10-Q 1 mtg-20240331.htm 10-Q mtg-20240331
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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
March 31, 2024
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
download.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 April 26, 2024, there were 266,587,218 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.

MGIC Investment Corporation - Q1 2024 | 2


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED March 31, 2024
Table of contents
Page
Consolidated Balance Sheets - March 31, 2024 (Unaudited) and December 31, 2023
Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, 2024 and 2023
Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended March 31, 2024 and 2023
Consolidated Statements of Shareholders’ Equity (Unaudited) - Three Months Ended March 31, 2024 and 2023
Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2024 and 2023
Item 2Unregistered Sales of Equity Securities and Use of Proceeds
MGIC Investment Corporation - Q1 2024 | 3


Glossary of terms and acronyms
/ A
ARMs
Adjustable rate mortgages

ABS
Asset-backed securities

Annual Persistency
The percentage of our insurance remaining in force from one year prior. As of September 30, 2023, we refined our methodology for calculating our Annual Persistency by excluding the amortization of the principal balance. All prior periods have been revised

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. 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
Government Sponsored Enterprise. Collectively, Fannie Mae and Freddie Mac

MGIC Investment Corporation - Q1 2024 | 4


/ H
HAMP
Home Affordable Modification Program

HARP
Home Affordable Refinance Program

Home Re Entities
Unaffiliated special purpose insurers domiciled in Bermuda that participate in our aggregate XOL Transactions through the ILN market

Home Re Transactions
Excess-of-loss reinsurance transactions with the Home Re Entities

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

Loss ratio
The ratio, expressed as a percentage, of losses incurred, net to net premiums earned

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

NPL Settlement
The commutation of coverage on non-performing loans, which are a delinquent loans, at any stage in their delinquency

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

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

MGIC Investment Corporation - Q1 2024 | 5


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

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.

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

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

2021 QSR
Our QSR transaction that provides coverage on eligible NIW in 2021

2022 QSR
Our QSR transaction that provides coverage on eligible NIW in 2022

2023 QSR
Our QSR transaction that provides coverage on eligible NIW in 2023

2024 QSR
Our QSR transaction that provides coverage on eligible NIW in 2024

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

/ 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

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

Traditional XOL Transaction
Excess-of-loss reinsurance transaction with a group of unaffiliated reinsurers

2022 Traditional XOL
Our XOL transaction that provides coverage on eligible NIW in 2022

2023 Traditional XOL
Our XOL transaction that provides coverage on eligible NIW in 2023

/ U
Underwriting expense ratio
The ratio, expressed as a percentage, of the other 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 net premiums written

Underwriting profit
Net premiums earned minus losses incurred, net and other underwriting and operating expenses, net

USDA
U.S. Department of Agriculture

/ V
VA
U.S. Department of Veterans Affairs

VIE
Variable interest entity

MGIC Investment Corporation - Q1 2024 | 6


/ X
XOL Transactions
Excess-of-loss reinsurance transactions executed through the Home Re Transactions and the Traditional XOL Transactions
MGIC Investment Corporation - Q1 2024 | 7


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)NoteMarch 31, 2024December 31, 2023
(Unaudited)
ASSETS
Investment portfolio: 7 / 8
Fixed income, available-for-sale, at fair value (amortized cost 2024 - $5,928,057; 2023 - $5,939,483)$5,576,997 $5,601,540 
Short-term, fixed income, available-for-sale, at fair value (amortized cost 2024 - $95,721; 2023 - $121,539)95,717 121,573 
Equity securities, at fair value (cost 2024 - $16,053; 2023 - $16,025)14,697 14,771 
Other invested assets, at cost850 850 
Total investment portfolio5,688,261 5,738,734 
Cash and cash equivalents431,347 363,666 
Restricted cash and cash equivalents8,221 6,978 
Accrued investment income58,093 58,774 
Reinsurance recoverable on loss reserves439,200 33,302 
Reinsurance recoverable on paid losses4555 9,896 
Premiums receivable56,033 58,499 
Home office and equipment, net37,614 38,755 
Deferred insurance policy acquisition costs13,846 14,591 
Deferred income taxes, net76,271 79,782 
Other assets125,805 135,403 
Total assets$6,535,246 $6,538,380 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Loss reserves$504,447 $505,379 
Unearned premiums148,935 157,779 
Senior notes643,563 643,196 
Other liabilities135,958 160,009 
Total liabilities1,432,903 1,466,363 
Contingencies
Shareholders’ equity:
Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2024 - 371,353; 2023 - 371,353; shares outstanding 2024 - 268,990; 2023 - 272,494)
371,353 371,353 
Paid-in capital1,788,050 1,808,113 
Treasury stock at cost (shares 2024 - 102,363; 2023 - 98,859)
(1,466,224)(1,384,293)
Accumulated other comprehensive income (loss), net of tax (326,134)(316,281)
Retained earnings4,735,298 4,593,125 
Total shareholders’ equity5,102,343 5,072,017 
Total liabilities and shareholders’ equity$6,535,246 $6,538,380 
See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q1 2024 | 8


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31,
(In thousands, except per share data)Note20242023
Revenues:
Premiums written:
Direct$275,203 $274,247 
Assumed3,416 2,751 
Ceded(44,819)(46,806)
Net premiums written233,800 230,192 
Decrease in unearned premiums, net8,844 11,823 
Net premiums earned242,644 242,015 
Investment income, net of expenses59,744 49,223 
Net gains (losses) on investments and other financial instruments
7/8
(8,509)(7,698)
Other revenue 482 425 
Total revenues294,361 283,965 
Losses and expenses:
Losses incurred, net4,555 6,446 
Amortization of deferred insurance policy acquisition costs
2,009 2,478 
Other underwriting and operating expenses, net59,018 70,063 
Interest expense8,899 9,374 
Total losses and expenses74,481 88,361 
Income before tax219,880 195,604 
Provision for income tax45,783 41,057 
Net income$174,097 $154,547 
Earnings per share:
Basic$0.64 $0.53 
Diluted$0.64 $0.53 
Weighted average common shares outstanding - basic270,314 290,989 
Weighted average common shares outstanding - diluted273,108 294,712 

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - Q1 2024 | 9


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended March 31,
(In thousands)Note20242023
Net income$174,097 $154,547 
Other comprehensive income (loss), net of tax:
Change in unrealized investment gains and losses(10,392)80,659 
Benefit plan adjustments539 5,353 
Other comprehensive income (loss), net of tax(9,853)86,012 
Comprehensive income (loss)$164,244 $240,559 

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - Q1 2024 | 10


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Three Months Ended March 31,
(In thousands)Note20242023
Common stock
Balance, beginning and end of period$371,353 $371,353 
Paid-in capital
Balance, beginning of period1,808,113 1,798,842 
Reissuance of treasury stock, net under share-based compensation plans(31,168)(16,912)
Equity compensation11,105 9,679 
Balance, end of period1,788,050 1,791,609 
Treasury stock
Balance, beginning of period(1,384,293)(1,050,238)
Reissuance of treasury stock, net under share-based compensation plans12,122 9,713 
Repurchase of common stock(94,053)(78,523)
Balance, end of period(1,466,224)(1,119,048)
Accumulated other comprehensive income (loss)
Balance, beginning of period(316,281)(481,511)
Other comprehensive income (loss), net of tax(9,853)86,012 
Balance, end of period(326,134)(395,499)
Retained earnings
Balance, beginning of period4,593,125 4,004,294 
Net income174,097 154,547 
Cash dividends(31,924)(29,612)
Balance, end of period4,735,298 4,129,229 
Total shareholders’ equity$5,102,343 $4,777,644 

See accompanying notes to consolidated financial statements.



MGIC Investment Corporation - Q1 2024 | 11


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
(In thousands)20242023
Cash flows from operating activities:
Net income$174,097 $154,547 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization6,485 10,192 
Deferred tax expense (benefit)6,131 1,732 
Equity compensation11,105 9,679 
Net (gains) losses on investments and other financial instruments8,509 7,698 
Change in certain assets and liabilities:
Accrued investment income681 628 
Reinsurance recoverable on loss reserves(5,898)(4,521)
Reinsurance recoverable on paid losses9,341 17,936 
Premiums receivable
2,466 625 
Deferred insurance policy acquisition costs745 965 
Loss reserves(932)527 
Unearned premiums(8,844)(11,822)
Return premium accrual(2,600)(1,300)
Current income taxes39,839 39,481 
Other, net(50,588)(14,081)(1)
Net cash provided by (used in) operating activities190,537 212,286 
Cash flows from investing activities:
Purchases of investments(327,757)(229,198)
Proceeds from sales of investments14,841 32,991 
Proceeds from maturity of fixed income securities338,885 131,389 
Additions to property and equipment (363)
Net cash provided by (used in) investing activities25,969 (65,181)
Cash flows from financing activities:
Repurchase of common stock(95,183)(76,151)
Dividends paid(33,353)(30,096)
Payment of withholding taxes related to share-based compensation net share settlement(19,046)(7,199)
Net cash provided by (used in) financing activities(147,582)(113,446)
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents68,924 33,659 
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period370,644 332,913 
Cash and cash equivalents and restricted cash and cash equivalents at end of period$439,568 $366,572 
(1) Amounts have been reclassified to conform to the current year presentation
See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - Q1 2024 | 12


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(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, 2023 included in our 2023 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, 2024.

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 March 31, 2024, 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.



MGIC Investment Corporation - Q1 2024 | 13


Note 2. Significant Accounting Policies
Prospective accounting and reporting developments
Relevant new amendments to accounting standards, which are not yet effective or adopted.

Improvements to Income Tax Disclosures: ASU 2023-09
In December 2023, the FASB issued ASU 2023-09 to enhance the transparency and decision usefulness of income tax disclosures. Income tax disclosures will require consistent categories and greater disaggregations of information in the rate reconciliation and disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. We are currently evaluating the impacts the adoption of this guidance will have on our disclosures, but do not expect it will have a material impact.

Note 3. Debt
Debt obligations
The aggregate carrying value of our 5.25% Senior Notes (5.25% Notes) and the par value as of March 31, 2024 and December 31, 2023 is presented in table 3.1 below.
Long-term debt obligation, carrying value
Table
3.1
(In thousands)March 31, 2024December 31, 2023
5.25% Notes, due August 2028 (par value: $650 million)
$643,563 $643,196 

The 5.25% Notes are an obligation of our holding company, MGIC Investment Corporation.

See Note 7 - “Debt” in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information pertaining to our debt obligations. As of March 31, 2024 we are in compliance with our debt covenants.

Interest payments
Interest payments for the three months ended March 31, 2024 and 2023 were $17.1 million.

MGIC Investment Corporation - Q1 2024 | 14


Note 4. Reinsurance
We have in place reinsurance agreements executed under quota share reinsurance (“QSR”) transactions and excess-of-loss (“XOL”) transactions as discussed below. The effect of all of our reinsurance transactions on our consolidated statement of operations is shown in table 4.1 below.
Reinsurance
Table
4.1
 Three Months Ended March 31,
(In thousands)20242023
Premiums earned:
Direct$284,021 $286,034 
Assumed 3,442 2,787 
Ceded - quota share reinsurance (1)
(28,715)(29,877)
Ceded - excess-of-loss reinsurance(16,104)(16,929)
Total ceded(44,819)(46,806)
Net premiums earned$242,644 $242,015 
Losses incurred:
Direct$10,979 $11,123 
Assumed29 4 
Ceded - quota share reinsurance(6,453)(4,681)
Losses incurred, net$4,555 $6,446 
Other Reinsurance Impacts:
Profit commission on quota share reinsurance (1)
$24,584 $31,711 
Ceding commission on quota share reinsurance10,660 12,318 
(1)Ceded premiums earned are shown net of profit commission.

Quota share reinsurance
We have entered into QSR Transactions with panels of third-party reinsurers to cede a fixed 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 certain annual loss ratios as defined below. Ceded losses incurred are impacted by the delinquencies covered by our QSR Transactions, our estimates of payments that will be ultimately made on those delinquencies, and claim payments covered by our QSR Transactions.

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

Table 4.2 below provides additional detail regarding our QSR Transactions.

Quota Share Reinsurance
Table4.2
Quota Share ContractCovered Policy YearsQuota Share %
Annual Loss Ratio to Exhaust Profit Commission (1)
Contractual Termination Date
2020 and 2021 QSR
2021
17.5 %61.9 %December 31, 2032
2021 QSR and 2022 QSR202112.5 %57.5 %December 31, 2032
2021 QSR and 2022 QSR202215.0 %57.5 %December 31, 2033
2022 QSR and 2023 QSR202215.0 %62.0 %December 31, 2033
2022 QSR and 2023 QSR202315.0 %62.0 %December 31, 2034
2023 QSR202310.0 %58.5 %December 31, 2034
2024 QSR
2024
30.0 %56.0 %December 31, 2035
Credit Union QSR 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.

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.

MGIC Investment Corporation - Q1 2024 | 15


Table 4.3 provides additional details regarding optional termination dates and optional reductions to our quota share percentage which can, in each case, be elected by us for a fee. Under the optional reduction to the quota share percentage, we may reduce our quota share percentage from the original percentage shown in table 4.2 to the percentage shown in table 4.3.

Quota Share Reinsurance
Table4.3
Quota Share ContractCovered Policy Years
Optional Termination Date (1)
Optional Quota Share % Reduction Date (2)
Optional Reduced Quota Share %
2020 QSR and 2021 QSR2021June 30, 2024July 1, 2024
14.5% or 12%
2021 QSR and 2022 QSR2021June 30, 2024July 1, 2024
10.5% or 8%
2021 QSR and 2022 QSR2022December 31, 2024July 1, 2024
12.5% or 10%
2022 QSR and 2023 QSR2022December 31, 2024July 1, 2024
12.5% or 10%
2022 QSR and 2023 QSR2023December 31, 2025July 1, 2024
12.5% or 10%
2023 QSR2023December 31, 2025July 1, 2024
8% or 7%
2024 QSR
2024
December 31, 2027
December 31, 2027
23% or 15%
(1) We can elect early termination of the QSR Transaction beginning on this date, and semi-annually thereafter.
(2) We can elect to reduce the quota share percentage beginning on this date, and semi-annually thereafter.

Under the terms of our QSR Transactions, ceded premiums earned, ceding commissions, profit commission, and ceded paid loss and LAE are settled net on a quarterly basis. The ceded premiums earned 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 $39.2 million as of March 31, 2024 and $33.3 million as of December 31, 2023. The reinsurance recoverable balance is secured by funds on deposit from reinsurers (which does not include letters of credit), the minimum amount of which is based on the greater of 1) a reinsurer's funding requirements under PMIERs or 2) ceded reserves and unpaid losses. Each of the reinsurers under our QSR Transactions described above has an insurer financial strength rating of A- or better (or a comparable rating) by Standard and Poor's Rating Services, A.M. Best, Moody's, or a combination of the three.

Excess of loss reinsurance
We have XOL Transactions with a panel of unaffiliated reinsurers executed through the traditional reinsurance market (“Traditional XOL Transactions”) and with unaffiliated special purpose insurers (“Home Re Transactions”).

For policies covered under our Traditional XOL Transactions, we retain the first layer of the aggregate losses paid, and the reinsurers 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. The reinsurance coverage is subject to adjustment based on the risk characteristics of the covered loans until the initial excess of loss reinsurance coverage layer has been finalized.

We can elect to terminate our Traditional XOL Transactions under specified scenarios without penalty upon prior written notice, including if we will receive less than 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. The reinsurance premiums ceded under the Traditional XOL Transactions are based off the remaining reinsurance coverage levels. The reinsured coverage levels are secured by funds on deposit from reinsurers (which does not include letters of credit), the minimum amount of which is based on the greater of 1) a reinsurer's funding requirements under PMIERs or 2) ceded reserves and unpaid losses. Each of the reinsurers under our Traditional XOL Transactions has an insurer financial strength rating of A- or better (or a comparable rating) by Standard and Poor’s Rating Services, A.M. Best, Moody’s, or a combination of the three.

The Home Re Transactions are executed with unaffiliated special purpose insurers (“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 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.

Payment of principal on the related insurance-linked notes will be suspended and the reinsurance coverage available to MGIC under the transactions will not be reduced by such principal payments until a target level of credit enhancement is obtained or if certain thresholds or “Trigger Events” are reached, as defined in the related insurance-linked notes transaction agreement. As of March 31, 2024, a "Trigger Event" has occurred on our Home Re 2019-1 ILN transaction because the reinsured principal balance of loans that were reported 60 or more days delinquent exceeded a percentage of the total reinsured principal balance of loans specified under each

MGIC Investment Corporation - Q1 2024 | 16


transaction. A “Trigger Event” has also occurred on the Home Re 2023-1 transaction because the target level of credit enhancement on the most senior tranche has not been met.

In January 2024, we exercised our optional call feature to terminate the reinsurance agreement with Home Re 2020-1, Ltd. In connection with the termination, the insurance linked notes issued by Home Re 2020-1 Ltd. were redeemed in full.

Table 4.4a, 4.4b, and 4.4c provide a summary of our XOL Transactions as of March 31, 2024 and December 31, 2023.

Excess of Loss Reinsurance
Table 4.4a
($ in thousands)Issue DatePolicy In force DatesOptional Call Date (1)Legal Maturity
2023 Traditional XOLApril 1, 2023January 1, 2023 - December 29, 2023January 1, 203110 years
2022 Traditional XOLApril 1, 2022January 1, 2022 - December 30, 2022January 1, 203010 years
Home Re 2023-1, Ltd.October 23, 2023June 1, 2022 - August 31, 2023October 25, 202810 years
Home Re 2022-1, Ltd.April 26, 2022May 29, 2021 - December 31, 2021April 25, 202812.5 years
Home Re 2021-2, Ltd.August 3, 2021January 1, 2021 - May 28, 2021July 25, 202812.5 years
Home Re 2021-1, Ltd.February 2, 2021August 1, 2020 - December 31, 2020January 25, 202812.5 years
Home Re 2019-1, Ltd.May 25, 2019January 1, 2018 - March 31, 2019May 25, 202610 years
Home Re 2018-1, Ltd.October 30, 2018July 1, 2016 - December 31, 2017October 25, 202510 years
(1) We have the right to terminate the Home Re Transactions under certain circumstances, including an optional call feature that provides us the right to terminate if the outstanding principal balance of the related insurance-linked notes falls below 10% of the initial principal balance of the related insurance-linked notes, and on any payment date on or after the respective Optional Call Date. We can elect early termination of the Traditional XOL Transactions beginning on this date, and quarterly thereafter.

Excess of Loss Reinsurance
Table 4.4b
Remaining First Layer Retention
($ in thousands)Initial First Layer Retention
March 31, 2024
December 31, 2023
2023 Traditional XOL$70,578 $70,572 $70,578 
2022 Traditional XOL82,523 82,241 82,346 
Home Re 2023-1, Ltd.
272,961 272,961 272,961 
Home Re 2022-1, Ltd.325,589 324,441 325,001 
Home Re 2021-2, Ltd.190,159 189,347 189,403 
Home Re 2021-1, Ltd.
211,159 210,546 210,831 
Home Re 2020-1, Ltd.275,283  261,280 
Home Re 2019-1, Ltd.185,730 182,563 182,722 
Home Re 2018-1, Ltd.168,691 164,220 164,335 
Table 4.4c
Remaining Excess of Loss Reinsurance Coverage (1)
($ in thousands)
Initial Excess of Loss Reinsurance Coverage (1)
Initial Funding Percentage (2)
Funding Percentage at 3/31/2024 (2)
March 31, 2024
December 31, 2023
2023 Traditional XOL$96,942 
N/A
N/A$95,178 $96,942 
2022 Traditional XOL142,642 
N/A
N/A142,642 142,642 
Home Re 2023-1, Ltd.330,277 97 %97 %330,277 330,277 
Home Re 2022-1, Ltd.473,575 100 %100 %398,112 420,731 
Home Re 2021-2, Ltd. (3)
398,429 100 %75 %172,395 173,960 
Home Re 2021-1, Ltd. (3)
398,848 100 %73 %117,880 117,982 
Home Re 2020-1, Ltd.412,917 100 % % 41,846 
Home Re 2019-1, Ltd. (3)
315,739 100 %10 %21,039 21,039 
Home Re 2018-1, Ltd.318,636 100 %100 %58,378 69,762 
(1)The initial and remaining excess of loss reinsurance coverage is reduced by the applicable funding percentage.
(2)The funding percentage represents the aggregate outstanding note balances divided by the aggregate ending coverage amounts.
(3)The funding percentage on the 2021-1, 2021-2, and 2019-1 were reduced from 100% after the tender offers were conducted in the fourth quarter of 2023.


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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 on 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. 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 March 31, 2024 and December 31, 2023, were not material to our consolidated balance sheet and the change in fair value during the three months ended March 31, 2024 and March 31, 2023 were not material to our consolidated statements of operations. (See Note 7 - “Investments” and Note 8 - “Fair Value Measurements”.)

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, outside the terms of the reinsurance agreement, to absorb losses or the right to receive benefits of each Home Re Entity that 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 March 31, 2024, and December 31, 2023, 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 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 reinsurance 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 4.5 presents the total assets of the Home Re Entities as of March 31, 2024 and December 31, 2023.
Home Re total assets
Table4.5
(In thousands)Total VIE Assets
Home Re Entity
March 31, 2024
December 31, 2023
Home Re 2023-1 Ltd.
$330,277 $330,277 
Home Re 2022-1 Ltd.406,329 427,279 
Home Re 2021-2 Ltd.172,990 174,431 
Home Re 2021-1 Ltd.117,849 118,043 
Home Re 2020-1 Ltd. 41,846 
Home Re 2019-1 Ltd.21,039 21,039 
Home Re 2018-1 Ltd.63,949 73,872 

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 “Aaamf” 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 XOL Transactions are 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
We operate in a highly regulated industry that is subject to the risk of litigation and regulatory proceedings, including related to our claims paying practices. From time to time, we are involved in disputes and 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 disputes and legal proceedings will not have a material adverse effect on our financial position or results of operations.
Under ASC 450-20, until a loss associated with settlement discussions or legal proceedings becomes probable and can be reasonably estimated, we 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. 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.














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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, including participating securities. Our “participating securities” are comprised of vested restricted stock and restricted stock units (“RSUs”) with non-forfeitable rights to dividends. 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 would have occurred if our 9% Debentures resulted 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. In the third quarter of 2023, under the terms of our 9% Debentures, we exercised our option to redeem the outstanding principal.

Table 6.1 reconciles the numerators and denominators used to calculate basic and diluted EPS.
Earnings per share
Table
6.1
 Three Months Ended March 31,
(In thousands, except per share data)20242023
Basic earnings per share:
Net income$174,097 $154,547 
Weighted average common shares outstanding - basic270,314 290,989 
Basic earnings per share$0.64 $0.53 
Diluted earnings per share:
Net income$174,097 $154,547 
Interest expense, net of tax (1):
9% Debentures 375 
Diluted income available to common shareholders$174,097 $154,922 
Weighted average common shares outstanding - basic270,314 290,989 
Effect of dilutive securities:
Unvested RSUs2,794 2,079 
9% Debentures 1,644 
Weighted average common shares outstanding - diluted273,108 294,712 
Diluted earnings per share$0.64 $0.53 
(1) Interest expense 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 March 31, 2024 and December 31, 2023 are shown in tables 7.1a and 7.1b below.
Details of fixed income securities by category as of March 31, 2024
Table7.1a
(In thousands)Amortized CostGross Unrealized GainsGross Unrealized (Losses)Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies$147,441 $66 $(6,595)$140,912 
Obligations of U.S. states and political subdivisions2,079,844 3,042 (191,274)1,891,612 
Corporate debt securities2,644,912 10,789 (129,340)2,526,361 
ABS173,761 1,291 (2,536)172,516 
RMBS345,029 3,338 (24,541)323,826 
CMBS286,876 5 (14,503)272,378 
CLOs318,683 415 (482)318,616 
Foreign government debt4,487  (741)3,746 
Commercial paper22,745 2  22,747 
Total fixed income securities
$6,023,778 $18,948 $(370,012)$5,672,714 
Details of fixed income securities by category as of December 31, 2023
Table7.1b
(In thousands)Amortized CostGross Unrealized GainsGross Unrealized (Losses)Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies$167,995 $51 $(6,364)$161,682 
Obligations of U.S. states and political subdivisions2,092,754 5,159 (189,835)1,908,078 
Corporate debt securities2,626,401 17,391 (128,211)2,515,581 
ABS173,256 1,292 (3,275)171,273 
RMBS347,132 4,297 (20,656)330,773 
CMBS293,204 5 (15,752)277,457 
CLOs327,467 37 (1,408)326,096 
Foreign government debt4,486  (643)3,843 
Commercial paper28,327 3  28,330 
Total fixed income securities
$6,061,022 $28,235 $(366,144)$5,723,113 
We had $12.1 million and $12.2 million of investments at fair value on deposit with various states as of March 31, 2024 and December 31, 2023, 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 $180.2 million and $156.9 million at March 31, 2024 and December 31, 2023, respectively.


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The amortized cost and fair values of fixed income securities at March 31, 2024, 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 mortgage and asset-backed securities provide for periodic payments throughout their lives, they are listed in separate categories.
Fixed income securities maturity schedule
Table7.2
March 31, 2024
(In thousands)Amortized costFair Value
Due in one year or less$614,805 $608,478 
Due after one year through five years1,557,863 1,510,968 
Due after five years through ten years1,800,564 1,676,467 
Due after ten years926,197 789,465 
4,899,429 4,585,378 
ABS173,761 172,516 
RMBS345,029 323,826 
CMBS286,876 272,378 
CLOs318,683 318,616 
Total$6,023,778 $5,672,714 

Equity securities
The cost and fair value of investments in equity securities at March 31, 2024 and December 31, 2023 are shown in tables 7.3a and 7.3b below.
Details of equity security investments as of March 31, 2024
Table7.3a
(In thousands)Cost
Fair Value Gains
Fair Value Losses
Fair Value
Equity securities$16,053 $4 $(1,360)$14,697 
Details of equity security investments as of December 31, 2023
Table7.3b
(In thousands)CostFair Value GainsFair Value LossesFair Value
Equity securities$16,025 $5 $(1,259)$14,771 

Net gains (losses) on investments and other financial instruments
The net gains (losses) on investments and other financial instruments and the proceeds from the sale of fixed income securities classified as available-for-sale and equity securities are shown in table 7.4 below.

Details of net gains (losses) on investments and other financial instruments
Table7.4Three Months Ended March 31,
(in thousands)20242023
Fixed income securities
Gains on sales55 59 
Losses on sales(5,485)(4,133)
Equity securities gains (losses)
Changes in fair value
(103)360 
Change in embedded derivative on Home Re Transactions
(2,976)(3,976)
Other
Gains (losses) on sales1 6 
Market adjustment(1)(14)
Net gains (losses) on investments and other financial instruments(8,509)(7,698)
Proceeds from sales of fixed income securities14,886 32,181 

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Other invested assets
Our other invested assets balance includes an investment in 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, subject to certain conditions, which includes requirements to post collateral and to maintain a minimum investment in FHLB stock.

Unrealized investment losses
Tables 7.5a and 7.5b below summarize, for all available-for-sale investments in an unrealized loss position at March 31, 2024 and December 31, 2023, 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 7.5a and 7.5b 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 2023 Annual Report on Form 10-K.
Unrealized loss aging for securities by type and length of time as of March 31, 2024
Table7.5a
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$33,814 $(107)$93,212 $(6,488)$127,026 $(6,595)
Obligations of U.S. states and political subdivisions409,466 (3,795)1,248,976 (187,479)1,658,442 (191,274)
Corporate debt securities536,362 (7,400)1,408,161 (121,940)1,944,523 (129,340)
ABS37,810 (1,079)57,455 (1,457)95,265 (2,536)
RMBS101,418 (6,894)137,598 (17,647)239,016 (24,541)
CMBS35,431 (946)236,798 (13,557)272,229 (14,503)
CLOs45,128 (103)58,231 (379)103,359 (482)
Foreign government debt  3,746 (741)3,746 (741)
Total$1,199,429 $(20,324)$3,244,177 $(349,688)$4,443,606 $(370,012)
Unrealized loss aging for securities by type and length of time as of December 31, 2023
Table7.5b
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$26,550 $(75)$98,359 $(6,289)$124,909 $(6,364)
Obligations of U.S. states and political subdivisions275,727 (3,622)1,200,533 (186,213)1,476,260 (189,835)
Corporate debt securities270,956 (6,060)1,604,021 (122,151)1,874,977 (128,211)
ABS41,549 (1,234)62,611 (2,041)104,160 (3,275)
RMBS44,867 (872)176,349 (19,784)221,216 (20,656)
CMBS35,249 (391)244,216 (15,361)279,465 (15,752)
CLOs  274,729 (1,408)274,729 (1,408)
Foreign government debt  3,843 (643)3,843 (643)
Total$694,898 $(12,254)$3,664,661 $(353,890)$4,359,559 $(366,144)

There were 1,103 and 1,021 securities in an unrealized loss position at March 31, 2024 and December 31, 2023, respectively. Based on current facts and circumstances, we believe the unrealized losses as of March 31, 2024 presented in table 7.5a 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 March 31, 2024 were primarily caused by an increase in prevailing interest rates. 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. All of the securities in an unrealized loss position are current with respect to their interest obligations.


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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 Securities are valued by obtaining relevant trade data, benchmark quotes and spreads and broker/dealer quotes 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 generally 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: Consist 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.




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Assets measured at fair value, by hierarchy level, as of March 31, 2024 and December 31, 2023 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 2023 Annual Report on Form 10-K.
Assets carried at fair value by hierarchy level as of March 31, 2024
Table8.1a
(In thousands)Total Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
U.S. Treasury securities and obligations of U.S. government corporations and agencies$140,912 $98,412 $42,500 
Obligations of U.S. states and political subdivisions1,891,612  1,891,612 
Corporate debt securities2,526,361  2,526,361 
ABS172,516  172,516 
RMBS323,826  323,826 
CMBS272,378  272,378 
CLOs318,616  318,616 
Foreign government debt3,746  3,746 
Commercial paper22,747  22,747 
Total fixed income securities5,672,714 98,412 5,574,302 
Equity securities14,697 14,697  
Cash equivalents (1)
434,990 424,383 10,607 
Total$6,122,401 $537,492 $5,584,909 
Assets carried at fair value by hierarchy level as of December 31, 2023
Table8.1b
(In thousands)Total Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
U.S. Treasury securities and obligations of U.S. government corporations and agencies$161,682 $95,828 $65,854 
Obligations of U.S. states and political subdivisions1,908,078  1,908,078 
Corporate debt securities2,515,581  2,515,581 
ABS171,273  171,273 
RMBS330,773  330,773 
CMBS277,457  277,457 
CLOs326,096  326,096 
Foreign government debt3,843  3,843 
Commercial paper28,330  28,330 
Total fixed income securities5,723,113 95,828 5,627,285 
Equity securities14,771 14,771  
Cash equivalents (1)
367,517 367,301 216 
Total$6,105,401 $477,900 $5,627,501 
(1) Includes restricted cash equivalents
Certain financial instruments, including insurance contracts, are excluded from these fair value disclosure requirements. Additional fair value disclosures related to our investment portfolio are included in Note 7 – “Investments.”

In addition to the assets carried at fair value discussed above, we have embedded derivatives carried at fair value related to our Home Re Transactions that are classified as “Other liabilities” or “Other assets” in our consolidated balance sheets. The estimated fair value related to our embedded derivatives reflects the present value impact of the variation in investment income on the assets held by the reinsurance trusts and the contractual reference rate on the Home Re Transactions used to calculate the reinsurance premiums we estimate we will pay over the estimated remaining life. These liabilities or assets are categorized in Level 3 of the fair value hierarchy. At March 31, 2024 and December 31, 2023, the fair value of the embedded derivatives was a liability of $0.6 million and an asset of $2.4 million, respectively. (See Note 4 - "Reinsurance" for more information about our reinsurance programs.)

Real estate acquired through claim settlement is carried at fair values and is reported in “Other assets” on the consolidated balance sheet. These assets are categorized as Level 3 of the fair value hierarchy. For the three months ended March 31, 2024, and 2023, purchases of real estate acquired were $1.0 million and $0.1 million, respectively. For the three months ended March 31, 2024, and 2023, sales of real estate acquired were zero and $1.2 million, respectively.