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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
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.

MGIC Investment Corporation - Q3 2021 | 2


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

MGIC Investment Corporation - Q3 2021 | 3


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


MGIC Investment Corporation - Q3 2021 | 4


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


MGIC Investment Corporation - Q3 2021 | 5



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 Retention275,283184,514166,005
Remaining Excess of Loss Reinsurance Coverage412,917208,146218,343
(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