be an amount that we could be required to record -in our statements of operations, as a result of our involvement with the VIEs under our Home Re Transactions. As of September 30, 2021, and December 31, 2020, we did not have material exposure to the VIEs as we have no investment in the VIEs and had no reinsurance claim payments due from the VIEs under our reinsurance transactions. We are unable to determine the timing or extent of claims from losses that are ceded under the reinsurance transactions. The VIE assets are deposited in reinsurance trusts for the benefit of MGIC that will be the source of reinsurance claim payments to MGIC. The purpose of the reinsurance trusts is to provide security to MGIC for the obligations of the VIEs under the reinsurance transactions. The trustee of the reinsurance trusts, a recognized provider of corporate trust services, has established segregated accounts within the reinsurance trusts for the benefit of MGIC, pursuant to the trust agreements. The

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trust agreements are governed by, and construed in accordance with, the laws of the State of New York. If the trustee of the reinsurance trusts failed to distribute claim payments to us as provided in the reinsurance trusts, we would incur a loss related to our losses ceded under the Home Re Transactions and deemed unrecoverable. We are also unable to determine the impact such possible failure by the trustee to perform pursuant to the reinsurance trust agreements may have on our consolidated financial statements. As a result, we are unable to quantify our maximum exposure to loss related to our involvement with the VIEs. MGIC has certain termination rights under the reinsurance transactions should its claims not be paid. We consider our exposure to loss from our reinsurance transactions with the VIEs to be remote.

Table 4.6 presents the total assets of the Home Re Entities as of September 30, 2021 and December 31, 2020.
Home Re total assets
Table4.6
(In thousands)
Home Re Entity (Issue date)Total VIE Assets
September 30, 2021
Home Re 2018-1 Ltd.$218,343 
Home Re 2019-1 Ltd.208,146 
Home Re 2020-1 Ltd.312,199 
Home Re 2021-1 Ltd.398,848 
Home Re 2021-2 Ltd.398,429 
December 31, 2020
Home Re 2018-1 Ltd.$218,343 
Home Re 2019-1 Ltd.208,146 
Home Re 2020-1 Ltd.412,917 

The reinsurance trust agreements provide that the trust assets may generally only be invested in certain money market funds that (i) invest at least 99.5% of their total assets in cash or direct U.S. federal government obligations, such as U.S. Treasury bills, as well as other short-term securities backed by the full faith and credit of the U.S. federal government or issued by an agency of the U.S. federal government, (ii) have a principal stability fund rating of “AAAm” by S&P or a money market fund rating of “Aaa-mf” by Moody’s as of the Closing Date and thereafter maintain any rating with either S&P or Moody’s, and (iii) are permitted investments under the applicable credit for reinsurance laws and applicable PMIERs credit for reinsurance requirements.

The total calculated PMIERs credit for risk ceded under our Home Re Transactions is generally based on the PMIERs requirement of the covered policies and the attachment and detachment points of the coverage, all of which fluctuate over time. (see Note 1 - “Nature of Business and Basis of Presentation”).



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Note 5. Litigation and Contingencies
Before paying an insurance claim, generally we review the loan and servicing files to determine the appropriateness of the claim amount. When reviewing the files, we may determine that we have the right to rescind coverage or deny a claim on the loan (both referred to as “rescissions”). In addition, our insurance policies generally provide that we can reduce a claim if the servicer did not comply with its obligations under our insurance policy (such reduction referred to as a “curtailment”). In recent quarters, an immaterial percentage of claims received in a quarter have been resolved by rescissions. In the three quarters of 2021 and in 2020, curtailments reduced our average claim paid by approximately 3.9% and 3.6%, respectively. The COVID-19 related foreclosure moratoriums and forbearance plans have decreased our claims paid activity beginning in the second quarter of 2020. It is difficult to predict the level of curtailments once the foreclosure moratoriums and forbearance plans end.

When the insured disputes our right to rescind coverage or curtail claims, we generally engage in discussions in an attempt to settle the dispute. If we are unable to reach a settlement, the outcome of a dispute ultimately may be determined by legal proceedings. Under ASC 450-20, until a loss associated with settlement discussions or legal proceedings becomes probable and can be reasonably estimated, we consider our claim payment or rescission resolved for financial reporting purposes and do not accrue an estimated loss. When we determine that a loss is probable and can be reasonably estimated, we record our best estimate of our probable loss, including recording a probable loss of $6.3 million in the second quarter of 2021. The probable loss is reported within Loss Reserves on the Consolidated Balance Sheet and within Losses Incurred, net on the Consolidated Statements of Operations. In those cases, until settlement negotiations or legal proceedings are concluded (including the receipt of any necessary GSE approvals), it is possible that we will record an additional loss. We are currently involved in discussions and/or proceedings with respect to our claims paying practices. Although it is possible that, if not resolved by negotiation, we will not prevail on all matters, we are unable to make a reasonable estimate or range of estimates of the potential liability. We estimate the maximum exposure where a loss is reasonably possible to be approximately $27 million more than the amount of the probable loss we have recorded. This estimate of maximum exposure is based upon currently available information; is subject to significant judgment, numerous assumptions and known and unknown uncertainties; will include an amount for matters for which we have recorded a probable loss until such matters are concluded; will include different matters from time to time; and does not include interest or consequential or exemplary damages.


In addition to the matters described above, we are involved in other legal proceedings in the ordinary course of business. In our opinion, based on the facts known at this time, the ultimate resolution of these ordinary course legal proceedings will not have a material adverse effect on our financial position or results of operations.

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Note 6. Earnings per Share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of shares of common stock outstanding. For purposes of calculating basic EPS, vested restricted stock and restricted stock units (“RSUs”) are considered outstanding. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. The determination of whether components are dilutive is calculated independently for each period. We calculate diluted EPS using the treasury stock method and if-converted method. Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if unvested RSUs result in the issuance of common stock. Under the if-converted method, diluted EPS reflects the potential dilution that could occur if our 9% Debentures result in the issuance of common stock. The determination of potentially issuable shares does not consider the satisfaction of the conversion requirements and the shares are included in the determination of diluted EPS as of the beginning of the period, if dilutive.

Table 6.1 reconciles the numerators and denominators used to calculate basic and diluted EPS.
Earnings per share
Table
6.1
 Three Months Ended September 30,Nine Months Ended September 30,
(In thousands, except per share data)2021202020212020
Basic earnings per share:
Net income$157,977 $130,811 $461,049 $294,663 
Weighted average common shares outstanding - basic335,938 338,598 338,045 340,408 
Basic earnings per share$0.47 $0.39 $1.36 $0.87 
Diluted earnings per share:
Net income$157,977 $130,811 $461,049 $294,663 
Interest expense, net of tax (1):
9% Debentures3,712 4,161 11,135 13,293 
Diluted income available to common shareholders$161,689 $134,972 $472,184 $307,956 
Weighted average common shares outstanding - basic335,938 338,598 338,045 340,408 
Effect of dilutive securities:
Unvested RSUs1,834 1,377 1,651 1,492 
9% Debentures15,785 17,220 15,785 18,489 
Weighted average common shares outstanding - diluted353,557 357,195 355,481 360,389 
Diluted earnings per share$0.46 $0.38 $1.33 $0.85 
(1) Interest expense for the three and nine months ended September 30, 2021 and 2020, respectively, has been tax effected at a rate of 21%.


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Note 7. Investments
Fixed income securities
Our fixed income securities classified as available-for-sale at September 30, 2021 and December 31, 2020 are shown in tables 7.1a and 7.1b below.
Details of fixed income securities by category as of September 30, 2021
Table7.1a
(In thousands)Amortized CostAllowance for Expected Credit LossGross Unrealized GainsGross Unrealized (Losses)Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies$184,578 $— $434 $(277)$184,735 
Obligations of U.S. states and political subdivisions2,372,020 — 146,149 (3,639)2,514,530 
Corporate debt securities2,856,671 — 100,264 (8,438)2,948,497 
ABS158,637 (1)1,337 (198)159,775 
RMBS337,353 — 3,581 (1,666)339,268 
CMBS319,187 — 9,634 (628)328,193 
CLOs408,121 — 913 (64)408,970 
Foreign government debt13,748 — 58 (40)13,766 
Total fixed income securities$6,650,315 $(1)$262,370 $(14,950)$6,897,734 
Details of fixed income securities by category as of December 31, 2020
Table7.1b
(In thousands)Amortized CostAllowance for Expected Credit LossesGross Unrealized Gains
Gross Unrealized (Losses) (1)
Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies$264,531 $— $1,164 $(2)$265,693 
Obligations of U.S. states and political subdivisions2,083,568 — 166,557 (256)2,249,869 
Corporate debt securities2,690,860 — 155,156 (1,728)2,844,288 
ABS203,807 (49)2,946 (18)206,686 
RMBS425,532 — 6,472 (838)431,166 
CMBS312,572 — 16,055 (1,125)327,502 
CLOs310,616 — 566 (692)310,490 
Foreign government debt4,485 — 224 — 4,709 
Commercial paper21,193 — — — 21,193 
Total fixed income securities$6,317,164 $(49)$349,140 $(4,659)$6,661,596 

We had $13.8 million and $14.1 million of investments at fair value on deposit with various states as of September 30, 2021 and December 31, 2020, respectively, due to regulatory requirements of those state insurance departments. In connection with our insurance and reinsurance activities within MAC and MIC, insurance subsidiaries of MGIC, we are required to maintain assets in trusts for the benefit of contractual counterparties, which had investments at fair value of $187.5 million and $160.3 million at September 30, 2021 and December 31, 2020, respectively.


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The amortized cost and fair values of fixed income securities at September 30, 2021, by contractual maturity, are shown in table 7.2 below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most ABS, RMBS, CMBS, and CLOs provide for periodic payments throughout their lives, they are listed in separate categories.
Fixed income securities maturity schedule
Table7.2
September 30, 2021
(In thousands)Amortized costFair Value
Due in one year or less$415,090 $418,673 
Due after one year through five years1,856,136 1,919,980 
Due after five years through ten years1,666,042 1,757,537 
Due after ten years1,489,749 1,565,338 
5,427,017 5,661,528 
ABS158,637 159,775 
RMBS337,353 339,268 
CMBS319,187 328,193 
CLOs408,121 408,970 
Total as of September 30, 2021$6,650,315 $6,897,734 

Proceeds from sales of fixed income securities classified as available-for-sale were $246.8 million and $713.1 million during the nine months ended September 30, 2021 and 2020, respectively. Gross gains of $1.4 million and $6.7 million and gross losses of $0.3 million and $1.0 million were realized during the three and nine months ended September 30, 2021. We did not record any realized losses for the three and nine months ended September 30, 2021 related to our intent to sell certain securities. During the three and nine months ended September 30, 2020 gross gains of $3.4 million and $15.9 million and gross losses of $0.8 million and $5.9 million, respectively, were realized. We recorded $0.4 million of realized losses for the three months ended September 30, 2020 and $0.7 million of realized losses for the nine months ended September 30, 2020 related to our intent to sell certain securities.

Equity securities
The cost and fair value of investments in equity securities at September 30, 2021 and December 31, 2020 are shown in tables 7.3a and 7.3b below.
Details of equity security investments as of September 30, 2021
Table7.3a
(In thousands)CostGross GainsGross LossesFair Value
Equity securities$14,981 $395 $(15)$15,361 
Details of equity security investments as of December 31, 2020
Table7.3b
(In thousands)CostGross GainsGross LossesFair Value
Equity securities$17,522 $695 $(2)$18,215 

For the three and nine months ended September 30, 2021, we recognized $0.1 million and $0.3 million of net losses on equity securities still held as of September 30, 2021. For the three and nine months ended September 30, 2020, we recognized $0.1 million and $0.4 million of net gains, respectively, on equity securities still held as of September 30, 2020.

Other invested assets
Other invested assets include an investment in Federal Home Loan Bank ("FHLB") stock that is carried at cost, which due to its nature approximates fair value. Ownership of FHLB stock provides access to a secured lending facility, and our current FHLB Advance amount is secured by eligible collateral whose fair value is maintained at a minimum of 102% of the outstanding principal balance of the FHLB Advance. As of September 30, 2021 and December 31, 2020, that collateral consisted of fixed income securities included in our total investment portfolio, and cash and cash equivalents, with a total fair value of $163.7 million and $163.9 million, respectively.


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Unrealized investment losses
Tables 7.4a and 7.4b below summarize, for all available-for-sale investments in an unrealized loss position at September 30, 2021 and December 31, 2020, the aggregate fair value and gross unrealized loss by the length of time those securities have been continuously in an unrealized loss position. The fair value amounts reported in tables 7.4a and 7.4b are estimated using the process described in Note 8 - “Fair Value Measurements” to these consolidated financial statements and in Note 3 - “Significant Accounting Policies” to the consolidated financial statements in our 2020 Annual Report on Form 10-K.
Unrealized loss aging for securities by type and length of time as of September 30, 2021
Table7.4a
Less Than 12 Months12 Months or GreaterTotal
(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies$88,312 $(277)$— $— $88,312 $(277)
Obligations of U.S. states and political subdivisions250,099 (3,479)15,638 (160)265,737 (3,639)
Corporate debt securities468,720 (8,438)— — 468,720 (8,438)
ABS58,901 (198)— — 58,901 (198)
RMBS174,094 (1,302)26,733 (364)200,827 (1,666)
CMBS82,653 (628)— — 82,653 (628)
CLOs127,483 (29)21,974 (35)149,457 (64)
Foreign government debt4,445 (40)— — 4,445 (40)
Total$1,254,707 $(14,391)$64,345 $(559)$1,319,052 $(14,950)
Unrealized loss aging for securities by type and length of time as of December 31, 2020
Table7.4b
Less Than 12 Months12 Months or GreaterTotal
(In thousands)Fair Value
Unrealized
 Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
 Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies$2,690 $(2)$— $— $2,690 $(2)
Obligations of U.S. states and political subdivisions31,416 (256)— — 31,416 (256)
Corporate debt securities44,968 (1,728)— — 44,968 (1,728)
ABS14,929 (18)— — 14,929 (18)
RMBS98,409 (773)3,566 (65)101,975 (838)
CMBS13,212 (789)2,799 (336)16,011 (1,125)
CLOs95,287 (261)73,904 (431)169,191 (692)
Total$300,911 $(3,827)$80,269 $(832)$381,180 $(4,659)

Based on current facts and circumstances, we believe the unrealized losses as of September 30, 2021 presented in table 7.4a above are not indicative of the ultimate collectability of the current amortized cost of the securities. The unrealized losses in all categories of our investments at September 30, 2021 were primarily caused by changes in interest rates between the time of purchase and the respective fair value measurement date. We also rely upon estimates of several credit and non-credit factors in our review and evaluation of individual investments to determine whether a credit impairment exists.

There were 396 and 109 securities in an unrealized loss position at September 30, 2021 and December 31, 2020, respectively.  

We report accrued investment income separately from fixed income, available-for-sale, securities, and we have determined an allowance for credit losses for accrued investment income is not required. Accrued investment income is written off through net realized investment gains (losses) if, and at the time, the issuer of the security defaults or is expected to default on payments.  



MGIC Investment Corporation - Q3 2021 | 24

Note 8. Fair Value Measurements
Recurring fair value measurements
The following describes the valuation methodologies generally used by the independent pricing sources, or by us, to measure financial instruments at fair value, including the general classification of such financial instruments pursuant to the valuation hierarchy.

•Fixed income securities:
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies: Securities with valuations derived from quoted prices for identical instruments in active markets that we can access are categorized in Level 1 of the fair value hierarchy. Securities valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information in the valuation process are categorized as Level 2 of the fair value hierarchy.
Corporate Debt Bonds are valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process. These securities are generally categorized in Level 2 of the fair value hierarchy.
Obligations of U.S. States & Political Subdivisions are valued by tracking, capturing, and analyzing quotes for active issues and trades reported via the Municipal Securities Rulemaking Board records. Daily briefings and reviews of current economic conditions, trading levels, spread relationships, and the slope of the yield curve provide further data for evaluation. These securities are generally categorized in Level 2 of the fair value hierarchy.
Residential Mortgage-Backed Securities ("RMBS") are valued by monitoring interest rate movements, and other pertinent data daily. Incoming market data is enriched to derive spread, yield and/or price data as appropriate, enabling known data points to be extrapolated for valuation application across a range of related securities. These securities are generally categorized in Level 2 of the fair value hierarchy.
Commercial Mortgage-Backed Securities ("CMBS") are valued using techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including quoted prices for similar assets, benchmark yield curves and market corroborated inputs. Evaluation uses regular reviews of the inputs for securities covered, including executed trades, broker quotes, credit information, collateral attributes and/or cash flow waterfall as applicable. These securities are generally categorized in Level 2 of the fair value hierarchy.
Asset-Backed Securities ("ABS") are valued using spreads and other information solicited from market buy-and-sell-side sources, including primary and secondary dealers, portfolio managers, and research analysts. Cash flows are generated for each tranche, benchmark yields are determined, and deal collateral performance and tranche level attributes including trade activity, bids, and offers are applied, resulting in tranche specific prices. These securities are generally categorized in Level 2 of the fair value hierarchy.
Collateralized loan obligations ("CLOs") are valued by evaluating manager rating, seniority in the capital structure, assumptions about prepayment, default and recovery and their impact on cash flow generation. Loan level net asset values are determined and aggregated for tranches and as a final step prices are checked against available recent trade activity. These securities are generally categorized in Level 2 of the fair value hierarchy.
Foreign government debt is valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process. These securities are generally categorized in Level 2 of the fair value hierarchy.
Commercial Paper, which has an original maturity greater than 90 days, is valued using market data for comparable instruments of similar maturity and average yields. These securities are categorized in Level 2 of the fair value hierarchy.
•Equity securities: Consist of actively traded, exchange-listed equity securities, including exchange traded funds (“ETFs”) and Bond Mutual Funds, with valuations derived from quoted prices for identical assets in active markets that we can access. These securities are valued in Level 1 of the fair value hierarchy.
•Cash Equivalents: Consists of money market funds and treasury bills with valuations derived from quoted prices for identical assets in active markets that we can access. These securities are valued in level 1 of the fair value hierarchy. Instruments in this category valued using market data for comparable instruments are classified as level 2 in the fair value hierarchy.

•Real estate acquired is valued at the lower of our acquisition cost or a percentage of the appraised value. The percentage applied to the appraised value is based upon our historical sales experience adjusted for current trends. These securities are categorized in level 3 of the fair value hierarchy.


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Assets measured at fair value, by hierarchy level, as of September 30, 2021 and December 31, 2020 are shown in tables 8.1a and 8.1b below. The fair value of the assets is estimated using the process described above, and more fully in Note 3 - “Significant Accounting Policies” to the consolidated financial statements in our 2020 Annual Report on Form 10-K.
Assets carried at fair value by hierarchy level as of September 30, 2021
Table8.1a
(In thousands)Total Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies$184,735 $124,310 $60,425 $— 
Obligations of U.S. states and political subdivisions2,514,530 — 2,514,530 — 
Corporate debt securities2,948,497 — 2,948,497 — 
ABS159,775 — 159,775 — 
RMBS339,268 — 339,268 — 
CMBS328,193 — 328,193 — 
CLOs408,970 — 408,970 — 
Foreign government debt13,766 — 13,766 — 
Total fixed income securities6,897,734 124,310 6,773,424 — 
Equity securities15,361 15,361 — — 
Cash Equivalents168,083 168,083 — — 
Real estate acquired (1)
1,485 — — 1,485 
Total$7,082,663 $307,754 $6,773,424 $1,485 
Assets carried at fair value by hierarchy level as of December 31, 2020
Table8.1b
(In thousands)Total Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies$265,693 $149,339 $116,354 $— 
Obligations of U.S. states and political subdivisions2,249,869 — 2,249,869 — 
Corporate debt securities2,844,288 — 2,844,288 — 
ABS206,686 — 206,686 — 
RMBS431,166 — 431,166 — 
CMBS327,502 — 327,502 — 
CLOs310,490 — 310,490 — 
Foreign government debt4,709 — 4,709 — 
Commercial paper21,193 — 21,193 — 
Total fixed income securities6,661,596 149,339 6,512,257 — 
Equity securities18,215 18,215 — — 
Cash Equivalents288,941 275,668 13,273 — 
Real estate acquired (1)
1,092 — — 1,092 
Total$6,969,844 $443,222 $6,525,530 $1,092 
(1)Real estate acquired through claim settlement, which is held for sale, is reported in “Other assets” on the consolidated balance sheets.

Certain financial instruments, including insurance contracts, are excluded from these fair value disclosure requirements. The carrying values of cash and cash equivalents (Level 1) and accrued investment income (Level 2) approximated their fair values. Additional fair value disclosures related to our investment portfolio are included in Note 7 – “Investments.”


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Reconciliations of Level 3 assets
For assets measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the three and nine months ended September 30, 2021 and 2020 is shown in tables 8.2a and 8.2b below. There were no losses included in earnings for those periods attributable to the change in unrealized losses on assets still held at the end of the applicable period.
Fair value roll-forward for financial instruments classified as Level 3 for the three months ended September 30,
Table
8.2a
Real Estate Acquired
(In thousands)20212020
Balance at June 30,$572 $1,963 
Purchases1,178 1,990 
Sales(190)(2,266)
Included in earnings and reported as losses incurred, net(75)3 
Balance at September 30,$1,485 $1,690 
Fair value roll-forward for financial instruments classified as Level 3 for the nine months ended September 30,
Table8.2b
Real Estate Acquired
(In thousands)20212020
Balance at December 31, $1,092 $7,252 
Purchases3,955 7,911 
Sales(3,844)(13,991)
Included in earnings and reported as losses incurred, net282 518 
Balance at September 30,$1,485 $1,690 

Financial assets and liabilities not measured at fair value
Other invested assets include an investment in FHLB stock that is carried at cost, which due to restrictions that require it to be redeemed or sold only to the security issuer at par value, approximates fair value. The fair value of other invested assets is categorized as Level 2.
Financial liabilities include our outstanding debt obligations. The fair values of our 5.75% and 5.25% Notes and 9% Debentures were based on observable market prices. The fair value of the FHLB Advance was estimated using cash flows discounted at current incremental borrowing rates for similar borrowing arrangements. In all cases the fair values of the financial liabilities below are categorized as Level 2.
Table 8.3 presents the carrying value and fair value of our financial assets and liabilities disclosed, but not carried, at fair value at September 30, 2021 and December 31, 2020.
Financial assets and liabilities not measured at fair value
Table8.3
September 30, 2021December 31, 2020
(In thousands)Carrying ValueFair ValueCarrying ValueFair Value
Financial assets
Other invested assets$3,100 $3,100 $3,100 $3,100 
Financial liabilities
FHLB Advance155,000 158,820 155,000 160,865 
5.75% Senior Notes241,090 260,349 240,597 261,752 
5.25% Senior Notes639,886 694,135 638,782 696,449 
9% Convertible Junior Subordinated Debentures208,814 279,696 208,814 273,569 
Total financial liabilities$1,244,790 $1,393,000 $1,243,193 $1,392,635 


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Note 9. Other Comprehensive Income
The pretax and related income tax benefit (expense) components of our other comprehensive income (loss) for the three and nine months ended September 30, 2021 and 2020 are included in table 9.1 below.
Components of other comprehensive income (loss)
Table
9.1
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2021202020212020
Net unrealized investment (losses) gains arising during the period$(34,937)$42,674 $(97,057)$132,036 
Total income tax benefit (expense)7,337 (8,962)20,382 (27,728)
Net of taxes(27,600)33,712 (76,675)104,308 
Net changes in benefit plan assets and obligations7,548 (14,364)9,492 (11,695)
Total income tax benefit (expense)(1,585)3,017 (1,993)2,456 
Net of taxes5,963 (11,347)7,499 (9,239)
Total other comprehensive income (loss)(27,389)28,310 (87,565)120,341 
Total income tax benefit (expense)5,752 (5,945)18,389 (25,272)
Total other comprehensive income (loss), net of tax$(21,637)$22,365 $(69,176)$95,069 

The pretax and related income tax benefit (expense) components of the amounts reclassified from our accumulated other comprehensive income (loss) (“AOCI”) to our consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 are included in table 9.2 below.
Reclassifications from AOCI
Table
9.2
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2021202020212020
Reclassification adjustment for net realized (losses) gains(1)
$1,045 $10,349 $7,462 $8,673 
Income tax benefit (expense)(219)(2,173)(1,566)(1,821)
Net of taxes826 8,176 5,896 6,852 
Reclassification adjustment related to benefit plan assets and obligations (2)
(971)(1,336)(2,915)(4,005)
Income tax benefit (expense)204 280 612 841 
Net of taxes(767)(1,056)(2,303)(3,164)
Total reclassifications74 9,013 4,547 4,668 
Income tax benefit (expense)(15)(1,893)(954)(980)
Total reclassifications, net of tax$59 $7,120 $3,593 $3,688 
(1)Increases (decreases) Net realized investment gains (losses) on the consolidated statements of operations.
(2)Decreases (increases) Other underwriting and operating expenses, net on the consolidated statements of operations.

A rollforward of AOCI for the nine months ended September 30, 2021, including amounts reclassified from AOCI, are included in table 9.3 below.
Rollforward of AOCI
Table
9.3
Nine Months Ended September 30, 2021
(In thousands)Net unrealized gains and (losses) on available-for-sale securitiesNet benefit plan assets and (obligations) recognized in shareholders' equityTotal accumulated other comprehensive income (loss)
Balance at December 31, 2020, net of tax$272,137 $(55,316)$216,821 
Other comprehensive income before reclassifications(70,779)5,196 (65,583)
Less: Amounts reclassified from AOCI5,896 (2,303)3,593 
Balance, September 30, 2021, net of tax$195,462 $(47,817)$147,645 


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Note 10. Benefit Plans
Tables 10.1 and 10.2 provide the components of net periodic benefit cost for our pension, supplemental executive retirement and other postretirement benefit plans for the three and nine months ended September 30, 2021 and 2020.
Components of net periodic benefit cost
Table
10.1
Three Months Ended September 30,
Pension and Supplemental Executive Retirement PlansOther Postretirement Benefit Plans
(In thousands)2021202020212020
Service cost$1,908 $1,848 $377 $316 
Interest cost2,794 3,375 163 208 
Expected return on plan assets(5,229)(5,526)(2,216)(1,852)
Amortization of net actuarial losses (gains)1,403 1,580 (425)(196)
Amortization of prior service cost (credit)(60)(62)53 13 
Cost of settlements4,732 6,520 — — 
Net periodic benefit cost (benefit)$5,548 $7,735 $(2,048)$(1,511)

Components of net periodic benefit cost
Table10.2
Nine Months Ended September 30,
Pension and Supplemental Executive Retirement PlansOther Postretirement Benefit Plans
(In thousands)2021202020212020
Service cost$5,724 $5,545 $1,131 $947 
Interest cost8,383 10,125 487 624 
Expected return on plan assets(15,687)(16,579)(6,647)(5,556)
Amortization of net actuarial losses (gains)4,208 4,740 (1,273)(587)
Amortization of prior service cost (credit)(179)(186)159 38 
Cost of settlements4,732 6,520 — — 
Net periodic benefit cost (benefit)$7,181 $10,165 $(6,143)$(4,534)

Contributions of $6.9 million have been made to our qualified pension and supplemental executive retirement plan in 2021. We recorded pension settlement accounting charges of $4.7 million and $6.5 million in 2021 and 2020, respectively.



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Note 11. Loss Reserves
We establish case reserves and loss adjustment expenses (“LAE”) reserves on delinquent loans that were reported to us as two payments past due and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case reserves are established by estimating the number of loans in our delinquency inventory that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.

IBNR reserves are established for estimated losses from delinquencies we estimate have occurred prior to the close of an accounting period but have not yet been reported to us. IBNR reserves are also established using estimated claim rates and claim severities.

Estimation of losses is inherently judgmental. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment and the current and future strength of local housing markets; exposure on insured loans; the amount of time between delinquency and claim filing (all else being equal, the longer the period between delinquency and claim filing, the greater the severity); and curtailments and rescissions. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment and the continued impact of the COVID-19 pandemic, leading to a reduction in borrowers’ income and thus their ability to make mortgage payments, the impact of past and future government initiatives and actions taken by the GSEs (including mortgage forbearance programs and foreclosure moratoriums), and a drop in housing values which may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. Loss reserves in future periods will also be dependent on the number of loans reported to us as delinquent.

Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment. It is reasonably possible that given the uncertainty of the impacts of the COVID-19 pandemic, our reserve estimate may continue to be impacted.

In considering the potential sensitivity of the factors underlying our estimate of loss reserves, it is possible that even a relatively small change in our estimated claim rate or severity could have a material impact on loss reserves and, correspondingly, on our consolidated results of operations even in a stable economic environment. For example, as of September 30, 2021, assuming all other factors remain constant, a $1,000 increase/decrease in the average severity reserve factor would change the loss reserve amount by approximately +/- $17 million. A one percentage point increase/decrease in the average claim rate reserve factor would change the loss reserve amount by approximately +/- $22 million.
The “Losses incurred” section of table 11.1 below shows losses incurred on delinquencies that occurred in the current year and in prior years. The amount of losses incurred relating to delinquencies that occurred in the current year represents the estimated amount to be ultimately paid on such delinquencies. The amount of losses incurred relating to delinquencies that occurred in prior years represents the difference between the actual claim rate and severity associated with those delinquencies resolved in the current year compared to the estimated claim rate and severity at the prior year-end, as well as a re-estimation of amounts to be ultimately paid on delinquencies continuing from the end of the prior year. This re-estimation of the claim rate and severity is the result of our review of current trends in the delinquency inventory, such as percentages of delinquencies that have resulted in a claim, the amount of the claims relative to the average loan exposure, changes in the relative level of delinquencies by geography and changes in average loan exposure.

Losses incurred on delinquencies that occurred in the current year decreased in the first nine months of 2021 compared to the same period last year primarily due to a decrease in new delinquency notices reported. In addition, we decreased IBNR reserve estimates by $5.9 million in the nine months ending September 30, 2021, compared to a $12.6 million increase in the nine months ending September 30, 2020. New delinquency notices and IBNR reserve estimates increased in the nine months ended September 30, 2020 due to the impact of the COVID-19 pandemic. Given the uncertainty surrounding the long-term impact of COVID-19, it is difficult to predict the ultimate effect of the COVID-19 related delinquencies and forbearances on our loss incidence.

For the nine months ended September 30, 2021 we experienced favorable loss development of $6.0 million on previously received notices primarily due to the decrease in the claim rate on pre-COVID-19 delinquencies. This was offset by the recognition of a probable loss of $6.3 million related to litigation of our claims paying practices and adverse development on LAE reserves and reinsurance. For the nine months ended September 30, 2020 we experienced adverse loss development of $17.3 million on previously received delinquencies primarily related to severity.

The “Losses paid” section of table 11.1 below shows the amount of losses paid on delinquencies that occurred in the current year and losses paid on delinquencies that occurred in prior years. In light of the uncertainty caused by the COVID-19 pandemic, specifically the foreclosure moratoriums and forbearance plans, we expect the average time it takes to receive a claim will increase.


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Table 11.1 provides a reconciliation of beginning and ending loss reserves as of and for the nine months ended September 30, 2021 and 2020.
Development of reserves for losses and loss adjustment expenses
Table
11.1
Nine Months Ended September 30,
(In thousands)20212020
Reserve at beginning of period$880,537 $555,334 
Less reinsurance recoverable95,042 21,641 
Net reserve at beginning of period785,495 533,693 
Losses incurred:
Losses and LAE incurred in respect of delinquency notices received in:
Current year95,534 301,699 
Prior years (1)
(5,968)17,317 
Total losses incurred89,566 319,016 
Losses paid:
Losses and LAE paid in respect of delinquency notices received in:
Current year339 1,486 
Prior years48,842 93,937 
Reinsurance terminations— (20)
Total losses paid49,181 95,403 
Net reserve at end of period825,880 757,306 
Plus reinsurance recoverables107,029 83,143 
Reserve at end of period$932,909 $840,449 
(1)A positive number for prior year loss development indicates a deficiency of prior year reserves. A negative number for prior year loss development indicates a redundancy of prior year loss reserves. See the following table for more information about prior year loss development.

The prior year development of the reserves in the first nine months of 2021 and 2020 is reflected in table 11.2 below.
Reserve development on previously received delinquencies
Table
11.2
Nine Months Ended September 30,
(In thousands)20212020
Increase (decrease) in estimated claim rate on primary defaults$(18,147)$(1,626)
Increase (decrease) in estimated severity on primary defaults(105)13,503 
Change in estimates related to pool reserves, LAE reserves, reinsurance, and other12,284 5,440 
Total prior year loss development (1)
$(5,968)$17,317 
(1)A positive number for prior year loss development indicates a deficiency of prior year loss reserves. A negative number for prior year loss development indicates a redundancy of prior year loss reserves.

MGIC Investment Corporation - Q3 2021 | 31

Delinquency inventory
A rollforward of our primary delinquency inventory for the three and nine months ended September 30, 2021 and 2020 appears in table 11.3 below. The information concerning new notices and cures is compiled from monthly reports received from loan servicers. The level of new notice and cure activity reported in a particular month can be influenced by, among other things, the date on which a servicer generates its report, the number of business days in a month and transfers of servicing between loan servicers.
Delinquency inventory rollforward
Table
11.3
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Delinquency inventory at beginning of period42,999 69,326 57,710 30,028 
New notices9,862 20,924 31,909 90,906 
Cures(14,813)(25,446)(50,901)(54,523)
Paid claims(298)(375)(956)(1,933)
Rescissions and denials(11)(11)(23)(60)
Other items removed from inventory(360)— (360)— 
Delinquency inventory at end of period37,37964,41837,37964,418
During the three and nine months ended September 30, 2021, our losses paid included amounts paid upon commutation of coverage of pools of non-performing loans (“NPLs”). As a result of these payments, 360 items were removed from the delinquency inventory with an amount paid of $6.7 million.

COVID-19 Activity
Our delinquency inventory increased beginning in the second quarter of 2020 because of the impacts of the COVID-19 pandemic, including the high level of unemployment and economic uncertainty resulting from measures to reduce the transmission of COVID-19. Starting in the third quarter of 2020, we experienced an increase in cures associated with our COVID-19 new delinquency notices. Government initiatives and actions taken by the GSEs provide for payment forbearance on mortgages to borrowers experiencing hardship during the COVID-19 pandemic. These forbearance plans generally allow for mortgage payments to be suspended for up to 18 months: an initial forbearance period of up to six months; if requested by the borrower, an extension of up to six months; and, for loans in a COVID-19 forbearance plan as of February 28, 2021, an additional extension up to six months, subject to certain limits.

Table 11.4 below shows the number of consecutive months a borrower is delinquent. Historically as a delinquency ages it is more likely to result in a claim.
Primary delinquency inventory - consecutive months delinquent
Table
11.4
September 30, 2021December 31, 2020September 30, 2020
3 months or less6,948 11,542 15,879 
4-11 months9,371 34,620 37,702 
12 months or more (1)
21,060 11,548 10,837 
Total 37,379 57,710 64,418 
3 months or less19 %20 %25 %
4-11 months25 %60 %58 %
12 months or more56 %20 %17 %
Total100 %100 %100 %
Primary claims received inventory included in ending delinquent inventory154 159 172 
(1)Approximately 17%, 31%, and 32% of the primary delinquency inventory delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of September 30, 2021, December 31, 2020, and September 30, 2020, respectively.

The increase in delinquency inventory that is 12 months or more consecutive months delinquent compared to September 30, 2020 and December 31, 2020 is primarily due to the number of new delinquency notices received in the second quarter of 2020 resulting from the impacts of the COVID-19 pandemic. This was partially offset by an increase in cures in the second half of 2020 and in the first nine months of 2021.

Premium refunds
Our estimate of premiums to be refunded on expected claim payments is accrued for separately in “Other Liabilities” on our consolidated balance sheets and approximated $37.3 million and $30.1 million at September 30, 2021 and December 31, 2020, respectively.



MGIC Investment Corporation - Q3 2021 | 32

Note 12. Shareholders’ Equity
Change in Accounting Policy
As of January 1, 2021, we adopted the updated guidance for "Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. The application of this guidance resulted in a $68.3 million cumulative effect adjustment to our 2021 beginning retained earnings and paid in capital to reflect the 9% Debenture as if we had always accounted for the debt as a liability in its entirety.

Share repurchase programs
Repurchases of our common stock may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. In 2020, we repurchased approximately 9.6 million shares of our common stock, at an average cost of $12.47 per share, which included commissions. After suspending stock repurchases due to the uncertainty caused by the COVID-19 pandemic, in the third quarter of 2021, we repurchased approximately 10.0 million shares at an average cost of $15.01 per share, which included commissions. At September 30, 2021 we had $141 million remaining under a share repurchase program approved by our Board of Directors in 2020. In October 2021, we received authorization to repurchase an additional $500 million of our common stock through the end of 2023. In October 2021, we repurchased an additional 3.8 million shares totaling $60 million under the remaining authorization that expires at year end 2021.

Cash dividends
In March and May of 2021, we paid quarterly cash dividends of $0.06 per share to shareholders which totaled $41.1 million. In August 2021, we paid a quarterly cash dividend of $0.08 per share which totaled $27.3 million. On October 28, 2021, the Board of Directors declared a quarterly cash dividend to holders of the company’s common stock of $0.08 per share payable on November 23, 2021, to shareholders of record at the close of business on November 11, 2021.
Note 13. Share-Based Compensation
We have certain share-based compensation plans. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period which generally corresponds to the vesting period. Awards under our plans generally vest over periods ranging from one to three years.

Table 13.1 shows the number of restricted stock units (RSUs) granted to employees and the weighted average fair value per share during the periods presented (shares in thousands).
Restricted stock unit grants
Table
13.1
Nine months ended September 30,
20212020
RSUs
Granted
(in thousands)
Weighted Average Share Fair Value
RSUs
Granted
(in thousands)
Weighted Average Share Fair Value
RSUs subject to performance conditions966 $12.82 1,282 $12.87 
RSUs subject only to service conditions398 12.82 390 12.91 


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Note 14. Statutory Information
Statutory Capital Requirements
The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to the RIF (or a similar measure) in order for the mortgage insurer to continue to write new business. We refer to these requirements as the “State Capital Requirements” and, together with the GSE Financial Requirements, the “Financial Requirements.” While they vary among jurisdictions, the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1. A risk-to-capital ratio will increase if (i) the percentage decrease in capital exceeds the percentage decrease in insured risk, or (ii) the percentage increase in capital is less than the percentage increase in insured risk. Wisconsin does not regulate capital by using a risk-to-capital measure but instead requires a minimum policyholder position (“MPP”). The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve and a portion of the reserves for unearned premiums.

At September 30, 2021, MGIC’s risk-to-capital ratio was 9.0 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.6 billion above the required MPP of $1.8 billion. The calculation of our risk-to-capital ratio and MPP reflect credit for the risk ceded under our reinsurance transactions. It is possible that MGIC will not be allowed full credit for the risk ceded to the reinsurers. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the financial requirements of the PMIERs, MGIC may terminate the reinsurance transactions, without penalty.

At September 30, 2021, the risk-to-capital ratio of our combined insurance operations was 9.0 to 1.

Dividend restrictions
In the third quarter of 2021, MGIC paid a dividend of $150 million to our holding company.

MGIC is subject to statutory regulations as to payment of dividends. The maximum amount of dividends that MGIC may pay in any twelve-month period without regulatory approval by the OCI is the lesser of adjusted statutory net income or 10% of statutory ‘policyholders’ surplus as of the preceding calendar year end. Adjusted statutory net income is defined for this purpose to be the greater of statutory net income, net of realized investment gains, for the calendar year preceding the date of the dividend or statutory net income, net of realized investment gains, for the three calendar years preceding the date of the dividend less dividends paid within the first two of the preceding three calendar years. Before making any dividend payments, we will notify the OCI to ensure it does not object.


Under the PMIERs guidance, any dividend paid by MGIC to our holding company, through December 31, 2021 requires GSE approval if MGIC's excess of Available Assets is or would become less than 15% of its Minimum Required Assets. GSE approval was not required for the 2021 dividend.

The OCI recognizes only statutory accounting principles prescribed, or practices permitted by the State of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company. The OCI has adopted certain prescribed accounting practices that differ from those found in other states. Specifically, Wisconsin domiciled companies record changes in their contingency reserves through their income statement as a change in underwriting deduction. As a result, in periods in which MGIC is increasing contingency reserves, statutory net income is reduced.

Statutory Financial Information
The statutory net income, policyholders’ surplus, and contingency reserve liability of our insurance subsidiaries, which agrees to amounts utilized in our risk-to-capital calculations, are shown in table 14.1.

Financial information of our insurance subsidiaries
Table 14.1
As of and for the Nine Months Ended September 30,
(In thousands)20212020
Statutory net income$194,614 $28,954 
Statutory policyholders' surplus1,354,268 1,313,952 
Contingency reserve3,987,786 3,409,778 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction
The following is management’s discussion and analysis of the financial condition and results of operations of MGIC Investment Corporation for the third quarter of 2021. While the COVID-19 pandemic had a material impact on our 2020 financial results, as we reserved for losses associated with the increased delinquency notices received, it had a limited impact on our results for the three and nine months ended September 30, 2021. While uncertain, the future impact of the COVID-19 pandemic on the Company’s financial results, liquidity and/or financial condition may also be material. As used below, “we” and “our” refer to MGIC Investment Corporation’s consolidated operations. This form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020. See the “Glossary of terms and acronyms” for definitions and descriptions of terms used throughout this MD&A. Our revenues and losses could be affected by the Risk Factors referred to under “Forward Looking Statements and Risk Factors” below and they are an integral part of the MD&A.

Forward Looking and Other Statements
As discussed under “Forward Looking Statements and Risk Factors” below, actual results may differ materially from the results contemplated by forward looking statements. These forward looking statements, including the discussion of the impact of the COVID-19 pandemic, speak only as of the date of this filing and are subject to change without notice as the Company cannot predict all risks relating to this evolving set of events. We are not undertaking any obligation to update any forward looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.



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Overview
Summary financial results of MGIC Investment Corporation
Three Months Ended September 30,Nine Months Ended September 30,
(In millions, except per share data, unaudited)20212020% Change20212020% Change
Selected statement of operations data
Net premiums earned$254.8 $256.1 (1)$761.4 $760.6 — 
Investment income, net of expenses38.3 37.3 3 117.3 118.3 (1)
Losses incurred, net20.8 40.7 (49)89.6 319.0 (72)
Other underwriting and operating expenses, net53.9 45.3 19 155.8 131.8 18 
Loss on debt extinguishment— 26.7 N/M— 26.7 N/M
Income before tax199.7 164.3 22 583.2 369.1 58 
Provision for income taxes41.8 33.5 25 122.2 74.4 64 
Net income158.0 130.8 21 461.0 294.7 56 
Diluted income per share$0.46 $0.38 21 $1.33 $0.85 56 
Non-GAAP Financial Measures (1)
Adjusted pre-tax operating income$198.6 $188.4 5 $577.6 $385.0 50 
Adjusted net operating income157.1 149.9 5 456.6 307.3 49 
Adjusted net operating income per diluted share$0.46 $0.43 7 $1.32 $0.89 48 
(1) See “Explanation and reconciliation of our use of Non-GAAP financial measures.”

Summary of third quarter and year to date 2021 results
Comparative quarterly results
We recorded third quarter 2021 net income of $158.0 million, or $0.46 per diluted share. Net income increased by $27.2 million from net income of $130.8 million in the prior year primarily reflecting decreases in loss on debt extinguishment and losses incurred, partially offset by higher other underwriting and operating expenses, net, and a higher provision for income taxes. Diluted income per share increased primarily due to an increase in net income.

Adjusted net operating income for the third quarter 2021 was $157.1 million (Q3 2020: $149.9 million) and adjusted net operating income per diluted share was $0.46 (Q3 2020: $0.43).

Losses incurred, net for the third quarter of 2021 were $20.8 million, a decrease of $19.9 million over prior year losses incurred of $40.7 million. In the third quarter of 2021, we received 53% fewer new delinquency notices compared to the prior year, primarily reflecting the impact of the COVID-19 pandemic in the third quarter of 2020. In addition, our re-estimation of reserves on previous delinquencies resulted in $18 million of favorable loss development in the third quarter of 2021 primarily attributable to delinquency notices received prior to the start of the COVID-19 pandemic compared to insignificant loss reserve development in the third quarter of 2020. These decreases in losses incurred were partially offset by insignificant adjustments to our incurred but not reported, or IBNR, reserve in the third quarter of 2021, compared to a decrease of $27 million in the third quarter of 2020.

In the third quarter of 2020, the $26.7 million loss on debt extinguishment reflects the repurchase of a portion of our 5.75% Notes at costs that were in excess of carrying value and a portion of our 9% Debentures at costs that were in excess of their fair value.

The increase in other underwriting and operating expenses, net is primarily due to increases in professional and consulting services related to our investments in infrastructure and increases in employee compensation costs.

The increase in our provision for income taxes in the third quarter of 2021 as compared to the same period in the prior year was primarily due to an increase in income before tax.

Comparative year to date results
We recorded net income of $461.0 million, or $1.33 per diluted share during the nine months ended September 30, 2021. Net income increased by $166.4 million from net income of $294.7 million in the prior year, or $0.85 per diluted share. The increase primarily reflected a decrease in losses incurred, net and loss on debt extinguishment, partially offset by higher underwriting and operating expenses, net, and a higher provision for income taxes.

Diluted income per share was higher than the prior year primarily due to the increase in net income.

Adjusted net operating income for the nine months ended September 30, 2021 was $456.6 million (YTD 2020: $307.3 million) and adjusted net operating income per diluted share was $1.32 (YTD 2020: $0.89). The increase in 2021 adjusted net operating income and adjusted net operating income per diluted share compared to 2020 primarily reflects higher net income in 2021 partially offset by the impact of the loss on debt extinguishment of $21.1 million, net of tax, incurred in 2020.

Losses incurred, net for the nine months ended September 30, 2021 were $89.6 million, a decrease of $229.5 million from the prior year losses incurred, net of $319.0 million. The decrease is primarily due to a 65% decrease in new delinquency notices received from the prior year. The higher new delinquency

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notices received and an increase in IBNR and other reserves in the nine months ended September 30, 2020 reflect the impacts of COVID-19 pandemic and the general macroeconomic environment. In addition, in the first nine months of 2021 our re-estimation of reserves on delinquency notices received in previous years resulted in $18 million of favorable loss development primarily attributable to delinquency notices received prior to the start of the COVID-19 pandemic compared to adverse development in the prior year of $17 million.

The increase in other underwriting and operating expenses, net over the prior year is primarily due to increases in professional and consulting services related to our investment in our infrastructure and increases in employee compensation costs, including equity-based compensation. This was offset by an increase in ceding commission.

In 2020, the $26.7 million loss on debt extinguishment reflects the repurchase of a portion of our 5.75% Notes at costs that were in excess of carrying value and a portion of our 9% Debentures at costs that were in excess of their fair value.

The increase in our provision for income taxes in the first nine months of 2021 as compared to the same period in the prior year was primarily due to an increase in income before tax.

See “Consolidated Results of Operations” below for additional discussion of our results for the three and nine months ended September 30, 2021 compared to the respective prior year period.

Capital
MGIC dividend payments to our holding company
MGIC paid a cash dividend to our holding company of $150 million in the third quarter of 2021 compared with a combined cash and investment security dividend of $390 million in the first quarter of 2020. In the third quarter of 2020, MGIC distributed to the holding company, as a dividend, its ownership in $133 million of the holding company’s 9% Debentures. Future dividend payments from MGIC to the holding company will continue to be determined in consultation with the board, and after considering any updated estimates about the economic impacts of the COVID-19 pandemic on our business. We ask the Wisconsin OCI not to object before MGIC pays dividends to the holding company.

Under the PMIERS guidance, any dividend paid by MGIC to our holding company, through December 31, 2021 requires GSE approval if MGIC's excess of Available Assets is or would become less than 15% of its Minimum Required Assets.
Share repurchase programs
Repurchases may be made from time to time on the open market, including through 10b5-1 plans, or through privately negotiated transactions. After suspending stock repurchases due to the uncertainty caused by the COVID-19 pandemic, we repurchased 10.0 million shares during the nine months ended September 30, 2021 compared to the repurchase of 9.6 million shares of common stock in the first quarter of 2020. As of September 30, 2021 we had remaining authorization to repurchase $141 million of our common stock through the end of 2021 under a share repurchase program approved by our Board of Directors in January 2020. As of September 30, 2021, we had approximately 329 million shares of common stock outstanding. In October 2021, we received authorization to repurchase an additional $500 million of our common stock through the end of 2023.

Dividends to shareholders
In March and May 2021, we paid dividends of $0.06 per common share totaling $41.1 million to our shareholders. In August 2021, we paid a dividend of $0.08 per common share totaling $27.3 million. On October 28, 2021, our Board of Directors declared a quarterly cash dividend of $0.08 per common share to shareholders of record on November 11, 2021, payable on November 23, 2021.

GSEs
We must comply with a GSE’s PMIERS to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transactional approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s "Available Assets" (generally only the most liquid assets of an insurer) to equal or exceed its "Minimum Required Assets" (which are based on an insurer's book of risk in force, calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor amount). Based on our application of the more restrictive PMIERs as of September 30, 2021, MGIC’s Available Assets totaled $5.8 billion, or $2.6 billion in excess of its Minimum Required Assets.

The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. For delinquent loans whose initial missed payment occurred on or after March 1, 2020 and prior to April 1, 2021 (the "COVID-19 Crisis Period"), the Minimum Required Assets are generally reduced by 70% for at least three months. The 70% reduction will continue, or be newly applied, for delinquent loans that are subject to a forbearance plan that is granted in response to a financial hardship related to COVID-19, the terms of which are materially consistent with terms of forbearance plans offered by Freddie Mac or Fannie Mae. Loans considered to be subject to a forbearance plan include those that are in a repayment plan or loan modification trial period following the forbearance plan.


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Forbearance for federally-insured mortgages allows for mortgage payments to be suspended for up to 18 months: an initial forbearance period of up to six months; if requested by the borrower following contact by the servicers, an extension of up to six months; and, for loans in a COVID-19 forbearance plan as of February 28, 2021, an additional six months, subject to certain limits.
In certain circumstances, the servicer will be unable to contact the borrower regarding an extension of the forbearance plan and it will expire without being further extended. In such case, if the loan remains delinquent, the 70% reduction in Minimum Required Assets for that loan will no longer be applicable, our Minimum Required Assets will increase and our excess of Available Assets over Minimum Required Assets will decrease.

If MGIC ceases to be eligible to insure loans purchased by one or both of the GSEs, it would significantly reduce the volume of our NIW, the substantial majority of which is for loans delivered to or purchased by the GSEs. In addition to the increase in Minimum Required Assets associated with delinquent loans, factors that may negatively impact MGIC’s ability to continue to comply with the financial requirements of the PMIERs include the following:

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The GSEs may make the PMIERs more onerous in the future. The PMIERs provide that the factors that determine Minimum Required Assets will be updated periodically, or as needed if there is a significant change in macroeconomic conditions or loan performance. We do not anticipate that the regular periodic updates will occur more frequently than once every two years. The PMIERs state that the GSEs will provide notice 180 days prior to the effective date of updates to the factors; however, the GSEs may amend any portion of the PMIERs at any time, including by imposing restrictions specific to our company.
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There may be future implications for PMIERs as a result of changes to the regulatory capital requirements for the GSEs. In 2020, the FHFA adopted a rule containing a capital framework for the GSEs that would have increased their capital requirements, including through a decrease in credit received for credit risk transfer "CRT" transactions, effective on the later of (i) the date of termination of the FHFA’s conservatorship of the applicable GSE; (ii) sixty days after publication of the adopted rule in the Federal Register; or (iii) any later compliance date provided in a consent order or other transition order applicable to a GSE. In September 2021, the FHFA issued a notice of proposed rule-making that would modify that capital framework, making it more likely that a risk-based capital requirement would be the binding constraint, instead of a leverage-based capital requirement, and increasing the credit for CRT transactions. When the final GSE capital requirements have been determined and become effective, they may affect the Minimum Required Assets required to be held by mortgage insurers, including through a change in credit received for mortgage insurers' reinsurance transactions and they may affect the volume of CRT transactions entered into by the GSEs.
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Our future operating results may be negatively impacted by the matters discussed in our risk factors. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby creating a shortfall in Available Assets.
Our reinsurance transactions enable us to earn higher returns on our business than we would without them because they reduce the Minimum Required Assets we must hold under PMIERs. However, reinsurance may not always be available to us, or available on similar terms, and our quota share reinsurance subjects us to counterparty credit risk. The calculated credit for excess of loss reinsurance transactions under PMIERs is generally based on the PMIERs requirement of the covered loans and the attachment and detachment point of the coverage. PMIERs credit is generally not given for the reinsured risk above the PMIERs requirement. Our existing reinsurance transactions are subject to periodic review by the GSEs and there is a risk we will not receive our current level of credit in future periods for the risk ceded under them. In addition, we may not receive the same level of credit under future transactions that we receive under existing transactions.

State Regulations
The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to its RIF (or a similar measure) in order for the mortgage insurer to continue to write new business. We refer to these requirements as the “State Capital Requirements.” While they vary among jurisdictions, the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1. A risk-to-capital ratio will increase if (i) the percentage decrease in capital exceeds the percentage decrease in insured risk, or (ii) the percentage increase in capital is less than the percentage increase in insured risk. Wisconsin does not regulate capital by using a risk-to-capital measure but instead requires an MPP. The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve, and a portion of the reserve for unearned premiums.

At September 30, 2021, MGIC’s risk-to-capital ratio was 9.0 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.6 billion above the required MPP of $1.8 billion. The calculation of our risk-to-capital ratio and MPP reflect credit for the risk ceded under our reinsurance transactions. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded to the reinsurers. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the PMIERs, MGIC may terminate the reinsurance transactions, without penalty. Refer to our risk factor titled “State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis” for more information about matters that could negatively impact our compliance with State Capital Requirements.

At September 30, 2021, the risk-to-capital ratio of our combined insurance operations was 9.0 to 1.

The NAIC has previously announced plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model Act. In December 2019, a working group of state regulators released an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements and certain items have not yet been completely

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addressed by the framework, including the treatment of ceded risk and minimum capital floors. Currently we believe that, in most circumstances, the PMIERs contain more restrictive capital requirements than the draft Mortgage Guaranty Insurance Model Act.

GSE reform
The FHFA has been the conservator of the GSEs since 2008 and has the authority to control and direct their operations. The increased role that the federal government has assumed in the residential housing finance system through the GSE conservatorship may increase the likelihood that the business practices of the GSEs change, including through administrative action, in ways that have a material adverse effect on us and that the charters of the GSEs are changed by new federal legislation.

In 2019, under the prior Presidential Administration, the U.S. Treasury Department (“Treasury”) released the “Treasury Housing Reform Plan” (“the Plan”). The Plan recommends administrative and legislative reforms for the housing finance system, with such reforms intended, among other things, to achieve the goal of ending conservatorships of the GSEs.

The impact of the Plan on private mortgage insurance is unclear, in part, due to the change in Presidential Administration.

As a result of the 2021 change in the Presidential Administration, the June 2021 appointment of a new Acting Director of the FHFA, and the 2021 U.S. Supreme Court decision that allows the President to remove the FHFA Director at will, it is uncertain what role the GSEs, FHA and private capital, including private mortgage insurance, will play in the residential housing finance system in the future. The timing and impact on our business of any resulting changes is uncertain. Many of the proposed changes would require Congressional action to implement and it is difficult to estimate when Congressional action would be final and how long any associated phase-in period may last.

For additional information about the business practices of the GSEs, see our risk factor titled “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.”


COVID-19 Pandemic
The increased level of unemployment and economic uncertainty resulting from the COVID-19 pandemic, initiatives to reduce the transmission of COVID-19 (including "shelter-in-place" restrictions), as well as COVID-19‑related illnesses and deaths, had a material impact on our 2020 financial results, as we reserved for losses associated with the increased delinquency notices received. While uncertain, the future impact of the COVID-19 pandemic on the Company’s business, financial results, liquidity and/or financial condition may also be material. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in the United States, the length of time that measures intended to reduce the transmission of COVID-19 remain in place, the level of unemployment, and the impact of past and future government initiatives and actions taken by the GSEs (including mortgage forbearance and modification programs) to mitigate the economic harm caused by the COVID-19 pandemic.
As noted above, in certain circumstances, the servicer of a loan may be unable to contact the borrower regarding an extension of the forbearance plan and it will expire without being extended. A delinquent loan for which the borrower was unable to be contacted and that is not in a forbearance plan may be more likely to result in a claim than a delinquent loan in a forbearance plan. The substantial majority of our NIW was delivered to or purchased by the GSEs. While servicers of some non-GSE loans may not be required to offer forbearance to borrowers, we allow servicers to apply GSE loss mitigation programs to non-GSE loans.
Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. As of September 30, 2021, 48% of our delinquency inventory was reported to us as in forbearance plans. Whether a loan's delinquency will cure, including through modification or payment deferral, when its forbearance plan ends will depend on the economic circumstances of the borrower at that time. The severity of losses associated with loans whose delinquencies do not cure will depend on economic conditions at that time, including home prices.
Prior to the end of the forbearance period, the servicer must begin attempts to contact the borrower to determine how payments missed during the forbearance period will be repaid. The GSEs have introduced specific loss workout options for borrowers impacted by COVID-19 when their forbearance plans end, including the COVID-19 Payment Deferral solution for borrowers who are unable to immediately or gradually repay their missed loan payments. Under the COVID-19 Payment Deferral solution, the borrower's monthly loan payment would be returned to its pre-COVID amount and the missed payments would be added to the end of the mortgage term without accruing any additional interest or late fees on the deferred portion. The deferred payments would be due when the loan is paid off or refinanced, or the home is sold. In certain circumstances, a servicer may be unable to contact the borrower to determine a loan workout option prior to the end of the forbearance. In these scenarios, the forbearance plan will end and the loan may remain delinquent. Foreclosures on mortgages purchased or securitized by the GSEs were suspended through July 31, 2021. Under a CFPB rule that is

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generally effective through December 31, 2021, with limited exceptions, servicers must ensure that at least one temporary procedural safeguard has been met before referring 120-day delinquent loans for foreclosure.
The foreclosure moratoriums and forbearance plans in place under the GSE initiatives have delayed, and may continue to delay, the receipt and payment of claims.

Factors affecting our results

As noted above, the COVID-19 pandemic may negatively impact our future business, results of operations, and financial condition. The magnitude of the impact will be influenced by the factors discussed above under “COVID-19 Pandemic.” We have addressed some of the potential impacts throughout this document.

The future effects of changing climatic conditions on our business is uncertain. For information about possible effects, please refer to our Risk Factor titled “Pandemics, hurricanes and other natural disasters may impact our incurred losses, the amount and timing of paid claims, our inventory of notices of default and our Minimum Required Assets under PMIERs.”

Our results of operations are generally affected by:

Premiums written and earned
Premiums written and earned in a year are influenced by:

•NIW, which increases IIF. Many factors affect NIW, including the volume of low down payment home mortgage originations and competition to provide credit enhancement on those mortgages from the FHA, the VA, other mortgage insurers, and other alternatives to mortgage insurance, including GSE programs that may reduce or eliminate the demand for mortgage insurance. NIW does not include loans previously insured by us that are modified, such as loans modified under HARP.

•Cancellations, which reduce IIF. Cancellations due to refinancings are affected by the level of current mortgage interest rates compared to the mortgage coupon rates throughout the in force book, current home values compared to values when the loans in the in force book were insured and the terms on which mortgage credit is available. Home price appreciation will increase cancellations if sufficient home equity is achieved, including under HOPA and broader GSE guidelines that consider a home’s current value. Cancellations also result from policy rescissions, which require us to return any premiums received on the rescinded policies and claim payments, which require us to return any premium received on the related policies from the date of default on the insured loans. Cancellations of single premium policies, which are generally non-refundable, result in immediate recognition of any remaining unearned premium.

•Premium rates, which are affected by competitive pressures, the risk characteristics of the insured loans, the percentage of coverage on the insured loans, PMIERs capital requirements, and product type. The substantial majority of our monthly and annual mortgage insurance premiums are under premium plans for which, for the first
ten years of the policy, the amount of premium is determined by multiplying the initial premium rate by the original loan balance; thereafter, the premium rate resets to a lower rate used for the remaining life of the policy. However, for loans that have utilized HARP, the initial ten-year period resets as of the date of the HARP transaction. The remainder of our monthly and annual premiums are under premium plans for which premiums are determined by a fixed percentage of the loan’s amortizing balance over the life of the policy.

•Premiums ceded, net of a profit commission, under our QSR Transactions and premiums ceded under our Home Re Transactions. Profit commission varies inversely with the level of ceded losses on a “dollar for dollar” basis and can be eliminated at ceded loss levels higher than what we currently are experiencing. Profit commission is higher when there is less benefit from ceded losses incurred and lower when there is more benefit from ceded losses incurred. See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance transactions.

Premiums are generated by the insurance that is in force during all or a portion of the period. A change in the average IIF in the current period compared to an earlier period is a factor that will increase (when the average in force is higher) or reduce (when it is lower) premiums written and earned in the current period, although this effect may be enhanced (or mitigated) by differences in the average premium rate between the two periods as well as by premiums that are returned or expected to be returned in connection with claim payments and rescissions, and premiums ceded under reinsurance transactions. Also, NIW and cancellations during a period will generally have a greater effect on premiums written and earned in subsequent periods than in the period in which these events occur.

Investment income
Our investment portfolio is composed principally of investment grade fixed income securities. The principal factors that influence investment income are the size of the portfolio and its yield. As measured by amortized cost (which excludes changes in fair value, such as from changes in interest rates), the size of the investment portfolio is mainly a function of cash generated from (or used in) operations, such as NPW, investment income, net claim payments and expenses, and cash provided by (or used for) non-operating activities, such as debt, stock issuances or repurchases, and dividends.

Losses incurred
Losses incurred are the current expense that reflects claim payments, costs of settling claims, and changes in our estimate of payments that will ultimately be made as a result of delinquencies on insured loans. As explained under “Critical Accounting Policies” in our 2020 10-K MD&A, except in the case of a premium deficiency reserve, we recognize an estimate of this expense only for delinquent loans. The level of new delinquencies has historically followed a seasonal pattern, with new delinquencies in the first part of the year lower than new delinquencies in the latter part of the year, though this pattern can be affected by the state of the economy and local housing markets. Pandemics, including COVID-19, and other natural disasters may result in

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delinquencies not following the typical pattern. Losses incurred are generally affected by:

•The state of the economy, including unemployment and housing values, each of which affects the likelihood that loans will become delinquent and whether loans that are delinquent cure their delinquency.

•The product mix of the in force book, with loans having higher risk characteristics generally resulting in higher delinquencies and claims.

•The size of loans insured, with higher average loan amounts tending to increase losses incurred.

•The percentage of coverage on insured loans, with deeper average coverage tending to increase losses incurred.

•The rate at which we rescind policies or curtail claims. Our estimated loss reserves incorporate our estimates of future rescissions of policies and curtailments of claims, and reversals of rescissions and curtailments. We collectively refer to rescissions and denials as “rescissions” and variations of this term. We call reductions to claims “curtailments.”

•The distribution of claims over the life of a book. Historically, the first few years after loans are originated are a period of relatively low claims, with claims increasing substantially for several years subsequent and then declining, although persistency, the condition of the economy, including unemployment and housing prices, and other factors can affect this pattern. For example, a weak economy or housing value declines can lead to claims from older books increasing, continuing at stable levels or experiencing a lower rate of decline. See further information under “Mortgage insurance earnings and cash flow cycle” below.

•Losses ceded under reinsurance transactions. See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance transactions.

Underwriting and other expenses
Underwriting and other expenses includes items such as employee compensation, fees for professional and consulting services, depreciation and maintenance expense, and premium taxes, and are reported net of ceding commissions associated with our QSR transactions. Employee compensation expenses are variable due to share-based compensation, changes in benefits, and headcount (which can fluctuate due to volume). See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of the ceding commission on our reinsurance transactions.

Interest expense
Interest expense primarily reflects the interest associated with our outstanding debt obligations discussed in Note 3 - “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” below.
Other
Certain activities that we do not consider part of our fundamental operating activities may also impact our results of operations and include the following.
Net realized investment gains (losses)
•Fixed income securities. Realized investment gains and losses are a function of the difference between the amount received on the sale of a fixed income security and the fixed income security’s cost basis, as well as any credit allowances recognized in earnings. The amount received on the sale of fixed income securities is affected by the coupon rate of the security compared to the yield of comparable securities at the time of sale.

•Equity securities. Realized investment gains and losses are a function of the periodic change in fair value.

Loss on debt extinguishment
Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt. Extinguishing our outstanding debt obligations early through these discretionary activities may result in losses primarily driven by the payment of consideration in excess of our carrying value or their fair value, and the write off of unamortized debt issuance costs on the extinguished portion of the debt.

Refer to “Explanation and reconciliation of our use of Non-GAAP financial measures” below to understand how these items impact our evaluation of our core financial performance.

Mortgage insurance earnings and cash flow cycle
In general, the majority of any underwriting profit that a book generates occurs in the early years of the book, with the largest portion of any underwriting profit realized in the first year following the year the book was written. Subsequent years of a book may result in either underwriting profit or underwriting losses. This pattern of results typically occurs because relatively few of the incurred losses on delinquencies that a book will ultimately experience typically occur in the first few years of the book, when premium revenue is highest, while subsequent years are affected by declining premium revenues, as the number of insured loans decreases (primarily due to loan prepayments) and increasing losses. The typical pattern is also a function of premium rates generally resetting to lower levels after ten years. Changes in economic conditions, including those related to pandemics, including COVID-19, and other natural disasters may result in delinquencies not following the typical pattern.

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Explanation and reconciliation of our use of non-GAAP financial measures

Non-GAAP financial measures
We believe that use of the Non-GAAP measures of adjusted pre-tax operating income (loss), adjusted net operating income (loss) and adjusted net operating income (loss) per diluted share facilitate the evaluation of the company's core financial performance thereby providing relevant information to investors. These measures are not recognized in accordance with GAAP and should not be viewed as alternatives to GAAP measures of performance.

Adjusted pre-tax operating income (loss) is defined as GAAP income (loss) before tax, excluding the effects of net realized investment gains (losses), gain and losses on debt extinguishment, net impairment losses recognized in earnings and infrequent or unusual non-operating items where applicable.
    
Adjusted net operating income (loss) is defined as GAAP net income (loss) excluding the after-tax effects of net realized investment gains (losses), gain and losses on debt extinguishment, net impairment losses recognized in earnings, and infrequent or unusual non-operating items where applicable. The amounts of adjustments to components of pre-tax operating income (loss) are tax effected using a federal statutory tax rate of 21%.
    
Adjusted net operating income (loss) per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net operating income (loss) after making adjustments for interest expense on convertible debt, whenever the impact is dilutive by (ii) diluted weighted average common shares outstanding, which reflects share dilution from unvested restricted stock units and from convertible debt when dilutive under the “if-converted” method.

Although adjusted pre-tax operating income (loss) and adjusted net operating income (loss) exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items represent items that are: (1) not viewed as part of the operating performance of our primary activities; or (2) impacted by both discretionary and other economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, along with the reasons for their treatment, are described below. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these adjustments. Other companies may calculate these measures differently. Therefore, their measures may not be comparable to those used by us.

(1)Net realized investment gains (losses). The recognition of net realized investment gains or losses can vary significantly across periods as the timing of individual securities sales is highly discretionary and is influenced by such factors as market opportunities, our tax and capital profile, and overall market cycles.
(2)Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt.
(3)Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles, individual issuer performance, and general economic conditions.
(4)Infrequent or unusual non-operating items. Items that are non-recurring in nature and are not part of our primary operating activities.


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Non-GAAP reconciliations
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income
Three Months Ended September 30,
20212020
(In thousands, except per share amounts)Pre-taxTax effectNet
(after-tax)		Pre-taxTax effectNet
(after-tax)
Income before tax / Net income$199,732 $41,755 $157,977 $164,329 $33,518 $130,811 
Adjustments:
Loss on debt extinguishment— — — 26,736 5,615 21,121 
Net realized investment (gains) losses(1,115)(234)(881)(2,624)(551)(2,073)
Adjusted pre-tax operating income / Adjusted net operating income$198,617 $41,521 $157,096 $188,441 $38,582 $149,859 
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share
Weighted average diluted shares outstanding353,557 357,195 
Net income per diluted share$0.46 $0.38 
Loss on debt extinguishment— 0.06 
Net realized investment (gains) losses— (0.01)
Adjusted net operating income per diluted share$0.46 $0.43 
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income
Nine Months Ended September 30,
20212020
(In thousands, except per share amounts)Pre-taxTax effectNet
(after-tax)		Pre-taxTax effectNet
(after-tax)
Income before tax / Net income$583,217 $122,168 $461,049 $369,051 $74,388 $294,663 
Adjustments:
Loss on debt extinguishment— — — 26,736 5,615 21,121 
Net realized investment (gains) losses(5,665)(1,190)(4,475)(10,773)(2,262)(8,511)
Adjusted pre-tax operating income / Adjusted net operating income$577,552 $120,978 $456,574 $385,014 $77,741 $307,273 
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share
Weighted average diluted shares outstanding355,481 360,389 
Net income per diluted share$1.33 $0.85 
Loss on debt extinguishment— 0.06 
Net realized investment (gains) losses(0.01)(0.02)
Adjusted net operating income per diluted share$1.32 $0.89 

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Mortgage Insurance Portfolio

New insurance written
The total amount of mortgage originations is generally influenced by the level of new and existing home sales, the percentage of homes purchased for cash, and the level of refinance activity. PMI market share of total mortgage originations is influenced by the mix of purchase and refinance originations. PMI market share is also impacted by the market share of total originations of the FHA, VA, USDA, and other alternatives to mortgage insurance, including GSE programs that may reduce or eliminate the demand for mortgage insurance.

NIW for the third quarter of 2021 was $28.7 billion (Q3 2020: $32.8 billion) and for the first nine months of 2021 was $93.1 billion (YTD 2020: $78.9 billion). The decrease for the three months ended September 30, 2021, compared to the prior period, is primarily due to a decrease in the refinance market. The increase for the nine months ended September 30, 2021, compared to the prior periods, was primarily driven by the increase in the mortgage origination market.

Over the next several quarters, we expect refinance activity to remain low and purchase activity, while lower than what we experienced in recent quarters, to remain strong.

The following tables present characteristics of our primary NIW for the three and nine months ended September 30, 2021 and 2020.
Primary NIW by FICO score
Three Months Ended September 30,Nine Months Ended September 30,
(% of primary NIW)
2021202020212020
760 and greater46.8 %47.5 %45.7 %46.9 %
740 - 75917.4 %17.4 %17.5 %18.7 %
720 - 73913.3 %13.1 %13.7 %13.4 %
700 - 71910.4 %10.2 %11.1 %10.1 %
680 - 6997.1 %7.6 %7.3 %7.2 %
660 - 6792.9 %2.2 %2.6 %2.0 %
640 - 6591.5 %1.2 %1.6 %1.1 %
639 and less0.6 %0.8 %0.5 %0.6 %
Primary NIW by loan-to-value
Three Months Ended September 30,Nine Months Ended September 30,
(% of primary NIW)2021202020212020
95.01% and above13.0 %9.1 %10.9 %8.7 %
90.01% to 95.00%45.8 %39.2 %40.9 %39.9 %
85.01% to 90.00%29.0 %32.0 %30.9 %31.7 %
80.01% to 85%12.2 %19.7 %17.3 %19.7 %
Primary NIW by debt-to-income ratio
Three Months Ended September 30,Nine Months Ended September 30,
(% of primary NIW)2021202020212020
45.01% and above14.7 %10.8 %13.1 %11.2 %
38.01% to 45.00%29.4 %31.3 %29.6 %31.1 %
38.00% and below56.0 %57.9 %57.3 %57.7 %
Primary NIW by policy payment type
Three Months Ended September 30,Nine Months Ended September 30,
(% of primary NIW)2021202020212020
Monthly premiums92.3 %93.3 %92.1 %89.6 %
Single premiums7.6 %6.6 %7.9 %10.3 %
Annual premiums0.1 %0.1 %0.0 %1.0 %
Primary NIW by type of mortgage
Three Months Ended September 30,Nine Months Ended September 30,
(% of primary NIW)2021202020212020
Purchases89.7 %68.7 %76.0 %63.6 %
Refinances10.3 %31.3 %24.0 %36.4 %

Insurance and risk in force
The amount of our IIF and RIF is impacted by the amount of NIW and cancellations of primary IIF during the period. Cancellation activity is primarily due to refinancing activity, but is also impacted by rescissions, cancellations due to claim payment, and policies cancelled when borrowers achieve the required amount of home equity. Refinancing activity has historically been affected by the level of mortgage interest rates and the level of home price appreciation. Cancellations generally move inversely to the change in the direction of interest rates, although they generally lag a change in direction.

Persistency. Our persistency was 59.5% at September 30, 2021 compared to 60.5% at December 31, 2020 and 64.5% at September 30, 2020. Since 2000, our year-end persistency ranged from a high of 84.7% at December 31, 2009 to a low of 47.1% at December 31, 2003.
IIF and RIF
Three Months Ended September 30,Nine Months Ended September 30,
(In billions)2021202020212020
NIW$28.7 $32.8 $93.1 $78.9 
Cancellations(22.3)(24.4)(71.3)(62.3)
Increase in primary IIF$6.4 $8.4 $21.8 $16.6 
Direct primary IIF as of September 30,$268.4 $238.9 $268.4 $238.9 
Direct primary RIF as of September 30,$67.2 $60.4 $67.2 $60.4 


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Credit profile of our primary RIF
The proportion of our total primary RIF written after 2008 has been steadily increasing in proportion to our total primary RIF. Our 2009 and later books possess significantly improved risk characteristics when compared to our 2005-2008 books. Modification and refinance programs, such as HAMP and HARP, which expired at the end of 2016 and 2018, respectively, but have been replaced by other GSE modification programs, make outstanding loans more affordable to borrowers with the goal of reducing the number of foreclosures. HARP allowed borrowers who were not delinquent, but who may not otherwise have been able to refinance their loans under the current GSE underwriting standards due to, for example, the current LTV exceeding 100%, to refinance and lower their note rate. As of September 30, 2021, our modifications accounted for 5.9% of our total RIF, compared to 7.8% at December 31, 2020. Loans associated with 86% of all our modifications were current as of September 30, 2021.

The following table sets forth certain statistics associated with our primary IIF and RIF as of September 30, 2021:
Primary insurance in force and risk in force by policy year
(in millions)Insurance in ForceRisk In ForceWeighted Avg. Interest RateDelinquency Rate
Cede Rate % (1)
% of Original Remaining
Policy YearTotal% of TotalTotal% of Total
2004 and prior$1,912 0.7 %$531 0.9 %7.3 %12.3 %0.5 %NM
2005-200815,226 5.7 %4,039 6.0 %6.9 %11.7 %3.9 %6.3 %
2009-201512,451 4.6 %3,391 5.0 %4.3 %5.2 %14.3 %7.0 %
201611,157 4.2 %2,971 4.4 %3.9 %4.0 %14.2 %23.2 %
201712,459 4.6 %3,202 4.8 %4.2 %5.3 %26.0 %25.3 %
201812,834 4.8 %3,255 4.8 %4.8 %6.1 %25.0 %25.6 %
201926,912 10.0 %6,807 10.1 %4.1 %3.4 %27.1 %41.4 %
202089,962 33.5 %21,731 32.3 %3.2 %1.0 %27.9 %78.7 %
202185,529 31.9 %21,310 31.7 %3.0 %0.2 %25.5 %97.6 %
Total$268,442 100.0 %$67,237 100.0 %
(1)Cede Rate % is calculated as the risk in force ceded to our QSR transactions divided by the total risk in force.

Pool and other insurance
MGIC has written no new pool insurance since 2008; however, for a variety of reasons, including responding to capital market alternatives to PMI and customer demands, MGIC may write pool risk in the future. Our direct pool risk in force was $313 million ($207 million on pool policies with aggregate loss limits and $106 million on pool policies without aggregate loss limits) at September 30, 2021 compared to $340 million ($210 million on pool policies with aggregate loss limits and $130 million on pool policies without aggregate loss limits) at December 31, 2020. If claim payments associated with a specific pool reach the aggregate loss limit, the remaining IIF within the pool would be cancelled and any remaining delinquencies under the pool would be removed from our delinquency inventory.

In connection with the GSEs' CRT programs, an insurance subsidiary of MGIC provides insurance and reinsurance covering portions of the credit risk related to certain reference pools of mortgages acquired by the GSEs. Our RIF, as reported to us, related to these programs was approximately $326 million and $287 million as of September 30, 2021 and December 31, 2020, respectively.

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Consolidated Results of Operations
The following section of the MD&A provides a comparative discussion of MGIC Investment Corporation’s Consolidated Results of Operations for the three and nine months ended September 30, 2021 and 2020.

Revenues
Revenues
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)
20212020% Change20212020% Change
Net premiums written$247.6 $228.0 9 $730.8 $695.3 5 
Net premiums earned$254.8 $256.1 (1)$761.4 $760.6 — 
Investment income, net of expenses38.3 37.3 3 117.3 118.3 (1)
Net realized investment gains1.0 2.3 (57)5.4 10.9 (50)
Other revenue1.6 0.4 N/M7.4 7.2 4 
Total revenues$295.7 $296.1 — $891.6 $897.0 (1)
Net premiums written and earned
Comparative quarterly results
NPW increased for the three months ended September 30, 2021 compared with the prior year. The increase in NPW was due to an increase in insurance inforce and a decrease in ceded premiums written, net of profit commission, partially offset by a decrease in the premium yield. NPE decreased slightly for the three months ended September 30, 2021 compared with the prior year due to a decrease in accelerated premiums earned from single premium policy cancellations given the decrease in refinance activity, partially offset by the increase in net premiums written.

Comparative year to date results
NPW and NPE increased for the nine months ended September 30, 2021 compared with the prior year. The increase in NPW was due to an increase in insurance inforce and a decrease in ceded premiums written, net of profit commission, partially offset by a decrease in the premium yield. NPE increased slightly as a result of higher NPW, offset by a decrease in accelerated premiums earned from single premium policy cancellations given the decrease in refinance activity.

See “Overview - Factors Affecting Our Results” above for additional factors that influenced the amount of net premiums written and earned during the periods. See “Reinsurance Transactions” below for discussion of our ceded premiums written and earned.

Premium yields
Net premium yield is NPE divided by average IIF during the period and is influenced by a number of key drivers. The following table presents the key drivers of our net premium yield for the three and nine months ended September 30, 2021 and from the respective prior year period.
Premium Yield
Three Months Ended September 30,
Nine Months Ended September 30,
(in basis points)
2021
2020
2021
2020
In force portfolio yield(1)41.8 46.3 42.7 47.5 
Premium refunds(1.0)(0.6)(0.7)(0.5)
Accelerated earnings on single premium policies2.5 5.5 3.3 4.8 
Total direct premium yield43.3 51.2 45.3 51.8 
Ceded premiums earned, net of profit commission and assumed premiums(2)(4.9)(7.6)(5.9)(7.8)
Net premium yield38.4 43.6 39.4 44.0 

(1) Total direct premiums earned, excluding premium refunds and accelerated premiums from single premium policy cancellations divided by average primary insurance in force.
(2) Assumed premiums include those from our participation in GSE CRT programs, of which the impact on the net premium yield was 0.4 bps for the nine months ended September 30, 2021 compared to 0.5 bps for the nine months ended September 30, 2020.



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Factors that impacted our net premium yield include the following:
In force Portfolio Yield
è
A larger percentage of our IIF from book years with lower premium rates due to a decline in premium rates in recent years resulting from pricing competition, insuring mortgages with lower risk characteristics, lower required capital, the availability of reinsurance, and certain policies undergoing premium rate resets on their ten-year anniversaries.
Premium Refunds
è
Premium refunds adversely impact our net premium yield and are primarily driven by claim activity and our estimate of refundable premiums on our delinquency inventory.
Accelerated earnings on single premium policies
è
Accelerated earned premium from cancellation of single premium policies prior to their estimated policy life, primarily due to refinancing activity, increase our yield.
Ceded premiums earned, net of profit commission and assumed premiums
è
Ceded premiums earned, net of profit commission adversely impact our net premium yield. Ceded premiums earned, net of profit commission, are associated with the QSR Transactions and the Home Re Transactions. Assumed premiums consists primarily of premiums from GSE CRT programs. See “Reinsurance Transactions “ below for further discussion on our reinsurance transactions.

As discussed in our Risk Factor titled “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses,” the private mortgage insurance industry is highly competitive and premium rates have declined over the past several years. We expect our net premium yield to continue to decline as older insurance policies with higher premium rates run off and are replaced with new insurance policies which generally have lower premium rates.


Reinsurance Transactions
Quota share reinsurance
Our quota share reinsurance affects various lines of our statements of operations and therefore we believe it should be analyzed by reviewing its total effect on our pre-tax income, described as follows.
èWe cede a fixed percentage of premiums on insurance covered by the agreements.
èWe receive the benefit of a profit commission through a reduction in the premiums we cede. The profit commission varies inversely with the level of losses on a “dollar for dollar” basis and can be eliminated at loss levels higher than what we are currently experiencing. As a result, lower levels of ceded losses result in less benefit from ceded losses and a higher profit commission; higher levels of ceded losses result in more benefit from ceded losses and a lower profit commission (or for certain levels of accident year loss ratios, its elimination).
èWe receive the benefit of a ceding commission through a reduction in underwriting expenses equal to 20% of premiums ceded (before the effect of the profit commission).
èWe cede a fixed percentage of losses incurred on insurance covered by the agreements.


The following table provides information related to our quota share reinsurance transactions for 2021 and 2020.
Quota Share Reinsurance
Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in thousands)2021202020212020
Ceded premiums written and earned, net of profit commission$22,911$43,448$90,284$131,651
% of direct premiums written8%16%11%16%
% of direct premiums earned8%14%10%15%
Profit commission$45,078$17,191$108,000$45,939
Ceding commissions$13,599$12,128$39,657$35,518
Ceded losses incurred$(3,598)$20,707$13,710$65,493
Mortgage insurance portfolio:
Ceded RIF (Dollars in millions)
2015 QSR$1,029$1,901
2017 QSR8231,578
2018 QSR8271,584
2019 QSR1,7713,176
2020 QSR5,1184,447
2021 QSR5,714—
Credit Union QSR1,418517
Total ceded RIF$16,700$13,203

Ceded losses incurred for the three and nine months ended September 30, 2021 reflect favorable loss reserve development on previously received notices primarily due to the decrease in the claim rate on pre-COVID-19 delinquencies notices and a decrease in new delinquency notices reported on insurance covered by our QSR Transactions. Ceded loss incurred for the three and nine months ended September 30, 2020 reflect the increase in new delinquency notices due to the impact of the COVID-19 pandemic on insurance covered by our QSR Transactions. See "Losses Incurred, net” below for discussion of our loss reserves.

We have elected to terminate our 2017 QSR and 2018 QSR Transactions effective December 31, 2021 and will incur an early termination fee of $5 million at December 31, 2021.

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Covered risk
The percentages of our NIW, new risk written, IIF, and RIF subject to our QSR Transactions as shown in the following table will vary from period to period in part due to the mix of our risk written during the period.
Quota Share Reinsurance
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
NIW subject to QSR Transactions85.0 %76.0 %80.0 %74.2 %
New Risk Written subject to QSR Transactions89.5 %87.0 %91.9 %85.1 %
IIF subject to QSR Transactions77.0 %76.5 %77.0 %76.5 %
RIF subject to QSR Transactions83.9 %81.6 %83.9 %81.6 %

The increase in NIW and new risk written subject to quota share reinsurance increased for the three and nine months ended September 30, 2021 compared to the same periods of the prior year primarily due to a decrease in NIW with LTVs less than or equal to 85% and amortization terms less than or equal to 20 year, which generally have lower coverage percentages, and are excluded from the QSR Transactions.

As of September 30, 2021, the weighted average coverage percentage of our QSR transactions was 29% based on RIF.

Excess of loss reinsurance
As of September 30, 2021 our excess of loss reinsurance provided $1.5 billion of loss coverage on a portfolio of policies having an in force date from July 1, 2016 through March 31, 2019, and from January 1, 2020 through May 28, 2021; all dates inclusive. For the reinsurance coverage, we retain the first layer of the respective aggregate losses paid, and a Home Re Entity will then provide second layer coverage up to the outstanding reinsurance amount.

As of September 30, 2021, the remaining first layer retention and remaining excess of loss reinsurance coverage under our Home Re Transactions was as follows.

($ In thousands)Remaining First Layer RetentionRemaining Excess of Loss Reinsurance Coverage
Home Re 2018-1$165,434 $218,343 
Home Re 2019-1184,007 208,146 
Home Re 2020-1275,268 288,777 
Home Re 2021-1211,159 398,848 
Home Re 2021-2190,159 398,429 
We ceded premiums of $12.1 million and $32.4 million for the three and nine months ended September 30, 2021, respectively, and $3.7 million and $12.8 million for the three and nine months ended September 30, 2020, respectively.

In February 2021, MGIC entered into $398.8 excess of loss agreement (executed through an insurance linked notes transaction) on a portfolio of policies having in force dates from August 1, 2020 through December 31, 2020. In August 2021, MGIC entered into a $398.4 million excess of loss reinsurance agreement (executed through an insurance linked notes transaction) that covers policies with inforce dates from January 1, 2021 through May 28, 2021.

When a “Trigger Event” is in effect, payment of principal on the related notes will be suspended and the reinsurance coverage available to MGIC under the transactions will not be reduced by such principal payments. As of September 30, 2021 a "Trigger Event" is in effect on our Home Re 2018-1 and 2019-1 transactions because the reinsured principal balance of loans that were reported 60 or more days delinquent exceeded 4% of the total reinsured principal balance of loans under each transaction. A “Trigger Event” has occurred on our Home Re 2021-1 and Home Re 2021-2 transactions because the credit enhancement of the most senior tranche is less than the target credit enhancement. See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of our excess of loss reinsurance.

Investment income
Comparative quarterly and year to date results
Net investment income in the three and nine months ended September 30, 2021 was $38.3 million and $117.3 million, respectively. Net investment income in the three and nine months ended September 30, 2020 was $37.3 million and $118.3 million. respectively. Net investment income was impacted by lower investment yields, offset by an increase in the investment portfolio.

Losses and expenses
Losses and expenses
Three Months Ended September 30,Nine Months Ended September 30,
(In millions)2021202020212020
Losses incurred, net$20.8 $40.7 $89.6 $319.0 
Amortization of deferred policy acquisition costs3.3 3.3 9.0 8.7 
Other underwriting and operating expenses, net53.9 45.3 155.8 131.8 
Loss on debt extinguishment— 26.7 — 26.7 
Interest expense18.0 15.7 54.0 41.6 
Total losses and expenses$96.0 $131.7 $308.4 $527.8 

Losses incurred, net
As discussed in “Critical Accounting Policies” in our 2020 10-K MD&A, we establish case loss reserves for future claims on delinquent loans that were reported to us as two payments past due and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case loss reserves are established based on estimating the number of loans in our delinquency inventory that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.

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IBNR reserves are established for delinquencies estimated to have occurred prior to the close of an accounting period, but not yet reported to us. IBNR reserves are established using estimated claim rates and claim severities.

Estimation of losses is inherently judgmental. Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment, and the current and future strength of local housing markets; exposure on insured loans; the amount of time between delinquency and claim filing; and curtailments and rescissions. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment and the continued impact of the COVID-19 pandemic, leading to a reduction in borrowers’ income and thus their ability to make mortgage payments, the impact of past and future government initiatives and actions taken by the GSEs (including mortgage forbearance programs and foreclosure moratoriums), and a drop in housing values that could result in, among other things, greater losses on loans, and may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. Loss reserves in the future will also be dependent on the number of loans reported to us as delinquent.

Historically, losses incurred have followed a seasonal trend in which the second half of the year has weaker credit performance than the first half, with higher new notice activity and a lower cure rate. Changes in economic circumstances, including those associated with the COVID-19 pandemic, affected this pattern starting in the second quarter of 2020.

As discussed in our Risk Factor titled “The Covid-19 pandemic may continue to materially impact our financial results and may also materially impact our business, liquidity and financial condition" the impact of the COVID-19 pandemic on our future incurred losses is uncertain and may be material. As discussed in our risk factor titled “Because we establish loss reserves only upon a loan delinquency rather than based on estimates of our ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings in certain periods” if we have not received a notice of delinquency with respect to a loan and if we have not estimated the loan to be delinquent as of September 30, 2021 through our IBNR reserve, then we have not yet recorded an incurred loss with respect to that loan.

Our estimates are also affected by any agreements we enter into regarding our claims paying practices.

Comparative quarterly results
Losses incurred, net in the third quarter of 2021 were $20.8 million compared to $40.7 million in the prior year. The decrease is primarily due to a 53% reduction in new delinquency notices received in the third quarter of 2021 compared to the prior year primarily reflecting the impact of the COVID-19 pandemic in the third quarter of 2020. In addition, our re-estimation of reserves on previous delinquencies resulted in $18 million of favorable loss development in the third quarter of 2021 primarily attributable to delinquencies received prior to the start of the COVID-19 pandemic, compared to insignificant loss reserve development in the third quarter of 2020. The favorable loss development in the third quarter of 2021 was partially offset by adverse development on LAE reserves and reinsurance. In the third quarter of 2020, our incurred but not reported, or IBNR reserve decreased by $27.

Comparative year to date results
Losses incurred, net in the nine months ended September 30, 2021 were $89.6 million compared to $319.0 million in the prior year period. The decrease is primarily due to a 65% reduction in new delinquency notices received in the first nine months of 2021 compared to the prior year. New delinquency notices increased in 2020 due to the impact of the COVID-19 pandemic and the macroeconomic environment. In addition, in the first nine months of 2021 our re-estimation of reserves on previous delinquencies resulted in favorable loss development primarily attributable to delinquency notices received prior to the start of the COVID-19 pandemic. This was partially offset by the recognition of a probable loss of $6.3 million related to litigation of our claims paying practice. For the nine months ended September 30, 2020 we experienced adverse loss development on previously received delinquencies.

Composition of losses incurred
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)20212020% Change20212020% Change
Current year / New notices$28.5$36.2(21)$95.6$301.7(68)
Prior year reserve development(7.7)4.5(271)(6.0)17.3(135)
Losses incurred, net$20.8$40.7(49)$89.6$319.0(72)

Loss ratio
The loss ratio is the ratio, expressed as a percentage, of the sum of incurred losses and loss adjustment expenses to net premiums earned. The decrease in the loss ratio for the three and nine months ended September 30, 2021 compared to the respective prior year periods was primarily due to a decrease in losses incurred discussed above.
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Loss ratio8.1 %15.9 %11.8 %41.9 %



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New notice claim rate
The number of new delinquency notices received for the three months ended September 30, 2021 was below pre-COVID-19 pandemic levels and decreased 53% from the same period last year as new notice activity in the third quarter of 2020 was impacted by the COVID-19 pandemic. The new notice claim rate for the three months ended September 30, 2021 was consistent with the quarters ended December 31, 2020 through June 30, 2021.

Many of the loans in our delinquency inventory have entered forbearance plans. Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss
incidence. Whether a loan's delinquency will cure, including through modification, when its forbearance plan ends will depend on the economic circumstances of the borrower at that time. The severity of losses associated with loans whose delinquencies do not cure will depend on economic conditions at that time, including home prices compared to home prices at the time of placement of coverage. Forbearance information is based on the most recent information provided by the GSEs, as well as loan servicers, and we believe substantially all forbearances are related to COVID-19. While the forbearance information provided by the GSEs refers to delinquent loans in forbearance as of the prior month-end, the information provided by loan servicers may be more current. As of September 30, 2021, 48% of our delinquency inventory was in such plans.
New notices and delinquency inventory during the period
September 30, 2021
Policy YearNew Notices for the Three Months EndedNew Notices for the Nine Months EndedDelinquency Inventory% of Delinquency Inventory in ForbearanceAvg. Number of Missed Payments of Delinquency Inventory
2004 and prior941 2,899 2,915 19.1 %20
2005-20083,093 9,747 11,854 27.0 %19
2009-2015946 3,138 4,047 49.3 %12
2016500 1,867 2,468 59.6 %12
2017771 2,647 3,656 60.1 %12
2018848 3,029 4,197 61.7 %11
2019852 3,272 4,165 68.5 %11
20201,286 4,352 3,465 77.1 %8
2021625 958 612 43.0 %3
Total9,862 31,909 37,379 47.6 %14
Claim rate on new notices (1)
8 %8 %
September 30, 2020
Policy YearNew Notices for the Three Months EndedNew Notices for the Nine Months EndedDelinquency Inventory% of Delinquency Inventory in ForbearanceAvg. Number of Missed Payments of Delinquency Inventory
2004 and prior1,179 4,884 4,021 26.7 %16
2005-20085,283 22,519 18,203 41.5 %13
2009-20152,518 11,844 8,019 71.3 %6
20161,726 8,366 5,552 80.9 %5
20172,430 11,588 7,832 81.4 %5
20182,789 13,161 8,599 83.7 %5
20193,344 14,966 9,494 88.2 %5
20201,655 3,578 2,698 88.1 %4
Total20,924 90,906 64,418 67.0 %8
Claim rate on new notices (1)
8 %7 %
(1) - Claim rate is the respective quarter or year to date weighted average rate and is rounded to the nearest whole percent.

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Claims severity
Factors that impact claim severity include:
èeconomic conditions at time of claim filing, including home prices compared to home prices at the time of placement of coverage,
èexposure of the loan, which is the unpaid principal balance of the loan times our insurance coverage percentage,
èlength of time between delinquency and claim filing (which impacts the amount of interest and expenses, with a longer time between default and claim filing generally increasing severity), and
ècurtailments.

As discussed in Note 11 - “Loss Reserves,” our loss reserves estimates take into consideration current trends over time, because the development of the delinquencies may vary from period to period without establishing a meaningful trend. In light of the forbearance and foreclosure moratorium programs associated with the COVID-19 pandemic, the average number of missed payments at the time a claim is received and expected to be received will increase in 2021. Although foreclosure moratoriums are expiring, under a CFPB rule that is generally effective through December 31, 2021, with limited exceptions, servicers must ensure that at least one temporary safeguard has been met before referring 120-day delinquent loans for foreclosure.

The majority of loans prior to 2008 (which represent 40% of the loans in the delinquency inventory) are covered by master policy terms that, except under certain circumstances, do not limit the number of years that an insured can include interest when filing a claim. Under our current master policy terms, an insured can include accumulated interest when filing a claim only for the first three years the loan is delinquent. In each case, the insured must comply with its obligations under the terms of the applicable master policy.
Claims severity trend for claims paid during the period
PeriodAverage exposure on claim paidAverage claim paid% Paid to exposureAverage number of missed payments at claim received date
Q3 2021$42,468 $36,138 85.1 %34 
Q2 202140,300 34,068 84.5 %36 
Q1 202146,807 36,725 78.5 %34 
Q4 202048,321 40,412 83.6 %32 
Q3 202047,780 40,600 85.0 %27 
Q2 202044,905 42,915 95.6 %32 
Q1 202046,247 47,222 102.1 %33 
Q4 201946,076 46,302 100.5 %34 
Q3 201942,821 44,388 103.7 %35 
Q2 201946,950 46,883 99.9 %34 
Q1 201942,277 43,930 103.9 %35 
Note: Table excludes material settlements. Settlements include amounts paid in settlement disputes for claims paying practices and/or commutations of policies.

Claims that were resolved after the first quarter of 2020 experienced an increase in loss mitigation activities, primarily third party acquisitions (sometimes referred to as “short sales”), resulting in a decrease in the average claim paid and the average claim paid as a percentage of exposure. As foreclosure moratoriums and forbearance plans end, we expect to see an increase in claims received and claims paid at exposure levels above those experienced subsequent to the second quarter of 2020. The magnitude and timing of the increases are uncertain.

In considering the potential sensitivity of the factors underlying our estimate of loss reserves, it is possible that even a relatively small change in our estimated claim rate or severity could have a material impact on reserves and, correspondingly, on our consolidated results of operations even in a stable economic environment. For example, as of September 30, 2021, assuming all other factors remain constant, a $1,000 increase/decrease in the average severity reserve factor would change the reserve amount by approximately +/- $17 million. A 1 percentage point increase/decrease in the average claim rate reserve factor would change the reserve amount by approximately +/- $22 million.

The length of time a loan is in the delinquency inventory (see Note 11- “Loss Reserves,” table 11.4) can differ from the number of payments that the borrower has not made or is considered delinquent. These differences typically result from a borrower making monthly payments that do not result in the loan becoming fully current. The number of payments that a borrower is delinquent is shown in the following table.


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Delinquency inventory - number of payments delinquent
September 30, 2021
December 31, 2020September 30, 2020
3 payments or less8,911 14,183 18,541 
4-11 payments11,165 35,977 38,999 
12 payments or more (1)
17,303 7,550 6,878 
Total37,379 57,710 64,418 
3 payments or less24 %25 %29 %
4-11 payments30 %62 %60 %
12 payments or more46 %13 %11 %
Total100 %100 %100 %
(1)Approximately 11%, 25%, and 27% of the primary delinquency inventory with 12 payments or more delinquent has at least 36 payments delinquent as of September 30, 2021, December 31, 2020, and September 30, 2020, respectively.

Net losses and LAE paid
Net losses and LAE paid in the three months ended September 30, 2021 increased by $2 million or 11% compared to the same period in the prior year primarily due to NPL settlement activity during the quarter, partially offset by lower claim activity on our primary business due to foreclosure moratoriums and payment forbearance plans in place. Net losses and LAE paid in the nine months ended September 30, 2021 decreased by $47 million, or 49%, compared to the same period in the prior year primarily due to lower claim activity on our primary business due to foreclosure moratoriums and payment forbearance plans in place. While foreclosure moratoriums and payment forbearance plans remain in place, net losses and LAE paid are expected to continue to be lower. As the various moratorium and forbearance plans end, we expect net losses and LAE paid to increase, however, the magnitude and timing of the increases are uncertain.

The following table presents our net losses and LAE paid for the three and nine months ended September 30, 2021 and 2020.
Net losses and LAE paid
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)2021202020212020
Total primary (excluding settlements)$11 $15 $34 $86 
Claims paying practices and NPL settlements (1)
7 — 7 — 
Pool— — — 1 
Direct losses paid18 15 41 87 
Reinsurance(1)— (2)(3)
Net losses paid17 15 39 84 
LAE3 3 10 12 
Net losses and LAE paid$20 $18 $49 $96 
(1) See Note 11- “Loss Reserves,” for additional information on our settlements of disputes for claims paying practices and commutations of NPLs.


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Primary claims paid for the top 15 jurisdictions (based on 2021 primary losses paid excluding settlements) and all other jurisdictions for the three and nine months ended September 30, 2021 and 2020 appears in the following table.
Paid losses by jurisdiction
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)2021202020212020
Puerto Rico *$2 $— $4 $4 
Florida *1 1 4 11 
New York *1 2 4 10 
Illinois *1 1 4 7 
New Jersey *1 2 2 8 
Maryland1 2 2 6 
Pennsylvania *— 1 1 4 
Ohio *— — 1 3 
Connecticut *1 — 1 1 
Massachusetts *— — 1 2 
Indiana *— — 1 1 
Louisiana *— — 1 1 
Iowa *— — 1 1 
Virginia— — 1 2 
Wisconsin— — — 1 
All other jurisdictions3 6 6 24 
Total primary (excluding settlements)$11 $15 $34 $86 
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed

The primary average claim paid for the top 5 states (based on 2021 primarily losses paid excluding settlements) for the three and nine months ended September 30, 2021 and 2020 appears in the following table.
Primary average claim paid
Three Months Ended September 30,
Nine Months Ended September 30,
2021202020212020
Puerto Rico *$44,216 $37,461 $43,241 $42,994 
Florida *50,289 47,396 45,228 60,127 
New York *102,509 105,666 102,129 108,235 
Illinois *37,233 46,369 34,017 43,195 
New Jersey *117,925 85,792 81,226 97,866 
All other jurisdictions25,393 32,472 26,483 35,109 
All jurisdictions$36,138 $40,600 $35,580 $44,464 
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.


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The primary average claim paid can vary materially from period to period based upon a variety of factors, including the local market conditions, average loan amount, average coverage percentage, the amount of time between delinquency and claim filing, and our loss mitigation efforts on loans for which claims are paid.

The primary average RIF on delinquent loans at September 30, 2021, December 31, 2020 and September 30, 2020 for the top 5 jurisdictions (based on the September 30, 2021 delinquency inventory) appears in the following table.
Primary average RIF - delinquent loans
September 30, 2021December 31, 2020September 30, 2020
Florida$57,029 $56,956 $57,929 
Texas52,220 53,194 54,111 
Illinois40,947 41,451 43,251 
California89,449 89,202 89,569 
New York75,473 73,509 74,300 
All other jurisdictions48,374 49,888 51,292 
All jurisdictions$52,744 $53,804 $55,191 

The primary average RIF on all loans was $57,867, $54,891, and $54,307 at September 30, 2021, December 31, 2020, and September 30, 2020, respectively.

Loss reserves
Our primary delinquency rate at September 30, 2021 was 3.20% (YE 2020: 5.11%, September 30, 2020: 5.79%). Our primary delinquency inventory was 37,379 loans at September 30, 2021, representing a decrease of 35% from December 31, 2020 and 42% from September 30, 2020. As of September 30, 2021, 48% of our delinquency inventory were reported to us as subject to forbearance plans. We believe substantially all represent forbearance plans related to COVID-19. Generally, a defaulted loan with fewer missed payments is less likely to result in a claim. Prior to 2020, we experienced a decline in the number of delinquencies in inventory with twelve or more missed payments. The increase at September 30, 2021 of delinquencies with twelve or more missed payment is due to the number of new delinquency notices received in the second quarter of 2020 resulting from the impacts of the COVID-19 pandemic. (See Note 11- “Loss Reserves,” table 11.4) Given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. Whether a loan’s delinquency will cure when its forbearance plan ends will depend on the economic circumstances of the borrower at that time.


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The gross reserves at September 30, 2021, December 31, 2020, and September 30, 2020 appear in the table below.
Gross reserves
September 30, 2021December 31, 2020September 30, 2020
Primary:
Direct case loss reserves (in millions)$840 $789 $745 
Direct IBNR and LAE reserves86 82 86 
Total primary direct loss reserves$926 $871 $831 
Ending delinquent inventory37,379 57,710 64,418 
Percentage of loans delinquent (delinquency rate)3.20 %5.11 %5.79 %
Average total primary loss reserves per delinquency$24,597 $15,100 $12,907 
Primary claims received inventory included in ending delinquent inventory154 159 172 
Pool (1):
   
Direct loss reserves (in millions):  
With aggregate loss limits$5 $6 $6 
Without aggregate loss limits2 2 2 
Total pool direct loss reserves$7 $8 $8 
Ending default inventory:   
With aggregate loss limits344 442 211 
Without aggregate loss limits195 238 139 
Total pool ending delinquent inventory539 680 350 
Pool claims received inventory included in ending delinquent inventory6 10 5 
Other gross reserves (2) (in millions)
$— $2 $1 
(1)Since a number of our pool policies include aggregate loss limits and/or deductibles, we do not disclose an average direct reserve per delinquency for our pool business.
(2)Other Gross Reserves includes direct and assumed reserves that are not included within our primary or pool loss reserves.  


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The primary delinquency inventory for the top 15 jurisdictions (based on September 30, 2021 delinquency inventory) at September 30, 2021, December 31, 2020 and September 30, 2020 appears in the following table.
Primary delinquency inventory by jurisdiction
September 30, 2021December 31, 2020September 30, 2020
Florida *3,401 5,936 6,900 
Texas2,964 4,617 4,956 
Illinois *2,370 3,460 3,831 
California2,218 3,584 4,209 
New York *1,808 2,416 2,655 
Pennsylvania *1,768 2,593 2,843 
Ohio *1,657 2,541 2,745 
Georgia1,439 2,422 2,703 
New Jersey *1,325 1,960 2,263 
Michigan1,221 1,842 2,107 
North Carolina1,090 1,686 1,916 
Maryland1,053 1,556 1,726 
Virginia871 1,377 1,561 
Minnesota840 1,234 1,277 
Puerto Rico *827 1,458 1,896 
All other jurisdictions12,527 19,028 20,830 
Total37,379 57,710 64,418 
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.


The primary delinquency inventory by policy year at September 30, 2021, December 31, 2020 and September 30, 2020 appears in the following table.
Primary delinquency inventory by policy year
September 30, 2021December 31, 2020September 30, 2020
Policy year:
2004 and prior2,915 3,885 4,021 
2004 and prior %8 %6 %6 %
20051,792 2,462 2,560 
20063,148 4,265 4,568 
20075,437 8,011 8,511 
20081,477 2,346 2,564 
2005 - 2008 %32 %30 %28 %
200997 159 180 
201067 99 111 
201196 151 175 
2012188 357 431 
2013551 929 1,077 
20141,231 2,089 2,393 
20151,817 3,133 3,652 
2009 - 2015 %11 %12 %13 %
20162,468 4,599 5,552 
20173,656 6,746 7,832 
20184,197 7,468 8,599 
20194,165 7,929 9,494 
20203,465 3,082 2,698 
2021612 — — 
2016 and later %49 %52 %53 %
Total37,379 57,710 64,418 


On our primary business, the highest claim frequency years have typically been the third and fourth year after loan origination. However, the pattern of claim frequency can be affected by many factors, including persistency and deteriorating economic conditions. Deteriorating economic conditions, including the impacts of the COVID-19 pandemic, can result in increasing claims following a period of declining claims. As of September 30, 2021, 74% of our primary RIF was written subsequent to December 31, 2018, 79% of our primary RIF was written subsequent to December 31, 2017, and 84% of our primary RIF was written subsequent to December 31, 2016.

COVID-19 Delinquency Activity
At March 31, 2020, before the COVID-19 pandemic impacted our delinquency inventory, our delinquency inventory was 27,384. As a result of the impacts of the COVID-19 pandemic, including the high level of unemployment and economic uncertainty resulting from measures to reduce the transmission of the COVID-19, we experienced an increase in our delinquency inventory

Forbearance programs enacted by the GSEs provide for payment forbearance on mortgages to borrowers experiencing a hardship during the COVID-19 pandemic. The forbearance information provided by the GSEs will be with respect to

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delinquent loans in forbearance as of the prior month-end, while the information provided by loan servicers may be more current. As of September 30, 2021, December 31, 2020, and September 30, 2020, 48%, 62%, and 67%, respectively, of our delinquency inventory was reported as subject to a forbearance plan. We believe substantially all represent forbearances related to COVID-19. The following tables present characteristics of our primary delinquency inventory in forbearance plans.
The number of payments that a borrower in forbearance is delinquent as of September 30, 2021, December 31, 2020, and September 30, 2020 is shown in the following table.

Forbearance Delinquency inventory - number of payments delinquent
September 30, 2021
December 31, 2020
September 30, 2020
3 payments or less2,646 6,580 10,554 
4-11 payments6,642 28,153 31,919 
12 payments or more (1)
8,505 1,145 680 
Total17,793 35,878 43,153 
3 payments or less15 %18 %25 %
4-11 payments37 %79 %73 %
12 payments or more48 %3 %2 %
Total100 %100 %100 %

The primary delinquency inventory in forbearance for the top 15 jurisdictions (based on September 30, 2021 delinquency inventory) at September 30, 2021, December 31, 2020 and September 30, 2020 appears in the following table.

Primary delinquency inventory in forbearance by jurisdiction
September 30, 2021
December 31, 2020
September 30, 2020
Florida *1,834 4,150 5,140 
Texas1,655 3,285 3,735 
Illinois *1,093 2,162 2,505 
California1,352 2,668 3,399 
New York *661 1,088 1,346 
Pennsylvania *678 1,294 1,607 
Ohio *580 1,228 1,493 
Georgia809 1,721 2,078 
New Jersey *654 1,174 1,498 
Michigan503 1,151 1,417 
North Carolina541 1,081 1,322 
Maryland550 994 1,173 
Virginia479 935 1,170 
Minnesota457 857 931 
Puerto Rico *253 630 1,063 
All other jurisdictions5,694 11,460 13,276 
Total17,793 35,878 43,153 

The primary delinquency inventory in forbearance by policy year at September 30, 2021, December 31, 2020 and September 30, 2020 appears in the following table.
Primary delinquency inventory in forbearance by policy year
September 30, 2021
December 31, 2020
September 30, 2020
Policy year:
2004 and prior557 937 1,073 
2004 and prior %3 %3 %2 %
2005397 671 706 
2006756 1,293 1,462 
20071,524 3,330 3,980 
2008520 1,197 1,405 
2005 - 2008 %18 %18 %18 %
200937 84 95 
201018 38 52 
201132 66 90 
201290 229 290 
2013242 583 744 
2014598 1,389 1,706 
2015976 2,180 2,739 
2009 - 2015 %11 %13 %13 %
20161,471 3,490 4,493 
20172,198 5,180 6,377 
20182,589 5,927 7,195 
20192,852 6,670 8,369 
20202,673 2,614 2,377 
2021263 — — 
2016 and later %68 %67 %67 %
Total17,793 35,878 43,153 



MGIC Investment Corporation - Q3 2021 | 57

Underwriting and other expenses, net
Underwriting and other expenses includes items such as employee compensation costs, fees for professional and consulting services, depreciation and maintenance expense, and premium taxes, and are reported net of ceding commissions.

Underwriting and other expenses, net for the three months ended September 30, 2021 were $53.9 million, an increase from $45.3 million in the prior year period. Underwriting and other expenses, net for the nine months ended September 30, 2021 were $155.8 million, an increase from $131.8 million in the prior year period. Underwriting and other expenses, net increased during the three and nine months ended September 30, 2021 compared with the same periods in the prior year primarily due to increases in professional and consulting services related to our investments in our infrastructure and increases in employee compensation costs, including equity-based compensation. For the nine months ended September 30, 2021, these increases were partially offset by an increase in ceding commission.
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Underwriting expense ratio 21.9 %20.2 %21.3 %19.1 %

The underwriting expense ratio is the ratio, expressed as a percentage, of the underwriting and operating expenses, net and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance subsidiaries) to NPW. The underwriting expense ratio in the three and nine months ended September 30, 2021 increased due to an increase in underwriting expenses, only partially offset by the effects of the increase in NPW when compared with the same periods in the prior year.

Provision for income taxes and effective tax rate
Income tax provision and effective tax rate
Three Months Ended September 30,Nine Months Ended September 30,
(In millions, except rate)2021202020212020
Income before tax$199.7 $164.3 $583.2 $369.1 
Provision for income taxes$41.8 $33.5 $122.2 $74.4 
Effective tax rate20.9 %20.4 %21.0 %20.2 %

Our effective tax rate for the three and nine months ended September 30, 2021 approximated the statutory tax rate of 21%. The difference between our statutory tax rate of 21% and our effective tax rate of 20.4% and 20.2% for the three and nine months ended September 30, 2020, respectively, was primarily due to the benefits of tax preferenced securities.





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Balance Sheet Review

Total assets, liabilities, and shareholders’ equity
As of September 30, 2021 and December 31, 2020, total assets were $7.5 billion and $7.4 billion, respectively, and total liabilities at each date were $2.6 billion and $2.7 billion, respectively. Shareholders’ equity was $4.9 billion as of September 30, 2021 and $4.7 billion as of December 31, 2020. The increase in shareholders’ equity represents net income in the first nine months of 2021, partially offset by repurchases of our common stock, a decrease in unrealized gains and dividends paid.

The following sections mainly focus on our cash and cash equivalents, investments and loss reserves as these reflect the major developments in our assets and liabilities since December 31, 2020.

Consolidated balance sheets - Assets
as of September 30, 2021 (In thousands)
mtg-20210930_g2.jpg
●Cash and cash equivalents$185,912 
●Investments6,916,195 
●Premiums receivable56,388 
●Reinsurance Recoverable107,029 
●Other assets245,785 

Cash and cash equivalents (including restricted) - Our cash and cash equivalents balance decreased to $186 million as of September 30, 2021, from $297 million as of December 31, 2020, as net cash generated from operating activities was used in investing and financing activities.

Consolidated balance sheets - Liabilities and equity
as of September 30, 2021 (In thousands)
mtg-20210930_g3.jpg
●Loss reserves$932,909 
●Unearned premiums256,517 
●Long-term debt1,244,790 
●Other liabilities199,673 
●Shareholders’ equity4,877,420 

Loss reserves - Our loss reserves include estimates of losses and settlement expenses on (1) loans in our delinquency inventory (known as case reserves), (2) IBNR delinquencies, and (3) LAE. Our gross reserves are reduced by reinsurance recoverable on our estimated losses and settlement expenses to calculate a net reserve balance. Loss reserves increased by 6% to $933 million as of September 30, 2021, from $881 million as of December 31, 2020. Reinsurance recoverables on our estimated losses and settlement expenses were $107 million and $95 million as of September 30, 2021 and December 31, 2020, respectively. The increase in loss reserves is primarily due to additional loss reserves established on new delinquency notices received in the first nine months of 2021, partially offset by a decrease in our re-estimation of reserves on delinquency notices received prior to the start of the COVID-19 pandemic.

Income Taxes - Our current income tax payable was $3.3 million at September 30, 2021 and is included as a component of other liabilities in our consolidated balance sheets. At December 31, 2020, our current income tax receivable was $2.1 million and is included as a component of other assets in our consolidated balance sheets. Our deferred income tax liability was $46.2 million and $60.0 million at September 30, 2021 and December 31, 2020, respectively and is included as a component of other liabilities in our consolidated balance sheets. The decrease in our deferred income tax liability was primarily due to the tax effect of unrealized losses generated

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by the investment portfolio during the first nine months of 2021.

At September 30, 2021 and December 31, 2020, we owned $382.3 and $271.0 million of tax and loss bonds, respectively. If the federal income tax rate increases, our net deferred income tax liability or asset would increase. In addition, on the effective date of the tax rate increase, we would establish a deferred income tax liability related to tax and loss bonds in an amount equal to the difference between the new federal income tax rate and the 21% federal income tax rate at which the tax and loss bonds were accrued.

Investment portfolio
The average duration and investment yield of our investment portfolio as of September 30, 2021, December 31, 2020, and September 30, 2020 are shown in the table below.
Portfolio duration and embedded investment yield
September 30, 2021December 31, 2020September 30, 2020
Duration (in years)4.44.34.1
Pre-tax yield (1)
2.5%2.6%2.6%
After-tax yield (1)
2.0%2.1%2.2%
(1)Embedded investment yield is calculated on a yield-to-worst basis.

The security ratings of our fixed income investments as of September 30, 2021, December 31, 2020, and September 30, 2020 are shown in the following table.
Fixed income security ratings
Security Ratings (1)
PeriodAAAAAABBB
September 30, 202119%25%35%21%
December 31, 202023%22%35%20%
September 30, 202023%21%35%21%
(1)Ratings are provided by one or more of: Moody's, Standard & Poor's and Fitch Ratings. If three ratings are available, the middle rating is utilized; otherwise the lowest rating is utilized.

Off-Balance Sheet Arrangements
We have five special purpose variable interest entities that are not consolidated in our consolidated financial statements because we do not have the unilateral power to direct those activities that are significant to their economic performance. See Note 4 - “Reinsurance,” to our consolidated financial statements for additional information.


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Liquidity and Capital Resources

Consolidated Cash Flow Analysis
We have three primary types of cash flows: (1) operating cash flows, which consist mainly of cash generated by our insurance operations and income earned on our investment portfolio, less amounts paid for claims, interest expense and operating expenses, (2) investing cash flows related to the purchase, sale and maturity of investments and purchases of property and equipment and (3) financing cash flows generally from activities that impact our capital structure, such as changes in debt and shares outstanding, and dividend payouts. The following table summarizes our consolidated cash flows from operating, investing and financing activities:
Summary of consolidated cash flows
Nine Months Ended September 30,
(In thousands)20212020
Total cash provided by (used in):
Operating activities$512,410 $508,853 
Investing activities(398,173)(478,059)
Financing activities(225,005)188,960 
Increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents$(110,768)$219,754 
Net cash provided by operating activities for the nine months ended September 30, 2021 increased compared to the same period of 2020 primarily due to a lower level of losses paid, net partially offset by an increase in income taxes paid and an increase in interest payments on our outstanding debt.

Net cash used in investing activities for the nine months ended September 30, 2021 and September 30, 2020 primarily reflects purchases of fixed income and equity securities during the period that exceeded sales and maturities of fixed income and equity securities during the period as cash from operations was available for additional investment.

Net cash used in financing activities for the nine months ended September 30, 2021 primarily reflects share repurchases and dividends to shareholders. Net cash used in financing activities for the nine months ended September 30, 2020 primarily reflects the issuance of our 5.25% Notes, partially offset by repurchase of a portion of our 5.75% Notes and 9% Debentures, share repurchases and dividends to shareholders.
Capitalization
Debt - holding company
As of September 30, 2021, our holding company’s debt obligations were $1.1 billion in aggregate principal consisting of our 5.75% Notes, 5.25% Notes, and 9% Debentures. In the third quarter of 2020, MGIC distributed to the holding company, as a dividend, its ownership in the 9% Debentures, retiring those 9% Debentures.
Liquidity analysis - holding company
As of September 30, 2021, we had approximately $715.9 million in cash and investments at our holding company. These resources are maintained primarily to service our debt interest expense, pay debt maturities, repurchase shares, repurchase debt, pay dividends to shareholders, and to settle intercompany obligations. While these assets are held, we generate investment income that serves to offset a portion of our interest expense. Investment income and the payment of dividends from our insurance subsidiaries are the principal sources of holding company cash inflow. MGIC is the principal source of dividends, and their payment is restricted by insurance regulation. Under the PMIERs guidance, any dividend paid by MGIC to our holding company through December 31, 2021 requires GSE approval if MGIC's excess of Available Assets is or would become less than 15% of its Minimum Required Assets. See Note 14 - “Statutory Information” to our consolidated financial statement for additional information about MGIC’s dividend restrictions. The payment of dividends from MGIC is also influenced by our view of the appropriate level of PMIERs Available Assets to maintain in excess of Minimum Required Assets. Other sources of holding company liquidity include raising capital in the public markets. The ability to raise capital in the public markets is subject to prevailing market conditions, investor demand for the securities to be issued, and our deemed creditworthiness.

In the third quarter of 2021 we paid $27.1 million in dividends to shareholders. On October 28, 2021, our Board of Directors declared a quarterly cash dividend of $0.08 per common share to shareholders of record on November 11, 2021, payable on November 23, 2021.

In the first nine months of 2021, our holding company cash and investments decreased by $131.1 million to $715.9 million as of September 30, 2021.

Significant cash and investments inflows during the first nine months:
•$150.0 million dividends received from MGIC,
•$13.3 million of investment income.

Significant cash outflows during the first nine months:
•$150.0 million of share repurchase transactions,
•$68.3 million in cash dividends paid to shareholders, and
•$57.8 million of interest payments on our 5.75% Notes, 5.25% Notes, and 9% Debentures.


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After suspending stock repurchases due to the uncertainty caused by the COVID-19 pandemic, in the third quarter of 2021, we repurchased 10.0 million shares of our common stock using $150 million of holding company cash. As of September 30, 2021 we had remaining authorization to repurchase $141 million of our common stock through the end of 2021 under a share repurchase program approved by our Board of Directors in January 2020. In October, our Board of Directors authorized an additional $500 million common stock repurchase program through the end of 2023. Also in October 2021, we repurchased an additional 3.8 million shares totaling $60 million under the remaining authorization that expires at year end 2021.

MGIC paid a cash dividend of $150 million to our holding company in the nine months ended September 30, 2021, compared with a combined cash and investment security dividend of $390 million in the comparable period of 2020. Future dividend payments from MGIC to the holding company will be determined in consultation with the board, and after considering any updated estimates about the economic impacts of the COVID-19 pandemic on our business. We ask the Wisconsin OCI not to object before MGIC pays dividends to the holding company.

The net unrealized gains on our holding company investment portfolio were approximately $1.4 million at September 30, 2021 and the portfolio had a modified duration of approximately 1.7 years.

Subject to certain limitations and restrictions, holders of each of the 9% Debentures may convert their notes into shares of our common stock at their option under the terms of their issuance, in which case our corresponding obligation will be eliminated.

See Note 7 – “Debt” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information about the conversion terms of our 9% Debentures and the terms of our indebtedness, including our option to defer interest on our 9% Debentures. The description in Note 7 - “Debt” to our consolidated financial statements in our Annual Report on Form 10-K is qualified in its entirety by the terms of the notes and debentures.

Debt at subsidiaries
MGIC is a member of the FHLB, which provides MGIC access to an additional source of liquidity via a secured lending facility. MGIC borrowed $155 million in the form of a fixed rate advance from the FHLB. Interest on the Advance is payable monthly at an annual rate, fixed for the term of the Advance, of 1.91%. The principal of the Advance matures on February 10, 2023. MGIC may prepay the Advance at any time. Such prepayment would be below par if interest rates have risen after the Advance was originated, or above par if interest rates have declined. The Advance is secured by eligible collateral whose fair value is maintained at a minimum of 102% of the outstanding principal balance. MGIC provided eligible collateral from its investment portfolio.

Capital Adequacy
PMIERs
As of September 30, 2021, MGIC’s Available Assets under the PMIERs totaled approximately $5.8 billion, an excess of approximately $2.6 billion over its Minimum Required Assets; and MGIC is in compliance with the requirements of the PMIERs and eligible to insure loans delivered to or purchased by the GSEs. Our reinsurance transactions provided an aggregate of approximately $2.0 billion of capital credit under the PMIERs as of September 30, 2021. Refer to Note 4 - “Reinsurance” to our consolidated financial statements for additional information on our QSR and Home Re Transactions.

The PMIERS generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. For delinquent loans whose initial missed payment occurred on or after March 1, 2020 and prior to April 1, 2021 (the "COVID-19 Crisis Period"), the Minimum Required Assets are generally reduced by 70% for at least three months. The 70% reduction will continue, or be newly applied, for delinquent loans that are subject to a forbearance plan that is granted in response to a financial hardship related to COVID-19, the terms of which are materially consistent with terms of forbearance plans offered by Freddie Mac or Fannie Mae. Under the PMIERs, a forbearance plan on a loan with an initial missed payment occurring during the COVID-19 Crisis Period is assumed to have been granted in response to a financial hardship related to COVID-19. Loans considered to be subject to a forbearance plan include those that are in a repayment plan or loan modification trial period following the forbearance plan.

Forbearance for federally-insured mortgages allows for mortgage payments to be suspended for up to 18 months: an initial forbearance period of up to six months; if requested by the borrower following contact by the servicers, an extension of up to six months; and for loans in a COVID-19 forbearance plan as of February 28, 2021 an additional six months, subject to certain limits. If a servicer of a loan is unable to contact the borrower regarding an extension of the plan, the forbearance plan will expire. In such case, the 70% reduction in Minimum Required Assets for that loan will no longer be applicable and our Minimum Required Assets will increase.
We expect the GSEs and servicers will provide us with information about the forbearance status for nearly all of the loans in our delinquency inventory. The forbearance information provided by the GSEs will be with respect to delinquent loans in forbearance as of the prior month-end, while the information provided by loan servicers may be more current. As a result, in some cases, there may be a delay in our ability to take advantage of the 70% reduction.

Refer to “Overview - Capital - GSEs” of this MD&A and our risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility” for further discussion of PMIERs.


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Risk-to-capital
The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to its RIF (or a similar measure) in order for the mortgage insurer to continue to write new business. While they vary among jurisdictions, the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1.

We compute our risk-to-capital ratio on a separate company statutory basis, as well as on a combined insurance operation basis. The risk-to-capital ratio is our net RIF divided by our policyholders’ position. Our net RIF includes both primary and pool risk in force, net of reinsurance and excludes risk on policies that are currently in default and for which loss reserves have been established. The risk amount includes pools of loans with contractual aggregate loss limits and without these limits. Policyholders’ position consists primarily of statutory policyholders’ surplus (which increases as a result of statutory net income and decreases as a result of statutory net loss and dividends paid), plus the statutory contingency reserve, and a portion of the reserves for unearned premiums. The statutory contingency reserve is reported as a liability on the statutory balance sheet. A mortgage insurance company is required to make annual additions to the contingency reserve of approximately 50% of earned premiums. These contributions must generally be maintained for a period of ten years. However, with regulatory approval a mortgage insurance company may make early withdrawals from the contingency reserve when incurred losses exceed 35% of net earned premiums in a calendar year.

MGIC’s separate company risk-to-capital calculation is shown in the table below.
Risk-to-capital - MGIC separate company
(In millions, except ratio)September 30, 2021December 31, 2020
RIF - net (1)
$47,558 $44,511 
Statutory policyholders’ surplus1,351 1,336 
Statutory contingency reserve3,919 3,521 
Statutory policyholders’ position$5,270 $4,857 
Risk-to-capital9.0:19.2:1
(1)RIF – net, as shown in the table above is net of reinsurance and exposure on policies currently delinquent ($1.9 billion at September 30, 2021 and $2.9 billion December 31, 2020) for which loss reserves have been established.

At September 30, 2021 and December 30, 2020, our combined insurance companies’ risk-to-capital calculation was 9.0 to 1 and 9.1 to 1, respectively.

The decrease in MGIC's risk-to-capital and our combined insurance companies’ risk to capital in the first nine months of 2021 was due to an increase in statutory policyholders’ position, partially offset by an increase in RIF, net.

For additional information regarding regulatory capital see Note 14 – “Statutory Information” to our consolidated financial statements as well as our risk factor titled “State Capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis.”

Financial Strength Ratings
MGIC financial strength ratings
Rating AgencyRatingOutlook
Moody’s Investor ServicesBaa1Stable
Standard and Poor’s Rating ServicesBBB+Stable
A.M. BestA-Stable

MAC financial strength ratings
Rating AgencyRatingOutlook
A.M. BestA-Stable

For further information about the importance of MGIC’s ratings, see our risk factor titled “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.”


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Contractual Obligations

The following table summarizes, as of September 30, 2021, the approximate future payments under our contractual obligations and estimated claim payments on established loss reserves.
Contractual obligations
Payments due by period
(In millions)TotalLess than 1 year1-3 years3-5 yearsMore than 5 years
Long-term debt obligations$2,316.2 $69.9 $518.1 $105.8 $1,622.4 
Operating lease obligations1.3 0.7 0.6 — — 
Purchase obligations54.6 36.7 17.9 — — 
Other long-term liabilities932.9 130.5 401.2 401.2 — 
Total$3,305.0 $237.8 $937.8 $507.0 $1,622.4 
Our long-term debt obligations as of September 30, 2021 include their related interest and are discussed in Note 3 - “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” above. Our operating lease obligations include operating leases on data processing equipment and autos, as discussed in Note 16 – “Leases” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020. Purchase obligations consist primarily of agreements to purchase items related to our continued investment in our information technology infrastructure in the normal course of business.

Our other long-term liabilities represent the case and LAE loss reserves established to recognize the liability for losses and LAE related to existing delinquency inventory on insured mortgage loans and our IBNR reserve. The timing of the future claim payments associated with the established case loss reserves was determined primarily based on two key assumptions: the length of time it takes for a notice of delinquency to develop into a received claim and the length of time it takes for a received claim to be ultimately paid. The future claim payment periods are estimated based on historical experience, and could emerge differently than this estimate, in part, due to uncertainty regarding the impact of certain factors, such as impacts from the COVID-19 pandemic, loss mitigation protocols established by servicers and changes in some state foreclosure laws that may include, for example, a requirement for additional review and/or mediation process.

See Note 11 – “Loss Reserves” to our consolidated financial statements. In accordance with GAAP for the mortgage insurance industry, we establish loss reserves only for delinquent loans that were reported to us as two or more payments past due and have not become current or resulted in a claim payment and for loans we estimate are delinquent but for which delinquencies have not yet been received (“IBNR”). Because our reserving method does not take into account the impact of future losses that could occur from loans that are not delinquent, our obligation for ultimate losses that we expect to occur under our policies in force at any period end is not reflected in our consolidated financial statements or in the table above.

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Forward Looking Statements and Risk Factors
General: Our business, results of operations, and financial condition could be affected by the risk factors referred to under “Location of Risk Factors” below. These risk factors are an integral part of Management’s Discussion and Analysis.

These factors may also cause actual results to differ materially from the results contemplated by forward looking statements that we may make. Forward looking statements consist of statements which relate to matters other than historical fact. Among others, statements that include words such as we “believe,” “anticipate” or “expect,” or words of similar import, are forward looking statements. These risk factors, including the discussion of the impact of the COVID-19 pandemic, speak only as of the date of this press release and are subject to change without notice as the Company cannot predict all risks relating to this evolving set of events. We are not undertaking any obligation to update any forward looking statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.

While we communicate with security analysts from time to time, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report, and such reports are not our responsibility.

Location of Risk Factors: The risk factors are in Item 1 A of our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented by Part II, Item 1 A of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021 and by Part II, Item 1 A of this Quarterly Report on Form 10-Q. The risk factors in the 10-K, as supplemented by those 10‑Qs and through updating of various statistical and other information, are reproduced in Exhibit 99 to this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our investment portfolio is essentially a fixed income portfolio and is exposed to market risk. Important drivers of the market risk are credit spread risk and interest rate risk.

Credit spread risk is the risk that we will incur a loss due to adverse changes in credit spreads. Credit spread is the additional yield on fixed income securities above the risk-free rate (typically referenced as the yield on U.S. Treasury securities) that market participants require to compensate them for assuming credit, liquidity and/or prepayment risks.

We manage credit risk via our investment policy guidelines which primarily place our investments in investment grade securities and limit the amount of our credit exposure to any one issue, issuer and type of instrument. Guideline and investment portfolio detail is available in "Business – Section
C, Investment Portfolio" in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2020.

Interest rate risk is the risk that we will incur a loss due to adverse changes in interest rates relative to the characteristics of our interest bearing assets.

One of the measures used to quantify this exposure is modified duration. Modified duration measures the price sensitivity of the assets to the changes in spreads. At September 30, 2021, the modified duration of our fixed income investment portfolio was 4.4 years, which means that an instantaneous parallel shift in the yield curve of 100 basis points would result in a change of 4.4% in the fair value of our fixed income portfolio. For an upward shift in the yield curve, the fair value of our portfolio would decrease and for a downward shift in the yield curve, the fair value would increase. See Note 7 – “Investments” to our consolidated financial statements for additional disclosure surrounding our investment portfolio.

Item 4. Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer concluded that such controls and procedures were effective as of the end of such period. There was no change in our internal control over financial reporting that occurred during the third quarter of 2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION

Item 1. Legal Proceedings
Certain legal proceedings arising in the ordinary course of business may be filed or pending against us from time to time. For information about such legal proceedings, you should review Note 5 - “Litigation and Contingencies” to our consolidated financial statements and our risk factor titled “We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future” in Exhibit 99.

Item 1 A. Risk Factors
With the exception of the changes described and set forth below, there have been no material changes in our risk factors from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented by Part II, Item I A of our Quarterly Reports on Form 10-Q for the Quarters ended March 31, 2021 and June 30, 2021. The risk factors in the 10-K, as supplemented by those 10-Qs and this 10-Q and through updating of various statistical and other information, are reproduced in their entirety in Exhibit 99 to this Quarterly Report on Form 10‑Q.
Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.
The substantial majority of our NIW is for loans purchased by the GSEs; therefore, the business practices of the GSEs greatly impact our business. The GSEs are required to submit Equitable Housing Finance Plans to the FHFA by the end of 2021. The plans are to identify and address barriers to sustainable housing opportunities, including the GSEs’ goals and action plans to advance equity in housing finance for the next three years. The GSEs’ action plans will likely change certain of the GSEs’ business practices and those changes may affect the mortgage insurance industry. The GSEs’ business practices that currently affect the mortgage insurance industry include:
•The GSEs' PMIERs, the financial requirements of which are discussed in our risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility.”
•The capital and collateral requirements for participants in the GSEs' alternative forms of credit enhancement discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."
•The level of private mortgage insurance coverage, subject to the limitations of the GSEs’ charters, when private mortgage insurance is used as the required credit enhancement on low down payment mortgages (the GSEs generally require a level of mortgage insurance coverage that is higher than the level of coverage required by their
charters; any change in the required level of coverage will impact our new risk written).
•The amount of loan level price adjustments and guaranty fees (which result in higher costs to borrowers) that the GSEs assess on loans that require private mortgage insurance. The recently adopted GSE capital framework may lead the GSEs to increase their guaranty fees.
•Whether the GSEs select or influence the mortgage lender’s selection of the mortgage insurer providing coverage.
•The underwriting standards that determine which loans are eligible for purchase by the GSEs, which can affect the quality of the risk insured by the mortgage insurer and the availability of mortgage loans.
•The terms on which mortgage insurance coverage can be canceled before reaching the cancellation thresholds established by law. For more information, see our risk factor titled “Changes in interest rates, house prices or mortgage insurance cancellation requirements may change the length of time that our policies remain in force.”
•The programs established by the GSEs intended to avoid or mitigate loss on insured mortgages and the circumstances in which mortgage servicers must implement such programs.
•The terms that the GSEs require to be included in mortgage insurance policies for loans that they purchase, including limitations on the rescission rights of mortgage insurers.
•The extent to which the GSEs intervene in mortgage insurers’ claims paying practices, rescission practices or rescission settlement practices with lenders.
•The maximum loan limits of the GSEs compared to those of the FHA and other investors.
The FHFA has been the conservator of the GSEs since 2008 and has the authority to control and direct their operations. The increased role that the federal government has assumed in the residential housing finance system through the GSE conservatorship may increase the likelihood that the business practices of the GSEs change, including through administrative action, in ways that have a material adverse effect on us and that the charters of the GSEs are changed by new federal legislation.
In 2019, under the prior Presidential Administration, the U.S. Treasury Department ("Treasury") released the “Treasury Housing Reform Plan” (the "Plan"). The Plan recommends administrative and legislative reforms for the housing finance system, with such reforms intended, among other things, to achieve the goals of ending the conservatorships of the GSEs. The impact of the Plan on private mortgage insurance is unclear, in part, due to the change in Presidential Administration.

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As a result of the 2021 change in the Presidential Administration, the June 2021 appointment of a new Acting Director of the FHFA, and the 2021 U.S. Supreme Court decision that allows the President to remove the FHFA Director at will, it is uncertain what role the GSEs, FHA and private capital, including private mortgage insurance, will play in the residential housing finance system in the future. The timing and impact on our business of any resulting changes is uncertain. Many of the proposed changes would require Congressional action to implement and it is difficult to estimate when Congressional action would be final and how long any associated phase-in period may last.
Changes in interest rates, house prices or mortgage insurance cancellation requirements may change the length of time that our policies remain in force.
The premium from a single premium policy is collected upfront and generally earned over the estimated life of the policy. In contrast, premiums from monthly and annual premium policies are received each month or year, as applicable, and earned each month over the life of the policy. In each year, most of our premiums earned are from insurance that has been written in prior years. As a result, the length of time insurance remains in force, which is generally measured by persistency (the percentage of our insurance remaining in force from one year prior), is a significant determinant of our revenues. A higher than expected persistency rate may decrease the profitability from single premium policies because they will remain in force longer and may increase the incidence of claims than was estimated when the policies were written. A low persistency rate on monthly and annual premium policies will reduce future premiums but may also reduce the incidence of claims, while a high persistency on those policies will increase future premiums but may increase the incidence of claims.
Our persistency rate was 59.5% at September 30, 2021, 60.5% at December 31, 2020 and 75.8% at December 31, 2019. Since 2000, our year-end persistency ranged from a high of 84.7% at December 31, 2009 to a low of 47.1% at December 31, 2003. Our persistency rate is primarily affected by the level of current mortgage interest rates compared to the mortgage coupon rates on our insurance in force, which affects the vulnerability of the insurance in force to refinancing; and the current amount of equity that borrowers have in the homes underlying our insurance in force. The amount of equity affects persistency in the following ways:
•Borrowers with significant equity may be able to refinance their loans without requiring mortgage insurance.
•The Homeowners Protection Act (“HOPA”) requires servicers to cancel mortgage insurance when a borrower’s LTV ratio meets or is scheduled to meet certain levels, generally based on the original value of the home and subject to various conditions.
•The GSEs’ mortgage insurance cancellation guidelines apply more broadly than HOPA and also consider a home’s current value. For example, borrowers may request cancellation of mortgage insurance based on the home’s current value if certain LTV and seasoning
requirements are met and the borrowers have an acceptable payment history. For loans seasoned between two and five years, the LTV ratio must be 75% or less, and for loans seasoned more than five years the LTV ratio must be 80% or less. For more information about the GSEs guidelines and business practices, and how they may change, see our risk factor titled “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.”
Our holding company debt obligations materially exceed our holding company cash and investments.
At September 30, 2021, we had approximately $716 million in cash and investments at our holding company and our holding company’s debt obligations were $1.1 billion in aggregate principal amount, consisting of $242 million of 5.75% Senior Notes due in 2023 ("5.75% Notes"), $650 million of 5.25% Senior Notes due 2028 (the 5.25% Notes), and $209 million of 9% Convertible Junior Subordinated Debentures due in 2063 ("9% Debentures"). Annual debt service on the 5.75% Notes, 5.25% Notes and 9% Debentures outstanding as of September 30, 2021, is approximately $67 million.
The 5.75% Senior Notes, 5.25% Senior Notes and 9% Debentures are obligations of our holding company, MGIC Investment Corporation, and not of its subsidiaries. The payment of dividends from our insurance subsidiaries which, other than investment income and raising capital in the public markets, is the principal source of our holding company cash inflow, is restricted by insurance regulation, including a requirement that mortgage insurers make annual additions to a contingency reserve of approximately 50% of earned premiums, which, with certain exceptions, must be maintained for ten years. In addition, through December 31, 2021, dividends paid by MGIC to our holding company require GSE approval if MGIC's excess of Available Assets is or would become less than 15% of its Minimum Required Assets. MGIC is the principal source of dividends. We ask the OCI not to object before MGIC pays dividends and, due to the uncertainty surrounding the COVID-19 pandemic, MGIC did not pay dividends of cash and/or investment securities to the holding company from the second quarter of 2020 through the second quarter of 2021; however, in the third quarter of 2020, MGIC distributed to the holding company, as a dividend, its ownership in $133 million of the 9% Debentures, with a fair value of $167 million. MGIC paid a $150 million cash dividend to the holding company in August 2021. GSE approval was not required for the August 2021 dividend. Future dividend payments from MGIC to the holding company will be determined in consultation with the board of directors, and after considering any updated estimates about the economic impacts of the COVID-19 pandemic on our business.
We may, from time to time, repurchase our debt obligations on the open market (including through 10b5-1 plans) or through privately negotiated transactions. In addition, we may redeem our 9% Debentures as discussed in our risk factor titled "Your ownership in our company may be diluted by additional capital that we raise or if the holders of our outstanding convertible debt convert that debt into shares of our common stock."

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Repurchases of our common stock may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. In 2020 we repurchased approximately 9.6 million shares of our common stock, using approximately $120 million of holding company resources. After suspending stock repurchases due to the uncertainty caused by the COVID-19 pandemic, in the third quarter of 2021, we repurchased approximately 10.0 million shares, using approximately $150 million of holding company resources. As of September 30, 2021, we had $141 million of authorization remaining to repurchase our common stock through the end of 2021 under a share repurchase program approved by our Board of Directors in January 2020. In October 2021, our Board approved an additional $500 million stock repurchase authorization, which expires at the end of 2023. If any additional capital contributions to our subsidiaries were required, such contributions would decrease our holding company cash and investments. As described in our Current Report on Form 8-K filed with the SEC on February 11, 2016, MGIC borrowed $155 million from the Federal Home Loan Bank of Chicago. This is an obligation of MGIC and not of our holding company.
We could be adversely affected if personal information on consumers that we maintain is improperly disclosed, our information technology systems are damaged or their operations are interrupted, or our automated processes do not operate as expected.
As part of our business, we maintain large amounts of personal information of consumers, including on our servers and those of cloud computing services. Federal and state laws designed to promote the protection of such information require businesses that collect or maintain consumer information to adopt information security programs, and to notify individuals, and in some jurisdictions, regulatory authorities, of security breaches involving personally identifiable information. While we have information security policies and systems in place to prevent unauthorized disclosure, there can be no assurance with respect to our systems and those of our third-party vendors that unauthorized disclosure, either through the actions of third parties or employees, will not occur. Unauthorized disclosure could adversely affect our reputation, result in a loss of business and expose us to material claims for damages and may require that we provide free credit monitoring services to individuals affected by a security breach.
We are increasingly reliant on the efficient and uninterrupted operation of complex information technology systems. All information technology systems are potentially vulnerable to damage or interruption from a variety of sources, including by third-party cyber attacks, including those involving ransomware. In response to the COVID-19 pandemic, the Company transitioned to a primarily virtual workforce model and will likely continue to operate under a hybrid model in the future. Virtual and hybrid workforce models may be more vulnerable to security breaches. Due to our reliance on information technology systems, including ours and those of our customers and third-party service providers, their damage or interruption could adversely affect our reputation and severely disrupt our operations, which could have a material adverse effect on our business and business prospects.
Should we experience an unauthorized disclosure of information or a cyber attack, including those involving ransomware, some of the costs we incur may not be recoverable through insurance, or legal or other processes, and this may have a material adverse effect on our results of operations.
We are in the process of upgrading certain information systems, and transforming and automating certain business processes, and we continue to enhance our risk-based pricing system and our system for evaluating risk. Certain information systems have been in place for a number of years and it has become increasingly difficult to support their operation. The implementation of technological and business process improvements, as well as their integration with customer and third-party systems when applicable, is complex, expensive and time consuming. If we fail to timely and successfully implement and integrate the new technology systems, if the third party providers to which we are becoming increasingly reliant do not perform as expected, if our legacy systems fail to operate as required, or if the upgraded systems and/or transformed and automated business processes do not operate as expected, it could have a material adverse impact on our business, business prospects and results of operations.

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Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities
The following table provides information about purchases of MGIC Investment Corporation common stock by us during the three months ended September 30, 2021.
Share repurchases
Period BeginningPeriod EndingTotal number of shares purchasedAverage price paid per shareTotal number of shares purchased as part of publicly announced plans or programs
Approximate dollar value of shares that may yet be purchased under the programs (1)
July 1, 2021July 31, 2021— $— — $290,818,024 
August 1, 2021August 31, 20215,021,482 $14.94 5,021,482 $215,818,021 
September 1, 2021September 30, 20214,968,886 $15.09 4,968,886 $140,818,034 
9,990,368 $15.01 9,990,368 

(1)On January 28, 2020, our Board of Directors authorized a share repurchase program under which we may repurchase $300 million of our common stock through the end of 2021. In October 2021, we received authorization from our Board of Directors to repurchase an additional $500 million of our common stock through the end of 2023. Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time.

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Item 5. Other Information

Item 6. Exhibits
The accompanying Index to Exhibits is incorporated by reference in answer to this portion of this Item, and except as otherwise indicated in the next sentence, the Exhibits listed in such Index are filed as part of this Form 10-Q. Exhibit 32 is not filed as part of this Form 10-Q but accompanies this Form 10-Q.

(Part II, Item 6)

Index to exhibits
Exhibit NumberDescription of ExhibitFormExhibit(s)Filing Date
Certification of CEO under Section 302 of Sarbanes-Oxley Act of 2002 †
Certification of CFO under Section 302 of Sarbanes-Oxley Act of 2002 †
Certification of CEO and CFO under Section 906 of Sarbanes-Oxley Act of 2002 (as indicated in Item 6 of Part II, this Exhibit is not being “filed”) ††
Risk Factors included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented by Part II, Item 1A of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021, and September 30, 2021, and through updating of various statistical and other information †
101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*     Denotes a management contract or compensatory plan.
†    Filed herewith.
††    Furnished herewith.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on November 3, 2021.
MGIC INVESTMENT CORPORATION
 
/s/ Nathaniel H. Colson
Nathaniel H. Colson
Executive Vice President and
Chief Financial Officer
 
/s/ Julie K. Sperber
Julie K. Sperber
Vice President, Controller and Chief Accounting Officer

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