FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 20192021
☐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-20211231_g1.jpg
MGIC Investment CorporationCorporation
(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)53202
(Address of principal executive offices)(Zip Code)
(414)347-6480
(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 stock, par value $1 per shareMTGNew York Stock Exchange
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $1 per shareMTGNew York Stock Exchange
Common share purchase rightsN/ANew York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
No ☒

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 or an emerging growth 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☐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. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.     ☒

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


State the aggregate market value of the voting and non-voting common stockequity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the Registrant aslast business day of June 30, 2019:the registrant's most recently completed second fiscal quarter. : Approximately $4.6 billion*

MGIC Investment Corporation 2021 Form 10-K | 1

* Solely for purposes of computing such value and without thereby admitting that such persons are affiliates of the Registrant, shares held by directors and executive officers of the Registrant are deemed to be held by affiliates of the Registrant. Shares held are those shares beneficially owned for purposes of Rule 13d-3 under the Securities Exchange Act of 1934 but excluding shares subject to stock options.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of February 14, 2020,18, 2022, there were 345,852,631315,605,040 shares of common stock of the registrant, par value $1.00 per share, outstanding.

The following documents have been incorporated by reference in this Form 10-K, as indicated:
DocumentPart and Item Number of Form 10-K Into Which Incorporated*
Proxy Statement for the 20202022 Annual Meeting of Shareholders, provided such Proxy Statement is filed within 120 days after December 31, 2019.2021. If not so filed, the information provided in Items 10 through 14 of Part III will be included in an amended Form 10-K filed within such 120 day period.Items 10 through 14 of Part III

* In each case, to the extent provided in the Items listed.



MGIC Investment Corporation 2021 Form 10-K | 2
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


Table of Contents
Page No.
PART I 
Item 1. 
78
Item 1A.
27
Item 1B.
4140
Item 2.
4140
Item 3.
4140
Item 4.
4140
PART II
Item 5.
4342
Item 6.Reserved.
Selected Financial Data.43
44
Item 7.
4644
Item 7A.
8380
Item 8.
8581
Item 9.
134126
Item 9A.
134126
Item 9B.
134126
PART IIIItem 9C.
126
PART III
Item 10.
135127
Item 11.
135127
Item 12.
135127
Item 13.
135127
Item 14.
136128
PART IV
Item 15.
137129
Item 16.
140132
141133




MGIC Investment Corporation 20192021 Form 10-K | 3

MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


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 assetsinvestments

/ 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.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
Direct means beforeBefore 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


MGIC Investment Corporation 2021 Form 10-K | 4
MGIC Investment Corporation and Subsidiaries



/ 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 excess of loss reinsurance agreements.

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

HOPA
Homeowners Protection Act

HUD
Housing and Urban Development



MGIC Investment Corporation 2019 Form 10-K | 4
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms



/ I
IBNR Reserves
Losses incurredLoss 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:
5.75% 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 IIFRIF 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.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


MGIC Investment Corporation 2021 Form 10-K | 5
MGIC Investment Corporation and Subsidiaries



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

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



MGIC Investment Corporation 2019 Form 10-K | 5
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms



/ P
Peak-COVID-19 delinquencies
A delinquent loan reported to us in the second and third quarter of 2020

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 Rate
The contractual rate charged for coverage under our insurance policies

Premium Yield
The ratio of NPEpremium 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

QM2015 QSR
A mortgage loanOur QSR transaction that satisfies the "qualified mortgage" loan characteristics pursuantprovides coverage on eligible NIW written prior to the Consumer Financial Protection Bureau's ability-to-repay under the Truth2017

2017 QSR
Our QSR transaction that provided coverage on eligible NIW in Lending Act. Originating a QM loan may provide a lender with legal protection2017

2018 QSR
Our QSR transaction that provided 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 provides coverage on eligible NIW in 2020

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

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

Credit Union QSR
Our QSR transaction that provides coverage on eligible NIW from lawsuits that claim the lender failed to verify a borrower's ability to repaycredit union institutions originated from April 1, 2020 through December 31, 2025



MGIC Investment Corporation 2021 Form 10-K | 6
MGIC Investment Corporation and Subsidiaries



/ 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

Tax Act
The U.S. tax reform enacted on December 22, 2017 and
commonly referred to as the "Tax Cuts and Jobs Act"

TILA
Truth in Lending Act

/ U
Underwriting Expense Ratioexpense 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



MGIC Investment Corporation 20192021 Form 10-K | 67

MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


PART I

Item 1. Business
See the "Glossary of terms and acronyms" for definitions and descriptions of terms used throughout this annual report.

A.    General
We are a holding company and through wholly-owned subsidiaries we provide private mortgage insurance, other mortgage credit risk management solutions, and ancillary services. In 2019,2021, our net premiums writtentotal revenues were $1.0$1.2 billion and our primary NIW was $63.4$120.2 billion. As of December 31, 2019,2021, our direct primary IIF was $222.3$274.4 billion and our direct primary RIF was $57.2$69.3 billion. For further information about our results of operations, see our consolidated financial statements in Item 8 and our MD&A in Item 7. As of December 31, 2019,2021, our principal mortgage insurance subsidiary, MGIC, was licensed in all 50 states of the United States, the District of Columbia, Puerto Rico and Guam. During 2019,2021, we wrote new insurance in each of those jurisdictions.

2022 BUSINESS STRATEGIES
Our current business strategies arecontinue to be to 1) prudently grow IIF,maximize the value we create through our mortgage credit enhancement activities; 2) pursue new business opportunities that improvedifferentiate ourselves through our customer experience; 3) establish a competitive position inadvantage through our digital and analytical capabilities; 4) excel at acquiring, managing and distributing mortgage credit risk and the market, 3) preserverelated capital; 5) maintain financial strength through economic cycles; and expand our role and that of the PMI industry in housing finance policy, 4) manage and deploy capital to maximize our long-term value and 5)6) foster an environment that embraces diversity and best positions our people to succeed.

2021 ACCOMPLISHMENTS
Following are several of our 20192021 accomplishments that furthered our business strategies.

•Earned $635 million of net income ($1.85 per diluted share) for the year, compared to $446 million ($1.29 per diluted share) in 2020.
•
Increased primary NIW from $50.5 billion in 2018 to $63.4 billion in 2019 and increased primary IIF by more than 6.0% year-over-year. The NIW is consistent with the Company's risk and return goals.
Executed•Increased primary NIW from $112.1 billion in 2020 to $120.2 billion in 2021 and increased primary IIF by more than 11.3% year-over-year. The NIW is consistent with the Company's risk and return goals.
•Expanded our reinsurance program by reaching favorable terms to secure quota share reinsurance coverage on our succession plan for key rolesNIW through 2023, and by executing two insurance linked note transactions, providing a total of $797 million in the organization including Chief Executive Officer, President and Chief Operating Officer, Chief Financial Officer, Chief Risk Officer and Chief Information Officer, promoting all such officers from within the organization.
Held leadership roles in key trade association working groups.
Continued to enhance the reputation of the Company and the industry relative to changing housing finance policy and a broader role for PMI.
Successfully launched MiQ, our risk-based pricing system that establishes our premium rates basedexcess-of-loss reinsurance coverage on a borrower's individualportion of our 2020 and 2021 NIW. These transactions allow us to better manage our risk profile and loan attributes.
Executed a $316 million insurance linked note transaction, our second such post-financial crisis transaction, which allows the Company to better manage its risk profile and providesthey provide an alternative source of capital.
Continued our Quota Share ("QS") reinsurance program, entering into a transaction covering the substantial majority•Paid $400 million of our 2019 NIW (at a 30% QS); restructuring our 2015 transaction, reducing the QS percentage from 30% to 15%; and agreeing to terms for transactions covering the substantial majority of our 2020 NIW (at a 30% QS) and our 2021 NIW (at a 17.5% QS).
Increasedcash dividends from MGIC to our holding company, from $220after having temporarily suspended such dividends through mid-2021 as a result of the COVID-19 pandemic. Maintained financial strength and capital flexibility while returning approximately $385 million in 2018capital to $280 million in 2019.shareholders:
Re-started◦Repurchased 5.6% of our shares outstanding at the paymentbeginning of quarterlythe year.
◦Increased cash dividends by our holding company, after having suspended such payments during33% in the financial crisis.second half of 2021.
•Repurchased 8.7$99 million shares of our stock, returning $1142063 Junior Convertible Debentures, which eliminated approximately 7.5 million potentially dilutive shares.
•Continued to shareholders.transform our business processes along a number of dimensions, including pricing, data and analytics, inside sales and our underwriting platform.
MGIC received•Established an upgradeAffordable Housing Strategy, which in its financial strength rating from Moody's Investors Service (from Baa2 to Baa1).2021 included:
Delivered training workshops designed to build strategic capabilities which enhance performance.
Continued•Made significant progress in our diversity, equity and inclusion work, and continued to enhance career developments, talent analytics and financial health capabilities for employees.employees, each as discussed in greater detail below under the heading "Human Capital" in Item 1.G.

COVID-19 RESPONSE
The accomplishments described above were all achieved despite managing through the continuing effects of the COVID-19 pandemic. In addition, the Company's specific response to the COVID-19 pandemic included transitioning our workforce to a flexible hybrid model from the remote work environment, in a second straight year of record-breaking NIW. We continued to position employees to succeed and provide continuing high service levels. We focused on ensuring employee safety, business continuity and legal compliance; and maintained and enhanced morale through extensive authentic communications, collaboration and an environment of support and trust.
OVERVIEW OF THE PRIVATE MORTGAGE INSURANCE INDUSTRY AND ITS OPERATING ENVIRONMENT
We established the modern PMI industry in 1957 to provide a private market alternative to federal government insurance programs. PMI covers losses from homeowner defaults on residential mortgage loans, reducing, and in some instances eliminating, the loss to the insured institution.

Fannie Mae and Freddie Mac have been the major purchasers of the mortgage loans underlying new insurance written by private mortgage insurers. The GSEs purchase residential mortgage loans as part of their governmental mandate to provide liquidity in the secondary mortgage market. The GSEs cannot buy low down payment mortgage loans without certain forms of


MGIC Investment Corporation 2019 Form 10-K | 7
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


credit enhancement. Private mortgage insurance has generally been purchased by lenders in primary mortgage market transactions to satisfy this credit enhancement requirement. Therefore, PMI facilitates the sale of low down payment mortgages in the secondary mortgage market to the GSEs and plays an important role in the housing finance system by assisting consumers, especially first-time and lower net-worthlow- and medium-wealth homebuyers, to finance homes with low down payment mortgages. PMI also reduces the regulatory capital that depository institutions are required to hold against certain low down payment mortgages that they hold as assets.

Because the GSEs have been the major purchasers of the mortgages underlying new insurance written by private mortgage insurers, the PMI industry in the U.S. is defined in large part by the requirements and practices of the GSEs. These requirements and practices, as well as those of the federal regulators that oversee the GSEs and lenders, impact the operating results and financial performance of private mortgage insurers. In 2008, the federal government took control of the GSEs through a conservatorship

MGIC Investment Corporation 2021 Form 10-K | 8
MGIC Investment Corporation and Subsidiaries



process. The FHFA is the conservator of the GSEs and has the authority to control and direct their operations.

In 2019,The GSEs have been requested to submit Equitable Housing Finance Plans to the U.S. Treasury Department releasedFHFA. The plans are to identify and address barriers to sustainable housing opportunities, including the “Treasury Housing Reform Plan.” The Plan recommends reformsGSEs’ goals and action plans to advance equity in housing finance for the housing finance system, the goals of whichnext three years. The action plans, when finalized, may include ending the conservatorshipsmethods to reduce mortgage costs for historically underserved borrowers, including mortgage insurance costs. The GSEs’ action plans will likely change certain of the GSEsGSEs’ business practices and increasing competition and participation by the private sector inthose changes may affect the mortgage market. The impact of the Plan on private mortgage insurance is unclear. The Plan does not refer to mortgage insurance explicitly; however, it refers to a requirement for credit enhancement on high LTV loans, which is a requirement of the current GSE charters. The Plan also indicates that the FHFA should continue to support efforts to expand credit risk transfer ("CRT") programs and should encourage the GSEs to continue to engage in a diverse mix of economically sensible CRT programs, including by increasing reliance on institution-level capital (presumably, as distinguished from capital obtained in the capital markets). For more information about the Plan and CRT programs, see our risk factor titled "Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses" and "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance" in Item 1A.

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

The GSEs have private mortgage insurer eligibility requirements, or PMIERs, for private mortgage insurers that insure loans delivered to or purchased by the GSEs. The financial requirements of the PMIERs require a mortgage insurer’s Available Assets to equal or exceed its Minimum Required Assets. MGIC is in compliance with the PMIERs and eligible to insure loans purchased by the GSEs. In calculating Minimum Required Assets, we receive significant credit for risk ceded under our reinsurance transactions. See "Our Products and Services – Reinsurance""Reinsurance" in this Item 1 for information about our reinsurance transactions and "Regulation – Direct Regulation" in this Item 1 for information about our compliance with the financial requirements of the PMIERs.

The private mortgage insurance industry is greatly impacted by macroeconomic conditions that affect home loan originations and credit performance of home loans, including unemployment rates, home prices, restrictions on mortgage credit due to underwriting standards, interest rates, household formations and homeownership rates. During the years leading up to the financial crisis of the 2000s, the mortgage lending industry increasingly made home loans with higher risk profiles. In certain sections of this Annual Report, we discuss our insurance written in 2005-2008 separately from our insurance written in earlier and later years. Beginning in 2007, job creation slowed and the housing markets began slowing in certain areas, with declines in certain other areas. In 2008 and 2009, employment in the U.S. decreased substantially and nearly all geographic areas in the U.S. experienced home price declines. Together, these conditions resulted in significant adverse developments for us and our industry. The operating environment for private mortgage insurers has materially improved in recent yearsafter the financial crisis, as the economy has recovered.

The COVID-19 pandemic had a material impact on our 2020 financial results. The increased level of unemployment and economic uncertainty resulted in an increase in the number of mortgage delinquencies for which we recorded increased loss reserves. After reaching 14.7% in April 2020, the unemployment
rate has continually declined through the end of 2021. The number of delinquent mortgages that we insure has also continually declined through the end of 2021, after reaching its recent peak in June 2020. As a result, our losses incurred significantly decreased in 2021 compared to 2020 and our net income significantly increased. For a discussion of the various ways the COVID-19 pandemic may impact us in the future, see our Risk Factor titled "The COVID-19 pandemic may materially impact our future financial results, business, liquidity and/or financial condition" in Item 1A.
During 2019, $384the first nine months of 2021, $455 billion of mortgages were insured with primary coverage by private mortgage insurers, compared to $292$600 billion in 2018for full year 2020 and $270$384 billion in 2017.for full year 2019. The 2019 volume was2021 and 2020 volumes were significantly greater than the recent low in 2010 of $70 billion and greater than the volumes of 2001 through 2007 when, on average, approximately $311 billion of mortgages were insured with primary coverage by private mortgage insurers.

 The high 2021 and 2020 volumes resulted, in part, from historically low interest rates driving sustained borrower demand, including for refinances, and the effect that the COVID-19 pandemic had on demand for homes.
For most of our business, we and other private mortgage insurers compete directly with federal and state governmental and quasi-governmental agencies that sponsor government-backed mortgage insurance programs, principally the FHA, VA and USDA. The publication Inside Mortgage Finance estimates that in 2019,the first three quarters of 2021, the FHA accounted for 28.2%23.9% of low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance, compared to 30.5%23.4% in 20182020 and 33.9%28.2% in 2017. In the prior ten years,2019. Beginning in 2012, the FHA’s market share has been as low


MGIC Investment Corporation 2019 Form 10-K | 8
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


as 28.2% in 201923.4% (2020) and as high as 64.5% in 2010.42.1% (in 2012). Factors that influence the FHA’s market share include relative rates and fees, underwriting guidelines and loan limits of the FHA, VA, USDA, private mortgage insurers and the GSEs; lenders' perceptions of legal risks under FHA versus GSE programs; flexibility for the FHA to establish new products as a result of federal legislation and programs; returns expected to be obtained by lenders for Ginnie Mae securitization of FHA-insured loans compared to those obtained from selling loans to the GSEs for securitization; and differences in policy terms, such as the ability of a borrower to cancel insurance coverage under certain circumstances. WeThe focus of the Presidential Administration on equitable housing finance and sustainable housing opportunities increases the likelihood of a reduction in the FHA’s mortgage insurance premium rates. Such a rate reduction would negatively impact our NIW; however, given the many factors that influence the FHA's market share, it is difficult to predict the impact. In addition, we also cannot predict how the factors listed above orthat affect the FHA’s share of NIW will change in the future.

Inside Mortgage Finance estimates that in 2019,the first three quarters of 2021, the VA accounted for 25.2%30.9% of all low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance, compared to 22.9%30.9% in 20182020 and 24.7%25.2% in 2017. In the prior ten years,2019. Beginning in 2012, the VA's market share has been as low as 15.7% in 201022.8% (in 2013) and as high a 27.2% in 2016.30.9% (in 2020 and the first three quarters of 2021). We believe that the VA’s market share has generally been elevated in recent years because of an increase in the number of borrowers that are eligible for the VA’s program, which offers 100% LTV loans and charges a one-time funding fee that can be included in the loan amount, and because

MGIC Investment Corporation 2021 Form 10-K | 9
MGIC Investment Corporation and Subsidiaries



eligible borrowers have opted to use the VA program when refinancing their mortgages.

The private mortgage insurance industry also competes with alternatives to mortgage insurance, such as investors using risk mitigation and credit risk transfer techniques other than PMI, including capital market transactions entered into by the GSEs and banks; lenders and other investors holding mortgages in portfolio and self-insuring; and “piggyback loans,” which combine a first lien loan with a second lien loan. In 2018, the GSE initiated secondary mortgage market programs with loan level mortgage default coverage provided by various (re)insurers that are not mortgage insurers governed by PMIERs, and that are not selected by the lenders. While we view these programs as competing with traditional private mortgage insurance, we have participatedparticipate in them and may participate in future GSE or other programs.through an affiliate of MGIC.
The GSEs (and other investors) have also used other forms of credit enhancement that did not involve traditional private mortgage insurance, such as engaging in credit-linked note transactions executed in the capital markets, or using other forms of debt issuances or securitizations that transfer credit risk directly to other investors, including competitors and an affiliate of MGIC; and using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage.
In addition to the FHA, VA, other governmental agencies and the alternatives to mortgage insurance discussed above, we also compete with other mortgage insurers. The level of competition, including price competition, within the private mortgage insurance industry has intensifiedremained intense over the past several years. See "Our Products and Services – Sales and Marketing and Competition – Competition" below for more information about the impact on our business of competition in the private mortgage insurance industry.

In addition to being subject to the requirements and practices of the GSEs, private mortgage insurers are subject to comprehensive, detailed regulation by state insurance departments. The insurance laws of 16 jurisdictions, including Wisconsin, MGIC's domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to the RIF (or a similar measure) in order for the mortgage insurer to continue to write new business. The NAIC previously announced plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model Act. In December 2019, a working group of state regulators released an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements.

Due to the changing environment described above, as well as other factors discussed below, at this time the greatest uncertainty we face is whether private mortgage insurance will remain a significant credit enhancement alternative for low down payment single family mortgages. An increase in the use of alternatives to private mortgage insurance, such as GSE programs with loan level default coverage provided by (re)insurers that are not mortgage insurers subject to PMIERs, or a possible restructuring or change in the charters of the GSEs, could significantly affect our business. For additional information about this uncertainty, see our risk factors titled “The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance” and “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses” in Item 1A.

GENERAL INFORMATION ABOUT OUR COMPANY
We are a Wisconsin corporation organized in 1984. Our principal office is located at MGIC Plaza, 250 East Kilbourn Avenue, Milwaukee, Wisconsin 53202 (telephone number (414) 347-6480). As used in this annual report, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as a separate entity, as


MGIC Investment Corporation 2019 Form 10-K | 9
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


the context requires, and “MGIC” refers to Mortgage Guaranty Insurance Corporation.

Our revenues and losses may be materially affected by the risk factors that are included in Item 1A of this annual report. These risk factorsreport and are an integral part of this annual report. These risk factors may also cause actual results to differ materially from the results contemplated by forward looking statements that we may make. Forward looking statements consist of statements whichthat relate to matters other than historical fact. Among others, statements that include words such as we “believe,” “anticipate” or “expect,” or words of similar import, are forward looking statements. We are not undertaking any obligation to update any forward looking statements or other statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. No reader of this annual report should rely on these statements being current at any time other than the time at which this annual report was filed with the Securities and Exchange Commission.

B. Our Products and Services
MORTGAGE INSURANCE
In general, there are two principal types of private mortgage insurance: “primary” and “pool.”

Primary Insurance. Primary insurance provides mortgage default protection on individual loans and covers a percentage of the unpaid loan principal, delinquent interest and certain expenses associated with the default and subsequent foreclosure on the mortgage or sale approved by us, of the underlying property (collectively, the “claim amount”). In addition to the loan principal, the claim amount is affected by the mortgage note rate and the time necessary to complete the foreclosure or sale process. The insurer generally pays the coverage percentage of the claim amount specified in the primary policy but has the option to pay 100% of the claim amount and acquire title to the property. Primary insurance is generally written on first mortgage loans secured by owner occupied "single-family" homes, which are one-to-four family homes and condominiums. Primary insurance can be written on first liens secured by non-owner occupied single-family homes, which are referred to in the home mortgage lending industry as investor loans, and on vacation or second homes. Primary coverage can be used on any type of residential mortgage loan instrument approved by the mortgage insurer.

References in this document to amounts of insurance written or in force, risk written or in force, and other historical data related to our insurance refer only to direct (before giving effect to reinsurance) primary insurance, unless otherwise indicated. Primary insurance may be written on a flow basis, in which loans
are insured in individual, loan-by-loan transactions, or may be written on a bulk basis, in which each loan in a portfolio of loans is individually insured in a single, bulk transaction. Our new primary insurance written was $120.2 billion in 2021, compared to $112.1 billion in 2020 and $63.4 billion in 2019, compared to $50.5 billion in 2018 and $49.1 billion in 2017.2019. The 20192021 increase compared to 20182020 reflects an increase in both the refinance and purchase mortgage originations we insured, only partially offset by a decrease in refinance mortgage originations we insured.

MGIC Investment Corporation 2021 Form 10-K | 10
MGIC Investment Corporation and Subsidiaries



The following charts show, on a direct basis, our primary IIF and primary RIF as of December 31 for the years indicated.
Primary insurance and risk in force
(In billions)20212020201920182017
Primary IIF$274.4 $246.6 $222.3 $209.7 $194.9 
Primary RIF69.3 61.8 57.2 54.1 50.3 
Primary insurance and risk in force
(In billions) 2019 2018 2017 2016 2015
Primary IIF $222.3
 $209.7
 $194.9
 $182.0
 $174.5
Primary RIF 57.2
 54.1
 50.3
 47.2
 45.5

For loans sold to a GSE, the coverage percentage must comply with the requirements established by the particular GSE to which the loan is delivered. The GSEs have different loan purchase programs that allow different levels of mortgage insurance coverage. Under the “charter coverage” program, on certain loans lenders may choose a mortgage insurance coverage percentage that is less than the GSEs’ “standard coverage” and only the minimum required by the GSEs’ charters, with the GSEs paying a lower price for such loans. In 2019, nearly all2021, a substantial majority of our volume was on loans with GSE standard or higher coverage.

For loans that are not sold to the GSEs, the lender determines the coverage percentage from those that we offer. Higher coverage percentages generally result in increased severity, which is the amount paid on a claim. We charge higher premium rates for higher coverage percentages. However, there can be no assurance that the higher premium rates adequately reflect the risks associated with higher coverage percentages. In accordance with GAAP for the mortgage insurance industry, reserves for losses are only established for policies covering delinquent loans. Because, historically, relatively few delinquencies occur in the early years of a book of business, the higher premium revenue from higher coverage has historically been recognized before any significant higher losses resulting from that higher coverage may be incurred. For more information, see “– Exposure“Exposure to Catastrophic Loss; Defaults; Claims; Loss Mitigation – Claims.”

In general, mortgage insurance coverage cannot be terminated by the insurer. However, subject to certain restrictions on our rescission rights as are specified in our insurance policy, we may terminate or rescind coverage for, among other reasons, non-payment of premium, certain material misrepresentations madeand fraud in connection with the application for the insurance policy or if the loan was never eligible for coverage under our policy. Mortgage insurance coverage is renewable at the option of the


MGIC Investment Corporation 2019 Form 10-K | 10
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


insured lender, at the renewal rate fixed when the loan was initially insured. Lenders may cancel insurance written on a flow basis at any time at their option or because of mortgage repayment, which may be accelerated because of the refinancing of mortgages.
In the case of a loan purchased by a GSE, a borrower may request termination of insurance based on the home’s current value if certain LTV ratio and seasoning requirements are met and the borrowers have an acceptable payment history. For loans seasoned between two and five years, the LTV ratio must be 75% or less, and for loans seasoned more than five years the LTV ratio must be 80% or less. If the borrower has made substantial improvements to the property, the GSEs allow for cancellation once the LTV ratio reaches 80% or less with no minimum seasoning requirement.

Mortgage insurance for loans secured by one-family, primary residences can be canceled under HOPA. In general, HOPA requires a servicer to cancel the mortgage insurance if a borrower requests cancellation when the principal balance of the
loan is first scheduled to reach 80% of the original value, or reaches that percentage through payments, if 1) the borrower is current on the loan and has a “good payment history” (as defined by HOPA), 2) if required by the mortgage owner, the borrower provides evidence that the value of the property has not declined below the original value, and 3) if required by the mortgage owner, the borrower certifies that the borrower’s equity in the property is not subject to a subordinate lien. Additionally, HOPA requires mortgage insurance to terminate automatically when the principal balance of the loan is first scheduled to reach 78% of the original value and the borrower is current on loan payments or thereafter becomes current. Annually, servicers must inform borrowers of their right to cancel or terminate mortgage insurance. The provisions of HOPA described above apply only to borrower paid mortgage insurance, which is described below.

Coverage tends to continue for borrowers experiencing economic difficulties or living in areas experiencing home price depreciation. The persistency of coverage for those borrowers, coupled with cancellation of coverage for other borrowers, can increase the percentage of an insurer’s portfolio covering loans with more credit risk. This development can also occur during periods of heavy mortgage refinancing because borrowers experiencing property value appreciation are less likely to require mortgage insurance at the time of refinancing, while borrowers not experiencing property value appreciation are more likely to continue to require mortgage insurance at the time of refinancing or not qualify for refinancing at all (including if they have experienced economic difficulties) and thus remain subject to the mortgage insurance coverage.

The percentage of NIW on loans representing refinances was 20% for 2021, compared to 36% for 2020 and 19% for 2019, compared to 7% for 2018 and 11% for 2017.2019. When a borrower refinances a mortgage loan
insured by us by paying it off in full with the proceeds of a new mortgage that is also insured by us, the insurance on that existing mortgage is cancelled, and insurance on the new mortgage is considered to be NIW. Therefore, continuation of our coverage from a refinanced loan to a new loan results in both a cancellation of insurance and NIW. When a lender and borrower modify a loan rather than replace it with a new one or enter into a new loan pursuant to a loan modification program, our insurance continues without being cancelled, assuming that we consent to the modification or new loan. As a result, such modifications or new loans including those modified under HARP and replacement programs, are not included in our NIW.

In addition to varying with the coverage percentage, our premium rates for insurance have varied depending upon the perceived risk of a claim on the insured loan and thus have taken into account, among other things, the LTV ratio, the borrower’s credit score and DTI ratio, whether the loan is a fixed payment loan or a non-fixed payment loan (a non-fixed payment loan is referred to in the home mortgage lending industry as an ARM), the number of borrowers, the property location, the mortgage term and whether the property is the borrower’s primary residence. Depending upon regional economic conditions, we have made, and may make, changes to our underwriting requirements or premium rates in certain markets. In the first quarter of 2019 we introduced MiQ, our risk-based pricing system that establishes our premium rates based on more risk attributes than were considered in 2018. In recent years, the mortgage insurance industry has materially reduced its use of standard rate cards, which were fairly consistent among competitors, and correspondingly increased its use of risk-based pricing systems and customized rate plans, both of which typically have rates lower than the standard rate card. Premium rates cannot be changed after the issuance of coverage.

The borrower’s mortgage loan instrument may require the borrower to pay the mortgage insurance premium. Our industry

MGIC Investment Corporation 2021 Form 10-K | 11
MGIC Investment Corporation and Subsidiaries



refers to the related mortgage insurance as “borrower-paid” or BPMI. If the borrower is not required to pay the premium and mortgage insurance is required in connection with the origination of the loan, then the premium is paid by the lender, who may recover the premium through an increase in the note rate on the mortgage or higher origination fees. Our industry refers to the related mortgage insurance as “lender-paid” or LPMI. Most of our primary IIF is BPMI.
There are several payment plans available to the borrower, or lender, as the case may be. Under the single premium plan, the borrower or lender pays us in advance a single payment covering a specified term exceeding twelve months. Under the monthly premium plan, the borrower or lender pays us a monthly premium payment to provide only one month of coverage. Under the annual premium plan, an annual premium is paid to us in advance, with annual renewal premiums paid in advance thereafter.

During 2019, 20182021, 2020 and 2017,2019, the single premium plan represented approximately 16%7%, 17%9% and 19%16%, respectively, of our NIW. The monthly premium plan represented approximately 93%, 91% and 84%, 83% and 81%,


MGIC Investment Corporation 2019 Form 10-K | 11
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


respectively. The annual premium plan represented less than 1% of NIW in each of those years. Depending upon the actual life of a single premium policy and its premium rate relative to that of a monthly premium policy, a single premium policy may generate more or less premium than a monthly premium policy over its life.

Pool and Other Insurance. Pool insurance is generally used as an additional “credit enhancement” for certain secondary market mortgage transactions. Pool insurance generally covers the amount of the loss on a defaulted mortgage loan that exceeds the claim payment under the primary coverage, if primary insurance is required on that mortgage loan, as well as the total loss on a defaulted mortgage loan which did not require primary insurance. Pool insurance may have a stated aggregate loss limit for a pool of loans and may also have a deductible under which no losses are paid by the insurer until losses on the pool of loans exceed the deductible. MGIC has written no new pool insurance
since 2008; however, for a variety of reasons, including responding to capital market alternatives to PMI and customer demands, MGIC may write pool risk in the future. As of December 31, 2019,2021, less than 1% of our RIF was associated with pool insurance.

In connection with the GSEs' credit risk transfer programs, we provide insurance and reinsurance covering portions of the credit
risk related to certain reference pools of mortgages acquired by the GSEs.

MORTGAGE INSURANCE PORTFOLIO
GEOGRAPHIC DISPERSION
Geographic Dispersion.The following tables reflect the percentage of primary RIF in the top 10 jurisdictions and top 10 core-based statistical areas for the MGIC Book at December 31, 2019.2021. We refer to the insurance that has been written by MGIC (including MGIC Indemnity Corporation, a subsidiary of MGIC, for portions of 2012 and 2013) as the "MGIC Book."


Dispersion of Primary Risk in Force
Top 10 jurisdictions – RIF
California8.38.2%
FloridaTexas7.07.4%
TexasFlorida6.37.0%
Pennsylvania5.34.9%
OhioIllinois4.54.2%
IllinoisVirginia4.23.8%
VirginiaOhio3.63.8%
GeorgiaNorth Carolina3.43.7%
North CarolinaGeorgia3.23.6%
MichiganNew York3.23.5%
Total49.050.1%

Top 10 core-based statistical areas – RIF
Washington-Arlington-Alexandria2.83.0%
Chicago-Naperville-Arlington Heights2.7%
Atlanta-Sandy Springs-Roswell2.52.7%
Minneapolis-St. Paul-BloomingtonHouston-Woodlands-Sugar Land2.12.3%
Houston-Woodlands-Sugar LandMinneapolis-St. Paul-Bloomington1.9%
Philadelphia1.9%
Phoenix-Mesa-Scottsdale1.8%
Los Angeles-Long Beach-Glendale1.81.7%
Riverside-San BernardinoPhoenix-Mesa-Scottsdale1.41.7%
CincinnatiPhiladelphia1.41.6%
TotalDallas-Plano-Irving20.31.5%
Riverside-San Bernardino1.5%
Total20.6%

The percentages shown above for various core-based statistical areas can be affected by changes, from time to time, in the federal government’s definition of a core-based statistical area.






MGIC Investment Corporation 20192021 Form 10-K | 12
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


INSURANCE IN FORCE BY POLICY YEAR
Policy Year.The following table sets forth for the MGIC Book the dispersion ofand certain statistics associated with our primary IIF and RIF as of December 31, 2019,2021, by year(s) of policy origination since we began operations in 1985.

Primary insurance in force and risk in force by policy year
        
 Insurance in Force Risk in Force
Policy Year
Total
(In millions)
 
Percent of
Total
 
Total
(In millions)
 
Percent of
Total
2004 and prior$2,731
 1.2% $760
 1.3%
20052,736
 1.2% 779
 1.4%
20065,233
 2.4% 1,446
 2.5%
200711,319
 5.1% 2,928
 5.1%
20084,708
 2.1% 1,200
 2.1%
2009493
 0.2% 107
 0.2%
2010231
 0.1% 65
 0.1%
2011639
 0.3% 186
 0.3%
20122,421
 1.1% 707
 1.2%
20134,945
 2.2% 1,414
 2.5%
20149,494
 4.3% 2,589
 4.5%
201517,684
 8.0% 4,721
 8.3%
201627,977
 12.6% 7,233
 12.6%
201735,005
 15.7% 8,867
 15.5%
201838,024
 17.1% 9,577
 16.7%
201958,653
 26.4% 14,634
 25.6%
Total$222,295
 100.0% $57,213
 100.0%
Primary insurance in force and risk in force by policy year
(in thousands)Insurance in ForceRisk In ForceWeighted Avg. Interest RateDelinquency Rate %Cede Rate %% of Original Remaining
Policy YearTotal% of TotalTotal% of Total
2004 and prior$1,796,359 0.7 %$500,433 0.7 %7.3 %12.6 %0.5 %N.M.
2005-200814,050,656 5.1 %3,727,818 5.4 %6.9 %11.5 %3.8 %5.8 %
2009-201510,518,016 3.8 %2,864,823 4.1 %4.3 %5.0 %14.3 %5.9 %
20169,755,569 3.6 %2,600,952 3.8 %3.9 %3.7 %13.0 %20.3 %
201710,967,734 4.0 %2,830,652 4.1 %4.2 %4.8 %0.1 %22.3 %
201811,132,886 4.1 %2,827,458 4.1 %4.8 %5.6 %0.9 %22.2 %
201923,282,490 8.5 %5,902,427 8.5 %4.1 %3.1 %27.1 %35.8 %
202082,920,688 30.1 %20,163,569 29.0 %3.2 %1.0 %28.0 %72.5 %
2021109,980,004 40.1 %27,919,338 40.3 %3.1 %0.3 %29.0 %95.9 %
Total$274,404,402 100.0 %$69,337,470 100.0 %




MGIC Investment Corporation 20192021 Form 10-K | 13
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


PRODUCT CHARACTERISTICS
Product Characteristics.The following table reflects, at the dates indicated and by the categories indicated, the total dollar amount of primary RIF for the MGIC Book and the percentage of that primary RIF, as determined on the basis of information available on the date of mortgage origination.
Characteristics of primary risk in force
December 31, 2021December 31, 2020
Primary RIF (In millions):
$69,337 $61,812 
Loan-to-value ratios:
95.01% and above14.7 %14.7 %
90.01 - 95.00%50.4 %50.1 %
85.01 - 90.00%28.1 %28.3 %
80.01 - 85.00%6.4 %6.4 %
80% and below0.4 %0.5 %
Total100.0 %100.0 %
Debt-to-income ratios:
45.01% and above13.6 %14.2 %
38.01% - 45.00%31.5 %33.4 %
38% and below54.9 %52.4 %
Total100.0 %100.0 %
Loan Type:
Fixed(1)
99.4 %99.2 %
ARMs(2)
0.6 %0.8 %
Total100.0 %100.0 %
Original Insured Loan Amount:(3)
Conforming loan limit and below97.5 %97.4 %
Non-conforming2.5 %2.6 %
Total100.0 %100.0 %
Mortgage Term:
15-years and under1.7 %1.8 %
Over 15 years98.3 %98.2 %
Total100.0 %100.0 %
Property Type:
Single-family detached86.9 %87.6 %
Condominium/Townhouse/Other attached12.4 %11.7 %
Other(4)
0.7 %0.7 %
Total100.0 %100.0 %
Occupancy Status:
Owner occupied97.4 %97.6 %
Second home2.4 %2.1 %
Investor property0.2 %0.3 %
Total100.0 %100.0 %
Documentation:
Reduced:(5)
Stated0.7 %1.0 %
No0.3 %0.2 %
Full documentation99.0 %98.8 %
Total100.0 %100.0 %
Characteristics of primary risk in force
    
 December 31, 2019 December 31, 2018
Primary RIF (In millions):
$57,213
 $54,063
Loan-to-value ratios:   
95.01% and above15.3% 14.8%
90.01 - 95.00%52.2% 52.2%
85.01 - 90.00%27.1% 27.5%
80.01 - 85.00%4.8% 4.8%
80% and below0.6% 0.7%
Total100.0% 100.0%
Debt-to-income ratios:   
45.01% and above14.2% 14.3%
38.01% - 45.00%33.3% 33.3%
38% and below52.5% 52.4%
Total100.0% 100.0%
Loan Type:   
Fixed(1)
99.0% 98.7%
ARMs(2)
1.0% 1.3%
Total100.0% 100.0%
Original Insured Loan Amount:(3)
   
Conforming loan limit and below97.4% 97.5%
Non-conforming2.6% 2.5%
Total100.0% 100.0%
Mortgage Term:   
15-years and under1.4% 1.6%
Over 15 years98.6% 98.4%
Total100.0% 100.0%
Property Type:   
Single-family detached87.7% 87.5%
Condominium/Townhouse/Other attached11.5% 11.7%
Other(4)
0.8% 0.8%
Total100.0% 100.0%
Occupancy Status:   
Owner occupied97.6% 97.5%
Second home2.0% 2.0%
Investor property0.4% 0.5%
Total100.0% 100.0%
Documentation:   
Reduced:(5)
   
Stated1.2% 1.5%
No0.2% 0.3%
Full documentation98.6% 98.2%
Total100.0% 100.0%


MGIC Investment Corporation 20192021 Form 10-K | 14
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


Characteristics of primary risk in force
December 31, 2021December 31, 2020
FICO Score:(6)
760 and greater42.1 %40.3 %
740 - 75917.2 %17.0 %
720 - 73913.7 %13.8 %
700 - 71911.1 %11.2 %
680 - 6997.9 %8.3 %
660 - 6793.3 %3.7 %
640 - 6592.2 %2.5 %
639 and less2.5 %3.2 %
Total100.0 %100.0 %
(1)Includes fixed rate mortgages with temporary buydowns (where in effect, the applicable interest rate is typically reduced by one or two percentage points during the first two years of the loan and then increased thereafter to the original interest rate), ARMs in which the initial interest rate is fixed for at least five years, and balloon payment mortgages (a loan with a maturity, typically five to seven years, that is shorter than the loan’s amortization period).
(2)Includes ARMs where payments adjust fully with interest rate adjustments. Also includes pay option ARMs and other ARMs with negative amortization features, which collectively at each of December 31, 2021 and 2020, represented 0.1% and 0.2%, respectively, of primary RIF. As indicated in note (1), does not include ARMs in which the initial interest rate is fixed for at least five years. For both December 31, 2021 and 2020, ARMs with LTV ratios in excess of 90% represented 0.1% and 0.2%, of primary RIF, respectively.
(3)Loans within the conforming loan limit have an original principal balance that does not exceed the maximum original principal balance of loans that the GSEs will purchase. The conforming loan limit for one unit properties was $484,350 for 2019, $510,400 for 2020, and $548,250 for 2021, and is $647,200 for 2022. The limit for high cost communities has been higher and is $970,800 for 2022. Non-conforming loans are loans with an original principal balance above the conforming loan limit.
(4)Includes cooperatives and manufactured homes deemed to be real estate.
Characteristics of primary risk in force
    
 December 31, 2019 December 31, 2018
FICO Score:(6)
   
760 and greater39.0% 37.7%
740 - 75916.5% 15.6%
720 - 73914.0% 13.9%
700 - 71911.2% 11.3%
680 - 6998.3% 8.6%
660 - 6794.3% 4.8%
640 - 6592.9% 3.3%
639 and less3.8% 4.8%
Total100.0% 100.0%
(1)
Includes fixed rate mortgages with temporary buydowns (where in effect, the applicable interest rate is typically reduced by one or two percentage points during the first two years of the loan and then increased thereafter to the original interest rate), ARMs in which the initial interest rate is fixed for at least five years, and balloon payment mortgages (a loan with a maturity, typically five to seven years, that is shorter than the loan’s amortization period).

(2)
Includes ARMs where payments adjust fully with interest rate adjustments. Also includes pay option ARMs and other ARMs with negative amortization features, which collectively at each of December 31, 2019 and 2018, represented 0.3% of primary RIF. As indicated in note (1), does not include ARMs in which the initial interest rate is fixed for at least five years. As of December 31, 2019 and 2018, ARMs with LTV ratios in excess of 90% represented 0.2% and 0.3%, respectively, of primary RIF.

(3)
Loans within the conforming loan limit have an original principal balance that does not exceed the maximum original principal balance of loans that the GSEs will purchase. The conforming loan limit for one unit properties was $424,100 for 2017, $453,100 for 2018, $484,350 for 2019, and $510,400 for 2020. The limit for high cost communities has been higher and is $765,600 for 2020. Non-conforming loans are loans with an original principal balance above the conforming loan limit.

(4)
Includes cooperatives and manufactured homes deemed to be real estate.

(5)
Reduced documentation loans were originated prior to 2009 under programs in which there was a reduced level of verification or disclosure compared to traditional mortgage loan underwriting, including programs in which the borrower’s income and/or assets were disclosed
(5)Reduced documentation loans were originated prior to 2009 under programs in which there was a reduced level of verification or disclosure compared to traditional mortgage loan underwriting, including programs in which the borrower’s income and/or assets were disclosed in the loan application but there was no verification of those disclosures ("stated" documentation) and programs in which there was no disclosure of income or assets in the loan application ("no" documentation). In accordance with industry practice, loans approved by GSE and other automated underwriting (AU) systems under “doc waiver” programs that did not require verification of borrower income are classified by us as “full documentation.” We understand that the GSEs terminated their “doc waiver” programs in the second half of 2008.

(6)(6)Represents the FICO score at loan origination. The weighted average “decision FICO score” at loan origination for NIW in 2021 was 749 compared to 752 in 2020. The FICO score for a loan with multiple borrowers is the lowest of the borrowers’ decision FICO scores. A borrower’s “decision FICO score” is determined as follows: if there are three FICO scores available, the middle FICO score is used; if two FICO scores are available, the lower of the two is used; if only one FICO score is available, it is used. A FICO score is a score based on a borrower’s credit history generated by a model developed by Fair Isaac Corporation.
Represents the FICO score at loan origination. The weighted average “decision FICO score” at loan origination for NIW in 2019 was 749 compared to 745 in 2018. The FICO score for a loan with multiple borrowers is the lowest of the borrowers’ decision FICO scores. A borrower’s “decision FICO score” is determined as follows: if there are three FICO scores available, the middle FICO score is used; if two FICO scores are available, the lower of the two is used; if only one FICO score is available, it is used. A FICO score is a score based on a borrower’s credit history generated by a model developed by Fair Isaac Corporation.




MGIC Investment Corporation 20192021 Form 10-K | 15
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


OTHER PRODUCTS AND SERVICES
Contract Underwriting. A non-insurance subsidiary of ours performsprovides contract underwriting services for lenders, underwritingpursuant to which loans are underwritten to conform to prescribed guidelines. The guidelines might be the lender's own guidelines or the guidelines of Fannie Mae, Freddie Mac or a non-GSE investor. These services are provided for loans that require private mortgage insurance as well as for loans that do not require private mortgage insurance.

Other. We provide various fee-based services for the mortgage finance industry, such as analysis of loan originations and portfolios, and mortgage lead generation.

We provide insurance and reinsurance related to certain mortgages under GSE credit risk transfer programs. The amount of risk associated with these transactions is currently $182$321 million.

REINSURANCE AGREEMENTS
Quota Share Transactions.At December 31, 2019 and 2018, approximately 79% and 78%, respectively, of our IIF was subject to quota share reinsurance ("QSR") transactions. In 2019 and 2018, approximately 82% and 75%, respectively, of our NIW was subject to QSR transactions.

Our QSR transactions are with unaffiliated reinsurers and cover most of our insurance written from 2013 through 2019, and a portion of our insurance written prior to 2013. The structure of the transactions is a quota share of either 15% or 30% for all policies covered, with a 20% ceding commission as well as a profit commission. Generally, under the transactions, we will receive an annual profit commission provided the annual loss ratio on the loans covered under the transactions remains below a percentage ranging from 60% to 68%, depending upon the transaction. We expect that in the first quarter of 2020, we will enter into an agreement with a similar structure covering most of our NIW in 2020 (with a 30% quota share) and 2021 (with a 17.5% quota share).

Excess of Loss Transaction. We have aggregate excess of loss reinsurance agreements with unaffiliated special purpose insurers covering a portion of our insurance written from July 1, 2016 through March 31, 2019. For the reinsurance coverage periods, we retain the first layer of the respective aggregate losses, and a special purpose insurer will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses in excess of the outstanding reinsurance coverage amount. The aggregate excess of loss reinsurance coverage decreases over a ten-year period, subject to certain conditions, as the underlying covered mortgages amortize or are repaid, or mortgage insurance losses are paid. The special purpose insurers financed the coverages by issuing mortgage insurance-
linked notes (“ILNs”) to unaffiliated investors in an aggregate amount equal to the initial reinsurance coverage amounts. The ILNs each have ten-year legal maturities and are non-recourse to any of our assets. The proceeds of the ILNs, which were deposited into reinsurance trusts for our benefit, will be the source of reinsurance claim payments to us and principal repayments on the ILNs.

Although reinsuring against possible loan losses does not discharge us from liability to a policyholder, it reduces the amount of capital we are required to retain against potential future losses for PMIERs, rating agency and insurance regulatory purposes. The total credit that we are allowed for PMIER purposes for risk ceded under our reinsurance transactions is subject to a modest reduction. Our existing reinsurance transactions are subject to periodic review by the GSEs and there is a risk we will not receive our current level of credit in future periods for the risk ceded under them. In addition, we may not receive the same level of credit under future transactions that we receive under existing transactions.

For further information about our reinsurance agreements, including the Company's early termination rights, see Note 9 – “Reinsurance,” to our consolidated financial statements in Item 8.

CUSTOMERS
Originators of residential mortgage loans such as savings institutions, commercial banks, mortgage brokers, credit unions, mortgage bankers and other lenders have historically determined the placement of mortgage insurance written on a flow basis and as a result are our customers. To obtain primary insurance from us written on a flow basis, a mortgage lender must first apply for and receive a mortgage guaranty master policy from us. Our top 10 customers none of whom represented more than 10% of our consolidated revenues, generated 24%36% of our NIW on a flow basis in each of 20192021, 41% in 2020 and 2018, and 23%24% in 2017.2019. Our relationships with our customers could be adversely affected by a variety of factors, including if our premium rates are higher than those of our competitors, our underwriting requirements are more restrictive than those of our competitors, or our customers are dissatisfied with our claims-paying practices (including insurance policy rescissions and claim curtailments). Information about some of the other factors that can affect a mortgage insurer’s relationship with its customers can be found in our risk factor titled “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and/or increase our losses” in Item 1A.

SALES AND MARKETING AND COMPETITION
Sales and Marketing. Our employees sell our insurance products throughout all regions of the United States and in Puerto Rico and Guam.


MGIC Investment Corporation 2019 Form 10-K | 16
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms



Competition. Our competition includes other mortgage insurers, governmental agencies and products designed to eliminate the need to purchase private mortgage insurance. For flow business, we and other private mortgage insurers compete directly with federal and state governmental and quasi-governmental agencies, principally the FHA and the VA. The FHA, VA and USDA sponsor government-backed mortgage insurance programs, and it is estimated that during 2019, 2018 and 2017,the first nine months of 2021, they accounted for a combined approximately 55.3%, 55.9% and 61.4%, respectively,56.7% of the total low down payment residential mortgages which were subject to FHA, VA, USDA or primary private mortgage insurance.insurance, compared to 56.1% and 55.3% in 2020 and 2019, respectively. For more information about the market share of the FHA and the VA, see “Overview of the Private Mortgage Insurance Industry and its Operating Environment” above.

In addition to competition from the FHA, VA and USDA, we and other private mortgage insurers face competition from state-supported mortgage insurance funds in several states. From time to time, other state legislatures and agencies consider expanding the authority of their state governments to insure residential mortgages.

The PMI industry is highly competitive. We believe that we currently compete with other private mortgage insurers based on premium rates, underwriting requirements, financial strength (including based on credit or financial strength ratings), customer relationships, name recognition, reputation, strength of management teams and field organizations, the ancillary products and services provided to lenders, and the effective use of technology and innovation in the delivery and servicing of our mortgage insurance products.

The U.S. PMI industry currently consists of six active mortgage insurers and their affiliates, including MGIC and the following companies:

Arch Mortgage Insurance Company
Essent Guaranty Mortgage Insurance
Genworth Mortgage Insurance Corporation
National Mortgage Insurance Corporation
Radian Guaranty Inc.

MGIC. Our market share (as measured by NIW) was 20.5% in the first nine months of 2021, compared to 18.7% in 2020 and 16.5% in 2019, compared to 17.4% in 2018 and 18.3% in 2017, in each case excluding HARP refinances. (source: Inside Mortgage Finance).
If we are unable to compete effectively in the current or any future markets as a result of the financial strength ratings assigned to our insurance subsidiaries, our future new insurance written could be negatively affected. Substantially allThe substantial majority of our insurance written since 2008 has been for loans delivered to or purchased by the GSEs. The
current PMIERs of each of the GSEs do not require an insurer to maintain minimum financial strength ratings. However, depending upon the evolution of housing finance reform, the level of issuances of non-GSE MBS may increase in the future. Financial strength ratings may be considered by issuers of non-GSE MBS in determining whether to purchase private mortgage insurance for loans supporting such securities. In assigning financial strength ratings, in addition to considering the adequacy of the mortgage insurer’s capital to withstand very high claim scenarios under assumptions determined by the rating agency, we believe rating agencies review a mortgage insurer’s historical and projected operating performance, franchise risk, business outlook, competitive position, management, corporate strategy, enterprise risk management and other factors. The rating agency issuing the financial strength rating can withdraw or change its rating at any time. At the time that this annual report was finalized, the financial strength of MGIC was rated A- (with a stable outlook) by A.M. Best, Baa1 (with a stable outlook) by Moody’s Investors Service and BBB+ (with a stable outlook) by Standard & Poor’s Rating Services.

C. Risk Management
ENTERPRISE RISK MANAGEMENT
Enterprise Risk Management. The Company has an enterprise risk management (“ERM”) framework that it believes is commensurate with the size, nature and complexity of the Company’s business activities (all of which relate to insuring or reinsuring mortgage credit risk) and strategies. Among the key objectives of the ERM framework are to have a clear and well documented shared understanding, by senior management and the Board, of the Company’s risk management philosophy and overall appetite for risk, and that there are appropriate monitoring, management and reporting mechanisms to support the framework.

Risk Governance. The Company maintains a Senior Management Oversight Committee (“SMOC”) that, at the management level, serves as its primary risk management governance organization. The SMOC seeks to maintain an enterprise-wide view of risk. The SMOC oversees the Company’s ERM framework; oversees how the risks associatedCompany aligns its people, processes and technology capabilities with the strategic and business issues critical to the Company, monitoring the Company’sand it maintains an enterprise view of risk profile across thea set

MGIC Investment Corporation 2021 Form 10-K | 16
MGIC Investment Corporation and Subsidiaries



of identified key risks (see “Risk Identification and Assessment” below); and supportsprovides reporting to the Risk Management Committee of the Company’s Board of Directors (“RMC”). The SMOC, of which the CEO is a member, is chaired by the Company’s Executive Vice President and Chief Risk Officer, who is the principal management liaison to the RMC.
The Board implements its risk oversight function as a whole and through delegation to its Committees which meet regularly and report back to the full Board. The Risk Management Committee coordinates with the Board and other Board Committees regarding the assignment to the Board and Committees of oversight responsibilities for all risks considered to have the greatest impact on the Company's ability to accomplish its strategic goals. Each Committee's charter describes its principal responsibilities, including its oversight responsibility for applicable key risks.
Environmental, Social and Governance ("ESG") Risk Governance. The Company maintains an ESG Executive Council that, at the management level, supports the Company's on-going commitment to environmental, health and safety, corporate social responsibility, corporate governance, sustainability, and other public policy matters relevant to the Company. In performing this general responsibility, the Council has discretion to: assist in setting the Company’s general strategy with respect to ESG matters; identify current and emerging ESG issues that may affect the Company’s business, strategy, operations, performance, or public image; make recommendations regarding policies, practices, procedures, or disclosures to address ESG matters; implement systems to monitor ESG matters when necessary; oversee the Company’s internal and external reporting and disclosures surrounding ESG matters; and advise on shareholder or stakeholder concerns regarding ESG matters. The ESG Executive Council will make regular reports to the SMOC and to the relevant Committee(s) of the Board of Directors of the Company.

The Board has delegated oversight for the following ESG matters to the following committees, who regularly report their actions to the Board:
•Risk Management Committee: Mortgage Credit Risk, including risks associated with climate change.
•Management Development, Nominating and Governance Committee: Corporate governance and human capital management policies such as executive compensation; succession planning; recruitment, retention and development of management resources; workforce planning, recruitment morale and talent; diversity and inclusion initiatives; and work environment, including health and safety.
•Securities Investment Committee: Our investment portfolio; such oversight may include consideration of ESG factors.
•Audit Committee: Disclosure controls and procedures relating to financial reports made to the SEC, as well as ESG reports.
•Business Transformation and Technology Committee: Cybersecurity and business continuity.
Risk Management and Controls. The Company has established enterprise-wide policies, procedures and processes to allow it to identify, assess, monitor and manage the Company’s various
risks. Management of these risks is an interdepartmental endeavor, with


MGIC Investment Corporation 2019 Form 10-K | 17
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


oversight by the SMOCChief Risk Officer and compliance personnel.the SMOC. The Company’s Internal Audit function, which reports to the Audit Committee of the Board of Directors, provides independent ongoing assessments of the Company’s management of certain enterprise risks and reports its findings to the Audit Committee.

Risk Identification and Assessment. TheOn a regular basis, the Company completes an annualmonitors key risk identification and assessment process that is focusedrisks with a focus on identifying and assessing thoserisks or changes to risks with the potential to have the greatest impact on the Company’sCompany's ability to accomplish its strategic goals. TheseIn addition to the ongoing monitoring, the Company also identifies key risks include both risks that are, at least in part, internal to the Company (e.g., mortgage credit risk)a bottom up process facilitated through workshops and therefore, at least in part, within management’s direct control, as well as risks that are external to the Company (e.g.,discussions during an annual compliance and risk forum with co-workers across all business risk) and outside of management’s direct control.functions. The results of the identification process are reported to and assessment are reviewed annually by both the SMOC and presented to the RMC.RMC and/or the full Board.

Risk Reporting and Communication. The Company's Risk Management department produces various analyses, reports and key risk indicators (“KRIs”) that are reported to the SMOC, the RMC and the Board quarterly.  For our largest risk exposure, mortgage credit risk, these KRIs include risk factors for the Company’s NIW, IIF, quality control and claim activity, and the quarterly reports include performance relative to risk appetites. metrics and thresholds. Each of the other Board Committees also receive regular reporting concerning the risks they oversee.

Although the Company has in place the ERM framework discussed above, it may not be effective in identifying, or adequate in controlling or mitigating, the risks we face. For more information, see our Risk Factor titled "If our risk management programs are not effective in identifying, or adequate in controlling or mitigating, the risks we face, or if the models used in our businesses are inaccurate, it could have a material adverse impact on our business, results of operations and financial condition" in Item 1A.

MORTGAGE CREDIT RISK
We believe that mortgage credit risk is materially affected by:

•the condition of the economy, including the direction of change in home prices and employment, in the area in which the property is located;
•the borrower’s credit profile, including the borrower’s credit history, DTI ratio and cash reserves, and the willingness of a borrower with sufficient resources to make mortgage payments when the mortgage balance exceeds the value of the home;
•the loan product, which encompasses the LTV ratio, the type of loan instrument, including whether the instrument provides for fixed or
variable payments and the amortization schedule, the type of property and the purpose of the loan;
•origination practices of lenders and the percentage of coverage on insured loans; and
•the size of insured loans.

We believe that, excluding other factors, claim incidence increases:

•during periods of economic contraction and home price depreciation, including when these conditions may not be

MGIC Investment Corporation 2021 Form 10-K | 17
MGIC Investment Corporation and Subsidiaries



nationwide, compared to periods of economic expansion and home price appreciation;
•for loans to borrowers with lower FICO scores compared to loans to borrowers with higher FICO scores;
•for loans to borrowers with higher DTI ratios compared to loans to borrowers with lower DTI ratios;
•for loans with less than full underwriting documentation compared to loans with full underwriting documentation;
•for loans with higher LTV ratios compared to loans with lower LTV ratios;
•for ARMs when the reset interest rate significantly exceeds the interest rate at the time of loan origination;
•for loans that permit the deferral of principal amortization compared to loans that require principal amortization with each monthly payment;
•for loans in which the original loan amount exceeds the conforming loan limit compared to loans below that limit; and
•for cash out refinance loans compared to rate and term refinance loans.

Other types of loan characteristics relating to the individual loan or borrower may also affect the risk potential for a loan. The presence of a number of higher-risk characteristics in a loan materially increases the likelihood of a claim on such a loan unless there are other characteristics to mitigate the risk.

We charge higher premium rates to reflect the increased risk of claim incidence that we perceive is associated with a loan. Not all higher risk characteristics are reflected in our premium rates; however, in 2019 we introduced MiQ, our risk-based pricing system that establishes our premium rates based on more risk attributes than were considered in 2018. There can be no assurance that our premium rates adequately reflect the increased risk, particularly in a period of economic


MGIC Investment Corporation 2019 Form 10-K | 18
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


recession, high unemployment, slowing home price appreciation or home price declines. For additional information, see our risk factors in Item 1A, including the one titled “The premiums we charge may not be adequate to compensate us for our liabilities for losses and as a result any inadequacy could materially affect our financial condition and results of operations.”

Underwriting Insurance Applications. Applications for mortgage insurance are submitted to us through both our delegated and
non-delegated options. Under the delegated option, applications are submitted to us electronically and we rely upon the lender’s representations and warranties that the data submitted is true, accurate and consistent with the documents in the lender's loan origination file, when making our insurance decision. If the loan data submitted meets the underwriting requirements, a commitment to insure the loan is immediately issued. If the requirements are not met, the loan is reviewed by one of our underwriters. Non-delegated applications are submitted with documents from the lender’s loan origination file. During loan set-up, data is entered from those application documents and electronically evaluated againstWe apply our underwriting requirements. An internally generated feedback report guides the mortgage insurance review.guidelines, eligibility criteria and rating plans to determine coverage eligibility and premium rate. If the loan meets the underwriting requirements,is eligible for coverage, we will issue a commitment to insure the loan is issued.loan.

Beginning in 2013, we aligned most of our underwriting requirements with Fannie Mae and Freddie Mac for loans that receive and are processed in accordance with certain approval recommendations from a GSE automated underwriting system. Our underwriting requirements are available on our website at http://www.mgic.com/underwriting/index.html. Our underwriters are authorized to approve loans that do not meet all of our underwriting requirements provided appropriate offsetting factors can be identified.
under certain circumstances.

EXPOSURE TO CATASTROPHIC LOSSES; DELINQUENCIES; CLAIMS; LOSS MITIGATION
Exposure to Catastrophic Losses. The PMI industry experienced catastrophic losses in the mid-to-late 1980s, similar to the losses we experienced in 2007-2013. For background information about such losses in 2007-2013, as well as information about the effects of the COVID-19 pandemic, refer to “General – Overview of Private Mortgage Insurance Industry and its Operating Environment” above.

Delinquencies. The claim cycle on PMI generally begins with the insurer’s receipt of notification of a delinquency on an insured loan from the loan servicer. We considerFor reporting purposes, a loan is generally considered to be delinquent when it is two or more payments past due. Most servicers report delinquent loans to us within this two month period. The incidence of delinquency is affected by a variety of factors, including the level of borrower income growth, unemployment, health issues, family status, the level of interest rates, rates of home price appreciation or depreciation and general borrower creditworthiness. Delinquencies that are not cured result in a claim to us. See “– Claims.” Delinquencies may be cured by the borrower bringing current the delinquent loan payments or by a sale of the property and the satisfaction of all amounts due under the mortgage. In addition, when a policy is rescinded or a claim is denied we remove the loan from our delinquency inventory.

MGIC Investment Corporation 2021 Form 10-K | 18
MGIC Investment Corporation and Subsidiaries




The following table shows the number of insured primary and pool loans in the MGIC Book, the related number of delinquent loans and the percentage of delinquent loans, or delinquency rate, as of December 31, 2015-2019.
2017-2021.
Delinquency statistics for the MGIC book
          
 December 31,
 2019 2018 2017 2016 2015
Primary Insurance:         
Insured loans in force1,079,578 1,058,292 1,023,951 998,294 992,188
Delinquent loans30,028 32,898 46,556 50,282 62,633
Delinquency rate – all loans2.8% 3.1% 4.6% 5.0% 6.3%
Defaulted loans in our claims received inventory538 809 954 1,385 2,769
          
Pool Insurance:         
Insured loans in force20,318 23,675 31,364 39,071 52,189
Delinquent loans653 859 1,309 1,883 2,739
Delinquency rate3.2% 3.6% 4.2% 4.8% 5.3%


MGIC Investment Corporation 2019 Form 10-K | 19
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


Delinquency statistics for the MGIC book
December 31,
20212020201920182017
Primary Insurance:
Insured loans in force1,164,9841,126,0791,079,5781,058,2921,023,951
Delinquent loans33,29057,71030,02832,89846,556
Delinquency rate – all loans2.8%5.1%2.8%3.1%4.6%
Defaulted loans in our claims received inventory211159538809954
Pool Insurance:
Insured loans in force16,34218,28820,31823,67531,364
Delinquent loans4986806538591,309
Delinquency rate3.1%3.7%3.2%3.6%4.2%
Different geographical areas may experience different delinquency rates due to varying localized economic conditions from year to year and the amount of time it takes for foreclosures to be completed for uncured delinquencies. The following table showsprimary delinquency rate for the percentage of primary loans we insured that were delinquent as oftop 15 jurisdictions (based on December 31, 2021 delinquency inventory) at December 31, 2021, 2020, and 2019 2018 and 2017 forappears in table the 15 jurisdictions for which we paid the most claims during 2019.below.
Jurisdiction delinquency rates
      
 December 31,
 2019 2018 2017
Florida*3.4% 3.9% 9.5%
New York*5.3
 6.1
 8.0
New Jersey*3.9
 4.6
 7.3
Illinois*3.2
 3.3
 4.1
Puerto Rico*8.2
 10.3
 24.2
Maryland3.6
 4.1
 5.4
Pennsylvania*2.8
 3.2
 4.2
Ohio*2.3
 2.6
 3.2
Connecticut*3.6
 3.5
 4.4
California2.1
 2.2
 2.6
Texas3.3
 3.6
 6.0
Michigan2.0
 2.3
 2.9
Virginia1.9
 2.1
 2.8
Georgia3.1
 3.4
 4.5
Wisconsin1.9
 2.0
 2.5
All other jurisdictions2.4
 2.7
 3.4
Note: Asterisk denotes jurisdictions in the table above that predominantly use a judicial foreclosure process, which generally increases the amount of time for a foreclosure to be completed.

Primary delinquency rate by jurisdiction
 202120202019
Florida *3.7 %7.5 %3.4 %
Texas3.1 %6.1 %3.3 %
Illinois *3.4 %5.9 %3.2 %
California3.2 %6.1 %2.1 %
New York *4.3 %6.9 %5.3 %
Pennsylvania *2.5 %4.0 %2.8 %
Ohio *2.4 %4.0 %2.3 %
Georgia3.1 %6.2 %3.1 %
New Jersey *4.1 %7.0 %3.9 %
Michigan2.4 %4.0 %2.0 %
North Carolina2.3 %4.2 %2.6 %
Maryland3.3 %6.0 %3.6 %
Virginia1.9 %4.2 %1.9 %
Louisiana *5.7 %7.7 %5.2 %
Indiana2.8 %4.4 %3.1 %
All other jurisdictions2.5 %4.4 %2.5 %
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.
The primary delinquency inventory in those same jurisdictions as ofat December 31, 2021, 2020 and 2019 2018 and 2017 appears in a table found in “Management’s Discussion and Analysis – Consolidated Results of Operations – Losses and expenses – Loss Reserves,” in Item 7.

Claims. Claims result from delinquencies that are not cured or a short sale that we approve. Whether a claim results from an uncured delinquency depends, in large part, on the borrower’s equity in the home at the time of delinquency, the borrower’s or the lender’s ability to sell the home for an amount sufficient to satisfy all amounts due under the mortgage and the willingness and ability of the borrower and lender to enter into a loan modification that provides for a cure of the delinquency. Various factors affect the frequency and amount of claims, including local home prices and employment levels, and interest rates. If a delinquency goes to claim, any premium collected from the time of delinquency to the time of claim payment is returned to the servicer along with the claim payment.

Under the terms of our master policy, the lender is required to file a claim for primary insurance with us within 60 days after it has acquired title to the underlying property (typically through foreclosure). For several years, the average time it took to receive a claim associated with a delinquency increased significantly from our historical experience of approximately twelve months. This was, in part, due to new loss mitigation protocols established by servicers and to changes in some state foreclosure laws that may have included, for example, a requirement for additional review and/or mediation processes. In recent quarters,Prior to the second quarter of 2020, we had begun to experience a decline in the average time it took servicers are using to process foreclosures, has decreased, resulting in a decrease inwhich had reduced the average time to receive claimsa claim associated with new delinquencies that dodid not cure. All else being equal, the longer the period between delinquency and claim filing, the greater the size of the claim, or “severity.” It is difficult to estimate how long it may take for current and future delinquencies that do not cure to develop into paid claims. In light of the uncertainty caused by the COVID-19 pandemic, including the impact of foreclosure moratoriums and forbearance programs, the average number of missed payments at the time a claim is received has increased.

The majority of loans we insured from 2005 through 2008 (which represent 54%33% of the loans in the delinquency inventory) are covered by master policy terms that, except under certain circumstances, do not limit the number of years of accumulated interest that an insured may include in a claim. Under our current master policy terms, an insured can include accumulated interest only for the first three years the loan is delinquent.

MGIC Investment Corporation 2021 Form 10-K | 19
MGIC Investment Corporation and Subsidiaries




Other determinants of claim severity are the amount of the mortgage loan, the coverage percentage on the loan, loss mitigation efforts, and local market conditions. For information about our primary average claim paid, see “Management’s Discussion and Analysis – Consolidated Results of Operations – Net Losses and LAE Paid,” in Item 7.

Within 60 days after a claim has been filed and all documents required to be submitted to us have been delivered, we generally have the option to either (1) pay the coverage percentage specified for the insured loan, with the insured retaining title to the underlying property and receiving all proceeds from the eventual sale of the property (we have elected this option for the vast majority of claim payments in the recent past), or (2) pay 100% of the claim amount in exchange for conveyance to us of good and marketable title to the property. After we receive title to a property, we sell it for our own account. If we fail to pay a claim timely, we are subject to additional interest expense.

Claim activity is not evenly spread throughout the coverage period of a book of primary business. Relatively few claims are typically received during the first two years following issuance of coverage on a loan. The highest level of claim activity has typically occurred in the third and fourth years after the year of loan origination. Thereafter, the number of claims received has typically declined at a gradual rate, although the rate of decline can be affected by conditions in the economy, including slowing home price appreciation or home price depreciation. Moreover, when a loan is refinanced, because the new loan replaces, and is a continuation of, an earlier loan, the pattern of claims frequency for that new loan may be different from the typical pattern for other loans. Persistency, the condition of the economy,


MGIC Investment Corporation 2019 Form 10-K | 20
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


including unemployment, and other factors can affect the pattern of claim activity. For example, a weak economy can lead to claims from older books of business increasing, continuing at stable levels or experiencing a lower rate of decline. As of December 31, 2019, 58%2021, 78% of our primary RIF was written subsequent to December 31, 2016, 70%2018, 82% of our primary RIF was written subsequent to December 31, 2015,2017, and 79%86% of our primary RIF was written subsequent to December 31, 2014.2016. See “Our Products and Services – Mortgage Insurance – Primary Insurance In Force and Risk In Force by Policy Year” above.

Another important factor affecting MGIC Book losses is claim severity. The main determinants of claim severity are the amount of the mortgage loan, the coverage percentage on the loan, loss mitigation efforts and local market conditions. For information about our primary average claim paid, see “Management’s Discussion and Analysis – Consolidated Results of Operations – Net Losses and LAE Paid,” in Item 7.

Net losses paid and primaryPrimary losses paid for the top 15 jurisdictions (based on 2021 losses paid) and all other jurisdictions for 2019, 20182021 and 20172020 appear in tables found in “Management’s Discussion and Analysis – Consolidated Results of Operations – Losses and expenses – Net Losses and LAE Paid,” in Item 7.

Loss Mitigation.Mitigation. Before paying a claim, generally we review the loan and servicing files to determine the appropriateness of the claim amount. Our insurance policies generally provide that we can reduce or deny a claim if the servicer did not comply with its obligations under our insurance policy, including the requirement to mitigate our loss by performing reasonable loss mitigation efforts or, for example, diligently pursuing a foreclosure or bankruptcy relief in a timely manner. We call such reduction of claims submitted to us “curtailments.” In each of 20192021 and 2018,2020, curtailments reduced our average claim paid by approximately 5.0%4.4% and 5.8%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 reviewing the loan file associated with a claim, we may determine that we have the right to rescind coverage on the loan. In our SEC reports, we refer to insurance rescissions and denials of claims as “rescissions” and variations of this term. The circumstances in which we are entitled to rescind coverage narrowed under more restrictive policy terms beginning in 2012. As a result of revised PMIERs requirements, we have revised our master policy and expect it to be effective for new insurance written beginning March 1, 2020. Our ability to rescind insurance coverage willhas become further limited for insurance we write under the new master policy, potentially resulting in higher losses than would be the case under our existingprevious master policies. In recent quarters,years, an immaterial percentage of claims
received in a quarter have been resolved by rescissions. We do not expect future rescissions will be a significant portion of the claims we resolve over the next few years.

Our loss reserving methodology incorporates our estimates of future rescissions, curtailments, and reversals of rescissions and curtailments. When we rescind coverage, we return all premiums previously paid to us under the policy and are relieved of our obligation to pay a claim under the policy. A variance between ultimate actual rescission, curtailment or reversal rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses.

When the insured disputes our right to rescind coverage or curtail a claim, 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 liability 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.

We are currently involved in discussions and/or proceedings with insureds with respect to our claims paying practices. Although it is reasonably possible that when these matters are resolved we will not prevail in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability. We estimate the maximum exposure associated with matters where a loss is reasonably possible to be approximately $46$27 million. This estimate of maximum exposure is based upon currently available information; is subject to significant judgment, numerous assumptions and known and unknown uncertainties;

MGIC Investment Corporation 2021 Form 10-K | 20
MGIC Investment Corporation and Subsidiaries



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.

Although loan modification programs continued to mitigate our losses in 2019, their impact has decreased significantly from the impact we experienced in 2008-2012.Loss Reserves

LOSS RESERVES
. A significant period of time typically elapses between the time when a borrower becomes delinquent on a mortgage payment, which is the event triggering a potential future claim payment by us, the reporting of the delinquency to us, the acquisition of the property by the lender (typically through foreclosure) or the sale of the property, with our approval, and the eventual


MGIC Investment Corporation 2019 Form 10-K | 21
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


payment of the claim related to the uncured delinquency or a rescission. To recognize the estimated liability for losses related to outstanding reported delinquencies, we establish loss reserves by estimating the number of loans in our delinquency inventory that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity. Our loss reserve estimates are established primarily based upon historical experience, including rescission and curtailment activity. In accordance with GAAP for the mortgage insurance industry, we generally do not establish case reserves for future claims on insured loans that are not currently delinquent.

We also establish reserves to provide for the estimated costs of settling claims, general expenses of administering the claims settlement process, legal fees and other fees (“loss adjustment expenses”), and for losses and loss adjustment expenses from delinquencies that have occurred, but have not yet been reported to us (IBNR).

Our reserving process bases our estimates of future events on our past experience. However, estimationFor further information about our loss reserving methodology, refer to “Management’s Discussion and Analysis – Critical Accounting Estimates,” in Item 7. Estimation of loss reserves is inherently judgmental and conditions that have affected the development of the loss reserves in the past may not necessarily affect development patterns in the future, in either a similar manner or to a similar degree. For further information, see our risk factors in Item 1A, including the ones titled “Because we establish loss reserves only upon a loan delinquency rather than based on estimates of our ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings in certain periods,” and “Because loss reserve estimates are subject to uncertainties, paid claims may be substantially different than our loss reserves.”

Our losses incurred were $64.6 million in 2021, compared to $364.8 million and $118.6 million in 2020 and 2019, respectively. Our losses incurred in 2019, 2018 and 20172020 were $118.6 million, $36.6 million and $53.7 million, respectively, compared to $240.2 million and $343.5 million in 2016 and 2015, respectively. Our losses incurred for the last three years were belowabove the levels in 2016 and 2015, in part due to the improving economy, the run-off of the insurance policies we wrote beforeother years shown as a result of losses stemming from the financial crisis and the credit quality of insurance policies written since the financial crisis. These factors resulted in fewer delinquent loans, as well as an improved cure rate on delinquent loans.COVID-19 pandemic. For information about losses incurred from 20172019 to 2019,2021, including the amounts of losses incurred that are associated with delinquency notices received in the reporting year compared to losses incurred associated with delinquency notices received in prior years, see “Management’s DiscussionNote 8 – "Loss Reserves" to our consolidated financial statements in Item 8.
D. Reinsurance Agreements
We have in place quota share reinsurance ("QSR") and Analysisexcess of loss reinsurance ("XOL") transactions providing various amounts of coverage on 92% of our risk in force as of December 31, 2021. These transactions allow us to better manage our risk profile and because they reduce the amount of capital we are required to
hold to comply with insurance regulatory requirements and the requirements of the GSEs' PMIERs, they provide a source of capital relief.

Quota Share Transactions.At December 31, 2021 and 2020, approximately 78% and 76%, respectively, of our IIF was subject to quota share reinsurance ("QSR") transactions. In 2021 and 2020, approximately 82% and 74%, respectively, of our NIW was subject to QSR transactions.
Our QSR transactions are with unaffiliated reinsurers and cover a percentage of most of our insurance written from 2013 through 2016 and 2019 through 2022, and a smaller percentage of our insurance written prior to 2013 and from 2023 through 2025. The weighted average coverage percentage of our QSR transactions was 30%, based on risk in force as of December 31, 2021.

The structure of the QSR transactions is a quota share of various percentages of the policies covered, with a ceding commission and a profit commission. Generally, under the transactions, we will receive an annual profit commission provided the annual loss ratio on the loans covered under the transactions remains below various percentages, depending upon the transaction.

Excess of Loss Transactions. Our XOL transactions were entered into with special purpose insurers that issued notes linked to the reinsurance coverage ("Insurance Linked Notes" or "ILNs"). Our XOL transactions provide XOL reinsurance coverage for a portion of the risk associated with certain mortgage insurance policies having insurance coverage in force dates from July 1, 2016 through March 31, 2019 and January 1, 2020 through May 28, 2021, all dates inclusive.

For the reinsurance coverage periods, we retain the first layer of the respective aggregate losses, and the special purpose insurer will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses in excess of the outstanding reinsurance coverage amount. The aggregate XOL reinsurance coverage decreases over a period of either 10 of 12.5 years, depending on the transaction, subject to certain conditions, as the underlying covered mortgages amortize or are repaid, or mortgage insurance losses are paid. The special purpose insurers financed the coverages with the proceeds of the ILNs in an aggregate amount equal to the initial reinsurance coverage amounts. The ILNs are non-recourse to any of our assets. The proceeds of the ILNs, which were deposited into reinsurance trusts for our benefit, will be the source of reinsurance claim payments to us and principal repayments on the ILNs.
Although reinsuring against possible loan losses does not discharge us from liability to a policyholder, it reduces the amount of capital we are required to retain against potential future losses for PMIERs, rating agency and insurance regulatory purposes. The calculated credit for XOL reinsurance transactions under PMIERs is generally based on the PMIERs requirement of the covered loans and the attachment and detachment point of the coverage, all of which fluctuate over time. PMIERs credit is generally not given for the reinsured risk above the PMIERs requirement. The GSEs have discretion to further limit reinsurance credit under the PMIERs. The total credit for risk ceded under our reinsurance transactions is subject to periodic review by the GSEs.


MGIC Investment Corporation 2021 Form 10-K | 21
MGIC Investment Corporation and Subsidiaries



For further information about our reinsurance agreements, including the Company's early termination rights, see Note 9 – Consolidated Results of Operations – Losses“Reinsurance,” to our consolidated financial statements in Item 8, and expenses – Losses incurred, net,”our risk factor titled "Reinsurance may not always be available or affordable" in Item 7.1A.

C.E. Investment Portfolio
POLICY AND STRATEGY
At December 31, 2019,2021, the fair value of our investment portfolio was approximately $5.8$6.6 billion. In addition, at December 31, 2019,2021, our total assets included approximately $162$305 million of cash and cash equivalents. At December 31, 2019,2021, approximately $325$663 million of investments and cash and cash equivalents was held by our parent company, and the remainder was held by our subsidiaries, primarily MGIC.

As of December 31, 2019,2021, approximately 79%96% of our investment portfolio (excluding cash and cash equivalents) was managed by Wellington Management Company, LLP,two external investment managers, although we maintain overall control of investment policy and strategy. We maintain direct management of the remainder of our investment portfolio. Unless otherwise indicated, the remainder of the discussion regarding our investment portfolio refers to our investment portfolio only and not to cash and cash equivalents.

The investment policy of our operating companies (primarily MGIC) emphasizes preservation of PMIERs assets, limiting portfolio volatility and maximizing total return with an emphasis on yield (subject to the other objectives). Our holding company investment policy emphasizes providing liquidity with minimal realized losses through holding high credit quality, low volatility assets. Consequently, our investment portfolio consists almost entirely of high-quality, investment grade, fixed income securities. Our investment portfolio strategy considers tax efficiency. The mix of tax-exempt municipal securities in our investment portfolio will be dependent upon their value, relative to taxable equivalent securities, determined in part by federal statutory tax rates. Our investment policies and strategies are subject to change depending upon regulatory, economic and market conditions and our existing or anticipated financial condition and operating requirements.

Our investment policies in effect at December 31, 20192021 limit investments in the securities of a single issuer, other than the U.S. government, and generally limit the purchase of fixed income securities to those that are rated investment grade by at least one rating agency. They also limit the amount of investment in foreign governments and foreign domiciled securities and in any individual foreign country. In addition, the guidelines require the portfolio to carry a weighted average credit quality of at least an "A" rating.



MGIC Investment Corporation 2019 Form 10-K | 22
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms



The aggregate market value of the holdings of a single obligor, or type of investment, as applicable, is limited to:
U.S. government and GNMA securitiesNo limit
Pre-refunded municipals escrowed in Treasury securitiesNo limit
Individual U.S. government agencies(1)
10% of portfolio market value
Individual securities rated “AAA” or “AA” (2)
3% of portfolio market value
Individual securities rated “BBB” or “A” (2)
2% of portfolio market value
Foreign governments & foreign domiciled securities (in total) (3)
25% of portfolio market value
(1)
(1)As used with respect to our investment portfolio, U.S. government agencies include all GSEs and Federal Home Loan Banks.
(2)For the holding company, individual securities with a rating of "AA" or "AAA" may represent a maximum 10% of the portfolio market value and individual securities with a rating of "BBB" or "A" may represent a maximum 5%.
(3)For the holding company, there is no maximum aggregate limit for foreign government or foreign domiciled securities.

As used with respect to our investment portfolio, U.S. government agencies include all GSEs and Federal Home Loan Banks.
(2)
For the holding company, individual securities with a rating of "AA" or "AAA" may represent a maximum 10% of the portfolio market value and individual securities with a rating of "BBB" or "A" may represent a maximum 5%.
(3)
For the holding company, there is no maximum aggregate limit for foreign government or foreign domiciled securities.

For information about the credit ratings of securities in our investment portfolio, see "Balance Sheet Review" in Item 7.

Investment Operations
At December 31, 2019,2021, the sectors represented in our investment portfolio were as shown in the table below:
Investment portfolio - sectors
Investment portfolio - sectors
Percentage of Portfolio’s Fair Value
1.  Corporate48%42%
2.  Tax-Exempt Municipals1916%
3.  Asset-BackedTaxable Municipals1522%
4.  Taxable MunicipalsAsset-Backed913%
5.  U.S. government and agency debt42%
6. GNMA and other agency mortgage-backed securities55%
100%

We had no derivative financial instruments in our investment portfolio. Securities with stated maturities due within up to one year, after one year and up to five years, after five years and up to ten years, and after ten years, represented 7%5%, 34%27%, 19%28% and 20%23%, respectively, of the total fair value of our investment in fixed income debtinvestment securities. Asset-backed and mortgage-backed securities are not included in these maturity categories as the expected maturities may be different from the stated maturities depending upon the periodic payments during the life of the security. Asset-backed
securities represent 15%13% of the investment portfolio (CLOs represent 6%, CMBS represent 5% and other asset-backed securities represent 4%2%). GNMA and other agency mortgage-backed securities represent 5% of the investment portfolio. Our pre-tax yield was 3.1%2.5%, 2.6%, and 3.1% for 2021, 2020, and 2.7% for 2019, 2018, and 2017, respectively, and our after-tax yield was 2.5%2.1%, 2.6%2.1%, and 2.0%2.5% for 2019, 2018,2021, 2020, and 2017,2019, respectively.


MGIC Investment Corporation 2021 Form 10-K | 22
MGIC Investment Corporation and Subsidiaries



Our ten largest holdings at December 31, 20192021 appear in the table below:
Investment portfolio - Ten largest holdings
Fair Value
(In thousands)
1New York St Dorm Auth Rev$86,737 
2JP Morgan Chase59,697 
3Bank of America Corp55,162 
4Citigroup Inc49,246 
5Morgan Stanley45,346 
6Chicago Transit Authority43,152 
7Pennsylvania St Turnpike Comm42,684 
8Athene Global Funding40,081 
9City of Bridgeport CT37,058 
10Anaheim CA Public Fdng Auth34,159 
$493,322 
Investment portfolio - ten largest holdings
  
 
Fair Value
(In thousands)
1. New York St Dorm Auth Rev$59,610
2. Goldman Sachs Group55,773
3. JP Morgan Chase44,743
4. Bank of America Corp44,404
5. AT&T Inc40,491
6. Citibank NA/Citigroup39,882
7. Morgan Stanley37,940
8. Chicago Airport Rev37,554
9. Pennsylvania St Turnpike Comm36,845
10. Wells Fargo and Company35,878
 $433,120

Note: This table excludes securities issued by the U.S. government or U.S. government agencies.  

For further information concerning investment operations, see Note 5 – “Investments,” to our consolidated financial statements in Item 8.

D.F. Regulation
Direct Regulation
We are subject to comprehensive, detailed regulation by state insurance departments. These regulations are principally designed for the protection of our insured policyholders, rather than for the benefit of investors. Although their scope varies, state insurance laws generally grant broad supervisory powers to agencies or officials to examine insurance companies and enforce rules or exercise discretion affecting almost every significant aspect of the insurance business.

In general, regulation of our subsidiaries’ businesses relates to:
licenses to transact businesses;•minimum capital levels and adequacy ratios;
policy forms;•requirements regarding contingency reserves;
•premium rates and discrimination in pricing;
•licenses to transact businesses;
•policy forms;
•insurable loans;
•annual and other reports on financial condition;


•MGIC Investment Corporation 2019 Form 10-K | 23
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


the basis upon which assets and liabilities must be stated;
requirements regarding contingency reserves equal to 50% of premiums earned;
minimum capital levels and adequacy ratios;
•reinsurance requirements;
•limitations on the types of investment instruments which may be held in an investment portfolio;
•privacy;
•deposits of securities;
•transactions among affiliates;
cybersecurity•restrictions on transactions that have the effect of inducing lenders to place business with the insurer;
•cybersecurity;
•limits on dividends payable;payable (for a description of limits on dividends payable to us from MGIC, see Note 14 – “Statutory Information,” to our consolidated financial statements in Item 8);
•suitability of officers and directors; and
•claims handling.

Future regulation is expected to address the use of algorithms, artificial intelligence and data and analytics to determine pricing and for other purposes.
Wisconsin, our domiciliary state, has adopted the Risk Management and Own Risk and Solvency Assessment Act, which requires, among other things, that we:
no less than annually,we conduct an Own Risk and Solvency Assessment ("ORSA"), at least annually, to assess the material risks associated with our business and our current and estimated projected future solvency position;
and maintain a risk management framework to assess, monitor, manage and report on material risks;risks. Wisconsin has also adopted the annual enterprise risk reporting and "Corporate Governance Disclosure" requirements of the NAIC Model Act.
provide a confidential high-level ORSA Summary Report annually to the OCI; and
Provide an Enterprise Risk Management Report annually to the OCI.

The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to the RIF (or a similar measure) in order for the mortgage insurer to continue to write new business. We refer to these requirements as the “State Capital Requirements.” While they vary among jurisdictions, currently the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1. Wisconsin does not regulate capital by using a risk-to-capital measure but instead requires a minimum policyholder position. TheMGIC's “policyholder position” of a mortgage insurer isincludes its net worth or surplus and its contingency reserve and a portion of the reserves for unearned premiums.

reserve.

At December 31, 2019,2021, MGIC’s risk-to-capital ratio was 9.79.5 to 1,, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.0$3.4 billion above the required MPP of $1.7$1.9 billion.


The NAIC has previously announced plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model Act. In December 2019, a working group of state regulators released an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements. See our risk factors “We may not continue to meet the GSEs’ mortgage insurer eligibility requirements and our returns may decrease as we are required to maintain significantly more capital in order to maintain our eligibility” and “State Capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis” in Item 1A, for information about regulations governing our capital adequacy and our expectations regarding our future capital position. See "Management's Discussion and Analysis – Liquidity and Capital Resources – Capital Adequacy" in Item 7 for information about our current capital position.

We are required to establish statutory accounting contingency loss reserves in an amount equal to 50% of earned premiums. These amounts cannot be withdrawn for a period of 10 years, except as permitted by insurance regulations. With regulatory

Most states also regulate transactions betweenMGIC Investment Corporation 2021 Form 10-K | 23
MGIC Investment Corporation and Subsidiaries



approval, a mortgage insurance companiescompany may make early withdrawals from the contingency reserve when incurred losses exceed 35% of net premiums earned in a calendar year. Although MGIC holds assets in excess of its minimum statutory capital requirements and their parents or affiliatesits PMIERs financial requirements, the ability of MGIC to pay dividends is restricted by insurance regulation. In general, dividends in excess of prescribed limits are deemed “extraordinary” and have restrictionsmay not be paid if disapproved by the OCI. The level of ordinary dividends that may be paid without OCI approval is determined on transactions that havean annual basis. A dividend is extraordinary when the effectproposed dividend amount, plus dividends paid in the twelve months preceding the dividend payment date exceed the ordinary dividend level. At December 31, 2021 MGIC could pay $122 million of inducing lendersordinary dividends without OCI approval, before taking into consideration dividends paid in the preceding twelve months. In 2021, MGIC paid $400 million in dividends of cash and investments to place business with the insurer.holding company. For a description of limits on dividends payable to us from MGIC,further information, see Note 14 – “Statutory Information,” to our consolidated financial statements in Item 8.

Mortgage insurance premium rates are also subject to state regulation to protect policyholders against the adverse effects of excessive, inadequate or unfairly discriminatory rates and to encourage competition in the insurance marketplace. Any increase in premium rates must be justified, generally on the basis of the insurer’s loss experience, expenses and future trend analysis. The general mortgage default experience may also be considered. Premium rates are subject to review and challenge by state regulators.

We are required to establish statutory accounting contingency loss reserves in an amount equal to 50% of net earned premiums. These amounts cannot be withdrawn for a period of 10 years, except as permitted by insurance regulations. With regulatory approval a mortgage guaranty insurance company may make early withdrawals from the contingency reserve when incurred losses exceed 35% of net premiums earned in a calendar year. For further information, see Note 14 – “Statutory Information,” to our consolidated financial statements in Item 8.

Mortgage insurers are generally single-line companies, restricted to writing residential mortgage insurance business only. Although we, as an insurance holding company, are prohibited from engaging in certain transactions with MGIC or our other insurance subsidiaries without submission to and, in some instances, prior approval by applicable insurance


MGIC Investment Corporation 2019 Form 10-K | 24
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


departments, we are not subject to insurance company regulation on our non-insurance businesses.

Wisconsin’s insurance regulations generally provide that no person may acquire control of us unless the transaction in which control is acquired has been approved by the OCI. The regulations provide for a rebuttable presumption of control when a person owns or has the right to vote more than 10% of the voting securities. In addition, the insurance regulations of other states in which MGIC is licensed require notification to the state’s insurance department a specified time before a person acquires control of us. If regulators in these states disapprove the change of control, our licenses to conduct business in the disapproving states could be terminated. For further information about regulatory proceedings applicable to us and our industry, see “We are involved in legal proceedings and aresubject to the risk of additional legal proceedingscomprehensive regulation and other requirements, which we may fail to satisfy” in the future” in Item 1A.

The CFPB was established by the Dodd-Frank Act to regulate the offering and provision of consumer financial products or services under federal law. The CFPB’s rules implementing laws that require mortgage lenders to make ability-to-pay determinations prior to extending credit affect the characteristics of loans being originated and the volume of loans available to be insured. We are uncertain whether the CFPB will issue any other rules or regulations that affect our business. Such rules and regulations could have a material adverse effect on us.

As the most significant purchasers and sellers of conventional mortgage loans and beneficiaries of private mortgage insurance, Freddie Mac and Fannie Mae impose financial and other
requirements on private mortgage insurers in order for them to be eligible to insure loans sold to the GSEs (these requirements are referred to as the "PMIERs", as discussed above). These requirements are subject to change from time to time. Based on our interpretation of the financial requirements of the PMIERs, as of December 31, 2019,2021, MGIC’s Available Assets totaled $4.6$5.7 billion, or $1.2$2.2 billion in excess of its Minimum Required Assets. MGIC is in compliance with the requirements of the PMIERs and eligible to insure loans purchased by the GSEs. If MGIC ceases to be eligible to insure loans purchased by one or both of the GSEs, it would significantly reduce the volume of our new business writings. For information about matters that could negatively affect our compliance with the PMIERs, see our risk factor titled “We may not continue to meet the GSEs’ mortgage insurer eligibility requirements and our returns may decrease as we are required to maintain significantly more capital in order to maintain our eligibility” in Item 1A.

The FHFA has been the conservator of the GSEs since 2008 and has the authority to control and direct their operations. The increased role that the federal
government has assumed in the residential mortgage markethousing finance system through the GSE conservatorship may increase the likelihood that the business practices of the GSEs change, including through administrative action, in ways that have a material adverse effect on us and that the charters of the GSEs are changed by new federal legislation. In September 2019, atFor more information about the direction of President Trump, the U.S. Treasury Department ("Treasury") released the “Treasury Housing Reform Plan” (the "Plan"). The Plan recommends administrative and legislative reforms for the housing finance system, with such reforms intended to achieve the goals of ending the conservatorships of the GSEs; increasing competition and participation by the private sector in the mortgage market including by authorizing the FHFA to approve additional guarantors of conventional mortgages in the secondary market, simplifying the qualified mortgage ("QM") rule of the CFPB, transferring risk to the private sector, and eliminating the GSE Patch (which expands the definition of QM under the Truth in Lending Act (Regulation Z) ("TILA") to include mortgages eligible to be purchased by the GSEs, even if the mortgages do not meet the DTI ratio limit of 43% included in the standard QM definition); establishing regulationbusiness practices of the GSEs that safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the United States; and providing that the federal government is properly compensated for any explicit or implicit support it provides to the GSEs or the secondary housing finance market. Also in September 2019, the Treasury and FHFA entered into a letter agreement that will allow the GSEs to remit less of their earnings to the government, which will help them rebuild their capital.

The impact of the Plan on private mortgage insurance is unclear. It does not refer to mortgage insurance explicitly; however, it refers to a requirement for credit enhancement on high LTV loans, which is a requirement of the current GSE charters. The Plan also indicates that the FHFA should continue to support efforts to expand credit risk transfer ("CRT") programs and should encourage the GSEs to continue to engage in a diverse mix of economically sensible CRT programs, including by increasing reliance on institution-level capital (presumably, as distinguished from capital obtained in the capital markets). For more information about CRT programs,our business, see our risk factor titled "The amount"Changes in the business practices of insurance we writethe GSEs, federal legislation that changes their charters or a restructuring of the GSEs could be adversely affected if lenders and investors select alternatives to private mortgage insurance"reduce our revenues or increase our losses" in Item 1A.1A

Indirect Regulation
We are also indirectly, but significantly, impacted by regulations affecting purchasers of mortgage loans, such as Freddie Mac and Fannie Mae, and regulations affecting governmental insurers, such as the FHA and the VA, and lenders. See our risk factor titled “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses”


MGIC Investment Corporation 2019 Form 10-K | 25
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


in Item 1A for a discussion of how potential changes in the GSEs’ business practices could affect us. Private mortgage insurers, including MGIC, are highly dependent upon federal housing legislation and other laws and regulations to the extent they affect the demand for private mortgage insurance and the housing market generally. From time to time, those laws and regulations have been amended in ways that affect competition from government agencies. Proposals are discussed from time to time by Congress and certain federal agencies to reform or modify the FHA and the Government National Mortgage Association, which securitizes mortgages insured by the FHA.

Mortgage insurance generally may be considered to be a “settlement service” for purposes of RESPA under applicable regulations. Subject to certain exceptions, in general, RESPA prohibits any person from giving or receiving any “thing of value” pursuant to an agreement or understanding to refer settlement services.

HOPA provides for the automatic termination, or cancellation upon a borrower’s request, of private mortgage insurance upon satisfaction of certain conditions. For more information, see "Our Products and Services" in Item 1.B.

FCRA imposes restrictions on the permissible use of credit report information. FCRA has been interpreted by some Federal Trade Commission staff and federal courts to require mortgage insurance companies to provide “adverse action” notices to consumers in the event an application for mortgage insurance is

MGIC Investment Corporation 2021 Form 10-K | 24
MGIC Investment Corporation and Subsidiaries



declined or offered at less than the best available rate for the loan program applied for on the basis of a review of the consumer’s credit.

The Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation have uniform guidelines on real estate lending by insured lending institutions under their supervision. The guidelines specify that a residential mortgage loan originated with a loan-to-value ratio of 90% or greater should have appropriate credit enhancement in the form of mortgage insurance or readily marketable collateral, although no depth of coverage percentage is specified in the guidelines.

Lenders are subject to various laws, including the Home Mortgage Disclosure Act, the Community Reinvestment Act, the Equal Credit Opportunity Act, TILA, HOPA, the Truth in LendingSecure and Fair Enforcement for Mortgage Licensing Act, FCRA, the Fair Credit ReportingDebt Collection Practices Act, the Gramm-Leach-Bliley Act, and the Fair Housing Act, and Fannie Mae and Freddie Mac are subject to various laws, including laws relating to government sponsored enterprises, which may impose obligations or create incentives for increased lending to low and moderate income persons, or in targeted areas.

There can be no assurance that other federal laws and regulations affecting these institutions and entities will not change, or that new legislation or regulations will not be adopted which will adversely affect the private mortgage insurance industry.

G. Human Capital
In this regard, see1957, MGIC’s founder Max Karl pioneered the risk factor titled “Changesmodern form of private mortgage insurance in an effort to make homeownership more accessible. In the 65 years since, we’ve helped 13.5 million people attain homeownership sooner. Every day, we ground our efforts in the business practicesknowledge that our products help homeowners and their families and contribute to stronger communities. The importance of community is something that affects all that we do: including how we think about the GSEs, federal legislation that changes their charters orexperience and environment we strive to create for our co-workers and how we can impact the world around us.
In 2021, a restructuringsignificant focus was placed on the need for connection, including strengthening communication within our teams, prioritizing co-worker wellness and opportunity, breaking down barriers and giving back locally. Our people-focused work efforts were numerous, but they all linked back to the principles on which we were founded.
The following table provides selected demographic information for our workforce as of the GSEs could reduce our revenues or increase our losses” in Item 1A.

E. Employees
At December 31, 2019, we had 724 full- and part-time employees, approximately 34% of whom were assigned to our field offices. 2021.
Demographics (as of December 31, 2021)
Number of Co-Workers711 *
Average Tenure14 years
Percent Female59%
Percent Racial / Ethnic Minorities16%
Turnover Rate9%
Average Age50
*The number of employees given aboveco-workers does not include “on-call” employees.co-workers. The number of “on-call” employeesco-workers can vary substantially, primarily as a result of changes in demand for contract underwriting services. In recent years, the number of
“on-call” employees “on-call” co-workers has ranged from fewer than 4025 to more than 110.

COVID-19 Response & Workplace Evolution
F.The health and safety of our co-workers is very important to us, as is providing them with the resources and support they need to perform effectively. Our leadership regularly communicates with co-workers, and we have deployed new methods since the onset of COVID-19, including a new MGIC intranet, to support an even more connected co-worker experience. Leadership and co-workers at all levels have found value in the workplace flexibility initiated by COVID-19, so we have adopted a hybrid work model as our new way of operating. Accordingly, we have invested significant time and resources on planning, training, and updating our technology to prepare our teams to work together in a new way, while attempting to maintain equity, productivity and support, regardless of where work is performed.
Diversity, Equity & Inclusion
MGIC strives to create an employee experience that attracts, develops, engages and retains strong talent through diverse teams and inclusive collaboration. Notable expansions of our diversity, equity and inclusion work in 2021 included:
•Creating a dedicated Community and Inclusion Advisor role
•Establishing a relationship with All-In-Milwaukee, a coalition of education partners helping limited income, high potential students graduate college
•Signing the CEO Action Pledge for Diversity and Inclusion
•Continuing participation in the Metropolitan Milwaukee Association of Commerce “Region of Choice” initiative to increase Black and Brown representation in management roles
•Supporting IDEAL (Inclusion and Diversity Encourage Authentic Leadership), our business resource group, which involved 47% of our home-office co-workers in numerous speaker and networking events in 2021
Total Rewards and Talent Practices
Our total rewards program is designed to provide a competitive package of benefits and compensation elements that recognize the unique needs of our workforce and their families. All full-time MGIC co-workers are eligible to participate in our health program, which is calibrated toward well-being through our popular Health Rewards program in addition to a comprehensive medical, dental and vision plan. We also recognize financial health as part of well-being, and so currently provide retirement programs, including both a defined benefit pension plan and a 401(k)

MGIC Investment Corporation 2021 Form 10-K | 25
MGIC Investment Corporation and Subsidiaries



defined contribution plan with company match and discretionary annual profit-sharing contributions.
Our talent practices reflect a commitment to creating a positive co-worker experience and investing in development and career growth. In 2021, we implemented targeted tools and trainings to further hone the skill sets most critical to the future of work. For managers, this meant an emphasis on leading effectively in a hybrid environment. For our technical roles, we invested in upskilling and certifications. Our co-workers have access to self-paced LinkedIn Learning courses, which allows them to pursue individual career goals when and how it best fit their schedule. We also offered virtual workshops and curated third-party resources to meet the unique needs of specific groups and individuals. Beyond development, we enhanced several stages of the co-worker lifecycle, particularly onboarding (updated to increase clarity and equity across locations) and performance.
Co-Worker Sentiment
To ensure we are providing a rich experience for our co-workers, MGIC measures the sentiment of the workforce through an annual engagement survey. In 2021, we saw an 86% participation rate. We also administered the survey using a new survey platform, designed to increase leader visibility to team results and to focus attention on action planning. Based on the information and insights gathered from the survey, we have identified areas of strength/opportunity and have shared them with our Board of Directors and executive leadership.
Community Involvement
As a company whose very business is built on homeownership, the value of strong and secure communities is core to everything we do. Our commitment to community has a strong philanthropy and volunteering component, and in 2021 included:
•Formalizing our volunteering and community giving programs under the banner Giving Back, Together
•Providing a half day of paid volunteer time off for every co-worker annually
•Showcasing community partners via lunch and learns during National Volunteer Week
•Participating in United Way’s Loaned Executive program
•Establishing a relationship with All-In-Milwaukee, a coalition of education partners helping limited income, high potential students graduate college
•Joining the University of Wisconsin — Milwaukee’s Industry Connect program, which gives business students hands-on project experience in applicable business settings



H. Website Access
We make available, free of charge, through our Internet website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934Commission ("SEC") as soon as reasonably practicable after we electronically file these materials with the Securities and Exchange Commission.SEC. The address of our website is http://mtg.mgic.com, and such reports and amendments are accessible throughat the “Reports & Filings” link at such address.on our website (http://mtg.mgic.com). The inclusion of our website address in this report is an inactive textual reference only and is not intended to include or incorporate by reference the information on our website into this report.


MGIC Investment Corporation 20192021 Form 10-K | 26
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


PART I
Item 1A. Risk Factors
As used below, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as the context requires; and “MGIC” refers to Mortgage Guaranty Insurance Corporation.

Our actual results could be affected by the risk factors below. These risk factors are an integral part of this annual report. These risk factors may also cause actual results to differ materially from the results contemplated by forward looking statements that we may make. Forward looking statements consist of statements which relate to matters other than historical fact, including matters that inherently refer to future events. Among others, statements that include words such as “believe,” “anticipate,” “will” or “expect,” or words of similar import, are forward looking statements. We are not undertaking any obligation to update any forward looking statements or other statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. No reader of this annual report should rely on these statements being current at any time other than the time at which this annual report was filed with the Securities and Exchange Commission.
Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.Risk Factors Relating to the COVID-19 Pandemic
The private mortgage insurance industry is highly competitive and is expected to remain so. We believe we currently compete with other private mortgage insurers based on premium rates, underwriting requirements,COVID-19 pandemic may materially impact our future financial strength (including based on credit results, business, liquidity and/or financial strength ratings), customer relationships, name recognition, reputation, strength of management teams and field organizations, the ancillary products and services provided to lenders and the effective use of technology and innovation in the delivery and servicing of our mortgage insurance products.condition.

Our relationships with our customers, which may affect the amount of our NIW, could be adversely affected by a variety of factors, including if our premium rates are higher than those of our competitors, our underwriting requirements are more restrictive than those of our competitors, or our customers are dissatisfied with our claims-paying practices (including insurance policy rescissions and claim curtailments).

Much of the competition in the industry in the last few years has centered on pricing practices which have included: (i) reductions in standard filed rates; (ii) use of customized rate plans (typically lower than standard rates) that are made available to lenders that meet certain criteria; and (iii) use of a spectrum of filed rates to allow for formulaic, risk-based pricing that may be
quickly adjusted within certain parameters (referred to as "risk-based pricing systems"). We expect premium rates to continue to decline. While our increased use of reinsurance over the past several years has helped to mitigate the negative effect of declining premium rates on our returns, refer to our risk factor titled "Reinsurance may not always be available or affordable" for a discussion of the risks associated with the availability of reinsurance.
In 2019, we introduced MiQ, our risk-based pricing system that establishes our premium rates based on more risk attributes than were considered in 2018. The widespread use of risk-based pricing systems by the private mortgage insurance industry makes it more difficult to compare our rates to those offered by our competitors. We may not be aware of industry rate changes until we observe that our volume of new insurance written ("NIW") has changed. In addition, business under customized rate plans is awarded by certain customers for only limited periods of time. As a result, our NIW may fluctuate more than itCOVID-19 pandemic had in the past. Regarding the concentration of our new business, our top ten customers accounted for approximately 24% of our NIW, in each of the twelve months ended December 31, 2018 and 2019.
We monitor various competitive and economic factors while seeking to balance both profitability and market share considerations in developing our pricing strategies. A reduction in our premium rates will reduce our premium yield (net premiums earned divided by the average insurance in force) over time as older insurance policies with higher premium rates run off and new insurance policies with lower premium rates are written. Our premium rates are subject to approval by state regulatory agencies, which can delay or limit our ability to change them, outside of the parameters already approved.
There can be no assurance that our premium rates adequately reflect the risk associated with the underlying mortgage insurance policies. For additional information, see our risk factors titled “The premiums we charge may not be adequate to compensate us for our liabilities for losses and as a result any inadequacy could materially affect our financial condition and results of operations" and "If our risk management programs are not effective in identifying, or adequate in controlling or mitigating, the risks we face, or if the models used in our businesses are inaccurate, it could have a material adverse impact on our 2020 financial results. While uncertain, the impact of the COVID-19 pandemic on the Company’s future financial results, business, resultsliquidity and/or financial condition may also be material. The magnitude of operationsthe impact will be influenced by various factors, including the length and financial condition." 
Certainseverity of our competitors have accessthe pandemic in the United States, efforts to capital at a lower cost than we do (including, through off-shore reinsurance vehicles, which are tax-advantaged). As a result, they may be able to achieve higher after-tax ratesreduce the transmission of return on their NIW compared to us, which could allow


MGIC Investment Corporation 2019 Form 10-K | 27
MGIC Investment CorporationCOVID-19, the level of unemployment, and Subsidiaries

Tablethe impact of Contents | Glossary of termsgovernment initiatives and acronyms


them to leverage reduced premium rates to gain market share, and they may be better positioned to compete outside of traditional mortgage insurance, including by participating in alternative forms of credit enhancement pursuedactions taken by Fannie Mae and Freddie Mac (the "GSEs") discussed(including mortgage forbearance and modification programs) to mitigate the economic harm caused by COVID-19.

The COVID-19 pandemic may impact our business in various ways, including the following, each of which is described in more detail in the remainder of these risk factors:
•Our incurred losses will increase if the number of delinquencies increases. We establish reserves for insurance losses when delinquency notices are received on loans that are two or more payments past due and for loans we estimate are delinquent prior to the close of the accounting period but for which delinquency notices have not yet been reported to us (which is included in what we refer to as “IBNR”). In addition, our risk factor titled "Thecurrent estimates of the number of delinquencies for which we will receive claims, and the amount, or severity, of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."each claim, may increase.
Substantially all of our insurance written since 2008 has been for loans purchased by•We may be required to maintain more capital under the GSEs. The current private mortgage insurer eligibility requirements ("PMIERs") of eachthe GSEs, which generally require more capital to be held for delinquent loans than for performing loans and require more capital to be held as the number of payments missed on delinquent loans increases.
•If the number of delinquencies increases, the number of claims we must pay over time will generally increase.
•Our access to the reinsurance and capital markets may be limited and the terms under which we are able to access such markets may be less attractive than the terms of our previous transactions.
Risk Factors Relating to the Mortgage Insurance Industry and its Regulation
Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.
Losses result from events that reduce a borrower’s ability or willingness to make mortgage payments, such as unemployment, health issues, family status, and whether the mortgage balance exceeds the value of the home, net of sales-related expenses. A deterioration in economic conditions, including an increase in unemployment, generally increases the likelihood that borrowers will not have sufficient income to pay their mortgages and can also adversely affect home prices, which in turn can influence the willingness of borrowers with sufficient resources to make mortgage payments when the mortgage balance exceeds the value of the home, net of sales-related expenses.
The seasonally-adjusted Purchase-Only U.S. Home Price Index of the Federal Housing Finance Agency (the “FHFA”), which is based on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac, indicates that home prices increased by 15.9% in the first eleven months of 2021, after increasing by 11.5%, 5.4%, 5.7% and 6.3% in 2020, 2019, 2018 and 2017, respectively. The price-to-income ratio in some markets exceeds its historical average, in part as a result of recent home price appreciation outpacing increases in income. Home prices may decline even absent a deterioration in economic conditions due to declines in demand for homes, which in turn may result from changes in buyers’ perceptions of the potential for future appreciation, restrictions on and the cost of mortgage credit due to more stringent underwriting standards, higher interest rates, changes to the tax deductibility of mortgage interest, decreases in the rate of household formations, or other factors.
High levels of unemployment may result in an increasing number of loan delinquencies and an increasing number of insurance claims; however, the increases are difficult to predict given the uncertainty in the current market environment, including uncertainty about the length and severity of the COVID-19 pandemic; efforts to reduce the transmission of COVID-19; effects of forbearance programs enacted by the GSEs, requirevarious states and municipalities; and effects of past and future government stimulus programs.
Forbearance for federally-insured mortgages (including those delivered to or purchased by the GSEs) allows for mortgage payments to be suspended for up to 18 months: an initial forbearance period of up to six months; if requested by the borrower following contact by the servicer, an extension of up to

MGIC Investment Corporation 2021 Form 10-K | 27
MGIC Investment Corporation and Subsidiaries



six months; and, for loans in a mortgage insurerCOVID-19 forbearance plan as of February 28, 2021, an additional extension of up to maintainsix months, subject to certain limits. In certain circumstances, the servicer will be unable to contact the borrower regarding an extension of the forbearance plan and it will expire without being extended, or further extended, as applicable. A delinquent loan for which the borrower was unable to be contacted and that is not in a minimum amountforbearance plan may be more likely to result in a claim than a delinquent loan in a forbearance plan.
Historically, forbearance plans have reduced the incidence of assetsour losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to support its insured risk, as discussedpredict the ultimate effect of COVID-19 related forbearances on our loss incidence. Of the 46,684 loans in our risk factor titled “delinquency inventory as of June 30, 2020 that were reported to us as in forbearance, 85% are no longer in the default inventory as of December 31, 2021; 4% are still in the delinquency inventory and reported to us as in forbearance; and 11% are still in the delinquency inventory but no longer reported to us as in forbearance. At December 31, 2021, 11,137, or 33%, of the loans in our delinquency inventory were reported to us as in forbearance and of those, 40%, 12%, 12% and 10% have reached the fifteen-month, twelve-month, nine-month and six-month anniversaries of their forbearance plans, respectively. Whether a loan delinquency will cure, including through modification, when forbearance ends will depend on the economic circumstances of the borrower at that time. The GSEs have introduced specific loan workout options for borrowers whose COVID-19 forbearance plans end. If a servicer is unable to contact a borrower to determine a loan workout option, the forbearance plan will end and the loan may remain delinquent. The severity of losses associated with delinquencies that do not cure will depend on economic conditions at that time, including home prices.
Foreclosures on mortgages purchased or securitized by the GSEs were suspended through July 31, 2021. Under a CFPB rule that was effective through December 31, 2021, with limited exceptions, servicers were required to ensure that at least one temporary procedural safeguard had been met before referring 120-day delinquent loans for foreclosure. With the expiration of the CFPB rule, it is likely that foreclosures and claims will increase.
We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility.”
We must comply with a GSE's PMIERs to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transaction 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 generally based on an insurer’s book of risk in force and calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance agreements).
Based on our interpretation of the PMIERs, as of December 31, 2021, MGIC’s Available Assets totaled $5.7 billion, or $2.2 billion in excess of its Minimum Required Assets. MGIC is in compliance
with the PMIERs and eligible to insure loans purchased by the GSEs. Our "Minimum Required Assets" reflect a credit for risk ceded under our reinsurance transactions, which are discussed in our risk factor titled "The mix of business we write affects our Minimum Required Assets under the PMIERs, our premium yields and the likelihood of losses occurring." The calculated credit for excess of loss reinsurance transactions under PMIERs is generally based on the PMIERs requirement of the covered loans and the attachment and detachment points of the coverage, all of which fluctuate over time. PMIERs credit is generally not given for the reinsured risk above the PMIERs requirement. The GSEs have discretion to further limit reinsurance credit under the PMIERs. Refer to our Quarterly Supplements, which are posted on our investor website, for the calculated PMIERs credit for each of our excess of loss reinsurance transactions. We are not including the information contained in those Supplements or on our investor website as a part of, or incorporating it by reference into, this Report. There is a risk we will not receive our current level of credit in future periods for ceded risk. In addition, we may not receive the same level of credit under future reinsurance transactions that we receive under existing transactions. If MGIC is not allowed certain levels of credit under the PMIERs, under certain circumstances, MGIC may terminate the reinsurance transactions without penalty.
The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. If the number of loan delinquencies caused by the COVID-19 pandemic or other factors increases, it may cause our Minimum Required Assets to exceed our Available Assets. We are unable to predict the ultimate number of loans that will become delinquent.
If our Available Assets fall below our Minimum Required Assets, we would not be in compliance with the PMIERs. The PMIERs provide a list of remediation actions for a mortgage insurer's non-compliance, with additional actions possible in the GSEs' discretion. At the extreme, the GSEs may suspend or terminate our eligibility to insure loans purchased by them. Such suspension or termination would significantly reduce the volume of our new insurance written ("NIW"); the substantial majority of which is for loans delivered to or purchased by the GSEs. In addition to the increase in Minimum Required Assets associated with delinquent loans, factors that may negatively impact MGIC’s ability to continue to comply with the financial requirements of the PMIERs include the following:
•The GSEs may make the PMIERs more onerous in the future. The PMIERs provide that the factors that determine Minimum Required Assets will be updated periodically, or as needed if there is a significant change in macroeconomic conditions or loan performance. We do not require an insureranticipate that the regular periodic updates will occur more frequently than once every two years. The PMIERs state that the GSEs will provide notice 180 days prior to maintain minimum financial strength ratings;the effective date of updates to the factors; however, the GSEs may amend the PMIERs at any time, including by imposing restrictions specific to our financial strength ratings cancompany.
•There may be future implications for PMIERs as a result of changes to the regulatory capital requirements for the GSEs. In 2020, the FHFA adopted a rule containing a capital framework for the GSEs that generally would have become

MGIC Investment Corporation 2021 Form 10-K | 28
MGIC Investment Corporation and Subsidiaries



effective on the date of termination of the FHFA’s conservatorship of the applicable GSE. In September 2021, the FHFA issued a notice of proposed rule-making that would modify that capital framework. When the final GSE capital requirements have been determined and become effective, they may affect usthe Minimum Required Assets required to be held by mortgage insurers.
•Our future operating results may be negatively impacted by the matters discussed in the following ways:rest of these risk factors. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby creating a shortfall in Available Assets.
A downgradeShould capital be needed by MGIC in the future, capital contributions from our holding company may not be available due to competing demands on holding company resources, including for repayment of debt.
Because we establish loss reserves only upon a loan delinquency rather than based on estimates of our ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings in certain periods.
In accordance with accounting principles generally accepted in the United States, we establish case reserves for insurance losses and loss adjustment expenses only when delinquency notices are received for insured loans that are two or more payments past due and for loans we estimate are delinquent but for which delinquency notices have not yet been received (which we include in “IBNR”). Losses that may occur from loans that are not delinquent are not reflected in our financial strength ratings could result in increased scrutiny of our financial condition by the GSEs and/or our customers, potentially resulting in a decreasestatements, except in the amountcase where a premium deficiency exists. A premium deficiency would be recorded if the present value of expected future losses and expenses exceeds the present value of expected future premiums and already established loss reserves on the applicable loans. As a result, future losses incurred on loans that are not currently delinquent may have a material impact on future results as delinquencies emerge. As of December 31, 2021, we had established case reserves and reported losses incurred for 33,290 loans in our NIW.
Our ability to participatedelinquency inventory and our IBNR reserve totaled $27 million. The number of loans in the non-GSE mortgage market (the size of which has been limited since 2008, butour delinquency inventory may grow in the future), could depend on our ability to maintain and improve our investment grade ratings for our insurance subsidiaries. We could be competitively disadvantaged with some market participants because the financial strength ratings of our insurance subsidiaries are lower than those of some competitors. MGIC's financial strength ratingincrease from A.M. Best is A- (with a stable outlook), from Moody’s is Baa1 (with a stable outlook) and from Standard & Poor’s is BBB+ (with a stable outlook).
•
Financial strength ratings may also play a greater role if the GSEs no longer operate in their current capacities, for example, due to legislative or regulatory action. In addition, although the PMIERs do not require minimum financial strength ratings, the GSEs consider financial strength ratings to be important when using forms of credit enhancement other than traditional mortgage insurance, as discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."
If we are unable to compete effectively in the current or any future marketsthat level as a result of the COVID-19 pandemic, and our losses incurred may increase. The impact of the COVID-19 pandemic on the number of delinquencies and our losses incurred will be influenced by various factors, including those discussed in our risk factor titled "The COVID-19 pandemic may materially impact our financial strength ratings assignedresults, business, liquidity and/or financial condition."
Because loss reserve estimates are subject to uncertainties, paid claims may be substantially different than our loss reserves.
When we establish case reserves, we estimate our ultimate loss on delinquent loans by estimating the number of such loans that will result in a claim payment (the "claim rate"), and further estimating the amount of the claim payment (the "claim severity"). Our estimates incorporate anticipated cures, loss mitigation activity, rescissions and curtailments. The establishment of loss reserves is subject to inherent uncertainty and requires judgment by management. Our actual claim payments may be substantially different than our loss reserve estimates. Our estimates could be affected by several factors, including a change in regional or national economic conditions, the impact of past and future
government initiatives and actions taken by the GSEs to mitigate the economic harm caused by the COVID-19 pandemic (including foreclosure moratoriums and mortgage forbearance and modification programs) and efforts to reduce the transmission of COVID-19, and a change in the length of time loans are delinquent before claims are received. All else being equal, the longer a loan is delinquent before a claim is received, the greater the severity. As a result of foreclosure moratoriums and forbearance programs, the average time it takes to receive claims has increased. The change in economic conditions may include changes in unemployment, including prolonged unemployment as a result of the COVID-19 pandemic, which may affect the ability of borrowers to make mortgage payments, and changes in home prices, which may affect the willingness of borrowers to make mortgage payments when the value of the home is below the mortgage balance. The economic effects of the COVID-19 pandemic may be disproportionately concentrated in certain geographic regions. Information about the geographic dispersion of our insurance in force can be found in our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q. Changes to our insurance subsidiaries,claim rate and claim severity estimates could have a material impact on our future results, even in a stable economic environment. Losses incurred generally have followed a seasonal trend in which the second half of the year has weaker credit performance than the first half, with higher new insurance written could be negatively affected.default notice activity and a lower cure rate; however, the effects of the COVID-19 pandemic affected this pattern in 2020 and 2021.
The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance.
Alternatives to private mortgage insurance include:
•investors using risk mitigation and credit risk transfer techniques other than private mortgage insurance, or accepting credit risk without credit enhancement,
•lenders and other investors holding mortgages in portfolio and self-insuring,
•lenders using Federal Housing Administration ("FHA"), U.S. Department of Veterans Affairs ("VA") and other government mortgage insurance programs, and
•lenders originating mortgages using piggyback structures to avoid private mortgage insurance, such as a first mortgage with an 80% loan-to-value ("LTV")LTV ratio and a second mortgage with a 10%, 15% or 20% LTV ratio (referred to as 80-10-10, 80-15-5 or 80-20 loans, respectively) rather than a first mortgage with a 90%, 95% or 100% LTV ratio that has private mortgage insurance.
The GSEs’ charters generally require credit enhancement for a low down payment mortgage loan (a loan within an amount that exceeds 80% of a home’s value) in order for such loan to be eligible for purchase by the GSEs. Private mortgage insurance generally has generally been purchased by lenders in primary mortgage market transactions to satisfy this credit enhancement requirement. In 2018, Freddie Mac and Fannie Maethe GSEs initiated secondary mortgage market programs with loan level mortgage default coverage provided by various (re)insurers that are not mortgage insurers governed by PMIERs, and that are not selected by the lenders. These programs, which currently account for a small percentage of the low down payment market, compete with traditional private mortgage insurance and, due to differences in policy terms, they may offer

MGIC Investment Corporation 2021 Form 10-K | 29
MGIC Investment Corporation and Subsidiaries



premium rates that are below prevalent single premium lender paidlender-paid mortgage insurance ("LPMI") rates. We participate in these programs from time to time. See our risk factor titled “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses” for a discussion of various business practices of the GSEs that may be changed, including through expansion or modification of these programs.
The GSEs (and other investors) have also used other forms of credit enhancement that did not involve traditional private mortgage insurance, such as engaging in credit-linked note transactions executed in the capital markets, or using other forms of debt issuances or securitizations that transfer credit risk directly to other investors, including competitors and an affiliate of MGIC; using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance


MGIC Investment Corporation 2019 Form 10-K | 28
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


coverage; or accepting credit risk without credit enhancement.
The GSEs' charters also permit the use of "Lender Risk Sharing" transactions as a form of credit enhancement. In these transactions, the lender may issue securities to transfer all or a portion of its risk or the lender may retain the credit risk. While the use of Lender Risk Sharing transactions has recently been increasing, we are not aware that their use has displaced private mortgage insurance. The amount of business we write would be adversely affected if Lender Risk Sharing transactions are structured in a manner that displaces private mortgage insurance.
The FHA's share of the low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance was 23.9% in the first three quarters of 2021, 23.4% in 2020 and 28.2% in 2019, 30.5%2019. Beginning in 2018 and 33.9% in 2017. In the past ten years,2012, the FHA’s share has been as low as 28.2% in 201923.4% (in 2020) and as high as 64.5% in 2010.42.1% (in 2012). Factors that influence the FHA’s market share include relative rates and fees, underwriting guidelines and loan limits of the FHA, VA, private mortgage insurers and the GSEs; lenders' perceptions of legal risks under FHA versus GSE programs; flexibility for the FHA to establish new products as a result of federal legislation and programs; returns expected to be obtained by lenders for Ginnie Mae securitization of FHA-insured loans compared to those obtained from selling loans to the GSEs for securitization; and differences in policy terms, such as the ability of a borrower to cancel insurance coverage under certain circumstances. WeThe focus of the Presidential Administration on equitable housing finance and sustainable housing opportunities increases the likelihood of a reduction in the FHA’s mortgage insurance premium rates. Such a rate reduction would negatively impact our NIW; however, given the many factors that influence the FHA's market share, it is difficult to predict the impact. In addition, we cannot predict how the factors that affect the FHA’s share of new insurance written will change in the future.
The VA's share of the low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance was 30.9% in the first three quarters of 2021, 30.9% in 2020 and 25.2% in 2019, 22.9%2019. Beginning in 2018 and 24.7% in 2017. In the past ten years,2012, the VA’s share has been as low as 15.7% in 201022.8% (in 2013) and as high as 27.2% in 2016.30.9% (in 2020 and the first three quarters of 2021). We believe that the VA’s market share has generally been elevated in recent years because of an increase in the number of borrowers that are eligible for the VA’s program, which offers 100% LTV ratio loans and charges a one-time funding fee that can be included in the loan amount, and because eligible borrowers have opted to use the VA program when refinancing their mortgages.
Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.
Substantially allThe substantial majority of our insurance written since 2008 has beenNIW is for loans purchased by the GSEs,GSEs; therefore, the business practices of the GSEs greatly impact our business and include:business. The GSEs have been requested to submit Equitable Housing Finance Plans to the FHFA. The plans are to
•
the GSEs' PMIERs, the financial requirements of which are discussed in our risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility,”
•
identify and address barriers to sustainable housing opportunities, including the GSEs’ goals and action plans to advance equity in housing finance for the next three years. The action plans, when finalized, may include methods to reduce mortgage costs for historically underserved borrowers, including mortgage insurance costs. The GSEs’ action plans will likely change certain of the GSEs’ business practices and those changes may affect the mortgage insurance industry. The GSEs’ business practices that currently affect the mortgage insurance industry include:
•The GSEs' PMIERs, the financial requirements of which are discussed in our risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility.”
•The capital and collateral requirements for participants in the GSEs' alternative forms of credit enhancement discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."
•The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance,"
the level of private mortgage insurance coverage, subject to the limitations of the GSEs’ charters, when private mortgage insurance is used as the required credit enhancement on low down payment mortgages (the GSEs generally require a level of mortgage insurance coverage that is higher than the level of coverage required by their charters; any change in the required level of coverage will impact our new risk written),.
the•The amount of loan level price adjustments and guaranty fees (which result in higher costs to borrowers) that the GSEs assess on loans that require private mortgage insurance,insurance. In January 2022, the FHFA announced targeted increases in the loan level price adjustments for certain high-balance loans and second home mortgages. The GSE capital framework, when finalized, may lead the GSEs to increase their guaranty fees.
whether•Whether the GSEs select or influence the mortgage lender’s selection of the mortgage insurer providing coverage,coverage.
the•The underwriting standards that determine which loans are eligible for purchase by the GSEs, which can affect the quality of the risk insured by the mortgage insurer and the availability of mortgage loans,loans.
the•The terms on which mortgage insurance coverage can be canceled before reaching the cancellation thresholds established by law and the business practices associated with such cancellations. For more information, see our risk factor titled “Changes in interest rates, house prices or mortgage insurance cancellation requirements may change the length of time that our policies remain in force.”
the•The programs established by the GSEs intended to avoid or mitigate loss on insured mortgages and the circumstances in which mortgage servicers must implement such programs,programs.
the•The terms that the GSEs require to be included in mortgage insurance policies for loans that they purchase, including limitations on the rescission rights of mortgage insurers,
•
the extent to which the GSEs intervene in mortgage insurers’ claims paying practices, rescission practices or rescission settlement practices with lenders,andinsurers.


MGIC Investment Corporation 20192021 Form 10-K | 2930
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


•The extent to which the GSEs intervene in mortgage insurers’ claims paying practices, rescission practices or rescission settlement practices with lenders.
•The maximum loan limits of the GSEs compared to those of the FHA and other investors.
•The benchmarks established by the FHFA for loans to be purchased by the GSEs, which can affect the loans available to be insured. In December 2021, the FHFA established the benchmark levels for 2022-2024 purchases of low-income home mortgages, very low-income home mortgages and low-income refinance mortgages, each of which exceeded the 2021 benchmarks. The FHFA also established two new sub-goals: one targeting minority communities and the other targeting low-income neighborhoods.
The FHFA has been the conservator of the GSEs since 2008 and has the authority to control and direct their operations. The increased role that the federal government has assumed in the residential housing finance system through the GSE conservatorship may increase the likelihood that the business practices of the GSEs change, including through administrative action, in ways that have a material adverse effect on us and that the charters of the GSEs are changed by new federal legislation.

In September 2019, at the direction of President Trump, the U.S. Treasury Department ("Treasury") released the “Treasury Housing Reform Plan” (the "Plan"). The Plan recommends administrative and legislative reforms for the housing finance system, with such reforms intended to achieve the goals of ending the conservatorships of the GSEs; increasing competition and participation by the private sector in the mortgage market including by authorizing the FHFA to approve additional guarantors of conventional mortgages in the secondary market, simplifying the qualified mortgage ("QM") rule of the Consumer Financial Protection Bureau ("CFPB"), transferring risk to the private sector, and eliminating the "GSE Patch" (discussed below); establishing regulation of the GSEs that safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the United States; and providing that the federal government is properly compensated for any explicit or implicit support it provides to the GSEs or the secondary housing finance market. Also in September 2019, the Treasury and FHFA entered into a letter agreement that will allow the GSEs to remit less of their earnings to the government, which will help them rebuild their capital.

The impact of the Plan on private mortgage insurance is unclear. The Plan does not refer to mortgage insurance explicitly; however, it refers to a requirement for credit enhancement on high LTV ratio loans, which is a requirement of the current GSE charters. The Plan also indicates that the FHFA should continue to support efforts to expand credit risk transfer ("CRT") programs and should encourage the GSEs to continue to engage in a diverse mix of economically sensible CRT programs, including by increasing reliance on institution-level capital (presumably, as distinguished from capital obtained in the capital markets). For more information about CRT programs, see our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."

The current GSE Patch expands the definition of QM under the Truth in Lending Act (Regulation Z) ("TILA") to include mortgages eligible to be purchased by the GSEs, even if the mortgages do not meet the debt-to-income
("DTI") ratio limit of 43% that is included in the standard QM definition. Originating a QM may provide a lender with legal protection from lawsuits that claim the lender failed to verify a borrower’s ability to repay. The GSE Patch is scheduled to expire no later than January 2021. Approximately 27% and 22% of our NIW in the first and second halves of 2019, respectively, was on loans with DTI ratios greater than 43%. However, it is possible that expiration of the GSE Patch will be delayed and that not all future loans with DTI ratios greater than 43% will be affected by such expiration. In this regard, we note that the CFPB recently indicated that it expects to issue for comment, no later than May 2020, a proposed new "ability-to-repay" ("ATR") rule that would replace the use of DTI ratio in the definition of QM with an alternative measure, such as a pricing threshold. The CFPB also indicated that it would extend the expiration of the GSE Patch until the earlier of the effective date of the proposed alternative or until one of the GSEs exits conservatorship.

We insure loans that do not qualify as QMs; however, we are unsure the extent to which lenders will make non-QM loans because they will not be entitled to the presumptions about compliance with the ATR rule that the law allows with respect to QM loans. We are also unsure the extent to which lenders will purchase private mortgage insurance for loans that cannot be sold to the GSEs.
The QM definition for loans insured by the FHA, which was issued by the Department of Housing and Urban Development (“HUD”), is less restrictive than the CFPB’s definition in certain respects, including that (i) it has no DTI ratio limit, and (ii) it allows lenders certain presumptions about compliance with the ATR rule on higher priced loans. It is possible that, in the future, lenders will prefer FHA-insured loans to loans insured by private mortgage insurance as a result of the FHA’s less restrictive QM definition. However, in September 2019, HUD released its Housing Reform Plan and indicated that the FHA should refocus on its mission of providing housing finance support to low- and moderate-income families that cannot be fulfilled through traditional underwriting. In addition, Treasury's Plan indicated that the FHFA and HUD should develop and implement a specific understanding as to the appropriate roles and overlap between the GSEs and FHA, including with respect to the GSEs’ acquisitions of high LTV ratio and high DTI ratio loans.
As a result of the matters referred2021 change in the Presidential Administration, the June 2021 appointment of a new Acting Director of the FHFA who has also been nominated to above,become the full-time Director, and the 2021 U.S. Supreme Court decision that allows the President to remove the FHFA Director at will, it is uncertain what role the GSEs, FHA and private capital, including private mortgage insurance, will play in the residential housing finance system in the future. The timing and impact on our business of any resulting changes is uncertain. Many of the proposed changes would require Congressional action to implement and it is difficult to estimate when Congressional action would


MGIC Investment Corporation 2019 Form 10-K | 30
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


be final and how long any associated phase-in period may last.
We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility.
We must comply with a GSE's PMIERs to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transaction 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 insurance in force and calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance agreements, and subject to a floor amount).
Based on our interpretation of the more restrictive application of PMIERs, as of December 31, 2019, MGIC’s Available Assets totaled $4.6 billion, or $1.2 billion in excess of its Minimum Required Assets. MGIC is in compliance with the PMIERs and eligible to insure loans purchased by the GSEs. In calculating these "Minimum Required Assets," the total credit for risk ceded under our reinsurance transactions is subject to a modest reduction. Our reinsurance transactions are discussed in our risk factor titled "The mix of business we write affects our Minimum Required Assets under the PMIERs, our premium yields and the likelihood of losses occurring." Our existing reinsurance transactions are subject to periodic review by the GSEs and there is a risk we will not receive our current level of credit in future periods for the risk ceded under them. In addition, we may not receive the same level of credit under future reinsurance transactions that we receive under existing transactions. If MGIC is not allowed certain levels of credit under the PMIERs, under certain circumstances, MGIC may terminate the reinsurance transactions, without penalty.
If MGIC ceases to be eligible to insure loans purchased by one or both of the GSEs, it would significantly reduce the volume of our new business writings. Factors that may negatively impact MGIC’s ability to continue to comply with the financial requirements of the PMIERs include the following:
The GSEs may make the PMIERs more onerous in the future. The PMIERs provide that the factors that determine Minimum Required Assets will be updated periodically, or as needed if there is a significant change in macroeconomic conditions or loan performance. We do not anticipate that the regular periodic updates will occur more frequently than once every two years. The PMIERs state that the GSEs will provide notice 180 days prior to the
effective date of updates to the factors; however, the GSEs may amend any portion of the PMIERs at any time.
There may be future implications for PMIERs based upon forthcoming regulatory capital requirements for the GSEs. In 2018, the FHFA issued a proposed capital rule for the GSEs, which included a framework for determining the capital relief allowed to the GSEs for loans with private mortgage insurance. The FHFA recently indicated that it plans to re-propose a capital rule as early as the first quarter of 2020, although the timing and content of the proposal is uncertain. Further, any changes to the GSEs' capital and liquidity requirements resulting from the Treasury Housing Reform Plan could have future implications for PMIERs.
Our future operating results may be negatively impacted by the matters discussed in the rest of these risk factors. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby creating a shortfall in Available Assets.
Should capital be needed by MGIC in the future, capital contributions from our holding company may not be available due to competing demands on holding company resources, including for repayment of debt.
Reinsurance may not always be available or affordable.
As discussed in our risk factor titled "The mix of business we write affects our Minimum Required Assets under the PMIERs, our premium yields and the likelihood of losses occurring," weWe have in place quota share reinsurance ("QSR") and excess of loss reinsurance ("XOL") transactions covering a portionproviding various amounts of coverage on 78% of our risk in force. Theseforce as of December 31, 2021. As of December 31, 2021, our QSR transactions with unaffiliated reinsurers cover most of our insurance written from 2013 through 2016 and 2019 through 2022, and smaller portions of our insurance written prior to 2013 and from 2023 through 2025. The weighted average coverage percentage of our QSR transactions was 30%, based on risk in force as of December 31, 2021. We elected to terminate our QSR Transactions covering 2017 and 2018 policy years, effective December 31, 2021. Our XOL transactions at December 31, 2021 provided XOL reinsurance coverage for a portion of the risk associated with certain mortgage insurance policies having insurance coverage in force dates from July 1, 2016 through March 31, 2019 and January 1, 2020 through May 28, 2021, all dates inclusive. The XOL transactions were entered into with special purpose insurers that issued notes linked to the reinsurance coverage ("Insurance Linked Notes" or "ILNs"). The reinsurance transactions enablereduce the tail-risk associated with stress scenarios. As a result, they reduce the capital that we are required to hold to support the risk and they allow us to earn higher returns on our business than we would without them because fewer Available Assets are required to be held under PMIERs.them. However, reinsurance may not always be
available to us or available on similar terms, the quota share reinsurance transactions subject us to counterparty credit risk, and the GSEs may change the credit they allow under the PMIERs for risk ceded under our reinsurance transactions. If we are unable to obtain reinsurance for NIW, the capital required to support our NIW will increase and our returns may decrease absent an increase in our premium rates. An increase in our premium rates may lead to a decrease in our NIW.
We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future.
Before paying an insurance claim, 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 on the loan. In our SEC reports, we refer to insurance rescissions and denials of claims collectively as


MGIC Investment Corporation 2019 Form 10-K | 31
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


“rescissions” and variations of that term. In addition, our insurance policies generally provide that we can reduce or deny a claim if the servicer did not comply with its obligations under our insurance policy. We call such reduction of claims “curtailments.” In recent quarters, an immaterial percentage of claims received in a quarter have been resolved by rescissions. In 2018 and 2019, curtailments reduced our average claim paid by approximately 5.8% and 5.0%, respectively.
Our loss reserving methodology incorporates our estimates of future rescissions, curtailments, and reversals of rescissions and curtailments. A variance between ultimate actual rescission, curtailment and reversal rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses.
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. In those cases, until settlement negotiations or legal proceedings are concluded (including the receipt of any necessary GSE approvals), it is reasonably possible that we will record an additional loss. In the fourth quarter of 2019, the agreement for which we had recorded a probable loss of $23.5 million, received necessary GSE approvals. There was no additional loss recognized as a result of entering into the agreement, as the settlement amount was consistent with our original estimate of the probable loss. We are currently involved in discussions and/or proceedings with insureds with respect to our claims paying practices. Although it is reasonably possible that when all of these matters are resolved we will not prevail in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability. We estimate the maximum exposure associated with matters where a loss is reasonably possible to be approximately $46 million. 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.
We are subject to comprehensive regulation and other requirements, which we may fail to satisfy.
We are subject to comprehensive detailed regulation, including by state insurance departments. Many of these regulations are designed for the protection of our insured policyholders and consumers, rather than for the benefit of investors. Mortgage insurers, including MGIC, have in the past been involved in litigation and regulatory actions related to alleged violations of the anti-referral fee provisions of the Real Estate Settlement Procedures Act ("RESPA"), and the notice provisions of the Fair Credit Reporting Act ("FCRA"). While these proceedings in the aggregate did not result in material liability for MGIC, there can be no assurance that the outcome of future proceedings, if any, under these laws would not have a material adverse effect on us. To the extent that we are construed to make independent credit decisions in connection with our contract underwriting activities, we also could be subject to increased regulatory requirements under the Equal Credit Opportunity Act ("ECOA"), FCRA, and other laws. Under ECOA,relevant laws, examination may also be made of whether a mortgage insurer's underwriting decisions have a disparate impact on persons belonging to a protected class in violation of the law.
Although their scope varies, state insurance laws generally grant broad supervisory powers to agencies or officials to examine insurance companies and enforce rules or exercise discretion affecting almost every significant aspect of the insurance business, including payment for the referral of insurance business, premium rates and discrimination in pricing, and minimum capital requirements. The increased use, by the private mortgage insurance industry, of risk-based pricing systems that establish premium rates based on more attributes than previously considered, and of algorithms, artificial intelligence and data and analytics, may lead to additional regulatory scrutiny of premium rates and of other matters such as discrimination in pricing and underwriting, data privacy and access to insurance. For more information about state capital requirements, see our risk factor titled ““State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis.”basis.” For information about regulation of data privacy, see our risk factor titled ““We could be adversely affected if personal information on consumers that we maintain is improperly disclosed; and damage to, or interruption in, our information technology systems may disruptare damaged or their operations are interrupted; or our operations.automated processes do not operate as expected.” For more details about the various ways in which our subsidiaries are regulated, see “Business - Regulation” in Item 1.
While we believe our practices are in conformityhave established policies and procedures to comply with applicable laws and regulations, many such laws and regulations are complex and it is not possible to predict the eventual scope, duration or outcome of any such reviews or investigations nor is it possible to predict their effect on us or the mortgage insurance industry.


MGIC Investment Corporation 20192021 Form 10-K | 3231
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


If the volume of low down payment home mortgage originations declines, the amount of insurance that we write could decline.
The factors that may affect the volume of low down payment mortgage originations include the health of the U.S. economy, conditions in regional and local economies and the level of consumer confidence; restrictions on mortgage credit due to more stringent underwriting standards, liquidity issues or risk-retention and/or capital requirements affecting lenders; the level of home mortgage interest rates; housing affordability; new and existing housing availability; the rate of household formation, which is influenced, in part, by population and immigration trends; homeownership rates; the rate of home price appreciation, which in times of heavy refinancing can affect whether refinanced loans have LTV ratios that require private mortgage insurance; and government housing policy encouraging loans to first-time homebuyers. A decline in the volume of low down payment home mortgage originations could decrease demand for mortgage insurance and limit our NIW. For other factors that could decrease the demand for mortgage insurance, see our risk factor titled “The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance.”
State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis.
The insurance laws of 16 jurisdictions, including Wisconsin, MGIC's domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to its risk in force (or a similar measure) in order for the mortgage insurer to continue to write new business. We refer to these requirements as the “State Capital Requirements.” While they vary among jurisdictions, the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1. A risk-to-capital ratio will increase if (i) the percentage decrease in capital exceeds the percentage decrease in insured risk, or (ii) the percentage increase in capital is less than the percentage increase in insured risk. Wisconsin does not regulate capital by using a risk-to-capital measure but instead requires a minimum policyholder position (“MPP”). MGIC's “policyholder position” includes its net worth or surplus, and its contingency reserve.
At December 31, 2021 MGIC’s risk-to-capital ratio was 9.5 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.4 billion above the required MPP of $1.9 billion. At December 31, 2021, the risk-to-capital ratio of our combined insurance operations was 9.5 to 1. Our risk-to-capital ratio and MPP reflect full credit for the risk ceded under our quota share reinsurance and excess of loss transactions with unaffiliated reinsurers. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded under such transactions. If MGIC is not allowed an agreed level of credit under the State Capital Requirements, MGIC may terminate the reinsurance transactions, without penalty.
The NAIC previously announced plans to revise the State Capital Requirements that are provided for in its Mortgage Guaranty Insurance Model Act. In December 2019, a working group of state regulators released an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage insurers, although no date has been established by which the NAIC must propose
revisions to the capital requirements and certain items have not yet been completely addressed by the framework, including the treatment of ceded risk and minimum capital floors.
While MGIC currently meets the State Capital Requirements of Wisconsin and all other jurisdictions, it could be prevented from writing new business in the future in all jurisdictions if it fails to meet the State Capital Requirements of Wisconsin, or it could be prevented from writing new business in a particular jurisdiction if it fails to meet the State Capital Requirements of that jurisdiction, and in each case if MGIC does not obtain a waiver of such requirements. It is possible that regulatory action by one or more jurisdictions, including those that do not have specific State Capital Requirements, may prevent MGIC from continuing to write new insurance in such jurisdictions. If we are unable to write business in a particular jurisdiction, lenders may be unwilling to procure insurance from us anywhere. In addition, a lender’s assessment of the future ability of our insurance operations to meet the State Capital Requirements or the PMIERs may affect its willingness to procure insurance from us. In this regard, see our risk factor titled “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and/or increase our losses.” A possible future failure by MGIC to meet the State Capital Requirements or the PMIERs will not necessarily mean that MGIC lacks sufficient resources to pay claims on its insurance liabilities. You should read the rest of these risk factors for information about matters that could negatively affect MGIC’s compliance with State Capital Requirements and its claims paying resources, including the effects of the COVID-19 pandemic.
We are susceptible to disruptions in the servicing of mortgage loans that we insure and we rely on third-party reporting for information regarding the mortgage loans we insure.
We depend on reliable, consistent third-party servicing of the loans that we insure. An increase in delinquent loans, including as a result of the COVID-19 pandemic, may result in liquidity issues and operational burdens for servicers. When a mortgage loan that is collateral for a mortgage backed security ("MBS") becomes delinquent, the servicer is usually required to continue to pay principal and interest to the MBS investors, generally for four months, even though the servicer is not receiving payments from borrowers. This may cause liquidity issues for especially non-bank servicers (who service approximately 46% of the loans underlying our insurance in force as of December 31, 2021) because they do not have the same sources of liquidity that bank servicers have.
While there has been no disruption in our premium receipts through the end of December 2021, servicers who experience future liquidity issues may be less likely to advance premiums to us on policies covering delinquent loans or to remit premiums on policies covering loans that are not delinquent. Our policies allow us to cancel coverage on loans that are not delinquent if the premiums are not paid within a grace period. However, in response to the COVID-19 pandemic, many states have enacted moratoriums on the cancellation of insurance due to non-payment. The specific provisions of the moratoriums vary from state-to-state.
A future increase in delinquent loans caused by the COVID-19 pandemic or other factors, as well as the possible transfer of servicing resulting from liquidity issues, may increase the

MGIC Investment Corporation 2021 Form 10-K | 32
MGIC Investment Corporation and Subsidiaries



operational burden on servicers, cause a disruption in the servicing of delinquent loans and reduce servicers’ abilities to undertake mitigation efforts that could help limit our losses.
The information presented in this report and on our website with respect to the mortgage loans we insure is based on information reported to us by third parties, including the servicers and originators of the mortgage loans, and information presented may be subject to lapses or inaccuracies in reporting from such third parties. In many cases, we may not be aware that information reported to us is incorrect until such time as a claim is made against us under the relevant insurance policy. We do not receive monthly policy status information from servicers for single premium policies, and may not be aware that the mortgage loans insured by such policies have been repaid. We periodically attempt to determine if coverage is still in force on such policies by asking the last servicer of record or through the periodic reconciliation of loan information with certain servicers. It may be possible that our reports continue to reflect, as active, policies on mortgage loans that have been repaid.
Changes in interest rates, house prices or mortgage insurance cancellation requirements may change the length of time that our policies remain in force.
The premium from a single premium policy is collected upfront and generally earned over the estimated life of the policy. In contrast, premiums from monthly and annual premium policies are received each month or year, as applicable, and earned each month over the life of the policy. In each year, most of our premiums earned are from insurance that has been written in prior years. As a result, the length of time insurance remains in force, which is generally measured by persistency (the percentage of our insurance remaining in force from one year prior), is a significant determinant of our revenues. A higher than expected persistency rate may decrease the profitability from single premium policies because they will remain in force longer and may increase the incidence of claims than was estimated when the policies were written. A low persistency rate on monthly and annual premium policies will reduce future premiums but may also reduce the incidence of claims, while a high persistency on those policies will increase future premiums but may increase the incidence of claims.
Our persistency rate was 62.6% at December 31, 2021, 60.5% at December 31, 2020 and 75.8% at December 31, 2019. Since 2000, our year-end persistency ranged from a high of 84.7% at December 31, 2009 to a low of 47.1% at December 31, 2003. Our persistency rate is primarily affected by the level of current mortgage interest rates compared to the mortgage coupon rates on our insurance in force, which affects the vulnerability of the insurance in force to refinancing; and the current amount of equity that borrowers have in the homes underlying our insurance in force. The amount of equity affects persistency in the following ways:
•Borrowers with significant equity may be able to refinance their loans without requiring mortgage insurance.
•The Homeowners Protection Act (“HOPA”) requires servicers to cancel mortgage insurance when a borrower’s LTV ratio meets or is scheduled to meet certain levels, generally based on the original value of the home and subject to various conditions.
•The GSEs’ mortgage insurance cancellation guidelines apply more broadly than HOPA and also consider a home’s current value. For example, borrowers may request cancellation of mortgage insurance based on the home’s current value if certain LTV and seasoning requirements are met and the borrowers have an acceptable payment history. For loans seasoned between two and five years, the LTV ratio must be 75% or less, and for loans seasoned more than five years the LTV ratio must be 80% or less. For more information about the GSEs guidelines and business practices, and how they may change, see our risk factor titled “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.”
Pandemics, hurricanes and other natural disasters may impact our incurred losses, the amount and timing of paid claims, our inventory of notices of default and our Minimum Required Assets under PMIERs.
Pandemics and other natural disasters, such as hurricanes, tornadoes, earthquakes, wildfires and floods, or other events related to changing climatic conditions, could trigger an economic downturn in the affected areas, or in areas with similar risks, which could result in a decline in our business and an increased claim rate on policies in those areas. Natural disasters, rising sea levels and/or fresh water shortages could lead to a decrease in home prices in the affected areas, or in areas with similar risks, which could result in an increase in claim severity on policies in those areas. In addition, the inability of a borrower to obtain hazard and/or flood insurance, or the increased cost of such insurance, could lead to an increase in delinquencies or a decrease in home prices in the affected areas. If we were to attempt to limit our new insurance written in affected areas, lenders may be unwilling to procure insurance from us anywhere.
Pandemics and other natural disasters could also lead to increased reinsurance rates or reduced availability of reinsurance. This may cause us to retain more risk than we otherwise would retain and could negatively affect our compliance with the financial requirements of the PMIERs.
The PMIERs require us to maintain significantly more "Minimum Required Assets" for delinquent loans than for performing loans; however, the increase in Minimum Required Assets is not as great for certain delinquent loans in areas that the Federal Emergency Management Agency has declared major disaster areas and for certain loans whose borrowers have been affected by COVID-19. See our risk factor titled "We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility."
In January 2021, the FHFA issued a Request for Input (“RFI”) regarding Climate and Natural Disaster Risk Management at the Regulated Entities (i.e., the GSEs and the Federal Home Loan Banks). The FHFA has instructed the GSEs to designate climate change as a priority concern and actively consider its effects in their decision making. It is possible that efforts to manage this risk by the FHFA, GSEs (including through GSE guideline or mortgage insurance policy changes) or others could materially impact the volume and characteristics of our NIW (including its policy terms), home prices in certain areas and defaults by borrowers in certain areas.

MGIC Investment Corporation 2021 Form 10-K | 33
MGIC Investment Corporation and Subsidiaries



Risk Factors Relating to Our Business Generally
The premiums we charge may not be adequate to compensate us for our liabilities for losses and as a result any inadequacy could materially affect our financial condition and results of operations.
When we set our premiums at policy issuance, we have expectations regarding likely performance of the insured risks over the long term. Generally, we cannot cancel mortgage insurance coverage or adjust renewal premiums during the life of a policy. As a result, higher than anticipated claims generally cannot be offset by premium increases on policies in force or mitigated by our non-renewal or cancellation of insurance coverage. Our premiums are subject to approval by state regulatory agencies, which can delay or limit our ability to increase premiums on future policies. In addition, our customized rate plans may delay our ability to increase premiums on future policies covered by such plans. The premiums we charge, the investment income we earn and the amount of reinsurance we carry may not be adequate to compensate us for the risks and costs associated with the insurance coverage provided to customers. An increase in the number or size of claims, compared to what we anticipated when we set the premiums, could adversely affect our results of operations or financial condition. Our premium rates are also based in part on the amount of capital we are required to hold against the insured risk. If the amount of capital we are required to hold increases from the amount we were required to hold when we set the premiums, our returns may be lower than we assumed. For a discussion of the amount of capital we are required to hold, see our risk factor titled "We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility."
Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.
The private mortgage insurance industry is highly competitive and is expected to remain so. We believe we currently compete with other private mortgage insurers based on premium rates, underwriting requirements, financial strength (including based on credit or financial strength ratings), customer relationships, name recognition, reputation, strength of management teams and field organizations, the ancillary products and services provided to lenders and the effective use of technology and innovation in the delivery and servicing of our mortgage insurance products.

Our relationships with our customers, which may affect the amount of our NIW, could be adversely affected by a variety of factors, including if our premium rates are higher than those of our competitors, our underwriting requirements are more restrictive than those of our competitors, or our customers are dissatisfied with our claims-paying practices (including insurance policy rescissions and claim curtailments).

In recent years, the industry has materially reduced its use of standard rate cards, which were fairly consistent among competitors, and correspondingly increased its use of (i) "risk-based pricing systems" that use a spectrum of filed rates to allow for formulaic, risk-based pricing based on multiple attributes that may be quickly adjusted within certain parameters, and (ii) customized rate plans, both of which typically have rates lower than the standard rate card. Our increased use of reinsurance
over the past several years, and the improved credit profile and reduced loss expectations associated with loans insured after 2008, have helped to mitigate the negative effect of declining premium rates on our expected returns. However, refer to our risk factor titled "Reinsurance may not always be available or affordable" for a discussion of the risks associated with the availability of reinsurance, and our risk factors titled “Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns,” and “Pandemics, hurricanes and other natural disasters may impact our incurred losses, the amount and timing of paid claims, our inventory of notices of default and our Minimum Required Assets under PMIERs” for a discussion about risks associated with our NIW.
The widespread use of risk-based pricing systems by the private mortgage insurance industry makes it more difficult to compare our rates to those offered by our competitors. We may not be aware of industry rate changes until we observe that our volume of NIW has changed. In addition, business under customized rate plans is awarded by certain customers for only limited periods of time. As a result, our NIW may fluctuate more than it had in the past. Regarding the concentration of our new business, our top ten customers accounted for approximately 36% in 2021 and 41% in 2020.
We monitor various competitive and economic factors while seeking to balance both profitability and market share considerations in developing our pricing strategies. Premium rates on NIW will change our premium yield (net premiums earned divided by the average insurance in force) over time as older insurance policies run off and new insurance policies with premium rates that are generally lower are written.
Certain of our competitors have access to capital at a lower cost than we do (including, through off-shore intercompany reinsurance vehicles, which have tax advantages that may increase if U.S. corporate income taxes increase). As a result, they may be able to achieve higher after-tax rates of return on their NIW compared to us, which could allow them to leverage reduced premium rates to gain market share, and they may be better positioned to compete outside of traditional mortgage insurance, including by participating in alternative forms of credit enhancement pursued by the GSEs discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."
Although the current PMIERs of the GSEs do not require an insurer to maintain minimum financial strength ratings, our financial strength ratings can affect us in the ways set forth below. If we are unable to compete effectively in the current or any future markets as a result of the financial strength ratings assigned to our insurance subsidiaries, our future NIW could be negatively affected.
•A downgrade in our financial strength ratings could result in increased scrutiny of our financial condition by the GSEs and/or our customers, potentially resulting in a decrease in the amount of our NIW.
•Our ability to participate in the non-GSE residential mortgage-backed securities market (the size of which has been limited since 2008, but may grow in the future), could depend on our ability to maintain and improve our investment grade ratings

MGIC Investment Corporation 2021 Form 10-K | 34
MGIC Investment Corporation and Subsidiaries



for our insurance subsidiaries. We could be competitively disadvantaged with some market participants because the financial strength ratings of our insurance subsidiaries are lower than those of some competitors. MGIC's financial strength rating from A.M. Best is A- (with a stable outlook), from Moody’s is Baa1 (with a stable outlook) and from Standard & Poor’s is BBB+ (with a stable outlook).
•Financial strength ratings may also play a greater role if the GSEs no longer operate in their current capacities, for example, due to legislative or regulatory action. In addition, although the PMIERs do not require minimum financial strength ratings, the GSEs consider financial strength ratings to be important when using forms of credit enhancement other than traditional mortgage insurance, as discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance." The final GSE capital framework provides more capital credit for transactions with higher rated counterparties, as well as those who are diversified. Although we are currently unaware of a direct impact on MGIC, this could potentially become a competitive disadvantage in the future.
In December 2021, Standard & Poor’s announced a proposed change to their rating methodologies for insurers, including mortgage insurers. It is uncertain what impact the proposed change would have, whether it will be adopted in its current form, whether it will prompt similar moves at other rating agencies, or the extent to which it will impact how external parties evaluate the different rating levels.
We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future.
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 years, an immaterial percentage of claims received have been resolved by rescissions. In 2021 and 2020, curtailments reduced our average claim paid by approximately 4.4% 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. Our loss reserving methodology incorporates our estimates of future rescissions, curtailments, and reversals of rescissions and curtailments. A variance between ultimate actual rescission, curtailment and reversal rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses.
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 2021. 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 probable loss we have recorded. This estimate of maximum exposure is based on 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, from time to time, we are involved in other 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.
If our risk management programs are not effective in identifying, or adequate in controlling or mitigating, the risks we face, or if the models used in our businesses are inaccurate, it could have a material adverse impact on our business, results of operations and financial condition.
Our enterprise risk management program, described in "Business - Our Products and Services - Risk Management" in Item 1, may not be effective in identifying, or adequate in controlling or mitigating, the risks we face in our business.
We employ proprietary and third party models to project returns, price products (including through our risk-based pricing system), determine the techniques used to underwrite insurance, estimate reserves, generate projections used to estimate future pre-tax income and to evaluate loss recognition testing, evaluate risk, determine internal capital requirements, perform stress testing, and for other uses. These models rely on estimates and projections that are inherently uncertain and may not operate as intended.intended, especially in unprecedented circumstances such as those surrounding the COVID-19 pandemic, or with respect to emerging risks, such as changing climatic conditions. In addition, from time to time we seek to improve certain models, and the conversion process may result in material changes to certain assumptions, including thosewhich could impact our expectations about future returns and financial results. The models we employ are complex, which increases our risk of error in their design, implementation or use. Also, the associated input data, assumptions and calculations may not be correct or accurate, and the controls we have in place to mitigate that risk may not be effective in all cases. The risks related to our models may increase when we change assumptions and/or methodologies, or when we add or change modeling platforms. We have enhanced, and we intend to continue to enhance, our modeling capabilities. Moreover, we may

MGIC Investment Corporation 2021 Form 10-K | 35
MGIC Investment Corporation and Subsidiaries



use information we receive through enhancements to refine or otherwise change existing assumptions and/or methodologies.
Because we establish loss reserves only upon a loan delinquency rather than based on estimates of our ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings in certain periods.
In accordance with accounting principles generally accepted in the United States, we establish case reserves for insurance losses and loss adjustment expenses only when notices of default on insured mortgage loans are received and for loans we estimate are in default but for which notices of default have not yet been reported to us by the servicers (this is often referred to as “IBNR”). Because our reserving method does not take account of losses that could occur from loans that are not delinquent, such losses are not reflected in our financial statements, except in the case where a premium deficiency exists. As a result, future losses on loans that are not currently delinquent may
have a material impact on future results as such losses emerge.
Because loss reserve estimates are subject to uncertainties, paid claims may be substantially different than our loss reserves.
When we establish case reserves, we estimate the ultimate loss on delinquent loans by estimating the number of loans in our inventory of delinquent loans that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity. The estimated claim rate and claim severity represent our best estimates of what we will actually pay on the loans in default as of the reserve date and incorporate anticipated mitigation from rescissions and curtailments. The establishment of loss reserves is subject to inherent uncertainty and requires judgment by management. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be affected by several factors, including a change in regional or national economic conditions, and a change in the length of time loans are delinquent before claims are received. The change in conditions may include changes in unemployment, affecting borrowers’ income and thus their ability to make mortgage payments, and changes in home prices, which may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. Changes to our estimates could have a material impact on our future results, even in a stable economic environment. In addition, historically, losses incurred have followed a seasonal trend in which the second half of the year has weaker credit performance than the first half, with higher new default notice activity and a lower cure rate.
We rely on our management team and our business could be harmed if we are unable to retain qualified personnel or successfully develop and/or recruit their replacements.
Our success depends, in part, on the skills, working relationships and continued services of our management team and other key personnel. The unexpected departure of key personnel could adversely affect the conduct of our business. In such event, we would be required to obtain other personnel to manage and operate our business. In addition, we will be required to replace the knowledge and expertise of our aging workforce as our workers retire. In either case, there can be no assurance that we would be able to develop or recruit suitable replacements for the departing individuals; that replacements could be hired, if necessary, on terms that are favorable to us; or that we can successfully transition such replacements in a timely manner. We currently have not entered into any employment agreements with our officers or key personnel. Volatility or lack of performance in our stock


MGIC Investment Corporation 2019 Form 10-K | 33
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


price may affect our ability to retain our key personnel or attract replacements should key personnel depart. Without a properly skilled and experienced workforce, our costs, including productivity costs and costs to replace employees may increase, and this could negatively impact our earnings.
IfIn response to the volume of low down payment home mortgage originations declines,COVID-19 pandemic, the amount of insurance that we write could decline.
The factors that may affect the volume of low down payment mortgage originations include:
restrictions on mortgage credit dueCompany transitioned to more stringent underwriting standards, liquidity issues or risk-retention and/or capital requirements affecting lenders,
the level of home mortgage interest rates,
the health of the domestic economy as well as conditionsa virtual workforce model with certain essential activities supported by limited staff in regional and local economies and the level of consumer confidence,
housing affordability,
new and existing housing availability,
the rate of household formation, which is influenced, in part, by population and immigration trends,
homeownership rates,
the rate of home price appreciation, which in times of heavy refinancing can affect whether refinanced loans have LTV ratios that require private mortgage insurance, and
government housing policy encouraging loanscontrolled office environments. This transition was made to first-time homebuyers.
A decline in the volume of low down payment home mortgage originations could decrease demand for mortgage insurance and limit our NIW. For other factors that could decrease the demand for mortgage insurance, see our risk factor titled “The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance.”
State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis.
The insurance laws of 16 jurisdictions, including Wisconsin, MGIC's domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to its risk in force (or a similar measure) in orderresponsibly provide for the mortgage insurersafety of employees and to continue to write
new business.serve customers across our businesses. As our employees begin to return to the office, they may be exposed to health risks, which may expose us to potential liability. We refer to these requirements as the “State Capital Requirements.” While they vary among jurisdictions, the most common State Capital Requirements allowhave established an interim succession plan for a maximum risk-to-capital ratio of 25 to 1. A risk-to-capital ratio will increase if (i) the percentage decrease in capital exceeds the percentage decrease in insured risk, or (ii) the percentage increase in capital is less than the percentage increase in insured risk. Wisconsin does not regulate capital by using a risk-to-capital measure but instead requires a minimum policyholder position (“MPP”). The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve and a portion of the reserves for unearned premiums.
At December 31, 2019, MGIC’s risk-to-capital ratio was 9.7 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.0 billion above the required MPP of $1.7 billion. Our risk-to-capital ratio and MPP reflect full credit for the risk ceded under our quota share reinsurance and excess of loss transactions with unaffiliated reinsurers. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded under such transactions. If MGIC is not allowed an agreed level of credit under the State Capital Requirements, MGIC may terminate the reinsurance transactions, without penalty. At this time, we expect MGIC to continue to comply with the current State Capital Requirements; however, you should read the rest of these risk factors for information about matters that could negatively affect such compliance. At December 31, 2019, the risk-to-capital ratioeach of our combined insurance operations was 9.6 to 1.
The NAIC has previously announced plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model Act. In December 2019, a working group of state regulators releasedkey executives, should an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements and certain items have not yet been completely addressed by the framework, including the treatment of ceded risk and minimum capital floors. Currently we believe that the PMIERs contain more restrictive capital requirements than the draft Mortgage Guaranty Insurance Model Act in most circumstances.
While MGIC currently meets, and expects to continue to meet, the State Capital Requirements of Wisconsin and all other jurisdictions, it couldexecutive be prevented from writing new business in the future in all jurisdictions if it fails to meet the State Capital Requirements of Wisconsin, or it could be prevented from writing new business in a particular jurisdiction if it fails to meet the State Capital Requirements of that jurisdiction, and in each case if


MGIC Investment Corporation 2019 Form 10-K | 34
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


MGIC does not obtain a waiver of such requirements. It is possible that regulatory action by one or more jurisdictions, including those that do not have specific State Capital Requirements, may prevent MGIC from continuing to write new insurance in such jurisdictions. If we are unable to write business in a particular jurisdiction, lenders may be unwilling to procure insurance from us anywhere. In addition, a lender’s assessment of the future ability of our insurance operations to meet the State Capital Requirementsperform his or the PMIERs may affect its willingness to procure insurance from us. In this regard, see our risk factor titled “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and/or increase our losses.” A possible future failure by MGIC to meet the State Capital Requirements or the PMIERs will not necessarily mean that MGIC lacks sufficient resources to pay claims on its insurance liabilities. While we believe MGIC has sufficient claims paying resources to meet its claim obligations on its insurance in force on a timely basis, you should read the rest of these risk factors for information about matters that could negatively affect MGIC’s claims paying resources.
Downturns in the domestic economy or declines in the value of borrowers’ homes from their value at the time their loans closed may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.
Losses result from events that reduce a borrower’s ability or willingness to continue to make mortgage payments, such as unemployment, health issues, family status, and whether the home of a borrower who defaults on his mortgage can be sold for an amount that will cover unpaid principal and interest and the expenses of the sale. In general, favorable economic conditions reduce the likelihood that borrowers will lack sufficient income to pay their mortgages and also favorably affect the value of homes, thereby reducing and in some cases even eliminating a loss from a mortgage default. A deterioration in economic conditions, including an increase in unemployment, generally increases the likelihood that borrowers will not have sufficient income to pay their mortgages and can also adversely affect home prices, which in turn can influence the willingness of borrowers with sufficient resources to make mortgage payments to do so when the mortgage balance exceeds the value of the home. Home prices may decline even absent a deterioration in economic conditions due to declines in demand for homes, which in turn may result from changes in buyers’ perceptions of the potential for future appreciation, restrictions on and the cost of mortgage credit due to more stringent underwriting standards, higher interest rates generally, changes to the deductibility of mortgage interest for income tax purposes, decreases in the rate of household formations, or other factors. Changes in home prices and unemployment levels are inherently difficult to
forecast given the uncertainty in the current market environment, including uncertainty about the effect of actions the federal government has taken and may take with respect to tax policies, mortgage finance programs and policies, and housing finance reform.her duties.
The mix of business we write affects our Minimum Required Assets under the PMIERs, our premium yields and the likelihood of losses occurring.
The Minimum Required Assets under the PMIERs are, in part, a function of the direct risk-in-force and the risk profile of the loans we insure, considering LTV ratio, credit score, vintage, Home Affordable Refinance Program ("HARP") status and delinquency status; and whether the loans were insured under lender-paid mortgage insurance policies or other policies that are not subject to automatic termination consistent with the Homeowners Protection Act requirements for borrower paidborrower-paid mortgage insurance. Therefore, if our direct risk-in-force increases through increases in NIW, or if our mix of business changes to include loans with higher LTV ratios or lower FICO scores, for example, or if we insure a higher percentage of loans under lender-paid mortgage insurance policies, all other things equal, we will be required to hold more Available Assets in order to maintain GSE eligibility.
The minimum capital required by the risk-based capital framework contained in the exposure draft released by the NAIC in December 2019 would be, in part, a function of certain loan and economic factors, including property location, LTV ratio and credit score;score, general underwriting quality in the market at the time of loan origination;origination, the age of the loan;loan, and the premium rate we charge. Depending uponon the provisions of the capital requirements when they are released in final form and become effective, our
mix of business may affect the minimum capital we are required to hold under the new framework.
The percentage of our NIW from all single-premium policies was 7.4% in 2021 and 8.9% in 2020 and has ranged from approximately 10%5.7% in 20132021 to 19% in 2017 and was 17% in 2018 and 16% in 2019.2017. Depending uponon the actual life of a single premium policy and its premium rate relative to that of a monthly premium policy, a single premium policy may generate more or less premium than a monthly premium policy over its life.
WeAs discussed in our risk factor titled "Reinsurance may not always be available or affordable," we have in place quota share reinsurance ("QSR") transactions with unaffiliated reinsurers that cover most of our insurance written from 2013 through 2019, and a portion of our insurance written prior to 2013.various QSR transactions. Although the transactions reduce our premiums, they have a lesser impact on our overall results, as losses ceded under the transactions reduce our losses incurred and the ceding commissions we receive reduce our underwriting expenses. The effect of the QSR transactions on the various components of pre-tax


MGIC Investment Corporation 2019 Form 10-K | 35
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


income will vary from period to period, depending uponon the level of ceded losses.
In 2018 and 2019, MGIC entered intolosses incurred. We also have in place various excess-of-loss ("XOL") reinsurance agreements that provide excess-of-losstransactions, under which we cede premiums. Under the XOL reinsurance transactions, for the respective reinsurance coverage for a portionperiods, we retain the first layer of the risk associated with certain mortgage insurance policies having an insurance coverage in force date on or after July 1, 2016aggregate losses, and before April 1, 2019. The transactions were entered into with special purpose insurers that issued notes linkedprovide second layer coverage up to the outstanding reinsurance coverage ("Insurance Linked Notes" or "ILNs"). We expect that we may enter into other ILN transactions if capital market conditions remain favorable.amount.
In addition to the effect of reinsurance on our premiums, we expect a decline in our premium yield because an increasing percentage of our insurance in force is from recent book years whose premium rates havehad been trending lower.
Our ability to rescind insurance coverage became more limited for new insurance we wrotewritten beginning in mid-2012. As a result of revised PMIERs requirements, we have revised our master policymid-2012, and expect it to be effectivebecame further limited for new insurance written beginningunder our revised master policy that became effective March 1, 2020. Our ability to rescind insurance coverage will become further limited for insurance we write under the new master policy, potentially resultingThese limitations may result in higher losses paid than would be the case under our existingprevious master policies. In addition, our rescission rights temporarily have become more limited due to accommodations we have made in connection with the COVID-19 pandemic. We have waived our rescission rights in certain circumstances where the failure to make payments was associated with a COVID-19 pandemic-related forbearance.
From time to time, in response to market conditions, we change the types of loans that we insure and the requirements under which we insure them.insure. We also may change our underwriting guidelines, in part through aligning most of them with the GSEs for loans that receive and are processed in accordanceby agreeing with certain approval recommendations from a GSE automated underwriting system. In the third quarter of 2021, Fannie Mae indicated that it was easing its credit assessments and guidelines to help increase homeownership opportunities for borrowers. We have aligned with these changes, which will result in our insuring some loans with FICO scores lower than 620. We also make exceptions to our underwriting requirements on a loan-by-loan basis and for certain customer programs. Our underwriting requirements are available on our website at http://www.mgic.com/underwriting/index.html.index.html.
Even when home prices are stable or rising, mortgages with certain characteristics have higher probabilities of claims. As of December 31, 2019,2021, mortgages with these characteristics in our primary risk in force included mortgages with LTV ratios greater than 95% (15.3%), loans with borrowers having FICO scores below 620 (2.0%(14.7%), mortgages with borrowers having FICO scores below 680 (7.9%), including those with borrowers having FICO scores of 620-679 (9.0%(6.8%), mortgages with limited underwriting,

MGIC Investment Corporation 2021 Form 10-K | 36
MGIC Investment Corporation and Subsidiaries



including limited borrower documentation (1.7%(1.0%), and mortgages with borrowers having DTI ratios greater than 45% (or where no ratio is available) (14.2%(13.6%), each attribute as determined at the time of loan origination. An individual loan may haveLoans with more than one of these attributes.
Beginningattributes accounted for 2% of our primary risk in 2017,force as of December 31, 2021, and less than one percent of our NIW in each of 2021 and 2020. When home prices increase and/or the percentage of our NIW that we have writtenfrom purchase transactions increases, our NIW on mortgages with higher LTV ratios greater than 95% and mortgages withhigher DTI ratios greater than 45% hasmay increase.
From time to time, we change the processes we use to underwrite loans. For example: we rely on information provided to us by lenders that was obtained from certain of the GSEs’ automated appraisal and income verification tools, which may produce results that differ from the results that would have been determined using different methods; we accept GSE appraisal waivers for certain refinance loans, the numbers of which have increased althoughsignificantly beginning in 2020 and remain elevated; and we accept GSE appraisal flexibilities that allow property valuations in certain transactions to be based on appraisals that do not involve an onsite or interior inspection of the percentageproperty. Our acceptance of NIWautomated GSE appraisal and income verification tools, GSE appraisal waivers and GSE appraisal flexibilities may affect our pricing and risk assessment. We also continue to further automate our underwriting processes and it is possible that our automated processes result in our insuring loans that we would not otherwise have written on mortgages with DTI ratios greater than 45% has declined in 2019 from its 2018 level. In 2018, we started considering DTI ratios when settinginsured under our premium rates,prior processes.
Approximately 72.2% of our 2021 NIW and we changed70.2% of our methodology for calculating DTI ratios for pricing and eligibility purposes2020 NIW (by risk written) was originated under delegated underwriting programs pursuant to excludewhich the impact of mortgage insurance premiums. As a result of this change, loan originators may have changedhad authority on our behalf to underwrite the information they provide to us. Althoughloans for our mortgage insurance. For loans originated through a delegated underwriting program, we have revised our operational procedures to account for this possibility, we cannot be sure thatdepend on the DTI ratio we report for each loan beginning in late 2018 includes the related mortgage insurance premiums in the calculation. In addition, we expect to insure certain loans that would not have previously metoriginators' compliance with our guidelines and rely on the originators' representations that the loans being insured satisfy the underwriting guidelines, eligibility criteria and other requirements. While we have established systems and processes to offer premium rates formonitor whether certain aspects of our underwriting guidelines were being followed by the originators, such systems may not ensure that the guidelines were being strictly followed at the time the loans lower than would have been offered under our previous methodology.were originated.
The widespread use of risk-based pricing systems by the private mortgage insurance industry (discussed in our risk factor titled "Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses") makes it more difficult to compare our premium rates to those offered by our competitors. We may not be aware of industry rate changes until we observe that our mix of new insurance written has changed and our mix may fluctuate more as a result.
If state or federal regulations or statutes are changed in ways that ease mortgage lending standards and/or requirements, or if lenders seek ways to replace business in times of lower mortgage originations, it is possible that more mortgage loans could be originated with higher risk characteristics than are currently being originated, such as loans with lower FICO scores and higher DTI ratios. The focus of the new FHFA leadership on increasing homeownership opportunities for borrowers is likely to have this effect. Lenders could pressure mortgage insurers to insure such loans, which are expected to experience higher claim rates. Although we attempt to incorporate these higher expected claim
rates into our underwriting and pricing models, there can be no assurance that the premiums earned and the associated investment income will be adequate to compensate for actual losses paid even under our current underwriting requirements.
The premiums we charge may not be adequate to compensate us for our liabilities for losses and as a result any inadequacy could materially affect our financial condition and results of operations.
We set premiums at the time a policy is issued based on our expectations regarding likely performance of the insured risks over the long term. Our premiums are subject to approval by state regulatory agencies, which can delay or limit our ability to increase our premiums. Generally, we cannot cancel mortgage insurance


MGIC Investment Corporation 2019 Form 10-K | 36
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


coverage or adjust renewal premiums during the life of a mortgage insurance policy. As a result, higher than anticipated claims generally cannot be offset by premium increases on policies in force or mitigated by our non-renewal or cancellation of insurance coverage. The premiums we charge, the investment income we earn and the amount of reinsurance we carry may not be adequate to compensate us for the risks and costs associated with the insurance coverage provided to customers. An increase in the number or size of claims, compared to what we anticipate, could adversely affect our results of operations or financial condition. Our premium rates are also based in part on the amount of capital we are required to hold against the insured risk. If the amount of capital we are required to hold increases from the amount we were required to hold when a policy was written, we cannot adjust premiums to compensate for this and our returns may be lower than we assumed.
The losses we have incurred on our 2005-2008 books of business have exceeded our premiums from those books. The incurred losses from those books, although declining, continue to generate a material portion of our total incurred losses. The ultimate amount of these losses will depend in part on general economic conditions, including unemployment, and the direction of home prices.
We are susceptible to disruptions in the servicing of mortgage loans that we insure and we rely on third-party reporting for information regarding the mortgage loans we insure.
We depend on reliable, consistent third-party servicing of the loans that we insure. Over the last several years, the mortgage loan servicing industry has experienced consolidation and an increase in the number of specialty servicers servicing delinquent loans. The resulting change in the composition of servicers could lead to disruptions in the servicing of mortgage loans covered by our insurance policies. Further changes in the servicing industry resulting in the transfer of servicing could cause a disruption in the servicing of delinquent loans which could reduce servicers’ ability to undertake mitigation efforts that could help limit our losses. Future housing market conditions could lead to additional increases in delinquencies and transfers of servicing.
The information presented in this report and on our website with respect to the mortgage loans we insure is based on information reported to us by third parties, including the servicers and originators of the mortgage loans. Consequently, information presented may be subject to lapses or inaccuracies in reporting from such third parties. In many cases, we may not be aware that information reported to us by third parties is incorrect until such time as a claim is made against us under the relevant insurance policy. We do not receive monthly information from servicers for single premium policies, and may not be aware that the mortgage loans insured
by such policies have been repaid. We periodically attempt to determine if coverage is still in force on such policies by asking the last servicer of record or through the periodic reconciliation of loan information with certain servicers. It may be possible that our reports continue to reflect, as active, policies on mortgage loans that have been repaid.
Changes in interest rates, house prices or mortgage insurance cancellation requirements may change the length of time that our policies remain in force.
The premium from a single premium policy is collected upfront and generally earned over the estimated life of the policy. In contrast, premiums from a monthly premium policy are received and earned each month over the life of the policy. In each year, most of our premiums earned are from insurance that has been written in prior years. As a result, the length of time insurance remains in force, which is generally measured by persistency (the percentage of our insurance remaining in force from one year prior), is a significant determinant of our revenues. Future premiums on our monthly premium policies in force represent a material portion of our claims paying resources and a low persistency rate will reduce those future premiums. In contrast, a higher than expected persistency rate will decrease the profitability from single premium policies because they will remain in force longer than was estimated when the policies were written.
Our persistency rate was 75.8% at December 31, 2019, 81.7% at December 31, 2018, and 80.1% at December 31, 2017. Since 2000, our year-end persistency ranged from a high of 84.7% at December 31, 2009 to a low of 47.1% at December 31, 2003.
Our persistency rate is primarily affected by the level of current mortgage interest rates compared to the mortgage coupon rates on our insurance in force, which affects the vulnerability of the insurance in force to refinancing. Our persistency rate is also affected by the mortgage insurance cancellation policies of mortgage investors along with the current value of the homes underlying the mortgages in the insurance in force. In 2018, the GSEs announced changes to various mortgage insurance termination requirements that are intended to further simplify the process of evaluating borrower-initiated requests for mortgage insurance termination and may reduce our persistency rate in the future.
Our holding company debt obligations materially exceed our holding company cash and investments.
At December 31, 2019,2021, we had approximately $325$663 million in cash and investments at our holding company and our holding company’s debt obligations were $815 million$1.0 billion in aggregate principal amount, consisting of $425$242 million of 5.75% Senior Notes due in 2023 ("5.75% Notes"), $650 million of 5.25% Senior Notes due 2028 (the 5.25% Notes), and $390$110 million of 9% Convertible Junior Subordinated Debentures due in 2063


MGIC Investment Corporation 2019 Form 10-K | 37
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


(of which approximately $133 million was purchased, and is held, by MGIC, and is eliminated on the consolidated balance sheet) ("9% Debentures"). Annual debt service on the 5.75% Notes, 5.25% Notes and 9% Debentures outstanding as of December 31, 2019,2021, is approximately $60 million (of which approximately $12 million will be paid to MGIC and will be eliminated on the consolidated statement of operations).$58 million.
The 5.75% Senior Notes, 5.25% Senior Notes and 9% Debentures are obligations of our holding company, MGIC Investment Corporation, and not of its subsidiaries. The payment of dividends from our insurance subsidiaries (primarily MGIC) which, other than investment income and raising capital in the public markets, is the principal source of our holding company cash inflow,inflow. Although MGIC holds assets in excess of its minimum statutory capital requirements and its PMIERs financial requirements, the ability of MGIC to pay dividends is restricted by insurance regulation. In general, dividends in excess of prescribed limits are deemed “extraordinary” and may not be paid if disapproved by the OCI. The level of ordinary dividends that may be paid without OCI approval is determined on an annual basis. A dividend is extraordinary when the proposed dividend amount, plus dividends paid in the twelve months preceding the dividend payment date exceed the ordinary dividend level. At December 31, 2021 MGIC iscould pay $122 million of ordinary dividends without OCI approval, before taking into consideration dividends paid in the preceding twelve months. In 2021, MGIC paid $400 million in dividends of cash and investments to the holding company. Future dividend payments from MGIC to the holding company will be determined in consultation with the board of directors, and after considering any updated estimates about the economic impacts of the COVID-19 pandemic on our business.
In the fourth quarter of 2021, we repurchased $99 million in aggregate principal sourceamount of dividends, and in 2019 and 2018, it paid a totalour 9% Debentures, using $136 million of $280holding company resources, eliminating 7.5 million potentially dilutive common shares, reducing annual interest expense by $8.9 million and $220resulting in a $37 million respectively, in quarterly dividends to our holding company.loss on debt extinguishment. We have received the appropriate approvals for MGIC to pay to our holding company, in the first quarter of 2020, a special dividend of $320 million and a quarterly dividend of $70 million. We expect to use most of the proceeds of the special dividendmay continue to repurchase our common stockdebt obligations on the open market (including through 10b5-1 plans) or through privately negotiated transactions. In addition, we may redeem our 9% Debentures as discussed below. We expect MGIC to pay quarterly dividends totaling at least $280 million per year, subject to approvalin our risk factor titled "Your ownership in our company may be diluted by its Boardadditional capital that we raise or if the holders of Directors. We ask the OCI not to object before MGIC pays dividends.
In 2019 and 2018, we repurchased approximately 8.7 million and 16.0 millionour outstanding convertible debt convert that debt into shares of our common stock respectively, using approximately $114 million and $175 million of holding company resources, respectively. As of December 31, 2019, we had $111 million of authorization remaining to repurchase our common stock through the end of 2020 under a share repurchase program approved by our Board of Directors in 2019. From January 1, 2020 through February 19, 2020, we repurchased approximately 2.5 million shares."
Repurchases of our common stock for approximately $35 million. In addition, in January 2020, our Board of Directors approved the repurchase of up to an additional $300 million of our common stock through the end of 2021. Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. TheIn 2020 we repurchased approximately 9.6 million shares of our common stock, using approximately $120 million of holding company resources. After suspending stock repurchases due to the uncertainty caused by the COVID-19 pandemic, in the second half

MGIC Investment Corporation 2021 Form 10-K | 37
MGIC Investment Corporation and Subsidiaries



of 2021, we repurchased approximately 19.0 million shares, using approximately $291 million of holding company resources. As of December 31, 2021, we had $500 million of authorization remaining to repurchase our common stock through the end of 2023 under a share repurchase program may be suspended for periods or discontinued at any time.approved by our Board of Directors in October 2021. If any additional capital contributions to our subsidiaries wereare required, such contributions would decrease our holding company cash and investments. As described in our Current Report on Form 8-K filed with the SEC on February 11, 2016, MGIC borrowed $155 million from the Federal Home Loan Bank of Chicago. This is an obligation of MGIC and not of our holding company.
Your ownership in our company may be diluted by additional capital that we raise or if the holders of our outstanding convertible debt convert that debt into shares of our common stock.
As noted above under our risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility,” although we are currently in compliance with the requirements of the PMIERs, there can be no assurance that we would not seek to issue non-dilutiveadditional debt capital or to raise additional equity or equity-linked capital to manage our capital position under the PMIERs or for other purposes. Any future issuance of equity securities may dilute your ownership interest in our company. In addition, the market price of our common stock could decline as a result of sales of a large number of shares or similar securities in the market or the perception that such sales could occur.
At December 31, 2019,2021, we had outstanding $390$110 million principal amount of 9% Convertible Junior Subordinated Debentures due in 2063 ("9% Debentures") (of which approximately $133 million was purchased, and is held, by MGIC, and is eliminated on the consolidated balance sheet).Debentures. The principal amount of the 9% Debentures is currently convertible, at the holder’s option, at a conversion rate, which is subject to adjustment, of 74.471876.5496 common shares per $1,000 principal amount of debentures. This represents a conversion price of approximately $13.43$13.06 per share. The payment of dividends by our holding company will resultresults in an adjustment to the conversion rate and price, with such adjustment generally deferred until the end of the year.
We may redeem the 9% Debentures in whole or in part from time to time, at our option, at a redemption price equal to 100% of the principal amount of the 9% Debentures being redeemed, plus any accrued and unpaid interest, if the closing sale price of our common stock exceeds $17.46$16.98 (adjusted pro rata for changes in the conversion price) for at least 20 of the 30 trading days preceding notice of the redemption.
We have the right, and may elect, to defer interest payable under the debentures9% Debentures in the future. If a holder elects to convert its debentures,9% Debentures, the interest that has been deferred on the debentures9% Debentures being converted is also convertible into shares of our common stock. The conversion rate for such deferred interest is based on the average price that our shares traded at during a 5-day period immediately prior to the election to convert the associated debentures. We may elect to pay cash for some or all of the shares issuable upon a conversion of the debentures. For more information about the 9% Debentures, including additional requirements resulting from the deferral of interest, see Note 7 – “Debt” to our consolidated financial statements in Item 8.
For a discussion of the dilutive effects of our convertible securities on our earnings per share, see Note 4 – “Earnings Per
Share” to our consolidated financial statements in Item 8. As noted above, during 2019 and


MGIC Investment Corporation 2019 Form 10-K | 38
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


2018, we have repurchased shares of our common stock in 2021 and mayintend to do so again in the future. In addition, we haverepurchased a portion of our debt obligations in 2021 and may do so again in the past purchased, and may in the future purchase, our debt securities.future.
The price of our common stock may fluctuate significantly, which may make it difficult for holders to resell common stock when they want or at a price they find attractive.
The market price for our common stock may fluctuate significantly. In addition to the risk factors described herein, the following factors may have an adverse impact on the market price for our common stock: changes in general conditions in the economy, the mortgage insurance industry or the financial markets; announcements by us or our competitors of acquisitions or strategic initiatives; our actual or anticipated quarterly and annual operating results; changes in expectations of future financial performance (including incurred losses on our insurance in force); changes in estimates of securities analysts or rating agencies; actual or anticipated changes in our share repurchase program or dividends; changes in general conditions in the economy, the mortgage insurance industry or the financial markets; changes in operating performance or market valuation of companies in the mortgage insurance industry; the addition or departure of key personnel; changes in tax law; and adverse press or news announcements affecting us or the industry. In addition, ownership by certain types of investors may affect the market price and trading volume of our common stock. For example, ownership in our common stock by investors such as index funds and exchange-traded funds can affect the stock’s price when those investors must purchase or sell our common stock because the investors have experienced significant cash inflows or outflows, the index to which our common stock belongs has been rebalanced, or our common stock is added to and/or removed from an index (due to changes in our market capitalization, for example).
We could be adversely affected if personal information on consumers that we maintain is improperly disclosed, and damage to, or interruption in, our information technology systems may disruptare damaged or their operations are interrupted, or our operations.automated processes do not operate as expected.
As part of our business, we maintain large amounts of personal information of consumers, including on consumers.our servers and those of cloud computing services. Federal and state laws designed to promote the protection of personalsuch information of consumers require businesses that collect or maintain consumer information to adopt information security programs, and to notify individuals, and in some jurisdictions, regulatory authorities, of security breaches involving personally identifiable information. Those laws may require free credit monitoring services to be provided to individuals affected by security breaches. While we believe we have appropriate information security policies and systems to prevent unauthorized disclosure, there can be no assurance that unauthorized disclosure, either through the actions of third parties or employees, will not occur. Unauthorized
disclosure could adversely affect our reputation, result in a loss of business and expose us to material claims for damages.
We relyare increasingly reliant on the efficient and uninterrupted operation of complex information technology systems. All information technology systems are potentially vulnerable to damage or interruption from a variety of sources, including by third-party cyber attacks, including those involving ransomware. The Company discovers vulnerabilities and experiences malicious attacks and other attempts to gain unauthorized access to its systems on a regular basis. Globally, attacks are expected to continue accelerating in both frequency and sophistication with increasing use by actors of tools and techniques that will hinder the Company’s ability to identify, investigate and recover from incidents. In response to the COVID-19 pandemic, the Company transitioned to a primarily virtual workforce model and will likely

MGIC Investment Corporation 2021 Form 10-K | 38
MGIC Investment Corporation and Subsidiaries



continue to operate under a hybrid model in the future. Virtual and hybrid workforce models may be more vulnerable to security breaches.
While we have information security policies and systems in place to secure our information technology systems and to prevent unauthorized access to or disclosure of sensitive information, there can be no assurance with respect to our systems and those of our third-party vendors that unauthorized access to the systems or disclosure of the sensitive information, either through the actions of third parties.parties or employees, will not occur. Due to our reliance on information technology systems, including ours and those of our customers and third partythird-party service providers, their damageand to the sensitivity of the information that we maintain, unauthorized access to the systems or interruptiondisclosure of the information could adversely affect our reputation, severely disrupt our operations, which couldresult in a loss of business and expose us to material claims for damages and may require that we provide free credit monitoring services to individuals affected by a security breach.
Should we experience an unauthorized disclosure of information or a cyber attack, including those involving ransomware, some of the costs we incur may not be recoverable through insurance, or legal or other processes, and this may have a material adverse effect on our business, business prospects and results of operations.
In addition, weWe are in the process of upgrading certain of our information systems, thatand transforming and automating certain business processes, and we continue to enhance our risk-based pricing system and our system for evaluating risk. Certain information systems have been in place for a number of years and continueit has become increasingly difficult to deploy and enhance our risk-based pricing system.support their operation. The implementation of these technological and business process improvements, as well as their integration with customer and third partythird-party systems when applicable, is complex, expensive and time consuming. If we fail to timely and successfully implement and integrate the new technology systems, if the third party providers to which we are becoming increasingly reliant do not perform as expected, if our legacy systems fail to operate as required, or if the upgraded systems and/or transformed and automated business processes do not operate as expected, it could have ana material adverse impact on our business, business prospects and results of operations.
Our success depends, in part, on our ability to manage risks in our investment portfolio.
Our investment portfolio is an important source of revenue and is our primary source of claims paying resources. Although our investment portfolio consists mostly of highly-rated fixed income investments, our investment portfolio is affected by general economic conditions and tax policy, which may adversely affect the markets for credit and interest-rate-sensitive securities, including the extent and timing of investor participation in these markets, the level and volatility of interest rates and credit spreads and, consequently, the value of our fixed income securities. The value of our investment portfolio may also be adversely affected by ratings downgrades, increased bankruptcies and credit spreads widening in distressed industries. In addition, the collectability and valuation of our municipal bond portfolio may be adversely affected if state and local municipalities incur increased costs to respond to COVID-19 and receive fewer tax revenues due to adverse economic
conditions. Our investment portfolio also includes commercial mortgage-backed securities, collateralized loan obligations, and as such,asset-backed securities, which could be adversely affected by declines in real estate valuations, increases in unemployment and/or financial market disruption, including a heightened collection risk on the underlying loans. As a result of these matters, we may not achieve our investment objectives. Volatility or lack of liquidityobjectives and a reduction in the markets in which we hold securities has at times reduced the market value of some of our investments and if this worsens substantially it could have a materialan adverse effect on our liquidity, financial condition and results of operations.
For the significant portion of our investment portfolio that is held by MGIC, to receive full capital credit under insurance regulatory requirements and under the PMIERs, we generally are limited to investing in investment grade fixed income securities whose yields reflect their lower credit risk profile. Our investment income depends upon the size of the portfolio and its reinvestment at prevailing interest rates. A prolonged period of low investment yields would have an adverse impact on our investment income as would a decrease in the size of the portfolio.


MGIC Investment Corporation 2019 Form 10-K | 39
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


In addition, weWe structure our investment portfolio to satisfy our expected liabilities, including claim payments in our mortgage insurance business. If we underestimate our liabilities or improperly structure our investments to meet these liabilities, we could have unexpected losses resulting from the forced liquidation of fixed income investments before their maturity, which could adversely affect our results of operations.
Hurricanes and other natural disasters may impact our incurred losses, the amount and timing of paid claims, our inventory of notices of default and our Minimum Required Assets under PMIERs.
Natural disasters, such as hurricanes, tornadoes, earthquakes, wildfires and floods, or other events related to changing climatic conditions, could trigger an economic downturn in the affected areas, which could result in a decline in our business and an increased claim rate on policies in those areas. Natural disasters, rising sea levels and increased cost of flood insurance could lead to a decrease in home prices in the affected areas, or in areas with similar risks, which could result in an increase in claim severity on policies in those areas. If we were to attempt to limit our new insurance written in disaster-prone areas, lenders may be unwilling to procure insurance from us anywhere.
Natural disasters could also lead to increased reinsurance rates or reduced availability of reinsurance. This may cause us to retain more risk than we otherwise would retain and could negatively affect our compliance with the financial requirements of the PMIERs.
The PMIERs require us to maintain significantly more "Minimum Required Assets" for delinquent loans than for performing loans; however, the increase in Minimum Required Assets is not as great for certain delinquent loans in areas that the Federal Emergency Management Agency has declared major disaster areas. An increase in delinquency notices resulting from a natural disaster may result in an increase in "Minimum Required Assets" and a decrease in the level of our excess "Available Assets" which is discussed in our risk factor titled "We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility."
The Company may be adversely impacted by the transition from LIBOR as a reference rate.
In 2017, theThe United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that after 2021 it would no longer compel banks to submit rate quotations required to calculate LIBOR. As a result,publish one-week and two-month tenor USD LIBOR and that after June 30, 2023, it is uncertain whetherwould no longer publish all other USD LIBOR will continue to be quoted after 2021.tenors. Efforts are underway to identify and transition to a set of alternative reference rates. The set of alternative rates includes the Secured Overnight Financing Rate
(“SOFR”), which the Federal Reserve Bank of New York began publishing in 2018. Because SOFR is calculated based on different criteria than LIBOR. Accordingly,LIBOR, SOFR and LIBOR may diverge. In addition, SOFR may be subject to direct influence by activities of the Federal Reserve and the Federal Reserve Bank of New York in ways that other rates may not be.
There is considerable uncertainty as to how the financial services industry will address the discontinuance of LIBOR in financial instruments. Financial instruments indexed to LIBOR could experience disparate outcomes based on their contractual terms, ability to amend those terms, market or product type, legal or regulatory jurisdiction, and other factors. Alternative reference rates that replace LIBOR may not yield the same or similar economic results over the lives of the financial instruments, which could adversely affect the value of and return on these instruments.
While it is not currently possible to determine precisely whether, or to what extent, the replacement of LIBOR would affect us, the implementation of alternative benchmark rates to LIBOR may have an adverse effect on our business, results of operations or financial condition.
Our We have three primary types of transactions involvingthat involve financial instruments that reference LIBOR, include:
Buying and selling fixed income securities (asreferencing LIBOR. First, as of December 31, 2019,2021, approximately 6.0%6% of the fair value of our investment portfolio consisted of securities referencing LIBOR).
Insuring adjustable rate mortgages (“ARMs”) whose interest is referenced to LIBOR, (asnone of which reference one-week and two-month tenors. Second, as of December 31, 2019,2021, approximately $1.1$0.5 billion of our risk in force was on ARMs referencing LIBOR).adjustable rate mortgages whose interest is referenced to one-month USD LIBOR. A change in reference rate associated with these loans may affect their principal balance, which may affect our risk-in-force and the amount of Minimum Required Assets we are required to maintain under PMIERs. A change in reference rate may also affect the amount of principal and/or accrued interest we are required to pay in the event of a claim payment.
Entering into Third, the premiums under most of our 2018-2021 excess-of-loss reinsurance agreements under which our premiums are determined, in part, by the difference between interest payable on the reinsurers’ notes which reference one-month USD LIBOR and earnings from a pool

MGIC Investment Corporation 2021 Form 10-K | 39
MGIC Investment Corporation and Subsidiaries



of securities receiving interest that may reference LIBOR (in 2019,2021, our total premiums on such transactions waswere approximately $17.6$39.5 million).



MGIC Investment Corporation 2019 Form 10-K | 40
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


Item 1B. Unresolved Staff Comments
None.

Item 2. Properties
At December 31, 2019,2021, we leasedhad no office space leases in various cities throughout the United States under leases expiring between 2020 and 2023 and which requiredthat require monthly rental payments that in the aggregate are immaterial.payments.

We own our headquarters facility and an additional office/warehouse facility, both located in Milwaukee, Wisconsin, which contain an aggregate of approximately 310,000 square feet of space.

Item 3. Legal Proceedings
Certain legal proceedings arising in the ordinary course of business may be filed or pending against us from time to time. For information about such legal proceedings, you should reviewsee Note 17 – "Litigation and Contingencies" to our risk factor titled “We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future”consolidated financial statements in Item 1A.8.

Item 4. Mine Safety Disclosures
Not Applicable.


MGIC Investment Corporation 20192021 Form 10-K | 4140
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


Information About Our Executive Officers
Certain information with respect to our executive officers as of February 21, 202023, 2022 is set forth below:
Executive officers of the registrant
Name and AgeTitle
Timothy J. Mattke, 4446Chief Executive Officer and Director of MGIC Investment Corporation and MGIC
Salvatore A. Miosi, 5355President and Chief Operating Officer of MGIC Investment Corporation and MGIC
Nathan H. Colson, 3638Executive Vice President and Chief Financial Officer of MGIC Investment Corporation and MGIC
James J. Hughes, 5759Executive Vice President – Sales and Business Development of MGIC
Paula C. Maggio, 5153Executive Vice President, General Counsel and Secretary of MGIC Investment Corporation and MGIC
Steven M. Thompson, 5759Executive Vice President and Chief Risk Officer of MGIC
Robert J. Candelmo, 5658Senior Vice President and Chief Information Officer of MGIC


Mr. Mattke has served as our Chief Executive Officer since July 2019. Before then, he had been the Company’s Chief Financial Officer from 2014 to 2019, and its Controller from 2009 to 2014. He joined the Company in 2006. Prior to his becoming Controller, he was Assistant Controller of MGIC beginning in 2007 and prior to that was a manager in MGIC’s accounting department. Before joining MGIC, Mr. Mattke was with PricewaterhouseCoopers LLP, the Company’s independent registered accounting firm.

Mr. Miosi has served as our President and Chief Operating Officer since July 2019. Before then, he had been Executive Vice President – Business Strategy and Operations since January 2017. He served as Senior Vice President – Business Strategy and Operations of MGIC from 2015 to January 2017, and Vice President – Marketing from 2004 to 2015. Mr. Miosi joined the company in 1988 and has also held a variety of leadership positions in the operations, technology and marketing divisions.

Mr. Colson has served as our Executive Vice President and Chief Financial Officer since July 2019. Before then, he had been MGIC's Vice President – Finance during 2019 and its Assistant Treasurer from 2016 to 2019. He joined MGIC in 2014 and prior to becoming Assistant Treasurer, he held positions in its Risk Management Department. Before joining MGIC, Mr. Colson was with PricewaterhouseCoopers LLP, the Company’s independent registered accounting firm.



Mr. Hughes has served as Executive Vice President – Sales and Business Development of MGIC since
January 2017. He served as Senior Vice President – Sales and Business Development of MGIC from 2015 to January 2017, and Vice President, Managing Director in the sales area from 2001 to 2015. He joined MGIC in 1987 and prior to becoming Vice President, Managing Director, he had been an Account Manager and a Sales Manager.

Ms. Maggio joined the Company in July 2018 and has served as Executive Vice President, General Counsel and Secretary since then. Prior to joining the Company, Ms. Maggio had been Executive Vice President, General Counsel and Secretary of Retail Properties of America, Inc. from 2016 to 2018, Executive Vice President, General Counsel and Secretary of Strategic Hotels & Resorts, Inc. (SHR) from 2012 to 2015, and in various other leadership roles with SHR since joining that firm in 2000. Prior to joining SHR, Ms. Maggio had been in private legal practice from 1994-2000.

Mr. Thompson has served as MGIC's Executive Vice President and Chief Risk Officer since November 2019. Before then, he had been Interim Chief Risk Officer during 2019, and Vice President Credit Policy and Pricing from 2016 to 2019. He joined MGIC in 1998 and prior to being named Vice President Credit Policy and Pricing, he held several management positions in its Risk Management Department, including Vice President – Risk Management from 2000 to 2016.

Mr. Candelmo has served as MGIC's Senior Vice President and Chief Information Officer since March 2019. He joined MGIC in October 2014 as its Vice President – Chief Technology Officer. Prior to joining MGIC, Mr. Candelmo had been Senior Vice President of Enterprise Information Services with SunTrust Bank since 2008. Prior to joining SunTrust, Mr. Candelmo had held various other leadership roles within the information technology discipline.



MGIC Investment Corporation 20192021 Form 10-K | 4241
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)Our Common Stock is listed on the New York Stock Exchange under the symbol “MTG.”
(a)Our Common Stock is listed on the New York Stock Exchange under the symbol “MTG.”

As of February 14, 2020,18, 2022, the number of shareholders of record was 272259. In addition, we estimate there are approximately 42,00056,100 beneficial owners of shares held by brokers and fiduciaries.

Information regarding equity compensation plans is contained in Item 12.

(b)Not applicable.
(b)Not applicable.

(c)Issuer Purchases of Equity Securities
(c)Issuer Purchases of Equity Securities
The following table provides information about purchases of MGIC Investment Corporation common stock by us during the three months ended December 31, 2019.2021.
Share repurchases
Period BeginningPeriod EndingTotal number of shares purchasedAverage price paid per shareTotal number of shares purchased as part of publicly announced plans or programs
Approximate dollar value of shares that may yet be purchased under the program (1)
October 1, 2021October 31, 20213,752,394 $15.99 3,752,394 $580,818,038 
November 1, 2021November 30, 20215,247,039 $15.40 5,247,039 $500,000,000 
December 1, 2021December 31, 2021— $— — $500,000,000 
8,999,433 $15.65 8,999,433 $500,000,000 

Share repurchases
Period Beginning Period Ending Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs 
Approximate dollar value of shares that may yet be purchased under the program (1)
October 1, 2019 October 31, 2019 —
 $—
 —
 $130,815,385
November 1, 2019 November 30, 2019 —
 $—
 —
 $130,815,385
December 1, 2019 December 31, 2019 1,400,976
 $14.26
 1,400,976
 $110,815,326
    1,400,976
 $14.26
 1,400,976
  
(1)In October 2021, we received authorization from our Board of Directors to repurchase an additional $500 million of our common stock through the end of 2023. Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time.

(1)
In addition to the approximately $111 million remaining on our share repurchase authorization from 2019, on January 28, 2020, our Board of Directors authorized a share repurchase program under which we may repurchase up to an additional $300 million of our common stock through the end of 2021. Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time.




MGIC Investment Corporation 20192021 Form 10-K | 4342
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


Item 6. Selected Financial Data
Summary of operations
  As of and for the Years Ended December 31,
(In thousands, except per share data) 2019 2018 2017 2016 2015
Revenues:          
Net premiums written $1,001,308
 $992,262
 $997,955
 $975,091
 $1,020,277
Net premiums earned 1,030,988
 975,162
 934,747
 925,226
 896,222
Investment income, net 167,045
 141,331
 120,871
 110,666
 103,741
Realized investment (losses) gains, net including net impairment losses 5,306
 (1,353) 231
 8,921
 28,361
Other revenue 10,638
 8,708
 10,205
 17,670
 12,964
Total revenues 1,213,977
 1,123,848
 1,066,054
 1,062,483
 1,041,288
           
Losses and expenses:    
  
  
  
Losses incurred, net 118,575
 36,562
 53,709
 240,157
 343,547
Change in premium deficiency reserve —
 —
 —
 —
 (23,751)
Underwriting and other expenses 194,769
 190,143
 170,749
 160,409
 164,366
Interest expense 52,656
 52,993
 57,035
 56,672
 68,932
Loss on debt extinguishment —
 —
 65
 90,531
 507
Total losses and expenses 366,000
 279,698
 281,558
 547,769
 553,601
Income before tax 847,977
 844,150
 784,496
 514,714
 487,687
Provision for (benefit from) income taxes (1)
 174,214
 174,053
 428,735
 172,197
 (684,313)
Net income $673,763
 $670,097
 $355,761
 $342,517
 $1,172,000
           
Weighted average common shares outstanding 373,924
 386,078
 394,766
 431,992
 468,039
           
Diluted income per share $1.85
 $1.78
 $0.95
 $0.86
 $2.60
           
Balance sheet data
Total investments $5,758,320
 $5,159,019
 $4,990,561
 $4,692,350
 $4,663,206
Cash and cash equivalents 161,847
 151,892
 99,851
 155,410
 181,120
Total assets 6,229,571
 5,677,802
 5,619,499
 5,734,529
 5,868,343
Loss reserves 555,334
 674,019
 985,635
 1,438,813
 1,893,402
Short- and long-term debt 575,867
 574,713
 573,560
 572,406
 —
Convertible senior notes —
 —
 —
 349,461
 822,301
Convertible junior subordinated debentures 256,872
 256,872
 256,872
 256,872
 389,522
Shareholders' equity 4,309,234
 3,581,891
 3,154,526
 2,548,842
 2,236,140
Book value per share 12.41
 10.08
 8.51
 7.48
 6.58
(1)
In 2017, we remeasured our net deferred tax assets at the lower enacted corporate income tax rate under the Tax Act. In 2015 we reversed the valuation allowance against our deferred tax assets. See Note 12 – "Income Taxes" to our consolidated financial statements in Item 8 for a discussion of tax matters and their impact on our consolidated financial statements.



MGIC Investment Corporation 2019 Form 10-K | 44
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


Item 6. Reserved.
Other data
           
  Years Ended December 31,
  2019 2018 2017 2016 2015
New primary insurance written ($ millions)
 $63,421
 $50,526
 $49,123
 $47,875
 $43,031
New primary risk written ($ millions)
 $15,811
 $12,657
 $12,217
 $11,831
 $10,824
           
IIF (at year-end) ($ millions)
      
  
  
Direct primary IIF $222,295
 $209,707
 $194,941
 $182,040
 $174,514
RIF (at year-end) ($ millions)
          
Direct primary RIF $57,213
 $54,063
 $50,319
 $47,195
 $45,462
Direct pool RIF      
  
  
With aggregate loss limits 213
 228
 236
 244
 271
Without aggregate loss limits 163
 191
 235
 303
 388
           
Primary loans in default ratios        
  
Policies in force 1,079,578
 1,058,292
 1,023,951
 998,294
 992,188
Loans in default 30,028
 32,898
 46,556
 50,282
 62,633
Percentage of loans in default 2.78% 3.11% 4.55% 5.04% 6.31%
           
Insurance operating ratios (GAAP)          
Loss ratio 11.5% 3.7% 5.7% 26.0% 38.3%
Underwriting Expense ratio 18.4% 18.2% 16.0% 15.3% 14.9%
           
Risk-to-capital ratio (statutory)          
Mortgage Guaranty Insurance Corporation 9.7:1
 9.0:1
 9.5:1
 10.7:1
 12.1:1
Combined insurance companies 9.6:1
 9.8:1
 10.5:1
 12.0:1
 13.6:1



MGIC Investment Corporation 20192021 Form 10-K | 4543
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION
As used below, “we” and “our” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as a separate entity, as the context requires. References to "we" and "our" in the context of debt obligations refer to MGIC Investment Corporation. See the "Glossary of terms and acronyms" for definitions and descriptions of terms used throughout this annual report. The Risk Factors contained in Item 1A discuss trends and uncertainties affecting us and are an integral part of the MD&A.

The following is a discussion and analysis of the financial conditions and results of operations for the years ended December 31, 2021 and 2020, including comparisons between 2021 and 2020. Comparisons between 2020 and 2019 have been omitted from this Form 10-K, but can be found in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC.

Forward Looking and Other Statements
As discussed under “Forward Looking Statements and Risk Factors” in Item 1A of Part 1 of this Report, actual results may differ materially from the results contemplated by forward looking statements. We are not undertaking any obligation to update any forward looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.

OVERVIEW
This Overview of the MD&A highlights selected information and may not contain all of the information that is important to readers of this Annual Report. Hence, this Overview is qualified by the information that appears elsewhere in this Annual Report, including the other portions of the MD&A.

Through our subsidiary, MGIC, we are a leading provider of PMI in the United States, as measured by $222.3$274.4 billion of primary IIF on a consolidated basis at December 31, 2019.2021.
Summary of financial results of MGIC Investment Corporation
Year Ended December 31,
(in millions, except per share data)20212020Change
Selected statement of operations data
Net premiums earned$1,014.4 $1,021.9 (1)%
Investment income, net of expenses156.4 154.4 1 %
Losses incurred, net64.6 364.8 (82)%
Other operating and underwriting expenses, net198.4 176.4 12 %
Loss on debt extinguishment36.9 26.7 38 %
Income before tax801.8 559.3 43 %
Provision for income taxes166.8 113.2 47 %
Net income635.0 446.1 42 %
Diluted income per share$1.85 $1.29 43 %
Non-GAAP Financial Measures (1)
Adjusted pre-tax operating income$831.7 $572.8 45 %
Adjusted net operating income658.6 456.8 44 %
Adjusted net operating income per diluted share$1.91 $1.32 45 %
(1)See "Explanation and Reconciliation of our use of Non-GAAP Financial Measures."
Summary of financial results of MGIC Investment Corporation
       
  Year Ended December 31,  
(in millions, except per share data) 2019 2018 Change
Selected statement of operations data      
Total revenues $1,214.0
 $1,123.8
 8 %
Losses incurred, net 118.6
 36.6
 224 %
Other operating and underwriting expenses, net 182.8
 178.2
 3 %
Income before tax 848.0
 844.2
 — %
Provision for income taxes 174.2
 174.1
 — %
Net income 673.8
 670.1
 1 %
Diluted income per share $1.85
 $1.78
 4 %
       
Non-GAAP Financial Measures (1)
      
Adjusted pre-tax operating income $842.9
 $845.5
 — %
Adjusted net operating income 669.7
 668.7
 — %
Adjusted net operating income per diluted share $1.84
 $1.78
 3 %
(1)
See "Explanation and Reconciliation of our use of Non-GAAP Financial Measures."


MGIC Investment Corporation 20192021 Form 10-K | 4644
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms


SUMMARY OF 20192021 FINANCIAL RESULTS
Net income of $673.8$635.0 million for 20192021 increased by $3.7$188.9 million when compared to the prior year, and diluted income per share of $1.85 increased by 4%43% when compared to the prior year. These increases primarily reflect a decrease in losses incurred, partially offset by increases in the provision for income taxes, other underwriting and operating expenses, net, and loss on debt extinguishment.

Diluted income per share increased due to a an increase in revenuesnet income and fewera decrease in the number of diluted weighted average diluted shares outstanding, which was partially offset by an increase in losses incurred. outstanding.

Adjusted net operating income of $669.7for 2021 was $658.6 million for 2019 (2018: $668.7(2020: $456.8 million) and adjusted net operating income per diluted share of $1.84 (2018: $1.78) each increased from the prior year primarilywas $1.91 (2020: $1.32). Adjusted net operating income for the same reasons.2021 and 2020 included adjustments for a loss on debt extinguishment and net realized investment gains.

Losses incurred, net were $118.6$64.6 million, compared to $36.6$364.8 million the prior year. The increasedecrease reflects fewer delinquency notices in 2021 compared with 2020 which was impacted by the COVID-19 pandemic and the resultant macroeconomic environment.

The decrease in losses incurred in 2021 was also due to lower favorable loss reserve development on previously received delinquency notices when comparedof $60.0 million primarily due to the prior year, partially offset by a decrease in losses incurred on delinquency notices received in the current year. The estimated claim rate on new delinquency notices receivedpre-COVID and peak COVID delinquencies (those that occurred in 2019the second and third quarters of 2020). The favorable loss reserve development was 8%offset by the recognition of a probable loss of $6.3 million related to litigation of our claims paying practice. In 2020 we experienced adverse loss reserve development of $19.6 million primarily due to an increase in the estimate of claim severity.

The increase in our provision for income taxes to $166.8 million in 2021 compared to $113.2 million in 2020 was primarily due to an increase in income before tax. Our effective tax rate for 2021 was 20.8% compared to 20.2% for 2020.

Other operating and underwriting expenses, net increased to $198.4 million in 2021 from $176.4 million in 2020 primarily due to increases in professional and consulting services, offset by an increase in ceding commissions.

We recorded a loss on debt extinguishment of $36.9 million in 2021 associated with the repurchase of a portion of our 9% Debentures and $26.7 million in 2018.2020 associated with the repurchases of a portion of each of our 5.75% Notes and our 9% Debentures.

BUSINESS ENVIRONMENT
Economic conditions
Current U.S. economic conditions continue to support favorable housing fundamentals, such as low unemployment, strong consumer confidence,Low interest rates, increasing household formations and appreciating home values. We benefit fromvalues supported favorable housing fundamentals thattrends in 2021. These factors contributed to an increase in home purchase activity and provide borrowers reliable, or increasing, financial resources.

Asin 2021, after a result ofstrong 2020. Refinance activity was also robust during 2021, but decreased throughout the current and expected economic conditions, mortgage interest rates have been lower on average in 2019 compared to 2018. The lower mortgage rates materially increased refinancing activity but did not have a material impact on home purchasing activity in 2019. The homeownership rate increased slightly in 2019.year. The continued favorable housing fundamentals and the increase in refinancing transactionstrends resulted in an increase in our NIW, from $120.2 billion in 20192021 when compared to 2018.$112.1 billion in 2020.

While uncertain, the COVID-19 pandemic may adversely impact our future financial results, business, liquidity and/or financial
condition. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in the United States, efforts to reduce the transmission of COVID-19, the level of unemployment, and the impact of government initiatives and actions taken by Fannie Mae and Freddie Mac (the "GSEs") (including mortgage forbearance and modification programs) to mitigate the economic harm caused by COVID-19.

The level of unemployment, interest rates, and home prices may change in the future. For the possible effects of such changes, see our risk factors titled "If the volume of low down payment home mortgage originations declines, the amount of insurance that we write could decline,” “Downturns in the domestic economy or declines in the value of borrowers’ homes from their value at the time their loans closedhome prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns,” and “Changes in interest rates, house prices or mortgage insurance cancellation requirements may change the length of time that our policies remain in force.force," and "The COVID-19 pandemic may materially impact our financial results, business, liquidity, and/or financial condition."


Mortgage lendinginsurance market
The past several years of favorable housing fundamentals and in our view, favorable risk characteristics of our recently insured loans have contributed to our declining delinquent inventory, and lower losses incurred and claims paid. Our most recent book years continue to experience a low level of losses.growing insurance in force.

After easing somewhat in 2018, lending standards became tighter again in 2019. The percentage of our NIW with DTI ratios over 45% and LTV's over 95% increased significantlyslightly in 20182021 compared to recent years but declined in 2019. Change in both yearswith 2020. The increase was primarily driven by adjustments to GSE underwriting guidelines for loans with DTI ratios over 45%. Thean increase in the percentage of our NIW fromhome price appreciation and an increase in purchase activity with a corresponding decrease in refinance transactions in 2019 due to the low interest rate environment also resulted in a lower percentage of our NIW with LTV ratios over 95% in 2019 compared with 2018.activity.

Refer to "Mortgage Insurance Portfolio" for additional discussion of changes in our NIW mix during 2019.2020.

Competition
PMI. The private mortgage insurance industry is highly competitive and is expected to remain so. We believe that we currently compete with other private mortgage insurers based on premium rates, underwriting requirements, financial strength (including based on credit or financial strength ratings), customer relationships, name recognition, reputation, strength of management teams and field organizations, the ancillary products and services provided to lenders and the effective use of technology and innovation in the delivery and servicing of our mortgage insurance products.

Pricing practices
Much of the competition inIn recent years, the industry in the last few years has centered on pricing practices which have included: (i) reductions in standard filed rates; (ii)materially reduced its use of customizedstandard rate plans (typically lower than standard rates)cards, which were fairly consistent among competitors, and correspondingly increased its use of (i) "risk-based pricing systems" that are made available to lenders that meet certain criteria; and (iii) use of a spectrum of filed rates to allow for formulaic, risk-based pricing based on multiple attributes that may be quickly adjusted within certain parameters, (referredand (ii) customized rate plans, both of which typically have rates lower than the standard rate card. Our increased use of reinsurance over the past several years, and the improved credit profile and reduced loss expectations associated with loans insured after 2008, have helped to as "risk-based pricing systems").mitigate the negative effect of declining premium rates on our expected returns. We expect our direct premium ratesyield to continue to decline.decline as older policies with higher premium rates run off, and are replaced with new insurance policies, which generally have lower premium rates.

In 2019, we introduced MiQ,MGIC Investment Corporation 2021 Form 10-K | 45
MGIC Investment Corporation and Subsidiaries



For information about competition in the private mortgage insurance industry, see our risk-based pricing system that establishesrisk factor titled “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium rates based on more risk attributes than were consideredyields and/or increase our losses" in 2018.Item 1A.

GSE Risk Share Transactions
In 2018, the GSEs initiated secondary mortgage market programs with loan level mortgage default coverage provided by various (re)insurers that are not mortgage insurers governed by PMIERs, and that are not selected by the lenders. Due to differences in policy terms, these


MGIC Investment Corporation 2019 Form 10-K | 47
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

programs may offer premium rates that are below prevalent single premium LPMI rates. While we view these programs as competing with traditional private mortgage insurance, we have participated in them and may participate in future GSE or other programs.these programs from time to time.
The GSEs (and other investors) have also used other forms of credit enhancement that did not involve traditional private mortgage insurance, such as engaging in credit-linked note transactions executed in the capital markets, or using other forms of debt issuances or securitizations that transfer credit risk directly to other investors, including competitors and an affiliate of MGIC; using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage; or accepting credit risk without credit enhancement.

Government programs. PMI also competes against government mortgage insurance programs such as the FHA, VA, and USDA, primarily for lower FICO score business. While theThe combined market share of primary mortgage insurance written by government programs continuedcontinues to exceed that written by PMI in 2019, PMI recaptured some share from those programs.2020 and 2021. The strong refinance markets increased PMI's share of refinances in 2019,2020 and 2021, and PMI premium rate reductions, have contributed to a PMI market share consistent with 2018 and 2019, which were at its highest levellevels since the financial crisis.

Refer to "Mortgage Insurance Portfolio" for additional discussion of the 20192021 business environment and the impact it had on operating measures including NIW, IIF and RIF.

PMIERs
Since December 31, 2015 we have operatedWe operate under the requirements of the PMIERs of the GSEs in order to insure loans delivered to or purchased by them. The PMIERs include financial requirements as well as business, quality control and certain transactional approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s "Available Assets" (generally only the most liquid assets of an insurer) to equal or exceed its "Minimum Required Assets" (which are based on an insurer's book of insurancerisk in force, calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor amount). Based on our application of the more restrictive PMIERs, MGIC's Available Assets under PMIERs totaled $4.6$5.7 billion, an excess of $1.2$2.2 billion over its Minimum Required Assets at December 31, 2019.2021.

BUSINESS OUTLOOK FOR 20202022
Our outlook for 20202022 should be viewed against the backdrop of the business environment discussed above.

NIW
Our NIW is affected by total mortgage originations, the percentage of total mortgage originations using private mortgage insurance (the "PMI penetration rate"), and our market share within the PMI industry. As of late January 2020,2022, the total mortgage origination forecasts from the GSEs and MBA indicate average mortgage originations of $2$3.1 trillion in 2020. The purchase2022, compared to an average estimated $4.4 trillion in 2021. Purchase originations are expected to increase in 2020,2022, compared to 2019. Our2021, while refinance transactions are expected to decrease. As a result of the decrease in forecasted mortgage originations, we are expecting NIW from refinance originations is expected to be lower in 20202022 compared to 2021. The reduction will be driven primarily by a strong 2019. In 2019, the majority of the refinances were from recent books that experienced only a modest level of price appreciation. Therefore, many of the refinanced loansdecrease in 2019 required mortgage insurance. As a result, we expect the PMI penetration rate to decline somewhat in 2020.refinance activity.

The widespread use of loan levelrisk based pricing systems by the PMI industry makes it more difficult to compare our rates to those offered by our competitors. We may not be aware of industry rate changes until we observe that our volume of NIW has changed. In addition, business under customized rate plans is awarded by certain customers for only limited periods of time. As a result, our NIW may fluctuate more than it had in the past.

IIF and RIF
Our IIF increased 6.0%11.3% in 2019 and we2021. We expect our IIF to grow in 2020.2022, but at a slower rate than what we experienced in 2021. Our book of IIF is an important driver of our future revenues, and its growth is driven by our ability to generate NIW andretain existing policies in force, as measured by our persistency. Interest rates influence both our NIW and persistency. InGenerally speaking, in a rising rate environment, total mortgage originations may decline,decline; however, absent material accumulated home price appreciation since the issuance of a policy, we would also expect policy cancellation rates to decline, and in turn increase persistency, although the impact generally lags the change in interest rates. The Federal Reserve has indicated that interest rates may increase in 2022 and home price appreciation is expected to slow in 2022 when compared to the record highs of 2021.

Results of operations
Premiums. Despite an increase in IIF, we expect our 20202022 earned premiums (on a direct basis) to be lower than they were in 2019.2021. Overall, our premium rates have been trending down in recent years, including in 2019, and2021, as the books of business written at lower rates represent an increasing percentage of our total IIF.

Our 2020 direct2022 net premiums written andare expected to be comparable to 2021, while our net premiums earned are expected to be lower than 2019.decrease in 2022. Our net premiums written and earned will be impacted by the decreasedownward trend in premium rates noted above and by the amount of premiums we cede under our quota share and excess of loss reinsurance transactions.transactions, offset by an increase in IIF. Net premiums earned are also impacted by the amount of accelerated premiums from single premium policy cancellations, which generally decrease as refinance activity decreases. Our unearned premium decreased to $241.7 million at December 31, 2021 from $287.1 million at December 31, 2020. The amount of profit commission we receive, which reduces the amount of premiums we cede, is variable year-to-year and is dependent on the amount of losses ceded. Our profit commission in recent years has benefited from favorable loss reserve development associated with delinquency notices received in prior years. The actual amount of premiums we cede in 20202022 will be affected by any changes in our reinsurance coverage.



MGIC Investment Corporation 20192021 Form 10-K | 4846
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms

by any changes in our reinsurance coverage, such as the addition of new excess of loss coverage.

Factors that affect the amount of premiums we earn from our IIF are further discussed in our "Consolidated Results of Operations - Premium yield."

Investment income. Net investment income is a material contributor to our results of operations. We expect net investment income in 20202022 to be comparable to 2019. We expect our invested assets will remain relatively flat as we return capital to our shareholders (see "Capital" below).2021. The amount of investment income will be impacted by the change in the yield we can earn on investments.investments and the level of invested assets. The level of invested assets will primarily be impacted by the amount of cash we expect to use in financing activities relative to our cash from operations. The magnitude of any change in our invested asset level will be subject to the timing of our financing activities.

Losses. We expect 2020Losses incurred, net in 2021 were $64.6 million, a decrease of $300.2 million over the prior year losses incurred with respect toof $364.8 million. The decrease reflects fewer delinquency notices received in 2021 compared with 2020 which was impacted by the COVID-19 pandemic. The decrease was also due to be lowerfavorable loss reserve development of $60.0 million recognized in 2021 compared to adverse loss development of $19.6 million in 2020. Through December 31, 2021, our re-estimation of reserves resulted in favorable development on pre-COVID and peak COVID delinquencies as a result of a decrease in the estimated claim rate on those delinquencies. In 2020, we experienced adverse loss development of $19.6 million primarily related to an increase in the estimate of claim severity.

We expect our delinquency inventory to continue to decrease in 2022, but at a slower rate than the comparable amount for 2019 aswhat we experienced in 2021. As foreclosure moratoriums and forbearance plans end, we expect to receive fewer new delinquency noticessee an increase in 2020.claims received and claims paid.

Underwriting and operating expenses, net. We expect underwriting and operating expenses, net to increase in 2022 as we invest in our technology and data and analytics infrastructure to execute our strategies.

Income taxes. We expect our 20202022 effective tax rate to be approximately 21%.



CAPITAL
MGIC dividend payments to our holding company
The ability of MGIC to pay dividends is restricted by insurance regulation. Amounts in excess of prescribed limits are deemed “extraordinary” and may not be paid if disapproved by the OCI. A dividend is extraordinary when the proposed dividend amount, plus dividends paid in the twelve months preceding the dividend payment date exceed the ordinary dividend level. At December 31, 2021 MGIC could pay $122 million of ordinary dividends without OCI approval, before taking into consideration dividends paid in the preceding twelve months. In 20192021 and 2018,2020, MGIC paid a totalcash and/or investment security dividend of $280$400 million and $220$390 million, respectively, in dividends to our holding company. We have receivedIn 2020 MGIC distributed to the appropriate approvals forholding company, as a dividend, its ownership in $133 million of the holding company’s 9% Debentures. Future dividend payments from MGIC to pay to ourthe holding company will continue to be determined in consultation with the first quarter of 2020, a special dividend of $320 million and a quarterly dividend of $70 million. We expect to use most of the proceeds of the special dividend to repurchase our common stock as discussed below. We expect MGIC to pay quarterly dividends totaling at least $280 million per year, subject to approval by MGIC’s Board of Directors. We ask the OCI not to object before MGIC pays dividends.board.

Share repurchase programs
In 2019 and 2018, we repurchased approximately 8.7 million and 16.0 million shares of our common stock, respectively, using approximately $114 million and $175 million, respectively, of holding company resources. We received approval to repurchase up to an additional $300 million of our common stock through the end of 2021. The following table shows details of our share repurchase programs.
Repurchase ProgramExpiration DateRepurchased (in millions)
Authorization Remaining
(in millions)

2018 AuthorizationDecember 31, 2019200
 
2019 AuthorizationDecember 31, 202089
111
2020 AuthorizationDecember 31, 2021 300
From January 1, 2020, through February 19, 2020, we repurchased approximately 2.5 million shares of our common stock for approximately $35 million.

Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase programs may be suspended for periods or discontinued at any time. After suspending stock repurchases due to the COVID 19 pandemic, we repurchased approximately 19.0 million in the second half of 2021 using approximately $291 million of holding company resources. Prior to the COVID 19 pandemic, we repurchased approximately 9.6 million shares of our common stock in the first quarter of 2020 using approximately $120 million of holding company resources. As of December 31, 2021, we had $500 million of authorization remaining to repurchase our common stock through the end of 2023 under a share repurchase program approved by our Board of Directors in October 2021.

The following table shows details of our share repurchase programs.
Repurchase ProgramExpiration DateRepurchased (in millions)Authorization Remaining
(in millions)
2019 AuthorizationDecember 31, 2020$200 $— 
2020 AuthorizationDecember 31, 2021$300 $— 
2021 AuthorizationDecember 31, 2023$— $500 
As of December 31, 2021, we had approximately 347320,336 million shares of common stock outstanding.

Dividends to shareholders
In 2019, MGICthe first and second quarters of 2021, we paid quarterly cash dividends of $0.06 per common share to its shareholders inwhich totaled $41.1 million. In the third and fourth quarters totaling $42of 2021, we paid a quarterly cash dividend of $0.08 per share which totaled $53.6 million. On January 27, 2020, our25, 2022, the Board of Directors declared a quarterly cash dividend to holders of $0.06the company's common stock of $0.08 per common share payable on March 2, 2022, to shareholders of record at the close of business on February 11, 2020, payable on February 28, 2020.16, 2022.

For additional information about how the payment of dividends by our holding company will result in an adjustment to the conversion rate and price of our convertible securities, see our risk factor titled “Your ownership in our company may be diluted by additional

MGIC Investment Corporation 2021 Form 10-K | 47
MGIC Investment Corporation and Subsidiaries


capital that we raise or if the holders of our outstanding convertible debt convert that debt into shares of our common stock” in Item 1A.

GSEs
We must comply with a GSE's PMIERs to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transaction 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 generally based on an insurer’s book of insurancerisk in force and are calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions,transactions).

The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and are subjectthe Minimum Required Assets required to be held increases as the number of payments missed on a floor amount).delinquent loan increases.

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


MGIC Investment Corporation 2019 Form 10-K | 49
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

è

The GSEs may make the PMIERs more onerous in the future. The PMIERs provide that the factors that determine Minimum Required Assets will be updated periodically, or as needed if there is a significant change in macroeconomic conditions or loan performance. We do not anticipate that the regular periodic updates will occur more frequently than once every two years. The PMIERs state that the GSEs will provide notice 180 days prior to the effective date of updates to the factors; however, the GSEs may amend any portion of the PMIERs at any time.
è

There may be future implications for PMIERs based upon forthcomingas a result of changes to the regulatory capital requirements for the GSEs. In 2018,2020, the FHFA adopted a rule containing a capital framework for the GSEs that generally would have become effective on the date of termination of the FHFA’s conservatorship of the applicable GSE. In September 2021, the FHFA issued a notice of proposed rule-making that would modify that capital rule for the GSEs, whichframework. In light of recent home price appreciation, countercyclical adjustments included a framework for determiningin the capital relief allowedrequirements could lead to the GSEssignificantly higher capital requirements for loans with privateloan-to-vale ("LTV") ratios greater than 80%. When the final GSE capital requirements have been determined and become effective, they may affect the Minimum Required Assets required to be held by mortgage insurance. The FHFA recently indicated that it plans to re-propose a capital rule as early as the first quarter of 2020, although the timing and content of the proposal is uncertain. Further, any changes to the GSEs' capital and liquidity requirements resulting from the Treasury Housing Reform Plan could have future implications for PMIERs.insurers.
èOur future operating results may be negatively impacted by the matters discussed in our risk factors. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby creating a shortfall in Available Assets.
èShould capital be needed by MGIC in the future, capital contributions from our holding company may not be available due to competing demands on holding company resources, including for repayment of debt.

Our reinsurance transactions enable us to earn higher returns on our business than we would without them because fewer Availablethey reduce the Minimum Required Assets are required to be heldwe must hold under PMIERs. However, reinsurance may not always be available to us; or available on similar terms, and our quota share reinsurance subjects us to counterparty credit risk. The totalcalculated credit under the PMIERS for risk ceded under ourexcess of loss reinsurance transactions under PMIERs is subject to a modest reduction.generally based on the PMIERs requirement of the covered loans and the attachment and detachment point of the coverage. PMIERs credit is generally not given for the reinsured risk above the PMIERs requirement. Our existing reinsurance transactions are subject to periodic review by the GSEs and there is a risk we will not receive our current level of credit in future periods for the risk ceded under them. In addition, we may not receive the same level of credit under future transactions that we receive under existing transactions.

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

MGIC Investment Corporation 2021 Form 10-K | 48
MGIC Investment Corporation and a portion of the reserve for unearned premiums.Subsidiaries


At December 31, 2019,2021, MGIC’s risk-to-capital ratio was 9.79.5 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.0$3.4 billion above the required MPP of $1.7$1.9 billion. The calculation of ourOur risk-to-capital ratio and MPP reflect full credit for the risk ceded under our QSR Transactions and Home Re Transactions.reinsurance transactions. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded to the reinsurers.under such transactions. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the PMIERs, MGIC may terminate the reinsurance transactions, without penalty. At this time, we expect MGIC to continue to comply with the current State Capital Requirements; however, refer to our risk factor titled “State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis” in Item 1A for more information about matters that could negatively affect such compliance.
At December 31, 2019,2021, the risk-to-capital ratio of our combined insurance operations (which includes a reinsurance affiliate) was 9.69.5 to 1.
The NAIC has previously announced plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model Act. In December 2019, a working group of state regulators released an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements and certain items have not yet been completely addressed by the framework, including the treatment of ceded risk and minimum capital floors. Currently we believe that the PMIERs contain more restrictive capital requirements than the draft Mortgage Guaranty Insurance Model Act in most circumstances.

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

In September 2019, at the direction of President Trump, the U.S. Treasury Department ("Treasury") released the “Treasury Housing Reform Plan” (the "Plan"). The Plan


MGIC Investment Corporation 2019 Form 10-K | 50
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

recommends administrative and legislative reforms for the housing finance system, with such reforms intended to achieve the goals of ending the conservatorships of the GSEs; increasing competition and participation by the private sector in the mortgage market including by authorizing the FHFA to approve additional guarantors of conventional mortgages in the secondary market, simplifying the qualified mortgage ("QM") rule of the Consumer Financial Protection Bureau ("CFPB"), transferring risk to the private sector, and eliminating the "GSE Patch" (discussed below); establishing regulation of the GSEs that safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the United States; and providing that the federal government is properly compensated for any explicit or implicit support it provides to the GSEs or the secondary housing finance market. Also in September 2019, the Treasury and FHFA entered into a letter agreement that will allow the GSEs to remit less of their earnings to the government, which will help them rebuild their capital.

The impact of the Plan on private mortgage insurance is unclear. The Plan does not refer to mortgage insurance explicitly; however, it refers to a requirement for credit enhancement on high LTV ratio loans, which is a requirement of the current GSE charters. The Plan also indicates that the FHFA should continue to support efforts to expand credit risk transfer ("CRT") programs and should encourage the GSEs to continue to engage in a diverse mix of economically sensible CRT programs, including by increasing reliance on institution-level capital (presumably, as distinguished from capital obtained in the capital markets). For more information about CRT programs, see our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."

The current GSE Patch expands the definition of QM under the Truth in Lending Act (Regulation Z) ("TILA") to include mortgages eligible to be purchased by the GSEs, even if the mortgages do not meet the debt-to-income ("DTI") ratio limit of 43% that is included in the standard QM definition. Originating a QM may provide a lender with legal protection from lawsuits that claim the lender failed to verify a borrower’s ability to repay. The GSE Patch is scheduled to expire no later than January 2021. Approximately 27% and 22% of our NIW in the first and second halves of 2019, respectively, was on loans with DTI ratios greater than 43%. However, it is possible that expiration of the GSE Patch will be delayed and that not all future loans with DTI ratios greater than 43% will be affected by such expiration. In this regard, we note that the CFPB recently indicated that it expects to issue for comment, no later than May 2020, a proposed new "ability-to-repay" ("ATR") rule that would replace the use of DTI ratio in the definition of QM with an alternative measure, such as a pricing threshold. The CFPB also indicated that it would extend the expiration of the GSE Patch until the earlier of the effective date of the
proposed alternative or until one of the GSEs exits conservatorship.

We insure loans that do not qualify as QMs; however, we are unsure the extent to which lenders will make non-QM loans because they will not be entitled to the presumptions about compliance with the ATR rule that the law allows with respect to QM loans. We are also unsure the extent to which lenders will purchase private mortgage insurance for loans that cannot be sold to the GSEs.
The QM definition for loans insured by the FHA, which was issued by the Department of Housing and Urban Development (“HUD”), is less restrictive than the CFPB’s definition in certain respects, including that (i) it has no DTI ratio limit, and (ii) it allows lenders certain presumptions about compliance with the ATR rule on higher priced loans. It is possible that, in the future, lenders will prefer FHA-insured loans to loans insured by private mortgage insurance asAs a result of the FHA’s less restrictive QM definition. However,2021 change in September 2019, HUD released its Housing Reform Planthe Presidential Administration, the June 2021 appointment of a new Acting Director of the FHFA who has also been nominated to become the full-time Director, and indicatedthe 2021 U.S. Supreme Court decision that allows the President to remove the FHFA Director at will, it is uncertain what role the GSEs, FHA should refocus on its mission of providingand private capital, including private mortgage insurance, will play in the residential housing finance supportsystem in the future. The timing and impact on our business of any resulting changes is uncertain. Many of the proposed changes would require Congressional action to low-implement and moderate-income families that cannotit is difficult to estimate when Congressional action would be fulfilled through traditional underwriting. In addition, Treasury's Plan indicated that the FHFAfinal and HUD should develop and implement a specific understanding as to the appropriate roles and overlap between the GSEs and FHA, including with respect to the GSEs’ acquisitions of high LTV ratio and high DTI ratio loans.how long any associated phase-in period may last.

For additional information about the business practices of the GSEs, see our risk factor titled “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses” in Item 1A.

LOAN MODIFICATIONS AND OTHER SIMILAR PROGRAMS
COVID-19 PANDEMIC
The federalCOVID-19 pandemic had a material impact on our 2020 financial results. While uncertain, the impact of the COVID-19 pandemic on the Company’s future business, financial results, liquidity and/or financial condition may also be material. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in the United States, efforts to reduce the transmission of COVID-19, the level of unemployment, and the impact of government initiatives and actions taken by the GSEs (including mortgage forbearance and modification programs) to mitigate the economic harm caused by the COVID-19 pandemic.
In certain circumstances, the servicer of a loan may be unable to contact the borrower regarding an extension of the forbearance plan and it will expire without being extended. A delinquent mortgage for which the borrower was unable to be contacted and that is not in a forbearance plan may be more likely to result in a claim than a delinquent loan in a forbearance plan. The substantial majority of our NIW was delivered to or purchased by the GSEs. While servicers of some non-GSE loans may not be required to offer forbearance to borrowers, we allow servicers to apply GSE loss mitigation programs to non-GSE loans. In addition, the CFPB requires substantial loss mitigation efforts be made prior to servicers initiating foreclosure, therefore, servicers of non-GSE loans may have an incentive to offer forbearance or deferment.
Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. As of December 31, 2021 and 2020, 33% and 62% of our delinquency inventory was reported to us as in forbearance plans, respectively. Whether a loan's delinquency will cure, including through modification, when its forbearance plan ends will depend on the U.S. Departmenteconomic circumstances of the Treasury and the GSEs, and several lenders have modification and refinance programs to make outstandingborrower at that time. The severity of losses associated with loans more affordable to borrowers with the goal of reducing the number of foreclosures. These programs included HAMP, which expiredwhose delinquencies do not cure will depend on economic conditions at the end of 2016, and HARP, which expired at the end of 2018. that time, including home prices.
The GSEs have introduced otherspecific loss mitigation options for borrowers impacted by COVID-19 when their forbearance plans end, including the COVID-19 Payment Deferral solution for borrowers who are unable to immediately or gradually repay their missed loan modifications programspayments. Under the COVID-19 Payment Deferral solution, the borrower's monthly loan payment would be returned to replace HAMPits pre-COVID amount and HARP.the missed payments would be added to the end of the mortgage term without accruing any additional interest or late fees. The deferred payments would be due when the loan is paid off, refinanced or the home is sold.

We cannot determineThe foreclosure moratoriums and forbearance plans in place under the total benefit we may derive from loan modification programs, particularly givenGSE initiatives have delayed the uncertainty aroundreceipt and payment of claims. Foreclosures on mortgages purchased or securitized by the re-default ratesGSEs were suspended through July 31, 2021. Under a CFPB rule that was effective through December 31, 2021, with limited exceptions, servicers were required to ensure that at least one temporary procedural safeguard had been met before referring 120-day delinquent loans for defaulted loansforeclosure. With the expiration of the CFPB rule, it is likely that have been modified. Our loss reserves do not account for potential re-defaults of current loans.foreclosures and claims will increase.




MGIC Investment Corporation 20192021 Form 10-K | 5149
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms

The following table shows the percentage of our primary RIF that has been modified as of December 31, 2019.
Modifications
     
Policy Year 
HARP (1)
Modifications
 HAMP & Other Modifications
2003 and Prior 9.9% 49.9%
2004 16.4% 53.6%
2005 24.0% 50.9%
2006 28.0% 47.6%
2007 40.6% 36.3%
2008 57.8% 22.6%
2009 51.9% 11.7%
2010 - 2019 —% 0.5%
     
Total 4.6% 5.5%
(1)
Includes proprietary programs that are substantially the same as HARP.

Approximately 10.1% of our total primary RIF has been modified as of December 31, 2019. Based on loan count at December 31, 2019, the loans associated with 97.6% of all HARP modifications and 79.5% of HAMP and other modifications were current.

FACTORS AFFECTING OUR RESULTS
As noted above, the COVID-19 pandemic may adversely affect our future business, results of operations, and financial condition. The extent of the adverse effects will depend on the duration and severity of the COVID-19 pandemic, the ultimate effect of COVID-19 related delinquencies and forbearances on our loss incidence, and the effect of the pandemic on the U.S. economy and housing market. We have addressed some of the potential impacts throughout this document.
The future effects of changing climatic conditions on our business is uncertain. For information about possible effects, please refer to our Risk Factor titled “Pandemics, hurricanes and other natural disasters may impact our incurred losses, the amount and timing of paid claims, our inventory of notices of default and our Minimum Required Assets under PMIERs.”

Our results of operations are affected by:

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

•Cancellations, which reduce IIF. Cancellations due to refinancing are affected by the level of current mortgage interest rates compared to the mortgage coupon rates throughout the in force book, current home values compared to values when the loans in the in force book were insured and the terms on which mortgage credit is available. Home price appreciation can give homeowners the right to cancel mortgage insurance on their loans if sufficient home equity is achieved. Cancellations also result from policy rescissions, which require us to return any premiums received on the rescinded policies, and claim payments, which require us to return any premium received on the related policies from the date of default on the insured loans.
Cancellations of single premium policies, which are generally non-refundable, result in immediate recognition of any remaining unearned premium.

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

•
Premiums ceded, net of a profit commission, under our QSR Transactions, and premiums ceded under our Home Re Transactions. See Note 9 – “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance transactions.

•Premiums ceded, net of profit commission under our QSR Transactions, and premiums ceded under our Home Re Transactions. The profit commission varies inversely with the level of ceded losses incurred on a “dollar for dollar” basis and can be eliminated at ceded loss levels higher than we experienced in 2021. As a result, lower levels of losses incurred result in a higher profit commission and less benefit from ceded losses incurred; higher levels of losses incurred result in more benefit from ceded losses incurred and a lower profit commission (or for certain levels of accident year loss ratios, its elimination). See Note 9 – “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance transactions.

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

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


repurchases, and dividends.

MGIC Investment Corporation 2019 Form 10-K | 52
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms


Losses incurred
Losses incurred are the current expense that reflects estimatedclaim payments, cost of settling claims, and changes in our estimates of payments that will ultimately be made as a result of delinquencies on insured loans. As explained under “Critical Accounting PoliciesEstimates” below, except in the case of a premium deficiency reserve, we recognize an estimate of this expense only for delinquent loans through case reserves.loans. The level of new delinquencies has historically followed a seasonal pattern, with new delinquencies in the first part of the year lower than new delinquencies in the latter part of the year, though this pattern can be affected by the state of the economy and local housing markets. Pandemics, including COVID-19, and other natural disasters may result in delinquencies not following the typical pattern. Losses incurred are generally affected by:

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


MGIC Investment Corporation 2021 Form 10-K | 50
MGIC Investment Corporation and Subsidiaries


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

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

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

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

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

•
Losses ceded under reinsurance agreements. See Note 9 – “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance agreements.

•Losses ceded under reinsurance agreements. See Note 9 – “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance agreements.

UnderwritingUnderwriting and other expenses
Underwriting and other expenses includesinclude items such as employee compensation, fees for professional and consulting services, depreciation and maintenance expense, and premium taxes, and are reported net of ceding commissions associated with our reinsurance agreements.QSR Transactions. Employee compensation expenses are variable due to share-based compensation, changes in benefits, and changes in headcount (which can fluctuate due to volume). See Note 9 – “Reinsurance” to our consolidated financial statements for a discussion of ceding commission on our reinsurance agreements.QSR Transactions.

Interest expense
Interest expense reflects the interest associated with our consolidated outstanding debt obligations and former credit facility discussed in Note 7 – “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” below.

Other
Certain activities that we do not consider being part of our fundamental operating activities may also impact our results of operations and are described below.

Net realized investment gains (losses)
•Fixed income securities. Realized investment gains and losses are a function ofreflect the difference between the amount received on the sale of a fixed income security and the fixed income security’s cost basis, as well as any “othercredit allowances and any "other than temporary”temporary" impairments (“OTTI”) recognized in earnings. The amount received on the sale of fixed income securities is affected by the coupon rate of the security compared to the yield of comparable securities at the time of sale.

•Equity securities. Effective January 1, 2018, realizedRealized investment gains and losses are accounted for as a function of the periodic change in fair value. For 2017, realized investment gains and losses were accounted for as a function of the difference between the amount received on the sale of an equity security and the equity security’s cost basis, as well as any OTTI recognized in earnings.

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

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



MGIC Investment Corporation 2019 Form 10-K | 53
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

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



MGIC Investment Corporation 20192021 Form 10-K | 5451
MGIC Investment Corporation and Subsidiaries
Management's Discussion

CYBERSECURITY
We are increasingly reliant on the efficient and Analysisuninterrupted operation of complex information technology systems. All information technology systems are potentially vulnerable to damage or interruption from a variety of sources, including by third-party cyber attacks, including those involving ransomware. The Company discovers vulnerabilities and experiences malicious attacks and other attempts to gain unauthorized access to its systems on a regular basis. Globally, attacks are expected to continue accelerating in both frequency and sophistication with increasing use by actors of tools and techniques that will hinder the Company’s ability to identify, investigate and recover from incidents. In response to the
TableCOVID-19 pandemic, the Company transitioned to a primarily virtual workforce model and will likely continue to operate under a hybrid model in the future. Virtual and hybrid workforce models may be more vulnerable to security breaches.
While we have information security policies and systems in place to secure our information technology systems and to prevent unauthorized access to or disclosure of Contents | Glossarysensitive information, there can be no assurance with respect to our systems and those of terms and acronymsour third-party vendors that unauthorized access to the systems or disclosure of the sensitive information, either through the actions of third parties or employees, will not occur.
For additional information about the business practices of the GSEs, see our risk factor titled “We could be adversely affected if personal information on consumers that we maintain is improperly disclosed, our information technology systems are damaged or their operations are interrupted, or our automated processes do not operate as expected.” in Item 1A.



MGIC Investment Corporation 2021 Form 10-K | 52
MGIC Investment Corporation and Subsidiaries



The following table shows five years of selected financial information.
Summary of operations
As of and for the Years Ended December 31,
(In thousands, except per share data)20212020201920182017
Revenues:
Net premiums written$969,010 $928,742 $1,001,308 $992,262 $997,955 
Net premiums earned1,014,419 1,021,943 1,030,988 975,162 934,747 
Investment income, net156,438 154,396 167,045 141,331 120,871 
Realized investment (losses) gains, net including net impairment losses6,582 13,752 5,306 (1,353)231 
Other revenue8,236 9,055 10,638 8,708 10,205 
Total revenues1,185,675 1,199,146 1,213,977 1,123,848 1,066,054 
Losses and expenses:  
Losses incurred, net64,577 364,774 118,575 36,562 53,709 
Underwriting and other expenses211,047 188,778 194,769 190,143 170,749 
Interest expense71,360 59,595 52,656 52,993 57,035 
Loss on debt extinguishment36,914 26,736 — — 65 
Total losses and expenses383,898 639,883 366,000 279,698 281,558 
Income before tax801,777 559,263 847,977 844,150 784,496 
Provision for income taxes (1)
166,794 113,170 174,214 174,053 428,735 
Net income$634,983 $446,093 $673,763 $670,097 $355,761 
Weighted average common shares outstanding351,308 359,293 373,924 386,078 394,766 
Diluted income per share$1.85 $1.29 $1.85 $1.78 $0.95 
Balance sheet data
Total investments$6,606,749 $6,682,911 $5,758,320 $5,159,019 $4,990,561 
Cash and cash equivalents284,690 287,953 161,847 151,892 99,851 
Total assets7,325,008 7,354,526 6,229,571 5,677,802 5,619,499 
Loss reserves883,522 880,537 555,334 674,019 985,635 
Short- and long-term debt1,036,508 1,034,379 575,867 574,713 573,560 
Convertible junior subordinated debentures110,204 208,814 256,872 256,872 256,872 
Shareholders' equity$4,861,382 4,698,986 4,309,234 3,581,891 3,154,526 
Book value per share$15.18 $13.88 $12.41 $10.08 $8.51 
(1)In 2017, we remeasured our net deferred tax assets at the lower enacted corporate income tax rate under the Tax Act.



MGIC Investment Corporation 2021 Form 10-K | 53
MGIC Investment Corporation and Subsidiaries


Other data
 Years Ended December 31,
 20212020201920182017
New primary insurance written ($ millions)
$120,204 $112,113 $63,421 $50,526 $49,123 
New primary risk written ($ millions)
$30,324 $26,759 $15,811 $12,657 $12,217 
IIF (at year-end) ($ millions)
Direct primary IIF$274,404 $246,572 $222,295 $209,707 $194,941 
RIF (at year-end) ($ millions)
Direct primary RIF$69,337 $61,812 $57,213 $54,063 $50,319 
Direct pool RIF
With aggregate loss limits206 210 213 228 236 
Without aggregate loss limits99 130 163 191 235 
Primary loans in default ratios
Policies in force1,164,984 1,126,079 1,079,578 1,058,292 1,023,951 
Loans in default33,290 57,710 30,028 32,898 46,556 
Percentage of loans in default2.84 %5.11 %2.78 %3.11 %4.55 %
Insurance operating ratios (GAAP)
Loss ratio6.4 %35.7 %11.5 %3.7 %5.7 %
Underwriting Expense ratio20.6 %19.2 %18.4 %18.2 %16.0 %
Risk-to-capital ratio (statutory)
Mortgage Guaranty Insurance Corporation9.5:19.2:19.7:19.0:19.5:1
Combined insurance companies9.5:19.1:19.6:19.8:110.5:1


MGIC Investment Corporation 2021 Form 10-K | 54
MGIC Investment Corporation and Subsidiaries


EXPLANATION AND RECONCILIATION OF OUR USE OF NON-GAAP FINANCIAL MEASURES

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

Adjusted pre-tax operating income (loss) is defined as GAAP income (loss) before tax, excluding the effects of net realized investment gains (losses), gain (loss)and losses on debt extinguishment, net impairment losses recognized in income (loss)earnings and infrequent or unusual non-operating items where applicable.
    
Adjusted net operating income (loss) is defined as GAAP net income (loss) excluding the after-tax effects of net realized investment gains (losses), gain (loss)and losses on debt extinguishment, net impairment losses recognized in income (loss),earnings, and infrequent or unusual non-operating items where applicable, which include the effects of changes in our deferred tax valuation allowance.applicable. The amounts of adjustments to components of pre-tax operating income (loss) are tax effected using a federal statutory income tax rate of 21% for 2019 and 2018 and 35% for 2017..
    
Adjusted net operating income (loss) per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net operating income (loss) after making adjustments for interest expense on convertible debt, whenever the impact is dilutive by (ii) diluted weighted average common shares outstanding, which reflects share dilution from unvested restricted stock units and from convertible debt when dilutive under the "if-converted"“if-converted” method.

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

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

(2)
Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt.
(3)
Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles, individual issuer performance, and general economic conditions.
(4)
Infrequent or unusual non-operating items. Our income tax expense for 2017 reflects the remeasurement of our net deferred tax assets to reflect the lower corporate income tax rate under the Tax Act. Our 2018 and 2017 income tax expense also includes amounts related to our IRS dispute and is related to past transactions which are non-recurring in nature and are not part of our primary operating activities.


MGIC Investment Corporation 20192021 Form 10-K | 55
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms
Non-GAAP reconciliations
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income:
Years Ended December 31,
20212020
(in thousands)Pre-taxTax EffectNet
(after-tax)		Pre-taxTax EffectNet
(after-tax)
Income before tax / Net income$801,777 $166,794 $634,983 559,263 113,170 446,093 
Adjustments:
Net realized investment (gains) losses(7,009)(1,472)(5,537)(13,245)(2,781)(10,464)
Loss on debt extinguishment36,914 7,752 29,162 26,736 5,615 21,121 
Adjusted pre-tax operating income / Adjusted net operating income$831,682 $173,074 $658,608 $572,754 $116,004 $456,750 
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share:
Weighted average diluted shares outstanding351,308 359,293 
Net income per diluted share$1.85 $1.29 
Net realized investment (gains) losses(0.02)(0.03)
Loss on debt extinguishment0.08 0.06 
Adjusted net operating income per diluted share$1.91 $1.32 


Non-GAAP reconciliations
 
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income:
 
  Years Ended December 31,
  2019 2018 2017
(in thousands) Pre-tax Tax Effect 
Net
(after-tax)
 Pre-tax Tax Effect Net
(after-tax)		 Pre-tax Tax Effect Net
(after-tax)
Income before tax / Net income $847,977
 $174,214
 $673,763
 844,150
 174,053
 670,097
 784,496
 428,735
 355,761
Adjustments:                  
Additional income tax provision related to the rate decrease included in the Tax Act —
 —
 —
 —
 —
 —
 —
 (132,999) 132,999
Additional income tax benefit (provision) related to IRS litigation —
 —
 —
 —
 2,462
 (2,462) —
 (29,039) 29,039
Net realized investment (gains) losses (5,108) (1,073) (4,035) 1,353
 284
 1,069
 (231) (81) (150)
Loss on debt extinguishment —
 —
 —
 —
 —
 —
 65
 23
 42
Adjusted pre-tax operating income / Adjusted net operating income $842,869
 $173,141
 $669,728
 $845,503
 $176,799
 $668,704
 $784,330
 $266,639
 $517,691
                   
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share:
                   
Weighted average diluted shares outstanding     373,924
     386,078
     394,766
Net income per diluted share     $1.85
     $1.78
     $0.95
Additional income tax provision related to the rate decrease included in the Tax Act     —
     —
     0.34
Additional income tax (benefit) provision related to IRS litigation     —
     (0.01)     0.07
Net realized investment (gains) losses     (0.01)     —
     —
Loss on debt extinguishment     —
     —
     —
Adjusted net operating income per diluted share (1)
     $1.84
     $1.78
     $1.36

(1)
For the Year Ended December 31, 2018, the Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share does not foot due to rounding of the adjustments.


MGIC Investment Corporation 20192021 Form 10-K | 56
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms

MORTGAGE INSURANCE PORTFOLIO

MORTGAGE ORIGINATIONS
The primarytotal amount of mortgage insuranceoriginations is generally influenced by the level of new and existing home sales, the percentage of homes purchased for cash, and the level of refinance activity. PMI market is affected byshare of total mortgage originations is influenced by the mix of purchase and PMI'srefinance originations. PMI market share. Totalshare is also impacted by the market share of total originations are estimatedof the FHA, VA, USDA, and other alternatives to have increased in 2019 compared with 2018, due to higher refinance originations, as well as higher purchase originations. Refinance originations increased as a result of lower mortgage interest rates on average; while continued solid housing fundamentals, such as household formations, low unemployment, and attractiveinsurance, including GSE programs that may reduce or eliminate the demand for mortgage rates supported the increase in purchase originations. insurance.

Total mortgage originations in 2020 and 2021 reflect record highs in the housing market. Total mortgage originations are forecastforecasted to be down modestlystrong in 2022, although less so than the last two years. The 2022 refinance market is forecasted to decrease, while the purchase market is forecasted to increase when compared to 2019 estimated levels, primarily due to an expected decrease in refinancing transactions partially offset by an increase in purchase originations. We expect PMI's market share to decline slightly as 2019 was a particularly strong yearestimates for PMI's market share and competition from government mortgage insurance programs and GSE alternative risk share transactions will also continue to impact the PMI's market share. In consideration of these factors, and our market share within the PMI industry, our 2020 NIW is expected to decrease from 2019.2021.
chart-64dcc19602415b6a848.jpg
mtg-20211231_g2.jpg
E - Estimated, F- Forecast
Source: GSEs and MBA estimates/forecasts as of December 2019 and January 2020.2022. Amounts represent the average of all sources.

Estimated total of PMI, FHA, USDA, and VA primary mortgage insurance
       
(in billions) 2019 2018 2017
Primary mortgage insurance $859 $662 $701
The total estimated mortgage insurance volume is shown below.

Estimated total of PMI, FHA, USDA, and VA primary mortgage insurance
(in billions)Nine Months Ended September 30, 2021Twelve Months Ended December 31, 2020
Primary mortgage insurance$1,050$1,366
Source: Inside Mortgage Finance - February 21, 2020November 11, 2021 or SEC filings. Includes HARP NIW.

PMI's market share is primarily impacted by competition from government mortgage insurance programs. In consideration of the expected decrease in mortgage originations, our 2022 NIW is expected to decrease from 2021.

MORTGAGE INSURANCE INDUSTRY
We compete against five other private mortgage insurers, as well as government mortgage insurance programs, including those
offered by the FHA, VA, and USDA. Refer to "Overview - Business Environment - Competition" for a discussion of our competitive position.

The PMI industry increased itsindustry's market share of the primary mortgage insurance market in 2019 and 2018, each whenthrough September 30, 2021 decreased compared to the respective prior year. PMI'smarket share increased primarily due to a higher percentagefor the full year of refinances; PMI premium rate reductions in recent periods, which increases PMI's competitiveness compared to government programs; and an increase in 97% LTV loan offerings from lenders that sell loans to the GSEs, which provided an alternative to similar FHA loan programs for qualified borrowers.2020.
Estimated primary MI market shareEstimated primary MI market shareEstimated primary MI market share
 
(% of total primary MI volume)201920182017(% of total primary MI volume)Nine Months Ended September 30, 2021Twelve Months Ended December 31, 2020
PMI44.7%44.1%38.6%PMI43.4%43.9%
FHA28.2%30.5%33.9%FHA23.9%23.4%
VA25.2%22.9%24.7%VA30.9%30.9%
USDA1.9%2.5%2.8%USDA1.9%1.8%
Source: Inside Mortgage Finance - February 21, 2020.November 11, 2021. Includes HARP NIW.

Our estimatedBased on the current trajectory of our business, as shown in the table below, we expect that our market share within the PMI industry declinedhas increased in 20192021 when compared to 2018, due to the competitive dynamics in the industry, including, but not limited to, the migration to a more dynamic pricing approach across the industry.2020. For additional discussion of the competitive landscape of the industry refer to "Overview - Business Environment - Competition."
Estimated MGIC market shareEstimated MGIC market shareEstimated MGIC market share
 
(% of total primary private MI volume)201920182017(% of total primary private MI volume)Nine Months Ended September 30, 2021Twelve Months Ended December 31, 2020
MGIC16.5%17.4%18.3%MGIC20.5%18.7%
Source: Inside Mortgage Finance - February 21, 2020 or SEC filings.November 11, 2021. Excludes HARP NIW.



MGIC Investment Corporation 2019 Form 10-K | 57
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

NEW INSURANCE WRITTEN
NIW for 20192021 continued to have what we believe are favorable risk characteristics. The following tables provide information about characteristics of our NIW.
Primary NIW by FICO score
       
  Years Ended December 31,
(% of primary NIW) 2019 2018 2017
760 and greater 44.9% 42.2% 41.8%
740 - 759 18.7% 17.1% 16.8%
720 - 739 13.9% 14.5% 14.1%
700 - 719 10.8% 11.9% 11.9%
680 - 699 7.0% 7.2% 8.1%
660 - 679 2.7% 3.8% 4.0%
640 - 659 1.4% 2.3% 2.3%
639 and less 0.6% 1.0% 1.0%
Total 100% 100% 100%
Primary NIW by loan-to-value
       
  Years Ended December 31,
(% of primary NIW) 2019 2018 2017
95.01% and above 12.9% 16.0% 10.7%
90.01% to 95.00% 43.5% 43.3% 46.5%
85.01% to 90.00% 29.5% 28.7% 29.5%
80.01% to 85% 14.1% 12.0% 13.3%

An increase in the percentage of refinances, discussed above and home price appreciation, partially offset by an increase in 97% LTV programs offered by lenders, have decreased theThe percentage of our NIW with LTV ratios greater than 95% in 2019 compared to 2018.
Primary NIW by debt-to-income ratio
       
  Years Ended December 31,
(% of primary NIW) 2019 2018 (1) 2017
45.01% and above 13.5% 19.6% 10.4%
38.01% to 45.00% 32.9% 33.1% 35.8%
38.00% and below 53.6% 47.3% 53.8%

(1)
In 2018, we started considering DTI ratios when setting our premium rates, and we changed our methodology for calculating DTI ratios for pricing and eligibility purposes to exclude the impact of mortgage insurance premiums. As a result of this change, loan originators may have changed the information they provide to us. Although we have changed our operational procedures to account for this, we cannot be sure that the DTI ratio we report for each loan beginning in late 2018 includes the related mortgage insurance premiums in the calculation.

In 2019, the percentage of our NIW on loans with DTI ratios over 45% was 14%, down significantly from 20%and LTV's over 95% increased slightly in 2018. We believe the decline in 2019 was primarily due
to changes in GSE underwriting guidelines, but was also due in part to our underwriting guideline and pricing changes associated2021 compared with such loans.The higher percentage in 20182020. The increase was primarily driven by adjustments to GSE underwriting guidelines for loansan increase in home price appreciation and purchase activity with DTI ratios over 45%.a corresponding decrease in refinance activity.

Primary NIW by FICO score
Years Ended December 31,
(% of primary NIW)20212020
760 and greater45.6 %47.1 %
740 - 75917.5 %18.2 %
720 - 73913.7 %13.3 %
700 - 71911.1 %10.3 %
680 - 6997.3 %7.3 %
660 - 6792.7 %2.1 %
640 - 6591.6 %1.1 %
639 and less0.5 %0.6 %
Total100 %100 %
We are continuing to monitor our exposure to such loans and may take further action.

MGIC Investment Corporation 2021 Form 10-K | 57
MGIC Investment Corporation and Subsidiaries


Primary NIW by policy payment type
       
  Years Ended December 31,
(% of primary NIW) 2019 2018 2017
Monthly premiums 84.4% 83.0% 80.8%
Single premiums 15.5% 16.8% 19.0%
Annual Premiums 0.1% 0.2% 0.2%
Primary NIW by loan-to-value
Years Ended December 31,
(% of primary NIW)20212020
95.01% and above10.8 %8.6 %
90.01% to 95.00%43.7 %39.1 %
85.01% to 90.00%30.0 %32.1 %
80.01% to 85%15.5 %20.2 %
Total100 %100 %

Primary NIW by type of mortgage
       
  Years Ended December 31,
(% of primary NIW) 2019 2018 2017
Purchases 80.9% 93.2% 88.6%
Refinances 19.1% 6.8% 11.4%
Primary NIW by debt-to-income ratio
Years Ended December 31,
(% of primary NIW)20212020
45.01% and above13.6 %11.3 %
38.01% to 45.00%30.0 %30.8 %
38.00% and below56.4 %57.9 %
Total100 %100 %

Primary NIW by policy payment type
Years Ended December 31,
(% of primary NIW)20212020
Monthly premiums92.5 %91.0 %
Single premiums7.4 %8.9 %
Annual Premiums0.1 %0.1 %

Primary NIW by type of mortgage
Years Ended December 31,
(% of primary NIW)20212020
Purchases79.7 %64.3 %
Refinances20.3 %35.7 %

IIF AND RIF
Our IIF grew 6.0%11.3% in 2019,2021, and 7.6%10.9% in 2018,2020, as NIW more than offset policy cancellations. Cancellation activity is primarily due to refinancing activity, but is also impacted by rescissions, cancellations due to claim payment, and policies cancelled when borrowers achieve the required amount of home equity.equity, cancellations due to claim payment, and by rescissions. Refinancing activity has historically been affected by the level of mortgage interest rates and the level of home price appreciation. Cancellations generally move inversely to the change in the direction of interest rates, although they generally lag a change in direction.


Persistency. Our persistency at December 31, 20192021 was 75.8%62.6% compared to 81.7%60.5% at December 31, 2018.2020. Since 2000, our year-end persistency ranged from a high of 84.7% at December 31, 2009 to a low of 47.1% at December 31, 2003.
Insurance in force and risk in force
        
  Years Ended December 31,
($ in billions) 2019 2018 2017
NIW $63.4
 $50.5
 $49.1
Cancellations (50.8) (35.7) (36.2)
Increase in primary IIF $12.6
 $14.8
 $12.9
       
Direct primary IIF as of December 31, $222.3
 $209.7
 $194.9
       
Direct primary RIF as of December 31, $57.2
 $54.1
 $50.3




Insurance in force and risk in force
Years Ended December 31,
($ in billions)20212020
NIW$120.2 $112.1 
Cancellations(92.4)(87.8)
Increase in primary IIF$27.8 $24.3 
Direct primary IIF as of December 31,$274.4 $246.6 
Direct primary RIF as of December 31,$69.3 $61.8 
MGIC Investment Corporation 2019 Form 10-K | 58
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

CREDIT PROFILE OF OUR PRIMARY RIF
The proportion of our total primary RIF written after 2008 has been steadily increasing in proportion to our total primary RIF. Our 2009 and later books possess significantly improved risk characteristics when compared to our 2005-2008 books. The credit profile of our pre-2009 RIF has benefited from modificationModification and refinance programs, making outstanding loans more affordable to borrowers with the goal of reducing the number of foreclosures. These programs includedsuch as HAMP and HARP, which expired at the end of 2016 and 2018, respectively, but have been replaced by other GSE modification programs. HARP allowedprograms, make outstanding loans more affordable to borrowers who were not delinquent, but who may not otherwise have been ablewith the goal of reducing the number of foreclosures. As of December 31, 2021, modifications accounted for approximately 5.4% of our total primary RIF, compared to refinance their loans under the current GSE underwriting standards due to, for example, the current LTV exceeding 100%, to refinance and lower their note rate.7.8% at December 31, 2020. Loans associated with 97.6%86% of all our HARP modifications were current as of December 31, 2019. The aggregate2021. For additional information on the composition of our 2009 and later books and our HARP modifications accounted for approximately 92% of our total primary RIF at December 31, 2019.see "Business - Our Products and Services"

The composition of our primary RIF by policy year as of December 31, 2019, 2018,2021 and 20172020 is shown below.below:

Primary risk in force
($ in millions)December 31, 2021December 31, 2020
2004 and prior500635
2005 - 20083,7285,043
2009 - 20152,8655,689
2016 - 202162,24450,445 
Total69,33761,812


MGIC Investment Corporation 2021 Form 10-K | 58
MGIC Investment Corporation and Subsidiaries


Primary risk in force
           
  December 31, 2019 December 31, 2018 December 31, 2017
($ in millions) RIF% of RIF RIF% of RIF RIF% of RIF
2009+ $50,044
88% $45,083
83% $39,248
78%
2005 - 2008 (HARP) 2,485
4% 3,109
5% 3,773
7%
Other years (HARP) 165
—% 229
1% 308
1%
Subtotal 52,694
92% 48,421
89% 43,329
86%
2005-2008 (Non-HARP) 3,868
7% 4,796
9% 5,894
12%
Other years (Non-HARP) 651
1% 846
2% 1,095
2%
Subtotal 4,519
8% 5,642
11% 6,989
14%
Total Primary RIF $57,213
100% $54,063
100% $50,318
100%

POOL AND OTHER INSURANCE
MGIC has written no new pool insurance since 2008, however, for a variety of reasons, including responding to capital market alternatives to private mortgage insurance and customer demands, MGIC may write pool risk in the future. Our direct pool RIF was $376$305 million ($213206 million on pool policies with aggregate loss limits and $163$99 million on pool policies without aggregate loss limits) at December 31, 20192021 compared to $419$340 million ($228210 million on pool policies with aggregate loss limits and $191$130 million on pool policies without aggregate loss limits) at December 31, 2018.2020. If claim payments associated with a specific pool reach the aggregate loss limit, the remaining IIF within the pool would be cancelled and any remaining defaults under the pool would be removed from our default inventory.

In connection with the GSEs' credit risk transferCRT programs, an insurance subsidiary of MGIC provides insurance and reinsurance covering portions of the credit risk related to certain reference pools of mortgages acquired by the GSEs. Our RIF, as reported to us, related to these programs was approximately $182$321 million and $53$287 million as of December 31, 20192021 and December 31, 2018,2020, respectively.


MGIC Investment Corporation 20192021 Form 10-K | 59
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms

CONSOLIDATED RESULTS OF OPERATIONS

The following section of the MD&A provides a comparative discussion of our Consolidated Results of Operations for the three-yeartwo-year period ended December 31, 2019.2021. For a discussion of the Critical Accounting PoliciesEstimates used by us that affect the Consolidated Results of Operations, see "Critical Accounting Policies"Estimates" below.

Revenues
Revenues
Year Ended December 31,
(In millions)20212020
Net premiums written$969.0 $928.7 
Net premiums earned$1,014.4 $1,021.9 
Investment income, net of expenses156.4 154.4 
Net realized investment (losses) gains6.6 13.8 
Other revenue8.2 9.1 
Total revenues$1,185.7 $1,199.1 
Revenues
       
  Year Ended December 31,
(In millions) 2019 2018 2017
Net premiums written $1,001.3
 $992.3
 $998.0
       
Net premiums earned $1,031.0
 $975.2
 $934.7
Investment income, net of expenses 167.0
 141.3
 120.9
Net realized investment (losses) gains 5.3
 (1.4) 0.2
Other revenue 10.6
 8.7
 10.2
Total revenues $1,213.9
 $1,123.8
 $1,066.0

NET PREMIUMS WRITTEN AND EARNED
2019NPW increased 4% while NPE decreased 1%, in 2021 compared to 2018. NPW and NPE increased 1% and 6%, respectively, compared towith the prior year, primarilyThe increase in net premiums written was due to an increase in premiums from a higher average insurance in force partially offset by the effects of a decrease in the direct premium yield and an increase in ceded premiums written, net of profit commission. The decrease in net premiums earned was due to a decrease in accelerated premiums earned from single premium policy cancellations, given the decrease in refinance activity, partially offset by lower premium rates on our IIF and higher ceded premiums when compared to the same period of the prior year. The increase in ceded premiums was primarily due to premiums ceded under our Home Re Transactions.
2018 compared to 2017.While NPW was relatively flat compared to the prior year, NPE increased 4% compared to the prior year primarily due to lower ceded premiums, net, as the increase in profit commission more than offset the increase in gross ceded premiums. The profit commission increased due to a decrease in ceded losses. The increase in NPE also reflects an increase in our IIF compared to the prior year, however this impact was offset in part by a lower premium yield.net premiums written.

Premium yield
Premium yield is NPE divided by average IIF during the year and is influenced by a number of key drivers, which have a varying impact from period to period.The following table provides information related to our premium yield for 2019, 2018,2021, and 2017.2020.

Premium Yield
   
  Year Ended December 31,
(in basis points) 201920182017
In force portfolio yield(1)51.4
53.1
56.0
Premium refunds (0.5)(0.7)(1.3)
Accelerated earnings on single premium policies 2.6
1.2
1.5
Total direct premium yield 53.5
53.6
56.2
Ceded premiums earned, net of profit commission and assumed premiums(2)(5.8)(5.4)(6.6)
Net premium yield 47.7
48.2
49.6

Premium Yield
Year Ended December 31,
(in basis points)20212020
In force portfolio yield(1)42.2 46.7 
Premium refunds(0.6)(0.5)
Accelerated earnings on single premium policies3.2 5.0 
Total direct premium yield44.8 51.2 
Ceded premiums earned, net of profit commission and assumed premiums(2)(5.9)(7.6)
Net premium yield38.9 43.6 
(1) Total direct premiums earned, excluding premium refunds and accelerated premiums from single premium policy cancellations divided by average primary insurance in force.
(2) Ceded premiums earned, net of profit commissions and assumed premiums. Assumed premiums include those from our participation in GSE CRT programs, of which the impact on the net premium yield was 0.20.4 bps in 2019, 0.12021 and 0.5 bps in 2018, and 0 bps in 2017.2020




MGIC Investment Corporation 2019 Form 10-K | 60
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

Changes in our premium yields when compared to the respective prior year periods reflect the following:
In force Portfolio Yield
è

A larger percentage of our IIF is from book years with lower premium rates due to a decline in premium rates in recent years resulting from pricing competition, insuring mortgages with lower risk characteristics, lower required capital, the availability of reinsurance and certain policies undergoing premium rate resets on their ten-year anniversaries, and the availability of reinsurance.anniversaries.
Premium Refunds
è

Premium refunds adversely impact our premium yield and are primarily driven by claim activity and our estimate of refundable premiums on our delinquent inventory.
Accelerated earnings on single premium policies
è

Greater amounts of acceleratedAccelerated earned premium from cancellation of single premium policies prior to their estimated policy life, primarily due to increased refinancing activity.activity increase our yield.
Ceded premiums earned, net of profit commission and assumed premiums
è

MoreCeded premiums earned, net of an adverseprofit commission adversely impact as the 2019 periods included cededour premium yield. Ceded premium earned, net of profit commission, were primarily associated with QSR Transactions and Home Re Transactions. Assumed premiums underconsists primarily of premiums from GSE CRT programs. See "Reinsurance Agreements" below for further discussion on our excess of loss reinsurance transactions (Home Re Transactions), which were not in effect for all of 2018.transactions.

As discussed in our Risk Factor titled "Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and/or increase our losses," the private mortgage insurance industry is highly competitive and premium rates have declined over the past several years. We expect that will continue and that our inforcein force portfolio yield willcontinue to decline as older insurance policies with higher premium rates run off or have their premium rates reset, andor are replaced with new insurance policies, withwhich generally have lower premium rates are written.rates. While our increased use of reinsurance over the past several years has helped to mitigate the negative effect of declining premium rates on our returns, refer to our risk factor titled "Reinsurance may not always be available or affordable" for a discussion of the risks associated with the availability of reinsurance.

See "Overview – Factors Affecting Our Results" above for additional factors that also influence the amount of net premiums written and earned in a year.


MGIC Investment Corporation 2021 Form 10-K | 60
MGIC Investment Corporation and Subsidiaries


REINSURANCE AGREEMENTS
Quota share reinsurance
Our quota share reinsurance affects various lines of our statements of operations and therefore we believe it should be analyzed by reviewing its effect on our pre-tax net income, as described below.
èWe cede a fixed percentage of premiums earned and received on insurance covered by the transactions.agreements.
èWe receive the benefit of a profit commission through a reduction in the premiums we cede. The profit commission varies directly and inversely with the level of losses incurred on a "dollar for dollar" basis and can be eliminated at loss levels significantly higher than we are currently experiencing. As a result, lower levels of losses incurred result in a higher profit commission and less benefit from ceded losses;losses incurred, higher levels of ceded losses incurred result in more benefit from ceded losses incurred and a lower profit commission (or for certain levels of losses we do not expect,of accident year loss ratios, its elimination).
èWe receive the benefit of a ceding commission through a reduction in underwriting expenses equal to 20% of premiums ceded (before the effect of the profit commission).
èWe cede a fixed percentage of losses incurred on insurance covered by the transactions.agreements.

The following table provides information related to our quota share agreements for 2019, 2018,2021 and 2017.2020.

Quota share reinsurance
As of and For the Years Ended December 31,
(Dollars in thousands)20212020
Statements of operations:
Ceded premiums written and earned, net of profit commission$118,537 $167,930 
% of direct premiums written11 %15 %
% of direct premiums earned10 %14 %
Profit commission153,759 72,452 
Ceding commissions53,460 48,077 
Ceded losses incurred9,862 78,012 
Mortgage insurance portfolio:
Ceded RIF (in millions)
2015 QSR$889 $1,625 
2017 QSR— 1,330 
2018 QSR— 1,333 
2019 QSR1,539 2,779 
2020 QSR4,754 6,169 
2021 QSR7,470 — 
Credit Union QSR1,594 770 
Total ceded RIF$16,246 $14,006 

Ceded losses incurred for the year ended December 31, 2021 reflect favorable loss reserve development on previously received delinquency notices and a decrease in new delinquency notices reported on insurance covered by our QSR Transactions. Ceded loss incurred for 2020 reflect the increase in new delinquency notices due to the impact of the COVID-19 pandemic on insurance covered by our QSR Transactions. See "Losses Incurred, net” below for discussion of our loss reserves.
Quota share reinsurance
       
  As of and For the Years Ended December 31,
(Dollars in thousands) 2019 2018 2017
Statements of operations:
Ceded premiums written and earned, net of profit commission $111,550
 $108,337
 $120,974
% of direct premiums written 11% 10% 11%
% of direct premiums earned 11% 10% 11%
Profit commission $139,179
 $147,667
 $125,629
Ceding commissions$48,793
 $51,201
 $49,321
Ceded losses incurred $11,395
 $6,543
 $22,336
       
Mortgage insurance portfolio:
Ceded RIF (in millions) $11,360
 $12,839
 $11,849

Covered Risk
The amount of our NIW, new risk written, IIF, and RIF subject to our QSR Transactions as shown in the following table will vary from period to period in part due to coverage limits that may be triggered depending on the mix of our risk written during the period.


Quota share reinsurance
As of and For the Years Ended December 31,
20212020
NIW subject to QSR Transactions81.9 %74.4 %
New Risk Written subject to QSR Transactions90.5 %85.5 %
IIF subject to QSR Transactions78.4 %75.9 %
RIF subject to QSR Transactions77.9 %81.8 %
MGIC Investment Corporation 2019 Form 10-K | 61
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

Quota share reinsurance
       
  As of and For the Years Ended December 31,
  2019 2018 2017
NIW subject to QSR Transactions 81.5% 75.1% 84.0%
IIF subject to QSR Transactions 78.5% 77.5% 78.0%
       

We terminated a portion of our 2015 QSR Transaction effective June 30, 2019, paid a termination fee of $6.8 million, and entered into an amended quota share reinsurance agreement that effectively reduces the quota share cede rate from 30% to 15% on the remaining eligible insurance. The lower cede rate reduced our ceded RIF but does not impact our determination of the amount of IIFNIW subject to quota share reinsurance agreements.increased in 2021 compared to 2020 due to a decrease in NIW with LTVs less than or equal to 85% and amortization terms less than or equal to 20 years, which generally have lower coverage percentages, and are excluded from the QSR Transactions.

The percentage of 2019 NIW covered byWe terminated our 2017 and 2018 QSR Transactions increased when comparedeffective December 31, 2021 and incurred an early termination fee of $5 million. The termination reduces the amount of IIF and RIF subject to 2018. The percentage of 2018 NIW covered by QSR Transactions decreased when compared to 2017, primarily due to the following factors:
2019 compared to 2018:
èThe 2019 QSR Transaction increased thresholds for risk written on loans with LTV ratios of 95% or greater and loans with DTI ratios greater than 45%, each when compared to our 2018 QSR Transaction. In 2018, risk written on loans with LTV ratios greater than 95% and DTI greater than 45% exceeded the thresholds on the 2018 QSR Transaction.

2018 compared to 2017:
è

The 2018 transaction excluded loans with LTV ratios of 85% and below.
è

Despite the 2018 transaction's increased coverage limit for risk written on loans with (1) LTV ratios of 95% and greater, and (2) DTI ratios greater than 45%, the risk written in 2018 exceeded these coverage limits.

transactions.
2020
2022 and 20212023 QSR Transaction.
We have agreed to termsexecuted an agreement with a group of unaffiliated reinsurers for reinsurance transactions with similar structures to our existing QSR transactions that will cover most of our NIW in 20202022 (with a 30%an additional 15.0% quota share) and 20212023 (with a 17.5%15% quota share). This is in addition to the reinsurance agreements executed in 2021 that included a 15.0% quota share on eligible 2022 NIW and the Credit Union QSR Transaction that covers NIW on loans originated by credit unions with a 65% quota share.

Excess of loss reinsurance
Our excess-of-loss reinsurance agreements provide $532.0 million$1.4 billion of loss coverage on an existing portfolio of inforcein force policies having an inforce date on or afterin force dates from July 1, 2016 and beforethrough March 31, 2019. 2019, and January 1, 2020 through May 28, 2021, all dates inclusive. For the reinsurance coverage, we retain the first layer of the respective aggregate losses paid, and a Home Re Entity will then provide the second layer coverage up to the outstanding reinsurance amount.

MGIC Investment Corporation 2021 Form 10-K | 61
MGIC Investment Corporation and Subsidiaries


As of December 31, 2019,2021, the aggregate exposedremaining first layer retention and remaining excess of loss reinsurance coverage under our Home Re Transactions was as follows:
($ In thousands)Remaining First Layer RetentionRemaining Excess of Loss Reinsurance Coverage
Home Re 2018-1$165,365 $218,343 
Home Re 2019-1183,917 208,146 
Home Re 2020-1275,204 234,312 
Home Re 2021-1211,142 387,830 
Home Re 2021-2190,159 398,429 
Total ceded premiums for 2021 and 2020 were $44.5 million and $20.8 million, respectively.

When a “Trigger Event” is in effect, payment of principal balanceson the notes that were sold by the Home Re Entity to raise capital to supports its reinsurance obligation will be suspended and the reinsurance coverage available to MGIC under the transactions will not be reduced by such principal payments. As of December 31, 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 approximately $5.9 billion and $6.0 billion, respectively, which take into accountreported 60 or more days delinquent exceeded the mortgage insurance
coverage percentage, net retained risk after quota share reinsurance, andlimit specified in each transaction. A "Trigger Event" has also occurred on the reinsurance inclusion percentageHome Re 2021-2 ILN transactions because the credit enhancement of the unpaid principal balance. Total ceded premiumsmost senior tranche is less than the target credit enhancement.

See Note 9 - "Reinsurance," to our consolidated financial statements for 2019 and 2018 were $17.6 million and $2.8 million, respectively.

We expect that we may enter into similar excess-of-loss reinsurance transactions if capital market conditions remain favorable.

The excess-of-loss reinsurance agreements determine premium, in part, by the difference between the interest payableadditional information on the reinsurers' notes which reference LIBOR and earnings from a pool of securities receiving interest that may reference LIBOR. As discussed in our risk factor titled "The Company may be adversely impacted by the transition from LIBOR as a reference rate," it is uncertain whether LIBOR will continue to be quoted after 2021.Home Re Entities.

INVESTMENT INCOME, NET
2019 compared to 2018.Net investment income increased 18%1% to $167$156.4 million in 20192021 compared to $141$154.4 million in 2018.2020. The increase in investment income was due to a higheran increase in the average investment portfolio, balance.

2018 compared to 2017. Net investment income increased 17% to $141 millionpartially offset by a decrease in 2018 compared to $121 million in 2017. The increase in investment income was due to higherthe average investment yields, as well as a higher average investment portfolio balance.yield.

See "Balance Sheet Review" in this MD&A for further discussion regarding our investment portfolio.

NET REALIZED INVESTMENT GAINS (LOSSES)
Net realized investment gains (losses) in 2019, 2018,2021 and 20172020 were $5 million, $(1)$6.6 million and $231 thousand,$13.8 million, respectively. The decrease in net realized investment gains was primarily due to a decrease in the number of fixed income and equity securities sold.

OTHER REVENUE
2019 compared to 2018.Other revenue increased to $11 million in 2019 from $9 million in 2018, primarily due to higher contract underwriting revenues.

2018 compared to 2017.Other revenue decreased to $9$8.2 million in 20182021 from $10$9.1 million in 2017, due to lower contract underwriting revenues.2020.




MGIC Investment Corporation 2019 Form 10-K | 62
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

Losses and expenses
Losses and expenses
Year Ended December 31,
(In millions)20212020
Losses incurred, net$64.6 $364.8 
Amortization of deferred policy acquisition costs12.6 12.4 
Other underwriting and operating expenses, net198.4 176.4 
Interest expense71.4 59.6 
Loss on debt extinguishment36.9 26.7 
Total losses and expenses$383.9 $639.9 
Losses and expenses
       
  Year Ended December 31,
(In millions) 2019 2018 2017
Losses incurred, net $118.6
 $36.6
 $53.7
Amortization of deferred policy acquisition costs 12.0
 11.9
 11.1
Other underwriting and operating expenses, net 182.8
 178.2
 159.6
Interest expense 52.7
 53.0
 57.0
Loss on debt extinguishment —
 —
 0.1
Total losses and expenses$366.0
 $279.7
 $281.6

LOSSES INCURRED, NET
As discussed in “Critical Accounting Policies”Estimates” below and consistent with industry practices, we establish case loss reserves for future claims only foron delinquent loans that are currently delinquent. The terms “delinquent” and “default” are used interchangeably by us. We consider a loanwere reported to be delinquent when it isus as two or more payments past due.due and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case loss reserves are established based on estimating the number of loans in our delinquentdelinquency inventory that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.

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

Estimation of losses is inherently judgmental. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment and the current and future strength of local housing markets. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment and the continued impact of the COVID-19 pandemic, leading to a reduction in borrowerborrowers’ income and thus their ability to make mortgage payments, the impact of past and future government initiatives and actions taken by the GSEs (including mortgage forbearance programs and foreclosure moratoriums), and a drop in housing values that could result in, among other things, greater losses on loans, andwhich may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. Historically, losses incurred have followed a seasonal trendLoss reserves in whichfuture periods will also be dependent on the second halfnumber of loans reported to us as delinquent.

As discussed in our Risk Factor titled “The Covid-19 pandemic may materially impact our future financial results, business, liquidity and/or financial condition" the impact of the year has weaker credit performanceCOVID-19 pandemic on our future incurred losses is uncertain and may be material. As discussed in our risk factor titled “Because we establish loss reserves only upon a loan delinquency rather than based on estimates of our ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings in certain periods” if we have not received a notice of delinquency with respect to a loan and if we have not estimated the first half,loan to be delinquent as of December 31, 2021 and recorded an IBNR reserve, then we have not yet recorded an incurred loss with higher new notice activityrespect to that loan.


MGIC Investment Corporation 2021 Form 10-K | 62
MGIC Investment Corporation and a lower cure rate. Subsidiaries


Our estimates are also affected by any agreements we enter into regarding our claims paying practices such as the settlement agreements discussed in Note 17 – “Litigation and Contingencies” to our consolidated financial statements. Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment.

2019 compared to 2018. Losses incurred, net increased 224%decreased to $119$64.6 million compared to $37$364.8 million in 2018.2020. The increasedecrease reflects fewer delinquency notices received in 2021 compared with 2020 which was impacted by the COVID-19 pandemic, and the resultant macroeconomic environment.

The decrease was also due to a lower amount of favorable loss reserve development on previously received delinquency notices of $71$60.0 million recognized in 2021 compared to adverse loss development of $19.6 million in 2019 compared with $167 million2020. Through December 31, 2021, our re-estimation of reserves resulted in 2018. Current year losses incurred decreased in 2019 from 2018, primarily due tofavorable development on pre-COVID and peak COVID delinquencies as a lower claim rate on new delinquency notices when compared to the prior year.

2018 compared to 2017. Losses incurred, net decreased 32% to $37 million compared to $54 million in 2017. The decrease was due toresult of a decrease in losses and LAE incurred in respect to delinquencies reported in 2018, offset in part by a decrease in favorable loss reserve development on prior year delinquencies. New delinquency notices declined 20% when compared to 2017, in part due to elevated 2017 delinquency notice activity associated with 2017 hurricanes, and the estimated claim rate on new delinquency notices also declined. Favorable development on prior year delinquencies occurred in 2018 due to a lower estimated claim rate on previously reported delinquencies, partiallythose delinquencies. This was offset by increasesthe recognition of a probable loss of $6.3 million related to litigation of our claim paying practices. In 2020, we experienced adverse loss development of $19.6 million primarily related to an increase in our expected severity assumption on previously reported delinquencies. During 2018, cure activity on loans that were delinquent twelve months or more was significantly higher than our previous estimates.the estimate of claim severity.

See "New notice claim rate" and "Claims severity" below for additional factors and trends that impact these loss reserve assumptions.
Composition of losses incurred
       
  Year Ended December 31,
(In millions) 2019 2018 2017
Current year / New notices $190
 $204
 $285
Prior year reserve development (71) (167) (231)
Losses incurred, net $119
 $37
 $54



Composition of losses incurred
Year Ended December 31,
(In millions)20212020
Current year / New notices$124.6 $345.2 
Prior year reserve development(60.0)19.6 
Losses incurred, net$64.6 $364.8 

MGIC Investment Corporation 2019 Form 10-K | 63
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

Loss ratio
The loss ratio is the ratio, expressed as a percentage, of the sum of incurred losses and LAE, net to net premiums earned. The increase in the loss ratio in 2019 when compared to 2018, reflects a higher level of losses incurred, partially offset by an increase in earned premiums. The decrease in the loss ratio in 20182021 when compared to 2017, reflects the lower level of2020 was primarily due to a decrease in losses incurred net and an increase in earned premiums.discussed above.
Year Ended December 31,
20212020
Loss ratio6.4 %35.7 %

  Year Ended December 31,
  2019 2018 2017
Loss ratio 11.5% 3.7% 5.7%

MGIC Investment Corporation 2021 Form 10-K | 63
MGIC Investment Corporation and Subsidiaries


New notice claim rate
New notice activity continues to be primarily driven by loans insured in 2008 and prior, which continue to experience a cycle whereby many loans default, cure, and re-default. This cycle, along withThe number of new delinquency notices received for the duration that defaults may ultimately remain in our notice inventory, results in significant judgment in establishing the estimated claim rate.

New notice claim rate     
  2019 2018 2017
New notices - 2008 and prior 34,252
 63% 38,897
 71% 52,313
 77%
New notices - 2009 and later 19,987
 37% 15,551
 29% 15,955
 23%
Total 54,239
 100% 54,448
 100% 68,268
 100%
Claim rate (1) 8.0%   9.0%   10.0%  
Previously delinquent % 94.0%   93.0%   90.0%  
(1)Claim rate is the respective full year weighted average rate and is rounded to the nearest whole percent.

New notices declined in 2019ended December 31, 2021 decreased 60% compared to 20182020 and 2018 compared to 2017 due to favorable economic conditions and an improving risk profilenew delinquency notices received in second half of our RIF. However, 2017 new notice activity also included the impact of hurricane activity.

Our estimated claim rate on new notices declined in 2019 compared to 2018 and 2018 compared to 2017, in each case reflecting the economic environment and our expectation of cure activity on the new notices received. We also estimated a materially lower2021 were below pre-COVID-19 pandemic levels. The new notice claim rate for those notices received in 2021 was consistent with the fourth quarter of 2017 that we estimated to have been caused by hurricane activity that occurred in the third quarter of 2017. When excluding our estimate of new notices caused by hurricanes, our 2017 new notice claim rate approximated 10.5%, marginally higher thanin 2020.

Many of the actual full-year rate.loans in our delinquency inventory have entered forbearance plans. Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. Whether a loan's delinquency will cure, including through modification, when its forbearance plan ends will depend on the economic circumstances of the borrower at that time. The severity of
losses associated with loans whose delinquencies do not cure will depend on economic conditions at that time, including home prices compared to home prices at the time of placement of coverage. Forbearance information is based on the most recent information provided by the GSEs, as well as loan servicers, and we believe substantially all forbearances are related to COVID-19. While the forbearance information provided by the GSEs refers to delinquent loans in forbearance as of the prior month-end, the information provided by loan servicers may be more current. As of December 31, 2021, 33% of our delinquency inventory was in such plans.
The table below presents our new delinquency notices received, delinquency inventory, percentage of loans in forbearance, and the average number of missed payments for the loans in our delinquency inventory by policy year.
New notices and delinquency inventory during the period
December 31, 2021
Policy YearNew Notices in 2021Delinquency Inventory as of 12/31/21% of Delinquency Inventory in ForbearanceAvg. Number of Missed Payments of Delinquency Inventory
2004 and prior3,893 2,829 21.4 %19
2005-200813,070 10,882 24.3 %19
2009-20154,040 3,400 34.9 %13
20162,375 2,004 43.5 %12
20173,384 2,949 46.6 %12
20183,902 3,412 49.3 %12
20194,163 3,340 58.1 %11
20205,623 3,308 63.4 %8
20211,982 1,166 40.9 %4
Total42,432 33,290 39.5 %14
Claim rate on new notices (1)
8 %
December 31, 2020
Policy YearNew Notices in 2020Delinquency Inventory as of 12/31/20% of Delinquency Inventory in ForbearanceAvg. Number of Missed Payments of Delinquency Inventory
2004 and prior6,079 3,885 24.1 %16
2005-200826,838 17,084 38.0 %14
2009-201513,513 6,917 66.1 %8
20169,497 4,599 75.9 %7
201713,139 6,746 76.8 %7
201815,040 7,468 79.4 %7
201916,904 7,929 84.1 %6
20205,089 3,082 84.8 %5
Total106,099 57,710 62.2 %10
Claim rate on new notices (1)
7 %
(1) - Claim rate is the respective full year weighted average rate and is rounded to the nearest whole percent.


MGIC Investment Corporation 2021 Form 10-K | 64
MGIC Investment Corporation and Subsidiaries


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

As discussed in Note 8 - "Loss Reserves," the average time for servicers to process foreclosures has recently shortened. Therefore, we expect the average number of missed payments at the time a claim is received to be approximately 18 to 24 for new notices we have received, and expect to receive in 2020, compared to an average of 35 missed payments for claims received in 2019. Ourour loss reserves estimates take into consideration current trends over time, because the development of the delinquencies may vary from period to period without establishing a meaningful trend. In light of the forbearance and foreclosure moratorium programs associated with the COVID-19 pandemic, the average number of missed payments at the time a claim is received and expected to be received increased in 2021 and will increase in 2022. Although foreclosure moratoriums are expiring, under a CFPB rule that was generally effective through December 31, 2021, with limited exceptions, servicers were required to ensure that at least one temporary safeguard had been met before referring 120-day delinquent loans for foreclosure. With the expiration of the CFPB rule, it is likely that foreclosures and claims will increase.

The majority of loans from 2005 throughinsured prior to 2008 (which represent 54%41% of the loans in the delinquent inventory) are covered by master policy terms that, except under certain circumstances, do not limit the number of years that an insured can include interest when filing a claim. Under our current master policy terms, an insured can include accumulated interest when filing a claim only for the first three years the loan is delinquent. In each case, the insured must comply with its obligations under the terms of the applicable master policy.



MGIC Investment Corporation 2019 Form 10-K | 64
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

The quarterly trend in claims severity for each of the three years in the period ended December 31, 20192021 is shown in the following table.
Claims severity trend
PeriodAverage exposure on claim paidAverage claim paid% Paid to exposureAverage number of missed payments at claim received date
Q4 2021$43,485 $32,722 75.2 %42 
Q3 202142,468 36,138 85.1 %34 
Q2 202140,300 34,068 84.5 %36 
Q1 202146,807 36,725 78.5 %34 
Q4 202048,321 40,412 83.6 %32 
Q3 202047,780 40,600 85.0 %27 
Q2 202044,905 42,915 95.6 %32 
Q1 202046,247 47,222 102.1 %33 
Q4 201946,076 46,302 100.5 %34 
Q3 201942,821 44,388 103.7 %35 
Q2 201946,950 46,883 99.9 %34 
Q1 201942,277 43,930 103.9 %35 
Note: Table excludes material settlements. Settlements include amounts paid in settlement of disputes for claims paying practices and/or commutations of policies.
Claims severity trend
         
Period Average exposure on claim paid Average claim paid % Paid to exposure Average number of missed payments at claim received date
Q4 2019 $46,076
 $46,302
 100.5% 34
Q3 2019 42,821
 44,388
 103.7% 35
Q2 2019 46,950
 46,883
 99.9% 34
Q1 2019 42,277
 43,930
 103.9% 35
Q4 2018 45,366
 47,980
 105.8% 35
Q3 2018 43,290
 47,230
 109.1% 35
Q2 2018 44,522
 50,175
 112.7% 38
Q1 2018 45,597
 51,069
 112.0% 38
Q4 2017 44,437
 49,177
 110.7% 36
Q3 2017 43,313
 46,389
 107.1% 35
Q2 2017 44,747
 49,105
 109.7% 35
Q1 2017 44,238
 49,110
 111.0% 35
         
Note: Table excludes material settlements. Settlements include amounts paid in settlement of disputes for claims paying practices and/or commutations of policies.


In consideringClaims that were resolved after the potential sensitivityfirst quarter of the factors underlying our estimate of2020 experienced an increase in loss reserves, it is possible that even a relatively small change in our estimated claim rate or severity could have a material impact on loss reserves and, correspondingly, on our consolidated results of operations evenmitigation activities, primarily third party acquisitions (sometimes referred to as “short sales”), resulting in a stable economic environment. For example, as of December 31, 2019, assuming all other factors remain constant, a $1,000 increase/decrease in the average severity reserve factor would change the loss reserve amount by approximately +/- $10 million. A one percentage point increase/decrease in the average claim rate reserve factor would changepaid and the loss reserve amount by approximately +/- $17 million.average claim paid as a percentage of exposure. In the fourth quarter of 2021, the average number of missed payments at the time claims were received increased compared to the previous quarter as foreclosure moratoriums expired resulting in an increase in our claims received. However, at December 31, 2021, claims received are still below levels experienced prior to the second quarter of 2020. As foreclosure moratoriums and forbearance plans end, we expect to see an increase in claims received and claims paid at exposure levels above those experienced subsequent to the second quarter of 2020. The magnitude and timing of the increases are uncertain.

See Note 8 – “Loss Reserves” to our consolidated financial statements and “Critical Accounting PoliciesEstimates” below for a discussion of our losses incurred and claims paying practices (including curtailments).


MGIC Investment Corporation 20192021 Form 10-K | 65
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms


The length of time a loan is in the delinquentdelinquency inventory can differ from the number of payments that the borrower has not made or is considered delinquent. These differences typically result from a borrower making monthly payments that do not result in the loan becoming fully current. The number of payments that a borrower is delinquent is shown in the following table.

Primary delinquent inventory - number of payments delinquentPrimary delinquent inventory - number of payments delinquentPrimary delinquent inventory - number of payments delinquent
       
 December 31,
 2019 2018 201720212020
3 payments or less3 payments or less 14,895
 15,519
 21,678
3 payments or less9,529 14,183 
4 - 11 payments4 - 11 payments 8,519
 8,842
 12,446
4 - 11 payments9,208 35,977 
12 payments or more (1)
12 payments or more (1)
 6,614
 8,537
 12,432
12 payments or more (1)
14,553 7,550 
TotalTotal 30,028
 32,898
 46,556
Total33,290 57,710 
      
3 payments or less3 payments or less 50% 47% 46%3 payments or less28 %25 %
4 - 11 payments4 - 11 payments 28% 27% 27%4 - 11 payments28 %62 %
12 payments or more12 payments or more 22% 26% 27%12 payments or more44 %13 %
TotalTotal 100% 100% 100%Total100 %100 %
(1)
(1)Approximately 13% and 31% of the loans in the primary delinquency inventory with 12 payments or more delinquent have at least 36 payments delinquent as of December 31, 2021, and 2020, respectively.

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

Approximately 33%, 38%, and 43% of the primary delinquent inventory with 12 payments or more delinquent has at least 36 payments delinquent as of December 31, 2019, 2018 and 2017, respectively.

NET LOSSES AND LAE PAID
This section provides informationNet losses and LAE paid decreased 71% in 2021 compared to 2020 primarily due to lower claim activity on our claimprimary business due to foreclosure moratoriums and payment trendsforbearance plans in place. As the various moratorium and exposure on our outstanding RIF for eachforbearance plans end, we expect net losses and LAE paid to increase, however, the magnitude and timing of the three years in the period ended December 31, 2019. increases are uncertain.

The following table below presents our net losses and LAE paid for each of those years.2021 and 2020.
Net losses and LAE paid
(in millions)20212020
Total primary (excluding settlements)$43 $98 
Claims paying practices and NPL settlements (1)
14 — 
Pool— 2 
Direct losses paid57 100 
Reinsurance(2)(4)
Net losses paid55 96 
LAE14 18 
Net losses and LAE paid before terminations69 114 
Reinsurance terminations (2)
(36)— 
Net losses and LAE paid$33 $114 
Net losses and LAE paid
       
(in millions) 2019 2018 2017
Total primary (excluding settlements) $193
 $282
 $446
Claims paying practices and NPL settlements (1)
 30
 50
 54
Pool 4
 6
 10
Other —
 —
 —
Direct losses paid 227
 338
 510
Reinsurance (8) (19) (23)
Net losses paid 219
 319
 487
LAE 21
 16
 18
Net losses and LAE paid before terminations 240
 335
 505
Reinsurance terminations (14) (2) —
Net losses and LAE paid $226
 $333
 $505
(1)(1)See Note 8 - "Loss Reserves"
See Note 8 - "Loss Reserves" for additional information on our settlements of disputes for claims paying practices and/or commutations of policies

Net losses and LAE paid decreased 32% in 2019 compared to 2018 and decreased 34% in 2018 compared to 2017, primarily due to lower claim activity on our primary business. During eachsettlements of 2019, 2018, and 2017, losses paid included settlement payments underdisputes for claims paying practices and/or commutations of coveragepolicies
(2)See Note 9 - "Reinsurance" for additional information on policies and/or related to disputes concerning our claims paying practices. We believe losses and LAE paid will be lower in 2020 compared to 2019.reinsurance termination

Primary losses paid for the top 15 jurisdictions (based on 20192021 losses paid, excluding settlement amounts)paid) and all other jurisdictions for each of the three years in the period ended December 31, 20192021 and 2020 appears in the table below.
Primary paid losses by jurisdiction
       
(In millions) 2019 2018 2017
Florida * $28
 $29
 $49
New York * 25
 32
 37
New Jersey * 20
 42
 61
Illinois * 13
 19
 28
Puerto Rico * 12
 9
 18
Maryland 9
 18
 23
Pennsylvania * 8
 12
 22
Ohio * 7
 8
 16
Connecticut * 6
 7
 11
California 5
 11
 17
Texas 4
 5
 8
Michigan 4
 4
 7
Virginia 4
 6
 10
Georgia 3
 5
 10
Wisconsin 3
 4
 7
All other jurisdictions 42
 71
 122
Total primary (excluding settlements) $193
 $282
 $446
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.


Primary paid losses by jurisdiction
(In millions)20212020
Puerto Rico *$6 $5 
Florida *5 13 
New York *5 11 
Illinois *4 9 
Maryland3 7 
New Jersey *3 8 
Pennsylvania *2 4 
Connecticut *2 2 
Ohio *2 3 
Indiana *1 1 
Massachusetts1 2 
Louisiana *1 1 
Iowa *1 1 
Texas1 2 
Virginia1 2 
All other jurisdictions5 27 
Total primary (excluding settlements)$43 $98 
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.



MGIC Investment Corporation 20192021 Form 10-K | 66
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms

The primary average claim paid for the top 5 jurisdictions (based on 20192021 losses paid, excluding settlement amounts)paid) for each of the three years in the period ended December 31, 20192021 and 2020 appears in table below.
Primary average claim paid
      
 2019 2018 2017
Florida *$65,576
 $59,320
 $62,751
New York *102,819
 98,026
 81,043
New Jersey *81,811
 89,504
 87,333
Illinois *42,833
 44,379
 46,089
Puerto Rico *44,393
 45,910
 43,630
All other jurisdictions34,375
 39,597
 40,551
All jurisdictions45,324
 49,218
 48,476
 
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.

Primary average claim paid
20212020
Puerto Rico *$44,924 $42,650 
Florida *45,599 59,610 
New York *100,403 111,112 
Illinois *32,982 43,339 
Maryland48,979 63,665 
All other jurisdictions26,068 35,770 
All jurisdictions34,956 43,901 
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.
The primary average claim paid can vary materially from period to period based upon a variety of factors, including the local market conditions, average loan amount, average coverage percentage, the amount of time between delinquency and claim filing, and our loss mitigation efforts on loans for which claims are paid.

The primary average RIF on delinquent loans as of December 31, 2019, 20182021 and 20172020 and for the top 5 jurisdictions (based on 2019 losses paid, excluding settlement amounts)December 31, 2021 delinquency inventory) appears in the following table.
Primary average RIF - delinquent loans
20212020
Florida$56,227 $56,956 
Texas51,037 53,194 
Illinois40,798 41,451 
California89,935 89,202 
New York74,836 73,509 
All other jurisdictions47,538 49,888 
All jurisdictions51,887 53,804 
Primary average exposure - delinquent loans
      
 2019 2018 2017
Florida$52,566
 $53,371
 $54,847
New York72,188
 71,795
 71,170
New Jersey64,444
 65,521
 65,659
Illinois38,740
 39,753
 40,767
Puerto Rico33,920
 35,420
 36,644
All other jurisdictions42,347
 41,331
 41,134
All jurisdictions45,028
 44,584
 45,131

The primary average RIF on all loans was $52,995, $51,085,$59,518 and $49,142$54,891 at December 31, 2019, December 31, 2018,2021 and December 31, 2017,2020, respectively.


LOSS RESERVES
Our primary default rate at December 31, 20192021 was 2.78% (2018: 3.11%, 2017: 4.55%). Our primary delinquent2.84% (2020: 5.11% ). There were 33,290 loans in our delinquency inventory was 30,028 loans at December 31, 2019, representing a decrease of 9% from 2018 and 36% from 2017. 2021, compared to 57,710 at December 31, 2020.

The reduction in our primary delinquentdelinquency inventory isat December 31, 2020 reflects the resultadverse economic impact of the total number of delinquent loans: (1) that have cured; (2) for which claim payments have been made; or (3) that have resultedCOVID-19 pandemic in rescission, claim denial, or removal from inventory due to settlements of claims paying disputes or commutations of policies, collectively, exceeding the total number of new delinquencies2020. New delinquency notices received on insured loans. In recent periods, we have experienced improved cure ratesin 2021 were 42,432 compared with 106,099 in 2020. As of December 31, 2021 and the numberDecember 31, 2020, 33% and 62%, respectively, of delinquencies in theour delinquency inventory with twelve or more missed payments has been declining. were reported to us as subject to forbearance plans.

Generally, thea defaulted loan with fewer missed payments associated with a delinquent loan, the lower the likelihood it willis less likely to result in a claim. Our commutationsHowever, given the uncertainty surrounding the long-term economic impact of coverageCOVID-19, it is difficult to predict the ultimate effect of COVID-19 related delinquencies and forbearances on pools of NPLs have each been completed with amounts paid approximating theour loss reserves previously establishedincidence. Whether a loan’s delinquency will cure, including through modification, when its forbearance plan ends will depend on the delinquent loans. We expect our delinquent inventory to decline in 2020 from 2019 levels.economic circumstances of the borrower at that time.



MGIC Investment Corporation 20192021 Form 10-K | 67
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms

The primary and pool loss reserves as of December 31, 2019, 20182021, and 20172020 appear in the table below.
Gross loss reserves
December 31,
20212020
Primary:
Case reserves (In millions)
$795 $789 
IBNR and LAE82 82 
Total primary direct loss reserves877 871 
Ending delinquency inventory33,290 57,710 
Percentage of loans delinquent (default rate)2.84 %5.11 %
Average direct reserve per default$26,156 $15,100 
Primary claims received inventory included in ending delinquency inventory211 159 
Pool (1):
Direct loss reserves (In millions):
With aggregate loss limits4 6 
Without aggregate loss limits2 2 
Total pool direct loss reserves6 8 
Ending delinquency inventory:
With aggregate loss limits313 442 
Without aggregate loss limits185 238 
Total pool ending delinquency inventory498 680 
Pool claims received inventory included in ending delinquency inventory1 10 
Other gross loss reserves (2) (In millions)
1 2 
Gross loss reserves
          
  December 31,
  2019 2018 2017
Primary:         
Case reserves (In millions)
 $490
  $610
  $913
 
IBNR and LAE 56
  50
  58
 
Total primary direct loss reserves 546
  660
  971
 
Ending delinquent inventory  30,028
  32,898
  46,556
Percentage of loans delinquent (default rate)  2.78%  3.11%  4.55%
Average direct reserve per default  $18,171
  $20,077
  $20,851
Primary claims received inventory included in ending delinquent inventory  538
  809
  954
Pool (1):
         
Direct loss reserves (In millions):
         
With aggregate loss limits 7
  10
  10
 
Without aggregate loss limits 2
  3
  4
 
Total pool direct loss reserves 9
  13
 
14
 
Ending delinquent inventory:         
With aggregate loss limits  430
  595
  952
Without aggregate loss limits  223
  264
  357
Total pool ending delinquent inventory 

653
 

859
 

1,309
Pool claims received inventory included in ending delinquent inventory  11
  24
  42
Other gross loss reserves (In millions)
 —
  1
  1
 
(1)Since a number of our pool policies include aggregate loss limits and/or deductibles, we do not disclose an average direct reserve per default for our pool business.
(1)
(2)Other gross loss reserves includes direct and assumed reserves that are not included within our primary or pool loss reserves.

Since a number of our pool policies include aggregate loss limits and/or deductibles, we do not disclose an average direct reserve per default for our pool business.

The average direct reserve per default as of December 31, 2017 included the impact of delinquencies we estimated to be caused by hurricane activity that remained in our ending delinquent inventory at December 31, 2017, which had a materially lower new delinquency notice claim rate than other new delinquency notices received. When excluding the estimated hurricane delinquencies, the average direct reserve per default was $24,000. The average direct reserve per default as of December 31, 2019 declined2021 increased when compared to the average as of December 31, 2018 and December 31, 20172020 because the estimated claim rates on loans that remain in our delinquentdelinquency inventory were lower as of December 31, 2019.2021 included loans with more missed payment, which generally have higher anticipated claim rates.



MGIC Investment Corporation 20192021 Form 10-K | 68
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms

The primary defaultdelinquency inventory for the top 15 jurisdictions (based on 2019 losses paid, excluding settlement amounts)December 31, 2021 delinquency inventory) at December 31, 2019, 20182021, and 20172020 appears in table the below.
Primary delinquent inventory by jurisdiction
Primary delinquency inventory by jurisdictionPrimary delinquency inventory by jurisdiction
     
2019 2018 2017 20212020
Florida *2,504
 2,853
 6,501
Florida *2,948 5,936 
TexasTexas2,572 4,617 
Illinois *Illinois *2,082 3,460 
CaliforniaCalifornia1,852 3,584 
New York *1,634
 1,855
 2,387
New York *1,674 2,416 
New Jersey *992
 1,151
 1,749
Illinois *1,749
 1,781
 2,136
Puerto Rico *1,122
 1,503
 3,761
Maryland796
 842
 1,026
Pennsylvania *1,755
 1,929
 2,403
Pennsylvania *1,672 2,593 
Ohio *1,498
 1,627
 2,025
Ohio *1,458 2,541 
Connecticut *506
 480
 574
California1,213
 1,260
 1,402
Texas2,251
 2,369
 3,975
GeorgiaGeorgia1,272 2,422 
New Jersey *New Jersey *1,169 1,960 
Michigan921
 1,041
 1,260
Michigan1,144 1,842 
North CarolinaNorth Carolina987 1,686 
MarylandMaryland929 1,556 
Virginia580
 588
 731
Virginia766 1,377 
Georgia1,128
 1,220
 1,550
Wisconsin694
 726
 913
Louisiana *Louisiana *757 979 
IndianaIndiana736 1,163 
All other jurisdictions10,685
 11,673
 14,163
All other jurisdictions11,272 19,578 
Total30,028
 32,898
 46,556
Total33,290 57,710 
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.

Florida, Puerto Rico, and Texas each experienced an increase in their delinquent inventory as of December 31, 2017. The increases were driven by hurricanes in the third quarter of 2017, which resulted in significant new delinquency notice activity in the fourth quarter of 2017. Primarily due to 2018 cure activity on hurricane-related notices, each of those jurisdictions had significant reductions in their delinquent inventory in 2018.


The primary defaultdelinquency inventory by policy year at December 31, 2019, 20182021 and 20172020 appears in the table below.following table.
Primary delinquency inventory by policy year
20212020
2004 and prior2,829 3,885 
2004 and prior %:8 %6 %
20051,703 2,462 
20062,928 4,265 
20074,973 8,011 
20081,278 2,346 
2005 - 2008 %33 %30 %
200984 159 
201056 99 
201179 151 
2012143 357 
2013441 929 
20141,055 2,089 
20151,542 3,133 
2009 - 2015 %10 %12 %
20162,004 4,599 
20172,949 6,746 
20183,412 7,468 
20193,340 7,929 
20203,308 3,082 
20211,166 — 
2016 and later %:49 %52 %
Total33,290 57,710 
Primary delinquent inventory by policy year
      
 2019 2018 2017
2004 and prior4,686
 6,061
 8,739
2004 and prior %:16% 18% 19%
20052,799
 3,340
 4,916
20064,582
 5,299
 7,719
20077,096
 8,702
 12,807
20081,798
 2,369
 3,455
2005 - 2008 %54% 60% 62%
2009148
 172
 315
2010115
 121
 199
2011143
 159
 266
2012231
 312
 549
2013521
 592
 957
20141,101
 1,264
 1,757
20151,388
 1,418
 1,992
20161,578
 1,459
 1,930
20171,989
 1,282
 955
20181,521
 348
 —
2019332
 —
 —
2009 and later %:30% 22% 19%
      
Total30,028
 32,898
 46,556

The delinquent inventory as of December 31, 2017 for most policy years included new delinquency notices from hurricane impacted areas that had not cured. As a result, delinquencies, including in the most recent policy years, were greater than they otherwise would have been as of December 31, 2017. The majority of the notices received in the hurricane impacted areas cured during 2018.

The losses we have incurred on our 2005 through 2008 books have exceeded our premiums from those books. Although uncertainty remains with respect to the ultimate losses we may experience on those books, as we continue to write new insurance, those books have become a smaller percentage of our total mortgage insurance portfolio. Our 2005 through 2008 books of business represented approximately 11% and 15% of our total primary RIF at December 31, 2019 and 2018, respectively. Approximately 39% of the remaining primary RIF on our 2005 through 2008 books of business benefited from HARP as of both December 31, 2019 and 2018.



MGIC Investment Corporation 2019 Form 10-K | 69
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

On our primary business, the highest claim frequency years have typically been the third and fourth year after loan origination. However, the pattern of claim frequency can be affected by many factors, including persistency and deteriorating economic conditions. Deteriorating economic conditions can result in increasing claims following a period of declining claims. As of December 31, 2019, 58%2021, 78% of our primary RIF was written subsequent to December 31, 2016, 70%2018, 82% of our primary RIF was written subsequent to December 31, 2015,2017, and 79%86% of our primary RIF was written subsequent to December 31, 2014.2016.


MGIC Investment Corporation 2021 Form 10-K | 69
MGIC Investment Corporation and Subsidiaries


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

Forbearance programs enacted by the GSEs provide for payment forbearance on mortgages to borrowers experiencing a hardship during the COVID-19 pandemic. The forbearance information provided by the GSEs will be with respect to delinquent loans in forbearance as of the prior month-end, while the information provided by loan servicers may be more current. As of December 31, 2021 and December 31, 2020 33% and 62%, respectively, of our delinquency inventory was reported as subject to a forbearance plan. We believe substantially all represent forbearances related to COVID-19. The following tables present characteristics of our primary delinquency inventory in forbearance plans.

The number of payments that a borrower in forbearance is delinquent as of December 31, 2021 and 2020 is shown in the following table.
Forbearance delinquency inventory - number of payments delinquent
20212020
3 payments or less2,565 6,580 
4 - 11 payments4,594 28,153 
12 payments or more3,978 1,145 
Total11,137 35,878 
3 payments or less23 %18 %
4 - 11 payments41 %79 %
12 payments or more36 %3 %
Total100 %100 %


The primary delinquency inventory in forbearance for the top 15 jurisdictions (based on December 31, 2021 delinquency inventory) at December 31, 2021 and 2020 appears in the following table.
Primary delinquency inventory in forbearance - by jurisdiction
 20212020
Florida *1,071 4,150 
Texas1,002 3,285 
Illinois *701 2,162 
California805 2,668 
New York *406 1,088 
Pennsylvania *458 1,294 
Ohio *357 1,228 
Georgia495 1,721 
New Jersey *387 1,174 
Michigan341 1,151 
North Carolina336 1,081 
Maryland340 994 
Virginia291 935 
Louisiana *294 562 
Indiana176 538 
All other jurisdictions3,677 11,847 
Total11,137 35,878 

The primary delinquency inventory in forbearance by policy year at December 31, 2021, and 2020 appears in the table below.
Primary delinquency inventory in forbearance by policy year
20212020
2004 and prior483 937 
2004 and prior %:4 %3 %
2005352 671 
2006601 1,293 
2007921 3,330 
2008288 1,197 
2005 - 2008 %20 %18 %
200920 84 
20107 38 
201118 66 
201240 229 
2013114 583 
2014278 1,389 
2015546 2,180 
2009 - 2015 %9 %13 %
2016740 3,490 
20171,066 5,180 
20181,304 5,927 
20191,482 6,670 
20202,238 2,614 
2021639 — 
2016 and later %:67 %67 %
Total11,137 35,878 

MGIC Investment Corporation 2021 Form 10-K | 70
MGIC Investment Corporation and Subsidiaries


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

2019 compared to 2018.Underwriting and other expenses for 20192021 increased when compared to 2018$198.4 million from $176.4 million in 2020. The increase is primarily due to increases in professional and consulting services related to our investments in our technology and data and analytics infrastructure, partially offset by an increase in benefit expenses and a reduction in ceding commissions.

commission on our QSR transactions.
2018 compared to 2017
. Underwriting and other expenses for 2018 increased when compared to 2017, primarily due to higher compensation.

Underwriting expense ratio
The underwriting expense ratio is the ratio, expressed as a percentage, of the underwriting and operating expenses, net and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance operations) to NPW, and is presented in the table below for the past threetwo years.
  Year Ended December 31,
  2019 2018 2017
Underwriting expense ratio 18.4% 18.2% 16.0%

The underwriting expense ratio increased in 20192021 compared with 20182020 due to an increase in underwriting expenses and other expenses, net, partially offset by slightly higher NPW. The increase in the underwriting expense ratio in 2018 when compared to 2017 was due to an increase in expenses and a decrease in our NPW.
Year Ended December 31,
20212020
Underwriting expense ratio20.6 %19.2 %

INTEREST EXPENSE
2019 compared to 2018.Interest expense for 20192021 was $53 million, unchanged from 2018.

2018 compared to 2017.Interest expense for 2018 decreased 7% to $53$71.4 million compared to $57$59.6 million for 2020. The increase is due to the issuance of the 5.25% Notes in August 2020, partially offset by the repurchase of a portion of the 5.75% Notes in 2020 and the 9% Debentures in 2021 and 2020.

LOSS ON DEBT EXTINGUISHMENT
We recorded a loss on debt extinguishment of $36.9 million in 2017 as2021 associated with the repurchase of a portion of our previously outstanding 5%9% Debentures and $26.7 million in 2020 associated with the repurchase of a portion of each of our 5.75% Notes matured and our 2% Notes were extinguished, each during 2017.9% Debentures.


See Note 7 - "Debt" to our consolidated financial statements for a discussion on our debt.
INCOME TAX EXPENSE AND EFFECTIVE TAX RATE
Income tax provision and effective tax rate
       
(In millions, except rate) 2019 2018 2017
Income before tax $848
 $844
 $784
Provision for income taxes 174
 174
 429
Effective tax rate 20.5% 20.6% 54.7%

Income tax provision and effective tax rate
(In millions, except rate)20212020
Income before tax$802 $559 
Provision for income taxes167 113 
Effective tax rate20.8 %20.2 %
2019
The increase in our provision for income taxes for 2021 compared to 2018. The2020 was primarily due to an increase in income tax expense for 2019 was flat compared to the income tax expense for 2018.before tax. Our effective tax rate for 20192021 and 20182020 was below the federal statutory income tax rate of 21% primarily due to the benefits of tax-preferenced securities.
2018 compared to 2017.
The decrease in income tax expense for 2018 compared to 2017 reflects the lower 2018 federal statutory income tax rate under the Tax Act, the remeasurement of our deferred tax assets in 2017, as well as an additional tax provision recorded in 2017 for the settlement of our IRS litigation, partially offset by a 2018 increase in income before tax. Our 2018 effective tax rate was below the federal statutory income tax rate of 21% primarily due to the benefits of tax-preferenced securities.

See Note 12 – “Income Taxes” to our consolidated financial statements for a discussion of our tax position.




MGIC Investment Corporation 20192021 Form 10-K | 7071
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms

BALANCE SHEET REVIEW

Shareholders' equity
Shareholders' equity
As of December 31,
(In millions)20212020$ Change
Shareholders' equity
Common stock$371 $371 $— 
Paid-in capital1,795 1,862 (67)
Treasury stock(675)(393)(282)
Accumulated Other Comprehensive Income (Loss), net of tax120 217 (97)
Retained earnings3,251 2,642 609 
Total4,861 $4,699 $162 
Shareholders' equity
  As of December 31,  
(In millions) 2019 2018 $ Change
Shareholders' equity      
Common stock $371
 $371
 $—
Paid-in capital 1,870
 1,863
 7
Treasury stock (283) (175) (108)
Accumulated Other Comprehensive Income (Loss), net of tax 73
 (124) 197
Retained earnings 2,278
 1,647
 631
Total $4,309
 $3,582
 $727

The increase in shareholders' equity in 2021 compared with the prior year was primarily due to net income, during 2019 and an increase in the fair value of our investment portfolio, offset in part by the repurchase of shares of our common stock and quarterly dividends paid to shareholders.

Total assets and total liabilities
As of December 31, 2019,2021, total assets were $6.2$7.3 billion and total liabilities were $1.9$2.5 billion. Compared to year-end 2018,December 31,2020, total assets increased by $551.8 milliondecreased modestly and total liabilities decreased by $175.6 million.$0.2 billion.

The following sections focus on the assets and liabilities experiencing major developments in 2019.2021.

INVESTMENT PORTFOLIO
The investment portfolio increased 12%,decreased to $5.8$6.6 billion as of December 31, 2019 (2018: $5.22021 (2020: $6.7 billion), as net cash from operations was used in part for additional investment.primarily due to lower unrealized gains.

The return we generate on our investment portfolio is an important component of our consolidated financial results. Our investment portfolio primarily consists of a diverse mix of highly rated fixed income securities. The investment portfolio is designed to achieve the following objectives:
Operating Companies (1)
Holding Company
èPreserve PMIERs assetsèProvide liquidity with minimized realized loss
èMaximize total return with emphasis on yield, subject to our other objectivesèMaintain highly liquid, low volatility assets
èLimit portfolio volatilityèMaintain high credit quality
èDuration 3.5 to 5.5 yearsèDuration maximum of 2.5 years
(1)
Primarily MGIC
(1)Primarily MGIC

To achieve our portfolio objectives, our asset allocation considers the risk and return parameters of the various asset classes in which we invest. This asset allocation is informed by, and based on, the following factors:
èeconomic and market outlooks;
èdiversification effects;
èsecurity duration;
èliquidity;
ècapital considerations; and
èincome tax rates.

The average duration and embedded investment yield of our investment portfolio as of December 31, 2019, 2018,2021 and 20172020 is shown in the following table.
Portfolio duration and embedded investment yield
December 31,
20212020
Duration (in years)4.54.3
Pre-tax yield (1)
2.5%2.6%
After-tax yield (1)
2.1%2.1%
Portfolio duration and embedded investment yield
        
  December 31,
  2019 2018 2017
Duration (in years) 3.9 4.1 4.3
Pre-tax yield (1)
 3.1% 3.1% 2.7%
After-tax yield (1)
 2.5% 2.6% 2.0%
(1)Embedded investment yield is calculated on a yield-to-worst basis.
(1)

Embedded investment yield is calculated on a yield-to-worst basis.

The credit risk of a security is evaluated through analysis of the security's underlying fundamentals, including the issuer's sector, scale, profitability, debt coverage, and ratings. The investment policy guidelines limit the amount of our credit exposure to any one issue, issuer and type of instrument. The following table shows the security ratings of our fixed income investments as of December 31, 20192021 and 2018.2020.
Fixed income security ratings
% of fixed income securities at fair value
Security Ratings (1)
PeriodAAAAAABBB
December 31, 202118%26%36%20%
December 31, 202023%22%35%20%
(1)Ratings are provided by one or more of: Moody's, Standard & Poor's and Fitch Ratings. If three ratings are available, the middle rating is shown; otherwise the lowest rating is shown.


MGIC Investment Corporation 2021 Form 10-K | 72
MGIC Investment Corporation and Subsidiaries


Fixed income security ratings
% of fixed income securities at fair value
  
Security Ratings (1)
Period AAA AA A BBB
December 31, 2019 21% 20% 34% 24%
December 31, 2018 19% 23% 33% 25%
(1)
Ratings are provided by one or more of: Moody's, Standard & Poor's and Fitch Ratings. If three ratings are available, the middle rating is shown; otherwise the lowest rating is shown.

Our investment portfolio mix was invested in comparable security types for the years ended December 31, 20192021 and December 31, 2018.2020. See Note 5 – “Investments” to our consolidated financial statements for additional disclosure on our investment portfolio.



MGIC Investment Corporation 2019 Form 10-K | 71
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms


Investments outlook
The U.S. economy continued to grow in 2019 and is expected to continue to grow at a slower rate in 2020. Against this positive macroeconomic backdrop, which includes very low unemployment, the Federal Open Market Committee left its benchmark interest rate at a range of 150 to 175 basis points as of December 31, 2019 and has signaled that it does not expect increases in 2020. Our investment portfolio of fixed income securities is subject to interest rate risk and its fair value is likely to declineincrease in a risingdecreasing interest rate environment. Changes in interest rates affect the carrying value and returns of our fixed income investments. We seek to manage our exposure to interest rate risk and volatility by maintaining a diverse mix of high qualityhigh-quality securities with an intermediate duration profile.

The Federal Open Market Committee (“FOMC”) maintained the targeted federal funds rate at 0 percent to 1/4 percent throughout 2021 as it weighed the ongoing economic impacts of the Covid-19 Pandemic, employment and inflation and the associated risks to the economic outlook. In response to rising inflation, and a desire to normalize monetary policy, the FOMC has signaled increases to the federal funds rate in 2022. Yields have increased in the capital markets in response to the FOMC’s announcements, which has recently resulted in a lower level of unrealized gains on our fixed income investments.

While higher interest rates may adversely impact the fair values of our fixed income securities,investments, they present an opportunity to reinvest investment income and proceeds from security maturities into higher yielding securities. In light of the corporate income tax rate reduction in the fourth quarter of 2017, we reduced the percentage of our investments in tax-exempt securities during 2018 and increased our corporate and CLO concentrations. Weinvestments. Investing activity will continue to evaluatedecrease our portfolio yield as long as market yields remain below the relative value of tax-exempt versus taxable fixedcurrent portfolio yield. Any decline in market-based portfolio yield is expected to result in lower net investment income securities during 2020, and our investment allocations may shift over time.in future periods.

As of December 31, 2019,2021, approximately 6% of the fair value of our investment portfolio consisted of securities referencing LIBOR.LIBOR, none of which reference one-week and two-month tenors. As discussed in our risk factor titled "The Company may be adversely impacted by the transition from LIBOR as a reference rate", it is uncertain whetherrate," the ICE Benchmark Administration, the administrator of LIBOR, will continueceased publishing the one-week and two-month tenors of the USD LIBOR tenors and intends to be quoted after 2021.cease publishing the other USD LIBOR tenors on June 30, 2023.

CASH AND CASH EQUIVALENTS
Cash and cash equivalents increased 7%, to $162$285 million, as of December 31, 2019 (2018: $1522021 (2020: $288 million), as net cash generated from operating activities was only partly offset by net cashsubstantially used in investingfinancing activities and financing activities.net purchases of investments.

DEFERRED INCOME TAXESREINSURANCE RECOVERABLE ON PAID LOSSES
Deferred income taxes, net decreased 92%,Reinsurance recoverable on paid losses increased to $6$36.3 million at December 31, 2021 (2020: $0.7 million) primarily due to the termination of our 2017 and 2018 QSR transaction as of December 31, 2019 (2018: $69 million), primarily due to2021. The reinsurers participating in the tax effect2017 and 2018 QSR transaction were responsible for any loss and LAE reserves incurred at the time of unrealized gains generated by the investment portfolio.termination.

LOSS RESERVES
Our loss reserves include estimates of losses and settlement expenses on (1) reported delinquencies knownloans in our delinquency inventory (known as case reservesreserves) (2) IBNR reserves,delinquencies, and (3) LAE reserves.LAE. Our gross reserves are reduced by reinsurance recoverable on our estimated losses and settlement expenses to calculate a net
reserve balance. Loss reserves decreased by 18%increased slightly to $555$884 million as of December 31, 2019,2021, from $674$881 million of December 31, 2018.2020. Reinsurance recoverables on our estimated losses and settlement expenses were $22$67 million and $33$95 million as of December 31, 20192021 and December 31, 2018,2020, respectively. This decrease was driven by favorable development on previously received delinquencies, offsetThe increase in part by losses incurredloss reserves is primarily due to additional loss reserves established on new delinquency notices received in 2019 that remain2021, partially offset by favorable development on pre-COVID and peak COVID delinquencies as a result of a decrease in inventory.the estimated ultimate claim rate on those delinquencies. The reinsurance recoverable on loss reserves decreased primarily due to the termination of the 2017 and 2018 QSR transaction.

LONG-TERM DEBT
Our long-term debt decreased to $1,146.7 million as of December 31, 2021 from $1,243.2 million as of December 31, 2020. In December 2021 we repurchased $98.6 million in aggregate principal amount of our 9% Debentures due 2063.

UNEARNED PREMIUM
Our unearned premium decreased to $241.7 million as of December 31, 2021 from $287.1 million as of December 31, 2020 primarily due to single premium policy cancellations exceeding the level of new business from single premium policies.

OTHER LIABILITIES
Other liabilities decreased 16% to $152$192 million as of December 31, 2019 (2018: $1802021 (2020: $245 million), primarily due to decreases in our deferred income taxestax liability, reinsurance premium payable accounts payable, pension-related liabilities(net of ceding commission and our premium refund accrual due to lower estimated claim rates,profit commission), liability for pension obligations and the settlement of 2018 share repurchases in the first quarter of 2019,investment securities payable. These were partially offset by an increase in accrued salaries and benefits.

Off-balance sheet arrangementsour accrual for premium refunds.
Home Re 2018-1 Ltd. and Home Re 2019-1 Ltd. are special purpose variable interest entities that are not consolidated in our consolidated financial statements because we do not have the unilateral power to direct those activities that are significant to their economic performance. See
Note 9 - "Reinsurance," to our consolidated financial statements for additional information.


MGIC Investment Corporation 20192021 Form 10-K | 7273
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms

LIQUIDITY AND CAPITAL RESOURCES

CONSOLIDATED CASH FLOW ANALYSIS
We have three primary types of cash flows: (1) operating cash flows, which consist mainly of cash generated by our insurance operations and income earned on our investment portfolio, less amounts paid for claims, interest expense and operating expenses, (2) investing cash flows related to the purchase, sale and maturity of investments and purchases of property and equipment and (3) financing cash flows generally from activities that impact our capital structure, such as changes in debt and shares outstanding and dividend payouts. The following table summarizes these three cash flows on a consolidated basis for the last threetwo years.
Summary of consolidated cash flows
 Years ended December 31,
(In thousands)20212020
Total cash provided by (used in):
Operating activities$696,317 $732,309 
Investing activities(160,749)(772,506)
Financing activities(527,290)167,821 
Increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents$8,278 $127,624 
Summary of consolidated cash flows
       
  Years ended December 31,
(In thousands) 2019 2018 2017
Total cash provided by (used in):      
Operating activities $609,532
 $544,517
 $406,657
Investing activities (422,108) (317,780) (303,641)
Financing activities (173,406) (171,550) (158,575)
Increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents $14,018
 $55,187
 $(55,559)

Operating activities
The following list highlights the major sources and uses of cash flow from operating activities:
Sources
+Premiums received
+Loss payments from reinsurers
+Investment income
SourcesUses
+-Premiums receivedClaim payments
+-Loss payments from reinsurers
+Investment income
Uses
-Claim payments
-Premium ceded to reinsurers
-Interest expense
-Operating expenses
-Tax payments
Our largest source of cash is from premiums received from our insurance policies, which we receive on a monthly installment basis for most policies. Premiums are received at the beginning of the coverage period for single premium and annual premium policies. Our largest cash outflow is generally for claims that arise when a delinquency results in an insured loss. Based on historical experience, we expect our future claim payments associated with established case loss reserves to pay out at or within 5 years, with the majority of future claim payments made within one to three years. However, due to the foreclosure moratoriums and payment forbearance plans in place, we have experienced a decrease in losses and LAE paid through 2021. As the various moratoriums and forbearance plans end, we expect net losses and LAE paid to increase, however, the magnitude and timing of the increases are uncertain.
We invest our claims paying resources from premiums and other sources in various investment securities that earn interest. We
interest. We also use cash to pay for our ongoing expenses such as salaries, debt interest, professional services and rent.occupancy costs.
We also have purchase obligations totaling approximately $40 million which consist primarily of contracts related to our continued investment in our information technology infrastructure in the normal course of business. The majority of these obligations are under contracts that give us cancellation rights with notice. In the next twelve months we anticipate we will pay approximately $12 million for our purchase obligations.
In connection with the reinsurance we use to manage the risk associated with our insurance policies, we cede, or pay out, part of the premiums we receive to our reinsurers and collect cash back when claims subject to our reinsurance coverage are paid.

Net cash provided by operating activities in 2019 increased2021 decreased compared to 20182020 primarily due to a lower level of losses paid, net, an increase in net premium written,tax payments, interest expense and underwriting and operating expenses. This was partially offset by a decrease in losses paid and an increase in investment income.premium received.

Net cash provided by operating activities in 2018 increased compared to 2017 primarily due to a lower level of losses paid, net and an increase in investment income, offset in part by payments made in connection with our IRS litigation settlement.

Investing activities
The following list highlights the major sources and uses of cash flow from investing activities:
Sources
+Proceeds from sales of investments
+Proceeds from maturity of fixed income securities
Uses
-Purchases of investments
-Purchases of property and equipment

We maintain an investment portfolio that is primarily invested in a diverse mix of fixed income securities. As of December 31, 2019,2021, our portfolio had a fair value of $5.8$6.6 billion, an increasea decrease of $599.3 million,$0.1 billion, or 11.6%(1.1)% from December 31, 2018.2020. Net cash flows used in investing activities in 2019, 2018,2021 and 20172020 primarily reflect purchasingpurchases of fixed income securities in an amount that exceeded our proceeds from sales and maturities of fixed incomesuch securities during the year as cash from operations was available for additional investment. In addition to investment portfolio activities, our investing activities included investment in our technology infrastructure to enhance our ability to conduct business and execute our strategies, as well as an initiative to update our corporate headquarters building which was substantially complete in 2018.strategies.




MGIC Investment Corporation 20192021 Form 10-K | 7374
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms

Financing activities
The following list highlights the major sources and uses of cash flow from financing activities:
Sources
+Proceeds from debt and/or common stock issuances
Uses
-Repurchase of common stock
-Payment of dividends to shareholders
-Repayment/repurchase of debt
-Payment of withholding taxes related to share-based compensation net share settlement

Net cash flows used in financing activities in 20192021 primarily reflect repurchases of our common stock, repurchase of a portion of our 9% Debentures, payment of dividends to shareholders and the payment of withholding taxes related to share-based compensation net share settlement. Net cash flows used inIn 2020, financing activities in 2018 also reflect repurchasesincluded cash received from the issuance of our common stock and the payment of withholding taxes related to share-based compensation net share settlement.

Net cash flows used in financing activities for 2017 included the repayment at maturity of our 5% Notes, redemption of a portion of our 2% Notes, expenses paid to establish our revolving credit facility and payment of withholding taxes related to share-based compensation net share settlement.

5.25% Notes.
* * *

For a further discussion of matters affecting our cash flows, see "Balance Sheet Review" above and "Debt at our Holding Company and Holding Company Liquidity" below.

CAPITALIZATION
Capital Risk
Capital risk is the risk of adverse impact on our ability to comply with capital requirements (regulatory and GSE) and to maintain the level, structure and composition of capital required for meeting financial performance objectives.

A strong capital position is essential to our business strategy and is important to maintain a competitive position in our industry. Our capital strategy focuses on long-term stability, which enables us to build and invest in our business, even in a stressed environment.

Our capital management objectives are to:
èinfluence and ensure compliance with capital requirements,
èmaintain access to capital and reinsurance markets,
èmanage our capital to support our business strategies and the competing priorities of relevant stakeholders
èassess appropriate uses for capital that cannot be deployed in support of our business strategies, including the size and form of capital return to shareholders, and efficiently using company resources, and
èsupport business opportunities by enabling capital flexibility and efficiently using company resources.

These objectives are achieved through ongoing monitoring and management of our capital position, mortgage insurance portfolio stress modeling, and a capital governance framework. Capital management is intended to be flexible in order to react to a range of potential events. The focus we place on any individual objective may change over time due to factors that include, but are not limited to, economic conditions, changes at the GSEs, competition, and alternative transactions to transfer mortgage risk.





MGIC Investment Corporation 2019 Form 10-K | 74
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

Capital Structure
The following table summarizes our capital structure as of December 31, 2019, 2018,2021, and 2017.2020.
(In thousands, except ratio)20212020
Common stock, paid-in capital, retained earnings, less treasury stock$4,741,685 $4,482,165 
Accumulated other comprehensive loss, net of tax119,697 216,821 
Total shareholders' equity4,861,382 4,698,986 
Long-term debt, par value1,157,500 1,256,110 
Total capital resources$6,018,882 $5,955,096 
Ratio of long-term debt to shareholders' equity23.8 %26.7 %
       
       
(In thousands, except ratio) 2019 2018 2017
Common stock, paid-in capital, retained earnings, less treasury stock $4,236,526
 $3,706,105
 $3,198,309
Accumulated other comprehensive loss, net of tax 72,708
 (124,214) (43,783)
Total shareholders' equity 4,309,234
 3,581,891
 3,154,526
Long-term debt, par value 836,872
 836,872
 836,872
Total capital resources $5,146,106
 $4,418,763
 $3,991,398
       
Ratio of long-term debt to shareholders' equity 19.4% 23.4% 26.5%


The increase in total shareholders' equity in 20192021 from 20182020 was primarily due to net income during 2019,2021, offset by our repurchases of our common stock, and the increase in gross unrealized investment losses.dividends paid to shareholders. See Note 13 - "Shareholders' Equity" for further information .information.

DEBT AT OUR HOLDING COMPANY AND HOLDING COMPANY LIQUIDITY

Debt obligations - holding company
The 5.75% Notes, 5.25% Notes, and 9% Debentures are obligations of our holding company, MGIC Investment Corporation, and not of its subsidiaries. We have no debt obligations due within the next twelve months. As of December 31, 2019,2021, our 5.25% Notes had $650 million of outstanding principal due in 2028, our 5.75% NoteNotes had $425$242.3 million of outstanding principal due in August 2023, and our 9% Debentures had $389.5$110.2 million of outstanding principal due in April 2063. MGIC's ownership of $132.7

In February 2022, we repurchased $42.0 million aggregate principal amount of our holding company's 9% Debentures is eliminated in consolidation, but they remain outstanding obligations owed by our holding company to MGIC. at a purchase prices of $57.3 million, plus accrued interest.

The 9% Debentures are a convertible debt issuance. Subject to certain limitations and restrictions, holders of the 9% Debentures may convert their notes into shares of our common stock at their option prior to certain dates prescribed under the terms of their issuance, in which case our corresponding obligation will be eliminated prior to the scheduled maturity.

In December 2021, we repurchased $98.6 million in aggregate principal of our 9% Debentures.

See Note 7 - "Debt" for further information on our outstanding debt obligations and transactions impacting our consolidated financial statements in 20192021 and 2018.2020.

Liquidity analysis - holding company
As of December 31, 2019,2021, and December 31, 2018,2020, we had approximately $325$663 million and $248$847 million, respectively, in cash and investments at our holding company. These resources are maintained primarily to service our debt interest expense, pay debt maturities, repurchase shares, pay dividends to shareholders, and to settle intercompany obligations. While these assets are held, we generate investment income that serves to offset a portion of our interest expense. Investment income and

MGIC Investment Corporation 2021 Form 10-K | 75
MGIC Investment Corporation and Subsidiaries


the payment of dividends from our
insurance subsidiaries are the principal sources of holding company cash inflow. MGIC is the principal source of dividends, and their payment is restricted by insurance regulation. See Note 14 - “Statutory Information” to our consolidated financial statement for additional information about MGIC’s dividend restrictions. The payment of dividends from MGIC is also influenced by our view of the appropriate level of excess PMIERs Available Assets to maintain an excess over Minimum Required Assets. Other sources of holding company liquidity include raisingmaintain. Raising capital in the public markets.markets is another potential source of holding company liquidity. The ability to raise capital in the public markets is subject to prevailing market conditions, investor demand for the securities to be issued, and our deemed creditworthiness.

Over the next twelve months the principal demand on holding company resources will be interest payments on our 5.75% Notes, 5.25% Notes, and 9% Debentures approximating $60 million. We have received$58 million, based on the appropriate approvals for MGIC to pay our holding company, in the first quarter or 2020, a special dividend of $320 million and a quarterly dividend of $70 million. We expect MGIC to pay quarterly dividends totalingdebt outstanding at least $280 million per year.December 31, 2021. We believe our holding company has sufficient sources of liquidity to meet its payment obligations for the foreseeable future.

During 2019the last half of 2021 and 2018,the first quarter of 2020, we used approximately $114$291 million and $175$120 million (of which $12 million settled in January 2019), respectively, of available holding company cash to repurchase shares of our common stock. From January 1, 202,In 2022, through February 19, 2020,18, we repurchasedused approximately 2.5$76 million of available holding company cash to repurchase shares of our common stockstock. The repurchase programs may be suspended or discontinued at any time. See “Overview - Capital” of this MD&A for approximately $35 million.a discussion of our share repurchase programs.

We may use additional holding company cash to repurchase additional shares or to repurchase our outstanding debt obligations. Such repurchases may be material, may be made for cash (funded by debt) and/or exchanges for other securities, and may be made in open market purchases (including through 10b5-1 plans), privately negotiated acquisitions or other transactions. See "Overview-Capital" of this MD&A for a discussion of the approval to repurchase up to an additional $300 millionfor a discussion of our common stock through the end of 2021.share repurchase programs.



MGIC Investment Corporation 2019 Form 10-K | 75
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms


In 20192021 we used $42$94 million to pay cash dividends to shareholders. On January 28, 2020,25, 2022, our Board of Directors declared a quarterly cash dividend of $0.06$0.08 per common share to shareholders of record on February 11, 2020,16 2022, payable on February 28, 2020.March 2, 2022.

Our holding company cash and investments increased by $77decreased $184 million in 2019,2021, to $325$663 million as of December 31, 2019. Cash 2021.

Significant cash and investments inflows included $280 during the year:
•$400 million of dividends received from MGIC, and $25
•$17 million of other inflows, which included intercompany activity. Cash investment income.

Significant cash outflows included $126 during the year:
•$291 million usedof share repurchase transactions,
•$94 million in cash dividends paid to repurchase sharesshareholders,
•$136 million in repurchases of our common stock, $609% Debentures ($98.6 million in principal amount), and
•$69 million of interest payments of which approximately $12 million was paid to MGIC for the portion ofon our 5.75% Notes, 5.25% Notes and 9% Debentures owned by MGIC, and $42 million in common stock dividends.Debentures.

The net unrealized lossesgains on our holding company investment portfolio were approximately $2.9$2.6 million at December 31, 20192021 and the portfolio had a modified duration of approximately 1.41.7 years.

Scheduled debt maturities beyond the next twelve months include $425$242.3 million of our 5.75% Notes in 2023, $650 of our 5.25% Notes in 2028, and $389.5$110.2 million of our 9% Debentures in 2063, of which MGIC owns $132.7 million.2063. The principal amount of the 9% Debentures is currently convertible, at the holder’s option, at an initiala conversion rate, which is subject to adjustment, of 74.471876.5496 common shares per $1,000 principal amount of debentures. This represents an initiala conversion price of approximately $13.43$13.06 per share. We may redeem the 9% Debentures in whole or in part from time to time, at our option, at a redemption price equal to 100% of the principal amount of the 9% Debentures being redeemed, plus any accrued and unpaid interest, if the closing sale price of our common stock exceeds $17.46$16.98 (adjusted pro rata for changes in the conversion price) for at least 20 of the 30 trading days preceding notice of the redemption. We expect to provide a redemption notice for the Debentures when this requirement is met and would expect the majority of the holders of the Debentures would elect to convert their Debentures into common stock before the redemption date. Under the terms of the Debenture, we may pay cash in lieu of issuing shares.
See Note 7 – “Debt” to our consolidated financial statements for additional information about the conversion terms of our 9% Debentures and the terms of our indebtedness, including our option to defer interest.Debentures. The description in Note 7 - “Debt" to our consolidated financial statements is qualified in its entirety by the terms of the notes and debentures. The terms of our 9% Debentures are contained in the Indenture dated as of March 28, 2008, between us and U.S. Bank National Association filed as an exhibit to our Form 10-Q filed with the SEC on May 12, 2008. The terms of our 5.75% Notes are contained in a Supplemental Indenture, dated as of August 5, 2016, between us and U.S. Bank National Association, as trustee, which is included as an exhibit to our 8-K filed with the SEC on August 5, 2016, and in the Indenture dated as of October 15, 2000 between us and the trustee. The terms of our 5.25% Notes are contained in a Supplemental Indenture, dated as of August 12, 2020, between us and U.S. Bank National Association, as trustee, which is included as an exhibit to our 8-K filed with the SEC on August 12, 2020, and in the Indenture dated as of October 15, 2000 between us and the trustee.

Although not anticipated in the near term, we may also contribute funds to our insurance operations to comply
with the PMIERs or the State Capital Requirements. See “Overview – Capital” above for a discussion of these requirements. See the discussion of our non-insurance contract underwriting services in Note 17 – “Litigation and Contingencies” to our consolidated financial statements for other possible uses of holding company resources.

DEBT AT SUBSIDIARIES
MGIC is a member of the FHLB. Membership in the FHLB provides MGIC access to an additional source of liquidity via a secured lending facility. MGIC has outstanding a $155.0 million fixed rate advance from the FHLB. Interest on the advance is payable monthly at a fixed annual rate of 1.91%. The principal of the advance matures on February 10, 2023 but may be prepaid at any time. Such prepayment would be below par if interest rates have risen after the advance was originated, or above par if

MGIC Investment Corporation 2021 Form 10-K | 76
MGIC Investment Corporation and Subsidiaries


interest rates have declined. The advance is secured by eligible collateral in the form of pledged securities from the investment portfolio, whose market value must be maintained at a minimum of 102% of the principal balance of the advance. Annual debt services on the FHLB debt as of December 31, 2021, is approximately $3 million.

Capital Adequacy
PMIERs
We operate under each of the GSE's PMIERs. Refer to "Overview - Capital - GSEs" of this MD&A for further discussion of PMIERs.

As of December 31, 2019,2021, MGIC’s Available Assets under PMIERs totaled approximately $4.6$5.7 billion, an excess of approximately $1.2$2.2 billion over its Minimum Required Assets; and MGIC is in compliance with the requirements of the PMIERs and eligible to insure loans delivered to or purchased by the GSEs.

Maintaining a sufficient level of excess Available Assets will allow MGIC to remain in compliance with the PMIERs financial requirements. Our reinsurance transactions provided an aggregate of approximately$1.2 billion of PMIERs

The table below presents the PMIERS capital credit as of December 31, 2019. for our reinsurance transactions.

PMIERs - Reinsurance Credit
 December 31,
(In millions)20212020
QSR Transactions$1,129 $1,002 
Home Re Transactions765 482 
Total capital credit for Reinsurance Transactions$1,894 $1,484 

Our 20202022 QSR transaction terms are generally comparable to our existing QSR transactions and will also provide PMIERs capital credit. Refer to Note 9 - "Reinsurance" to our consolidated financial statements for additional information on our reinsurance transactions.
The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases.

We plan to continuously comply with the PMIERs through our operational activities or through the contribution of funds from our holding company, subject to demands on the holding company's resources, as outlined above.

RISK-TO-CAPITAL
We compute our risk-to-capital ratio on a separate company statutory basis, as well as on a combined


MGIC Investment Corporation 2019 Form 10-K | 76
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

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

The table below presents MGIC’s separate company risk-to-capital calculation. 
Risk-to-capital - MGIC separate company
     
  December 31,
(In millions, except ratio) 2019 2018
RIF - net (1)
 $44,338
 $34,502
Statutory policyholders' surplus $1,619
 $1,682
Statutory contingency reserve 2,963
 2,138
Statutory policyholders' position $4,582
 $3,820
Risk-to-capital 9.7:1
 9.0:1
(1)
RIF – net, as shown in the table above, is net of reinsurance and exposure on policies currently delinquent and for which case loss reserves have been established.

The table below presents our combined insurance companies’ risk-to-capital calculation (which includes a reinsurance affiliate).
Risk-to-capital - Combined insurance companies
 December 31,
(In millions, except ratio)20212020
RIF - net (1)
$50,748 $44,868 
Statutory policyholders' surplus$1,221 $1,340 
Statutory contingency reserve4,127 3,586 
Statutory policyholders' position$5,348 $4,926 
Risk-to-capital9.5:19.1:1
Risk-to-capital - Combined insurance companies
     
  December 31,
(In millions, except ratio) 2019 2018
RIF - net (1)
 $44,550
 $40,239
Statutory policyholders' surplus $1,619
 $1,683
Statutory contingency reserve 3,021
 2,443
Statutory policyholders' position $4,640

$4,126
Risk-to-capital 9.6:1
 9.8:1
(1)
RIF – net, as shown in the table above, is net of reinsurance and exposure on policies currently delinquent ($1.5 billion at December 31, 2019 and $1.6 billion at December 31, 2018)(1)RIF – net, as shown in the table above, is net of reinsurance and exposure on policies currently delinquent ($1.8 billion at December 31, 2021 and $2.9 billion at December 31, 2020) and for which case loss reserves have been established.

The 20192021 increase in our combined insurance companies risk-to-capital of MGIC iswas due to an increase in RIF, net RIF,of reinsurance, partially offset by an increase in our statutory policyholders' position, primarily due to an increase in statutory contingency reserves.policyholder's position. The reductions in the risk-to-capital of our combined insurance companies were due to an increase in statutory policyholders' position was primarily due to an increase in statutory contingency reserves partiallyand net income during 2021, offset by andividends paid to our holding company of $400 million. The increase in net RIF. Ourour RIF, net of reinsurance, increased in 2019,was primarily due to an increase in our IIF and the termination of our 2017 and 2018 QSR Transaction, offset by a reductiondecrease in our ceded RIF under our 2015 QSR Transaction.reduction to risk on policies that are currently in default for which loss reserves have been established. Our risk-to-capital ratio will decreaseincrease if the percentage increase in capital exceeds the percentage increasedecrease in insured risk. 

In the first quarter of 2020, we received the appropriate approvals for MGIC to pay our holding company a special dividend of $320 million. The $320 million special dividend will reduce the statutory policyholder's position of MGIC, which will result in an increase to the risk-to-capital.

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

Financial Strength Ratings
MGIC financial strength ratings
MGIC financial strength ratingsRating AgencyRatingOutlook
Moody's Investors ServiceBaa1Stable
Rating AgencyRatingOutlook
Moody's Investor ServicesBaa1Stable
Standard and Poor's Rating ServicesBBB+Stable
A.M. BestA-Stable

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

For further information about the importance of MGIC’s ratings and rating methodologies, see our risk factor titled “Competition

MGIC Investment Corporation 2021 Form 10-K | 77
MGIC Investment Corporation and Subsidiaries


or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and/and / or increase our losses” in Item 1A.1A.
MAC financial strength ratings
Rating AgencyRatingOutlook
A.M. BestA-Stable


MGIC Investment Corporation 2019 Form 10-K | 77
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

Contractual Obligations
The following table summarizes, as of December 31, 2019, the approximate future payments under our contractual obligations and estimated claim payments on established loss reserves.
Contractual obligations
            
  Payments due by period
    Less than     More than
(In millions) Total 1 year 1-3 years 3-5 years 5 years
Long-term debt obligations 1,949.7
 50.7
 101.1
 651.0
 1,146.9
Operating lease obligations 2.3
 1.2
 1.0
 0.1
 —
Purchase obligations 9.1
 6.5
 2.6
 —
 —
Other long-term liabilities 555.3
 208.2
 252.1
 95.0
 —
Total 2,516.4
 266.6
 356.8
 746.1
 1,146.9
Our long-term debt obligations as of December 31, 2019 include their related interest and are discussed in Note 7 – “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” above. Our operating lease obligations include operating leases on certain office space, data processing equipment and autos, as discussed in Note 16 – “Leases” to our consolidated financial statements. Purchase obligations consist primarily of agreements to purchase items related to our ongoing infrastructure projects and information technology investments in the normal course of business.

Our other long-term liabilities represent case and LAE loss reserves established to recognize the liability for losses and LAE related to existing delinquencies on insured mortgage loans. The timing of the future claim payments associated with the established case loss reserves was determined primarily based on two key assumptions: the length of time it takes for a notice of delinquency to develop into a received claim and the length of time it takes for a received claim to be ultimately paid. The future claim payment periods are estimated based on historical experience, and could emerge differently than this estimate, in part, due to uncertainty regarding the impact of certain factors, such as loss mitigation protocols established by servicers and changes in some state foreclosure laws that may include, for example, a requirement for additional review and/or mediation process. See Note 8 – “Loss Reserves” to our consolidated financial statements and “Critical Accounting Policies” below for additional information on our loss reserves. In accordance with GAAP for the mortgage insurance industry, we establish case loss reserves only for delinquent loans. Because our reserving method does not take account of the impact of future losses that could occur from loans that are not delinquent, our obligation for ultimate losses that we expect to occur under our policies in force at any period end is not reflected in our consolidated financial statements or in the table above.



MGIC Investment Corporation 20192021 Form 10-K | 78
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms

Benefit Plans
We have a non-contributory defined benefit pension plan covering substantially all domestic employees, as well as a supplemental executive retirement plan. Retirement benefits are based on compensation and years of service. We maintain plan assets to fund our defined benefit pension plan obligations. We did not have a minimum funding requirement for the defined benefit pension plan for 2019 or 2018 and do not anticipate having a minimum funding requirement in 2020. We have significant discretion in making contributions above those necessary to satisfy the minimum funding requirements. In 2019 and 2018, we voluntarily made contributions totaling $7.1 million, and $10.0 million, respectively. We plan to make a voluntary contribution of approximately $6.5 million to the defined benefit pension plan in 2020. In determining future contributions, we will consider the performance of the plan's investment portfolio, the effects of interest rates on the projected benefit obligation of the plan and our other capital requirements. As of December 31, 2019, we had accrued a liability of $3.1 million related to our defined benefit pension plan as the projected obligation was in excess of plan assets. The supplemental executive retirement plan benefits are accrued for and are paid from MGIC assets following employee retirements. We plan to pay benefits of approximately $6 million under the supplemental executive retirement plan in 2020.

Our projected benefit obligations under these plans are subject to numerous actuarial assumptions that may change in the future and as a result could substantially increase or decrease our obligations. Plan assets held to pay our defined benefit pension plan obligations are primarily invested in a portfolio of debt securities to preserve capital and to provide monthly cash flows aligned with the liability component of our obligations, with a lesser percentage invested in a mix of equity securities. If the performance of our invested plan assets differs from our expectations, the funded status of the benefit pension plan may decline, even with no significant change in the obligations. See Note 11 - "Benefit Plans" to our consolidated financial statements for a complete discussion of these plans and their effect on the consolidated financial statements.


MGIC Investment Corporation 2019 Form 10-K | 79
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

CRITICAL ACCOUNTING POLICIESESTIMATES

The accounting policiesestimates described below require significant judgments and estimates in the preparation of our consolidated financial statements.

LOSS RESERVES
LossThe estimation of case loss reserves include case reserves, IBNR reserves,is subject to inherent uncertainty and LAE reserves.requires significant judgement by management. Changes to our estimates could result in a material impact to our consolidated results and financial position, even in a stable economic environment.

Case Reserves
Case reserves are established for estimated insurance losses when notices of delinquency on insured mortgage loans are received. Such loans are referred to as being in our delinquency inventory. For reporting purposes, we consider a loan delinquent when it is two or more payments past due.due and has not become current or resulted in a claim payment. Even though the accounting standard, ASC 944, regarding accounting and reporting by insurance entities specifically excluded mortgage insurance from its guidance relating to loss reserves, we establish loss reserves using the general principles contained in the insurance standard. However, consistent with industry standards for mortgage insurers, we do not establish loss reserves for future claims on insured loans which are not currently delinquent.

We establish reserves using estimated claim rates and claim severities in estimating the ultimate loss.

The estimated claim rates and claim severities are used to determine the amount we estimate will actually be paid on the delinquent loans as of the reserve date. If a policy is rescinded we do not expect that it will result in a claim payment and thus the rescission generally reduces the historical claim rate used in establishing reserves. In addition, if a loan cures its delinquency, including through a successful loan modification, the cure reduces the historical claim rate used in establishing reserves. Our methodology to estimate claim rates and claim severities is based on our review of recent trends in the delinquent inventory. To establish reserves, we utilize a reserving model that continually incorporates historical data into the estimated claim rate. The model also incorporates an estimate for the amount of the claim we will pay, or severity. The severity is estimated using the historical percentage of our claims paid compared to our loan exposures, as well as the RIF of the loans currently in default. We do not utilize an explicit rescission rate in our reserving methodology, but rather our reserving methodology incorporates the effects rescission activity has had on our historical claim rate and claim severities. We review recent trends in the claim rate, claim severity, levels of defaults by geography and average loan exposure. As a result, the process to determine reserves does not include quantitative ranges of outcomes that are reasonably likely to occur.

The claim rates and claim severities are affected by external events, including actual economic conditions such as changes in unemployment rates, interest rates or housing values;values, pandemics and natural disasters. Our estimation process does not include a correlation between claim rates and claim severities to projected economic conditions such as changes in unemployment rates, interest rates or housing values. Our experience is that analysis of that nature would not produce reliable results as the change in
one economic condition cannot be isolated to determine its specific effect on our ultimate paid losses because each economic condition is also influenced by other economic conditions. Additionally, the changes and interactions of these economic conditions are not likely homogeneous throughout the regions in which we conduct business. Each economic condition influences our ultimate paid losses differently, even if apparently similar in nature. Furthermore, changes in economic conditions may not necessarily be reflected in our loss development in the quarter or year in which the changes occur. Actual claim results oftengenerally lag changes in economic conditions by at least nine to twelve months.

Our estimates are also affected by any agreements we enter into regarding our claims paying practices, such as the settlement agreements discussed in Note 17 – “Litigation and Contingencies” to our consolidated financial statements.

Our estimate of loss reserves is sensitive to changes in claim rate and claim severity; it is possible that even a relatively small change in our estimated claim rate or claim severity could have a material impact on reserves and, correspondingly, on our consolidated results of operations even in a stable economic environment. For example, as of December 31, 2019,2021, assuming all other factors remain constant, a $1,000 increase/decrease in the average claim severity reserve factor would change the reserve amount by approximately +/- $10$16 million. A one percentage point increase/decrease in the average claim rate reserve factor would change the reserve amount by approximately +/- $17$19 million. Historically, it has not been uncommon for us to experience variability in the development of the loss reserves through the end of the following year at this level or higher, as shown by the historical development of our loss reserves in the table below:


Historical development of loss reserves
(In thousands)
Losses incurred related to prior years (1)
Reserve at end of prior year
2021(60,015)880,537 
202019,604 555,334 
2019(71,006)674,019 
2018(167,366)985,635 
2017(231,204)1,438,813 
(1)MGIC Investment Corporation 2019 Form 10-K | 80A negative number for a prior year indicates a redundancy of loss reserves. A positive number for a prior year indicates a deficiency of loss reserves.
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents
 | Glossary of terms and acronyms

Historical development of loss reserves
      
(In thousands) 
Losses incurred related to prior years (1)
 Reserve at end of prior year
2019 (71,006) 674,019
2018 (167,366) 985,635
2017 (231,204) 1,438,813
2016 (147,658) 1,893,402
2015 (110,302) 2,396,807
(1)
A negative number for a prior year indicates a redundancy of loss reserves.

See Note 8 – “Loss Reserves” to our consolidated financial statements for a discussion of recent loss development.

IBNR Reserves
Reserves are established for estimated IBNR, which results from delinquencies occurring prior to the close of an accounting period, but which have not been reported to us. Consistent with reserves for reported delinquencies, IBNR reserves are established using estimated claim rates and claim severities for the estimated number of delinquencies not reported. As of December 31, 2019 and 2018, we had IBNR reserves of approximately $23 million and $29 million, respectively.

The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment, leading to a reduction in borrower income and thus their ability to make mortgage payments, and a drop in housing values, that could result in, among other things, greater losses on loans, and may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance.

LAE Reserves
LAE reserves are established for the estimated costs of settling claims, including legal and other expenses and general expenses of administering the claims settlement process.

REVENUE RECOGNITION
When a policy term ends, the primary mortgage insurance written by us is renewable at the insured’s option through continued payment of the premium in accordance with the schedule established at the inception of the policy life. We are generally obligated to renew the policies and have no ability to re-underwrite or reprice these policies after issuance. Premiums written on monthly premium policies are earned as coverage is provided. Premiums written on single premium policies and annual premium policies are initially deferred as unearned premium reserve and earned over the estimated policy life. Premiums written on policies
covering more than one year are amortized over the policy life based on historical experience, which includes the anticipated incurred loss pattern. Premiums written on annual premium policies are earned on a monthly pro rata basis.  When a policy is cancelled, all premium that is non-refundable is immediately earned. Any refundable premium is returned to the servicer or borrower. Policies may be cancelled by the insured, or due to rescissions or claim payments. When a policy is rescinded, all previously collected premium is returned to the servicer and when a claim is paid, all premium collected since the date of default is returned. The liability associated with our estimate of premium to be returned is accrued for separately and this liability is included in “Other liabilities” on our consolidated balance sheets. Changes in these liabilities and the actual return of premium affect premiums written and earned.
Fee income of our non-insurance subsidiaries is earned and recognized as the services are provided and the customer is obligated to pay.

DEFERRED INSURANCE POLICY ACQUISITION COSTS
Costs directly associated with the successful acquisition of mortgage insurance business, consisting of employee compensation and other policy issuance and underwriting expenses, are initially deferred and reported as deferred insurance policy acquisition costs ("DAC"). The deferred costs are net of any ceding commissions received associated with our reinsurance transactions. For each underwriting year of business, these costs are amortized to income in proportion to estimated gross profits over the estimated life of the policies. We utilize anticipated investment income in our calculation. This includes accruing interest on the unamortized balance of DAC. The estimates for each underwriting year are reviewed quarterly and updated when necessary to reflect actual experience and any changes to key variables such as persistency or loss development.

Because our insurance premiums are earned over time, changes in persistency result in DAC being amortized against revenue over a longer or shorter period of time. However, even a 10% change in persistency would not have a material effect on the amortization of DAC in the subsequent year.


MGIC Investment Corporation 20192021 Form 10-K | 8179
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

FAIR VALUE MEASUREMENTS
Investment Portfolio
Fixed income securities.Our fixed income securities are classified as available-for-sale and are reported at fair value. The related unrealized investment gains or losses are, after considering the related tax expense or benefit, recognized as a component of accumulated other comprehensive income (loss) in shareholders' equity. Realized investment gains and losses on fixed income securities are reported in income based upon specific identification of securities sold, as well as any "other than temporary" impairments ("OTTI") recognized in earnings.

Equity securities.At December 31, 2017, equity securities were classified as available-for-sale and were reported at fair value, except for certain equity securities that were carried at cost, for which the amount reported approximated fair value. These equity securities carried at cost were reported as Other invested assets at December 31, 2018, as required under ASU 2016-01. The updated guidance also requires, effective January 1, 2018, the periodic change in fair value of equity securities to be recognized as realized investment gains and losses. For periods prior, realized investment gains and losses on equity securities were a function of the difference between the amount received on the sale of an equity security and the equity security's cost basis, as well as any OTTI recognized in earnings.

Other invested assets.Other invested assets are carried at cost. These assets represent our investment in FHLB stock, which due to restrictions, is required to be redeemed or sold only to the security issuer at par value.
In accordance with fair value guidance, we applied the following fair value hierarchy in order to measure fair value for assets and liabilities:
èLevel 1Quoted prices for identical instruments in active markets that we can access. Financial assets using Level 1 inputs primarily include U.S. Treasury securities, money market funds, and certain equity securities.
èLevel 2
Quoted prices for similar instruments in active markets that we can access; quoted prices for identical or similar instruments in markets that are not active; and inputs, other than quoted prices, that are observable in the marketplace for the instrument. The observable inputs are used in valuation models to calculate the fair value of the instruments. Financial assets using Level 2 inputs primarily include obligations of U.S. government corporations and agencies, corporate bonds, mortgage-backed securities, asset-backed securities, and most municipal bonds.

The independent pricing sources used for our Level 2 investments vary by type of investment. See Note 6 - "Fair Value Measurements" for further information.
èLevel 3Valuations derived from valuation techniques in which one or more significant inputs or value drivers are unobservable or, from par values due to restrictions on certain securities that require them to be redeemed or sold only to the security issuer at par value. The inputs used to derive the fair value of Level 3 securities reflect our own assumptions about the assumptions a market participant would use in pricing an asset or liability. Financial assets using Level 3 inputs include obligations of U.S. states and political subdivisions and certain equity securities (2017 only). Our non-financial assets that are classified as Level 3 securities consist of real estate acquired through claim settlement. The fair value of real estate acquired is the lower of our acquisition cost or a percentage of the appraised value. The percentage applied to the appraised value is based upon our historical sales experience adjusted for current trends.

To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized; in approximate order of priority, they are: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and


MGIC Investment Corporation 2019 Form 10-K | 82
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

reference data including data published in market research publications.

Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. This model combines all inputs to arrive at a value assigned to each security. Quality controls are performed by the independent pricing sources throughout this process, which include reviewing tolerance reports, data changes, and directional moves compared to market moves. In addition, on a quarterly basis, we perform quality controls over values received from the pricing sources which also include reviewing tolerance reports, trading information, data changes, and directional moves compared to market moves. We have not made any adjustments to the prices obtained from the independent pricing sources.

Unrealized losses and OTTI
Each quarter we perform reviews of our investments in order to determine whether declines in fair value below amortized cost were considered other-than-temporary. In evaluating whether a decline in fair value is other-than-temporary, we consider several factors including, but not limited to:
èour intent to sell the security or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis;
èthe present value of the discounted cash flows we expect to collect compared to the amortized cost basis of the security;
èextent and duration of the decline;
èfailure of the issuer to make scheduled interest or principal payments;
èchange in rating below investment grade; and
èadverse conditions specifically related to the security, an industry, or a geographic area.

Based on our evaluation, we will record an OTTI adjustment on a security if we intend to sell the impaired security, if it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized cost basis, or if the present value of the discounted cash flows we expect to collect is less than the amortized costs basis of the security. If the fair value of a security is below its amortized cost at the time of our intent to sell, the security is classified as other-than-temporarily impaired and the full amount of the impairment is recognized as a loss in the statement of operations. Otherwise, when a security is considered to be other-than-temporarily impaired, the losses are separated into the portion of the loss that represents the credit loss; and the portion that is due to other factors. The credit loss portion is recognized as a loss in the statement of operations, while the loss due to other factors is recognized in accumulated other comprehensive income (loss), net of taxes. A credit loss is determined to exist if the present value of the
discounted cash flows, using the security’s original yield, expected to be collected from the security is less than the cost basis of the security.

Fair Value Option
For the years ended December 31, 2019, 2018, and 2017, we did not elect the fair value option for any financial instruments acquired, or issued, such as our outstanding debt obligations, for which the primary basis of accounting is not fair value.



MGIC Investment Corporation 2019 Form 10-K | 83

Item 7A. Quantitative and Qualitative Disclosures About Market Risk


Our investment portfolio is essentially a fixed income portfolio and is exposed to market risk. Important drivers of the market risk are credit spread risk and interest rate risk.

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

We manage credit risk via our investment policy guidelines which primarily require us to place our investments in investment grade securities and limit the amount of our credit exposure to any one issue, issuer and type of instrument. Guideline and investment portfolio detail is available in "Business – Section C, Investment Portfolio" in Item 1.

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

One of the measures used to quantify interest rate this exposure is modified duration. Modified duration measures the price sensitivity of the assets to the changes in spreads. At December 31, 2019,2021, the modified duration of our fixed income investment portfolio was 3.94.5 years, which means that an instantaneous parallel shift in the yield curve of 100 basis points would result in a change of 3.9%4.5% in the fair value of our fixed income portfolio. For an upward shift in the yield curve, the fair value of our portfolio would decrease and for a downward shift in the yield curve, the fair value would increase. A discussion of portfolio strategy appears in "Management's Discussion and Analysis – Balance Sheet Review– Investment Portfolio" in Item 7.


MGIC Investment Corporation 20192021 Form 10-K | 8480


Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements are filed pursuant to this Item 8:
Index to consolidated financial statements
Index to consolidated financial statements
Page No.
Consolidated balance sheets at December 31, 20192021 and 20182020
8682
Consolidated statements of operations for each of the three years in the period ended December 31, 20192021
8783
Consolidated statements of comprehensive income for each of the three years in the period ended December 31, 20192021
8884
Consolidated statements of shareholders' equity for each of the three years in the period ended December 31, 20192021
8985
Consolidated statements of cash flows for each of the three years in the period ended December 31, 20192021
9086
9187
Note 1. Nature of Business
9187
Note 2. Basis of Presentation
9187
Note 3. Significant Accounting Policies
9188
Note 4. Earnings Per Share
9893
Note 5. Investments
9994
Note 6. Fair Value Measurements
10297
Note 7. Debt
106101
Note 8. Loss Reserves
107103
Note 9. Reinsurance
111106
Note 10. Other Comprehensive (Loss) Income
116111
Note 11. Benefit Plans
118113
Note 12. Income Taxes
124119
Note 13. Shareholders' Equity
125120
Note 14. Statutory Information
126120
Note 15. Share-based Compensation
128122
Note 16. Leases
129122
Note 17. Litigation and Contingencies
129123
131
Report of Independent Registered Public Accounting Firm (Auditor Firm ID: 238)
132124


MGIC Investment Corporation 20192021 Form 10-K | 8581

MGIC INVESTMENT CORPORATION AND SUBSIDIARIESMGIC INVESTMENT CORPORATION AND SUBSIDIARIESMGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSCONSOLIDATED BALANCE SHEETSCONSOLIDATED BALANCE SHEETS
 December 31,December 31,
(In thousands) Note 2019 2018(In thousands)Note20212020
Assets    Assets
Investment portfolio: 
5 / 6
    Investment portfolio:
5 / 6
Fixed income, available-for-sale, at fair value (amortized cost, 2019 - $5,562,550; 2018 - $5,196,784) $5,737,892
 $5,151,987
Equity securities, at fair value (cost, 2019 - $17,188; 2018 - $3,993) 17,328
 3,932
Fixed income, available-for-sale, at fair value (amortized cost, 2021 - $6,397,658; 2020 - $6,317,164)Fixed income, available-for-sale, at fair value (amortized cost, 2021 - $6,397,658; 2020 - $6,317,164)$6,587,581 $6,661,596 
Equity securities, at fair value (cost, 2021 - $15,838; 2020 - $17,522)Equity securities, at fair value (cost, 2021 - $15,838; 2020 - $17,522)16,068 18,215 
Other invested assets, at cost 3,100
 3,100
Other invested assets, at cost3,100 3,100 
Total investment portfolio 5,758,320
 5,159,019
Total investment portfolio6,606,749 6,682,911 
    
Cash and cash equivalents 161,847
 151,892
Cash and cash equivalents284,690 287,953 
Restricted cash and cash equivalents 7,209
 3,146
Restricted cash and cash equivalents20,268 8,727 
Accrued investment income 49,705
 48,001
Accrued investment income51,902 49,997 
Reinsurance recoverable on loss reserves 
9
 21,641
 33,328
Reinsurance recoverable on loss reserves
9
66,905 95,042 
Reinsurance recoverable on paid losses 
9
 1,521
 2,948
Reinsurance recoverable on paid losses
9
36,275 669 
Premiums receivable 55,587
 55,090
Premiums receivable56,540 56,044 
Home office and equipment, net 50,121
 51,734
Home office and equipment, net45,614 47,144 
Deferred insurance policy acquisition costs 18,531
 17,888
Deferred insurance policy acquisition costs21,671 21,561 
Deferred income taxes, net 
12
 5,742
 69,184
Other assets 99,347
 85,572
Other assets134,394 104,478 
Total assets $6,229,571
 $5,677,802
Total assets$7,325,008 $7,354,526 
    
Liabilities and shareholders' equity    Liabilities and shareholders' equity
Liabilities:    Liabilities:
Loss reserves 
8
 $555,334
 $674,019
Loss reserves
8
$883,522 $880,537 
Unearned premiums 380,302
 409,985
Unearned premiums241,690 287,099 
Federal Home Loan Bank Advance 
7
 155,000
 155,000
Federal Home Loan Bank Advance
7
155,000 155,000 
Senior notes 
7
 420,867
 419,713
Senior notes
7
881,508 879,379 
Convertible junior subordinated debentures 
7
 256,872
 256,872
Convertible junior subordinated debentures
7
110,204 208,814 
Other liabilities 151,962
 180,322
Other liabilities191,702 244,711 
Total liabilities 1,920,337
 2,095,911
Total liabilities2,463,626 2,655,540 
Contingencies 
17
 


 


Contingencies
17
00
Shareholders' equity: 
13
    Shareholders' equity:
13
Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2019 - 371,353; 2018 - 371,353; outstanding 2019 - 347,308; 2018 - 355,371) 371,353
 371,353
Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2021 - 371,353; 2020 - 371,353; shares outstanding 2021 - 320,336; 2020 - 338,573)Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2021 - 371,353; 2020 - 371,353; shares outstanding 2021 - 320,336; 2020 - 338,573)371,353 371,353 
Paid-in capital 1,869,719
 1,862,536
Paid-in capital1,794,906 1,862,042 
Treasury stock (shares at cost 2019 - 24,045; 2018 - 15,982) (283,196) (175,059)
Accumulated other comprehensive income (loss), net of tax 
10
 72,708
 (124,214)
Treasury stock at cost (shares 2021 - 51,017; 2020 - 32,779)Treasury stock at cost (shares 2021 - 51,017; 2020 - 32,779)(675,265)(393,326)
Accumulated other comprehensive income, net of taxAccumulated other comprehensive income, net of tax
10
119,697 216,821 
Retained earnings 2,278,650
 1,647,275
Retained earnings3,250,691 2,642,096 
Total shareholders' equity 4,309,234
 3,581,891
Total shareholders' equity4,861,382 4,698,986 
Total liabilities and shareholders' equity $6,229,571
 $5,677,802
Total liabilities and shareholders' equity$7,325,008 $7,354,526 
See accompanying notes to consolidated financial statements.


MGIC Investment Corporation 20192021 Form 10-K | 8682

MGIC INVESTMENT CORPORATION AND SUBSIDIARIESMGIC INVESTMENT CORPORATION AND SUBSIDIARIESMGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended December 31,Years Ended December 31,
(In thousands, except per share data) Note 2019 2018 2017(In thousands, except per share data)Note202120202019
Revenues:      Revenues:
Premiums written:      Premiums written:
Direct $1,124,196
 $1,103,332
 $1,121,776
Direct$1,123,117 $1,106,632 $1,124,196 
Assumed 6,446
 271
 1,905
Assumed8,924 10,837 6,446 
Ceded 
9
 (129,334) (111,341) (125,726)Ceded
9
(163,031)(188,727)(129,334)
Net premiums written 1,001,308
 992,262
 997,955
Net premiums written969,010 928,742 1,001,308 
Decrease (increase) in unearned premiums 29,680
 (17,100) (63,208)Decrease (increase) in unearned premiums45,409 93,201 29,680 
Net premiums earned 
9
 1,030,988
 975,162
 934,747
Net premiums earned
9
1,014,419 1,021,943 1,030,988 
      
Investment income, net of expenses 
5
 167,045
 141,331
 120,871
Investment income, net of expenses
5
156,438 154,396 167,045 
Net realized investment gains (losses) 
5
 5,306
 (1,353) 231
Net realized investment gains (losses)
5
6,582 13,752 5,306 
Other revenue 10,638
 8,708
 10,205
Other revenue8,236 9,055 10,638 
Total revenues 1,213,977
 1,123,848
 1,066,054
Total revenues1,185,675 1,199,146 1,213,977 
      
Losses and expenses:  
  
  
Losses and expenses:   
Losses incurred, net 
8 / 9
 118,575
 36,562
 53,709
Losses incurred, net
8 / 9
64,577 364,774 118,575 
Amortization of deferred policy acquisition costs 12,001
 11,932
 11,111
Amortization of deferred policy acquisition costs12,602 12,380 12,001 
Other underwriting and operating expenses, net 182,768
 178,211
 159,638
Other underwriting and operating expenses, net198,445 176,398 182,768 
Loss on debt extinguishmentLoss on debt extinguishment
7
36,914 26,736 — 
Interest expense 
7
 52,656
 52,993
 57,035
Interest expense
7
71,360 59,595 52,656 
Loss on debt extinguishment 
13
 —
 —
 65
Total losses and expenses 366,000
 279,698
 281,558
Total losses and expenses383,898 639,883 366,000 
Income before tax 847,977
 844,150
 784,496
Income before tax801,777 559,263 847,977 
Provision for income taxes 
12
 174,214
 174,053
 428,735
Provision for income taxes
12
166,794 113,170 174,214 
Net income $673,763
 $670,097
 $355,761
Net income$634,983 $446,093 $673,763 
      
Earnings per share: 
4
  
  
  
Earnings per share:
4
   
Basic $1.91
 $1.83
 $0.98
Basic$1.90 $1.31 $1.91 
Diluted $1.85
 $1.78
 $0.95
Diluted$1.85 $1.29 $1.85 
      
Weighted average common shares outstanding - basic 
4
 352,827
 365,406
 362,380
Weighted average common shares outstanding - basic
4
334,330 339,953 352,827 
Weighted average common shares outstanding - diluted 
4
 373,924
 386,078
 394,766
Weighted average common shares outstanding - diluted
4
351,308 359,293 373,924 
      
See accompanying notes to consolidated financial statements.


MGIC Investment Corporation 20192021 Form 10-K | 8783

MGIC INVESTMENT CORPORATION AND SUBSIDIARIESMGIC INVESTMENT CORPORATION AND SUBSIDIARIESMGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMECONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMECONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Years Ended December 31,Years Ended December 31,
(In thousands) Note 2019 2018 2017(In thousands)Note202120202019
Net income $673,763
 $670,097
 $355,761
Net income$634,983 $446,093 $673,763 
Other comprehensive income (loss), net of tax: 
10
      Other comprehensive income (loss), net of tax:
10
Change in unrealized investment gains and losses 5 173,910
 (64,646) 47,547
Change in unrealized investment gains and losses5/10(122,099)133,616 173,910 
Benefit plans adjustment 
11
 23,012
 (15,767) (5,839)Benefit plans adjustment
11
24,975 10,497 23,012 
Foreign currency translation adjustment —
 —
 31
Other comprehensive income (loss), net of tax 196,922
 (80,413) 41,739
Other comprehensive income (loss), net of tax(97,124)144,113 196,922 
Comprehensive income $870,685
 $589,684
 $397,500
Comprehensive income$537,859 $590,206 $870,685 
See accompanying notes to consolidated financial statements.


MGIC Investment Corporation 20192021 Form 10-K | 8884

MGIC INVESTMENT CORPORATION AND SUBSIDIARIESMGIC INVESTMENT CORPORATION AND SUBSIDIARIESMGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYCONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYCONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 Years Ended December 31, Years Ended December 31,
(In thousands) Note 2019 2018 2017(In thousands)Note202120202019
Common stock      Common stock
Balance, beginning of year $371,353
 $370,567
 $359,400
Issuance of common stock 
13
 —
 —
 10,386
Net common stock issued under share-based compensation plans —
 786
 781
Balance, end of year 371,353
 371,353
 370,567
Balance, beginning and end of yearBalance, beginning and end of year371,353 371,353 371,353 
      
Paid-in capital  
  
  Paid-in capital  
Balance, beginning of year 1,862,536
 1,850,582
 1,782,337
Balance, beginning of year1,862,042 1,869,719 1,862,536 
Cumulative effect of share-based compensation accounting standard update  —
 —
 49
Issuance of common stock 
13
 —
 —
 60,903
Net common stock issued under share-based compensation plans —
 (8,917) (7,602)
Cumulative effect of debt with conversion options accounting standards updateCumulative effect of debt with conversion options accounting standards update(68,289)— — 
Balance, beginning of period, as adjustedBalance, beginning of period, as adjusted1,793,753 1,869,719 1,862,536 
Reacquisition of convertible junior subordinated debentures-equity componentReacquisition of convertible junior subordinated debentures-equity component7— (2,673)— 
Reissuance of treasury stock, net under share-based compensation plans (11,715) —
 —
Reissuance of treasury stock, net under share-based compensation plans(15,956)(18,807)(11,715)
Equity compensation 18,898
 20,871
 14,895
Equity compensation17,109 13,803 18,898 
Balance, end of year 1,869,719
 1,862,536
 1,850,582
Balance, end of year1,794,906 1,862,042 1,869,719 
      
Treasury stock  
  
  Treasury stock  
Balance, beginning of year (175,059) —
 (150,359)Balance, beginning of year(393,326)(283,196)(175,059)
Purchases of common stock 
13
 (114,126) (175,059) —
Purchases of common stock
13
(290,818)(119,997)(114,126)
Reissuance of treasury stock, net —
 —
 150,359
Reissuance of treasury stock, net under share-based compensation plans 5,989
 —
 —
Reissuance of treasury stock, net under share-based compensation plans8,879 9,867 5,989 
Balance, end of year (283,196) (175,059) —
Balance, end of year(675,265)(393,326)(283,196)
      
Accumulated other comprehensive loss  
  
  
Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)  
Balance, beginning of year (124,214) (43,783) (75,100)Balance, beginning of year216,821 72,708 (124,214)
Cumulative effect of financial instruments accounting standard update 
3
 —
 (18) —
Other comprehensive income (loss) 
10
 196,922
 (80,413) 41,739
Cumulative effect to reclassify certain tax effects from accumulated other comprehensive loss —
 —
 (10,422)
Other comprehensive (loss) incomeOther comprehensive (loss) income
10
(97,124)144,113 196,922 
Balance, end of year 72,708
 (124,214) (43,783)Balance, end of year119,697 216,821 72,708 
      
Retained earnings  
  
  Retained earnings  
Balance, beginning of year 1,647,275
 977,160
 632,564
Balance, beginning of year2,642,096 2,278,650 1,647,275 
Cumulative effect of financial instruments accounting standard update 
3
 —
 18
 —
Cumulative effect of share-based compensation accounting standard update —
 —
 153
Cumulative effect of debt with conversion options accounting standards updateCumulative effect of debt with conversion options accounting standards update68,289 — — 
Balance, beginning of period, as adjustedBalance, beginning of period, as adjusted2,710,385 2,278,650 1,647,275 
Net income 673,763
 670,097
 355,761
Net income634,983 446,093 673,763 
Cash dividends (42,388) —
 —
Cash dividends(94,677)(82,647)(42,388)
Reissuance of treasury stock, net 
13
 —
 —
 (21,740)
Cumulative effect to reclassify certain tax effects from accumulated other comprehensive loss 
13
 —
 —
 10,422
Balance, end of year 2,278,650
 1,647,275
 977,160
Balance, end of year3,250,691 2,642,096 2,278,650 
      
Total shareholders' equity $4,309,234
 $3,581,891
 $3,154,526
Total shareholders' equity$4,861,382 $4,698,986 $4,309,234 
See accompanying notes to consolidated financial statements.


MGIC Investment Corporation 20192021 Form 10-K | 8985

MGIC INVESTMENT CORPORATION AND SUBSIDIARIESMGIC INVESTMENT CORPORATION AND SUBSIDIARIESMGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSCONSOLIDATED STATEMENTS OF CASH FLOWSCONSOLIDATED STATEMENTS OF CASH FLOWS
      
 Years Ended December 31,Years Ended December 31,
(In thousands) 2019 2018 2017(In thousands)202120202019
Cash flows from operating activities:      Cash flows from operating activities:
Net income $673,763
 $670,097
 $355,761
Net income$634,983 $446,093 $673,763 
Adjustments to reconcile net income to net cash provided by operating activities:      Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and other amortization 48,784
 58,215
 64,430
Depreciation and other amortization66,014 57,812 48,784 
Deferred tax expense 11,096
 186,572
 355,044
Deferred tax expense5,188 27,475 11,096 
Loss on debt extinguishmentLoss on debt extinguishment36,914 26,736 — 
Net realized investment (gains) losses (5,306) 1,353
 (231)Net realized investment (gains) losses(6,582)(13,752)(5,306)
Loss on debt extinguishment —
 —
 65
Change in certain assets and liabilities:  
  
  
Change in certain assets and liabilities:  
Accrued investment income (1,704) (1,941) (1,987)Accrued investment income(1,905)(292)(1,704)
Reinsurance recoverable on loss reserves 11,687
 15,146
 2,019
Reinsurance recoverable on loss reserves28,137 (73,401)11,687 
Reinsurance recoverable on paid losses 1,427
 924
 1,092
Reinsurance recoverable on paid losses(35,606)852 1,427 
Premiums receivable (497) (1,045) (1,653)Premiums receivable(496)(457)(497)
Deferred insurance policy acquisition costs (643) 953
 (1,082)Deferred insurance policy acquisition costs(110)(3,030)(643)
Profit commission receivable 4,945
 (5,479) (2,844)Profit commission receivable(19,245)4,586 4,945 
Loss reserves (118,685) (311,616) (453,178)Loss reserves2,985 325,203 (118,685)
Unearned premiums (29,683) 17,051
 63,197
Unearned premiums(45,409)(93,203)(29,683)
Return premium accrual (11,500) (22,900) (25,400)Return premium accrual7,200 (500)(11,500)
Current income taxes 1,057
 (77,551) 51,296
Current income taxes5,429 6,271 1,057 
Other, net 24,791
 14,738
 128
Other, net18,820 21,916 24,791 
Net cash provided by operating activities 609,532
 544,517
 406,657
Net cash provided by operating activities696,317 732,309 609,532 
Cash flows from investing activities:      Cash flows from investing activities:
Purchases of investments (1,394,126) (1,459,473) (1,293,695)Purchases of investments(1,531,129)(2,636,972)(1,394,126)
Proceeds from sales of investments 229,796
 370,449
 246,908
Proceeds from sales of investments473,904 836,851 229,796 
Proceeds from maturity of fixed income securities 748,165
 785,175
 759,212
Proceeds from maturity of fixed income securities900,591 1,030,926 748,165 
Net (decrease) increase in payables for securities (307) 307
 —
Net decrease in payables for securitiesNet decrease in payables for securities— — (307)
Additions to property and equipment (5,636) (14,238) (16,066)Additions to property and equipment(4,115)(3,311)(5,636)
Net cash used in investing activities (422,108) (317,780) (303,641)Net cash used in investing activities(160,749)(772,506)(422,108)
Cash flows from financing activities:      Cash flows from financing activities:
Proceeds from revolving credit facility —
 —
 150,000
Repayment of revolving credit facility —
 —
 (150,000)
Purchase or repayment of convertible senior notes —
 —
 (145,620)
Payment of original issue discount - convertible senior notes —
 —
 (4,504)
Proceeds from issuance of senior notesProceeds from issuance of senior notes— 640,250 — 
Purchase of senior notesPurchase of senior notes— (179,735)— 
Payment of original issue discount - senior notesPayment of original issue discount - senior notes— (2,969)— 
Purchase of convertible junior subordinated debenturesPurchase of convertible junior subordinated debentures(98,610)(36,392)— 
Payment of original issue discount- convertible junior subordinated debenturesPayment of original issue discount- convertible junior subordinated debentures— (15,049)— 
Cash portion of loss on debt extinguishmentCash portion of loss on debt extinguishment(36,914)(25,266)— 
Repurchase of common stock (125,766) (163,419) —
Repurchase of common stock(290,818)(119,997)(125,766)
Dividends paid (41,914) —
 —
Dividends paid(94,219)(82,061)(41,914)
Payment of debt issuance costs —
 —
 (1,630)Payment of debt issuance costs— (2,020)— 
Payment of withholding taxes related to share-based compensation net share settlement (5,726) (8,131) (6,821)Payment of withholding taxes related to share-based compensation net share settlement(6,729)(8,940)(5,726)
Net cash used in financing activities (173,406) (171,550) (158,575)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities(527,290)167,821 (173,406)
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents 14,018
 55,187
 (55,559)Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents8,278 127,624 14,018 
Cash and cash equivalents and restricted cash and cash equivalents at beginning of year 155,038
 99,851
 155,410
Cash and cash equivalents and restricted cash and cash equivalents at beginning of year296,680 169,056 155,038 
Cash and cash equivalents and restricted cash and cash equivalents at end of year $169,056
 $155,038
 $99,851
Cash and cash equivalents and restricted cash and cash equivalents at end of year$304,958 $296,680 $169,056 
See accompanying notes to consolidated financial statements.


MGIC Investment Corporation 20192021 Form 10-K | 9086
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents



NOTE 1Nature of Business
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. Primary mortgage insurance provides mortgage default protection on individual loans and covers a percentage of the unpaid loan principal, delinquent interest and certain expenses associated with the default and subsequent foreclosure or sale approved by us. Through certain non-insurance subsidiaries, we also provide various services forus, of the mortgage finance industry, such as contract underwriting, analysis of loan originations and portfolios, and mortgage lead generation.underlying property. MGIC Assurance Corporation ("MAC") and MGIC Indemnity Corporation ("MIC"), an insurance subsidiarysubsidiaries of MGIC, providesprovide insurance for certain mortgages under Fannie Mae and Freddie Mac (the "GSEs") credit risk transfer programs and is a participant inprograms.

Through certain non-insurance subsidiaries, we also provide certain services for the Fannie Mae Enterprise-Paid Mortgage Insurance program.mortgage finance industry, such as contract underwriting.

At December 31, 2019,2021, our direct primary insurance in force ("IIF") was $222.3$274.4 billion, which represents the principal balance in our records of all mortgage loans that we insure, and our direct primary risk in force ("RIF") was $57.2$69.3 billion, which represents the IIF multiplied by the insurance coverage percentage.

Substantially allThe substantial majority of our insurance written since 2008NIW 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 insurancerisk in force, calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor amount)dimensions). Based on our interpretation of the more restrictive application of the PMIERs, as of December 31, 2019,2021, 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.


NOTE 2Basis of Presentation
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of
America ("GAAP"), as codified in the Accounting Standards Codification ("ASC"). Our consolidated financial statements include the accounts of MGIC Investment Corporation and its majority-owned subsidiaries. Intercompany transactions and balances have been eliminated. In accordance with GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

The COVID-19 pandemic had a material impact on our 2020 financial results. While uncertain, the impact of the COVID-19 pandemic on the Company’s future financial results, business, liquidity and/or financial condition may also be material. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in the United States, efforts to reduce the transmission of COVID-19, the level of unemployment, and the impact of government initiatives and actions taken by Fannie Mae and Freddie Mac (the "GSEs") (including mortgage forbearance and modification programs) to mitigate the economic harm caused by COVID-19.

SUBSEQUENT EVENTS
We have considered subsequent events through the date of this filing.

RECLASSIFICATIONS

Certain reclassifications to 2018MGIC Investment Corporation 2021 Form 10-K | 87
MGIC Investment Corporation and 2017 amounts have been made in the accompanying consolidated financial statements to conform to the 2019 presentation. See Subsidiaries

Note 3 - "Significant Accounting Policies" for a discussion of our adoption of accounting guidance in 2019 that resulted in other reclassifications.

NOTE 3Significant Accounting Policies
CASH AND CASH EQUIVALENTS
We consider money market funds and investments with original maturities of three months or less to be cash equivalents.

RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents consists of cash and money market funds held in trusts for the benefit of contractual counterparties under reinsurance agreements.agreements or for other contractual restrictions.

FAIR VALUE MEASUREMENTS
We carry certain financial instruments at fair value and disclose the fair value of all financial instruments. Our financial instruments carried at fair value are predominantly measured on a recurring basis. Financial instruments measured on a nonrecurring basis are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).

The fair value of an asset or liability is defined as the price that would be received upon a sale of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Fair value is based on quoted market prices or inputs, where available. If prices or quotes are not available, fair value is based on valuation models or other valuation techniques that consider relevant transaction characteristics (such as maturity) and use as inputs observable or unobservable market parameters including yield curves, interest rates, volatilities, equity


MGIC Investment Corporation 2019 Form 10-K | 91
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


or debt prices, foreign exchange rates and credit curves. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, as described below.

For the years ended December 31, 2021, 2020, and 2019, we did not elect to measure any financial instruments acquired, or issued, such as our outstanding debt obligations, at fair value for which the primary basis of accounting is not fair value.

Valuation process
We use independent pricing sources to determine the fair value of a substantial majority of our financial instruments, which primarily consist of assets in our investment portfolio, but also includes amounts included in cash and cash equivalents and restricted cash and cash equivalents. A variety of inputs are used; in approximate order of priority, they are: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

Market indicators, industry, and economic events are also considered. This information isThe inputs listed above are evaluated using a multidimensional pricing model. This model combines all inputs to arrive at a value assigned to each security. Quality controls are performed by the independent pricing sources throughout this process, which include reviewing tolerance reports, trading information, data changes, and directional moves compared to market moves.

On a quarterly basis, we perform quality controls over values received from the pricing sources which also include reviewing tolerance reports, data changes, and directional moves compared
to market moves. We have not made any adjustments to the prices obtained from the independent pricing sources.

Valuation hierarchy
A three-level valuation hierarchy has been established under GAAP for disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of a financial instrument as of the measurement date. To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources, as described in "Valuation process,"below, have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded.


The three levels are defined as follows:
èLevel 1Quoted prices for identical instruments in active markets that we can access. Financial assets using Level 1 inputs primarily include U.S. Treasury securities, money market funds, treasury bills, and certain equity securities.
èLevel 2
Quoted prices for similar instruments in active markets that we can access; quoted prices for identical or similar instruments in markets that are not active; and inputs, other than quoted prices, that are observable in the marketplace for the instrument. The observable inputs are used in valuation models to calculate the fair value of the instruments. Financial assets using Level 2 inputs primarily include obligations of U.S. government corporations and agencies, corporate bonds, mortgage-backed securities, asset-backed securities, and most municipal bonds.bonds, and commercial paper.

The independent pricing sources used for our Level 2 investments vary by type of investment. See Note 6 - "Fair Value Measurements" for further information.
èLevel 3Valuations derived from valuation techniques in which one or more significant inputs or value drivers are unobservable or, from par values due to restrictions on certain securities that require them to be redeemed or sold only to the security issuer at par value. The inputs used to derive the fair value of Level 3 securities reflect our own assumptions about the assumptions a market participant would use in pricing an asset or liability. Financial assets using Level 3 inputs include obligations of U.S. states and political subdivisions and certain equity securities (2017 only). Our non-financial assets that are classified as Level 3 securities consist of real estate acquired through claim settlement. The fair value of real estate acquired is the lower of our acquisition cost or a percentage of the appraised value. The percentage applied to the appraised value is based upon our historical sales experience adjusted for current trends.



MGIC Investment Corporation 2021 Form 10-K | 88
MGIC Investment Corporation and Subsidiaries

INVESTMENTS
Fixed income securities. Our fixed income securities are classified as available-for-sale and are reported at fair value. The related unrealized investment gains or losses are, after considering the related tax expense or benefit, recognized as a component of accumulated other comprehensive income (loss) in shareholders' equity. Realized investment gains and losses on fixed income securities are reported in income based upon specific identification of securities sold as well as any credit allowance (2021 and 2020), and any "other than temporary" impairments ("OTTI") recognized in earnings.(2019).

Equity securities. Equity securities are reported at fair value, except for certain securities that are carried at cost. Equity securities carried at cost are reported as Other invested assets. Effective January 1, 2018, realizedRealized investment gains and losses after considering the related tax expense or benefit,on equity securities are accounted for as


MGIC Investment Corporation 2019 Form 10-K | 92
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Tablereported in income based upon specific identification of Contents


a function of the periodic change in fair value. For 2017, realized investment gains and losses were accounted for as a function of the difference between the amount received on the sale of an equity security and the equity security’s cost basis,securities sold, as well as any OTTI recognizedchange in earnings.fair value of equity securities.

Other invested assets. Other invested assets are carried at cost. These assets represent our investment in Federal Home Loan Bank of Chicago ("FHLB") stock, which due to restrictions, is required to be redeemed or sold only to the security issuer at par value.

We report accrued investment income separately from securities. Accrued investment income is written off through net realized investment gains (losses) if, and at the time, the issuer of the security defaults or is expected to default on payments.

Unrealized losses and OTTIallowance for credit losses
Each quarter we perform reviews of our investments in order to determine whether declinessecurities in fair value below amortized cost were considered other-than-temporary. In evaluating whether a decline in fair value is other-than-temporary, we consideran unrealized loss position are impaired by considering several factors including, but not limited to:
èour intent to sell the security or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis;
èthe present value of the discounted cash flows we expect to collect compared to the amortized cost basis of the security;
èextent and duration of the decline;
èfailure of the issuer to make scheduled interest or principal payments;
èa change in rating to below investment grade; and
èadverse conditions specifically related to the security, an industry, or a geographic area.

Based on our evaluation, we will record a realized loss on an OTTI adjustment on aimpaired security if we intend to sell, the impaired security, if it is more likely than not that we will be required to sell the impaired securityit prior to recovery of its amortized cost basis, or if the present value of the discounted cash flows we expect to collect is less than the amortized cost basis of the security. If the fair value of a security is below its amortized cost at the time of our intent to sell, the security is classified as other-than-temporarily impaired and the full amount of the impairment is recognized as a loss in the statement of operations. Otherwise, when

When a security is considered to be other-than-temporarily impaired, but when a sale is not intended or is not likely, the losses areloss is separated into the portion of the loss that represents the credit loss and the portion that is due to other factors. TheAn allowance for credit losses is recorded, subject to reversal, for the credit loss portion is recognized as a loss in the statement of operations within realized investment gains and losses, while the loss due to other factors is recognized in accumulated other comprehensive loss, net of taxes. A credit loss is determined to exist if the present value of the discounted cash flows, using the security’s
original yield, expected to be collected from the security is less than the cost basis of the security.

For 2019, our evaluation of whether a decline in fair values was other-than-temporary also included reviewing the extent and duration of the decline. Based on our evaluation, if the fair value of a security was below its amortized cost at the time of our intent to sell, the security was classified as other-than-temporarily impaired and the full amount of the impairment was recognized as a loss in the statement of operations. Otherwise, when a security was considered to be other-than-temporarily impaired, the loss was separated into the portion of the loss that represented the credit loss and the portion that was due to other factors. The credit loss portion was recognized as a loss in the statement of operations, while the loss due to other factors was recognized in accumulated other comprehensive loss, net of taxes. A credit loss was determined to exist if the present value of the discounted cash flows, using the security’s original yield, expected to be collected from the security was less than the cost basis of the security. If the security was determined to be other-than-temporary-impaired the security was classified as other-than-temporarily impaired and the full amount of the impairment was recognized as a loss in the statement of operations.

HOME OFFICE AND EQUIPMENT
Home office and equipment is carried at cost net of depreciation. For financial reporting purposes, depreciation is determined on a straight-line basis for the home office and equipment over estimated lives ranging from 3 to 45 years. For income tax purposes, we use accelerated depreciation methods.

Home office and equipment is shown net of accumulated depreciation of $43.0$55.4 million, $38.1$51.2 million and $33.9$43.0 million as of December 31, 2019, 20182021, 2020 and 2017,2019, respectively. Depreciation expense for the years ended December 31, 2021, 2020 and 2019 2018was $5.6 million, $6.3 million and 2017 was $6.5 million, $6.0 million and $5.4 million, respectively.

DEFERRED INSURANCE POLICY ACQUISITION COSTS
Costs directly associated with the successful acquisition of mortgage insurance business, consisting of employee compensation and other policy issuance and underwriting expenses, are initially deferred and reported as deferred insurance policy acquisition costs ("DAC"). The deferred costs are net of any ceding commissions received associated with our reinsurance agreements. For each underwriting year of business, these costs are amortized to income in proportion to estimated gross profits over the estimated life of the policies. We utilize anticipated investment income in our calculation. This includes accruing interest on the unamortized balance of DAC. The estimates for each underwriting year are reviewed quarterly and updated when necessary to reflect actual experience and any changes to key variables such as persistency or loss development. 

LOSS RESERVES
Loss reserves include case reserves, incurred but not reported ("IBNR") reserves, and loss adjustment expense ("LAE") reserves.

Case reserves and loss adjustment expenses ("LAE")LAE reserves are established when we receive notices of delinquency on insured mortgage loans. Weloans are received. Such loans are referred to as being in our delinquency inventory. For reporting purposes, we consider a loan delinquent when it is 2 or more payments past due.due and has not become current or resulted in a claim payment. Even though the accounting

MGIC Investment Corporation 2021 Form 10-K | 89
MGIC Investment Corporation and Subsidiaries

standard, ASC 944, regarding accounting and reporting by insurance entities specifically excludes mortgage insurance from its guidance relating to loss reserves, we establish loss reserves using the general principles contained in the insurance standard. However, consistent with industry standards for mortgage insurers, we do not establish case reserves for future claims on insured loans whichthat are not currently delinquent.

Case reserves are established by estimating the number of loans in our delinquency inventory of delinquent loans that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity. Our case reserve estimates are primarily established based upon historical experience, including rescissions of policies, curtailments of claims, and loan modification activity. Adjustments to reserve estimates are reflected in the financial statements in the years in which the adjustments are made. The liability for reinsurance


MGIC Investment Corporation 2019 Form 10-K | 93
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


assumed is based on information provided by the ceding companies.

Incurred but not reported ("IBNR")IBNR reserves are established for delinquencies estimated losses from delinquencies occurringto have occurred prior to the close of an accounting period, on notices of delinquencybut have not yet been reported to us. Consistent with reserves for reported delinquencies, IBNR reserves are also established using estimated claim rates and claim severities.

LAE reserves are established for the estimated costs of settling claims, including legal and other expenses, and general expenses of administering the claims settlement process.

Our loss reserve estimates are also affected by any agreements we enter into regarding our claims paying practices, such as the settlement agreements discussed in Note 17 – “Litigation and Contingencies” to our consolidated financial statements.

Loss reserves are ceded to reinsurers under our reinsurance agreements. (See Note 8 – “Loss Reserves” and Note 9 – “Reinsurance.”)

PREMIUM DEFICIENCY RESERVE
After our loss reserves are initially established, we perform premium deficiency tests using our best estimate assumptions as of the testing date.future premium, losses and LAE paid. Premium deficiency reserves are established, if necessary, when the present value of expected future losses and expensesLAE paid exceeds the present value of expected future premium and already established reserves. Products are grouped for premium deficiency testing purposes based on similarities in the way the products are acquired, serviced and measured for profitability.

REVENUE RECOGNITION
We write policies which are guaranteed renewable contracts at the insured's option on a monthly, single, or annual premium basis. We have no ability to re-underwrite or reprice these contracts.policies. Premiums written on monthly premium policies are earned as coverage is provided. Premiums written on single premium policies and annual premium policies are initially deferred as unearned premium reserve andreserve. Premiums written on annual premium policies are earned over the estimated policy life.on a monthly pro rata basis. Premiums written on policies covering more than one year are amortized over the estimated policy life based on historical experience, which includes the anticipated incurred loss pattern. Premiums written on annual premium policies are earned on a monthly pro rata basis. When a policy is cancelled for a reason other than rescission or claim payment, all premium that is non-refundable is immediately earned. Any refundable premium is returned to the servicer or borrower. When a policy is cancelled due to rescission, all previously collected premium is returned to the servicer and when a policy is
cancelled because a claim is paid, premium collected since the date of delinquency is returned.

The liability associated with our estimate of premium to be returned is accrued for separately and included in "Other liabilities" on our consolidated balance sheets. Changes in this liability, and the actual return of premiums for all periods, affects premiums written and earned.

We assess whether a credit loss allowance is required for our premium receivable. We consider collectability trends and industry development, among other things. Any estimated credit loss would be immediately recognized.

Fee income of our non-insurance subsidiaries is earned and recognized as the services are provided and the customer is obligated to pay. Fee income consists primarily of contract underwriting and related fee-based services provided to lenders and is included in “Other revenue” on the consolidated statements of operations.

INCOME TAXES
Deferred income taxes are provided under the liability method, which recognizes the future tax effects of temporary differences between amounts reported in the consolidated financial statements and the tax bases of these items. The estimated tax effects are computed at the enacted federal statutory income tax rate. Changes in tax laws, rates, regulations, and policies or the final determination of tax audits or examinations, could materially affect our estimates and can be significant to our operating results. We evaluate the realizability of the deferred tax assets based on the weight of all available positive and negative evidence. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax assets will not be realized.

The recognition of a tax position is determined using a two-step approach. The first step applies a more-likely-than-not threshold for recognition and derecognition. The second step measures the tax position as the greatest amount of benefit that is cumulatively greater than 50% likely to be realized. When evaluating a tax position for recognition and measurement, we presume that the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. We recognize interest accrued and penalties related to unrecognized tax benefits in our provision for income taxes.

Federal tax law permits mortgage guaranty insurance companies to deduct from taxable income, subject to certain limitations, the amounts added to contingency loss reserves that are recorded for regulatory purposes. The amounts we deduct must generally be included in taxable income in the tenth subsequent year. The deduction is allowed only to the extent that we purchase and hold U.S. government non-interest-bearing tax and loss bonds in an amount equal to the tax benefit attributable to the deduction. We account for these purchases as a payment of current federal income tax. (See "Note 12 - Income Taxes.")

BENEFIT PLANS
We have a non-contributory defined benefit pension plan covering substantially all domestic employees, as well as a supplemental executive retirement plan. Retirement benefits are based on compensation and years of service.service, utilizing a cash balance formula. Under the cash balance formula, participants’ accounts are credited each

MGIC Investment Corporation 2021 Form 10-K | 90
MGIC Investment Corporation and Subsidiaries

year with an employer contribution and interest. The employer contribution is a percentage of eligible earnings based on the participant’s age on January 1, 2019. We recognize these retirement benefit costs over the period during which employees render the service that qualifies them for benefits. Our policy is to fund pension cost as required under the Employee Retirement Income Security Act of 1974.



MGIC Investment Corporation 2019 Form 10-K | 94
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents



We offer both medical and dental benefits for retired domestic employees, their eligible spouses and dependents until the retiree reaches the age of 65. Under the plan retirees pay a premium for these benefits. We accrue the estimated costs of retiree medical and dental benefits over the period during which employees render the service that qualifies them for benefits. (See Note 11 – “Benefit Plans.”)

REINSURANCE
We cede insurance risk through the use of quota share reinsurance transactions and aggregate excess of loss reinsurance transactions. Premiums and losses incurred are ceded pursuant to the terms of our quota share reinsurance transactions. Reinsurance premiums ceded under our excess of loss transactions 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 the reinsurance trust account and used to collateralize the Home Re Entity's reinsurance obligation to MGIC.

Loss reserves and unearned premiums are reported before taking credit for amounts ceded under reinsurance agreements.transactions. Ceded loss reserves are reflected as "Reinsurance recoverable on loss reserves."  Ceded unearned and prepaid reinsurance premiums are included in “Other assets.” Amounts due from reinsurers on paid claims are reflected as “Reinsurance recoverable on paid losses.” Ceded premiums payable, net of ceding commission and profit commission are included in “Other liabilities.” Any profitProfit commissions are included with “Premiums written – Ceded” and any ceding commissions are included with “Other underwriting and operating expenses, net.” We remain liable for all insurance ceded. (See Note 9 – “Reinsurance.”)

We assess the credit risk associated with our reinsurance recoverable. Effective January 1, 2020 if an estimated credit loss is expected to occur over the remaining life of reinsurance recoverable, it is immediately recorded to income. In assessing whether a credit allowance should be established, we consider several factors including, but not limited to, the credit ratings of individual reinsurers, investor reports for our excess of loss transactions, collateral held in trust accounts in which MGIC is the sole beneficiary, and aging of outstanding reinsurance recoverable balances.

Assumed reinsurance is based on information received from the ceding company.

SHARE-BASED COMPENSATION
We have certain share-based compensation plans. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period which generally corresponds to the vesting period. Awards under our plans generally vest over periods ranging from one to three years, .although awards to our non-employee
directors vest immediately. (See Note 15 – “Share-based Compensation Plans.”)

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. The computation of basic EPS includes as "participating securities" an immaterial number of unvested share-based compensation awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, under the "two-class" method. Our participating securities are composed 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. 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 our unvested restricted stock units result in the issuance of common stock. Under the if-converted method, diluted EPS reflects the potential dilution that could occur if our convertible debt instruments result in the issuance of9% Debentures are converted to 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 addition to our 9% Debentures, we had other convertible notes in 2017 that could have resulted in contingently issuable shares and we considered each potential issuance of shares separately to reflect the maximum potential dilution for the period the debt issuances were outstanding. For purposes of calculating basic and diluted EPS, vested restricted stock and RSUs are considered outstanding.

RELATED PARTY TRANSACTIONS
In 2021, MGIC distributed to the holding company, as a dividend, its investment in MGIC Credit Assurance Corporation. In 2020 MGIC Reinsurance Corporation of Wisconsin, a subsidiary of MGIC, merged with MGIC. There were 0no related party transactions during 2019, 2018, or 2017.2019.

RECENT ACCOUNTING AND REPORTING DEVELOPMENTS

Accounting standards effective in 2019,2021, or early adopted, and relevant to our financial statements

Simplifying the Accounting Standard Update (“ASU”) 2016-02 - Leasesfor Income Taxes: ASU 2019-12
In February 2016, the FASB amended the previous leasing standard and created ASC 842, Leases. ASC 842 requires a lessee to recognize a right-of-use asset and lease liability for substantially all leases. Effective for the quarter ended March 31, 2019,January 1, 2021, we adopted the updatedFASB guidance on a prospective basis which simplifies Accounting for leases and also electedIncome Taxes (Topic 740) by removing certain exceptions to apply all practical expedients applicable to us in the updated guidance for transition of leases in effect at adoption.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 updatedequity 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 resulted in the recognition of an immaterial right-of-use asset as part of other assets anddid not have a lease liability as part of other liabilities in thematerial impact on our consolidated balance sheet.financial statements.

èAdoption impact: The adoption of the updated guidance did not have a material effect on our consolidated results of operations or liquidity.



MGIC Investment Corporation 20192021 Form 10-K | 9591
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents



Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs: ASU 2020-08
PROSPECTIVE ACCOUNTING STANDARDS

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 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.
Prospective Accounting Standards
Table 3.12.1 shows the relevant new amendments to accounting standards, which are not yet effective or adopted.

Standard / Interpretation
Table3.12.1
Effective date
Amended StandardsEffective date
ASC 326Financial Instruments - Credit Losses
•ASU 2016-13 - Measurement of Credit Losses on Financial InstrumentsJanuary 1, 2020
ASC 820944Fair Value MeasurementLong-Duration Contracts
•ASU 2018-132018-12 - ChangesFinancial Services - Insurance (Topic 944): Targeted Improvements to the Disclosure Requirements for Fair Value MeasurementsJanuary 1, 2020
ASC 715Compensation - Retirement Benefits
•ASU 2018-14 - Changes to the Disclosure Requirements for Defined Benefit PlansJanuary 1, 2021
ASC 740Income Taxes
•ASU 2019-12 - Simplifying the Accounting for Income TaxesLong-Duration ContractsJanuary 1, 20212022


Targeted Improvements for Long Duration Contracts: ASU 2018-12
Measurement of Credit Losses on Financial Instruments
In June 2016,August 2018, the FASB issued updated guidance that requires immediatewhich simplifies the amortization of deferred acquisition costs. It also provides updates to the recognition, of estimated credit losses expected to occur over the remaining life of many financial instruments. We have concluded that our mortgage insurance policies are outside the scope of this ASU, however, the provisions of this guidancemeasurement, presentation and disclosure requirements for long duration contracts, which generally do not apply to our reinsurance transactions, which are highly rated, as discussed in Note 9 – “Reinsurance” to our consolidated financial statements. Entities are required to incorporate their forecast of future economic conditions into their loss estimate unless such forecast is not reasonable and supportable, in which case the entity will revert to historical loss experience. The allowance for current expected credit losses (“CECL”) generally reduces the amortized cost basis of the financial instrument to the amount an entity expects to collect, however, credit losses relating to available-for-sale fixed maturity securities are to be recorded through an allowance for credit losses, with the amount of the allowance limited to the amount by which fair value is less than amortized cost. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.mortgage insurance. The updated guidance is not prescriptive about certain aspectsrequires deferred acquisition costs to be amortized on a constant level basis over the expected term of estimating expected credit losses, including the specific methodologyrelated contracts, versus in proportion to use, and therefore will require significant judgment in application. The updated guidance ispremium, gross profits, or gross margins. In November 2020, FASB issued ASU 2020-11 deferring the effective date, so that it applies for annual periods beginning after December 15, 2019,2022, including interim periods within those annual periods. In May 2019, the
FASB amended this guidance to provide entities with an option to irrevocably elect the fair value option for eligible instruments in order to provide targeted transition relief that is intended to increase comparability of financial statement information for some entities that otherwise would have measured similar financial instruments using different measurement methodologies. We have evaluated the impacts the adoption of this guidance will have on our consolidated financial statements, and determined it will not have a material impact.

Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued updated guidance that changes the disclosure requirements for fair value measurements. The updated guidance removed the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The updated guidance clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurements as of the reporting date. Further, the updated guidance requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. We have evaluated the impacts the adoption of this guidance will have on our consolidated financial statements, and determined it will not have a material impact.

Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued amendments to modify the disclosure requirements for defined benefit plans. The updated guidance removed the requirements to identify amounts that are expected to be reclassified out of accumulated other comprehensive income and recognized as components of net periodic benefit cost in the coming year and the effects of a one-percentage-point change in assumed health care cost trend rates on service and interest cost and on the postretirement benefit obligation. The updated guidance added disclosure requirements for the weighted-average interest crediting rates for cash balance plans and other plans with interest crediting rates and explanations for significant gains and losses related to changes in the benefit obligation for the period. The updated guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. An entity should apply the amendments on a retrospective basis to all periods presented. We are currently evaluating the


MGIC Investment Corporation 2019 Form 10-K | 96
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


impacts the adoption of this guidance will have on our consolidated financial statement disclosures, but do not expect it to have a material impact.

Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued guidance which simplifies Accounting for Income Taxes (Topic 740). The ASU intends to reduce complexity through clarification and amendments of existing guidance. The updated guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted in any interim periods for which financial statements have not been issued. We are currently evaluating the impacts the adoption of this guidance will have on our consolidated financial statements, but do not expect it to have a material impact.




MGIC Investment Corporation 20192021 Form 10-K | 9792
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


NOTE 4Earnings Per Share
Table 4.1 reconciles basic and diluted EPS amounts:
Earnings per share
Table4.1
Years Ended December 31,
(In thousands, except per share data)202120202019
Basic earnings per share:
Net income$634,983 $446,093 $673,763 
Weighted average common shares outstanding - basic334,330 339,953 352,827 
Basic earnings per share$1.90 $1.31 $1.91 
Diluted earnings per share:
Net income$634,983 $446,093 $673,763 
Interest expense, net of tax (1):
9% Debentures14,343 17,004 18,264 
Diluted income available to common shareholders$649,326 $463,097 $692,027 
Weighted-average shares - basic334,330 339,953 352,827 
Effect of dilutive securities:
Unvested restricted stock units1,782 1,589 2,069 
9% Debentures15,196 17,751 19,028 
Weighted average common shares outstanding - diluted351,308 359,293 373,924 
Diluted income per share$1.85 $1.29 $1.85 
(1) Interest expense for the years ended December 31, 2021, 2020 and 2019 has been tax effected at a rate of 21%.
Earnings per share
Table4.1      
  Years Ended December 31,
(In thousands, except per share data) 2019 2018 2017
Basic earnings per share:      
Net income $673,763
 $670,097
 $355,761
Weighted average common shares outstanding - basic 352,827
 365,406
 362,380
Basic earnings per share $1.91
 $1.83
 $0.98
Diluted earnings per share:      
Net income $673,763
 $670,097
 $355,761
Interest expense, net of tax (1):
      
2% Notes —
 —
 907
5% Notes —
 —
 1,709
9% Debentures 18,264
 18,264
 15,027
Diluted income available to common shareholders $692,027
 $688,361
 $373,404
Weighted-average shares - basic 352,827
 365,406
 362,380
Effect of dilutive securities:      
Unvested restricted stock units 2,069
 1,644
 1,493
2% Notes —
 —
 8,317
5% Notes —
 —
 3,548
9% Debentures 19,028
 19,028
 19,028
Weighted average common shares outstanding - diluted 373,924
 386,078
 394,766
Diluted income per share $1.85
 $1.78
 $0.95
(1)
Interest expense for the years ended December 31, 2019, 2018 and 2017 has been tax effected at a rate of 21%, 21%, and 35%, respectively.

For the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, all of our then outstanding Convertible Senior Notes and Convertible Junior Subordinated9% Debentures are reflected in diluted earnings per share using the “if-converted” method. Under this method, if dilutive, the common stock related to the outstanding Convertible Senior Notes and/or Convertible Junior Subordinated9% Debentures is assumed issued as of the beginning of the reporting period and the related interest expense, net of tax, is added back to earnings in calculating diluted EPS.



MGIC Investment Corporation 20192021 Form 10-K | 9893
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


NOTE 5Investments
FIXED INCOME SECURITIES
The amortized cost, gross unrealized gains and losses and fair value of ourOur fixed income securities consisted of the following as of December 31, 20192021 and 2018 are shown below:2020:
Details of fixed income investment securities by category as of December 31, 2021
Table5.1a
(In thousands)Amortized CostAllowance for Expected Credit LossGross Unrealized GainsGross Unrealized LossesFair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies$133,990 $— $285 $(868)$133,407 
Obligations of U.S. states and political subdivisions2,408,688 — 133,361 (7,396)2,534,653 
Corporate debt securities2,704,586 — 75,172 (13,776)2,765,982 
ABS150,888 — 830 (1,008)150,710 
RMBS309,991 — 2,397 (3,278)309,110 
CMBS315,330 — 5,736 (1,936)319,130 
CLOs360,436 — 609 (106)360,939 
Foreign government debt13,749 — — (99)13,650 
Total fixed income securities$6,397,658 $— $218,390 $(28,467)$6,587,581 
Details of fixed income investment securities by category as of December 31, 2019
Details of fixed income investment securities by category as of December 31, 2020Details of fixed income investment securities by category as of December 31, 2020
Table5.1a        Table5.1b
(In thousands)(In thousands) Amortized Cost Gross Unrealized Gains 
Gross Unrealized Losses (1)
 Fair Value(In thousands)Amortized CostAllowance for Expected Credit LossGross Unrealized GainsGross Unrealized LossesFair Value
U.S. Treasury securities and obligations of U.S. government corporations and agenciesU.S. Treasury securities and obligations of U.S. government corporations and agencies $195,176
 $1,237
 $(210) $196,203
U.S. Treasury securities and obligations of U.S. government corporations and agencies$264,531 $— $1,164 $(2)$265,693 
Obligations of U.S. states and political subdivisionsObligations of U.S. states and political subdivisions 1,555,394
 99,328
 (857) 1,653,865
Obligations of U.S. states and political subdivisions2,083,568 — 166,557 (256)2,249,869 
Corporate debt securitiesCorporate debt securities 2,711,910
 76,220
 (3,008) 2,785,122
Corporate debt securities2,690,860 — 155,156 (1,728)2,844,288 
ABSABS 227,376
 2,466
 (178) 229,664
ABS203,807 (49)2,946 (18)206,686 
RMBSRMBS 271,384
 429
 (3,227) 268,586
RMBS425,532 — 6,472 (838)431,166 
CMBSCMBS 274,234
 5,531
 (779) 278,986
CMBS312,572 — 16,055 (1,125)327,502 
CLOsCLOs 327,076
 33
 (1,643) 325,466
CLOs310,616 — 566 (692)310,490 
Foreign government debtForeign government debt4,485 — 224 — 4,709 
Commercial paperCommercial paper21,193 — — — 21,193 
Total fixed income securitiesTotal fixed income securities $5,562,550
 $185,244
 $(9,902) $5,737,892
Total fixed income securities$6,317,164 $(49)$349,140 $(4,659)$6,661,596 
Details of fixed income investment securities by category as of December 31, 2018
Table5.1b        
(In thousands) Amortized Cost Gross Unrealized Gains 
Gross Unrealized Losses (1)
 Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies $167,655
 $597
 $(1,076) $167,176
Obligations of U.S. states and political subdivisions 1,701,826
 29,259
 (10,985) 1,720,100
Corporate debt securities 2,439,173
 2,103
 (40,514) 2,400,762
ABS 111,953
 226
 (146) 112,033
RMBS 189,238
 32
 (10,309) 178,961
CMBS 276,352
 888
 (9,580) 267,660
CLOs 310,587
 2
 (5,294) 305,295
Total fixed income securities $5,196,784
 $33,107
 $(77,904) $5,151,987
(1)
There were no OTTI losses recorded in other comprehensive (loss) income as of December 31, 2019 and 2018.
The increasedecrease in gross unrealized gains and the decreaseincrease in gross unrealized losses in our fixed income securities from December 31, 20182020 to December 31, 20192021 were primarily caused by declinesprincipally related to an increase in market yields which may include increased risk-free interest rates during that period.or wider credit spreads since the time of initial purchase.

We had $13.9$13.4 million and $13.5$14.1 million of investments at fair value on deposit with various states as of December 31, 20192021 and 2018,2020, respectively, due to regulatory requirements of those states' insurance departments. In connection with our insurance and reinsurance activities within insurance subsidiaries of MGIC, we are required to maintain assets in trusts for the benefit of contractual counterparties. The fair value of the investments and restricted cash and cash equivalents on deposit in these trusts was $89.9$189.8 million and $26.3$165.9 million at December 31, 20192021 and 2018,2020, respectively.



MGIC Investment Corporation 20192021 Form 10-K | 9994
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Table 5.2 compares the amortized cost and fair values of fixed income securities, by contractual maturity, as of December 31, 2019.2021. Actual maturities maywill differ from contractual maturities because certain borrowers may have the right to call or prepay certain 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 separately in the table.separate categories.
Fixed income securities maturity schedule
Table5.2
December 31, 2021
(In thousands)Amortized CostFair Value
Due in one year or less$338,988 $341,604 
Due after one year through five years1,751,297 1,795,249 
Due after five years through ten years1,745,569 1,824,307 
Due after ten years1,425,159 1,486,532 
5,261,013 5,447,692 
ABS150,888 150,710 
RMBS309,991 309,110 
CMBS315,330 319,130 
CLOs360,436 360,939 
Total as of December 31, 2021$6,397,658 $6,587,581 
Fixed income securities maturity schedule
Table5.2    
  December 31, 2019
(In thousands) Amortized Cost Fair Value
Due in one year or less $425,739
 $427,616
Due after one year through five years 1,911,433
 1,952,278
Due after five years through ten years 1,031,056
 1,088,012
Due after ten years 1,094,252
 1,167,284
  4,462,480
 4,635,190
     
ABS 227,376
 229,664
RMBS 271,384
 268,586
CMBS 274,234
 278,986
CLOs 327,076
 325,466
Total as of December 31, 2019 $5,562,550
 $5,737,892


Proceeds from the salesales of fixed income securities classified as available-for-sale were $228.1$471.8 million, $365.6$803.4 million, and $246.9$228.1 million during the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, respectively. Gross gains of $7.1$9.0 million, $0.7$21.3 million, and $1.6$7.1 million and gross losses of $3.5$1.9 million, $3.8$8.8 million, and $1.4$3.5 million were realized on those sales during the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, respectively.

For the years ended December 31, 2019 and December 31, 2018, weWe recorded $0.1 million and $1.8 million of OTTIno realized losses in earnings, respectively. Forfor the year ended December 31, 2017, there were no OTTI2021 related to our intent to sell certain securities. We recorded $0.3 million of realized losses in earnings.for the year ended December 31, 2020 related to our intent to sell certain securities. We also recorded a credit allowance of $49 thousand for the year ended December 31, 2020.

EQUITY SECURITIES
The cost and fair value of investments in equity securities as of December 31, 20192021 and December 31, 20182020 are shown in tables 5.3a and 5.3b below. Under updated guidance regarding the "Recognition and Measurement of Financial Assets and Financial Liabilities" which became effective on January 1, 2018, the amount of our FHLB stock investment has been reclassified and presented in "Other invested assets" on our consolidated balance sheet.
Details of equity investment securities as of December 31, 2021
Table5.3a
(In thousands)CostGross gainsGross lossesFair Value
Equity securities15,838 264 (34)16,068 
Details of equity investment securities as of December 31, 2019
Details of equity investment securities as of December 31, 2020Details of equity investment securities as of December 31, 2020
Table5.3a        Table5.3b
(In thousands)(In thousands) Cost Gross gains Gross losses Fair Value(In thousands)CostGross gainsGross lossesFair Value
Equity securitiesEquity securities 17,188
 154
 (14) 17,328
Equity securities17,522 695 (2)18,215 
Details of equity investment securities as of December 31, 2018
Table5.3b        
(In thousands) Cost Gross gains Gross losses Fair Value
Equity securities 3,993
 11
 (72) 3,932


Proceeds from the sale of equity securities were $1.7$2.6 million, $25.7 million, and $4.9$1.7 million during the years ended December 31, 20192021 2020, and 2018,2019, respectively. Gross gains of $1.6$6.0 thousand, $1.8 million, and $3.7$1.6 million were realized on those sales during the year ended December 31, 2021, 2020, and 2019, respectively. Gross losses of $2.3 thousand, $0.4 million, and 2018,0 were realized on those sales during the year ended December 31, 2021, 2020, and 2019, respectively. There were no sales of equity securities in 2017. For the year ended December 31, 20192021, 2020, and December 31, 2018,2019 we recognized $201 thousand$0.5 million in net losses, $0.6 million and $84 thousand$0.2 million of net lossesgains on equity securities still held as of December 31, 20192021, 2020, and December 31, 2018,2019, respectively, which are reported in Net realized investment gains (losses) gains on our consolidated statements of operations.


MGIC Investment Corporation 20192021 Form 10-K | 10095
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


OTHER INVESTED ASSETS
Other invested assets include anrepresents our investment in Federal Home Loan Bank ("FHLB") stock that is carried at cost, which due to its nature approximates fair value. Ownership of FHLB stock provides access to a secured lending facility, and our current FHLB Advance amount is secured by eligible collateral whose fair value is maintained at a minimum of 102% of the outstanding principal balance of the FHLB Advance. As of December 31, 2019,2021, that collateral consisted of fixed income securities included in our total investment portfolio, and cash and cash equivalents, with a total fair value of $165.7$167.2 million.

UNREALIZED INVESTMENT LOSSES
Tables 5.4a and 5.4b below summarize, for all available-for-sale investments in an unrealized loss position as of December 31, 20192021 and 2018,2020, the aggregate fair value and gross unrealized losses by the length of time those securities have been continuously in an unrealized loss position. Gross unrealized losses on our available-for-sale investments amounted to $10$28.5 million and $78$4.7 million as of December 31, 20192021 and 2018,2020, respectively. The fair value amounts reported in tables 5.4a and 5.4b below are estimated using the process described in Note 6 - "Fair Value Measurements" to these consolidated financial statements.
Unrealized loss aging for securities by type and length of time as of December 31, 2021
Table5.4a
Less Than 12 Months12 Months or GreaterTotal
(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies$91,154 $(790)$2,616 $(78)$93,770 $(868)
Obligations of U.S. states and political subdivisions452,021 (7,189)15,540 (207)467,561 (7,396)
Corporate debt securities865,085 (13,260)10,997 (516)876,082 (13,776)
ABS100,064 (998)1,552 (10)101,616 (1,008)
RMBS180,586 (2,548)31,641 (730)212,227 (3,278)
CMBS89,889 (1,887)1,511 (49)91,400 (1,936)
CLOs177,663 (71)21,973 (35)199,636 (106)
Foreign government debt13,649 (99)— — 13,649 (99)
Total$1,970,111 $(26,842)$85,830 $(1,625)$2,055,941 $(28,467)
Unrealized loss aging for securities by type and length of time as of December 31, 2019
Unrealized loss aging for securities by type and length of time as of December 31, 2020Unrealized loss aging for securities by type and length of time as of December 31, 2020
Table5.4a            Table5.4b
 Less Than 12 Months 12 Months or Greater TotalLess Than 12 Months12 Months or GreaterTotal
(In thousands)(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agenciesU.S. Treasury securities and obligations of U.S. government corporations and agencies $57,301
 $(200) $5,806
 $(10) $63,107
 $(210)U.S. Treasury securities and obligations of U.S. government corporations and agencies$2,690 $(2)$— $— $2,690 $(2)
Obligations of U.S. states and political subdivisionsObligations of U.S. states and political subdivisions 74,859
 (847) 6,957
 (10) 81,816
 (857)Obligations of U.S. states and political subdivisions31,416 (256)— — 31,416 (256)
Corporate debt securitiesCorporate debt securities 221,357
 (2,847) 43,505
 (161) 264,862
 (3,008)Corporate debt securities44,968 (1,728)— — 44,968 (1,728)
ABSABS 21,542
 (118) 3,851
 (60) 25,393
 (178)ABS14,929 (18)— — 14,929 (18)
RMBSRMBS 105,443
 (461) 110,452
 (2,766) 215,895
 (3,227)RMBS98,409 (773)3,566 (65)101,975 (838)
CMBSCMBS 62,388
 (728) 11,852
 (51) 74,240
 (779)CMBS13,212 (789)2,799 (336)16,011 (1,125)
CLOsCLOs 81,444
 (225) 196,988
 (1,418) 278,432
 (1,643)CLOs95,287 (261)73,904 (431)169,191 (692)
TotalTotal $624,334
 $(5,426) $379,411
 $(4,476) $1,003,745
 $(9,902)Total$300,911 $(3,827)$80,269 $(832)$381,180 $(4,659)
Unrealized loss aging for securities by type and length of time as of December 31, 2018
Table5.4b            
  Less Than 12 Months 12 Months or Greater Total
(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 $23,710
 $(15) $69,146
 $(1,061) $92,856
 $(1,076)
Obligations of U.S. states and political subdivisions 316,655
 (3,875) 358,086
 (7,110) 674,741
 (10,985)
Corporate debt securities 1,272,279
 (18,130) 785,627
 (22,384) 2,057,906
 (40,514)
ABS 51,324
 (146) —
 —
 51,324
 (146)
RMBS 24
 —
 178,573
 (10,309) 178,597
 (10,309)
CMBS 65,704
 (1,060) 163,272
 (8,520) 228,976
 (9,580)
CLOs 296,497
 (5,294) —
 —
 296,497
 (5,294)
Total $2,026,193
 $(28,520) $1,554,704
 $(49,384) $3,580,897
 $(77,904)

For those securitiesBased on current facts and circumstances, we believe the unrealized losses as of December 31, 2021 presented in an unrealized loss position,table 5.4a above are not indicative of the lengthultimate collectability of timethe current amortized cost of the securities and that the securities are not impaired. The gross unrealized losses in all categories of our investments were caused by changes in suchmarket yields, between the time of purchase and the respective fair value measurement date. We also rely upon estimates of several credit and non-credit factors in our review and evaluation of individual investments to determine whether a position, is measured by their month-end fair values. credit impairment exists.
The unrealized losses in all categories of our investments as of December 31, 2019 and 20182020 were primarily caused by changesattributable to widening credit spreads over risk free rates, as a result of economic and market uncertainties arising from the COVID-19 pandemic, which included demand shocks in interest rates between the time of purchasemultiple sectors that originated in 2020.


MGIC Investment Corporation 2021 Form 10-K | 96
MGIC Investment Corporation and the respective year end. Subsidiaries

There were 217610 and 721109 securities in an unrealized loss position as of December 31, 20192021 and 2018,2020, respectively. As of December 31, 2019,2021, the fair value as a percent of amortized cost of the securities in an unrealized loss position was 99% and approximately 28%15% of the securities in an unrealized loss position were backed by the U.S. Government.



 As of December 31, 2020, the fair value as a percent of amortized cost of the securities in an unrealized loss position was 99% and approximately 27% of the securities in an unrealized loss position were backed by the U.S. Government. All of the securities in an unrealized loss position are current with respect to their interest obligations.
MGIC Investment Corporation 2019 Form 10-K | 101
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


The source of net investment income is shown in table 5.5 below.
Net investment incomeNet investment incomeNet investment income
Table5.5      Table5.5
(In thousands)(In thousands) 2019 2018 2017(In thousands)202120202019
Fixed income securitiesFixed income securities $165,523
 $140,539
 $122,105
Fixed income securities$160,030 $157,065 $165,523 
Equity securitiesEquity securities 406
 228
 206
Equity securities471 620 406 
Cash equivalentsCash equivalents 4,444
 3,423
 1,447
Cash equivalents75 1,648 4,444 
OtherOther 974
 816
 620
Other22 275 974 
Investment incomeInvestment income 171,347
 145,006
 124,378
Investment income160,598 159,608 171,347 
Investment expensesInvestment expenses (4,302) (3,675) (3,507)Investment expenses(4,160)(5,212)(4,302)
Net investment incomeNet investment income $167,045
 $141,331
 $120,871
Net investment income$156,438 $154,396 $167,045 


The change in unrealized gains (losses) of investments is shown in table 5.6 below.
Change in unrealized gains (losses)
Table5.6
(In thousands)202120202019
Fixed income securities$(154,555)$169,135 $220,139 
Change in unrealized gains (losses)
Table5.6      
(In thousands) 2019 2018 2017
Fixed income securities $220,139
 $(81,834) $69,026
Equity securities —
 —
 39
Other —
 —
 (13)
Change in unrealized gains/losses $220,139
 $(81,834) $69,052




MGIC Investment Corporation 2021 Form 10-K | 97
MGIC Investment Corporation and Subsidiaries

NOTE 6Fair Value Measurements
Recurring fair value measurements
The following table 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.

Level 1 measurements
•Fixed income securities: Consist of primarily
U.S. Treasury securitiesSecurities 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.
Equity securities: Consistaccess are categorized in Level 1 of actively traded, exchange-listed equity securities with valuations derived from quoted prices for identical assetsthe fair value hierarchy. Securities valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information in active markets that we can access.
Other: Consists of money market funds with valuations derived from quoted prices for identical assets in active markets that we can access.

the valuation process are categorized as Level 2 measurements
Fixed income securities:of the fair value hierarchy.
Corporate Debt & U.S. Government and Agency Bonds are valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process. These securities are generally categorized in Level 2 of the fair value hierarchy.
Obligations of U.S. States & Political Subdivisions are valued by tracking, capturing, and analyzing quotes for active issues and trades reported via the Municipal Securities Rulemaking Board records. Daily briefings and reviews of current economic conditions, trading levels, spread relationships, and the slope of the yield curve provide further data for evaluation. These securities are generally categorized in Level 2 of the fair value hierarchy.
Residential Mortgage-Backed Securities ("RMBS") are valued by monitoring interest rate movements, and other pertinent data daily. Incoming market data is enriched to derive spread, yield and/or price data as appropriate, enabling known data points to be extrapolated for valuation application across a range of related securities. These securities are generally categorized in Level 2 of the fair value hierarchy.
Commercial Mortgage-Backed Securities ("CMBS") are valued using techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including quoted prices for similar assets, benchmark yield curves and market corroborated inputs. Evaluation uses regular reviews of the inputs for


MGIC Investment Corporation 2019 Form 10-K | 102
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


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 ("CLO"CLOs") Collateralized Loan Obligations are valued by evaluating manager rating, seniority in the capital structure, assumptions about prepayment, default and recovery and their impact on cash flow generation. Loan level net asset values are determined and aggregated for tranches and as a final step prices are checked against available recent trade activity. These securities are generally categorized in Level 2 of the fair value hierarchy.

Foreign government debt is valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process. These securities are generally categorized in Level 2 of the fair value hierarchy.
Commercial Paper, which has an original maturity greater than 90 days, is valued using market data for comparable instruments of similar maturity and average yields. These securities are categorized in Level 3 measurements2 of the fair value hierarchy.
•Equity securities: Consist of actively traded, exchange-listed equity securities, including exchange traded funds (“ETFs”) and Bond Mutual Funds, with valuations derived from quoted prices for identical assets in active markets that we can access. These securities are valued in Level 1 of the fair value hierarchy.
•Cash Equivalents: Consists of money market funds and treasury bills with valuations derived from quoted prices for identical assets in active markets that we can access. These securities are valued in level 1 of the fair value hierarchy. Instruments in this category valued using market data for comparable instruments are classified as level 2 in the fair value hierarchy.

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

RECURRING FAIR VALUE MEASUREMENTS

MGIC Investment Corporation 2021 Form 10-K | 98
MGIC Investment Corporation and Subsidiaries

Assets carriedmeasured at fair value included those listed, by hierarchy level, in the following tables as of December 31, 20192021 and 2018:2020. 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 this Form 10-K.
Assets carried at fair value by hierarchy level as of December 31, 2021
Table6.1a
(In thousands)Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs
(Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies$133,407 $102,153 $31,254 $— 
Obligations of U.S. states and political subdivisions2,534,653 — 2,534,653 — 
Corporate debt securities2,765,982 — 2,765,982 — 
ABS150,710 — 150,710 — 
RMBS309,110 — 309,110 — 
CMBS319,130 — 319,130 — 
CLOs360,939 — 360,939 — 
Foreign government debt13,650 — 13,650 — 
Total fixed income securities6,587,581 102,153 6,485,428 — 
Equity securities16,068 16,068 — — 
Cash Equivalents254,230 254,230 — — 
Real estate acquired (1)
1,507 — — 1,507 
Total$6,859,386 $372,451 $6,485,428 $1,507 
Assets carried at fair value by hierarchy level as of December 31, 2019
Assets carried at fair value by hierarchy level as of December 31, 2020Assets carried at fair value by hierarchy level as of December 31, 2020
Table6.1a        Table6.1b
(In thousands)(In thousands) Fair Value 
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable
Inputs
(Level 3)
(In thousands)Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs
(Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agenciesU.S. Treasury securities and obligations of U.S. government corporations and agencies $196,203
 $34,240
 $161,963
 $—
U.S. Treasury securities and obligations of U.S. government corporations and agencies$265,693 $149,339 $116,354 $— 
Obligations of U.S. states and political subdivisionsObligations of U.S. states and political subdivisions 1,653,865
 —
 1,653,865
 —
Obligations of U.S. states and political subdivisions2,249,869 — 2,249,869 — 
Corporate debt securitiesCorporate debt securities 2,785,122
 —
 2,785,122
 —
Corporate debt securities2,844,288 — 2,844,288 — 
ABSABS 229,664
 —
 229,664
 —
ABS206,686 — 206,686 — 
RMBSRMBS 268,586
 —
 268,586
 —
RMBS431,166 — 431,166 — 
CMBSCMBS 278,986
 —
 278,986
 —
CMBS327,502 — 327,502 — 
CLOsCLOs 325,466
 —
 325,466
 —
CLOs310,490 — 310,490 — 
Foreign government debtForeign government debt4,709 — 4,709 — 
Commercial paperCommercial paper21,193 — 21,193 — 
Total fixed income securitiesTotal fixed income securities 5,737,892
 34,240
 5,703,652
 —
Total fixed income securities6,661,596 149,339 6,512,257 — 
Equity securitiesEquity securities 17,328
 17,328
 —
 —
Equity securities18,215 18,215 — — 
Other (1)
 164,693
 164,693
 —
 —
Real estate acquired (2)
 7,252
 —
 —
 7,252
Cash EquivalentsCash Equivalents288,941 275,668 13,273 — 
Real estate acquired (1)
Real estate acquired (1)
1,092 — — 1,092 
TotalTotal $5,927,165
 $216,261
 $5,703,652
 $7,252
Total$6,969,844 $443,222 $6,525,530 $1,092 
(1)Real estate acquired through claim settlement, which is held for sale, is reported in "Other assets" on the consolidated balance sheets.



MGIC Investment Corporation 2019 Form 10-K | 103
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Assets carried at fair value by hierarchy level as of December 31, 2018
Table6.1b        
(In thousands) Fair Value 
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable
Inputs
(Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies $167,176
 $42,264
 $124,912
 $—
Obligations of U.S. states and political subdivisions 1,720,100
 —
 1,720,087
 13
Corporate debt securities 2,400,762
 —
 2,400,762
 —
ABS 112,033
 —
 112,033
 —
RMBS 178,961
 —
 178,961
 —
CMBS 267,660
 —
 267,660
 —
CLOs 305,295
 —
 305,295
 —
Total fixed income securities 5,151,987
 42,264
 5,109,710
 13
Equity securities (3)
 3,932
 3,932
 —
 —
Other (1)
 96,403
 96,403
 —
 —
Real estate acquired (2)
 14,535
 —
 —
 14,535
Total $5,266,857
 $142,599
 $5,109,710
 $14,548

(1)
Consists of money market funds included in "Cash and Cash Equivalents" and "Restricted Cash and Cash Equivalents" on the consolidated balance sheet.
(2)
Real estate acquired through claim settlement, which is held for sale, is reported in "Other assets" on the consolidated balance sheets.
(3)
See "Reconciliation of Level 3 assets" below for information regarding a change in presentation of amounts previously included in Level 3 Equity securities.

Certain financial instruments, including insurance contracts, are excluded from fair value disclosure requirements. The carrying values of cash and cash equivalents (Level 1) and accrued investment income (Level 2) approximated their fair values. Additional fair value disclosures related to our investment portfolio are included inNote 5 - "Investments."



MGIC Investment Corporation 2021 Form 10-K | 99
MGIC Investment Corporation and Subsidiaries

RECONCILIATIONS OF LEVEL 3 ASSETS
For assets and liabilities measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the years ended December 31, 2019, 2018,2021 and 20172020 is shown in tables 6.2a, 6.2b and 6.2ctable 6.2 below. Under updated guidance regarding the "Recognition and Measurement of Financial Assets and Financial Liabilities" which became effective on January 1, 2018, our investment in FHLB stock is no longer presented with equity securities. Prior to the updated guidance, the FHLB stock was included in our Level 3 equity securities. As shown in table 6.2b below, for the year ended December 31, 2018, we have transferred the FHLB stock out of Level 3 assets, and it is carried at cost, which approximates fair value, on our consolidated balance sheet in "Other invested assets" as of December 31, 2018. There were no transfers into or out of Level 3 for the years ending December 31, 2019 and 2017. There were no losses included in earnings for the years ended December 31, 2019, 2018,2021 and 20172020 attributable to the change in unrealized losses on assets still held at the end of each applicable year.
Fair value roll-forward for financial instruments classified as Level 3 for the year ended December 31, 2019
Table6.2a        
(In thousands) Debt Securities Equity Securities Total Investments Real Estate Acquired
Balance at December 31, 2018 $13
 $—
 $13
 $14,535
Total realized/unrealized gains (losses):        
Included in earnings and reported as losses incurred, net —
 —
 —
 (476)
Acquisitions —
 —
 —
 24,204
Sales (13) —
 (13) (31,011)
Balance at December 31, 2019 $—
 $—
 $—
 $7,252


MGIC Investment Corporation 2019 Form 10-K | 104
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Fair value roll-forward for financial instruments classified as Level 3 for the year ended December 31, 2018
Table6.2b        
(In thousands) Debt Securities Equity Securities Total Investments Real Estate Acquired
Balance at December 31, 2017 $271
 $4,268
 $4,539
 $12,713
Reclassification for adoption of new accounting standard —
 (3,100) (3,100)  
Total realized/unrealized gains (losses):  
  
  
  
Included in earnings and reported as net realized investment gains —
 3,663
 3,663
  
Included in earnings and reported as losses incurred, net —
 —
 —
 (1,995)
Acquisitions —
 —
 —
 33,912
Sales (258) (4,831) (5,089) (30,095)
Balance at December 31, 2018 $13
 $—
 $13
 $14,535
Fair value roll-forward for financial instruments classified as Level 3 for the year ended December 31, 2017
Table6.2c        
(In thousands) Debt Securities Equity Securities Total Investments Real Estate Acquired
Balance at December 31, 2016 $691
 $4,268
 $4,959
 $11,748
Total realized/unrealized gains (losses):        
Included in earnings and reported as losses incurred, net —
 —
 —
 (1,315)
Acquisitions —
 —
 —
 34,749
Sales (420) —
 (420) (32,469)
Balance at December 31, 2017 $271
 $4,268
 $4,539
 $12,713

Additional fair value disclosures related to our investment portfolio are included in Note 5 – “Investments.”

Fair value roll-forward for financial instruments classified as Level 3 for the year ended December 31,
Table6.2
Real Estate Acquired
(In thousands)20212020
Beginning balance$1,092 $7,252 
Purchases4,836 8,609 
Sales(4,806)(15,429)
Included in earnings and reported as losses incurred, net385 660 
Ending balance$1,507 $1,092 
FINANCIAL LIABILITIES NOT CARRIED AT FAIR VALUE
Other invested assets include anrepresents our investment in FHLB stock that is carried at cost, which due to restrictions that require it to be redeemed or sold only to the security issuer at par value, approximates fair value. The fair value of other invested assets is categorized as Level 2.

Financial liabilities include our outstanding debt obligations. The fair values of our 5.75% and 5.25% Notes and 9% Debentures were based on observable market prices. The fair value of the FHLB Advance was estimated using cash flows discounted at current incremental borrowing rates for similar borrowing arrangements, and inarrangements. In all cases they are categorized as Level 2. See Note 7 - "Debt" for a description of the financial liabilities in table 6.3.6.3.



MGIC Investment Corporation 2019 Form 10-K | 105
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Table 6.3 compares the carrying value and fair value of our financial assets and liabilities disclosed, but not carried, at fair value as of December 31, 20192021 and 2018.2020.
Financial liabilities not carried at fair value
Table6.3
December 31, 2021December 31, 2020
(In thousands)Carrying ValueFair ValueCarrying ValueFair Value
Financial assets
Other invested assets$3,100 $3,100 $3,100 $3,100 
Financial liabilities
FHLB Advance$155,000 $157,585 $155,000 $160,865 
5.75% Notes241,255 256,213 240,597 261,752 
5.25% Notes640,253 686,875 638,782 696,449 
9% Debentures110,204 151,000 208,814 273,569 
Total financial liabilities$1,146,712 $1,251,673 $1,243,193 $1,392,635 
Financial liabilities not carried at fair value
Table6.3        
  December 31, 2019 December 31, 2018
(In thousands) Carrying Value Fair Value Carrying Value Fair Value
Financial assets        
Other invested assets $3,100
 $3,100
 $3,100
 $3,100
Financial liabilities        
FHLB Advance $155,000
 $156,422
 $155,000
 $150,551
5.75% Notes 420,867
 471,827
 419,713
 425,791
9% Debentures 256,872
 346,289
 256,872
 338,069
Total financial liabilities $832,739
 $974,538
 $831,585
 $914,411


The 5.75% Notes, 5.25% Notes, and 9% Debentures are obligations of our holding company, MGIC Investment Corporation.


MGIC Investment Corporation 2021 Form 10-K | 100
MGIC Investment Corporation and not of its subsidiaries.Subsidiaries



NOTE 7Debt

DEBT OBLIGATIONS
Table 7.1 shows the carrying value of our long-term debt obligations as of December 31, 20192021 and 2018.2020.
Long-term debt obligations
Table7.1
December 31,
(In millions)20212020
FHLB Advance - 1.91%, due February 2023$155.0 $155.0 
5.75% Notes, due August 2023 (par value: $242.3 million)241.3 240.6 
5.25% Notes, due August 2028 (par value: $650 million)640.2 638.8 
9% Debentures, due April 2063110.2 208.8 
Long-term debt, carrying value$1,146.7 $1,243.2 
Long-term debt obligations
Table7.1    
  December 31,
(In millions) 2019 2018
FHLB Advance - 1.91%, due February 2023 $155.0
 $155.0
5.75% Notes, due August 2023 (par value: $425 million) 420.9
 419.7
9% Debentures, due April 2063 256.9
 256.9
Long-term debt, carrying value $832.7
 $831.6

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 (“FHLB Advance”) is an obligation of MGIC.

2021 Transactions
In December 2021, we repurchased $98.6 million in aggregate principal amount of our 9% Debentures at a purchase price of $135.5 million, plus accrued interest. The repurchase of 9% Debentures resulted in a $36.9 million loss on debt extinguishment on our consolidated statement of operations and a reduction in our potentially dilutive shares by approximately 7.5 million shares.

2020 Transactions
In August 2020, we issued $650 million aggregate principal amount of 5.25% Notes, which are due in 2028 and received net proceeds, after the deduction of underwriting fees, of $640.3 million. In addition to underwriting fees, we incurred approximately $2.0 million of other expenses associated with the issuance of these notes.

We repurchased $182.7 million in aggregate principal amount of our 5.75% notes at a purchase price of $197.8 million, plus accrued interest, using proceeds from the 5.25% Notes issuance. The excess of the purchase price over the carrying value, plus the write-off of unamortized issuance costs on the par value, is reflected as a loss on debt extinguishment of $16.5 million on our consolidated statement of operations.

We repurchased $48.1 million in aggregate principal amount of our 9% Debentures at a purchase price of $61.6 million, plus accrued interest, using proceeds from the 5.25% Notes issuance. The repurchase of 9% Debentures resulted in a $10.2 million loss on debt extinguishment on our consolidated statement of operations; a reduction in our shareholders' equity of $2.7 million related to the reacquisition of the equity component of the 9% Debentures; and a reduction in our potentially dilutive shares by approximately 3.6 million shares.

FHLB Advance
MGIC borrowed $155.0 million in the form of a fixed rate advance from the Federal Home Loan Bank of Chicago ("Advance"). Interest on the Advance is payable monthly at an annual rate, fixed for the term of the Advance, of 1.91%. The principal of the Advance matures on February 10, 2023. MGIC may prepay the Advance at any time. Such prepayment would be below par if interest rates have risen after the Advance was originated, or above par if interest rates have declined. The Advance is secured by eligible collateral whose market value must be maintained at 102% of the principal balance of the Advance. MGIC provided eligible collateral from its investment portfolio.

5.75% Notes
Interest on the 5.75% Notes is payable semi-annually on February 15 and August 15 of each year. We have the option to redeem these notes, in whole or in part, at any
time or from time to time prior to maturity at a redemption price equal to the greater of (i)100% of the aggregate principal amount of the notes to be redeemed and (ii) the make-whole amount, which is the sum of the present values of the remaining scheduled payments of principal and interest discounted at the treasury rate defined in the notes plus 50 basis points and accrued interest.

The 5.75% Notes have covenants and events of default customary for securities of this nature, including customary events of default, and further provide that the trustee or holders of at least 25% in aggregate principal amount of the outstanding 5.75% Notes may declare them immediately due and payable upon the occurrence of certain events of default after the expiration of the applicable grace period. In addition, in the case of an event of default arising from certain events of bankruptcy, insolvency or reorganization relating to the Company or any of its significant subsidiaries, the 5.75% Notes will become due and payable immediately. This description is not intended to be complete in all respects and is qualified in its entirety by the terms of the 5.75% Notes, including their covenants and events of default. We were in compliance with all covenants as of December 31, 2019.2021.

5.25% Notes
Interest on the 5.25% Notes is payable semi-annually on February 15 and August 15. Prior to August 15, 2023, we may redeem the 5.25% Notes at an amount equal to the sum of (a) the greater of: (i) the sum of the principal amount and the make-whole amount; and (ii) 102.625% of principal; and (b) accrued and unpaid interest. The make-whole amount is the excess of: (1) the present value of the remaining principal, premium and interest payments that would be payable with respect to the note if such note were redeemed on August 15, 2023 (at 102.625% of principal), computed using a discount rate equal to the treasury rate specified in the notes, plus 50 basis points, over (2) the outstanding principal amount of such note.

On and after August 15, 2023, we may redeem the notes at 102.625% of principal; on or after August 15, 2024, we may redeem the notes at 101.313% of principal; and on or after August 15, 2025, we may redeem the notes at 100% of principal; in each case, plus accrued and unpaid interest.


MGIC Investment Corporation 2021 Form 10-K | 101
MGIC Investment Corporation and Subsidiaries

The 5.25% Notes have covenants and events of default customary for securities of this nature, and further provide that the trustee or holders of at least 25% in aggregate principal amount of the outstanding 5.25% Notes may declare them immediately due and payable upon the occurrence of certain events of default after the expiration of the applicable grace period. In addition, in the case of an event of default arising from certain events of bankruptcy, insolvency or reorganization relating to the Company or any of its significant subsidiaries, the 5.25% Notes will become due and payable immediately. This description is not intended to be complete in all respects and is qualified in its entirety by the terms of the 5.25% Notes, including their covenants and events of default. We were in compliance with all covenants as of December 31, 2021.

9% Debentures
The 9% Debentures are currently convertible, at the holder's option, at an initiala conversion rate, which is subject to adjustment, of 74.471876.5496 common shares per $1,000 principal amount of the 9% Debentures at any time prior to the maturity date. This represents an initiala conversion price of approximately $13.43$13.06 per share. If a holder elects to convert their 9% Debentures, deferred


MGIC Investment Corporation 2019 Form 10-K | 106
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


interest, if any, owed on the 9% Debentures being converted is also converted into shares of our common stock. The conversion rate for any deferred interest is based on the average price that our shares traded at during a 5-day period immediately prior to the election to convert. We have 19.1 million authorized shares reserved for conversion under our 9% debentures.

The 9% Debentures include a conversion feature that allows us, at our option, to make a cash payment to converting holders in lieu of issuing shares of common stock upon conversion of the 9% Debentures. We may redeem the 9% Debentures in whole or in part from time to time, at our option, at a redemption price equal to 100% of the principal amount of the 9% Debentures being redeemed, plus any accrued and unpaid interest, if the closing sale price of our common stock exceeds $17.46$16.98 (adjusted pro rata for changes in the conversion price) for at least 20 of the 30 trading days preceding notice of the redemption.

Interest on the 9% Debentures is payable semi-annually in arrears on April 1 and October 1 of each year. As long as no event of default with respect to the debentures has occurred and is continuing, we may defer interest, under an optional deferral provision, for 1 or more consecutive interest periods up to 10 years without giving rise to an event of default. Deferred interest will accrue additional interest at the rate then applicable to the debentures. During an optional deferral period we may not pay or declare dividends on our common stock.

When interest on the 9% Debentures is deferred, we are required, not later than a specified time, to use reasonable commercial efforts to begin selling qualifying securities to persons who are not our affiliates. The specified time is one business day after we pay interest on the 9% Debentures that was not deferred, or if earlier, the fifth anniversary of the scheduled interest payment date on which the deferral started. Qualifying securities are common stock, certain warrants and certain non-cumulative perpetual preferred stock. The requirement to use such efforts to sell such securities is called the Alternative Payment Mechanism.
The net proceeds of Alternative Payment Mechanism sales are to be applied to the payment of deferred interest, including the compound portion. We cannot pay deferred interest other than from the net proceeds of Alternative Payment Mechanism sales, except at the final maturity of the debentures or at the tenth
anniversary of the start of the interest deferral. The Alternative Payment Mechanism does not require us to sell common stock or warrants before the fifth anniversary of the interest payment date on which that deferral started if the net proceeds (counting any net proceeds of those securities previously sold under the Alternative Payment Mechanism) would exceed the 2% cap. The 2% cap is 2% of the average closing price of our common stock times the number of our outstanding shares of common stock. The average price is determined over a specified period ending before the issuance of the common stock or warrants being sold,
and the number of outstanding shares is determined as of the date of our most recent publicly released financial statements.

We are not required to issue under the Alternative Payment Mechanism a total of more than 10 million shares of common stock, including shares underlying qualifying warrants. In addition, we may not issue under the Alternative Payment Mechanism qualifying preferred stock if the total net proceeds of all issuances would exceed 25% of the aggregate principal amount of the debentures.

The Alternative Payment Mechanism does not apply during any period between scheduled interest payment dates if there is a “market disruption event” that occurs over a specified portion of such period. Market disruption events include any material adverse change in domestic or international economic or financial conditions.

The provisions of the 9% Debentures are complex. TheThis description aboveis not intended to be complete in all respects and is qualified in its entirety by the terms of the 9% Debentures, including their covenants and events of default. We were in compliance with all covenants at December 31, 2019.2021. The 9% Debentures rank junior to all of our existing and future senior indebtedness.

CREDIT FACILITY
In May 2019,February 2022, we terminated our $175repurchased $42.0 million unsecured revolving credit facility. At the time of termination there were no amounts drawn on the credit facility. The unused portionaggregate principal amount of our revolving credit facility was subject to recurring commitment fees, which are reflected in interest payments.9% Debentures at purchase prices of $57.3 million, plus accrued interest.

INTEREST PAYMENTS
Interest payments were $71.7 million during 2021, $54.3 million during 2020 and $50.8 million during 2019, $51.3 million during 2018,2019.


MGIC Investment Corporation 2021 Form 10-K | 102
MGIC Investment Corporation and $57.8 million during 2017.Subsidiaries


NOTE 8Loss Reserves
As described in Note 3 – “Summary of Significant Accounting Policies – Loss Reserves,” CaseWe establish case reserves and loss adjustment expenses ("LAE") reserves are established when we receive notices of delinquency on insured mortgage loans. We consider a loan delinquent when it isloans that were reported to us as 2 or more payments past due.due and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case reserves are established by estimating the number of loans in our delinquency inventory of delinquent loans that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.

IBNR reserves are established for estimated losses from delinquencies occurringwe estimate have occurred prior to the close of an accounting period, on notices of delinquencybut have not yet


MGIC Investment Corporation 2019 Form 10-K | 107
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


been reported to us. IBNR reserves are also established using estimated claim rates and claim severities

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

Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment.

LOSSES INCURRED Given the uncertainty surrounding the long-term impact of COVID-19, it is difficult to predict the ultimate effect of the COVID-19 related delinquencies and forbearances on our loss incidence.

In considering the potential sensitivity of the factors underlying our estimate of loss reserves, it is possible that even a relatively small change in our estimated claim rate or claim severity could have a material impact on loss reserves and, correspondingly, on our consolidated results of operations even in a stable economic
environment. For example, as of December 31, 2021, assuming all other factors remain constant, a $1,000 increase/decrease in the average severity reserve factor would change the loss reserve amount by approximately +/- $16 million. A one percentage point increase/decrease in the average claim rate reserve factor would change the loss reserve amount by approximately +/- $19 million.

The “Losses incurred” section of table 8.1 below shows losses incurred on delinquencies that occurred in the current year and in prior years. The amount of losses incurred relating to delinquencies that occurred in the current year represents the estimated amount to be ultimately paid on such delinquencies. The amount of losses incurred relating to delinquencies that occurred in prior years represents the difference between the actual claim rate and claim severity associated with those delinquencies resolved in the current year compared to the estimated claim rate and claim severity at the prior year-end, as well as a re-estimation of amounts to be ultimately paid on delinquencies continuing from the end of the prior year. This re-estimation of the claim rate and claim severity is the result of our review of current trends
in the delinquentdelinquency inventory, such as percentages of delinquencies that have resulted in a claim, the amount of the claims relative to the average loan exposure, changes in the relative level of delinquencies by geography and changes in average loan exposure.

Losses incurred on delinquencies that occurred in the current year decreased in 20192021 compared to 2018 and in 2018 compared to 2017, in each case, primarily2020 due to a decrease in new delinquency notices reported. New delinquency notices and IBNR reserve estimates increased in 2020 due to the numberimpact of newthe COVID-19 pandemic.

In 2021, we experienced favorable loss development of $60.0 million on previously received delinquencies net of cures, as well as aprimarily due to the decrease in the estimated claim rate on recently reported delinquencies.

LOSSES PAIDpre-COVID-19 and peak COVID-19 delinquencies (those delinquencies for which notices were received in the second and third quarter of 2020). This was offset by the recognition of a probable loss of $6.3 million related to litigation of our claims paying practices and adverse development on LAE reserves and reinsurance. For the year ended December 31, 2020 we experienced adverse loss development of $19.6 million on previously received delinquencies primarily related to claim severity and adjustments to LAE reserves.

The “Losses paid” section of table 8.1 below shows the amount of losses paid on delinquencies that occurred in the current year and losses paid on delinquencies that occurred in prior years. For several years,In light of the average time it took to receive a claim associated with a delinquency had increased significantly from our historical experience of approximately twelve months. This was, in part, due to new loss mitigation protocols establisheduncertainty caused by servicersthe COVID-19 pandemic, specifically the foreclosure moratoriums and to changes in some state foreclosure laws that may include, for example, a requirement for additional review and/or mediation processes. In recent quarters, we have experienced a decline inforbearance plans, the average time it takes servicers are utilizing to process foreclosures, which has reduced the average time to receive a claim associated with new delinquent notices that do not cure. All else being equal, the longer the period between delinquency and claim filing, the greater the severity.has increased.


Premium refunds
Our estimate of premiums to be refunded on expected claim payments is accrued for separately in "Other liabilities" on our consolidated balance sheets and approximated $30 million and $40 million at December 31, 2019 and 2018, respectively.



MGIC Investment Corporation 20192021 Form 10-K | 108103
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents



Table 8.1 provides a reconciliation of beginning and ending loss reserves as of and for each of the past three years:
Development of loss reserves
Table8.1
(In thousands)202120202019
Reserve at beginning of year$880,537 $555,334 $674,019 
Less reinsurance recoverable95,042 21,641 33,328 
Net reserve at beginning of year785,495 533,693 640,691 
Losses incurred:
Losses and LAE incurred in respect of delinquent notices received in:
Current year124,592 345,170 189,581 
Prior years (1)
(60,015)19,604 (71,006)
Total losses incurred64,577 364,774 118,575 
Losses paid:
Losses and LAE paid in respect of delinquent notices received in:
Current year664 3,069 4,018 
Prior years68,769 109,923 235,551 
Reinsurance terminations (2)
(35,978)(20)(13,996)
Total losses paid33,455 112,972 225,573 
Net reserve at end of year816,617 785,495 533,693 
Plus reinsurance recoverables66,905 95,042 21,641 
Reserve at end of year$883,522 $880,537 $555,334 
(1)A positive number for prior year loss development indicates a deficiency of prior year reserves. A negative number for prior year loss development indicates a redundancy of prior year loss reserves. See the following table for more information about prior year loss development.
(2)In a termination, amounts for any incurred but unpaid losses are paid to us. As a result, the amount due from the reinsurers is reclassified from reinsurance recoverable on loss reserves to reinsurance recoverable on paid losses, resulting in no impact on losses incurred. (See Note 9 - "Reinsurance")

Development of loss reserves
Table8.1      
(In thousands) 2019 2018 2017
Reserve at beginning of year $674,019
 $985,635
 $1,438,813
Less reinsurance recoverable 33,328
 48,474
 50,493
Net reserve at beginning of year 640,691
 937,161
 1,388,320
       
Losses incurred:      
Losses and LAE incurred in respect of delinquent notices received in:      
Current year 189,581
 203,928
 284,913
Prior years (1)
 (71,006) (167,366) (231,204)
Total losses incurred 118,575
 36,562
 53,709
       
Losses paid:      
Losses and LAE paid in respect of delinquent notices received in:      
Current year 4,018
 7,298
 11,267
Prior years 235,551
 327,743
 493,300
Reinsurance terminations (13,996) (2,009) 301
Total losses paid 225,573
 333,032
 504,868
Net reserve at end of year 533,693
 640,691
 937,161
Plus reinsurance recoverables 21,641
 33,328
 48,474
Reserve at end of year $555,334
 $674,019
 $985,635
(1)
A negative number for
The prior year losses incurred indicates a redundancy of prior year loss reserves. See table 8.2 below for more information about prior year loss development.

Table 8.2 below shows the development of the reserves in 2021, 2020 and 2019 2018 and 2017is reflected in the table 8.2 below.
Reserve development on previously received delinquencies
Table8.2
(In thousands)202120202019
(Decrease) in estimated claim rate on primary delinquencies$(82,904)$(2,536)$(111,848)
Increase (decrease)in estimated claim severity on primary delinquencies310 13,535 (434)
Change in estimates related to pool reserves, LAE reserves, reinsurance and other22,579 8,605 41,276 
Total prior year loss development (1)
$(60,015)$19,604 $(71,006)
(1)A positive number for previously received delinquencies.prior year loss development indicates a deficiency of prior year loss reserves. A negative number for prior year loss development indicates a redundancy of prior year loss reserves.
Reserve development on previously received delinquencies
Table8.2      
(In millions) 2019 2018 2017
Decrease in estimated claim rate on primary delinquencies $(112) $(213) $(248)
(Decrease) increase in estimated severity on primary delinquencies (1) 29
 9
Change in estimates related to pool reserves, LAE reserves, reinsurance and other 42
 17
 8
Total prior year loss development (1)
 $(71) $(167) $(231)
(1)
A negative number for prior year loss development indicates a redundancy of prior year loss reserves.

For the years ended December 31, 2019, 2018 and 2017, we experienced favorable development on previously received delinquencies. This development was, in part, due to the resolution of approximately 69%, 73% and 67% for the years ended December 31, 2019, 2018 and 2017, respectively, of the prior year delinquent inventory, with improved cure rates. During 2019, 2018, and 2017, cure activity on loans that were delinquent twelve months or more was significantly higher than our previous estimates. During 2019, the favorable development was offset by adjustments to LAE reserves and amounts paid in settlement of disputes for claim paying practices. See
Note 17 – “Litigation and Contingencies.” The favorable development for the years ended 2018 and 2017 was offset, in part, by an increase in the estimated severity on previously reported delinquencies remaining in the delinquent inventory.



MGIC Investment Corporation 20192021 Form 10-K | 109104
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


DELINQUENCY INVENTORY
DELINQUENT INVENTORY
A roll-forward of our primary delinquentdelinquency inventory for the years ended December 31, 2019, 2018,2021, 2020, and 20172019 appears in table 8.3 below. The information concerning new notices and cures is compiled from monthly reports received from loan servicers. The level of new notice and cure activity reported in a particular month can be influenced by, among other things, the date on which a servicer generates its report, the number of business days in a month and transfers of servicing between loan servicers.
Primary delinquency inventory roll-forward
Table8.3
202120202019
Beginning delinquent inventory57,710 30,028 32,898 
New Notices42,432 106,099 54,239 
Cures(64,896)(76,107)(52,035)
Paid claims(1,223)(2,245)(4,267)
Rescissions and denials(38)(65)(168)
Other items removed from inventory(695)— (639)
Ending delinquent inventory33,290 57,710 30,028 
Primary delinquent inventory roll-forward
Table8.3      
  2019 2018 2017
Beginning delinquent inventory 32,898
 46,556
 50,282
New Notices 54,239
 54,448
 68,268
Cures (52,035) (60,511) (61,094)
Paid claims (4,267) (5,750) (9,206)
Rescissions and denials (168) (267) (357)
Other items removed from inventory (639) (1,578) (1,337)
Ending delinquent inventory 30,028
 32,898
 46,556


Hurricane activity
New delinquent notice activity increased in 2017 (particularly in the fourth quarter) because of hurricane activity that primarily impacted Puerto Rico, Texas,During 2021 and Florida in the third quarter of 2017. In response to the hurricanes, the Federal Emergency Management Agency declared Individual Assistance Disaster Areas ("IADA") which we used to identify new notices of delinquency for reserving and loss mitigation purposes. We received 9,294 new notices of delinquency on loans in the IADAs in the fourth quarter of 2017. Loans in our ending delinquent inventory within the IADAs were 12,446 as of December 31, 2017. The majority of notices of delinquency received from the IADAs due to the hurricane activity cured during 2018.

Other items removed from inventory
During 2019, 2018, and 2017 our losses paid included amounts paid upon commutation of coverage on policies pools of non-performing loans ("NPLs"). TheAs a result of these payments 695 items were removed from the delinquency inventory with an amount paid of $13.8 million in 2021. During 2019, 639 items were removed from delinquency inventory with an amount paid of $30.0 million.

COVID-19 Activity
Our delinquency notices increased beginning in the second quarter of 2020 because of the impacts of the commutationsCOVID-19 pandemic, including the high level of coverageunemployment and economic uncertainty resulting from measures to reduce the transmission of COVID-19. Starting in the third quarter of 2020, we experienced an increase in cures associated with our COVID-19 new delinquency notices. Government initiatives and actions taken by the GSEs provide for payment forbearance on policies and/or settlementsmortgages to borrowers experiencing hardship during the COVID-19 pandemic. These forbearance plans generally allow for mortgage payments to be suspended for up to 18 months: an initial forbearance period of up to six months; if requested by the borrower, an extension of up to six months; and, for loans in eacha COVID-19 forbearance plan as of the past three years were as follows:February 28, 2021, an additional extension up to six months, subject to certain limits.
•
2019

 - 639 notices removed from delinquent inventory with an amount paid of $30 million,
•
2018 - 1,578 notices removed from delinquent inventory with an amount paid of $50 million,
•
2017 - 1,337 notices removed from delinquent inventory with an amount paid of $54 million.

In 2019 our losses paid included $23.5 million paid in connection with settlements of disputes concerning our claims paying practices.

Aging of delinquent inventory
Historically as a delinquency ages it becomesis more likely to result in a claim. The new notice activity from hurricane impacted areas in the fourth quarter of 2017 increased the percentage of our delinquent inventory that had been delinquent for three months or less (table 8.4) as of December 31, 2017.

The number of consecutive months that a borrower has been delinquent is shown in table 8.4 below.
Primary delinquency inventory - consecutive months delinquent
Table8.4
December 31,
202120202019
3 months or less7,586 11,542 9,447 
4 - 11 months7,990 34,620 9,664 
12 months or more (1)
17,714 11,548 10,917 
Total33,290 57,710 30,028 
3 months or less23 %20 %32 %
4 - 11 months24 %60 %32 %
12 months or more53 %20 %36 %
Total100 %100 %100 %
Primary claims received inventory included in ending delinquent inventory211 159 538 
Primary delinquent inventory - consecutive months delinquent
Table8.4      
  December 31,
  2019 2018 2017
3 months or less 9,447
 9,829
 17,119
4 - 11 months 9,664
 9,655
 12,050
12 months or more (1)
 10,917
 13,414
 17,387
Total 30,028
 32,898
 46,556
       
3 months or less 32% 30% 37%
4 - 11 months 32% 29% 26%
12 months or more 36% 41% 37%
Total 100% 100% 100%
       
Primary claims received inventory included in ending delinquent inventory 538
 809
 954
(1)Approximately 20%, 31%, and 36% of the delinquent inventory that has been delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of December 31, 2021, 2020 and 2019, respectively.
(1)

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

Approximately 36%, 38%, and 45% of the delinquent inventory for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of December 31, 2019, 2018 and 2017, respectively.

POOL INSURANCE DEFAULT INVENTORY
Pool insurance default inventory decreased towas 498 at December 31, 2021, 680 at December 31, 2020, and 653 at December 31, 2019 from 859 at December 31, 2018 and 1,309 at December 31, 2017.2019.

CLAIMS PAYING PRACTICESPREMIUM REFUNDS
Our loss reserving methodology incorporates our estimates of future rescissions. A variance between ultimate actual rescission rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses. Our estimate of premiums to be refunded on expected future rescissionsclaim payments is accrued for separately and is included in "Other liabilities" on our consolidated balance sheets.

sheets and approximated $37 million and $30 million at December 31, 2021 and 2020, respectively.
For information about discussions and legal proceedings with customers with respect to our claims paying practices, see
Note 17 – “Litigation and Contingencies.”



MGIC Investment Corporation 20192021 Form 10-K | 110105
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents



NOTE 9Reinsurance
Our consolidated financial statements reflect the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the acceptance of certain insurance risks that other insurance companies have underwritten. Ceded reinsurance involves transferring certain insurance risks (along with, in the case of quota share reinsurance, the related earned premiums) we have underwritten to other insurance companies who agree to share these risks. The purpose of ceded reinsurance is to protect us, at a cost, against losses arising from our mortgage guaranty policies covered by the agreement and to manage our capital requirements under PMIERs. Reinsurance is currently placed on a quota share and excess of loss basis but we also have immaterial captive reinsurance agreements that remainwere in effect.

effect through December 31, 2020.

Table 9.1 below shows the effect of all reinsurance agreements on premiums earned and losses incurred as reflected in the consolidated statements of operations.
Reinsurance
Table9.1
Years ended December 31,
(In thousands)202120202019
Premiums earned:
Direct$1,167,592 $1,199,824 $1,155,240 
Assumed9,858 10,848 5,085 
Ceded(163,031)(188,729)(129,337)
Net premiums earned1,014,419 1,021,943 1,030,988 
Losses incurred:
Direct74,496 442,194 130,100 
Assumed(57)555 (125)
Ceded(9,862)(77,975)(11,400)
Net losses incurred$64,577 $364,774 $118,575 
Reinsurance
Table9.1      
  Years ended December 31,
(In thousands) 2019 2018 2017
Premiums earned:      
Direct $1,155,240
 $1,084,748
 $1,059,973
Assumed 5,085
 1,805
 509
Ceded (129,337) (111,391) (125,735)
Net premiums earned $1,030,988
 $975,162
 $934,747
       
Losses incurred:      
Direct $130,100
 $43,060
 $74,727
Assumed (125) 331
 183
Ceded (11,400) (6,829) (21,201)
Net losses incurred $118,575
 $36,562
 $53,709


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%.

MGIC Investment Corporation 2021 Form 10-K | 106
MGIC Investment Corporation and Subsidiaries


Table 9.2 below provides additional detail regarding our QSR transactions in effect during 2021.

Reinsurance
Table9.2
Quota Share ContractPolicy YearQuota Share %
Annual Loss Ratio to Exhaust Profit Commission (1)
Contractual Termination Date
2015 QSRPrior to 201715.0%68.0%December 31, 2031
2017 QSR (2)
201730.0%60.0%December 31, 2028
2018 QSR (2)
201830.0%62.0%December 31, 2029
2019 QSR201930.0%62.0%December 31, 2030
2020 QSR202012.5%62.0%December 31, 2031
2020 QSR and 2021 QSR2020 - 202117.5%62.0%December 31, 2032
2021 QSR202112.5%57.5%December 31, 2032
2022 QSR202215.0%57.5%December 31, 2033
Credit Union QSR (3)
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)2017 and 2018 QSR Transactions were terminated effective December 31, 2021.
(3) Eligible credit union business written before April 1, 2020 was covered by our 2019 and prior QSR Transactions.

We have executed an agreement with a group of unaffiliated reinsurers for a reinsurance transaction with an effective date of January 1, 2022 with a similar structure to our existing QSR transactions that will cover most of our NIW in 2022 (with an additional 15.0% quota share) and 2023 (with a 15% quota share). Generally, we will receive an annual profit commission provided the annual loss ratio on the loans covered under the transaction remain below 62.0%.

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. Early termination of the QSR agreements can also be elected by us for a fee, or under specified scenarios for no fee upon prior written notice.

Table 9.3 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 as shown in table 9.2 to the percentage showed in 9.3.

Reinsurance
Table9.3
Quota Share Contract
Optional Termination Date (1)
Optional Quota Share % Reduction Date (2)
Quota Share % Reduction
2015 QSRJune 30, 2021NANA
2019 QSRDecember 31, 2021July 1, 202025% or 20%
2020 QSRDecember 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 QSRDecember 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.
(2)We can elect to reduce the quota share percentage beginning on this date, and bi-annually thereafter.



MGIC Investment Corporation 2021 Form 10-K | 107
MGIC Investment Corporation and Subsidiaries

Table 9.4 provides a summary of our QSR Transactions, excluding captive agreements, for 2021, 2020, and 2019.

Quota share reinsurance
Table9.4
Years ended December 31,
(In thousands)202120202019
Ceded premiums written and earned, net of profit commission$118,537 $167,930 $111,550 
Ceded losses incurred9,862 78,012 11,395 
Ceding commissions (1)
53,460 48,077 48,793 
Profit commission153,759 72,452 139,179 
(1)Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.

We incurred an early termination fee of $5 million for the termination of our 2017 and 2018 QSR Transactions effective December 31, 2021. The reinsurance recoverable on paid losses as of December 31, 2021 includes $36 million due from the reinsurers participating in the 2017 and 2018 QSR Transactions for loss and LAE reserves incurred at the time of termination.

Ceded premiums written and earned, net of profit commission, increased in 2020 due to the decrease in profit commission. The decrease in profit commission was a result of higher ceded losses incurred, primarily due to an increase in the delinquency inventory due to the impacts of the COVID-19 pandemic.

Under the terms of our QSR Transactions currently in effect, ceded premiums, ceding commissions, profit commission, and ceded loss paid and LAE paid 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 $66.9 million as of December 31, 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 1) a reinsurer's funding requirements under PMIERs or 2) ceded reserves and unpaid losses. Each of the reinsurers under our quota share reinsurance agreements described belowabove 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. An allowance for credit losses was not required for 2021.

2019 QSR Transaction. We entered into a QSR transaction with a group of unaffiliated reinsurers with an effective date of January 1, 2019 (“2019 QSR Transaction”), which provides coverage on eligible NIW in 2019. Under the 2019 QSR Transaction, we will cede losses and premiums on or after the effective date through December 31, 2030, at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, 2021 or bi-annually thereafter, for a fee, or under specified scenarios for 0 fee upon prior written notice, including

if we will receive less than 90% 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.

The structure of the 2019 QSR Transaction is a 30% quota share, with a one-time option, elected by us, to reduce the cede rate to either 25% or 20% effective July 1, 2020, or bi-annually thereafter, for a fee, for all policies covered, with a 20% ceding commission as well as a profit commission. Generally, under the 2019 QSR Transaction, we will receive an annual profit commission provided the annual loss ratio on the loans covered under the transactions remains below 62%.

2018 QSR Transaction.
 Our 2018 quota share reinsurance agreement ("2018 QSR Transaction") provides coverage on eligible NIW in 2018. Under the 2018 QSR Transaction, we cede losses incurred and premiums on or after the effective date through December 31, 2029, at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, 2021, and annually thereafter, for a fee, or under specified scenarios for 0 fee upon prior written notice, including if we will receive less than 90% 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.

The structure of the 2018 QSR Transaction is a 30% quota share for all policies covered, with a 20% ceding commission as well as a profit commission. Generally, under the 2018 QSR Transaction, we will receive an annual profit commission provided the annual loss ratio on the loans covered under the transactions remains below 62%.

2017 QSR Transaction. Our 2017 quota share reinsurance agreement ("2017 QSR Transaction") provides coverage on eligible NIW in 2017. Under our 2017 QSR Transaction, we cede losses incurred and premiums on or after the effective date through December 31, 2028, at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, 2021 for a fee, or under specified scenarios for 0 fee upon prior written notice, including if we will receive less than 90% 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.

The structure of the 2017 QSR Transaction is a 30% quota share for all policies covered, with a 20% ceding commission as well as a profit commission. Generally, under the 2017 QSR Transaction, we will receive an annual profit commission provided the annual loss ratio on the loans covered under the transactions remains below 60%.


MGIC Investment Corporation 20192021 Form 10-K | 111108
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents



2015 QSR Transaction. We terminated a portion of our 2015 QSR Transaction effective June 30, 2019 and entered into an amended quota share reinsurance agreement with certain participants from the existing reinsurance panel that effectively reduces the quota share cede rate from 30% to 15% on the remaining eligible insurance. During the second quarter of 2019, we incurred a termination fee of $6.8 million, which was paid to participants of the reinsurance panel that are not participating in the amended 2015 QSR Transaction. Under the amended 2015 QSR Transaction we cede losses and premiums on eligible insurance written before 2017 through December 31, 2031, at which time the agreement expires. Early termination of the amended agreement can be elected by us on or after June 30, 2021, bi-annually thereafter for 0 fee, or under specified scenarios, including if we will receive less than 90% 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. Generally, under our amended 2015 QSR Transaction, we will receive an annual profit commission provided the annual loss ratio on the loans covered under the transactions remains below 68%.

Table 9.2 provides a summary of our quota share reinsurance agreements, excluding captive agreements, for 2019, 2018 and 2017.
Quota share reinsurance
Table9.2      
  Years ended December 31,
(In thousands) 2019 2018 2017
Ceded premiums written and earned, net of profit commission (1)
 $111,550
 $108,337
 $120,974
Ceded losses incurred 11,395
 6,543
 22,336
Ceding commissions (2)
48,793
 51,201
 49,321
Profit commission 139,179
 147,667
 125,629
(1)
Under our QSR Transactions, premiums are ceded on an earned and received basis as defined in our agreements.
(2)
Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.

Under the terms of our QSR Transactions currently in effect, reinsurance premiums, ceding commission and profit commission are settled net on a quarterly basis. The reinsurance premium 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 was $21.6 million as of December 31, 2019 and $33.2 million as of December 31, 2018.The reinsurance recoverable balance is secured by funds on deposit from the
reinsurers, the amount of which is based on the funding requirements of PMIERs.


MGIC Investment Corporation 2019 Form 10-K | 112
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


2020 QSR Transaction.We have agreed to terms on a QSR Transaction with a group of unaffiliated reinsurers with an effective date of January 1, 2020 ("2020 QSR Transaction"), which provides coverage on eligible NIW in 2020

Under the 2020 QSR Transaction, we cede losses incurred and premiums on or after the effective date through December 31, 2031, at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, 2022, and bi-annually thereafter, for a fee, or under specified scenarios for 0 fee upon prior written notice, including if we will receive less than 90% of the full credit amount under the PMIERs for the risk ceded in any required calculation period.

The structure of the 2020 QSR Transaction is a 30% quota share on 2020 NIW, with an option to reduce the cede rate to either 25.0% or 20% effective July 1, 2021 or semiannually thereafter. Generally, under the 2020 QSR Transaction, we will receive an annual profit commission provided the annual loss ratio on the loans covered under the transactions remains below 62%.

2021 QSR Transaction. In addition, we have agreed to terms on a QSR Transaction with a group of unaffiliated reinsurers with an effective date of January 1, 2021 ("2021 QSR Transaction"), which provides coverage on eligible NIW in 2021.

Under the 2021 QSR Transaction, we cede losses incurred and premiums on or after the effective date through December 31, 2032 for 2021 NIW, at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, 2023, and bi-annually thereafter, for a fee, or under specified scenarios for 0 fee upon prior written notice, including if we will receive less than 90% of the full credit amount under the PMIERs for the risk ceded in any required calculation period.

The structure of the 2021 QSR Transaction is a 17.5% quota share on 2021 NIW, with an option to reduce the cede rate to either 14.5% or 12% effective July 1, 2022 or semiannually thereafter. Generally, under the 2021 QSR Transaction, we will receive an annual profit commission provided the annual loss ratio on the loans covered under the transactions remains below 62%.



EXCESS OF LOSS REINSURANCE
We have aggregate excess of loss reinsurance agreementstransactions (“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 special purpose 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. The aggregate excess of lossSubject to certain conditions, the reinsurance coverage decreases over a ten-year period subject to certain conditions,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. MGIC has rights to terminate the Home Re
Transactions under certain circumstances.
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. The ILNs each have ten-year legal maturities and areEach 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 December 31, 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 a percentage of the total reinsured principal balance of loans specified under each transaction. A "Trigger Event" has also occurred on the Home Re 2021-2 ILN transactions because the credit enhancement of the most senior tranche is less than the target credit enhancement.

Table 9.39.5 provides a summary of our excess of loss reinsurance agreementsHome Re Transactions as of December 31, 20192021, December 31, 2020 and December 31, 2018.2019.

Excess of Loss Reinsurance
Table 9.5
($ 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
2021
Remaining First Layer Retention190,159211,142275,204183,917165,365
Remaining Excess of Loss Reinsurance Coverage398,429387,830234,312208,146218,343
2020
Remaining First Layer Retention——275,283184,514166,005
Remaining Excess of Loss Reinsurance Coverage——412,917208,146218,343
2019
Remaining First Layer Retention———185,636167,779
Remaining Excess of Loss Reinsurance Coverage———271,021260,957
(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.



MGIC Investment Corporation 20192021 Form 10-K | 113109
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Excess of Loss Reinsurance   
Table 9.3           
(In thousands)     As of December 31, 2019As of December 31, 2018
Home Re Entity (Issue Date) Policy Inforce Dates Termination Option Date (1) Remaining First Layer Retention Remaining Excess of Loss Reinsurance CoveragesRemaining First Layer Retention Remaining Excess of Loss Reinsurance Coverages
Home Re 2018-1 Ltd. (Oct. - 2018) July 1, 2016 - December 31, 2017 October 25, 2025 $167,779
 $260,957
$168,691
 $318,636
Home Re 2019-1 Ltd. (May - 2019) January 1, 2018 - March 31, 2019 May 25, 2026 185,636
 271,021
—
 —
Total     $353,415
 $531,978
$168,691
 $318,636

(1)
We have the right to terminate the excess-of-loss reinsurance agreements under certain circumstances and on any payment date on or after the respective termination option 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 unpaid portion of the ILNs it issued to raise funds to collateralize itsremaining reinsurance obligations to us,coverage levels, and the investment income collected on the collateral assets.assets held in 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 one-month LIBOR, (or the fallback reference rate as applicable) and changes in money market rates that affect investment income collected on the assets in the reinsurance trust. The Home Re 2021-2 Transactions references SOFR, while the remaining Home Re Transactions reference the one-month LIBOR. As a result, we concluded that each reinsurance agreementHome Re Transaction contains an embedded derivative that is accounted for separately as a freestanding derivative. The fair values of the derivatives at December 31, 2019,2021 and December 31, 2020, were not material to our consolidated balance sheet, and the change in fair values during the yearyears ended December 31, 2021, December 31, 2020 and December 31, 2019 were not material to our consolidated statements of operations. Total ceded premiums under the Home Re transaction were $17.6$44.5 million, $20.8 million, and $2.8$17.6 million for the years ended December 31, 20192021, December 31, 2020 and December 31, 2018, respectively.2019.

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 consolidation of neitherthat 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 December 31, 2019,2021, December 31, 2020 and December 31, 2018,2019, 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 either VIEthe VIEs under our reinsurance agreements.transactions. We are unable to determine the timing or extent of claims from losses that are ceded under the reinsurance agreements.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 agreements.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 agreementstransactions 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 agreementstransactions should its claims not be paid. We consider our exposure to loss from our reinsurance agreementstransactions with the VIEs to be remote.



MGIC Investment Corporation 2019 Form 10-K | 114
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Table 9.49.6 presents the total assets of the Home Re Entities as of December 31, 20192021 , December 31, 2020 and December 31, 2018.2019.
Home Re Entities total assets
Table9.6
(In thousands)
Home Re EntityTotal VIE Assets
December 31, 2021
Home Re 2018-1 Ltd.$218,343
Home Re 2019-1 Ltd.208,146
Home Re 2020-1 Ltd.251,387
Home Re 2021-1 Ltd.398,848
Home Re 2021-2 Ltd.398,429
December 31, 2020
Home Re 2018-01 Ltd.$218,343 
Home Re 2019-01 Ltd.208,146 
Home Re 2020-01 Ltd.412,917 
December 31, 2019
Home Re 2018-01 Ltd.$269,451 
Home Re 2019-01 Ltd.283,150 
Home Re Entities total assets
Table9.4  
   
(In thousands)  
Home Re Entity Total VIE Assets
December 31, 2019  
Home Re 2018-01 Ltd. $269,451
Home Re 2019-01 Ltd. $283,150
December 31, 2018  
Home Re 2018-1 Ltd. $318,636


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 assetstotal calculated PMIERs credit for risk ceded under our Home Re Transactions is generally based on the PMIERs requirement of the Home Re Entities provide capital credit undercovered policies and the PMIERs financial requirementsattachment and detachment points of the coverage, all of which fluctuate over time. (see Note 1 - "Nature of Business" and Note 2 - "Basis of Presentation"). A decline in the assets available to pay claims would reduce the capital credit available to MGIC. ).


MGIC Investment Corporation 20192021 Form 10-K | 115110
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


NOTE 10Other Comprehensive Income (Loss)
The pretax components of our other comprehensive income (loss) and related income tax (expense) benefit for the years ended December 31, 2019, 20182021, 2020 and 20172019 are included in table 10.1 below.
Components of other comprehensive income (loss)
Table10.1
(In thousands)202120202019
Net unrealized investment (losses) gains on securities without an allowance for credit losses$(154,555)$169,135 $220,139 
Income tax benefit (expense)32,456 (35,519)(46,229)
Net of taxes(122,099)133,616 173,910 
Net changes in benefit plan assets and obligations31,613 13,288 29,129 
Income tax benefit (expense)(6,638)(2,791)(6,117)
Net of taxes24,975 10,497 23,012 
Total other comprehensive income (loss)(122,942)182,423 249,268 
Total income tax benefit (expense)25,818 (38,310)(52,346)
Total other comprehensive income (loss), net of tax$(97,124)$144,113 $196,922 
Components of other comprehensive income (loss)
Table10.1      
(In thousands) 2019 2018 2017
Net unrealized investment gains (losses) arising during the year $220,139
 $(81,834) $69,052
Income tax (expense) benefit (46,229) 17,188
 (21,505)
Net of taxes 173,910
 (64,646) 47,547
       
Net changes in benefit plan assets and obligations 29,129
 (19,958) (8,983)
Income tax (expense) benefit (6,117) 4,191
 3,144
Net of taxes 23,012
 (15,767) (5,839)
       
Net changes in unrealized foreign currency translation adjustment —
 —
 45
Income tax benefit (expense) —
 —
 (14)
Net of taxes —
 —
 31
       
Total other comprehensive income (loss) 249,268
 (101,792) 60,114
Total income tax (expense) benefit, net (52,346) 21,379
 (18,375)
Total other comprehensive income (loss), net of tax $196,922
 $(80,413) $41,739


The pretax and related income tax benefit (expense) components of the amounts reclassified from our accumulated other comprehensive income (loss) ( "AOCI", "AOCL") to our consolidated statements of operations for the years endedDecember 31, 2019, 20182021, 2020 and 20172019 are included in table 10.2 below.
Reclassifications from Accumulated Other Comprehensive Income (Loss)
Table10.2
(In thousands)202120202019
Reclassification adjustment for net realized (losses) gains included in net income (1)
$10,455 $13,862 $3,637 
Income tax benefit (expense)(2,195)(2,912)(763)
Net of taxes8,260 10,950 2,874 
Reclassification adjustment related to benefit plan assets and obligations (2)
(9,779)(15,968)(8,097)
Income tax benefit (expense)2,053 3,353 1,701 
Net of taxes(7,726)(12,615)(6,396)
Total reclassifications676 (2,106)(4,460)
Income tax benefit (expense)(142)441 938 
Total reclassifications, net of tax$534 $(1,665)$(3,522)
Reclassifications from Accumulated Other Comprehensive Income (Loss)
Table10.2      
(In thousands) 2019 2018 2017
Reclassification adjustment for net realized (losses) gains included in net income (1)
 $3,637
 $(7,037) $(2,580)
Income tax (expense) benefit (763) 1,477
 903
Net of taxes 2,874
 (5,560) (1,677)
       
Reclassification adjustment related to benefit plan assets and obligations (2)
(8,097) (2,232) 906
Income tax benefit (expense) 1,701
 469
 (317)
Net of taxes (6,396) (1,763) 589
       
Total reclassifications (4,460) (9,269) (1,674)
Total income tax benefit, net 938
 1,946
 586
Total reclassifications, net of tax $(3,522) $(7,323) $(1,088)
(1)(1)(Decreases) increases Net realized investment gains on the consolidated statements of operations.
(Decreases) increases Net realized investment gains on the consolidated statements of operations.
(2)
Decreases (increases) Other underwriting and operating expenses, net on the consolidated statements of operations.


(2)Decreases (increases) Other underwriting and operating expenses, net on the consolidated statements of operations.




MGIC Investment Corporation 20192021 Form 10-K | 116111
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


A roll-forward of AOCI (AOCL) for the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, including amounts reclassified from AOCI (AOCL), is included in table 10.3 below.
Roll-forward of Accumulated Other Comprehensive Income (Loss)
Table10.3
(In thousands)Net unrealized gains and losses on available-for-sale securitiesNet benefit plan assets and obligations recognized in shareholders' equityTotal AOCL
Balance, December 31, 2018, net of tax$(35,389)$(88,825)$(124,214)
Other comprehensive income (loss) before reclassifications176,784 16,616 193,400 
Less: Amounts reclassified from AOCL2,874 (6,396)(3,522)
Balance, December 31, 2019, net of tax138,521 (65,813)72,708 
Other comprehensive income (loss) before reclassifications144,566 (2,118)142,448 
Less: Amounts reclassified from AOCL10,950 (12,615)(1,665)
Balance, December 31, 2020, net of tax272,137 (55,316)216,821 
Other comprehensive income (loss) before reclassifications(113,839)17,249 (96,590)
Less: Amounts reclassified from AOCL8,260 (7,726)534 
Balance, December 31, 2021, net of tax$150,038 $(30,341)$119,697 
Roll-forward of Accumulated Other Comprehensive Income (Loss)
Table10.3        
(In thousands) Net unrealized gains and losses on available-for-sale securities Net benefit plan assets and obligations recognized in shareholders' equity Net unrealized foreign currency translation Total AOCL
Balance, December 31, 2016, net of tax $(20,797) $(54,272) $(31) $(75,100)
Other comprehensive income (loss) before reclassifications 45,870
 (5,250) 31
 40,651
Less: Amounts reclassified from AOCL (1,677) 589
 —
 (1,088)
Less: Amounts reclassified for lower enacted corporate tax rate (2,525) 12,947
 —
 10,422
Balance, December 31, 2017, net of tax 29,275
 (73,058) —
 (43,783)
Cumulative effect of adopting the accounting standard update for financial instruments (18) —
 —
 (18)
Other comprehensive income (loss) before reclassifications (70,206) (17,530) —
 (87,736)
Less: Amounts reclassified from AOCL (5,560) (1,763) —
 (7,323)
Balance, December 31, 2018, net of tax (35,389) (88,825) —
 (124,214)
Other comprehensive income (loss) before reclassifications 176,784
 16,616
 —
 193,400
Less: Amounts reclassified from AOCL 2,874
 (6,396) —
 (3,522)
Balance, December 31, 2019, net of tax $138,521
 $(65,813) $—
 72,708




MGIC Investment Corporation 20192021 Form 10-K | 117112
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


NOTE 11Benefit Plans
We have a non-contributory defined benefit pension plan covering substantially all domestic employees, as well as a supplemental executive retirement plan. We also offer both medical and dental benefits for retired domestic employees, their eligible spouses and dependents under a postretirement benefit plan. The following tables 11.1,, 11.2,, and 11.3 provide the components of aggregate annual net periodic benefit cost for each of the years ended December 31, 2019, 2018,2021, 2020, and 20172019 and changes in the benefit obligation and the funded status of the pension, supplemental executive retirement and other postretirement benefit plans as recognized in the consolidated balance sheets as of December 31, 20192021 and 2018.2020.
Components of net periodic benefit cost
Table11.1
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202112/31/202012/31/201912/31/202112/31/202012/31/2019
1. Company Service Cost$7,569 $7,342 $8,345 $1,508 $1,263 $1,345 
2. Interest Cost11,276 13,036 15,705 648 832 1,130 
3. Expected Return on Assets(20,657)(22,139)(19,466)(8,863)(7,407)(5,785)
4. Other Adjustments— — — — — — 
Subtotal(1,812)(1,761)4,584 (6,707)(5,312)(3,310)
5. Amortization of:      
a. Net Transition Obligation/(Asset)— — — — — — 
b. Net Prior Service Cost/(Credit)(239)(247)(281)213 51 (34)
c. Net Losses/(Gains)5,490 6,578 8,412 (1,697)(783)— 
Total Amortization5,251 6,331 8,131 (1,484)(732)(34)
6. Net Periodic Benefit Cost3,439 4,570 12,715 (8,191)(6,044)(3,344)
7. Cost of settlements6,012 10,369 1,933 — — — 
8. Total Expense for Year$9,451 $14,939 $14,648 $(8,191)$(6,044)$(3,344)
Components of net periodic benefit cost
Table11.1            
  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(In thousands) 12/31/2019 12/31/2018 12/31/2017 12/31/2019 12/31/2018 12/31/2017
1. Company Service Cost $8,345
 $10,530
 $9,556
 $1,345
 $1,160
 $813
2. Interest Cost 15,705
 15,095
 15,475
 1,130
 834
 706
3. Expected Return on Assets (19,466) (22,250) (20,099) (5,785) (6,359) (5,248)
4. Other Adjustments —
 —
 —
 —
 —
 —
Subtotal 4,584
 3,375
 4,932
 (3,310) (4,365) (3,729)
5. Amortization of:  
  
  
  
  
  
a. Net Transition Obligation/(Asset) ���
 —
 —
 —
 —
 —
b. Net Prior Service Cost/(Credit) (281) (351) (426) (34) (4,104) (6,649)
c. Net Losses/(Gains) 8,412
 6,937
 6,169
 —
 (250) —
Total Amortization 8,131
 6,586
 5,743
 (34) (4,354) (6,649)
6. Net Periodic Benefit Cost 12,715
 9,961
 10,675
 (3,344) (8,719) (10,378)
7. Cost of settlements 1,933
 —
 —
 —
 —
 —
8. Total Expense for Year $14,648
 $9,961
 $10,675
 $(3,344) $(8,719) $(10,378)
Development of funded status
Table11.2
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202112/31/202012/31/202112/31/2020
Actuarial Value of Benefit Obligations
1. Measurement Date12/31/202112/31/202012/31/202112/31/2020
2. Accumulated Benefit Obligation$390,747 $423,305 $25,635 $28,714 
Funded Status/Asset (Liability) on the Consolidated Balance Sheet
1. Projected Benefit Obligation$(391,698)$(423,713)$(25,635)$(28,714)
2. Plan Assets at Fair Value391,555 411,245 140,839 119,024 
3. Funded Status - Overfunded/AssetN/AN/A$115,204 $90,310 
4. Funded Status - Underfunded/Liability(143)(12,468)N/AN/A
Accumulated other comprehensive (income) loss
Table11.3
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202112/31/202012/31/202112/31/2020
1. Net Actuarial (Gain)/Loss$84,045 $98,899 $(47,352)$(30,565)
2. Net Prior Service Cost/(Credit)(747)(988)2,461 2,673 
3. Net Transition Obligation/(Asset)— — — — 
4. Total at Year End$83,298 $97,911 $(44,891)$(27,892)

Development of funded status
Table11.2        
  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(In thousands) 12/31/2019 12/31/2018 12/31/2019 12/31/2018
Actuarial Value of Benefit Obligations        
1. Measurement Date 12/31/2019
 12/31/2018
 12/31/2019
 12/31/2018
2. Accumulated Benefit Obligation $412,939
 $375,562
 $27,496
 $28,085
         
Funded Status/Asset (Liability) on the Consolidated Balance Sheet        
1. Projected Benefit Obligation $(413,350) $(376,153) $(27,496) $(28,085)
2. Plan Assets at Fair Value 402,691
 359,719
 99,590
 77,762
3. Funded Status - Overfunded/Asset N/A
 N/A
 $72,094
 $49,677
4. Funded Status - Underfunded/Liability (10,659) (16,434) N/A
 N/A



MGIC Investment Corporation 2019 Form 10-K | 118
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Accumulated other comprehensive (income) loss
Table11.3        
  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(In thousands) 12/31/2019 12/31/2018 12/31/2019 12/31/2018
1. Net Actuarial (Gain)/Loss $99,826
 $110,321
 $(18,005) $939
2. Net Prior Service Cost/(Credit) (1,237) (1,513) 2,724
 2,690
3. Net Transition Obligation/(Asset) —
 —
 —
 —
4. Total at Year End $98,589
 $108,808
 $(15,281) $3,629


The amortization of gains and losses resulting from differences in actual experience different from assumed experience or changes in assumptions including discount rates is included as a component of Net Periodic Benefit Cost/(Income) for the year. The gain or loss in excess of a 10% corridor is amortized by the average remaining service period of participating employees expected to receive benefits under the plan.

MGIC Investment Corporation 2021 Form 10-K | 113
MGIC Investment Corporation and Subsidiaries


Table 11.4 shows the changes in the projected benefit obligation for 20192021 and 2018.2020.
Change in projected benefit / accumulated benefit
Table11.4
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202112/31/202012/31/202112/31/2020
1. Benefit Obligation at Beginning of Year$423,713 $413,350 $28,714 $27,496 
2. Company Service Cost7,569 7,342 1,508 1,263 
3. Interest Cost11,276 13,036 648 832 
4. Plan Participants' Contributions— — 456 425 
5. Net Actuarial (Gain)/Loss(10,018)36,196 (3,574)660 
6. Benefit Payments from Fund (1)
(40,482)(40,260)(1,963)(1,975)
7. Benefit Payments Directly by Company(362)(5,953)— — 
8. Plan Amendments2 2 — — 
9. Other Adjustment— — (154)13 
10. Settlement (Gain)/Loss— — — — 
11. Benefit Obligation at End of Year$391,698 $423,713 $25,635 $28,714 
(1)Includes lump sum payments of $27.6 million and $27.5 million in 2021 and 2020, respectively, from our pension plan to eligible participants, which were former employees with vested benefits.

Change in projected benefit / accumulated benefit
Table11.4        
  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(In thousands) 12/31/2019 12/31/2018 12/31/2019 12/31/2018
1. Benefit Obligation at Beginning of Year $376,153
 $417,770
 $28,085
 $24,716
2. Company Service Cost 8,345
 10,530
 1,345
 1,160
3. Interest Cost 15,705
 15,095
 1,130
 834
4. Plan Participants' Contributions —
 —
 382
 475
5. Net Actuarial (Gain)/Loss due to Assumption Changes 43,302
 (36,132) (1,215) (1,209)
6. Net Actuarial (Gain)/Loss due to Plan Experience 3,811
 2,487
 (860) (692)
7. Benefit Payments from Fund (1)
 (30,829) (32,674) (826) (1,077)
8. Benefit Payments Directly by Company (3,105) (908) —
 —
9. Plan Amendments (5) (15) —
 3,928
10. Other Adjustment —
 —
 (545) (50)
11. Settlement (Gain)/Loss (27) —
 —
 —
11. Benefit Obligation at End of Year $413,350
 $376,153
 $27,496
 $28,085
(1)
Includes lump sum payments of $18.5 million and $20.9 million in 2019 and 2018, respectively, from our pension plan to eligible participants, which were former employees with vested benefits.

The increase in ouractuarial gain for 2021 for the pension and supplemental executive retirement plans obligationwas primarily due to an increase in 2019 comparedthe discount rate used to 2018calculate the obligation. The actuarial loss for 2020 for the pension and supplemental executive retirement plans was primarily due to a decrease in the discount rate used to calculate the obligation partially offset byobligation. The actuarial gain for 2021 for other postretirement plans was primarily due to an increase in the discount rate used to calculate the obligation. The actuarial loss for 2020 for the postretirement benefits paid fromplan was primarily due to the fund.decrease in the discount rate used to calculate the obligation. Table 11.811.7 below includes the actuarial assumptions used to calculate the benefit obligations of our plans for 20192021 and 2018.2020.




MGIC Investment Corporation 20192021 Form 10-K | 119114
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Tables 11.5 and 11.6 shows the changes in the fair value of the net assets available for plan benefits, and changes in other comprehensive income (loss) during 20192021 and 2018.2020.
Change in plan assets
Table11.5
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202112/31/202012/31/202112/31/2020
1. Fair Value of Plan Assets at Beginning of Year$411,245 $402,691 $119,024 $99,590 
2. Company Contributions7,162 12,453 — — 
3. Plan Participants' Contributions— — 456 425 
4. Benefit Payments from Fund(40,482)(40,260)(1,963)(1,975)
5. Benefit Payments paid directly by Company(362)(5,953)— — 
6. Actual Return on Assets13,992 42,314 23,773 21,409 
7. Other Adjustment— — (451)(425)
8. Fair Value of Plan Assets at End of Year$391,555 $411,245 $140,839 $119,024 
Change in accumulated other comprehensive income (loss) ("AOCI")
Table11.6
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202112/31/202012/31/202112/31/2020
1. AOCI in Prior Year$97,911 $98,589 $(27,892)$(15,281)
2. Increase/(Decrease) in AOCI    
a. Recognized during year - Prior Service (Cost)/Credit239 247 (213)(51)
b. Recognized during year - Net Actuarial (Losses)/Gains(11,502)(16,948)1,697 782 
c. Occurring during year - Prior Service Cost2 2 — — 
d. Occurring during year - Net Actuarial Losses/(Gains)(3,352)16,021 (18,483)(13,342)
3. AOCI in Current Year$83,298 $97,911 $(44,891)$(27,892)
Change in plan assets
Table11.5        
  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(In thousands) 12/31/2019 12/31/2018 12/31/2019 12/31/2018
1. Fair Value of Plan Assets at Beginning of Year $359,719
 $401,142
 $77,762
 $85,303
2. Company Contributions 10,205
 10,908
 —
 —
3. Plan Participants' Contributions —
 —
 382
 475
4. Benefit Payments from Fund (30,829) (32,674) (826) (1,077)
5. Benefit Payments paid directly by Company (3,105) (908) —
 —
6. Actual Return on Assets 70,262
 (19,583) 22,654
 (6,464)
7. Other Adjustment (3,561) 834
 (382) (475)
8. Fair Value of Plan Assets at End of Year $402,691
 $359,719
 $99,590
 $77,762

Change in accumulated other comprehensive income (loss) ("AOCI")
Table11.6        
  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(In thousands) 12/31/2019 12/31/2018 12/31/2019 12/31/2018
1. AOCI in Prior Year $108,808
 $108,054
 $3,629
 $(15,576)
2. Increase/(Decrease) in AOCI  
  
  
  
a. Recognized during year - Prior Service (Cost)/Credit 281
 351
 34
 4,104
b. Recognized during year - Net Actuarial (Losses)/Gains (8,412) (6,937) —
 250
c. Occurring during year - Prior Service Cost (5) (15) —
 3,928
d. Occurring during year - Net Actuarial Losses/(Gains) (150) 7,355
 (18,944) 10,923
e. Occurring during year - Net Settlement Losses/(Gains) (1,933) —
 —
 —
3. AOCI in Current Year $98,589
 $108,808
 $(15,281) $3,629


Table 11.7 shows the amount of amortization on components of net periodic benefit costs expected to be recognized during the year ending December 31, 2020.
Amortization expected to be recognized during fiscal year ending
Table11.7    
  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(In thousands) 12/31/2019 12/31/2019
1. Amortization of Net Transition Obligation/(Asset) $—
 $—
2. Amortization of Prior Service Cost/(Credit) (248) 51
3. Amortization of Net Losses/(Gains) 6,534
 (761)




MGIC Investment Corporation 2019 Form 10-K | 120
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


The projected benefit obligations, net periodic benefit costs and accumulated postretirement benefit obligation for the plans were determined using the following weighted average assumptions.
Actuarial assumptions
Table11.7
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
 12/31/202112/31/202012/31/202112/31/2020
Weighted-Average Assumptions Used to Determine
Benefit Obligations at year end
1. Discount Rate3.05 %2.75 %2.85 %2.35 %
2. Rate of Compensation Increase3.00 %3.00 %N/AN/A
3. Cash balance interest crediting rate2.80 %2.50 %N/AN/A
Weighted-Average Assumptions Used to Determine    
Net Periodic Benefit Cost for Year    
1. Discount Rate2.80 %3.30 %2.35 %3.20 %
2. Expected Long-term Return on Plan Assets5.25 %5.75 %7.50 %7.50 %
3. Rate of Compensation Increase3.00 %3.00 %N/AN/A
Assumed Health Care Cost Trend Rates at year end    
1. Health Care Cost Trend Rate Assumed for Next YearN/AN/A6.50 %6.00 %
2. Rate to Which the Cost Trend Rate is Assumed to Decline (Ultimate Trend Rate)N/AN/A5.00 %5.00 %
3. Year That the Rate Reaches the Ultimate Trend RateN/AN/A20282024
Actuarial assumptions
Table11.8        
  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
  12/31/2019 12/31/2018 12/31/2019 12/31/2018
Weighted-Average Assumptions Used to Determine        
Benefit Obligations at year end        
1. Discount Rate 3.45% 4.40% 3.20% 4.25%
2. Rate of Compensation Increase 3.00% 3.00% N/A
 N/A
         
Weighted-Average Assumptions Used to Determine  
  
  
  
Net Periodic Benefit Cost for Year  
  
  
  
1. Discount Rate 4.40% 3.75% 4.25% 3.55%
2. Expected Long-term Return on Plan Assets 5.75% 5.75% 7.50% 7.50%
3. Rate of Compensation Increase 3.00% 3.00% N/A
 N/A
         
Assumed Health Care Cost Trend Rates at year end  
  
  
  
1. Health Care Cost Trend Rate Assumed for Next Year N/A
 N/A
 6.00% 6.25%
2. Rate to Which the Cost Trend Rate is Assumed to Decline (Ultimate Trend Rate) N/A
 N/A
 5.00% 5.00%
3. Year That the Rate Reaches the Ultimate Trend Rate N/A
 N/A
 2024
 2024


MGIC Investment Corporation 2021 Form 10-K | 115
MGIC Investment Corporation and Subsidiaries

In selecting a discount rate, we performed a hypothetical cash flow bond matching exercise, matching our expected pension plan and postretirement medical plan cash flows, respectively, against a selected portfolio of high quality corporate bonds. The modeling was performed using a bond portfolio of noncallable bonds with at least $50 million outstanding. The average yield of these hypothetical bond portfolios was used as the benchmark for determining the discount rate. In selecting the expected long-term rate of return on assets, we considered the average rate of earnings expected on the classes of funds invested or to be invested to provide for the benefits of these plans. This included considering the trusts' targeted asset allocation for the year and the expected returns likely to be earned over the next 20 years.

The year-end asset allocations of the plans are shown in table 11.911.8 below.
Plan assets
Table11.8
  Pension PlanOther Postretirement Benefits
 12/31/202112/31/202012/31/202112/31/2020
1. Equity Securities21 %21 %100 %100 %
2. Debt Securities79 %79 %— %— %
3. Total100 %100 %100 %100 %
Plan assets
Table11.9        
   Pension Plan Other Postretirement Benefits
  12/31/2019 12/31/2018 12/31/2019 12/31/2018
1. Equity Securities 23% 23% 100% 100%
2. Debt Securities 77% 77% —% —%
3. Total 100% 100% 100% 100%


In accordance with fair value guidance, we applied the following fair value hierarchy in order to measure fair value of our benefit plan assets:
èLevel 1Quoted prices for identical instruments in active markets that we can access. Financial assets using Level 1 inputs include equity securities, mutual funds, money market funds, certain U.S. Treasury securities and exchange traded funds ("ETFs").
èLevel 2Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and inputs, other than quoted prices, that are observable in the marketplace for the instrument. The observable inputs are used in valuation models to calculate the fair value of the instruments. Financial assets using Level 2 inputs include certain municipal, corporate and foreign bonds, obligations of U.S. government corporations and agencies, and pooled equity accounts.



MGIC Investment Corporation 20192021 Form 10-K | 121116
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


To determine the fair value of securities in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been used. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are used by the independent pricing sources including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation. Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. In addition, on a quarterly basis, we perform quality controls over values received from the pricing source (the “Trustee”) which include comparing values to other independent pricing sources. In addition, we review annually the Trustee’s auditor’s report on internal controls in order to determine that their controls around valuing securities are operating effectively. We have not made any adjustments to the prices obtained from the independent sources.

Tables 11.10a11.9a and 11.10b11.9b set forth by level, within the fair value hierarchy, the pension plan assets and related accrued investment income at fair value as of December 31, 20192021 and 2018.2020. There were no securities that used Level 3 inputs.
Pension plan assets at fair value as of December 31, 2021
Table11.9a
(In thousands)Level 1Level 2Total
Domestic Mutual Funds$4,071 $— $4,071 
Corporate Bonds— 221,033 221,033 
U.S. Government Securities32,947 — 32,947 
Municipal Bonds— 20,093 20,093 
Foreign Bonds— 34,103 34,103 
Pooled Equity Accounts— 79,308 79,308 
Total Assets at fair value$37,018 $354,537 $391,555 
Pension plan assets at fair value as of December 31, 2019
Pension plan assets at fair value as of December 31, 2020Pension plan assets at fair value as of December 31, 2020
Table11.10a      Table11.9b
(In thousands)(In thousands) Level 1 Level 2 Total(In thousands)Level 1Level 2Total
Domestic Mutual FundsDomestic Mutual Funds $7,325
 $—
 $7,325
Domestic Mutual Funds$4,842 $— $4,842 
Corporate BondsCorporate Bonds —
 203,684
 203,684
Corporate Bonds— 231,190 231,190 
U.S. Government SecuritiesU.S. Government Securities 32,166
 2,511
 34,677
U.S. Government Securities26,407 — 26,407 
Municipal BondsMunicipal Bonds —
 38,998
 38,998
Municipal Bonds— 32,891 32,891 
Foreign BondsForeign Bonds —
 34,024
 34,024
Foreign Bonds— 33,368 33,368 
ETFs —
 —
 —
Pooled Equity AccountsPooled Equity Accounts —
 83,983
 83,983
Pooled Equity Accounts— 82,547 82,547 
Total Assets at fair valueTotal Assets at fair value $39,491
 $363,200
 $402,691
Total Assets at fair value$31,249 $379,996 $411,245 
Pension plan assets at fair value as of December 31, 2018
Table11.10b      
(In thousands) Level 1 Level 2 Total
Domestic Mutual Funds $13,744
 $—
 $13,744
Corporate Bonds —
 181,363
 181,363
U.S. Government Securities 19,904
 1,324
 21,228
Municipal Bonds —
 43,424
 43,424
Foreign Bonds —
 30,113
 30,113
ETFs 5,241
 —
 5,241
Pooled Equity Accounts —
 64,606
 64,606
Total Assets at fair value $38,889
 $320,830
 $359,719


The pension plan has implemented a strategy to reduce risk through the use of a targeted funded ratio. The liability driven component is key to the asset allocation. The liability driven component seeks to align the duration of the fixed income asset allocation with the expected duration of the plan liabilities or benefit payments. Overall asset allocation is dynamic and specifies target allocation weights and ranges based on the funded status.

An improvement in funded status results in the de-risking of the portfolio, allocating more funds to fixed income and less to equity. A decline in funded status would result in a higher allocation to equity. The maximum equity allocation is 40%.


MGIC Investment Corporation 20192021 Form 10-K | 122117
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


The equity investments use combinations of mutual funds, ETFs, and pooled equity account structures focused on the following strategies:
StrategyObjectiveInvestment types
Return seeking growthFunded ratio improvement over the long term●Global quality growth
●Global low volatility
Return seeking bridgeDownside protection in the event of a declining equity market●Enduring asset
●Durable company


The fixed income objective is to preserve capital and to provide monthly cash flows for the payment of plan liabilities. Fixed income investments can include government, government agency, corporate, mortgage-backed, asset-backed, and municipal securities, and other classes of bonds. The duration of the fixed income portfolio has an objective of being within one year of the duration of the accumulated benefit obligation. The fixed income investments have an objective of a weighted average credit of A3/A-/A- by Moody’s, S&P, and Fitch, respectively.

Tables 11.11a11.10a and 11.11b11.10b set forth the other postretirement benefits plan assets at fair value as of December 31, 20192021 and 2018.2020. All are Level 1 assets.
Other postretirement benefits plan assets at fair value as of December 31, 2021
Table11.10a
(In thousands)Level 1
Domestic Mutual Funds$112,770
International Mutual Funds28,069
Total Assets at fair value$140,839
Other postretirement benefits plan assets at fair value as of December 31, 2019
Table11.11a    
(In thousands) Level 1 Total
Domestic Mutual Funds $77,640
 $77,640
International Mutual Funds 21,950
 21,950
Total Assets at fair value $99,590
 $99,590
Other postretirement benefits plan assets at fair value as of December 31, 2020
Table11.10b
(In thousands)Level 1
Domestic Mutual Funds$91,454 
International Mutual Funds27,570 
Total Assets at fair value$119,024 
Other postretirement benefits plan assets at fair value as of December 31, 2018
Table11.11b    
(In thousands) Level 1 Total
Domestic Mutual Funds $60,405
 $60,405
International Mutual Funds 17,357
 17,357
Total Assets at fair value $77,762
 $77,762


Our postretirement plan portfolio is designed to achieve the following objectives over each market cycle and for at least 5 years:
è Total return should exceed growth in the Consumer Price Index by 5.75% annually
è Achieve competitive investment results

The primary focus in developing asset allocation ranges for the portfolio is the assessment of the portfolio's investment objectives and the level of risk that is acceptable to obtain those objectives. To achieve these objectives the minimum and maximum allocation ranges for fixed income securities and equity securities are:
 MinimumMaximum
Equities (long only)70 %100 %
Real estate0 %15 %
Commodities0 %10 %
Fixed income/Cash0 %10 %

Given the long term nature of this portfolio and the lack of any immediate need for significant cash flow, it is anticipated that the equity investments will consist of growth stocks and will typically be at the higher end of the allocation ranges above.

Investment in international mutual funds is limited to a maximum of 30% of the equity range. The allocation as of December 31, 20192021 included 3%2% that was primarily invested in equity securities of emerging market countries and another 19%18% was invested in securities of companies primarily based in Europe and the Pacific Basin.

Tables 11.12 and 11.13 show the current and estimated future contributions and benefit payments.
Company contributions
Table11.12
Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202112/31/2021
Company Contributions for the Year Ending:
1. Current$7,162$—
2. Current + 16,500—
Company contributions
Table11.12    
  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(In thousands) 12/31/2019 12/31/2019
Company Contributions for the Year Ending:    
1. Current $10,205
 $—
2. Current + 1 12,350
 —



Benefits payments - total
Table11.13
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202112/31/2021
Actual Benefit Payments for the Year Ending:
1. Current$40,844 $1,963 
Expected Benefit Payments for the Year Ending:  
2. Current + 128,806 1,713 
3. Current + 229,023 1,888 
4. Current + 328,247 2,000 
5. Current + 428,320 2,148 
6. Current + 528,815 2,108 
7. Current + 6 - 10131,716 9,854 
MGIC Investment Corporation 2019 Form 10-K | 123
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Benefits payments - total
Table11.13    
  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(In thousands) 12/31/2019 12/31/2019
Actual Benefit Payments for the Year Ending:    
1. Current $33,934
 $989
Expected Benefit Payments for the Year Ending:  
  
2. Current + 1 34,943
 1,600
3. Current + 2 31,008
 1,847
4. Current + 3 30,981
 2,087
5. Current + 4 31,175
 2,254
6. Current + 5 30,547
 2,367
7. Current + 6 - 10 141,768
 11,874


HEALTH CARE SENSITIVITIES
Assumed health care cost trend rates have a significant effect on the amounts reported for the other postretirement benefits plan. A one percentage point change in the health care trend rate assumption would have the following effects on other postretirement benefits:
Health care trend rate assumption
Table11.14    
(In thousands) 
1-Percentage
Point Increase
 
1-Percentage
Point Decrease
Effect on total service and interest cost components $380
 $(328)
Effect on postretirement benefit obligation 2,528
 (2,239)


PROFIT SHARING AND 401(K)
We have a profit sharing and 401(k) savings plan for employees. At the discretion of the Board of Directors, we may make a contribution to the plan of up to 5% of each participant's eligible compensation. We provide a matching 401(k) savings contribution for employees of 100% up to the first 4% contributed. We recognized expenses related to these plans of $8.0 million in 2021 and 2020 respectively, and $7.4 million $6.0 millionin 2019.


MGIC Investment Corporation 2021 Form 10-K | 118
MGIC Investment Corporation and $6.0 million in 2019, 2018 and 2017, respectively.Subsidiaries

NOTE 12Income Taxes
Net deferred tax assets and liabilities as ofincluded on the Consolidated Balance Sheet at December 31, 20192021 and 20182020 as a component of Other liabilities are as follows:
Deferred tax assets and liabilities
Table12.1    
(In thousands) 2019 2018
Total deferred tax assets $63,533
 $83,082
Total deferred tax liabilities (57,791) (13,898)
Net deferred tax asset $5,742
 $69,184

Deferred tax assets and liabilities
Table12.1
(In thousands)20212020
Total deferred tax assets$32,331 $38,443 
Total deferred tax liabilities(71,743)(98,485)
Net deferred tax liability$(39,412)$(60,042)

Table 12.2 includes the components of the net deferred tax assetliability as of December 31, 20192021 and 2018.2020.
Deferred tax components
Table12.2
(In thousands)20212020
Unearned premium reserves$19,116 $23,163 
Benefit plans(21,360)(13,977)
Loss reserves4,034 3,542 
Unrealized appreciation in investments(39,883)(72,341)
Deferred Policy Acquisition Cost(4,551)(4,528)
Deferred compensation6,118 6,776 
Other, net(2,886)(2,677)
Net deferred tax liability$(39,412)$(60,042)
Deferred tax components
Table12.2    
(In thousands) 2019 2018
Unearned premium reserves $30,487
 $31,808
Benefit plans (10,790) (5,047)
Loss reserves 2,175
 3,113
Unrealized (appreciation) depreciation in investments (36,822) 9,407
Mortgage investments 8,359
 8,307
Deferred compensation 9,270
 8,662
AMT credit carryforward 8,303
 17,521
Other, net (5,240) (4,587)
Net deferred tax asset $5,742
 $69,184


We used the remaining balance of our Federal net operating loss carryforward to offset taxable income during 2018. We believe that all gross deferred tax assets at December 31, 20182020 and 20192021 are fully realizable and no valuation allowance has been established.

Table 12.3 summarizes the components of the provision for (benefit from) income taxes:
Provision for (benefit from) income taxes
Table12.3
(In thousands)202120202019
Current Federal$161,055 $85,574 $162,911 
Deferred Federal4,392 28,244 11,860 
Other1,347 (648)(557)
Provision for income taxes$166,794 $113,170 $174,214 
Provision for (benefit from) income taxes
Table12.3      
(In thousands) 2019 2018 2017
Current Federal $162,911
 $(16,272) $73,348
Deferred Federal 11,860
 185,598
 351,677
Other (557) 4,727
 3,710
Provision for income taxes $174,214
 $174,053
 $428,735


Our income tax expense for 2017 reflects the remeasurement of our net deferred tax assets to reflect the lower corporate tax rate of 21% under the Tax Act. As a result of the lower tax rate, we recorded a decrease to our net deferred tax assets of $133 million with a corresponding increase to our deferred income tax expense for the year ended December 31, 2017.


MGIC Investment Corporation 2019 Form 10-K | 124
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents



Current federal income tax payments were $155.3 million, $79.6 million, and $158.3 million $12.2 million,in 2021, 2020 and $22.0 million in 2019, 2018 and 2017, respectively. At December 31, 20192021 we owned $176.0$426.3 million of tax and loss bonds.

Table 12.612.4 reconciles the federal statutory income tax rate to our effective tax provision rate.
Effective tax rate reconciliation
Table12.4
 202120202019
Federal statutory income tax rate21.0 %21.0 %21.0 %
Tax exempt municipal bond interest(0.6)%(0.9)%(0.6)%
Other, net0.4 %0.1 %0.1 %
Effective tax rate20.8 %20.2 %20.5 %
Effective tax rate reconciliation
Table12.6     
 2019 2018 2017
Federal statutory income tax rate21.0 % 21.0 % 35.0 %
Additional income tax provision (benefit) related to the rate decrease included in the Tax Act— % — % 17.0 %
Additional income tax provision (benefit) related to IRS litigation— % (0.3)% 3.7 %
Tax exempt municipal bond interest(0.6)% (0.7)% (1.4)%
Other, net0.1 % 0.6 % 0.4 %
Effective tax rate20.5 % 20.6 % 54.7 %


As previously disclosed, the Internal Revenue Service ("IRS") completed examinations of our federal income tax returns for the years 2000 through 2007 and issued proposed assessments for taxes, interest and penalties related to our treatment of the flow-through income and loss from an investment in a portfolio of residual interests of Real Estate Mortgage Investment Conduits ("REMICs").

In 2018, we finalized an agreement with the IRS to settle all issues in the examinations and related U.S. Tax Court case. As a result of our settlement, we made federal tax and interest payments of $14.8 million during 2018. We also made state tax and interest payments of $36.8 million during 2018. The impact of the agreed upon settlement was previously reflected in our consolidated statements of operations.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is shown in table 12.7.
Unrecognized tax benefits reconciliation
Table12.7     
(In thousands)  2018 2017
Balance at beginning of year  $142,821
 $108,245
Additions for tax positions of prior years  —
 35,003
Reductions for tax positions of prior years  (3,070) (427)
Settlements  (139,751) —
Balance at end of year  $—
 $142,821


We have 0 unrecognized tax benefits at December 31, 2018 and December 31, 2019. We have not recorded any uncertain tax positions during 2019.2020 and 2021 and have no unrecognized tax benefits at December 31, 2020 and December 31, 2021. We recognize interest accrued and penalties related to unrecognized tax benefits in income taxes. The statute of limitations related to the consolidated federal income tax return is closed for all years prior to 2015.2018.


MGIC Investment Corporation 2021 Form 10-K | 119
MGIC Investment Corporation and Subsidiaries


NOTE 13Shareholders' Equity
CHANGE IN ACCOUNTING PRINCIPLEPOLICY
As of January 1, 2018,2021, we adopted the updated guidance of for "A"Recognitionccounting for Convertible Instruments and Measurement of Financial Assets and Financial Liabilities"Contracts in an Entity’s Own Equity”. became effective. The application of this guidance resulted in an immateriala $68.3 million cumulative effect adjustment to our 20182021 beginning accumulated other comprehensive (loss) income and retained earnings and paid in capital to recognize unrealized gains on equity securities.reflect the 9% Debenture as if we had always accounted for the debt as a liability in its entirety.

As of January 1, 2017, we adopted the updated guidance of "Improvements to Employee Share-Based Compensation Accounting."The adoption of this guidance resulted in an immaterial cumulative effect adjustment to our 2017 beginning retained earnings. For the year ending December 31, 2017, we adopted the updated guidance of "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."The adoption of this guidance resulted in a$10.4 million reclassification from accumulated other comprehensive loss to retained earnings in the fourth quarter of 2017.



MGIC Investment Corporation 2019 Form 10-K | 125
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


SHARE REPURCHASE PROGRAMPROGRAMS
During 2019 we repurchased approximately 8.7 million shares of our common stock at a weighted average cost per share of $13.13, which included commissions. We may repurchase an additional $111 million of our common stock through the end of 2020 under share repurchase programs approved by our Board of Directors in 2019. We received authorization in the first quarter of 2020 to repurchase an additional $300 million of our common stock through the end of 2021.

During 2018, we repurchased approximately 16.0 million shares of our common stock at a weighted average cost per share of $10.95, which included commissions. As of December 31, 2018, the authorized share repurchase program had approximately $25 million remaining.

Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. TheIn the last half of 2021 we repurchased approximately 19.0 million shares of our common stock at a weighted average cost per share of $15.30, which included commissions. We may repurchase up to an additional $500 million of our common stock through the end of 2023 under a share repurchase program may be suspended for periods or discontinuedapproved by our Board of Directors in October 2021. In 2022, through February 18, we repurchased approximately 4.9 million shares of our common stock at any time.a weighted average cost per share of $15.50, which included commissions.

Cash dividendsPrior to the COVID-19 pandemic, In the first quarter of 2020, we repurchased approximately 9.6 million shares of our common stock at a weighted average cost per share of $12.47, which included commissions.

During 2019, we repurchased approximately 8.7 million shares of our common stock at a weighted average cost per share of $13.13, which included commissions.

CASH DIVIDENDS
In September 2019the first and November 2019,second quarters of 2021, we paid a quarterly cash dividenddividends of $0.06 per share to shareholders which totaled $42$41.1 million. In the third and fourth quarters of 2021, we paid quarterly cash dividends of $0.08 per share which totaled $53.6 million. On January 28, 2020,25, 2022, the Board of Directors declared a quarterly cash dividend to holders of the company's common stock of $0.06$0.08 per share payable on February 28, 2020,March 2, 2022, to shareholders of record at the close of business on February 11, 2020.16, 2022.

2017 CAPITAL TRANSACTIONS
2% Notes
In 2017, holders of approximately $202.5 million of the outstanding principal amount of our 2% Notes exercised their rights to convert their notes into shares of our common stock resulting in the delivery of approximately 29.1 million shares of our common stock to the holders. The transactions included the delivery of approximately 18.7 million from our treasury stock and an additional 10.4 million of newly issued shares. Shareholders' equity was increased by the carrying value of the notes at the time of conversion.


NOTE 14Statutory Information
STATUTORY ACCOUNTING PRINCIPLES
The statutory financial statements of our insurance companies are presented on the basis of accounting principles prescribed, or practices permitted, by the Office of the Commissioner of Insurance of the State of Wisconsin (the "OCI"), which has adopted the National Association of Insurance Commissioners ("NAIC") Statements of Statutory Accounting Principles ("SSAP") as the basis of its statutory accounting principles. In converting from statutory to GAAP, typical adjustments
include deferral of policy acquisition costs, the inclusion of net unrealized holding gains or losses in shareholders' equity relating to fixed income securities, and the inclusion of statutory non-admitted assets.

In addition to the typical adjustments from statutory to GAAP, mortgage insurance companies are required to maintain contingency loss reserves equal to 50% of premiums earned under SSAP and principles prescribed by the OCI, and suchOCI. Such amounts cannot be withdrawn for a period of ten years except as permitted by insurance regulations. With regulatory approval, a mortgage guaranty insurance company may make early withdrawals from the contingency reserve when incurred losses exceed 35% of net premiums earned in a calendar year. For the year ended 2019, MGIC's losses incurred were 12% of net premiums earned.2021, MGIC did not withdraw amounts from its contingency reserve. Changes in contingency loss reserves impact the statutory statement of operations. Contingency loss reserves are not reflected as liabilities under GAAP and changes in contingency loss reserves do not impact the GAAP statements of operations.

As a mortgage guaranty insurer, we are eligible for a tax deduction, subject to certain limitations, under Section 832(e) of the IRC for amounts required by state law or regulation to be set aside in statutory contingency reserves. The deduction is allowed only to the extent that we purchase tax and loss bonds (“T&L Bonds”) in an amount equal to the tax benefit derived from deducting any portion of our statutory contingency reserves. Under statutory accounting practices, purchases of T&L Bonds are accounted for as investments. Under GAAP, purchases of T&L Bonds are accounted for as a payment of current taxes.

The statutory net income, loss, policyholders'policyholders’ surplus, and contingency reserve liability of theour insurance subsidiaries, of our holding company are show in table 14.1 below. The surpluswhich agrees to amounts included in the following table are the combined policyholders' surplus of our insurance operations as utilized in our risk-to-capital calculations.calculations, are shown in table 14.1.
Statutory financial information of holding company and insurance subsidiaries
Table14.1      
  As of and for the Years Ended December 31,
(In thousands) 2019 2018 2017
Statutory net income $305,857
 $375,484
 $310,776
Statutory policyholders' surplus 1,619,069
 1,683,058
 1,622,115
Contingency reserve 3,021,055
 2,442,996
 1,896,701


Statutory financial information of insurance subsidiaries
Table14.1
As of and for the Years Ended December 31,
(In thousands)202120202019
Statutory net income$295,811 $65,201 $305,857 
Statutory policyholders' surplus1,220,714 1,339,509 1,619,069 
Contingency reserve4,126,604 3,585,864 3,021,055 


MGIC Investment Corporation 20192021 Form 10-K | 126120
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


For the years ended December 31, 2019, 2018,2021, 2020, and 20172019 there were no surplus contributions made to MGIC or distributions from other insurance subsidiaries to us. Dividends paid by MGIC are shown in table 14.2 below.
Surplus contributions and dividends of insurance subsidiaries
Table14.2
Years Ended December 31,
(In thousands)202120202019
Dividends paid by MGIC to the parent company (1)
$400,000 390,000 280,000 
14.2(1) below.Dividends paid in cash and/or investment securities. Also in 2021 MGIC distributed to the holding company, as a dividend, its investment in MGIC Credit Assurance Corporation at an amount of $8.9 million. In 2020, MGIC distributed to the holding company, as a dividend, its ownership in the 9% Debentures held at an amortized cost of $139.5 million.
Surplus contributions and dividends of insurance subsidiaries
Table14.2      
  Years Ended December 31,
(In thousands) 2019 2018 2017
Dividends paid by MGIC to the parent company $280,000
 220,000
 140,000


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

At December 31, 2019,2021, MGIC’s risk-to-capital ratio was 9.79.5 to 1,, below the maximum allowed by the jurisdictions with State Capital Requirements and its policyholder position was $3.0$3.4 billion above the required MPP of $1.7$1.9 billion. The calculation of our risk-to-capital ratio and MPP reflect credit for the risk ceded under our QSR Transactions and Home Re Transactions with a group of unaffiliated reinsurers.reinsurance transactions. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded to the reinsurers. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the financial requirements of the PMIERs, MGIC may terminate the reinsurance agreements, without penalty. At this time, we expect MGIC to continue to comply with the current State Capital Requirements; however, you should read the rest of these financial statement footnotes for information about matters that could negatively affect such compliance.


At December 31, 2019,2021, the risk-to-capital ratio of our combined insurance operations (which includes a reinsurance affiliate) was 9.69.5 to 1. In the first quarter of 2020, we received the appropriate approvals for MGIC to
pay our holding company a special dividend of $320 million. The $320 million special dividend will reduce the statutory policyholder's position of MGIC, which will result in an increase to the risk-to-capital.1.
The NAIC has previously announced plans to revise the minimum capital and surplus requirements for mortgage insurersState Capital Requirements that are provided for in its Mortgage Guaranty Insurance Model Act. In December 2019, a working group of state regulators released an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements and
certain items have not yet been completely addressed by the framework, including the treatment of ceded risk and minimum capital floors. Currently we believe that the PMIERs contain more restrictive capital requirements than the draft Mortgage Guaranty Insurance Model Act in most circumstances.

While MGIC currently meets the State Capital Requirements of Wisconsin and all other jurisdictions, it could be prevented from writing new business in the future in all jurisdictions if it fails to meet the State Capital Requirements of Wisconsin, or it could be prevented from writing new business in a particular jurisdiction if it fails to meet the State Capital Requirements of that jurisdiction and in each case MGIC does not obtain a waiver of such requirements. It is possible that regulatory action by one or more jurisdictions, including those that do not have specific State Capital Requirements, may prevent MGIC from continuing to write new insurance in such jurisdictions. If we are unable to write business in all jurisdictions, lenders may be unwilling to procure insurance from us anywhere. In addition, a lender’s assessment of the future ability of our insurance operations to meet the State Capital Requirements or the PMIERs may affect its willingness to procure insurance from us. A possible future failure by MGIC to meet the State Capital Requirements or the PMIERs will not necessarily mean that MGIC lacks sufficient resources to pay claims on its insurance liabilities. While we believe MGIC has sufficient claims paying resources to meet its claim obligations on its IIF on a timely basis, you should read the rest of these financial statement footnotes for information about matters that could negatively affect MGIC’s claims paying resources.

DIVIDEND RESTRICTIONS
In 2019, MGIC paid a total of $280 million in dividends to our holding company. We received the appropriate approvals for MGIC to pay our holding company, in the first quarter of 2020, a special dividend of $320 million and a quarterly dividend of $70 million. We expect MGIC to continue to pay dividends of at least $280 million per year.



MGIC Investment Corporation 2019 Form 10-K | 127
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


MGIC is subject to statutory regulations as to payment of dividends. The maximum amount of dividends that MGIC may pay in any twelve-month period without regulatory approval by the OCI is the lesser of adjusted statutory net income or 10% of statutory policyholders' surplus as of the preceding calendar year end. Adjusted statutory net income is defined for this purpose to be the greater of statutory net income, net of realized investment gains, for the calendar year preceding the date of the dividend or statutory net income, net of realized investment gains, for the three calendar years preceding the date of the dividend less dividends paid within the first two of the preceding three calendar years. The maximum dividend that could be paid is reduced by dividends paid in the twelve months preceding the dividend payment date. Before making any dividend payments in 2020,2022, we will notify the OCI to ensure it does not object.

The OCI recognizes only statutory accounting principles prescribed, or practices permitted, by the State of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company. The OCI has adopted certain prescribed accounting practices that differ from those found in other states. Specifically, Wisconsin domiciled companies record changes in the contingency loss reserves through the income statement as a change in underwriting deduction. As a result, in periods in which MGIC is increasing contingency loss reserves, statutory net income is reduced. For the year ended December 31, 2019,2021, MGIC’s increase in contingency loss reserves was $556$534 million and statutory net income was $273$290 million. As of December 31, 2019,2021, MGIC's statutory policyholders' surplus was $1,619$1,217 million.


MGIC Investment Corporation 2021 Form 10-K | 121
MGIC Investment Corporation and Subsidiaries


NOTE 15Share-based Compensation Plans
We have certain share-based compensation plans. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period which generally corresponds to the vesting period. Awards under our plans generally vest over periods ranging from one to three years.years, although awards to our non-employee directors vest immediately.

We have an omnibus incentive plan that was adopted on April 23, 2015.2020. When the 2020 plan was adopted, no further awards could be made under our previous 2015 plan. The purpose of the 20152020 plan is to motivate and incentiveincentivize performance by, and to retain the services of, key employees and non-employee directors through receipt of equity-based and other incentive awards under the plan. The maximum number of shares of stock that can be awarded under the 2015 plan is 10.0 million. Awards issued under the plan that are subsequently forfeited will not count against the limit on the maximum number of shares that may be issued under the plan. The 20152020 plan provides for the award of stock options, stock appreciation rights, restricted stock and restricted stock units, as well as cash incentive awards. No awards may be granted after April 23, 20252030 under the 20152020 plan. The vesting provisions of options, restricted stock and restricted stock units are determined at the time of grant. At December 31, 2019,
3.42021, 8.8 million shares were available for future grant under the 20152020 plan.

The compensation cost that has been charged against income for share-based plans was $18.9$17.1 million, $20.9$13.8 million, and $14.9$18.9 million for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively. The related income tax benefit recognized for share-based plans was $2.7$1.8 million, $3.0$1.7 million, and $5.2$2.7 million for the years ended December 31, 2021, 2020, and 2019, 2018, and 2017, respectively.

Table 15.1 summarizes restricted stock or restricted stock unit (collectively called “restricted stock”) activity during 2019.2021.
Restricted stock
Table15.1
 Weighted Average Grant Date Fair Market ValueShares
Restricted stock outstanding at December 31, 2020$13.57 4,139,243 
Granted (1)
12.83 1,370,542 
Vested14.97 (1,330,129)
Forfeited13.87 (33,568)
Restricted stock outstanding at December 31, 2021$12.88 4,146,088 
(1)Approximately 71% of the shares granted in 2021 are subject to performance conditions under which the target number of shares granted may vest up to 200%.
Restricted stock
Table15.1   
 Weighted Average Grant Date Fair Market Value Shares
Restricted stock outstanding at December 31, 2018$12.27
 3,583,506
Granted11.92
 2,002,500
Vested9.37
 (1,067,890)
Forfeited13.67
 (367,722)
Restricted stock outstanding at December 31, 2019$12.81
 4,150,394


At December 31, 2019,2021, the 4.24.1 million shares of restricted stock outstanding consisted of 3.23.1 million shares that are subject to performance conditions (“performance shares”) and 1.0 million shares that are subject only to service conditions (“time vested shares”). The weighted-average grant date fair value of restricted stock granted during 20182020 and 20172019 was $15.69$13.62 and $10.41,$11.92, respectively. The fair value of restricted stock granted is the closing price of the common stock on the New York Stock Exchange on the date of grant or previous trading day if the Exchange is closed on the date of grant. The total fair value of restricted stock vested during 2021, 2020 and 2019 2018was $15.1 million, $20.4 million, and 2017 was $13.7 million, $19.1 million, and $15.3 million, respectively.

As of December 31, 2019,2021, there was $30.7$38.1 million of total unrecognized compensation cost related to non-vested share-based compensation agreements granted under the plans. Of this total, $20.2$32.6 million of unrecognized compensation costs relate to performance shares and $10.5$5.5 million relates to time vested shares. A portion of the unrecognized costs associated with the performance shares may or may not be recognized in future periods, depending upon whether or not the performance and service conditions are met. The cost associated with the time vested shares is expected to be recognized over a weighted-average period of 1.81.7 years.


MGIC Investment Corporation 2019 Form 10-K | 128
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents




NOTE 16Leases
We lease certain office space as well as data processing equipment and autos under operating leases that expire during the next four years. Generally, rental payments are fixed.

Table 16.1 shows minimum the future operating lease payments as of December 31, 2019.2021.
Minimum future operating lease payments
Table16.1
(In thousands)Amount
2022$771 
2023416 
2024211 
202545 
2026 and thereafter— 
Total$1,443 
Minimum future operating lease payments
Table16.1  
(In thousands) Amount
2020 $1,204
2021 588
2022 380
2023 83
2024 and thereafter —
Total $2,255


Table 16.2 shows minimum the future operating lease payments as of December 31, 2018.
Minimum future operating lease payments
Table16.2  
(In thousands) Amount
2019 $1,406
2020 1,069
2021 371
2022 161
2023 and thereafter —
Total $3,007


Total lease expense under operating leases was $1.3 million in 2021, $1.9 million in 2020, and $2.1 million in 2019, $1.9 million in 2018,2019.


MGIC Investment Corporation 2021 Form 10-K | 122
MGIC Investment Corporation and $2.0 million in 2017.Subsidiaries


NOTE 17Litigation 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. We referloan (both referred to insurance rescissions and denials of claims collectively as “rescissions” and variations of that term.). In addition, our insurance policies generally provide that we can reduce or deny a claim if the servicer did not comply with its obligations under our insurance policy. We call suchpolicy (such reduction of claims “curtailments.”referred to as a "curtailment"). In recent quarters,years, an immaterial percentage of claims received in a quarter have been resolved by rescissions. In 20192021 and 2018 ,2020, curtailments
reduced our average claim paid by approximately 5.0%4.4% and 5.8%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. Our loss reserving methodology incorporates our estimates of future rescissions, curtailments, and reversals of rescissions and curtailments. A variance between ultimate actual rescission, curtailment, and reversal rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses.

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.loss, including recording a probable loss of $6.3 million in 2021. In those cases, until settlement negotiations or legal proceedings are concluded (including the receipt of any necessary GSE approvals), it is reasonably possible that we will record an additional loss. In the fourth quarter of 2019, the agreement for which we had recorded a probable loss of $23.5 million, received necessary GSE approvals. There was no additional loss recognized as a result of entering into the agreement, as the settlement amount was consistent with our original estimate of the probable loss. We are currently involved in discussions and/or proceedings with insureds with respect to our claims paying practices. Although it is reasonably possible that, when all of these matters areif not resolved by negotiation, we will not prevail inon all cases,matters, we are unable to make a reasonable estimate or range of estimates of the potential liability. We estimate the maximum exposure associated with matters where a loss is reasonably possible to be approximately $46 million.$27 million more than the amount of probable loss we have recorded. This estimate of maximum exposure is based uponon 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.

Mortgage insurers, including MGIC, have in the past been involved in litigation and regulatory actions related to alleged violations of the anti-referral fee provisions of the Real Estate Settlement Procedures Act ("RESPA") and the notice provisions of the Fair Credit Reporting Act ("FCRA"). While these proceedings in the aggregate did not result in material liability for MGIC, there can be no assurance that the outcome of future proceedings, if any, under these laws would not have a material adverse


MGIC Investment Corporation 2019 Form 10-K | 129
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


effect on us. To the extent that we are construed to make independent credit decisions in connection with our
contract underwriting activities, we also could be subject to increased regulatory requirements under the Equal Credit Opportunity Act (“EOCA”), FCRA, and other laws. Under ECOA,relevant laws, examination may also be made of whether a mortgage insurer’s underwriting decisions have a disparate impact on persons belonging to a protected class in violation of the law.

Through a non-insurance subsidiary, we utilize our underwriting skills to provide an outsourced underwriting service to our customers known as contract underwriting. As part of the contract underwriting activities, that subsidiary is responsible for the quality of the underwriting decisions in accordance with the terms of the contract underwriting agreements with customers. That subsidiary may be required to provide certain remedies to its customers if certain standards relating to the quality of our underwriting work are not met, and we have an established reserve for such future obligations. Claims for remedies may be made a number of years after the underwriting work was performed. The related contract underwriting remedy expense for each of the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, was immaterial to our consolidated financial statements.

In addition to the matters described above, we are involved in other 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 consolidated results of operations.





MGIC Investment Corporation 20192021 Form 10-K | 130123
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


NOTE 18Unaudited Quarterly Financial Data
Unaudited quarterly financial data - current year:
Table:18.1a          
2019: Quarter Full
(In thousands, except per share data) First Second Third Fourth Year
Net premiums earned $249,762
 $247,102
 $267,857
 $266,267
 $1,030,988
Investment income, net of expenses 40,585
 42,423
 42,715
 41,322
 167,045
Realized (losses) gains (526) 307
 4,205
 1,320
 5,306
Other revenue 1,830
 2,485
 3,606
 2,717
 10,638
Loss incurred, net 39,064
 21,836
 33,985
 23,690
 118,575
Underwriting and other expenses, net 61,650
 59,270
 61,278
 65,227
 247,425
Provision for income tax 38,996
 43,433
 46,186
 45,599
 174,214
Net income 151,941
 167,778
 176,934
 177,110
 673,763
Income per share (a) (b):
  
  
  
  
  
Basic 0.43
 0.47
 0.50
 0.51
 1.91
Diluted 0.42
 0.46
 0.49
 0.49
 1.85
Unaudited quarterly financial statements - prior year:
Table:18.1b          
2018: Quarter Full
(In thousands, except per share data) First Second Third Fourth Year
Net premiums earned $232,107
 $246,964
 $250,426
 $245,665
 $975,162
Investment income, net of expenses 32,121
 34,502
 36,380
 38,328
 141,331
Realized gains (losses) (329) (1,897) 1,114
 (241) (1,353)
Other revenue 1,871
 2,431
 2,525
 1,881
 8,708
Loss incurred, net 23,850
 (13,455) (1,518) 27,685
 36,562
Underwriting and other expenses, net 61,895
 57,933
 60,069
 63,239
 243,136
Provision for income tax 36,388
 50,708
 49,994
 36,963
 174,053
Net income 143,637
 186,814
 181,900
 157,746
 670,097
Income per share (a) (b):
  
  
  
  
  
Basic 0.39
 0.51
 0.50
 0.44
 1.83
Diluted 0.38
 0.49
 0.49
 0.43
 1.78
(a)
Due to the use of weighted average shares outstanding when calculating earnings per share, the sum of the quarterly per share data may not equal the per share data for the year.
(b)
In periods where convertible debt instruments are dilutive to earnings per share the “if-converted” method of computing diluted EPS requires an interest expense adjustment, net of tax, to net income available to shareholders. See Note 4 – “Earnings Per Share” for further discussion on our calculation of diluted EPS.


MGIC Investment Corporation 2019 Form 10-K | 131
mtg-20211231_g3.jpg

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
MGIC Investment Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of MGIC Investment Corporation and its subsidiaries (the “Company”) as of December 31, 20192021 and 2018,2020, and the related consolidated statements of operations, of comprehensive income, of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2019,2021, including the related notes and financial statement schedules listed in the index appearing under Item 15(a)(2)2 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report Onon Internal Control Overover Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our

especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of loss reservesLoss Reserves – Primary Case Reserves

As described in Notes 3 and 8 to the consolidated financial statements, the Company establishes case reserves to recognize thefor estimated liability forinsurance losses related to reported defaultswhen notices of delinquency on insured mortgage loans.loans are received. As of December 31, 2019,2021, the Company’s recorded loss reserves were $555$884 million. A significant portion of total loss reserves relate to primary case reserves established for the Company’s primary insurance business. Case reserves are established by estimating the


number of loans in the delinquency inventory of delinquent loans that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity. OurThe Company’s case reserve estimates are primarily established based upon historical experience, including rescissions of policies, curtailments of claims, and loan modification activity. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment and the current and future strength of local housing markets; exposure on insured loans; the amount of time between defaultdelinquency and claim filing; and curtailments and rescissions.

The principal considerations for our determination that performing procedures relating to the valuation of loss reserves – primary case reserves is a critical audit matter are (i) there wasthe significant judgment by management when developing theirthe estimate which in turn led toof the primary case reserves; (ii) a high degree of auditor judgment, subjectivity, and subjectivityeffort in performing procedures relating to loss reserves; (ii) there was significant auditor effort and judgment in evaluating the audit evidence relating to the significant assumptions, including the claim rate and claim severity;severity significant assumptions; and (iii) the audit effort includedinvolved the involvementuse of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.knowledge.









Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of loss reserves, including controls over the development of significant assumptions includingrelated to the claim rate and claim severity. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in developing an independent estimate of lossthe primary case reserves using historical experience and comparing this independent estimate to management’s recorded lossprimary case reserves to evaluate the reasonableness of the recorded lossprimary case reserves. Developing the independent estimate involved testing the completeness accuracy, and relevanceaccuracy of data provided by management and independently developing assumptions includingrelated to the claim rate and claim severity.



/s/ PricewaterhouseCoopers LLP

Milwaukee, Wisconsin
February 21, 2020

23, 2022

We have served as the Company’s auditor since 1985.



MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

Item 9A. Controls and Procedures
MANAGEMENT'S CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this annual report. Based on such evaluation, our principal executive officer and principal financial officer concluded that such controls and procedures were effective as of the end of such period.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, however, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our internal control over financial reporting using the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.2021.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the consolidated financial statements and effectiveness of internal control over financial reporting as of December 31, 2019,2021, as stated in their report which appears herein.

CHANGES IN INTERNAL CONTROL DURING THE FOURTH QUARTER
As of October 1, 2019, we implemented a new financial management system, by transitioning certain of our operations, including the general ledger, to the new system. We have modified our existing controls infrastructure, as well as added other processes and internal controls, to adapt to our new financial management system. There are no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 20192021 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information
None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.


MGIC Investment Corporation 20192021 Form 10-K | 134126
MGIC Investment Corporation and Subsidiaries

Table of Contents
 | Glossary of terms and acronyms


PART III

Item 10. Directors, Executive Officers and Corporate Governance
This information (other than on the executive officers) will be included in our Proxy Statement for the 20202022 Annual Meeting of Shareholders, and is hereby incorporated by reference, provided such Proxy Statement is filed within 120 days after December 31, 2019.2021. If not so filed, such information will be included in an amended Form 10-K filed within such 120 day period. The information on the executive officers appears at the end of Part I of this Form 10-K.

Our Code of Business Conduct is available on our website (http://mtg.mgic.com) under the “Leadership & Governance; Documents” links. Written copies of our Code of Business Conduct are available to any shareholder who submits a written request to our Secretary, addressed to: MGIC Investment Corporation, Secretary, P.O. Box 488, Milwaukee, WI 53201. We intend to disclose on our website any waivers and amendments to our Code of Business Conduct that are required to be disclosed under Item 5.05 of Form 8-K.

Item 11. Executive Compensation
This information will be included in our Proxy Statement for the 20202022 Annual Meeting of Shareholders and is hereby incorporated by reference, provided such Proxy Statement is filed within 120 days after December 31, 2019.2021. If not so filed, such information will be included in an amended Form 10-K filed within such 120 day period.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
This information, other than information regarding equity compensation plans required by Item 201(d) of Regulation S-K of the Securities and Exchange Commission which appears below, will be included in our Proxy Statement for the 20202022 Annual Meeting of Shareholders, and is hereby incorporated by reference, provided such Proxy Statement is filed within 120 days after December 31, 2019.2021. If not so filed, such
information will be included in an amended Form 10-K filed within such 120 day period.

The table below sets forth certain information, as of December 31, 2019,2021, about the number of securities remaining available for future issuance under our equity compensation plans. No options, warrants or rights were outstanding at that date under any compensation plan or individual compensation arrangement with us. We have no compensation plan under which our equity securities may be issued that has not been approved by shareholders. Share units or phantom shares, which have no voting power and can be settled only in cash, are not considered to be equity securities for this purpose.
Equity compensation plans approved by security holders
(a)
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1)
4,141,6614,141,038 
(b)Weighted Average Exercise Price of Outstanding Options, Warrants and Rights—
(c)
Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Row (a)) (2)
3,439,8368,763,271 

(1)
Includes 4,115,792 restricted stock units (RSUs) granted under our 2015 Omnibus Incentive Plan (the “2015 Plan”) for which shares will be issued if certain criteria are met. Of the RSUs granted under the 2015 Plan, 3,143,457 are subject to performance conditions and the remaining RSUs are subject to service conditions. Also includes 25,869 vested RSUs granted under our 2002 Stock Incentive Plan for which shares will be issued in the future.

(2)
Reflects shares available for granting.  All of these shares are available under our 2015 Plan.

(1)Includes 2,772,328 restricted stock units (RSUs) granted under our 2015 Omnibus Incentive Plan (the “2015 Plan”) for which shares will be issued if certain criteria are met. Of the RSUs granted under the 2015 Plan, 2,212,634 are subject to performance conditions and the remaining RSUs are subject to service conditions. Also includes 1,368,710 RSUs granted under our 2020 Omnibus Incentive Plan for which shares will be issued in the future, provided the service conditions are met. Of the RSUs granted under the 2020 Plan, 961,420 are subject to performance conditions and the remaining RSUs are subject to service conditions.
(2)Reflects shares available for granting. All of these shares are available under our 2020 Plan.


Item 13. Certain Relationships and Related Transactions, and Director Independence
To the extent applicable, this information will be included in our Proxy Statement for the 20202022 Annual Meeting of Shareholders, and is hereby incorporated by reference, provided such Proxy Statement is filed within 120 days after December 31, 2019.2021. If not so filed, such information will be included in an amended Form 10-K filed within such 120 day period.



MGIC Investment Corporation 20192021 Form 10-K | 135127




Item 14. Principal Accountant Fees and Services
This information will be included in our Proxy Statement for the 20202022 Annual Meeting of Shareholders, and is hereby incorporated by reference, provided such Proxy Statement is filed within 120 days after December 31, 2019.2021. If not so filed, such information will be included in an amended Form 10-K filed within such 120 day period.


MGIC Investment Corporation 20192021 Form 10-K | 136128
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms


PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)
1.1Financial statements. The following financial statements are filed in Item 8 of this annual report:
Consolidated balance sheets at December 31, 20192021 and 20182020
Consolidated statements of operations for each of the three years in the period ended December 31, 20192021
Consolidated statements of comprehensive income for each of the three years in the period ended December 31, 20192021
Consolidated statements of shareholders’ equity for each of the three years in the period ended December 31, 20192021
Consolidated statements of cash flows for each of the three years in the period ended December 31, 20192021
Notes to consolidated financial statements
Report of independent registered public accounting firm

2.2Financial statement schedules. The following financial statement schedules are filed as part of this Form 10-K and appear immediately following the signature page:
Page
Page
Schedule I - Summary of investments, other than investments in related parties at December 31, 20192021
142134
Schedule II - Condensed financial information of Registrant
Condensed balance sheets at December 31, 20192021 and 20182020
143135
Condensed statements of operations for each of the three years in the period ended December 31, 20192021
144136
Condensed statements of cash flows for each of the three years in the period ended December 31, 20192021
145137
Supplementary notes to parent company financial statements
146138
Schedule IV – Reinsurance for each of the three years in the period ended December 31, 20192021
147139
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto.
3.3Exhibits. The accompanying Index to Exhibits is incorporated by reference in answer to this portion of this Item and, except as otherwise indicated in the next sentence, the Exhibits listed in such Index are filed as part of this Form 10-K. Exhibit 32 is not filed as part of this Form 10-K but accompanies this Form 10-K.


MGIC Investment Corporation 20192021 Form 10-K | 137129


INDEX TO EXHIBITS

The agreements included as exhibits to this report are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or any of its subsidiaries or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

•should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements provide to be inaccurate;
•have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
•may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
•were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company and its subsidiaries may be found elsewhere in this report and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov or on the Company's website. See Item 1 “Business – Website Address.”
    Incorporated by Reference
Exhibit
Number
 Description of Exhibit 
 
Form
 
 
Exhibit(s)
 
 
Filing Date
3.1 
Articles of Incorporation, as amended.
 10-Q 3.1 August 8, 2013
3.2 
Amended and Restated Bylaws, as amended. 
 8-K 3.2 July 28, 2017
4.1 
Articles of Incorporation (included within Exhibit 3.1).
 10-Q 3.1 August 8, 2013
4.2 
Amended and Restated Bylaws (included as Exhibit 3.2).
 8-K 3.2 July 28, 2017
4.3
 Description of Registrant's Securities †      
4.4 
Indenture, dated as of October 15, 2000, between the MGIC Investment Corporation and Bank One Trust Company, National Association, as Trustee. [File 001-10816]
 8-K 4.1 October 19, 2000
4.6 
Indenture, dated as of March 28, 2008, between U.S. Bank National Association, as trustee, and MGIC Investment Corporation. [File 001‑10816]
 10-Q 4.6 May 12, 2008
4.8 
Third Supplemental Indenture, dated as of August 5, 2016, between MGIC Investment Corporation and U.S. Bank National Association (as successor to Bank One Trust Company, National Association), as Trustee, under the Indenture, dated as of October 15, 2000, between the Company and the Trustee.
 8-K 4.1 August 5, 2016
4.9 
Amended and Restated Rights Agreement, dated as of April 26, 2018, between MGIC Investment Corporation and American Stock Transfer & Trust Company, LLC (as successor to Equiniti Trust Company), which includes as Exhibit A thereto the Form of Right Certificate, as Exhibit B thereto the Summary of Rights to Purchase Common Shares, and as Exhibit C thereto the Form of Representation and Request Letter.
 8-A12B/A 4.1 April 27, 2018
  [We are a party to various other agreements with respect to our long-term debt. These agreements are not being filed pursuant to Reg. S-K Item 601(b) (4) (iii) (A). We hereby agree to furnish a copy of such agreements to the Commission upon its request.]      
10.2.4 
Form of Restricted Stock and Restricted Stock Unit Agreement (for Directors) under 2002 Stock Incentive Plan. [File 001‑10816] *
 10-K 10.2.4 March 16, 2005
10.2.5 
Form of Incorporated Terms to Restricted Stock and Restricted Stock Unit Agreement (for Directors) under 2002 Stock Incentive Plan. [File 001‑10816] *
 10-K 10.2.5 March 16, 2005
10.2.18 
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2017). *
 10-K 10.2.18 February 23, 2018
10.2.19 
Form of Incorporated Terms to Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2017). *
 10-K 10.2.19 February 23, 2018

  Incorporated by Reference
Exhibit
Number
Description of Exhibit
 
Form
 
Exhibit(s)
 
Filing Date
3.1
Articles of Incorporation, as amended.
10-Q3.1August 8, 2013
3.2
Amended and Restated Bylaws, as amended. 
8-K3.2May 3, 2021
4.1
Articles of Incorporation (included within Exhibit 3.1).
10-Q3.1August 8, 2013
4.2
Amended and Restated Bylaws (included as Exhibit 3.2).
8-K3.2May 3, 2021
Description of Registrant's Securities †
4.4
Indenture, dated as of October 15, 2000, between MGIC Investment Corporation and U.S. Bank National Association (as successor to Bank One Trust Company, National Association), as Trustee [File 001-10816]
8-K4.1October 19, 2000
4.6
Indenture, dated as of March 28, 2008, between U.S. Bank National Association, as trustee, and MGIC Investment Corporation. [File 001‑10816]
10-Q4.6May 12, 2008
4.8
Third Supplemental Indenture, dated as of August 5, 2016, between MGIC Investment Corporation and U.S. Bank National Association, as Trustee, under the Indenture dated as of October 15, 2000, between the Company and the Trustee.
8-K4.1August 5, 2016
4.1
Fourth Supplemental Indenture, dated as of August 12, 2020, between MGIC Investment Corporation and U.S. Bank National Association, as Trustee, under the Indenture dated as of October 15, 2020, between the Company and the Trustee.
8-K4.10August 12, 2020
 [We are a party to various other agreements with respect to our long-term debt. These agreements are not being filed pursuant to Reg. S-K Item 601(b) (4) (iii) (A). We hereby agree to furnish a copy of such agreements to the Commission upon its request.]   
10.2.4
Form of Restricted Stock and Restricted Stock Unit Agreement (for Directors) under 2002 Stock Incentive Plan. [File 001‑10816] *
10-K10.2.4March 16, 2005
10.2.5
Form of Incorporated Terms to Restricted Stock and Restricted Stock Unit Agreement (for Directors) under 2002 Stock Incentive Plan. [File 001‑10816] *
10-K10.2.5March 16, 2005
10.2.22
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2019).*
10-K10.2.22February 24, 2020
10.2.23
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted July 2019).*
10-K10.2.23February 24, 2020
10.2.24
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2020) *
10-K10.2.24February 23, 2021
10.2.25
Form of Restricted Stock Unit Agreement under 2020 Omnibus Incentive Plan (Adopted March 2021, as amended May 2021) *
10-Q10.2.25May 5, 2021
10.2.26
Form of Restricted Stock Unit Agreement under 2020 Omnibus Incentive Plan (Adopted February 2022) * †
10.3.1
MGIC Investment Corporation 2002 Stock Incentive Plan, as amended. *
10-K10.3.1March 1, 2011
10.3.3
MGIC Investment Corporation 2015 Omnibus Incentive Plan *
DEF 14AApp. AMarch 24, 2015
10.3.4
MGIC Investment Corporation 2020 Omnibus Incentive Plan *
DEF 14AApp. CMarch 20, 2020
10.6
Executive Bonus Plan * †

MGIC Investment Corporation 20192021 Form 10-K | 138130

    Incorporated by Reference
Exhibit
Number
 Description of Exhibit 
 
Form
 
 
Exhibit(s)
 
 
Filing Date
10.2.20 
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2018).*
 10-K 10.2.20 February 22, 2019
10.2.21 
Form of Incorporated Terms to Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2018).*
 10-K 10.2.21 February 22, 2019
10.2.22
 
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2019).* †
      
10.2.23
 
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted July 2019).* †
      
10.3 
MGIC Investment Corporation 1991 Stock Incentive Plan. [File 001‑10816] *
 10-K 10.7 March 29, 2000
10.3.1 
MGIC Investment Corporation 2002 Stock Incentive Plan, as amended. *
 10-K 10.3.1 March 1, 2011
10.3.3 
MGIC Investment Corporation 2015 Omnibus Incentive Plan *
 DEF 14A App. A March 24, 2015
10.5 
Two Forms of Restricted Stock Award Agreement under 1991 Stock Incentive Plan. [File 001‑10816] *
 10-K 10.10 March 29, 2000
10.6
 
Executive Bonus Plan. * †
      
10.7 
Supplemental Executive Retirement Plan. *
 8-K 10.7 January 29, 2014
10.8 
MGIC Investment Corporation Deferred Compensation Plan for Non-Employee Directors, as amended.*
 10-K 10.8 February 27, 2015
10.9 MGIC Investment Corporation 1993 Restricted Stock Plan for Non-Employee Directors. [File 001‑10816] * 10-K 10.24 March 25, 1994
10.10 Two Forms of Award Agreement under MGIC Investment Corporation 1993 Restricted Stock Plan for Non-Employee Directors.* 10-Q 10.27 and 10.28 August 12, 1994
10.11.1 
Form of Key Executive Employment and Severance Agreement. *
 10-K 10.11.1 February 27, 2015
10.11.2 
Form of Incorporated Terms to Key Executive Employment and Severance Agreement. *
 10-K 10.11.2 February 27, 2015
10.11.3 
Form of Key Executive Employment and Severance Agreement (Adopted July 2018) *
 10-K 10.11.3 February 22, 2019
10.11.4 
Form of Incorporated Terms to Key Executive Employment and Severance Agreement (Adopted July 2018). *
 10-K 10.11.4 February 22, 2019
10.12
 
Form of Agreement Not to Compete. * †
      
10.18 
Separation Agreement between Stephen Mackey and Mortgage Guaranty Insurance Corporation dated as of May 14, 2019 *
 10-Q 10.18 August 5, 2019
21
 
Direct and Indirect Subsidiaries. †
      
23
 
Consent of Independent Registered Public Accounting Firm.  †
      
31.1
 
Certification of CEO under Section 302 of the Sarbanes-Oxley Act of 2002.  †
      
31.2
 
Certification of CFO under Section 302 of the Sarbanes-Oxley Act of 2002.  †
      
32
 
Certification of CEO and CFO under Section 906 of the Sarbanes-Oxley Act of 2002 (as indicated in Item 15 of this Annual Report on Form 10-K, this Exhibit is not being “filed”).  ††
      
99.1 
Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy and Declaration Page, Restated to Include Selected Endorsements.
 10-K 99.1 March 2, 2009
99.2 
Endorsement to Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy Applicable to Lenders with Delegated Underwriting Authority.
 10-K 99.2 March 2, 2009
99.7 
Specimen Gold Cert Endorsement
 10-Q 99.7 May 10, 2012
99.19 
Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy for loans with a mortgage insurance application date on or after October 1, 2014
 10-Q 99.19 November 7, 2014
99.25 
Endorsement to Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy Applicable to Lenders with Delegated Underwriting Authority, for loans with a mortgage insurance application date on or after October 1, 2014
 10-Q 99.3 May 7, 2015


MGIC Investment Corporation 2019 Form 10-K | 139

    Incorporated by Reference
Exhibit
Number
 Description of Exhibit 
 
Form
 
 
Exhibit(s)
 
 
Filing Date
99.26 
Advances, Collateral Pledge, and Security Agreement dated as of July 21, 2015 between the Federal Home Loan Bank of Chicago and Mortgage Guaranty Insurance Corporation.
 10-K 10.2.15 February 26, 2016
99.27 
Credit Agreement dated as of March 21, 2017 among MGIC Investment Corporation, as Borrower; U.S. Bank National Association, as Administrative Agent; and the lenders party thereto
 10-Q 99.27 May 5, 2017
101.INS XBRL Instance Document      
101.SCH XBRL Taxonomy Extension Schema Document      
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document      
101.DEF XBRL Taxonomy Extension Definition Linkbase Document      
101.LAB XBRL Taxonomy Extension Label Linkbase Document      
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document      
104 
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

      
  Incorporated by Reference
Exhibit
Number
Description of Exhibit
 
Form
 
Exhibit(s)
 
Filing Date
10.7
Supplemental Executive Retirement Plan. *
8-K10.7January 29, 2014
10.8
MGIC Investment Corporation Deferred Compensation Plan for Non-Employee Directors, as amended.* †
10.11.5
Form of Amended and Restated Key Executive Employment and Severance Agreement (Adopted May 2021) *
10-Q10.11.5May 5, 2021
Form of Agreement Not to Compete. * †
Direct and Indirect Subsidiaries. †
   
Consent of Independent Registered Public Accounting Firm.  †
   
Certification of CEO under Section 302 of the Sarbanes-Oxley Act of 2002.  †
   
Certification of CFO under Section 302 of the Sarbanes-Oxley Act of 2002.  †
   
Certification of CEO and CFO under Section 906 of the Sarbanes-Oxley Act of 2002 (as indicated in Item 15 of this Annual Report on Form 10-K, this Exhibit is not being “filed”).  ††
   
99.1
Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy and Declaration Page, Restated to Include Selected Endorsements.
10-K99.1March 2, 2009
99.2
Endorsement to Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy Applicable to Lenders with Delegated Underwriting Authority.
10-K99.2March 2, 2009
99.7
Specimen Gold Cert Endorsement
10-Q99.7May 10, 2012
99.19
Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy for loans with a mortgage insurance application date on or after October 1, 2014
10-Q99.19November 7, 2014
99.25
Endorsement to Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy Applicable to Lenders with Delegated Underwriting Authority, for loans with a mortgage insurance application date on or after October 1, 2014
10-Q99.25May 7, 2015
99.26
Advances, Collateral Pledge, and Security Agreement dated as of July 21, 2015 between the Federal Home Loan Bank of Chicago and Mortgage Guaranty Insurance Corporation.
10-K10.2.15February 26, 2016
99.27
Credit Agreement dated as of March 21, 2017 among MGIC Investment Corporation, as Borrower; U.S. Bank National Association, as Administrative Agent; and the lenders party thereto
10-Q99.27May 5, 2017
99.28
Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy for loans with a mortgage insurance application date on or after March 1, 2020
10-Q99.28May 7, 2020
99.29
State Variations Endorsement (for other than Maine and Puerto Rico) to Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy for loans with a mortgage insurance application date on or after March 1, 2020
10-Q99.29May 7, 2020
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*Denotes a management contract or compensatory plan.
**Certain portions of this Exhibit are redacted and covered by a confidential treatment request that has been granted. Omitted portions have been filed separately with the Securities and Exchange Commission.
†Filed herewith.
††Furnished herewith.
 

MGIC Investment Corporation 2021 Form 10-K | 131

Item 16. Form 10-K Summary
Not applicable.



MGIC Investment Corporation 20192021 Form 10-K | 140132


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 21, 2020.23, 2022.

MGIC INVESTMENT CORPORATION
/s/ Timothy J. Mattke
Timothy J. Mattke
Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of the date set forth above by the following persons on behalf of the registrant and in the capacities indicated.
/s/ Timothy J. Mattke

/s/ Jay C. Hartzell
Timothy J. MattkeJay C. Hartzell, Director
Chief Executive Officer and Director
/s/ Timothy A. Holt
/s/ NathanNathaniel H. ColsonTimothy A. Holt, Director
NathanNathaniel H. Colson
Executive Vice President and
Chief Financial Officer/s/ Kenneth M. Jastrow, IIJodeen A. Kozlak
(Principal Financial Officer)Kenneth M. Jastrow, II,Jodeen A. Kozlak, Director
/s/ Julie K. Sperber/s/ Jodeen A. Kozlak
Julie K. SperberJodeen A. Kozlak, Director
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)/s/ Michael E. Lehman
Julie K. SperberMichael E. Lehman, Director
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)/s/ Melissa B. Lora
Melissa B. Lora, Director
/s/ Analisa M. Allen
Analisa M. Allen, Director/s/ Gary A. Poliner
Gary A. Poliner, Director
/s/ Daniel A. Arrigoni
Daniel A. Arrigoni, Director/s/ Melissa B. LoraSheryl L. Sculley
Melissa B. Lora,Sheryl L. Sculley, Director
/s/ Cassandra C. Carr
Cassandra C. Carr, Director/s/ Gary A. Poliner
Gary A. Poliner, Director
/s/ C. Edward Chaplin
C. Edward Chaplin, Director/s/ Sheryl L. SculleyMark M. Zandi
Sheryl L. Sculley,Mark M. Zandi, Director
/s/ Curt S. Culver
Curt S. Culver, Director/s/ Mark M. Zandi
Mark M. Zandi, Director


MGIC Investment Corporation 20192021 Form 10-K | 141133


MGIC INVESTMENT CORPORATION

SCHEDULE I — Summary of investments - Other than investments in related parties - December 31, 2019

(In thousands)

Type of Investment
 Amortized Cost Fair Value Amount at which shown in the balance sheet
Fixed income:      
Bonds:      
United States Government and government agencies and authorities $195,176
 $196,203
 $196,203
States, municipalities and political subdivisions 1,555,394
 1,653,865
 1,653,865
Public utilities 270,675
 278,991
 278,991
Asset-backed securities 227,376
 229,664
 229,664
Collateralized loan obligations 327,076
 325,466
 325,466
Mortgage-backed 545,618
 547,572
 547,572
All other corporate bonds 2,441,235
 2,506,131
 2,506,131
Total fixed income 5,562,550
 5,737,892
 5,737,892
       
Equity securities:  
  
  
Common stocks:  
  
  
Industrial, miscellaneous and all other 17,188
 17,328
 17,328
Total equity securities 17,188
 17,328
 17,328
       
Total investments $5,579,738
 $5,755,220
 $5,755,220


SCHEDULE I — Summary of investments - Other than investments in related parties - December 31, 2021

(In thousands)

Type of Investment
Amortized CostFair ValueAmount at which shown in the balance sheet
Fixed income:
Bonds:
United States government and government agencies and authorities$133,990 $133,407 $133,407 
States, municipalities and political subdivisions2,408,688 2,534,653 2,534,653 
Foreign governments13,749 13,650 13,650 
Public utilities251,110 250,835 250,835 
Asset-backed securities150,888 150,710 150,710 
Collateralized loan obligations360,436 360,939 360,939 
Mortgage-backed625,321 628,240 628,240 
All other corporate bonds2,453,476 2,515,147 2,515,147 
Total fixed income6,397,658 6,587,581 6,587,581 
Equity securities:   
Common stocks:   
Industrial, miscellaneous and all other15,838 16,068 16,068 
Total equity securities15,838 16,068 16,068 
Total investments$6,413,496 $6,603,649 $6,603,649 


MGIC Investment Corporation 20192021 Form 10-K | 142134


MGIC INVESTMENT CORPORATION

SCHEDULE II - Condensed Financial Information of Registrant
Condensed Balance Sheets
Parent Company Only
SCHEDULE II - Condensed Financial Information of Registrant
Condensed Balance Sheets
Parent Company Only
SCHEDULE II - Condensed Financial Information of Registrant
Condensed Balance Sheets
Parent Company Only
 December 31,December 31,
(In thousands) 2019 2018(In thousands)20212020
ASSETS    ASSETS
Fixed income, available-for-sale, at fair value (amortized cost, 2019 – $287,489; 2018 – $203,743) $288,362
 $201,507
Fixed income, available-for-sale, at fair value (amortized cost, 2021 – $550,324 ; 2020 – $773,881)Fixed income, available-for-sale, at fair value (amortized cost, 2021 – $550,324 ; 2020 – $773,881)$538,872 $773,995 
Cash and cash equivalents 36,621
 46,502
Cash and cash equivalents124,164 73,000 
Investment in subsidiaries, at equity in net assets 4,611,356
 3,981,970
Investment in subsidiaries, at equity in net assets4,964,954 4,740,074 
Accounts receivable - affiliates 2,129
 1,396
Accounts receivable - affiliates2,130 1,450 
Income taxes - current and deferred 196,978
 186,561
Income taxes - current and deferred242,427 219,059 
Accrued investment income 2,498
 2,020
Accrued investment income2,642 3,760 
Other assets 81
 740
Total assets $5,138,025
 $4,420,696
Total assets$5,875,189 $5,811,338 
    
LIABILITIES AND SHAREHOLDERS' EQUITY  
  
LIABILITIES AND SHAREHOLDERS' EQUITY  
Liabilities:  
  
Liabilities:  
Senior notes $420,867
 $419,713
Senior notes$881,508 $879,379 
Convertible junior subordinated debentures 389,522
 389,522
Convertible junior subordinated debentures110,204 208,814 
Accrued interest 17,928
 17,930
Accrued interest20,501 23,004 
Other liabilities 474
 11,640
Other liabilities1,594 1,155 
Total liabilities 828,791
 838,805
Total liabilities1,013,807 1,112,352 
    
Shareholders’ equity:  
  
Shareholders’ equity:  
Common stock, (one dollar par value, shares authorized 1,000,000; shares issued 2019 – 371,353; 2018 – 371,353; outstanding 2019 – 347,308; 2018 – 355,371) 371,353
 371,353
Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2021 - 371,353; 2020 - 371,353; shares outstanding 2021 - 320,336; 2020 - 338,573)Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2021 - 371,353; 2020 - 371,353; shares outstanding 2021 - 320,336; 2020 - 338,573)371,353 371,353 
Paid-in capital 1,869,719
 1,862,536
Paid-in capital1,794,906 1,862,042 
Treasury stock (shares at cost 2019 – 24,045; 2018 – 15,982) (283,196) (175,059)
Accumulated other comprehensive income (loss), net of tax 72,708
 (124,214)
Treasury stock at cost (shares 2021 - 51,017; 2020 - 32,779)Treasury stock at cost (shares 2021 - 51,017; 2020 - 32,779)(675,265)(393,326)
Accumulated other comprehensive income, net of taxAccumulated other comprehensive income, net of tax119,697 216,821 
Retained earnings 2,278,650
 1,647,275
Retained earnings3,250,691 2,642,096 
Total shareholders’ equity 4,309,234
 3,581,891
Total shareholders’ equity4,861,382 4,698,986 
Total liabilities and shareholders’ equity $5,138,025
 $4,420,696
Total liabilities and shareholders’ equity$5,875,189 $5,811,338 
See accompanying supplementary notes to Parent Company condensed financial statements.


MGIC Investment Corporation 20192021 Form 10-K | 143135


MGIC INVESTMENT CORPORATION

SCHEDULE II - Condensed Financial Information of Registrant
Condensed Statements of Operations
Parent Company Only
SCHEDULE II - Condensed Financial Information of Registrant
Condensed Statements of Operations
Parent Company Only
SCHEDULE II - Condensed Financial Information of Registrant
Condensed Statements of Operations
Parent Company Only
 Years Ended December 31,Years Ended December 31,
(In thousands) 2019 2018 2017(In thousands)202120202019
Revenues:      Revenues:
Investment income, net of expenses $7,695
 $4,685
 $3,177
Investment income, net of expenses$3,850 $7,090 $7,695 
Net realized investment (losses) gains (311) (532) (13)
Net realized investment gains (losses)Net realized investment gains (losses)490 1,454 (311)
Total revenues 7,384
 4,153
 3,164
Total revenues4,340 8,544 7,384 
      
Expenses:  
  
  
Expenses:  
Operating expenses 793
 637
 642
Operating expenses1,644 719 793 
Interest expense 61,593
 61,930
 65,972
Interest expense68,359 65,472 61,593 
Loss on debt extinguishment —
 —
 65
Loss on debt extinguishment36,914 35,033 — 
Total expenses 62,386
 62,567
 66,679
Total expenses106,917 101,224 62,386 
Loss before tax (55,002) (58,414) (63,515)Loss before tax(102,577)(92,680)(55,002)
(Benefit from) provision for income taxes (12,263) (13,517) 95,517
(Benefit from) provision for income taxes(21,240)(18,431)(12,263)
Equity in net income of subsidiaries 716,502
 714,994
 514,793
Equity in net income of subsidiaries716,320 520,342 716,502 
Net income 673,763
 670,097
 355,761
Net income634,983 446,093 673,763 
Other comprehensive income (loss), net of tax 196,922
 (80,413) 41,739
Other comprehensive income (loss), net of tax(97,124)144,113 196,922 
Comprehensive income $870,685
 $589,684
 $397,500
Comprehensive income$537,859 $590,206 $870,685 
See accompanying supplementary notes to Parent Company condensed financial statements.



MGIC Investment Corporation 20192021 Form 10-K | 144136


MGIC INVESTMENT CORPORATION

SCHEDULE II - Condensed Financial Information of Registrant
Condensed Statements of Cash Flows
Parent Company Only
SCHEDULE II - Condensed Financial Information of Registrant
Condensed Statements of Cash Flows
Parent Company Only
SCHEDULE II - Condensed Financial Information of Registrant
Condensed Statements of Cash Flows
Parent Company Only
 Years Ended December 31,Years Ended December 31,
(In thousands) 2019 2018 2017(In thousands)202120202019
Cash flows from operating activities:      Cash flows from operating activities:
Net income $673,763
 $670,097
 $355,761
Net income$634,983 $446,093 $673,763 
Adjustments to reconcile net income to net cash provided by operating activities:  
  
  
Adjustments to reconcile net income to net cash provided by operating activities:   
Equity in net income of subsidiaries (716,502) (714,994) (514,793)Equity in net income of subsidiaries(716,320)(520,342)(716,502)
Dividends received from subsidiaries 154,413
 199,692
 110,145
Dividends received from subsidiaries400,000 221,024 154,413 
Deferred tax (benefit) expense (10,416) (11,756) 96,741
Deferred tax (benefit) expense(21,551)(18,252)(10,416)
Loss on debt extinguishment —
 —
 65
Loss on debt extinguishment36,914 35,033 — 
Other 21,104
 24,303
 18,716
Other29,799 19,088 21,104 
Change in certain assets and liabilities:  
  
  
Change in certain assets and liabilities:   
Accounts receivable - affiliates (735) 18
 (634)Accounts receivable - affiliates(680)972 (735)
Income taxes receivable 1
 17,859
 297
Income taxes receivable(306)— 1 
Accrued investment income (478) 112
 (192)Accrued investment income1,118 (1,262)(478)
Accrued interest (2) (4) (2,819)Accrued interest(2,503)5,076 (2)
Net cash provided by operating activities 121,148
 185,327
 63,287
Net cash provided by operating activities361,454 187,430 121,148 
Cash flows from investing activities:  
  
  
Cash flows from investing activities:   
Purchases of investments (117,663) (83,003) (97,091)Purchases of investments(339,384)(1,131,060)(117,663)
Proceeds from sales of investments 160,040
 93,481
 176,960
Proceeds from sales of investments556,384 812,188 160,040 
Net cash provided by investing activities 42,377
 10,478
 79,869
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities217,000 (318,872)42,377 
Cash flows from financing activities:  
  
  
Cash flows from financing activities:   
Proceeds from revolving credit facility —
 —
 150,000
Repayment of revolving credit facility —
 —
 (150,000)
Repurchase of convertible senior notes —
 —
 (150,124)
Proceeds from issuance of senior notesProceeds from issuance of senior notes— 640,250 — 
Purchase of senior notesPurchase of senior notes— (179,735)— 
Payment of original issue discount - senior notesPayment of original issue discount - senior notes— (2,969)— 
Purchase of convertible junior subordinated debenturesPurchase of convertible junior subordinated debentures(98,610)(36,392)— 
Payment of original issue discount - convertible junior subordinated debenturesPayment of original issue discount - convertible junior subordinated debentures— (15,049)— 
Cash portion of loss on debt extinguishmentCash portion of loss on debt extinguishment(36,914)(25,266)— 
Repurchase of common stock (125,766) (163,419) —
Repurchase of common stock(290,818)(119,997)(125,766)
Dividends paid (41,914) —
 —
Dividends paid(94,219)(82,061)(41,914)
Payment of debt issuance costs —
 —
 (1,630)Payment of debt issuance costs— (2,020)— 
Payment of withholding taxes related to share-based compensation net share settlement (5,726) (8,131) (6,821)Payment of withholding taxes related to share-based compensation net share settlement(6,729)(8,940)(5,726)
Net cash used in financing activities (173,406) (171,550) (158,575)
Net (decrease) increase in cash and cash equivalents (9,881) 24,255
 (15,419)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities(527,290)167,821 (173,406)
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents51,164 36,379 (9,881)
Cash and cash equivalents at beginning of year 46,502
 22,247
 37,666
Cash and cash equivalents at beginning of year73,000 36,621 46,502 
Cash and cash equivalents at end of year $36,621
 $46,502
 $22,247
Cash and cash equivalents at end of year$124,164 $73,000 $36,621 
See accompanying supplementary notes to Parent Company condensed financial statements.



MGIC Investment Corporation 20192021 Form 10-K | 145137


SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY
SUPPLEMENTARY NOTES


Note A

The accompanying Parent Company financial statements should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements appearing this annual report.

Note B

Our insurance subsidiaries are subject to statutory regulations as to maintenance of policyholders’ surplus and payment of dividends. The maximum amount of dividends that the insurance subsidiaries may pay in any twelve-month period without regulatory approval by the OCI is the lesser of adjusted statutory net income or 10% of statutory policyholders’ surplus as of the preceding calendar year end. Adjusted statutory net income is defined for this purpose to be the greater of statutory net income, net of realized investment gains, for the calendar year preceding the date of the dividend or statutory net income, net of realized investment gains, for the three calendar years preceding the date of the dividend less dividends paid within the first two of the preceding three calendar years. The maximum dividend that could be paid is reduced by dividends paid in the twelve months preceding the dividend payment date.

The payment of dividends from our insurance subsidiaries is the principal source of cash inflow for MGIC Investment Corporation, our holding company, other than investment income and raising capital in the public markets. The payment of dividends by our insurance subsidiaries is restricted by insurance regulation as discussed above. MGIC is the principal source of dividend-paying capacity and paid a total of $280$400 million, $220$390 million and $140$280 million in dividends in cash and fixed income securities to our holding company during 2021, 2020 and 2019, 2018 and 2017, respectively. In January 2020, we received the appropriate approvals for MGIC to pay our holding company, in the first quarter of 2020, a special dividend of $320 million and a quarterly dividend of $70 million. We expect MGIC to continue to pay quarterly dividends totaling at least $280 million per year. NaNNo contributions were made to our insurance subsidiaries in 2019, 20182021, 2020 or 2017.2019.

Note C

The senior notes and convertible junior subordinated debentures ("9% Debentures"), discussed in Note 7 – “Debt” to our consolidated financial statements, are obligations of MGIC Investment Corporation, our holding company, and not of its subsidiaries. MGIC owns $132.7 million in aggregate principal of the 9% Debentures. The 9% Debentures owned by MGIC remain obligations of our holding company. For GAAP accounting purposes, the 9% Debentures owned by MGIC are eliminated in our consolidated financial statements.



MGIC Investment Corporation 20192021 Form 10-K | 146138


MGIC INVESTMENT CORPORATION

SCHEDULE IV — Reinsurance
Mortgage Insurance Premiums Earned
Years Ended December 31, 2021, 2020 and 2019
(Dollars in thousands)Gross AmountCeded to Other CompaniesAssumed From Other CompaniesNet AmountPercentage of Amount Assumed to Net
Years ended December 31,
2021$1,167,592 $163,031 $9,858 $1,014,419 1.0 %
20201,199,824 188,729 10,848 1,021,943 1.1 %
20191,155,240 129,337 5,085 1,030,988 0.5 %
SCHEDULE IV — Reinsurance
Mortgage Insurance Premiums Earned
Years Ended December 31, 2019, 2018 and 2017
           
(Dollars in thousands) Gross Amount Ceded to Other Companies Assumed From Other Companies Net Amount Percentage of Amount Assumed to Net
Years ended December 31,          
2019 $1,155,240
 $129,337
 $5,085
 $1,030,988
 0.5%
2018 1,084,748
 111,391
 1,805
 975,162
 0.2%
2017 1,059,973
 125,735
 509
 934,747
 0.1%




MGIC Investment Corporation 20192021 Form 10-K | 147139