FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	~~June 30, 2019~~March 31, 2020
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ______ to ______
	Commission file number	1-10816

MGIC Investment Corporation

(Exact name of registrant as specified in its charter)



Wisconsin		39-1486475
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

250 E. Kilbourn Avenue		53202
Milwaukee,	Wisconsin	(Zip Code)
(Address of principal executive offices)

(414)		347-6480
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock	MTG	New York Stock Exchange

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

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

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



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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of ~~July 31, 2019,~~May 1, 2020, there were ~~354,154,379~~338,567,022 shares of common stock of the registrant, par value $1.00 per share, outstanding.

Forward Looking and Other Statements

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

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 2

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED ~~JUNE 30, 2019~~MARCH 31, 2020



Table of contents
		Page
PART I — FINANCIAL INFORMATION
Item 1	Financial Statements:
	Consolidated Balance Sheets - ~~June 30, 2019~~March 31, 2020 (Unaudited) and December 31, ~~2018~~2019	7
	Consolidated Statements of Operations (Unaudited) - Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	8
	Consolidated Statements of Comprehensive Income (Unaudited) - Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	9
	Consolidated Statements of Shareholders’ Equity (Unaudited) - Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	10
	Consolidated Statements of Cash Flows (Unaudited) - ~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	11
	Notes to Consolidated Financial Statements (Unaudited)	12
	Note 1 - Nature of Business and Basis of Presentation	12
	Note 2 - Significant Accounting Policies	12
	Note 3 - Debt	14
	Note 4 - Reinsurance	14
	Note 5 - Litigation and Contingencies	1617
	Note 6 - Earnings Per Share	1718
	Note 7 - Investments	18
	Note 8 - Fair Value Measurements	2122
	Note 9 - Other Comprehensive Income	2425
	Note 10 - Benefit Plans	25
	Note 11 - Loss Reserves	26
	Note 12 - Shareholders’ Equity	28
	Note 13 - Share-Based Compensation	2829
	Note 14 - Statutory Information	2829

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	3031
Item 3	Quantitative and Qualitative Disclosures about Market Risk	55
Item 4	Controls and Procedures	55

PART II — OTHER INFORMATION
Item 1	Legal Proceedings	56
Item 1A	Risk Factors	56
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	6166
Item 6	Exhibits	6267
INDEX TO EXHIBITS		6267
SIGNATURES		6368

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 3

Glossary of terms and acronyms

/ A

ARMs

Adjustable rate mortgages

ABS

Asset-backed securities

ASC

Accounting Standards Codification

Available Assets

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

/ B

Book or book year

A group of loans insured in a particular calendar year

BPMI

Borrower-paid mortgage insurance

/ C

CARES Act

The Coronavirus Aid, Relief, and Economic Security Act enacted on March 27, 2020

CECL

Current expected credit losses

CFPB

Consumer Financial Protection Bureau

CLO

Collateralized loan obligations

CMBS

Commercial mortgage-backed securities

COVID-19 Pandemic

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

CRT

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

/ D

DAC

Deferred insurance policy acquisition costs

Debt-to-income (“DTI”) ratio

The ratio, expressed as a percentage, of a borrower’s total debt payments to gross income

Direct

~~When referring to insurance or risk written or in force, “direct”~~Direct means before giving effect to reinsurance

/ E

EPS

Earnings per share

/ F

Fannie Mae

Federal National Mortgage Association

FCRA

Fair Credit Reporting Act

~~FEMA~~

~~Federal Emergency Management Agency~~

FHA

Federal Housing Administration

FHFA

Federal Housing Finance Agency

FHLB

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

FICO score

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

Freddie Mac

Federal Home Loan Mortgage Corporation

/ G

GAAP

Generally Accepted Accounting Principles in the United States

GSEs

Collectively, Fannie Mae and Freddie Mac

/ H

HAMP

Home Affordable Modification Program

HARP

Home Affordable Refinance Program

Home Re Transactions

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

MGIC Investment Corporation - Q1 2020 | 4

HOPA

Homeowners Protection Act

HUD

Housing and Urban Development

/ I

~~IADA~~

~~Individual Assistance Disaster Area~~

IBNR

Losses incurred but not reported

IIF

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

~~MGIC Investment Corporation - Q2 2019 | 4~~

ILN

Insurance-linked notes

/ L

LAE

Loss adjustment expenses

~~Legacy book~~

~~Mortgage insurance policies written prior to 2009~~

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

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

~~MIC~~

~~MGIC Indemnity Corporation, a subsidiary of MGIC~~

Minimum Required Assets

The ~~greater of $400 million or the total of the~~ minimum amount of Available Assets that must be held under the PMIERs which is based ~~upon~~on an insurer’s book of IIF 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 ~~percentage~~floor of ~~RIF weighted by certain risk attributes~~$400 million.

MPP

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

/ N

N/A

Not applicable for the period presented

NAIC

The National Association of Insurance Commissioners

NIW

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

N/M

Data, or calculation, deemed not meaningful for the period presented

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

MGIC Investment Corporation - Q1 2020 | 5

/ O

OCI

Office of the Commissioner of Insurance of the State of Wisconsin

OTTI

Other than temporary impairment

/ P

Persistency

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

PMI

Private Mortgage Insurance (as an industry or product type)

~~MGIC Investment Corporation - Q2 2019 | 5~~

PMIERs

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

Premium Yield

The ratio of NPE 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

/ Q

QSR Transaction

Quota share reinsurance transaction with a group of unaffiliated reinsurers

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

/ R

RESPA

Real Estate Settlement Procedures Act

RIF

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

Risk-to-capital

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

RMBS

Residential mortgage-backed securities

/ S

State Capital Requirements

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

/ T

TILA

Truth in Lending Act

/ U

Underwriting expense ratio

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

Underwriting profit

NPE minus incurred losses and underwriting and operating expenses

USDA

U.S. Department of Agriculture

/ V

U.S. Department of Veterans Affairs

VIE

Variable interest entity

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 6

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

																	MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)									CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands)	(In thousands)	Note	June 30, 2019			December 31, 2018			(In thousands)	Note	March 31, 2020			December 31, 2019
ASSETS	ASSETS		(Unaudited)						ASSETS
Investment portfolio:	Investment portfolio:	7 / 8							Investment portfolio:	7 / 8
Fixed income, available-for-sale, at fair value (amortized cost 2019 - $5,357,436; 2018 - $5,196,784)			$	5,504,823		$	5,151,987
Equity securities, at fair value (cost 2019 - $3,991; 2018 - $3,993)		2 / 7 / 8	4,114			3,932
Fixed income, available-for-sale, at fair value (amortized cost 2020 - $5,375,382; 2019 - $5,562,550)									Fixed income, available-for-sale, at fair value (amortized cost 2020 - $5,375,382; 2019 - $5,562,550)		$	5,458,846		$	5,737,892
Equity securities, at fair value (cost 2020 - $29,559; 2019 - $17,188)									Equity securities, at fair value (cost 2020 - $29,559; 2019 - $17,188)	2 / 7 / 8	28,892			17,328
Other invested assets, at cost	Other invested assets, at cost	2 / 7 / 8	3,100			3,100			Other invested assets, at cost	2 / 7 / 8	3,100			3,100
Total investment portfolio	Total investment portfolio		5,512,037			5,159,019			Total investment portfolio		5,490,838			5,758,320
Cash and cash equivalents	Cash and cash equivalents		218,908			151,892			Cash and cash equivalents		365,303			161,847
Restricted cash and cash equivalents	Restricted cash and cash equivalents		6,275			3,146			Restricted cash and cash equivalents		4,223			7,209
Accrued investment income	Accrued investment income		48,272			48,001			Accrued investment income		46,942			49,705
Reinsurance recoverable on loss reserves	Reinsurance recoverable on loss reserves	4	18,402			33,328			Reinsurance recoverable on loss reserves	2/4	25,756			21,641
Reinsurance recoverable on paid losses	Reinsurance recoverable on paid losses		16,903			2,948			Reinsurance recoverable on paid losses	2	1,691			1,521
Premiums receivable	Premiums receivable		57,492			55,090			Premiums receivable	2	53,440			55,587
Home office and equipment, net	Home office and equipment, net		51,607			51,734			Home office and equipment, net		49,010			50,121
Deferred insurance policy acquisition costs	Deferred insurance policy acquisition costs		17,669			17,888			Deferred insurance policy acquisition costs		19,514			18,531
Deferred income taxes, net	Deferred income taxes, net		20,932			69,184			Deferred income taxes, net		8,867			5,742
Other assets	Other assets		87,040			85,572			Other assets		89,703			99,347
Total assets	Total assets		$	6,055,537		$	5,677,802		Total assets		$	6,155,287		$	6,229,571

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY								LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:	Liabilities:								Liabilities:
Loss reserves	Loss reserves	11	$	621,902		$	674,019		Loss reserves	11	$	574,753		$	555,334
Unearned premiums	Unearned premiums		400,999			409,985			Unearned premiums		365,408			380,302
Federal Home Loan Bank advance	Federal Home Loan Bank advance	3	155,000			155,000			Federal Home Loan Bank advance	3	155,000			155,000
Senior notes	Senior notes	3	420,290			419,713			Senior notes	3	421,155			420,867
Convertible junior subordinated debentures	Convertible junior subordinated debentures	3	256,872			256,872			Convertible junior subordinated debentures	3	256,872			256,872
Other liabilities	Other liabilities		164,809			180,322			Other liabilities		140,271			151,962
Total liabilities	Total liabilities		2,019,872			2,095,911			Total liabilities		1,913,459			1,920,337
Contingencies	Contingencies	5							Contingencies	5
Shareholders’ equity:	Shareholders’ equity:	12							Shareholders’ equity:	12
Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2019 - 371,353; 2018 - 371,353; shares outstanding 2019 - 354,177; 2018 - 355,371)			371,353			371,353
Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2020 - 371,353; 2019 - 371,353; shares outstanding 2020 - 338,567; 2019 - 347,308)									Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2020 - 371,353; 2019 - 371,353; shares outstanding 2020 - 338,567; 2019 - 347,308)		371,353			371,353
Paid-in capital	Paid-in capital		1,860,578			1,862,536			Paid-in capital		1,855,371			1,869,719
Treasury stock at cost (shares 2019 - 17,176; 2018 - 15,982)			(194,070		)	(175,059		)
Accumulated other comprehensive income (loss), net of tax			30,810			(124,214		)
Treasury stock at cost (shares 2020 - 32,786; 2019 - 24,045)									Treasury stock at cost (shares 2020 - 32,786; 2019 - 24,045)		(393,425		)	(283,196		)
Accumulated other comprehensive income, net of tax									Accumulated other comprehensive income, net of tax		1,224			72,708
Retained earnings	Retained earnings		1,966,994			1,647,275			Retained earnings		2,407,305			2,278,650
Total shareholders’ equity	Total shareholders’ equity		4,035,665			3,581,891			Total shareholders’ equity		4,241,828			4,309,234
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity		$	6,055,537		$	5,677,802		Total liabilities and shareholders’ equity		$	6,155,287		$	6,229,571

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 7


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES	MGIC INVESTMENT CORPORATION AND SUBSIDIARIES														MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
			Three Months Ended June 30,						Six Months Ended June 30,								Three Months Ended March 31,
(In thousands, except per share data)	(In thousands, except per share data)	Note	2019			2018			2019			2018			(In thousands, except per share data)	Note	2020			2019
Revenues:	Revenues:														Revenues:
Premiums written:	Premiums written:														Premiums written:
Direct	Direct		$	283,189		$	274,726		$	557,086		$	544,760		Direct		$	274,724		$	273,897
Assumed	Assumed		1,505			2,085			2,612			2,177			Assumed		2,859			1,107
Ceded	Ceded	4	(41,096		)	(21,375		)	(71,819		)	(54,595		)	Ceded	4	(31,576		)	(30,723		)
Net premiums written	Net premiums written		243,598			255,436			487,879			492,342			Net premiums written		246,007			244,281
Decrease (increase) in unearned premiums, net			3,504			(8,472		)	8,984			(13,271		)
Decrease in unearned premiums, net															Decrease in unearned premiums, net		14,894			5,480
Net premiums earned	Net premiums earned		247,102			246,964			496,863			479,071			Net premiums earned		260,901			249,761
Investment income, net of expenses	Investment income, net of expenses		42,423			34,502			83,008			66,623			Investment income, net of expenses		41,347			40,585
Net realized investment gains (losses)	Net realized investment gains (losses)	7	307			(1,897		)	(219		)	(2,226		)	Net realized investment gains (losses)	7	1,891			(526		)
Other revenue	Other revenue		2,485			2,431			4,315			4,302			Other revenue		2,754			1,830
Total revenues	Total revenues		292,317			282,000			583,967			547,770			Total revenues		306,893			291,650

Losses and expenses:	Losses and expenses:														Losses and expenses:
Losses incurred, net	Losses incurred, net	11	21,836			(13,455		)	60,899			10,395			Losses incurred, net	11	60,956			39,063
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs		2,760			2,845			5,238			5,417			Amortization of deferred policy acquisition costs		2,510			2,478
Other underwriting and operating expenses, net	Other underwriting and operating expenses, net		42,960			41,842			88,900			87,932			Other underwriting and operating expenses, net		42,262			45,940
Interest expense	Interest expense		13,550			13,246			26,783			26,479			Interest expense		12,926			13,233
Total losses and expenses	Total losses and expenses		81,106			44,478			181,820			130,223			Total losses and expenses		118,654			100,714
Income before tax	Income before tax		211,211			237,522			402,147			417,547			Income before tax		188,239			190,936
Provision for income taxes	Provision for income taxes		43,433			50,708			82,428			87,096			Provision for income taxes		38,434			38,995
Net income	Net income		$	167,778		$	186,814		$	319,719		$	330,451		Net income		$	149,805		$	151,941

Earnings per share:	Earnings per share:														Earnings per share:
Basic	Basic	6	$	0.47		$	0.51		$	0.90		$	0.89		Basic	6	$	0.44		$	0.43
Diluted	Diluted	6	$	0.46		$	0.49		$	0.87		$	0.87		Diluted	6	$	0.42		$	0.42

Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	6	355,734			368,578			355,694			369,736			Weighted average common shares outstanding - basic	6	344,053			355,653
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	6	376,603			388,881			376,635			390,236			Weighted average common shares outstanding - diluted	6	365,216			376,667

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 8


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES	MGIC INVESTMENT CORPORATION AND SUBSIDIARIES												MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)												CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

			Three Months Ended June 30,					Six Months Ended June 30,							Three Months Ended March 31,
(In thousands)		Note	2019		2018			2019		2018				Note	2020			2019
Net income			$	167,778	$	186,814		$	319,719	$	330,451				$	149,805		$	151,941
Other comprehensive income (loss), net of tax:		9
Other comprehensive (loss) income, net of tax:														9
Change in unrealized investment gains and losses		7	70,754		(9,922		)	151,825		(74,375		)		7	(72,585		)	81,071
Benefit plan adjustments			1,549		388			3,199		882					1,101			1,650
Other comprehensive income (loss), net of tax			72,303		(9,534		)	155,024		(73,493		)
Other comprehensive (loss) income, net of tax															(71,484		)	82,721
Comprehensive income			$	240,081	$	177,280		$	474,743	$	256,958				$	78,321		$	234,662

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 9


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES	MGIC INVESTMENT CORPORATION AND SUBSIDIARIES														MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)	CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)														CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

			Three Months Ended June 30,						Six Months Ended June 30,								Three Months Ended March 31,
(In thousands)		Note	2019			2018			2019			2018				Note	2020			2019
Common stock
Balance, beginning of period			$	371,353		$	371,348		$	371,353		$	370,567
Net common stock issued under share-based compensation plans			—			—			—			781
Balance, end of period			371,353			371,348			371,353			371,348
Balance, beginning and end of period																	$	371,353		$	371,353

Paid-in capital
Balance, beginning of period			1,856,236			1,847,000			1,862,536			1,850,582					1,869,719			1,862,536
Net common stock issued under share-based compensation plans			—			—			—			(8,854		)
Reissuance of treasury stock, net under share-based compensation plans			—			—			(11,582		)	—					(18,667		)	(11,582		)
Equity compensation			4,342			5,251			9,624			10,523					4,319			5,282
Balance, end of period			1,860,578			1,852,251			1,860,578			1,852,251					1,855,371			1,856,236

Treasury stock
Balance, beginning of period			(169,129		)	—			(175,059		)	—					(283,196		)	(175,059		)
Reissuance of treasury stock, net under share-based compensation plans			—			—			5,930			—					9,768			5,930
Repurchase of common stock		12	(24,941		)	(100,059		)	(24,941		)	(100,059		)		12	(119,997		)	—
Balance, end of period			(194,070		)	(100,059		)	(194,070		)	(100,059		)			(393,425		)	(169,129		)

Accumulated other comprehensive income (loss)
Balance, beginning of period			(41,493		)	(107,760		)	(124,214		)	(43,801		)			72,708			(124,214		)
Other comprehensive income (loss), net of tax		9	72,303			(9,534		)	155,024			(73,493		)
Other comprehensive (loss) income, net of tax																9	(71,484		)	82,721
Balance, end of period			30,810			(117,294		)	30,810			(117,294		)			1,224			(41,493		)

Retained earnings
Balance, beginning of period			1,799,216			1,120,815			1,647,275			977,178					2,278,650			1,647,275
Net income			167,778			186,814			319,719			330,451					149,805			151,941
Cash dividends																12	(21,150		)	—
Balance, end of period			1,966,994			1,307,629			1,966,994			1,307,629					2,407,305			1,799,216

Total shareholders’ equity			$	4,035,665		$	3,313,875		$	4,035,665		$	3,313,875				$	4,241,828		$	3,816,183

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 10

													MGIC INVESTMENT CORPORATION AND SUBSIDIARIES	CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Six Months Ended June 30,						Three Months Ended March 31,
(In thousands)	2019			2018			2020			2019
Cash flows from operating activities:
Net income	$	319,719		$	330,451		$	149,805		$	151,941
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23,464			31,395			13,052			11,908
Deferred tax expense	7,043			92,428			15,877			7,755
Net realized investment losses	219			2,226
Net realized investment (gains) losses							(1,891		)	526
Change in certain assets and liabilities:
Accrued investment income	(271		)	(1,065		)	2,763			1,302
Reinsurance recoverable on loss reserves	14,926			11,423			(4,115		)	1,453
Reinsurance recoverable on paid losses	(13,955		)	577			(170		)	(121		)
Premium receivable	(2,402		)	(2,168		)	2,147			3,494
Deferred insurance policy acquisition costs	219			34			(983		)	258
Profit commission receivable	(976		)	(11,202		)	1,121			(2,836		)
Loss reserves	(52,117		)	(172,620		)	19,419			(18,755		)
Unearned premiums	(8,986		)	13,225			(14,894		)	(5,481		)
Return premium accrual	(7,300		)	(12,200		)	(400		)	(3,100		)
Current income taxes	(2,300		)	(21,936		)	22,527			30,983
Other, net	4,328			2,025			(19,934		)	(14,446		)
Net cash provided by operating activities	281,611			262,593			184,324			164,881

Cash flows from investing activities:
Purchases of investments	(677,391		)	(516,712		)	(280,614		)	(348,746		)
Proceeds from sales of investments	183,620			25,185			224,803			106,010
Proceeds from maturity of fixed income securities	327,818			423,933			222,544			202,929
Net increase in payable for securities	—			13,432
Additions to property and equipment	(3,280		)	(8,256		)	(580		)	(308		)
Net cash used in investing activities	(169,233		)	(62,418		)
Net cash provided by (used in) investing activities							166,153			(40,115		)

Cash flows from financing activities:
Repurchase of common stock	(36,581		)	(100,059		)	(119,997		)	(11,640		)
Dividends paid							(21,111		)	—
Payment of withholding taxes related to share-based compensation net share settlement	(5,652		)	(8,073		)	(8,899		)	(5,652		)
Net cash used in financing activities	(42,233		)	(108,132		)	(150,007		)	(17,292		)
Net increase in cash and cash equivalents and restricted cash and cash equivalents	70,145			92,043			200,470			107,474
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	155,038			99,851			169,056			155,038
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	225,183		$	191,894		$	369,526		$	262,512

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 11

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2019~~March 31, 2020

(Unaudited)

Note 1. Nature of Business and Basis of Presentation

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

The accompanying unaudited consolidated financial statements of MGIC Investment Corporation and its wholly-owned subsidiaries have been prepared in accordance with the instructions to Form 10-Q as prescribed by the Securities and Exchange Commission (“SEC”) for interim reporting and do not include all of the other information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, ~~2018~~2019 included in our ~~2018~~2019 Annual Report on Form 10-K. As used below, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as the context requires.

In the opinion of management, the accompanying financial statements include all adjustments, consisting primarily of normal recurring accruals, necessary to fairly state our consolidated financial position and consolidated results of operations for the periods indicated. The consolidated results of operations for the interim period may not be indicative of the results that may be expected for the year ending December 31, ~~2019.~~2020.

~~Substantially all~~The vast majority of our insurance written since 2008 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 insurance in force, calculated from tables of factors with several risk ~~dimensions and subject to a floor amount)~~dimensions). Based on our ~~interpretation~~application of ~~the~~ PMIERs, as of ~~June 30, 2019,~~March 31, 2020, MGIC’s Available Assets are in excess of its Minimum Required Assets; and MGIC is in compliance with the financial requirements of the PMIERs and eligible to insure loans purchased by the GSEs.

Reclassifications

Certain reclassifications to ~~2018~~2019 amounts have been made in the accompanying financial statements to conform to the ~~2019~~2020 presentation.

Recent Developments

While uncertain, the impact of the COVID-19 pandemic on the Company’s business, financial results, liquidity and/or financial condition may be material. We expect that the increase in unemployment and economic uncertainty resulting from initiatives to reduce the transmission of COVID-19 (including “shelter-in-place” restrictions), as well as COVID-19-related illnesses and deaths, will negatively impact our business. Among other things, the negative impact is expected to include an increase in new defaults, which will increase our capital requirements under PMIERs and increase losses incurred, which will negatively affect our financial results. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in the United States, the length of time that measures intended to reduce the transmission of COVID-19 remain in place, the resulting level of unemployment, and the impact of various government initiatives (including the enactment of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act")) and actions taken by the GSEs (including implementation of mortgage forbearance and modification programs) to mitigate the economic harm caused by the COVID-19 pandemic and efforts to reduce its transmission.

Subsequent events

We have considered subsequent events through the date of this filing. On July 25, 2019, the Board of Directors declared a quarterly cash dividend to holders of the company’s common stock of $0.06 per share payable on September 20, 2019, to shareholders of record at the close of business on August 30, 2019. On August 2, 2019, we entered into an agreement to settle a claims paying practices dispute for which we previously had recognized a probable loss. There was no additional loss recognized as a result of entering into the agreement, as the settlement amount is in line with our original estimate of the probable loss. The agreement remains subject to GSE approval.

Note 2. Significant Accounting Policies

~~Income taxes~~Investments

~~Deferred income taxes are provided under the liability method, which recognizes the future tax effects~~Each quarter we perform reviews of ~~temporary differences between amounts reported~~our investments to assess declines in the ~~consolidated financial statements and the tax bases~~fair value 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,available-for-sale securities. Effective January 1, 2020, 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.

~~MGIC Investment Corporation - Q2 2019 | 12~~

~~Recent accounting and reporting developments~~

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

~~Accounting Standard Update (“ASU”) 2016-02 - Leases~~

~~In February 2016, the Financial~~ Accounting Standards Board (“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, we adopted the updated guidance for leases and also elected to apply all practical expedients applicable to us in the updated guidance for transition of leases in effect at adoption. The adoption of the updated guidance resulted in the recognition of an immaterial right-of-use asset as part of other assets and a lease liability as part of other liabilities in the consolidated balance sheet. The adoption of the updated guidance did not have a material effect on our consolidated results of operations or liquidity. Our minimum future operating lease payments as of June 30, 2019 totaled $2.3 million.

~~Prospective Accounting Standards~~

~~Table~~ ~~2.1~~ ~~shows the relevant new amendments to accounting standards, which are not yet effective or adopted.~~



~~Standard / Interpretation~~
~~Table~~	~~2.1~~

~~Amended Standards~~				~~Effective date~~
~~ASC 326~~		~~Financial Instruments - Credit Losses~~
		•	~~ASU 2016-13 - Measurement of Credit Losses on Financial Instruments~~	~~January 1, 2020~~
~~ASC 820~~		~~Fair Value Measurement~~
		•	~~ASU 2018-13 - Changes to the Disclosure Requirements for Fair Value Measurements~~	~~January 1, 2020~~
~~ASC 715~~		~~Compensation - Retirement Benefits~~
		•	~~ASU 2018-14 - Changes to the Disclosure Requirements for Defined Benefit Plans~~	~~January 1, 2021~~

(FASB) ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and related amendments, which created a new comprehensive credit loss standard, FASB Accounting Standards Codification (ASC) 326, Financial Instruments - Credit Losses. Upon adoption of ASC 326, any impairment losses on available-for-sale securities are recorded as an allowance, subject to reversal, rather than as a reduction to amortized cost, as was required under the previous other-than-temporary impairment (OTTI) model. Our evaluation of determining whether a decline below fair value requires an allowance does not consider the duration of the decline as was considered under the previous OTTI review. In accordance with the ASU, prior periods have not been restated.

~~In June 2016, the FASB issued updated guidance that~~

Reinsurance Recoverables

Each quarter, we perform a review of our reinsurance recoverable to assess collectability. ASC 326 requires immediate recognition of estimated credit losses expected to occur over the remaining life of ~~many~~a reinsurance recoverable. Upon adoption of ASC 326, our analysis of the collectability included, at least quarterly, reviewing the credit ratings of individual reinsurers of the QSR transactions, investor reports

MGIC Investment Corporation - Q1 2020 | 12

for both Home Re Transactions, collateral held in trust accounts in which MGIC is the sole beneficiary, and aging of outstanding reinsurance recoverable balances.

Premium Receivable

ASC 326 requires immediate recognition of estimated credit losses expected to occur over the remaining life of premium receivable. In applying the CECL requirement to premium receivable, consideration is given to the life of the premium receivable asset, areas of potential credit loss, and incorporating forward-looking predictive indicators.

Income Taxes

The CARES Act became law on March 27, 2020. It was a response to the market volatility and instability resulting from the coronavirus pandemic, and includes individuals and businesses in the form of loans, grants, and tax changes, among other types of relief. The tax changes in the CARES

Act do not materially impact our financial ~~instruments. Entities will be required~~results.

Recent accounting and reporting developments

Accounting standards effective in 2020, or early adopted, and relevant to ~~incorporate their~~our financial statements

Measurement of Credit Losses on Financial Instruments: ASU 2016-13

Effective January 1, 2020, we adopted ASC 326, Financial Instruments - Credit Losses. This new standard replaced the incurred loss impairment methodology with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Under CECL, allowances are established by incorporating the forecast of future economic conditions into ~~their~~our loss estimate unless such forecast is not reasonable and supportable, in which case ~~the entity will~~we revert to historical loss experience. ~~The allowance for current expected credit losses (“CECL”) generally reduces the amortized cost basis~~Application of the ~~financial instrument~~CECL model impacts our reinsurance recoverables and premium receivable. ASC 326 also replaced the OTTI model with an impairment allowance model, subject to reversal, for available-for-sale investments, which are measured at fair value. Our mortgage insurance policies are outside 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~~scope 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.ASC 326. The ~~updated~~new guidance is not prescriptive about certain aspects of estimating expected credit losses, including the specific methodology to use, and therefore ~~will require~~requires significant judgment in application. ~~The updated guidance is effective~~As a result of adopting ASC 326 we have determined that an allowance for ~~annual periods beginning after December 15, 2019, including interim periods~~

~~within those annual periods. Early adoption is permitted for annual and interim periods in fiscal years beginning after December 15, 2018. In May 2019,~~credit losses related to our premium receivables, reinsurance recoverables, or available-for-sale securities was not necessary as of March 31, 2020. We continue to apply the ~~FASB amended this~~previous 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. The effective dates remain the same. We are currently evaluating the impacts the adoption of this guidance will have on our consolidated financial statements2019 and ~~disclosures, but do not expect it to have a material impact.~~prior periods.

Changes to the Disclosure Requirements for Fair Value ~~Measurement~~Measurement: ASU 2018-13

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~~ will require 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 adoption of the updated guidance did not have a material effect on our consolidated results of operations or liquidity.

Prospective Accounting Standards

Table 2.1 shows the relevant new amendments to accounting standards, which are not yet effective or adopted.



Standard / Interpretation
Table	2.1

Amended Standards				Effective date
ASC 321, 323, 815		Investments
		•	ASU 2020-01 - Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)	January 1, 2021
ASC 740		Income Taxes
		•	ASU 2019-12 - Simplifying the Accounting for Income Taxes	January 1, 2021
ASC 715		Compensation - Retirement Benefits
		•	ASU 2018-14 - Changes to the Disclosure Requirements for Defined Benefit Plans	January 1, 2021
ASC 848		Reference Rate
		•	ASU 2020-04 - Reference Rate Reform	March 12, 2020

MGIC Investment Corporation - Q1 2020 | 13

Reference Rate Reform: ASU 2020-04

In March 2020, the FASB issued guidance which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting over concerns of the cessation of LIBOR. The updated guidance is effective for ~~annual periods beginning after~~all entities as of March 12 2020 through December ~~15, 2019, including interim periods within those annual periods. An entity is permitted~~31, 2022, as applicable, for contracts that are expected to ~~early adopt any guidance that removed or modified disclosures upon issuance~~be discontinued due to reference rate reform. We are currently evaluating the impacts the adoption of this ~~update~~guidance would have on our consolidated financial statement disclosures, but do not expect it to have a material impact.

Clarification of Accounting for Equity Securities: ASU 2020-01

In January 2020, the FASB issued guidance which clarifies certain interactions of accounting for equity securities under Topic 321, under the equity method of accounting in Topic 323, and ~~to delay adoption~~accounting of certain forward contracts and purchased options in Topic 815. The amendment clarifies the ~~additional disclosures until its effective date.~~consideration of observable transactions before applying or discounting the equity method of accounting. We are currently evaluating the 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.

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

~~MGIC Investment Corporation - Q2 2019 | 13~~

Note 3. Debt

Debt obligations

The par value of our long-term debt obligations and their aggregate carrying values as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are presented in table 3.1 below.

											Long-term debt obligations
Table	3.1					3.1
(In millions)	(In millions)	June 30, 2019		December 31, 2018		(In millions)	March 31, 2020		December 31, 2019
FHLB Advance - 1.91%, due February 2023	FHLB Advance - 1.91%, due February 2023	$	155.0	$	155.0	FHLB Advance - 1.91%, due February 2023	$	155.0	$	155.0
5.75% Notes, due August 2023 (par value: $425 million)	5.75% Notes, due August 2023 (par value: $425 million)	420.3		419.7		5.75% Notes, due August 2023 (par value: $425 million)	421.2		420.8
9% Debentures, due April 2063 ⁽¹⁾	9% Debentures, due April 2063 ⁽¹⁾	256.9		256.9		9% Debentures, due April 2063 ⁽¹⁾	256.9		256.9
Long-term debt, carrying value	Long-term debt, carrying value	$	832.2	$	831.6	Long-term debt, carrying value	$	833.1	$	832.7

⁽¹⁾

Convertible at any time prior to maturity at the holder’s option, at ~~an initial~~a conversion rate, which is subject to adjustment, of ~~74.0741~~74.4718 shares per $1,000 principal amount, representing ~~an initial~~a conversion price of approximately $~~13.50~~13.43 per share. In the event of a cash dividend to all or substantially all holders of our common stock, the conversion rate shall be increased by multiplying the conversion rate in effect immediately prior to the ex-dividend date for such distribution by a fraction, (a) the numerator shall be the current market price of our common stock on the ex-dividend date; and (b) the denominator shall be the current market price of our common stock on the ex-dividend date less the amount by which the dividend per share exceeds ~~$0.025. No adjustment in the conversion rate shall be required unless such adjustment would require an increase or decrease of at least~~ ~~one percent~~ in such rate; provided that any such adjustments that are not required to be made shall be carried forward and such carry-forward adjustments shall be made, regardless of whether the aggregate adjustment is less than ~~one percent~~ ~~at the end of each fiscal year, or in certain other circumstances. The conversion price per share is~~ ~~$1,000~~ divided by the conversion rate, and will change upon a change in the conversion rate. If a holder elects to convert its debentures, deferred interest owed on the 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. In lieu of issuing shares of common stock upon conversion of the debentures, we may, at our option, make a cash payment to converting holders for all or some of the shares of our common stock otherwise issuable upon conversion.

The 5.75% Senior Notes (“5.75% Notes”), 9% Convertible Junior Subordinated Debentures (“9% Debentures”) are obligations of our holding company, MGIC Investment Corporation, and not of its subsidiaries. The Federal Home Loan Bank Advance (the “FHLB Advance”) is an obligation of MGIC.

In May 2019, we terminated our $175 million unsecured revolving credit facility. At the time of termination there were no amounts drawn on the credit facility. The unused portion of our revolving credit facility was subject to recurring commitment fees, which are reflected in interest payments.

Interest payments

Interest payments for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ were ~~$25.5~~$13.0 million and ~~$25.6~~$13.1 million, respectively.

See Note 7 “Debt” in our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information pertaining to our debt obligations. As of March 31, 2020 we are in compliance with all of our debt covenants.

MGIC Investment Corporation - Q1 2020 | 14

Note 4. Reinsurance

The reinsurance agreements to which we are a party, excluding captive agreements (which were immaterial), are discussed below. The effect of all of our reinsurance agreements on premiums earned and losses incurred is shown in table 4.1 below.

																					Reinsurance
Table	4.1													4.1
		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(In thousands)	(In thousands)	2019			2018			2019			2018			(In thousands)	2020			2019
Premiums earned:	Premiums earned:													Premiums earned:
Direct	Direct	$	287,183		$	268,236		$	566,796		$	533,487		Direct	$	289,868		$	279,613
Assumed	Assumed	1,015			106			1,887			227			Assumed	2,609			872
Ceded	Ceded	(41,096		)	(21,378		)	(71,820		)	(54,643		)	Ceded	(31,576		)	(30,724		)
Net premiums earned	Net premiums earned	$	247,102		$	246,964		$	496,863		$	479,071		Net premiums earned	$	260,901		$	249,761

Losses incurred:	Losses incurred:													Losses incurred:
Direct	Direct	$	25,276		$	(16,778	)	$	66,080		$	14,723		Direct	$	66,562		$	40,804
Assumed	Assumed	(9		)	(100		)	(76		)	(10		)	Assumed	166			(67		)
Ceded	Ceded	(3,431		)	3,423			(5,105		)	(4,318		)	Ceded	(5,772		)	(1,674		)
Losses incurred, net	Losses incurred, net	$	21,836		$	(13,455	)	$	60,899		$	10,395		Losses incurred, net	$	60,956		$	39,063

Quota share reinsurance

We utilize quota share reinsurance transactions (“QSR Transactions”) to manage our exposure to losses resulting from our mortgage guaranty insurance policies and to provide reinsurance capital credit under the PMIERs.Each of the reinsurers under our ~~QSR Transactions~~quota share reinsurance agreements described below has an insurer financial strength rating of A- or better (or a comparable rating) by Standard and ~~Poor’s~~Poor's Rating Services, A.M. Best, Moody's, or ~~both.~~a combination of the three.

~~2019~~2020 QSR ~~Transaction.~~Coverage. We entered into a QSR ~~transaction~~agreements with a group of unaffiliated reinsurers with an effective date of January 1, ~~2019~~2020 (“~~2019~~2020 QSR Transaction”), which provides coverage on eligible ~~new insurance written~~NIW in ~~2019.~~2020. Under the ~~2019~~2020 QSR Transaction, we will cede losses and premiums on or after the effective date through December 31, ~~2030,~~2031, at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, ~~2021 or~~2022 and bi-annually thereafter, for a fee, or under specified scenarios for no0 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 2020 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, 2021, 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 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 Coverage.In addition, one of the 2020 agreements also provides coverage on eligible NIW in 2021. ("2021 QSR Transaction").

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 ~~2019~~2021 QSR Transaction is a ~~30%~~17.5% quota share on 2021 NIW, with ~~a one-time~~an option ~~elected by us,~~ to reduce the cede rate to either ~~25%~~14.5% or ~~20%~~12% effective July 1, ~~2020,~~2022 or ~~bi-annually thereafter, for a fee, for all policies covered, with a 20% ceding commission as well as a profit commission.~~semiannually thereafter. Generally, under the ~~2019~~2021 QSR Transaction, we will receive aan annual profit commission provided ~~that~~ the annual loss ratio on the loans covered under the ~~agreement~~transactions remains below 62%.

~~MGIC Investment Corporation - Q2 2019 | 14~~

~~2018~~2019 and prior QSR Transactions. See Note 9 of Notes to Consolidated Financial Statements in our ~~2018~~2019 Form 10-K for more information about our QSR Transactions entered into prior to ~~2019.~~2020.

~~2015 QSR Transaction.We terminated a portion of our 2015 QSR Transaction effective June 30, 2019 and entered into an amended~~Our 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 in July 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 through December 31, 2031, at which time the agreement expires. Early termination of the amended agreement can be elected by us effective June 30, 2021 for no fee, or under specified scenarios, 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. Generally, under our amended 2015 QSR Transaction, we will receive a profit commission provided that thetransactions typically have annual loss ratio ~~on the covered loans remains below 68%~~caps of 300% and lifetime loss ratio caps of 200%.

MGIC Investment Corporation - Q1 2020 | 15

Table 4.2 below ~~presents~~provides a summary of our quota share reinsurance agreements, excluding captive agreements, for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

																Quota Share Reinsurance
Table	4.2										4.2
		Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,
(In thousands)	(In thousands)	2019		2018			2019		2018		(In thousands)	2020		2019
Ceded premiums written and earned, net of profit commission ⁽¹⁾	Ceded premiums written and earned, net of profit commission ⁽¹⁾	$	36,525	$	21,432		$	64,689	$	54,468	Ceded premiums written and earned, net of profit commission ⁽¹⁾	$	26,846	$	28,164
Ceded losses incurred	Ceded losses incurred	3,440		(3,735		)	5,116		4,053		Ceded losses incurred	5,804		1,676
Ceding commissions ⁽²⁾	Ceding commissions ⁽²⁾	13,356		12,640			26,765		25,285		Ceding commissions ⁽²⁾	11,365		13,409
Profit commission	Profit commission	37,021		41,769			75,902		71,958		Profit commission	29,979		38,881


⁽¹⁾	~~Premiums~~Under our QSR Transactions, premiums are ceded on an earned and received basis as defined in the agreements. ~~The three and six months ended June 30, 2019 include the~~ ~~$6.8 million~~ ~~termination fee discussed in “2015 QSR Transaction” above.~~


⁽²⁾	Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.

Under the terms of ~~the~~our QSR Transactions, ~~ceded~~currently in effect, reinsurance premiums, ceding commission and profit commission 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”~~Other liabilities on the consolidated balance sheets.

The reinsurance recoverable on loss reserves related to our QSR Transactions was ~~$18.3~~$25.8 million as of ~~June 30, 2019~~March 31, 2020 and ~~$33.2~~$21.6 million as of December 31, ~~2018.~~2019. The reinsurance recoverable balance is secured by funds on deposit from the reinsurers, the amount of which ~~are~~is based on the funding requirements of ~~PMIERs that address ceded risk.~~PMIERs.

Excess of loss reinsurance

~~Home Re.~~We have aggregate excess of loss reinsurance agreements (“Home Re Transactions”) with unaffiliated special purpose insurers domiciled in Bermuda (“Home Re ~~Transactions”~~Entities”). For the reinsurance coverage periods, we retain the first layer of the respective aggregate losses, and a Home Re special purpose ~~insurer~~entity 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 ~~principal is~~or are repaid, or mortgage insurance losses are paid. MGIC has rights to terminate the Home Re ~~Transactions.~~Transactions under certain circumstances. The Home Re ~~special purpose insurers~~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 ~~notes~~ILNs each have ten-year legal maturities and are non-recourse to any assets of MGIC or affiliates. The proceeds of the ~~notes,~~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.

Table 4.3 provides a summary of our excess of loss reinsurance agreements as of March 31, 2020 and December 31, 2019.


Home Re entities
Excess of Loss Reinsurance								Excess of Loss Reinsurance
Table	4.3							4.3
(In thousands)	(In thousands)							(In thousands)			March 31, 2020				December 31, 2019
Home Re entity (Issue Date)		Policy Inforce Dates	Termination Option Date ⁽¹⁾	Remaining First Layer Retention		Remaining Excess of Loss Reinsurance Coverages
Home Re Entity (Issue Date)								Home Re Entity (Issue Date)	Policy Inforce Dates	Termination Option Date ⁽¹⁾	Remaining First Layer Retention		Remaining Excess of Loss Reinsurance Coverages		Remaining First Layer Retention		Remaining Excess of Loss Reinsurance Coverages
Home Re 2018-1 Ltd. (Oct. - 2018)	Home Re 2018-1 Ltd. (Oct. - 2018)	July 1, 2016 - December 31, 2017	October 25, 2025	$	168,691	$	318,636	Home Re 2018-1 Ltd. (Oct. - 2018)	July 1, 2016 - December 31, 2017	October 25, 2025	$	167,328	$	233,626	$	167,779	$	260,957
Home Re 2019-1 Ltd. (May - 2019)	Home Re 2019-1 Ltd. (May - 2019)	January 1, 2018 - March 31, 2019	May 25, 2026	185,730		315,739		Home Re 2019-1 Ltd. (May - 2019)	January 1, 2018 - March 31, 2019	May 25, 2026	185,297		229,649		185,636		271,021
Total	Total			$	354,421	$	634,375	Total			$	352,625	$	463,275	$	353,415	$	531,978


⁽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.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 1516

The reinsurance premiums ceded to each Home Re ~~special purpose insurer~~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 toby the Home Re Entity on the ~~notes~~unpaid portion of the ILNs it issued to raise funds to collateralize its reinsurance obligations to us, and the investment income collected on the collateral assets. The amount of monthly reinsurance coverage premium ceded will fluctuate due to ~~change~~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. As ~~the reinsurance premium will vary based on changes in these rates,~~a result, we concluded that each reinsurance agreement contains an embedded derivative that is accounted for separately as a freestanding derivative. The fair values of the derivatives at ~~June 30, 2019,~~March 31, 2020, were not material to our consolidated balance sheet, and the change in fair ~~values~~value during the three ~~and six~~ months ended ~~June 30, 2019 were~~March 31, 2020 was not material to our consolidated statements of operations. Total ceded premiums were ~~$4.5~~$4.7 million and ~~$7.0~~$2.5 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and March 31, 2019, respectively.

At the time the Home Re Transactions were entered into, we ~~assessed whether~~concluded that each Home Re ~~entity was~~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. ~~We concluded that each Home Re entity is a VIE. However, given~~Given that MGIC (1) does not have the unilateral power to direct the activities that most significantly affect each Home Re ~~entity’s~~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,~~Entity, consolidation of ~~either~~neither Home Re ~~entity~~Entity 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 ~~June 30, 2019,~~March 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 VIE under our reinsurance agreements. We are unable to determine the timing or extent of claims from losses that are ceded under the reinsurance agreements. 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. 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 agreements 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 agreements should its claims not be paid. We consider our exposure to loss from our reinsurance agreements with the VIEs to be remote.

~~The following~~Table 4.4 presents the total assets of the Home Re ~~entities~~Entities as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

Home Re total assets

Table

4.4

(In thousands)

Home Re entity (Issue date)

Total VIE Assets

June 30, 2019

Home Re Entity (Issue date)

Total VIE Assets

March 31, 2020

Home Re 2018-01 Ltd. (Oct - 2018)

318,636

Home Re 2018-01 Ltd. (Oct - 2018)

245,314

Home Re 2019-01 Ltd. (May - 2019)

315,739

Home Re 2019-01 Ltd. (May - 2019)

247,276

December 31, 2018

December 31, 2019

Home Re 2018-01 Ltd. (Oct - 2018)

318,636

Home Re 2018-01 Ltd. (Oct - 2018)

269,451

Home Re 2019-01 Ltd. (May - 2019)

283,150

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 assets of the Home Re ~~special purpose insurers~~Entities provide capital credit under the PMIERs financial requirements (see Note 1 - “Nature of Business and Basis of Presentation”). A decline in the assets available to pay claims ~~would reduce~~and principal repayments reduces the capital credit available to MGIC.

Note 5. Litigation and Contingencies

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. We refer 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 such reduction of claims “curtailments.” In recent quarters, an immaterial percentage of claims received in a quarter have been resolved by rescissions. In ~~2018,~~2019, and the first ~~half~~three months of ~~2019,~~2020, curtailments reduced our average claim paid by approximately ~~5.8%~~5.0% and ~~4.7%~~4.4%, 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.

MGIC Investment Corporation - Q1 2020 | 17

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.

~~MGIC Investment Corporation - Q2 2019 | 16~~

Under ASC 450-20, until a ~~liability~~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. ~~Where~~When we ~~have determined~~determine that a loss is probable and can be reasonably estimated, we ~~have recorded~~record our best estimate of our probable ~~loss, including recording a probable loss of $23.5 million in the first quarter of 2019. Until~~loss. In those cases, until settlement negotiations or legal proceedings ~~for which we have recorded a probable loss~~ are ~~concluded,~~concluded; (including the receipt of any necessary GSE approvals), it is reasonably possible that we will record an additional loss. ~~In addition to matters for which we have recorded a probable loss, we~~We are currently involved in ~~other~~ 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 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 ~~$289.0 million more than the amount of probable loss we have recorded.~~$47 million. This estimate of maximum exposure is based upon currently available ~~information and~~information; is subject to significant judgment, numerous assumptions and known and unknown ~~uncertainties, and~~uncertainties; will include an amount for matters for which we have recorded a probable loss until such matters are ~~concluded. We do not consider settlements concluded until any required GSE approval for such settlements is obtained. The~~concluded; will include different matters ~~underlying the estimate of maximum exposure will change~~ from time to ~~time. This estimate of our maximum exposure~~time; and does not include interest or consequential or exemplary damages.

Mortgage insurers, including MGIC, have been involved in litigation and regulatory actions related to alleged violations of the anti-referral fee provisions of the Real Estate Settlement Procedures Act, which is commonly known as RESPA, and the notice provisions of the Fair Credit Reporting Act, which is commonly known as FCRA. While these proceedings in the aggregate have not resulted 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. In addition, various regulators, including the CFPB, state insurance commissioners and state attorneys general may bring other actions seeking various forms of relief in connection with alleged violations of RESPA. The insurance law provisions of many states prohibit paying for the referral of insurance business and provide various mechanisms to enforce this prohibition. While we believe our practices are in conformity with applicable

laws and regulations, 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.

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 underwriting remedy expense for 2018 and the first six months of 2019 was immaterial to our consolidated financial statements.

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 consolidated results of operations.

Note 6. Earnings per Share

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

~~MGIC Investment Corporation - Q2 2019 | 17~~

Table 6.1 reconciles the numerators and denominators used to calculate basic and diluted EPS.

															Earnings per share
Table	6.1									6.1
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
(In thousands, except per share data)	(In thousands, except per share data)	2019		2018		2019		2018		(In thousands, except per share data)	2020		2019
Basic earnings per share:	Basic earnings per share:									Basic earnings per share:
Net income	Net income	$	167,778	$	186,814	$	319,719	$	330,451	Net income	$	149,805	$	151,941
Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	355,734		368,578		355,694		369,736		Weighted average common shares outstanding - basic	344,053		355,653
Basic earnings per share	Basic earnings per share	$	0.47	$	0.51	$	0.90	$	0.89	Basic earnings per share	$	0.44	$	0.43

Diluted earnings per share:	Diluted earnings per share:									Diluted earnings per share:
Net income	Net income	$	167,778	$	186,814	$	319,719	$	330,451	Net income	$	149,805	$	151,941
Interest expense, net of tax ⁽¹⁾:	Interest expense, net of tax ⁽¹⁾:									Interest expense, net of tax ⁽¹⁾:
9% Debentures	9% Debentures	4,566		4,566		9,132		9,132		9% Debentures	4,566		4,566
Diluted income available to common shareholders	Diluted income available to common shareholders	$	172,344	$	191,380	$	328,851	$	339,583	Diluted income available to common shareholders	$	154,371	$	156,507

Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	355,734		368,578		355,694		369,736		Weighted average common shares outstanding - basic	344,053		355,653
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Unvested RSUs	Unvested RSUs	1,841		1,275		1,913		1,472		Unvested RSUs	2,033		1,986
9% Debentures	9% Debentures	19,028		19,028		19,028		19,028		9% Debentures	19,130		19,028
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	376,603		388,881		376,635		390,236		Weighted average common shares outstanding - diluted	365,216		376,667
Diluted earnings per share	Diluted earnings per share	$	0.46	$	0.49	$	0.87	$	0.87	Diluted earnings per share	$	0.42	$	0.42


⁽¹⁾	The periods ended ~~June 30, 2019~~March 31, 2020 and ~~2018~~2019 were tax-effected at a rate of 21%.

MGIC Investment Corporation - Q1 2020 | 18

Note 7. Investments

Fixed income securities

The amortized cost, gross unrealized gains and losses, and fair value of investments in fixed income securities classified as available-for-sale at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are shown in tables 7.1a and 7.1b below.

Details of fixed income securities by category as of June 30, 2019
Table 7.1a
(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 $ 194,222
$ 1,474
$ (127 ) $ 195,569
Obligations of U.S. states and political subdivisions 1,566,166
88,379
(648 ) 1,653,897
Corporate debt securities 2,570,289
61,459
(3,134 ) 2,628,614
Asset backed securities (“ABS”) 215,016
2,787
(102 ) 217,701
Residential mortgage backed securities (“RMBS”) 213,024
183
(4,710 ) 208,497
Commercial mortgage backed securities (“CMBS”) 268,189
4,450
(750 ) 271,889
Collateralized loan obligations (“CLO”) 330,530
55
(1,929 ) 328,656
Total fixed income securities $ 5,357,436
$ 158,787
$ (11,400 ) $ 5,504,823

~~MGIC Investment Corporation - Q2 2019 | 18~~



Details of fixed income securities by category as of March 31, 2020
Table	7.1a
(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		$	197,330	$	2,408	$	(21	)	$	199,717
Obligations of U.S. states and political subdivisions		1,614,562		99,532		(3,258		)	1,710,836
Corporate debt securities		2,508,051		44,386		(41,335		)	2,511,102
Asset backed securities (“ABS”)		210,930		2,031		(6,311		)	206,650
Residential mortgage backed securities (“RMBS”)		259,641		6,032		(758		)	264,915
Commercial mortgage backed securities (“CMBS”)		268,598		3,161		(3,172		)	268,587
Collateralized loan obligations (“CLOs”)		316,270		—		(19,231		)	297,039
Total fixed income securities		$	5,375,382	$	157,550	$	(74,086	)	$	5,458,846


Details of fixed income securities by category as of December 31, 2018
Details of fixed income securities by category as of December 31, 2019											Details of fixed income securities by category as of December 31, 2019
Table	7.1b										7.1b
(In thousands)	(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses) ⁽¹⁾			Fair Value		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses) ⁽²⁾			Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies	U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	167,655	$	597	$	(1,076	)	$	167,176	U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	195,176	$	1,237	$	(210	)	$	196,203
Obligations of U.S. states and political subdivisions	Obligations of U.S. states and political subdivisions	1,701,826		29,259		(10,985		)	1,720,100		Obligations of U.S. states and political subdivisions	1,555,394		99,328		(857		)	1,653,865
Corporate debt securities	Corporate debt securities	2,439,173		2,103		(40,514		)	2,400,762		Corporate debt securities	2,711,910		76,220		(3,008		)	2,785,122
ABS	ABS	111,953		226		(146		)	112,033		ABS	227,376		2,466		(178		)	229,664
RMBS	RMBS	189,238		32		(10,309		)	178,961		RMBS	271,384		429		(3,227		)	268,586
CMBS	CMBS	276,352		888		(9,580		)	267,660		CMBS	274,234		5,531		(779		)	278,986
CLOs	CLOs	310,587		2		(5,294		)	305,295		CLOs	327,076		33		(1,643		)	325,466
Total fixed income securities	Total fixed income securities	$	5,196,784	$	33,107	$	(77,904	)	$	5,151,987	Total fixed income securities	$	5,562,550	$	185,244	$	(9,902	)	$	5,737,892


⁽¹⁾	At ~~June 30, 2019~~March 31, 2020 ~~and~~there was no allowance established on available-for-sale securities.


⁽²⁾	At December 31, ~~2018~~2019, there ~~were~~was no other-than-temporary impairment losses recorded in other comprehensive income.

We had ~~$13.7~~$14.2 million and ~~$13.5~~$13.9 million of investments at fair value on deposit with various states as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, due to regulatory requirements of those state insurance departments.

MGIC Investment Corporation - Q1 2020 | 19

The amortized cost and fair values of fixed income securities at ~~June 30, 2019,~~March 31, 2020, by contractual maturity, are shown in table 7.2 below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most ABS, RMBS, CMBS, and CLOs provide for periodic payments throughout their lives, they are listed in separate categories.

											Fixed income securities maturity schedule
Table	7.2					7.2
		June 30, 2019					March 31, 2020
(In thousands)	(In thousands)	Amortized cost		Fair Value		(In thousands)	Amortized cost		Fair Value
Due in one year or less	Due in one year or less	$	367,161	$	367,474	Due in one year or less	$	421,097	$	421,290
Due after one year through five years	Due after one year through five years	1,900,096		1,930,664		Due after one year through five years	1,774,678		1,782,206
Due after five years through ten years	Due after five years through ten years	930,951		976,031		Due after five years through ten years	994,134		1,021,561
Due after ten years	Due after ten years	1,132,469		1,203,911		Due after ten years	1,130,034		1,196,598
		4,330,677		4,478,080			4,319,943		4,421,655

ABS	ABS	215,016		217,701		ABS	210,930		206,650
RMBS	RMBS	213,024		208,497		RMBS	259,641		264,915
CMBS	CMBS	268,189		271,889		CMBS	268,598		268,587
CLOs	CLOs	330,530		328,656		CLOs	316,270		297,039
Total as of June 30, 2019		$	5,357,436	$	5,504,823
Total as of March 31, 2020						Total as of March 31, 2020	$	5,375,382	$	5,458,846

Proceeds from sales of fixed income securities classified as available-for-sale were ~~$183.6~~$212.8 million and ~~$25.1~~$106.0 million during the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, respectively. During the three months ended March 31, 2020, gross gains and ~~2018, respectively. Gross gains~~gross losses of ~~$1.2~~$5.1 million and ~~$2.0~~$1.3 million, respectively, were realized on those sales, and we recorded realized losses of $0.3 million related to our intent to sell certain securities. During the three months ended March 31, 2019, gross gains and gross losses of $0.7 million and gross losses of ~~$1.1 million and $2.3~~$1.3 million were realized on those sales, ~~during the three~~ and six months ended June 30, 2019, respectively. Gross gains of $0.1 million and $0.2 million and gross losses of $0.6 million and $1.0 million were realized on those sales during the three and six months ended June 30, 2018, respectively. During the six months ended June 30, 2019, we recorded other-than-temporary impairment (“OTTI”) losses of $0.1 million. During the three and six months ended June 30, 2018, we recorded OTTI losses of ~~$1.3~~$0.1 million.

Equity securities

The cost and fair value of investments in equity securities at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are shown in tables 7.3a and 7.3b below.

Details of equity security investments as of June 30, 2019
Table 7.3a
(In thousands) Cost Gross Gains Gross Losses Fair Value
Equity securities $ 3,991
$ 129
$ (6 ) $ 4,114



Details of equity security investments as of March 31, 2020
Table	7.3a
(In thousands)		Cost		Gross Gains		Gross Losses			Fair Value
Equity securities		$	29,559	$	99	$	(766	)	$	28,892

~~MGIC Investment Corporation - Q2 2019 | 19~~


Details of equity security investments as of December 31, 2018
Details of equity security investments as of December 31, 2019											Details of equity security investments as of December 31, 2019
Table	7.3b										7.3b
(In thousands)	(In thousands)	Cost		Gross Gains		Gross Losses			Fair Value		(In thousands)	Cost		Gross Gains		Gross Losses			Fair Value
Equity securities	Equity securities	$	3,993	$	11	$	(72	)	$	3,932	Equity securities	$	17,188	$	154	$	(14	)	$	17,328

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2020, we recognized $(0.8) million of net losses on equity securities still held as of March 31, 2020. For the three months ended March 31, 2019, we recognized $0.1 ~~million and $0.2~~ million of net gains on equity securities still held as of ~~June 30,~~March 31, 2019. ~~For the six months ended June 30, 2018, we recognized $0.1 million of net losses on equity securities still held as of June 30, 2018.~~

Other invested assets

Other invested assets include an investment in Federal Home Loan Bank ~~(“FHLB”~~("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.~~balance of the FHLB Advance. As of ~~June 30, 2019,~~March 31, 2020, that collateral consisted of fixed income securities included in our total investment portfolio, and cash and cash equivalents, with a total fair value of ~~$163.0~~$164.9 million.

MGIC Investment Corporation - Q1 2020 | 20

Unrealized investment losses

Tables 7.4a and 7.4b below summarize, for all available-for-sale investments in an unrealized loss position at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the aggregate fair value and gross unrealized loss by the length of time those securities have been continuously in an unrealized loss position. The fair value amounts reported in tables 7.4a and 7.4b are estimated using the process described in Note 8 - “Fair Value Measurements” to these consolidated financial statements and in Note 3 - “Significant Accounting Policies” of the notes to the consolidated financial statements in our ~~2018~~2019 Annual Report on Form 10-K.


Unrealized loss aging for securities by type and length of time as of June 30, 2019
Unrealized loss aging for securities by type and length of time as of March 31, 2020																	Unrealized loss aging for securities by type and length of time as of March 31, 2020
Table	7.4a																7.4a
		Less Than 12 Months					12 Months or Greater					Total						Less Than 12 Months					12 Months or Greater					Total
(In thousands)	(In thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			(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	U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	12,483	$	(19	)	$	45,423	$	(108	)	$	57,906	$	(127	)	U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	12,558	$	(21	)	$	—	$	—		$	12,558	$	(21	)
Obligations of U.S. states and political subdivisions	Obligations of U.S. states and political subdivisions	2,283		(468		)	57,193		(180		)	59,476		(648		)	Obligations of U.S. states and political subdivisions	99,354		(3,255		)	2,017		(3		)	101,371		(3,258		)
Corporate debt securities	Corporate debt securities	29,333		(1,987		)	298,419		(1,147		)	327,752		(3,134		)	Corporate debt securities	1,034,108		(41,208		)	907		(127		)	1,035,015		(41,335		)
ABS	ABS	9,257		(102		)	—		—			9,257		(102		)	ABS	64,104		(6,311		)	—		—			64,104		(6,311		)
RMBS	RMBS	32,181		(297		)	158,325		(4,413		)	190,506		(4,710		)	RMBS	7,664		(60		)	62,645		(698		)	70,309		(758		)
CMBS	CMBS	—		—			78,697		(750		)	78,697		(750		)	CMBS	133,290		(3,086		)	7,593		(86		)	140,883		(3,172		)
CLOs	CLOs	247,983		(1,587		)	45,137		(342		)	293,120		(1,929		)	CLOs	186,582		(10,075		)	110,457		(9,156		)	297,039		(19,231		)
Total	Total	$	333,520	$	(4,460	)	$	683,194	$	(6,940	)	$	1,016,714	$	(11,400	)	Total	$	1,537,660	$	(64,016	)	$	183,619	$	(10,070	)	$	1,721,279	$	(74,086	)


Unrealized loss aging for securities by type and length of time as of December 31, 2018
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, 2019
Table	7.4b																	7.4b
		Less Than 12 Months						12 Months or Greater					Total						Less Than 12 Months					12 Months or Greater					Total
(In thousands)	(In thousands)	Fair Value			Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			(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	U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	23,710		$	(15	)	$	69,146	$	(1,061	)	$	92,856	$	(1,076	)	U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	57,301	$	(200	)	$	5,806	$	(10	)	$	63,107	$	(210	)
Obligations of U.S. states and political subdivisions	Obligations of U.S. states and political subdivisions	316,655		��	(3,875		)	358,086		(7,110		)	674,741		(10,985		)	Obligations of U.S. states and political subdivisions	74,859		(847		)	6,957		(10		)	81,816		(857		)
Corporate debt securities	Corporate debt securities	1,272,279			(18,130		)	785,627		(22,384		)	2,057,906		(40,514		)	Corporate debt securities	221,357		(2,847		)	43,505		(161		)	264,862		(3,008		)
ABS	ABS	51,324			(146		)	—		—			51,324		(146		)	ABS	21,542		(118		)	3,851		(60		)	25,393		(178		)
RMBS	RMBS	24			—			178,573		(10,309		)	178,597		(10,309		)	RMBS	105,443		(461		)	110,452		(2,766		)	215,895		(3,227		)
CMBS	CMBS	65,704			(1,060		)	163,272		(8,520		)	228,976		(9,580		)	CMBS	62,388		(728		)	11,852		(51		)	74,240		(779		)
CLOs	CLOs	296,497			(5,294		)	—		—			296,497		(5,294		)	CLOs	81,444		(225		)	196,988		(1,418		)	278,432		(1,643		)
Total	Total	$	2,026,193		$	(28,520	)	$	1,554,704	$	(49,384	)	$	3,580,897	$	(77,904	)	Total	$	624,334	$	(5,426	)	$	379,411	$	(4,476	)	$	1,003,745	$	(9,902	)

Based on current facts and circumstances, we believe the unrealized losses as of March 31, 2020 presented in table 7.4a above are not indicative of the ultimate collectability of the current amortized cost of the securities. We believe the gross unrealized losses are primarily attributable to widening credit spreads over risk free rates beyond historic norms, as a result of market uncertainties arising from the COVID-19 pandemic, which includes demand shocks in multiple sectors that originated in the first quarter of 2020.

The unrealized losses in all categories of our investments at ~~June 30, 2019 and~~ December 31, ~~2018~~2019 were primarily caused by changes in interest rates between the time of purchase and ~~the respective fair value measurement date.~~ December 31, 2019.

There were ~~243~~321 and ~~721~~217 securities in an unrealized loss position at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

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

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 2021

Note 8. Fair Value Measurements

Recurring fair value measurements

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

Level 1 measurements

Fixed income securities: Consist of primarily U.S. Treasury securities with valuations derived from quoted prices for identical instruments in active markets that we can access.

Equity securities: Consist of actively traded, exchange-listed equity securities, including exchange traded funds (“ETFs”), with valuations derived from quoted prices for identical assets 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.

Level 2 measurements

Fixed income securities:

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.

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.

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.

Commercial Mortgage-Backed Securities ("CMBS") are valued using techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including quoted prices for similar assets, benchmark yield curves and market corroborated inputs. Evaluation uses regular reviews of the inputs for securities covered, including executed trades, broker quotes, credit information, collateral attributes and/or cash flow waterfall as applicable.

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.

Collateralized loan obligations ("~~CLO"~~CLOs") are valued by evaluating manager rating, seniority in the capital structure, assumptions about prepayment, default and recovery and their impact on cash flow generation. Loan level net asset values are determined and aggregated for tranches and as a final step prices are checked against available recent trade activity.

Level 3 measurements

Real estate acquired is valued at the lower of our acquisition cost or a percentage of the appraised value. The percentage applied to the appraised value is based upon our historical sales experience adjusted for current trends.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 2122

Assets measured at fair value, by hierarchy level, as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are shown in tables 8.1a and 8.1b below. The fair value of the assets is estimated using the process described above, and more fully in Note 3 - “Significant Accounting Policies” of the notes to the consolidated financial statements in our ~~2018~~2019 Annual Report on Form 10-K.


Assets carried at fair value by hierarchy level as of June 30, 2019
Assets carried at fair value by hierarchy level as of March 31, 2020										Assets carried at fair value by hierarchy level as of March 31, 2020
Table	8.1a									8.1a
(In thousands)	(In thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(In thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	195,569	$	42,825	$	152,744	$	—	U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	199,717	$	42,091	$	157,626	$	—
Obligations of U.S. states and political subdivisions	Obligations of U.S. states and political subdivisions	1,653,897		—		1,653,897		—		Obligations of U.S. states and political subdivisions	1,710,836		—		1,710,836		—
Corporate debt securities	Corporate debt securities	2,628,614		—		2,628,614		—		Corporate debt securities	2,511,102		—		2,511,102		—
ABS	ABS	217,701		—		217,701		—		ABS	206,650		—		206,650		—
RMBS	RMBS	208,497		—		208,497		—		RMBS	264,915		—		264,915		—
CMBS	CMBS	271,889		—		271,889		—		CMBS	268,587		—		268,587		—
CLOs	CLOs	328,656		—		328,656		—		CLOs	297,039		—		297,039		—
Total fixed income securities	Total fixed income securities	5,504,823		42,825		5,461,998		—		Total fixed income securities	5,458,846		42,091		5,416,755		—
Equity securities	Equity securities	4,114		4,114		—		—		Equity securities	28,892		28,892		—		—
Other ⁽¹⁾	Other ⁽¹⁾	169,584		169,584		—		—		Other ⁽¹⁾	365,519		364,517		1,002		—
Real estate acquired ⁽²⁾	Real estate acquired ⁽²⁾	10,250		—		—		10,250		Real estate acquired ⁽²⁾	6,226		—		—		6,226
Total	Total	$	5,688,771	$	216,523	$	5,461,998	$	10,250	Total	$	5,859,483	$	435,500	$	5,417,757	$	6,226


Assets carried at fair value by hierarchy level as of December 31, 2018
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, 2019
Table	8.1b									8.1b
(In thousands)	(In thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(In thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	167,176	$	42,264	$	124,912	$	—	U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	196,203	$	34,240	$	161,963	$	—
Obligations of U.S. states and political subdivisions	Obligations of U.S. states and political subdivisions	1,720,100		—		1,720,087		13		Obligations of U.S. states and political subdivisions	1,653,865		—		1,653,865		—
Corporate debt securities	Corporate debt securities	2,400,762		—		2,400,762		—		Corporate debt securities	2,785,122		—		2,785,122		—
ABS	ABS	112,033		—		112,033		—		ABS	229,664		—		229,664		—
RMBS	RMBS	178,961		—		178,961		—		RMBS	268,586		—		268,586		—
CMBS	CMBS	267,660		—		267,660		—		CMBS	278,986		—		278,986		—
CLOs	CLOs	305,295		—		305,295		—		CLOs	325,466		—		325,466		—
Total fixed income securities	Total fixed income securities	5,151,987		42,264		5,109,710		13		Total fixed income securities	5,737,892		34,240		5,703,652		—
Equity securities	Equity securities	3,932		3,932		—		—		Equity securities	17,328		17,328		—		—
Other ⁽¹⁾	Other ⁽¹⁾	96,403		96,403		—		—		Other ⁽¹⁾	164,693		164,693		—		—
Real estate acquired ⁽²⁾	Real estate acquired ⁽²⁾	14,535		—		—		14,535		Real estate acquired ⁽²⁾	7,252		—		—		7,252
Total	Total	$	5,266,857	$	142,599	$	5,109,710	$	14,548	Total	$	5,927,165	$	216,261	$	5,703,652	$	7,252


⁽¹⁾	Consists of money market funds included in “Cash and Cash Equivalents” and “Restricted Cash and Cash Equivalents” on the consolidated balance sheets.


⁽²⁾	Real estate acquired through claim settlement, which is held for sale, is reported in “Other assets” on the consolidated balance sheets.

~~MGIC Investment Corporation - Q2 2019 | 22~~

~~Reconciliations of Level 3 assets~~

For assets measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the three and six months ended June 30, 2019 and 2018 is shown in tables ~~8.2a~~ ~~through~~ ~~8.2d~~ ~~below. As shown in table 8.2d below, we transferred our 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.”~~ ~~There were no losses included in earnings for those periods attributable to the change in unrealized losses on assets still held at the end of the applicable period.~~

Fair value roll-forward for financial instruments classified as Level 3 for the three months ended June 30, 2019
Table 8.2a
(In thousands) Fixed income Equity Securities Total Investments Real Estate Acquired
Balance at March 31, 2019 $ —
$ —
$ —
$ 11,639
Purchases —
—
—
7,107
Sales —
—
—
(8,152 )
Included in earnings and reported as losses incurred, net —
—
—
(344 )
Balance at June 30, 2019 $ —
$ —
$ —
$ 10,250

Fair value roll-forward for financial instruments classified as Level 3 for the six months ended June 30, 2019
Table 8.2b
(In thousands) Fixed income Equity Securities Total Investments Real Estate Acquired
Balance at December 31, 2018 $ 13
$ —
$ 13
$ 14,535
Purchases —
—
—
15,191
Sales (13 ) —
(13 ) (19,024 )
Included in earnings and reported as losses incurred, net —
—
—
(452 )
Balance at June 30, 2019 $ —
$ —
$ —
$ 10,250

Fair value roll-forward for financial instruments classified as Level 3 for the three months ended June 30, 2018
Table 8.2c
(In thousands) Fixed income Equity
Securities Total
Investments Real Estate
Acquired
Balance at March 31, 2018 254
1,168
1,422
10,078
Purchases —
—
—
10,869
Sales (62 ) —
(62 ) (6,630 )
Included in earnings and reported as losses incurred, net —
—
—
(996 )
Balance at June 30, 2018 $ 192
$ 1,168
$ 1,360
$ 13,321

Fair value roll-forward for financial instruments classified as Level 3 for the six months ended June 30, 2018
Table 8.2d
(In thousands) Fixed income Equity
Securities Total
Investments Real Estate
Acquired
Balance at December 31, 2017 271
4,268
4,539
12,713
Transfers out of Level 3 —
(3,100 ) (3,100 ) —
Purchases —
—
—
16,763
Sales (79 ) —
(79 ) (15,500 )
Included in earnings and reported as losses incurred, net —
—
—
(655 )
Balance at June 30, 2018 $ 192
$ 1,168
$ 1,360
$ 13,321

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

MGIC Investment Corporation - Q1 2020 | 23

Reconciliations of Level 3 assets

For assets measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the three months ended March 31, 2020 and 2019 is shown in tables 8.2a and 8.2b below. There were no losses included in earnings for those periods attributable to the change in unrealized losses on assets still held at the end of the applicable period.



Fair value roll-forward for financial instruments classified as Level 3 for the three months ended March 31, 2020
Table	8.2a
(In thousands)		Fixed income		Real Estate Acquired
Balance at December 31, 2019		$	—	$	7,252
Purchases		—		4,115
Sales		—		(5,198		)
Included in earnings and reported as losses incurred, net		—		57
Balance at March 31, 2020		$	—	$	6,226



Fair value roll-forward for financial instruments classified as Level 3 for the three months ended March 31, 2019
Table	8.2b
(In thousands)		Fixed income			Real Estate Acquired
Balance at December 31, 2018		$	13		$	14,535
Purchases		—			8,084
Sales		(13		)	(10,872		)
Included in earnings and reported as losses incurred, net		—			(108		)
Balance at March 31, 2019		$	—		$	11,639

Financial assets and liabilities not measured at fair value

Other invested assets include an investment in FHLB stock that is carried at cost, which due to restrictions that require it to be redeemed or sold only to the security issuer at par value, approximates fair value. The fair value of other invested assets is categorized as Level 2.

~~MGIC Investment Corporation - Q2 2019 | 23~~

Financial liabilities include our outstanding debt obligations. The fair values of our 5.75% Notes and 9% Debentures were based on observable market prices. The fair value of the FHLB Advance was estimated using cash flows discounted at current incremental borrowing rates for similar borrowing arrangements. In all cases the fair values of the financial liabilities below are categorized as Level 2.

Table 8.3 presents the carrying value and fair value of our financial assets and liabilities disclosed, but not carried, at fair value at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

																			Financial assets and liabilities not measured at fair value
Table	8.3									8.3
		June 30, 2019				December 31, 2018					March 31, 2020				December 31, 2019
(In thousands)	(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value		(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets	Financial assets									Financial assets
Other invested assets	Other invested assets	$	3,100	$	3,100	$	3,100	$	3,100	Other invested assets	$	3,100	$	3,100	$	3,100	$	3,100

Financial liabilities	Financial liabilities									Financial liabilities
FHLB Advance	FHLB Advance	$	155,000	$	155,690	$	155,000	$	150,551	FHLB Advance	$	155,000	$	161,575	$	155,000	$	156,422
5.75% Senior Notes	5.75% Senior Notes	420,290		462,702		419,713		425,791		5.75% Senior Notes	421,155		395,025		420,867		471,827
9% Convertible Junior Subordinated Debentures	9% Convertible Junior Subordinated Debentures	256,872		340,669		256,872		338,069		9% Convertible Junior Subordinated Debentures	256,872		334,252		256,872		346,289
Total financial liabilities	Total financial liabilities	$	832,162	$	959,061	$	831,585	$	914,411	Total financial liabilities	$	833,027	$	890,852	$	832,739	$	974,538

MGIC Investment Corporation - Q1 2020 | 24

Note 9. Other Comprehensive Income

The pretax and related income tax benefit (expense) ~~benefit~~ components of our other comprehensive (loss) income ~~(loss)~~ for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ are included in table 9.1 below.


Components of other comprehensive income (loss)	Components of other comprehensive income (loss)													Components of other comprehensive income (loss)
Table	9.1													9.1
		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(In thousands)	(In thousands)	2019			2018			2019			2018			(In thousands)	2020			2019
Net unrealized investment gains (losses) arising during the period		$	89,562		$	(12,558	)	$	192,183		$	(94,145	)
Income tax (expense) benefit		(18,808		)	2,636			(40,358		)	19,770
Net unrealized investment (losses) gains arising during the period														Net unrealized investment (losses) gains arising during the period	$	(91,880	)	$	102,621
Income tax benefit (expense)														Income tax benefit (expense)	19,295			(21,550		)
Net of taxes	Net of taxes	70,754			(9,922		)	151,825			(74,375		)	Net of taxes	(72,585		)	81,071

Net changes in benefit plan assets and obligations	Net changes in benefit plan assets and obligations	1,961			491			4,050			1,116			Net changes in benefit plan assets and obligations	1,394			2,089
Income tax expense	Income tax expense	(412		)	(103		)	(851		)	(234		)	Income tax expense	(293		)	(439		)
Net of taxes	Net of taxes	1,549			388			3,199			882			Net of taxes	1,101			1,650

Total other comprehensive income (loss)		91,523			(12,067		)	196,233			(93,029		)
Total income tax (expense) benefit		(19,220		)	2,533			(41,209		)	19,536
Total other comprehensive income (loss), net of tax		$	72,303		$	(9,534	)	$	155,024		$	(73,493	)
Total other comprehensive (loss) income														Total other comprehensive (loss) income	(90,486		)	104,710
Total income tax benefit (expense)														Total income tax benefit (expense)	19,002			(21,989		)
Total other comprehensive (loss) income, net of tax														Total other comprehensive (loss) income, net of tax	$	(71,484	)	$	82,721

~~MGIC Investment Corporation - Q2 2019 | 24~~

The pretax and related income tax (expense) benefit ~~(expense)~~ components of the amounts reclassified from our accumulated other comprehensive income (loss) (“AOCI”) to our consolidated statements of operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ are included in table 9.2 below.


Reclassifications from AOCI	Reclassifications from AOCI													Reclassifications from AOCI
Table	9.2													9.2
		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(In thousands)	(In thousands)	2019			2018			2019			2018			(In thousands)	2020			2019
Reclassification adjustment for net realized gains (losses) ⁽¹⁾	Reclassification adjustment for net realized gains (losses) ⁽¹⁾	$	1,701		$	(3,621	)	$	(978	)	$	(3,712	)	Reclassification adjustment for net realized gains (losses) ⁽¹⁾	$	4,714		$	(2,679	)
Income tax (expense) benefit	Income tax (expense) benefit	(357		)	760			206			779			Income tax (expense) benefit	(990		)	563
Net of taxes	Net of taxes	1,344			(2,861		)	(772		)	(2,933		)	Net of taxes	3,724			(2,116		)

Reclassification adjustment related to benefit plan assets and obligations ⁽²⁾	Reclassification adjustment related to benefit plan assets and obligations ⁽²⁾	(1,961		)	(491		)	(4,050		)	(1,116		)	Reclassification adjustment related to benefit plan assets and obligations ⁽²⁾	(1,394		)	(2,089		)
Income tax benefit	Income tax benefit	412			103			851			234			Income tax benefit	293			439
Net of taxes	Net of taxes	(1,549		)	(388		)	(3,199		)	(882		)	Net of taxes	(1,101		)	(1,650		)

Total reclassifications	Total reclassifications	(260		)	(4,112		)	(5,028		)	(4,828		)	Total reclassifications	3,320			(4,768		)
Total income tax benefit		55			863			1,057			1,013
Total income tax (expense) benefit														Total income tax (expense) benefit	(697		)	1,002
Total reclassifications, net of tax	Total reclassifications, net of tax	$	(205	)	$	(3,249	)	$	(3,971	)	$	(3,815	)	Total reclassifications, net of tax	$	2,623		$	(3,766	)


⁽¹⁾	Increases (decreases) Net realized investment (losses) gains on the consolidated statements of operations.


⁽²⁾	Decreases (increases) Other underwriting and operating expenses, net on the consolidated statements of operations.

A rollforward of AOCI for the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, including amounts reclassified from AOCI, are included in table 9.3 below.

																					Rollforward of AOCI
Table	9.3										9.3
		Six Months Ended June 30, 2019										Three Months Ended March 31, 2020
(In thousands)	(In thousands)	Net unrealized gains and (losses) on available-for-sale securities			Net benefit plan assets and (obligations) recognized in shareholders' equity			Total accumulated other comprehensive income (loss)			(In thousands)	Net unrealized gains and (losses) on available-for-sale securities			Net benefit plan assets and (obligations) recognized in shareholders' equity			Total accumulated other comprehensive income (loss)
Balance, December 31, 2018, net of tax		$	(35,389	)	$	(88,825	)	$	(124,214	)
Balance at December 31, 2019, net of tax											Balance at December 31, 2019, net of tax	138,521			(65,813		)	72,708
Other comprehensive income before reclassifications	Other comprehensive income before reclassifications	151,053			—			151,053			Other comprehensive income before reclassifications	(68,861		)	—			(68,861		)
Less: Amounts reclassified from AOCI	Less: Amounts reclassified from AOCI	(772		)	(3,199		)	(3,971		)	Less: Amounts reclassified from AOCI	3,724			(1,101		)	2,623
Balance, June 30, 2019, net of tax		$	116,436		$	(85,626	)	$	30,810
Balance, March 31, 2020, net of tax											Balance, March 31, 2020, net of tax	$	65,936		$	(64,712	)	$	1,224

MGIC Investment Corporation - Q1 2020 | 25

Note 10. Benefit Plans

~~Tables~~Table 10.1 ~~and~~ ~~10.2~~ provide the components of net periodic benefit cost for our pension, supplemental executive retirement and other postretirement benefit plans for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

Components of net periodic benefit cost
Table 10.1
Three Months Ended June 30,
Pension and Supplemental Executive Retirement Plans Other Postretirement Benefit Plans
(In thousands) 2019 2018 2019 2018
Service cost $ 2,176
$ 2,703
$ 360
$ 310
Interest cost 3,898
3,765
274
203
Expected return on plan assets (4,825 ) (5,555 ) (1,447 ) (1,591 )
Amortization of net actuarial losses/(gains) 2,039
1,684
—
(79 )
Amortization of prior service cost/(credit) (70 ) (88 ) (9 ) (1,026 )
Net periodic benefit cost (benefit) $ 3,218
$ 2,509
$ (822 ) $ (2,183 )

~~MGIC Investment Corporation - Q2 2019 | 25~~

Components of net periodic benefit cost
Table 10.2
Six Months Ended June 30,
Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(in thousands) 2019 2018 2019 2018
Service cost $ 4,172
$ 5,265
$ 672
$ 580
Interest cost 7,853
7,547
565
417
Expected return on plan assets (9,733 ) (11,125 ) (2,892 ) (3,179 )
Recognized net actuarial gain (loss) 4,206
3,469
—
(125 )
Amortization of prior service cost (140 ) (175 ) (17 ) (2,052 )
Net period benefit cost (benefit) $ 6,358
$ 4,981
$ (1,672 ) $ (4,359 )



Components of net periodic benefit cost
Table	10.1
		Three Months Ended March 31,
		Pension and Supplemental Executive Retirement Plans						Other Postretirement Benefit Plans
(In thousands)		2020			2019			2020			2019
Service cost		$	1,821		$	1,996		$	309		$	312
Interest cost		3,414			3,955			214			291
Expected return on plan assets		(5,580		)	(4,908		)	(1,852		)	(1,445		)
Amortization of net actuarial losses/(gains)		1,634			2,167			(190		)	—
Amortization of prior service cost/(credit)		(62		)	(70		)	13			(8		)
Net periodic benefit cost (benefit)		$	1,227		$	3,140		$	(1,506	)	$	(850	)

We currently intend to make contributions totaling ~~$10.2~~$12.5 million to our qualified pension plan and supplemental executive retirement plan in ~~2019.~~2020.

Note 11. Loss Reserves

We establish case reserves ~~to recognize the estimated liability for losses~~ and loss adjustment expenses (“LAE”) ~~related to defaults~~reserves when we receive notices of delinquency on insured mortgage loans. ~~Loss~~Notices of delinquency are typically reported to us when loans are two payments past due. Case reserves are established 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.

IBNR reserves are established for estimated losses from delinquencies occurring prior to the close of an accounting period on notices of delinquency not yet 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 ~~default~~delinquency and claim filing; and curtailments and rescissions. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment, leading to a reduction in borrowers’ income and thus their ability to make mortgage payments, 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. Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment.

The “Losses incurred” section of table 11.1 below shows losses incurred on delinquencies that occurred in the current year and in prior years. The amount of losses incurred relating to delinquencies that occurred in the current year represents the

estimated amount to be ultimately paid on such delinquencies. The amount of losses incurred relating to delinquencies that occurred in prior years represents the difference between the actual claim rate and severity associated with those delinquencies resolved in the current year compared to the estimated claim rate and severity at the prior year-end, as well as a re-estimation of amounts to be ultimately paid on delinquencies continuing from the end of the prior year. This re-estimation of the claim rate and severity is the result of our review of current trends in the delinquent 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~~increased in the first ~~six~~three months of ~~2019~~2020 compared to the same period in ~~2018,~~2019, due to ~~a decrease~~an increase in the ~~number of new delinquencies, net of related cures and a decrease in the estimated~~ claim rate ~~on delinquencies that occurred in the current year.~~

~~For the six months ended June 30, 2019~~ and ~~2018, we experienced favorable loss reserve development on previously received delinquencies. This was, in large part,~~severity due to the ~~resolution~~current macroeconomic environment related to the COVID-19 pandemic. This was offset by a decrease of approximately ~~49% and 51%, respectively,~~9% fewer new delinquency notices received in 2020, compared to the same period last year. In the first quarter of ~~the prior year delinquent inventory, with lower claim rates due to improved cure rates. The favorable loss~~2020, we also increased our IBNR reserve ~~development resulting from a reduction in the estimated claim rate was partially offset in the six months ended June 30, 2019~~ by the recognition of a probable loss of $23.5 million related to litigation of our claims paying practices, and for the six months ended June 30, 2018, by an increase in our severity assumption on previously received delinquencies.$7.8 million.

The “Losses paid” section of table 11.1 below shows the amount of losses paid on delinquencies that occurred in the current year and losses paid on delinquencies that occurred in prior years. For several years, 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 established by servicers 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 in 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.~~severity

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 26

~~During~~In light of the ~~first six months of 2018, our losses paid included $21 million paid upon commutation of coverage of pools of non-performing loans (“NPLs”). The commutations reduced our delinquent inventory~~uncertainty caused by ~~662 delinquencies and had no material impact on our losses incurred, net.~~the COVID-19 pandemic, specifically the foreclosure moratoriums, the average time it takes to receive a claim may increase.

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 ~~$34~~$29 million and ~~$40~~$30 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Table 11.1 provides a reconciliation of beginning and ending loss reserves as of and for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

															Development of reserves for losses and loss adjustment expenses
Table	11.1							11.1
		Six Months Ended June 30,							Three Months Ended March 31,
(In thousands)	(In thousands)	2019			2018			(In thousands)	2020			2019
Reserve at beginning of period	Reserve at beginning of period	$	674,019		$	985,635		Reserve at beginning of period	$	555,334		$	674,019
Less reinsurance recoverable	Less reinsurance recoverable	33,328			48,474			Less reinsurance recoverable	21,641			33,328
Net reserve at beginning of period	Net reserve at beginning of period	640,691			937,161			Net reserve at beginning of period	533,693			640,691

Losses incurred:	Losses incurred:							Losses incurred:
Losses and LAE incurred in respect of delinquency notices received in:	Losses and LAE incurred in respect of delinquency notices received in:							Losses and LAE incurred in respect of delinquency notices received in:
Current year	Current year	94,063			108,361			Current year	59,799			47,488
Prior years ⁽¹⁾	Prior years ⁽¹⁾	(33,164		)	(97,966		)	Prior years ⁽¹⁾	1,157			(8,425		)
Total losses incurred	Total losses incurred	60,899			10,395			Total losses incurred	60,956			39,063

Losses paid:	Losses paid:							Losses paid:
Losses and LAE paid in respect of delinquency notices received in:	Losses and LAE paid in respect of delinquency notices received in:							Losses and LAE paid in respect of delinquency notices received in:
Current year	Current year	2,650			263			Current year	39			—
Prior years	Prior years	109,420			173,313			Prior years	45,633			56,365
Reinsurance terminations	Reinsurance terminations	(13,980		)	(1,984		)	Reinsurance terminations	(20		)	—
Total losses paid	Total losses paid	98,090			171,592			Total losses paid	45,652			56,365
Net reserve at end of period	Net reserve at end of period	603,500			775,964			Net reserve at end of period	548,997			623,389
Plus reinsurance recoverables	Plus reinsurance recoverables	18,402			37,051			Plus reinsurance recoverables	25,756			31,875
Reserve at end of period	Reserve at end of period	$	621,902		$	813,015		Reserve at end of period	$	574,753		$	655,264


⁽¹⁾	A positive number for prior year loss development indicates a deficiency of prior year reserves. A negative number for prior year losses incurred indicates a redundancy of prior year loss reserves. See the following table for more information about prior year loss development.

The prior year development of the reserves in the first ~~six~~three months of ~~2019~~2020 and ~~2018~~2019 is reflected in table 11.2 below.

															Reserve development on previously received delinquencies
Table	11.2							11.2
		Six Months Ended June 30,							Three Months Ended March 31,
(In millions)	(In millions)	2019			2018			(In millions)	2020			2019
Decrease in estimated claim rate on primary defaults	Decrease in estimated claim rate on primary defaults	$	(67	)	$	(120	)	Decrease in estimated claim rate on primary defaults	$	—		$	(31	)
Increase in estimated severity on primary defaults	Increase in estimated severity on primary defaults	3			19			Increase in estimated severity on primary defaults	3			—
Change in estimates related to pool reserves, LAE reserves, reinsurance, and other	Change in estimates related to pool reserves, LAE reserves, reinsurance, and other	31			3			Change in estimates related to pool reserves, LAE reserves, reinsurance, and other	(2		)	23
Total prior year loss development ⁽¹⁾	Total prior year loss development ⁽¹⁾	$	(33	)	$	(98	)	Total prior year loss development ⁽¹⁾	$	1		$	(8	)


⁽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.

Delinquent inventory

A rollforward of our primary delinquent inventory for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ appears in table 11.3 below. The information concerning new notices and cures is compiled from monthly reports received from loan servicers. The level of new notice and cure activity reported in a particular month can be influenced by, among other things, the date on which a servicer generates its report, the ~~accuracy of the data provided by servicers, the~~ number of business days in a month and transfers of servicing between loan ~~servicers and whether all servicers have provided the reports in a given month.~~servicers.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 27


Delinquent inventory rollforward	Delinquent inventory rollforward									Delinquent inventory rollforward
Table	11.3									11.3
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2019		2018		2019		2018			2020		2019
Delinquent inventory at beginning of period	Delinquent inventory at beginning of period	30,921		41,243		32,898		46,556		Delinquent inventory at beginning of period	30,028		32,898
New notices	New notices	12,915		12,159		26,526		26,782		New notices	12,398		13,611
Cures	Cures	(12,882	)	(15,350	)	(27,230	)	(33,423	)	Cures	(14,113	)	(14,348	)
Paid claims	Paid claims	(1,112	)	(1,501	)	(2,300	)	(3,072	)	Paid claims	(897	)	(1,188	)
Rescissions and denials	Rescissions and denials	(47	)	(76	)	(99	)	(144	)	Rescissions and denials	(32	)	(52	)
Other items removed from inventory		—		(438	)	—		(662	)
Delinquent inventory at end of period	Delinquent inventory at end of period	29,795		36,037		29,795		36,037		Delinquent inventory at end of period	27,384		30,921

The decrease in the primary delinquent inventory experienced during ~~2019 and 2018~~2020 was generally across all markets and primarily in ~~book~~books years 2008 and prior. Historically as a delinquency ages it becomes more likely to result in a claim.

~~Hurricane activity~~

~~New~~The CARES Act and other related actions includes payment forbearance on mortgages to borrowers experiencing a hardship during the COVID-19 pandemic. Forbearance allows for mortgage payments to be suspended for up to 360 days. Loans in forbearance are included in our delinquent notice activity increased in the fourth quarter of 2017 because of hurricane activity that primarily impacted Puerto Rico, Texas, and Florida in the third quarter of 2017. Many of the loans from the hurricane impacted areas remained delinquent through the period ending June 30, 2018 and are shown in the 4-11 months delinquent category in tableinventory. ~~11.4. The majority of the delinquent notices received from the hurricane activity cured as of December 31, 2018.~~

Table 11.4 below shows the number of consecutive months a borrower is delinquent. Historically as a delinquency ages it becomes more likely to result in a claim.

															Primary delinquent inventory - consecutive months delinquent
Table	11.4							11.4
		June 30, 2019		December 31, 2018		June 30, 2018			March 31, 2020		December 31, 2019		March 31, 2019
3 months or less	3 months or less	8,970		9,829		8,554		3 months or less	7,567		9,447		8,568
4-11 months	4-11 months	8,951		9,655		12,506		4-11 months	9,535		9,664		9,997
12 months or more ⁽¹⁾	12 months or more ⁽¹⁾	11,874		13,414		14,977		12 months or more ⁽¹⁾	10,282		10,917		12,356
Total	Total	29,795		32,898		36,037		Total	27,384		30,028		30,921
3 months or less	3 months or less	30	%	30	%	24	%	3 months or less	28	%	32	%	28	%
4-11 months	4-11 months	30	%	29	%	35	%	4-11 months	35	%	32	%	32	%
12 months or more	12 months or more	40	%	41	%	41	%	12 months or more	37	%	36	%	40	%
Total	Total	100	%	100	%	100	%	Total	100	%	100	%	100	%
Primary claims received inventory included in ending delinquent inventory	Primary claims received inventory included in ending delinquent inventory	630		809		827		Primary claims received inventory included in ending delinquent inventory	472		538		665


⁽¹⁾	Approximately ~~37%~~34%, ~~38%~~36%, and ~~43%~~38% of the primary delinquent inventory delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of ~~June 30, 2019~~March 31, 2020, December 31, ~~2018~~2019, and ~~June 30, 2018~~March 31, 2019, respectively.

Claims paying practices

Our loss reserving methodology incorporates our estimates of future ~~rescissions and curtailments.~~rescissions. A variance between ultimate actual rescission ~~and curtailment~~ 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 rescissions is accrued for separately and is included in “Other liabilities” on our consolidated balance sheets. For information about discussions and legal proceedings with customers with respect to our claims paying practices see Note 5 – “Litigation and Contingencies.”

Note 12. Shareholders’ Equity

Share repurchase programs

~~In March 2019, our board of directors authorized an additional share repurchase program under which we may repurchase up to $200 million of our common stock through the end of 2020.~~ During the ~~second quarter of 2019~~three months ended March 31, 2020 we repurchased approximately ~~1.8~~9.6 million shares of our common stock at a weighted average cost per share of ~~$13.79,~~$12.47, which included commissions. ~~These repurchases used the remaining $25~~We may repurchase up to an additional $291 million of our common stock through the end of 2021 under a share repurchase ~~authorization on~~program approved by our Board of Directors in the ~~program announced in April 2018.~~January 2020. Repurchases may be made from time to time on the open market or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any ~~time.~~time, and in light of the uncertainty caused by the COVID-19 pandemic, we have temporarily suspended stock repurchases.

Cash dividends

In February 2020, we paid a quarterly cash dividend of $0.06 per share to shareholders which totaled $21 million. On April 23, 2020, the Board of Directors declared a quarterly cash dividend to holders of the company’s common stock of $0.06 per share payable on May 29, 2020, to shareholders of record at the close of business on May 11, 2020.

MGIC Investment Corporation - Q1 2020 | 28

Note 13. Share-Based Compensation

We have certain share-based compensation plans. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period which generally corresponds to the vesting period. Awards under our plans generally vest over periods ranging from one to three years.

Table 13.1 shows the number of ~~shares~~restricted stock units (RSUs) granted to employees and the weighted average fair value per share during the periods presented (shares in thousands).


Restricted stock grants
Restricted stock unit grants								Restricted stock unit grants
Table	13.1							13.1
		Six months ended June 30,							Three months ended March 31,
		2019			2018				2020			2019
		Shares Granted	Weighted Average Share Fair Value		Shares Granted	Weighted Average Share Fair Value			RSUs Granted (in thousands)	Weighted Average Share Fair Value		RSUs Granted (in thousands)	Weighted Average Share Fair Value
RSUs subject to performance conditions	RSUs subject to performance conditions	1,378	$	11.76	1,239	$	15.80	RSUs subject to performance conditions	1,282	$	12.87	1,378	$	11.76
RSUs subject only to service conditions	RSUs subject only to service conditions	412	11.76		412	15.71		RSUs subject only to service conditions	373	13.11		412	11.76

~~MGIC Investment Corporation - Q2 2019 | 28~~

Note 14. Statutory Information

Statutory Capital Requirements

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

At ~~June 30, 2019,~~March 31, 2020, MGIC’s risk-to-capital ratio was ~~10.1~~10.2 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was ~~$2.7~~$2.8 billion above the required MPP of ~~$1.6~~$1.7 billion. ~~In calculating~~The calculation of our risk-to-capital ratio and MPP ~~we have taken full~~reflect credit for the risk ceded under our QSR Transactions and Home Re Transactions with a group of 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 to the reinsurers. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the financial requirements of the PMIERs, MGIC may terminate the reinsurance transactions, without penalty. At 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 are discussed in the rest of these consolidated financial statement footnotes.~~compliance.

At ~~June 30, 2019,~~March 31, 2020, the risk-to-capital ratio of our combined insurance operations was ~~10.0~~10.2 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 ~~May 2016,~~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, and action level triggers.~~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

MGIC Investment Corporation - Q1 2020 | 29

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,~~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 insurance in force 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 are discussed in the rest of these consolidated financial statement footnotes.~~

~~Tax and Loss Bonds~~

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. During the three months ended June 30, 2019, we had net purchases of T&L Bonds in the amount of $74 million. 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.resources.

Dividend restrictions

In ~~each of~~ the first ~~and second quarters~~quarter of ~~2019,~~2020, MGIC paid a ~~$70~~$390 million ~~dividend~~in dividends to our holding company. MGIC is not planning to request a dividend to be paid to our holding company in the second quarter. 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 ~~such dividends being subject to~~ regulatory ~~disapproval~~approval by the OCI is the lesser of adjusted statutory net income or 10% of statutory ~~policyholders’~~‘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 OCI recognizes only statutory accounting principles prescribed, or practices permitted by the State of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company. The OCI has adopted certain prescribed accounting practices that differ from those found in other states. Specifically, Wisconsin domiciled companies record changes in their contingency reserves through their income statement as a change in underwriting deduction. As a result, in periods in which MGIC is increasing contingency reserves, statutory net income is ~~lowered.~~reduced.

Statutory Financial Information

The statutory net income, policyholders’ surplus, and contingency reserve liability of the insurance subsidiaries of our holding company are shown in table 14.1. The surplus amounts included in the following table are the combined policyholders’ surplus of our insurance operations as utilized in our risk-to-capital calculations.



Statutory financial information of holding company and insurance subsidiaries
Table 14.1
	As of and for the Three Months Ended
(In thousands)	March 31, 2020		March 31, 2019
Statutory net income	$	55,746	$	65,561
Statutory policyholders' surplus	1,271,244		1,667,058
Contingency reserve	3,166,180		2,583,429

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 2930

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

Introduction

The following is management’s discussion and analysis of the financial condition and results of operations of MGIC Investment Corporation for the ~~second~~first quarter of ~~2019.~~2020. The COVID-19 pandemic did not have a material impact to our first quarter financial results, liquidity and/or financial condition. While the magnitude of the impact of the COVID-19 pandemic on future financial results, liquidity and/or financial condition is uncertain, we expect it will negatively impact our business. As used below, “we” and “our” refer to MGIC Investment Corporation’s consolidated operations. This form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. See the “Glossary of terms and acronyms” for definitions and descriptions of terms used throughout this MD&A. The Risk Factors referred to under “Forward Looking Statements and Risk Factors” below, discuss trends and uncertainties affecting us and are an integral part of the MD&A.

Forward Looking and Other Statements

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

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 3031

Overview


Summary financial results of MGIC Investment Corporation	Summary financial results of MGIC Investment Corporation														Summary financial results of MGIC Investment Corporation

		Three Months Ended June 30,							Six Months Ended June 30,							Three Months Ended March 31,
(In millions, except per share data, unaudited)	(In millions, except per share data, unaudited)	2019		2018			% Change		2019		2018		% Change		(In millions, except per share data, unaudited)	2020		2019		% Change
Selected statement of operations data	Selected statement of operations data														Selected statement of operations data
Total revenues	Total revenues	$	292.3	$	282.0		4		$	584.0	$	547.8	7		Total revenues	$	306.9	$	291.7	5
Losses incurred, net	Losses incurred, net	21.8		(13.5		)	261		60.9		10.4		486		Losses incurred, net	61.0		39.1		56
Other underwriting and operating expenses, net	Other underwriting and operating expenses, net	43.0		41.8			3		88.9		87.9		1		Other underwriting and operating expenses, net	42.3		45.9		(8	)
Income before tax	Income before tax	211.2		237.5			(11	)	402.1		417.5		(4	)	Income before tax	188.2		190.9		(1	)
Provision for income taxes	Provision for income taxes	43.4		50.7			(14	)	82.4		87.1		(5	)	Provision for income taxes	38.4		39.0		(2	)
Net income	Net income	167.8		186.8			(10	)	319.7		330.5		(3	)	Net income	149.8		151.9		(1	)
Diluted income per share	Diluted income per share	$	0.46	$	0.49		(6	)	$	0.87	$	0.87	—		Diluted income per share	$	0.42	$	0.42	—

Non-GAAP Financial Measures ⁽¹⁾	Non-GAAP Financial Measures ⁽¹⁾														Non-GAAP Financial Measures ⁽¹⁾
Adjusted pre-tax operating income	Adjusted pre-tax operating income	$	211.0	$	239.4		(12	)	$	402.6	$	419.8	(4	)	Adjusted pre-tax operating income	$	185.4	$	191.6	(3	)
Adjusted net operating income	Adjusted net operating income	167.6		189.2			(11	)	320.0		333.8		(4	)	Adjusted net operating income	147.5		152.4		(3	)
Adjusted net operating income per diluted share	Adjusted net operating income per diluted share	$	0.46	$	0.50		(8	)	$	0.87	$	0.88	(1	)	Adjusted net operating income per diluted share	$	0.42	$	0.42	—

⁽¹⁾ See “Explanation and reconciliation of our use of Non-GAAP financial measures.”

Summary of ~~second~~first quarter ~~2019~~2020 results

Comparative quarterly results

We recorded ~~second~~first quarter ~~2019~~2020 net income of ~~$167.8~~$149.8 million, or ~~$0.46~~$0.42 per diluted share. Net income decreased by ~~$19.0~~$2.1 million ~~(10%~~(1%) from net income of ~~$186.8~~$151.9 million in the prior year, primarily reflecting an increase in losses incurred, net, partially offset by an increase in ~~investment~~revenues. Net premiums earned increased due to higher average insurance in force and an increase in accelerated premiums from single premium policy cancellations, partially offset by lower premium rates. Diluted income ~~and~~per share was unchanged as a decrease in our ~~provision for income taxes. Diluted income per share declined 6 percent reflecting the decrease in net income, offset in part by a decrease in our diluted~~ weighted average shares ~~outstanding.~~outstanding offset the decline in net income.

Adjusted net operating income for the ~~second~~first quarter ~~2019~~2020 was ~~$167.6~~$147.5 million ~~(Q2 2018: $189.2~~(Q1 2019: $152.4 million) and adjusted net operating income per diluted share was ~~$0.46 (Q2 2018: $0.50)~~$0.42 (Q1 2019: $0.42). Adjusted net operating income per diluted share ~~declined 8% reflecting~~was unchanged from the ~~decrease in net income, offset in part by~~prior year period as a decrease in our diluted weighted average shares ~~outstanding.~~outstanding offset the decline in adjusted net operating income.

Losses incurred, net for the ~~second~~first quarter of ~~2019~~2020 were ~~$21.8~~$61.0 million, an increase of ~~$35.3~~$21.9 million compared to the prior year. ~~The increase was due to a lower level~~In the first quarter of 2020, we received approximately 9% fewer new delinquency notices than we did in the same period last year. Over the past several quarters we had recorded favorable reserve development including $31 million in favorable development in the first quarter of 2019. In the first quarter of 2020, our re-estimation of reserves on previous delinquencies resulted in minimal adverse loss reserve ~~development on previously received delinquencies compared~~development. The first quarter of 2020 also reflects an increase in our incurred but not reported reserve, or IBNR, from $22 million to ~~the prior year. The increase was offset in part by lower current year losses incurred~~$30 million, as ~~the estimated~~well as an increased claim rate on new notices ~~in the second quarter of 2019 was 8%, compared to 9.5% in the prior year.~~

~~The decrease in our provision for income taxes in the second quarter of 2019 as compared~~due to the ~~prior year was primarily due to a decrease in income before tax.~~

In June 2019, MGIC paid a dividend of $70 million to our holding company and we expect MGIC to continue to pay quarterly dividends of at least that amount, subject to approval by MGIC’s board of directors and non-disapproval by the OCI.

~~Comparative year to date results~~

We recorded net income of $319.7 million, or $0.87 per diluted share during the first six months of 2019. Net income decreased by $10.7 million from net income of $330.5 million in the prior year, primarily reflecting an increase in losses incurred, net, partially offset by an increase in premiums and investment income. Diluted income per share was the same as the prior year as the decrease in net income was offset by a decrease in our diluted weighted average shares outstanding.

Adjusted net operating income for the first six months of 2019 was $320.0 million (YTD 2018: $333.8 million) and adjusted net operating income per diluted share was $0.87 (YTD 2018: $0.88). Adjusted net operating income per diluted share was roughly the same as the prior year as the decrease in net income was offset by a decrease in our diluted weighted average shares outstanding.

Losses incurred, net for the first six months of 2019 were $60.9 million, an increase of $50.5 million over the prior year. The increase was due to a lower level of favorable loss reserve development on previously received delinquenciesCOVID-19 pandemic and the ~~recognition of a probable loss of $23.5 million for litigation of our claims paying practices during the first quarter of 2019. The increase was offset in part by lower~~ current ~~year losses incurred as the estimated claim rate on new notices in the first six months of 2019 was 8%, compared to 9% in the prior year.~~macroeconomic environment.

The decrease in our provision for income taxes in the first ~~six months~~quarter of ~~2019~~2020 as compared to the prior year was ~~primarily~~ due to a decrease in income before tax.

~~See~~ ~~“Consolidated Results~~

Capital

MGIC dividend payments to our holding company

In the first three months of ~~Operations”below for additional discussion~~2020, MGIC paid a total of $390 million in dividends to our ~~results for~~holding company. MGIC is not planning to request a dividend from its regulator, the ~~three and six months ended June 30, 2019 compared~~Wisconsin OCI, to be paid in the second quarter. We ask the Wisconsin OCI not to object before MGIC pays dividends to the ~~respective prior year periods.~~holding company. Future dividend payments from MGIC to the holding company will continue to be determined on a quarterly basis in consultation with the board, and after considering any updated estimates about the length and severity of the economic impacts of the COVID-19 pandemic on our business.

~~MGIC Investment Corporation - Q2 2019 | 31~~

~~Capital~~

Share repurchase programs

~~On March 19, 2019,~~In the first quarter of 2020, we repurchased approximately 9.6 million shares of our ~~board~~common stock, using approximately $120 million of ~~directors authorized an additional share repurchase program under which we~~our holding company resources. We may repurchase up to ~~$200~~an additional $291 million of our common stock through the end of ~~2020. During the second quarter~~2021 under a share repurchase program approved by our Board of ~~2019, we repurchased approximately 1.8 million shares of common stock for $25 million, which used the remaining authorization on the program announced~~Directors in ~~April 2018.~~January 2020. Repurchases may be made from time to time on the open market or through privately negotiated transactions. The repurchase programs may be suspended for periods or discontinued at any ~~time.~~time, and in light of the uncertainty caused by the COVID-19 pandemic, we have temporarily suspended stock repurchases. As of ~~June 30, 2019,~~March 31, 2020, we had approximately ~~354~~339 million shares of common stock outstanding.

~~Since the end of the second quarter of 2019, through August 5, 2019, we repurchased approximately 1.8 million shares of our common stock for approximately $23 million.~~

Dividends to shareholders

In February 2020, MGIC paid a dividend of $0.06 per common share totaling $21 million to its shareholders. On ~~July 25, 2019, the~~April 23, 2020, our Board of Directors declared a quarterly cash dividend ~~to shareholders of the company~~ of $0.06 per common share ~~payable on September 20, 2019,~~ to shareholders of record ~~at the close of business~~ on ~~August 30, 2019.~~May 11, 2020, payable on May 29, 2020.

MGIC Investment Corporation - Q1 2020 | 32

GSEs

We must comply with ~~the~~a GSE’s PMIERs to be eligible to insure loans delivered to or purchased by ~~the GSEs. In addition to their~~that GSE. The PMIERs include financial requirements, ~~the PMIERs include~~as well as business, quality control and certain transaction approval requirements. ~~Refer~~The financial requirements of the PMIERs require a mortgage insurer’s “available Assets” (generally only the most liquid assets of an insurer) to ~~“Liquidity~~equal or exceed its “Minimum Required Assets” (which are generally based on an insurer’s book of insurance in force and ~~Capital Resources - Capital Adequacy - PMIERs”~~are calculated from tables of ~~this MD&A~~factors with several risk dimensions, reduced for ~~additional information regarding~~credit given for risk ceded under reinsurance transactions).

While loans that were current at the time a COVID-19 pandemic-related forbearance was initiated are not to be reported as delinquent for consumer credit reporting purposes, they may be reported to the mortgage insurers and the GSEs as delinquent and are treated as delinquent for purposes of the PMIERs. Loans that were delinquent at the time such a forbearance was initiated are expected to be reported as delinquent to mortgage insurers and the GSEs. The PMIERs generally require us to maintain significantly more Minimum Required Assets for delinquent loans than for performing loans. However, delinquent loans whose borrowers have been affected by the COVID-19 pandemic may be given the same treatment under PMIERS as delinquent loans in areas that the Federal Emergency Management Agency ("FEMA") has declared major disaster areas in connection with hurricanes. Specifically, the Minimum Required Assets required for a COVID-19 pandemic-related delinquent loan would be reduced by 70% for at least 120 days from the date the loan becomes delinquent, and longer if the loan is subject to a forbearance plan that meets certain requirements.

Under the current PMIERs, to be eligible for the 70% reduction, the loan must be backed by a property located in a FEMA Declared Major Disaster Area and either 1) or 2) below must apply. FEMA has declared all states and territories in which we conduct business to be Major Disaster Areas as a result of the impact of the COVID-19 pandemic. Absent a forbearance plan described in 1) below, the 70% reduction may be applied no longer than 120 days from the initial default date.


1)	The loan is subject to a forbearance plan executed in response to a FEMA Declared Major Disaster Area eligible for Individual Assistance, the terms of which are materially consistent with terms of forbearance plans offered by Freddie Mac or Fannie Mae. As of the date of this report, not all states have delegated eligible individual assistance.


2)	The loan has an initial default date occurring up to either (i) 30 days prior to or (ii) 90 days following the Major Disaster event. [It is uncertain how the date of the "Major Disaster event" will be determined for the COVID-19 pandemic.

The mortgage insurance industry has asked the FHFA and the GSEs to consider revisions to the PMIERs in light of the differences between FEMA declarations associated with hurricanes and those associated with the COVID-19 pandemic. Among other things, the industry asked the FHFA and GSEs to specify how "Major Disaster event" will be determined and to not limit the forbearance plans described in 1) above to those executed in response to a FEMA Declared Major Disaster Area eligible for Individual Assistance. We applied the 70% reduction discussed above when calculating our ~~capital adequacy under PMIERs.~~PMIERs Minimum Required Assets for March 31, 2020. We expect to receive

guidance from the GSEs before we calculate our PMIERs Minimum Required Assets for June 30, 2020.

Although we have requested servicers to provide us with information about the forbearance status of loans, we may not

receive such reporting and, therefore, may not be able to take advantage of the 70% reduction after a loan has been

delinquent 120 days.

If our Available Assets are less than our Minimum Required Assets, then we would not be in compliance with the PMIERs. At the extreme, the GSEs may suspend or terminate eligibility If MGIC ceases to be eligible to insure loans purchased by one or both of the ~~GSEs, it~~GSEs. Such suspension or termination, would significantly reduce the volume of our new business ~~writings. Factors~~writings; the vast majority of our NIW since 2008 has been for loans delivered to or purchased by the GSEs. In addition to the increase in Minimum Required Assets associated with delinquent loans whose borrowers are affected by the COVID-19 pandemic, factors that may negatively impact MGIC’s ability to continue to comply with the financial requirements of the PMIERs include the following:



è	The GSEs ~~may amend the PMIERs at any time and~~ 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 ~~have indicated~~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. It is possible that the GSEs will not agree to the COVID-19-specific changes requested by the mortgage insurance industry or that they will revise the PMIERs to provide that there is no reduction in the Minimum Required Assets for COVID-19-related delinquencies.
è	There may be ~~potential~~ future implications for PMIERs based upon ~~feedback~~forthcoming regulatory capital requirements for the GSEs. In 2018, the FHFA ~~receives on its June 2018~~issued a proposed ~~rule on regulatory~~ capital ~~requirements~~rule for the GSEs, which included a framework for determining the capital relief allowed to the GSEs for loans with private mortgage ~~insurance (public comments were due by November 16, 2018).~~insurance. A re-proposed capital rule is expected to be released; however, the timing and content of the re-proposal are uncertain. Further, any changes to the GSEs' capital and liquidity requirements resulting from the Treasury Housing Reform Plan ~~(discussed below)~~ could have future implications for PMIERs. In addition, the PMIERs provide that the factors that determine Minimum Required Assets will be updated every two years and may be updated more frequently to reflect changes in macroeconomic conditions or loan performance. The GSEs have indicated that they will generally provide notice 180 days prior to the effective date of such updates.
è	Our future operating results may be negatively impacted by the matters discussed in our risk factors. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby creating a shortfall in Available Assets.
è	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.

~~While~~

MGIC Investment Corporation - Q1 2020 | 33

Our reinsurance transactions enable us to earn higher returns on ~~an overall basis, the amount of~~our business than we would without them because fewer Available Assets ~~MGIC must hold in order~~are required to ~~continue to insure GSE loans is greater~~be held under ~~the PMIERs than what state regulation currently requires, our reinsurance transactions mitigate the negative effect of the PMIERs on our returns.~~PMIERs. However, reinsurance may not always be available to us or available on similar terms itand our quota share reinsurance subjects us to counterparty credit ~~risk and the GSEs may change the~~risk. The total credit ~~they allow~~ under the PMIERs 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.

State Regulations

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

At ~~June 30, 2019,~~March 31, 2020, MGIC’s risk-to-capital ratio was ~~10.1~~10.2 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was ~~$2.7~~$2.8 billion above the required MPP of ~~$1.6~~$1.7 billion. ~~In calculating~~The calculation of our risk-to-capital ratio and MPP ~~we have taken full~~reflect credit for the risk ceded under our QSR Transactions and Home Re Transactions. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded to the reinsurers. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the PMIERs, MGIC may terminate the reinsurance transactions, without penalty. 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” for more information about matters that could negatively affect such compliance.

At ~~June 30, 2019,~~March 31, 2020, the risk-to-capital ratio of our combined insurance operations (which includes a reinsurance affiliate) was 1010.2 to 1.

that the PMIERs contain more restrictive capital requirements than the draft Mortgage Guaranty Insurance Model Act in most circumstances.

~~MGIC Investment Corporation - Q2 2019 | 32~~

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 the past, members of Congress have introduced several bills intended to change the business practices of the GSEs and the FHA; however, no legislation has been enacted.~~

In ~~March~~September 2019, at the direction of President Trump, ~~directed~~ the U.S. Treasury Department ~~to develop a plan, as soon as practicable, for~~(“Treasury”) released the “Treasury Housing Reform Plan” (the “Plan”). The Plan recommends administrative and legislative reforms for the housing finance system, ~~(“Treasury Housing Reform Plan”),~~ with such reforms intended to ~~reduce taxpayer risk, expand~~achieve the ~~private sector’s role, modernize the government housing programs, and achieve sustainable homeownership. The directive outlines numerous~~ goals ~~and objectives, including but not limited to, the end~~ of ~~conservatorship~~ending conservatorships of the ~~GSEs, increased~~GSEs; increasing competition and participation ofby the private sector in the mortgage market including by authorizing the FHFA to approve additional guarantors of conventional mortgages in the secondary market, ~~appropriate capital~~simplifying the qualified mortgage (“QM”) rule of the Consumer Financial Protection Bureau (“CFPB”), transferring risk to the private sector, and ~~liquidity requirements for~~eliminating the GSE Patch (discussed below); establishing regulation of the GSEs that safeguards their safety and ~~evaluation~~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 ~~Patch.~~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 ~~Qualified Mortgage (“QM”)~~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~~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. In July 2019, the CFPB released an Advanced Notice of Proposed Rulemaking on the QM definition. The director of the CFPB indicated that the CFPB would consider only a short-term extension of the GSE Patch. Approximately ~~30%~~23% and ~~24%~~21% of our NIW in the first quarter of 2020 and ~~second quarters~~fourth quarter 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 ~~a sunset of the GSE Patch, in part because the standard QM definition may be liberalized under the new rules.~~such

MGIC Investment Corporation - Q1 2020 | 34

expiration. In this regard, we note that the CFPB ~~asked~~recently indicated that it expects to issue for comment, ~~about whether~~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 ~~should retain a direct measure of a consumer’s personal finances (for example, DTI ratio); whether the definition should include~~with an alternative ~~method for assessing financial capacity; whether, if~~measure, such as a pricing threshold. The CFPB also indicated that it would extend the ~~QM definition retains a DTI ratio limit,~~expiration of the ~~limit should remain 43%~~GSE Patch until the earlier of the effective date of the proposed alternative or ~~be increased or decreased; and whether loans with DTI ratios above a prescribed limit should be given QM status if certain compensating factors are present.~~ until one of the GSEs exits conservatorship.

We ~~may~~ 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 ~~“ability to repay” rules~~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.

Finally, certain lenders have suspended their non-QM lending due to COVID-19 pandemic-related concerns.

The ~~rule that includes the~~ QM definition ~~that applies to~~for loans insured by the FHA, ~~was~~which issued by the Department of Housing and Urban Development (“HUD”) ~~and that definition~~ is less restrictive than the CFPB’s definition in certain respects, including that (i) it has no DTI ratio limit, and (ii) it allows ~~the lender~~lenders certain presumptions about compliance with the ~~“ability to repay” requirements~~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.

~~In March~~However, in September 2019, ~~the President also directed the Secretary of~~ HUD ~~to develop a plan~~released its Housing Reform Plan and indicated that ~~would recommend administrative and legislative reforms to the programs HUD oversees, including those~~ of 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 ~~Government National Mortgage Association.~~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.

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

COVID-19 Pandemic

While uncertain, the impact of the COVID-19 pandemic on the Company’s business, financial results, liquidity and/or financial condition may be material. We expect that the increase in unemployment and economic uncertainty resulting from initiatives to reduce the transmission of COVID-19(including "shelter-in-place" restrictions), as well as COVID-19‑related illnesses and deaths, will negatively impact our business. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in the United States, the length of time that measures intended to reduce the transmission of COVID-19remain in place, the resulting level of unemployment, and the impact of various government initiatives (including the enactment of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act")) and actions taken by Fannie Mae and Freddie Mac (the "GSEs") (including implementation of mortgage forbearance and modification programs) to mitigate the economic harm caused by the COVID-19 pandemic and efforts to reduce its transmission.

The programs contained in the CARES Act and actions taken by the GSEs include, among many others:

•

Payment forbearance on federally-backed mortgages (including those delivered to or purchased by the GSEs) to borrowers experiencing a hardship during the COVID-19 pandemic. Forbearance allows for mortgage payments to be suspended for up to 360 days. Approximately 82% of our insurance in force that was written in 2019 and before 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 Consumer Financial Protection Bureau ("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.

For those mortgages that are not subject to forbearance, a suspension of foreclosures and evictions for at least 60 days from March 18, 2020, on mortgages purchased or securitized by the GSEs.

Direct aid to individuals in the form of refundable tax credit rebates paid in April 2020.

"Paycheck Protection Program" to provide small businesses with funds to pay up to eight weeks of payroll costs, and certain other expenses.

Enhanced unemployment benefits.

Increased flexibility under retirement plans.

Loans subject to a COVID-19 pandemic-related forbearance are reported to the mortgage insurers and the GSEs as delinquent. As a result, we expect our losses incurred to increase in future periods.

The foreclosure moratoriums in place under the CARES act and GSE initiatives may delay the receipt of claims and slow down our claim payments.

The tax changes in the CARES Act do not materially impact our financial results.

Factors affecting our results

The COVID-19 pandemic may adversely affect our business, results of operations, and financial condition. The extent of the adverse effects will depend on the duration and continued severity of the COVID-19 pandemic and its effects on the U.S. economy and housing market. We have addressed some of the potential impacts throughout this document.

Our results of operations are generally affected by:

Premiums written and earned

Premiums written and earned in a year are influenced by:

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

Cancellations, which reduce IIF. Cancellations due to refinancings are affected by the level of current mortgage

MGIC Investment Corporation - Q1 2020 | 35

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

~~MGIC Investment Corporation - Q2 2019 | 33~~

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 4 - “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance transactions.

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

Investment income

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

Losses incurred

Losses incurred are the current expense that reflects estimated payments that will ultimately be made as a result of delinquencies on insured loans. As explained under “Critical Accounting Policies” in our ~~2018~~2019 10-K MD&A, except in the case of a premium deficiency reserve, we recognize an estimate of this expense only for delinquent loans. The level of new delinquencies has historically followed a seasonal pattern, with new delinquencies in the first part of the year lower than new delinquencies in the latter part of the year, though this pattern can be affected by the state of the economy and local housing markets. Pandemics, including COVID-19, and other natural disasters may result in delinquencies not following the typical pattern. Losses incurred are generally affected by:

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

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

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

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

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

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


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

Underwriting and other expenses

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

MGIC Investment Corporation - Q1 2020 | 36

statements for a discussion of the ceding commission on our reinsurance transactions.

Interest expense

Interest expense primarily reflects the interest associated with our outstanding debt obligations discussed in Note 3 - “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” below.

Other

Certain activities that we do not consider part of our fundamental operating activities may also impact our results of operations and ~~are described in~~include the following.

Net realized investment gains (losses)

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

~~MGIC Investment Corporation - Q2 2019 | 34~~

Equity securities. Realized investment gains and losses are a function of the periodic change in fair value, as well as any ~~OTTI~~credit allowances recognized in earnings.

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

Mortgage insurance earnings and cash flow cycle

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

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 3537

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) on debt extinguishment, net impairment losses recognized in income (loss) 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) on debt extinguishment, net impairment losses recognized in income (loss), and infrequent or unusual non-operating items where applicable. The amounts of adjustments to components of pre-tax operating income (loss) are tax effected using a federal statutory tax rate of 21%.

Adjusted net operating income (loss) per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net operating income (loss) after making adjustments for interest expense on convertible debt, whenever the impact is dilutive by (ii) diluted weighted average common shares outstanding, which reflects share dilution from unvested restricted stock units and from convertible debt when dilutive under the “if-converted” method.

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


(1)	Net realized investment gains (losses). The recognition of net realized investment gains or losses can vary significantly across periods as the timing of individual securities sales is highly discretionary and is influenced by such factors as market opportunities, our tax and capital profile, and overall market cycles.


(2)	Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt.


(3)	Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles, individual issuer performance, and general economic conditions.


~~(4)~~	~~Infrequent or unusual non-operating items.~~ ~~Income tax expense related to our IRS dispute is related to past transactions which are non-recurring in nature and are not part of our primary operating activities.~~



Non-GAAP reconciliations

Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income
	Three Months Ended March 31,
	2020									2019
(In thousands, except per share amounts)	Pre-tax			Tax effect			Net (after-tax)			Pre-tax		Tax effect		Net (after-tax)
Income before tax / Net income	$	188,239		$	38,434		$	149,805		$	190,936	$	38,995	$	151,941
Adjustments:
Net realized investment (gains) losses	(2,875		)	(604		)	(2,271		)	620		130		490
Adjusted pre-tax operating income / Adjusted net operating income	$	185,364		$	37,830		$	147,534		$	191,556	$	39,125	$	152,431

Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share
Weighted average diluted shares outstanding							365,216							376,667

Net income per diluted share							$	0.42						$	0.42
Net realized investment (gains) losses							—							—
Adjusted net operating income per diluted share							$	0.42						$	0.42

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 36

Non-GAAP reconciliations

Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income
Three Months Ended June 30,
2019 2018
(In thousands, except per share amounts) Pre-tax Tax effect Net
(after-tax) Pre-tax Tax effect Net
(after-tax)
Income before tax / Net income $ 211,211
$ 43,433
$ 167,778
$ 237,522
$ 50,708
$ 186,814

Adjustments:
Additional income tax benefit (provision) related to IRS litigation —
—
—
—
(923 ) 923

Net realized investment (gains) losses (217 ) (46 ) (171 ) 1,897
398
1,499

Adjusted pre-tax operating income / Adjusted net operating income $ 210,994
$ 43,387
$ 167,607
$ 239,419
$ 50,183
$ 189,236

Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share
Weighted average diluted shares outstanding 376,603
388,881

Net income per diluted share $ 0.46
$ 0.49

Additional income tax provision related to IRS litigation —
—
⁽¹⁾
Net realized investment losses —
—
⁽¹⁾
Adjusted net operating income per diluted share $ 0.46
$ 0.50

⁽¹⁾ For the three months ended June 30, 2018, the individual adjustments are each less than $0.01 per diluted share, but collectively aggregate to $0.01 per diluted share.

Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income
Six Months Ended June 30,
2019 2018
(In thousands, except per share amounts) Pre-tax Tax effect Net
(after-tax) Pre-tax Tax effect Net
(after-tax)
Income before tax / Net income $ 402,147
$ 82,428
$ 319,719
$ 417,547
$ 87,096
$ 330,451

Adjustments:
Additional income tax provision related to IRS litigation —
—
—
—
(1,631 ) 1,631

Net realized investment losses 403
85
318
2,226
467
1,759

Adjusted pre-tax operating income / Adjusted net operating income $ 402,550
$ 82,513
$ 320,037
$ 419,773
$ 85,932
$ 333,841

Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share

Weighted average diluted shares outstanding 376,635
390,236

Net income per diluted share $ 0.87
$ 0.87

Additional income tax provision related to IRS litigation —
—
⁽¹⁾
Net realized investment losses —
—
⁽¹⁾
Adjusted net operating income per diluted share $ 0.87
$ 0.88

⁽¹⁾ For the six months ended June 30, 2018, the individual adjustments are each less than $0.01 per diluted share, but collectively aggregate to $0.01 per diluted share.

~~MGIC Investment Corporation - Q2 2019 | 37~~38

Mortgage Insurance Portfolio

New insurance written

~~According to~~ ~~Inside Mortgage Finance~~ ~~and GSE estimates~~, ~~total mortgage originations for the second quarter and first six months of 2019, on average, are estimated to have increased from the respective prior year periods.~~ The total amount of mortgage originations is generally influenced by the level of new and existing home sales, the percentage of homes purchased for cash, and the level of refinance activity. PMI market share of total mortgage originations is influenced by the mix of purchase and refinance originations as PMI market share is typically 3-4 times higher for purchase originations than refinance originations. PMI market share is also impacted by the market share of total originations of the FHA, VA, USDA, and other alternatives to mortgage insurance, including GSE programs that may reduce or eliminate the demand for mortgage insurance.

The COVID-19 pandemic, including the related restrictions on business in most parts of the U.S., and its effect on unemployment and consumer confidence, could affect the number of purchase mortgage originations. The GSEs have temporarily changed various underwriting guidelines in response to COVID-19. In some instances the requirements have been eased, for example allowing bank statements and pay checks to be used to verify income versus IRS forms, to facilitate mortgage lending, while other requirements have been tightened, for example certain documents can only be 60 days old versus 120 days old, which restricts mortgage lending activity. Certain lenders have also increased the minimum credit score or increased the minimum down payment that they will lend on irrespective of GSEs or our guidelines. It is unclear what, if any, impact these changes will have on the volume of low down payment home mortgage originations.

NIW for the ~~second~~first quarter of ~~2019~~2020 was ~~$14.9~~$17.9 billion ~~(Q2 2018: $13.2~~(Q1 2019: $10.1 billion) ~~and~~. The increase is primarily driven by higher NIW from refinances in Q1 2020 compared to Q1 2019.

The following tables present characteristics of our primary NIW for the ~~first six~~three months ~~of 2019 was $25.0 billion (YTD 2018: $23.8 billion).~~ ended March 31, 2020 and 2019.



Primary NIW by FICO score
	Three Months Ended March 31,
(% of primary NIW)	2020		2019
760 and greater	45.8	%	41.4	%
740 - 759	19.9	%	17.2	%
720 - 739	13.9	%	14.5	%
700 - 719	10.4	%	12.1	%
680 - 699	7.0	%	7.5	%
660 - 679	1.7	%	4.0	%
640 - 659	0.9	%	2.3	%
639 and less	0.4	%	1.0	%



Primary NIW by loan-to-value
	Three Months Ended March 31,
(% of primary NIW)	2020		2019
95.01% and above	8.4	%	17.5	%
90.01% to 95.00%	43.0	%	41.9	%
85.01% to 90.00%	30.7	%	28.6	%
80.01% to 85%	17.9	%	12.0	%



Primary NIW by debt-to-income ratio
	Three Months Ended March 31,
(% of primary NIW)	2020		2019
45.01% and above	12.8	%	18.4	%
38.01% to 45.00%	32.5	%	34.3	%
38.00% and below	54.7	%	47.3	%

The percentage of our NIW on loans with DTI ratios greater than 45% has declined in ~~2019,~~2020, which we believe is due in part to changes in GSE underwriting guidelines and our pricing for loans with such DTI ratios. We are continuing to monitor our exposure to such loans and may take further action.

~~The following tables present characteristics of our primary NIW for the three and six months ended June 30, 2019 and 2018.~~



Primary NIW by policy payment type
	Three Months Ended March 31,
(% of primary NIW)	2020		2019
Monthly premiums	85.1	%	83.9	%
Single premiums	14.8	%	16.0	%
Annual premiums	0.1	%	0.1	%

Primary NIW by FICO score
Three Months Ended June 30, Six Months Ended June 30,
(% of primary NIW) 2019 2018 2019 2018
760 and greater 43.9 % 43.1 % 42.9 % 42.4 %
740 - 759 18.0 % 17.3 % 17.7 % 17.2 %
720 - 739 13.6 % 14.6 % 14.0 % 14.6 %
700 - 719 11.4 % 11.8 % 11.7 % 11.7 %
680 - 699 7.3 % 6.9 % 7.4 % 7.2 %
660 - 679 3.3 % 3.4 % 3.6 % 3.7 %
640 - 659 1.7 % 2.1 % 1.9 % 2.2 %
639 and less 0.8 % 0.8 % 0.9 % 0.9 %

Primary NIW by loan-to-value
Three Months Ended June 30, Six Months Ended June 30,
(% of primary NIW) 2019 2018 2019 2018
95.01% and above 16.1 % 15.4 % 16.7 % 14.4 %
90.01% to 95.00% 43.3 % 44.1 % 42.7 % 44.1 %
85.01% to 90.00% 27.9 % 28.8 % 28.2 % 28.9 %
80.01% to 85% 12.7 % 11.7 % 12.4 % 12.6 %

Primary NIW by debt-to-income ratio ⁽¹⁾

Three Months Ended June 30, Six Months Ended June 30,
(% of primary NIW) 2019 2018 2019 2018
45.01% and above 14.7 % 19.2 % 16.3 % 19.6 %
38.01% to 45.00% 31.9 % 32.1 % 32.8 % 31.9 %
38.00% and below 53.4 % 48.7 % 50.9 % 48.5 %

⁽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.

Primary NIW by policy payment type
Three Months Ended June 30, Six Months Ended June 30,
(% of primary NIW) 2019 2018 2019 2018
Monthly premiums 84.2 % 83.9 % 84.1 % 82.3 %
Single premiums 15.7 % 15.9 % 15.8 % 17.5 %
Annual premiums 0.1 % 0.2 % 0.1 % 0.2 %


Primary NIW by type of mortgage	Primary NIW by type of mortgage									Primary NIW by type of mortgage
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
(% of primary NIW)	(% of primary NIW)	2019		2018		2019		2018		(% of primary NIW)	2020		2019
Purchases	Purchases	89.2	%	94.1	%	90.2	%	91.5	%	Purchases	65.3	%	91.7	%
Refinances	Refinances	10.8	%	5.9	%	9.8	%	8.5	%	Refinances	34.7	%	8.3	%

Insurance and risk in force

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

MGIC Investment Corporation - Q1 2020 | 39

Persistency. Our persistency was ~~80.8%~~73.0% at ~~June 30, 2019~~March 31, 2020 compared to ~~81.7%~~75.8% at December 31, ~~2018~~2019 and ~~80.1%~~81.7% at ~~June 30, 2018.~~March 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.

~~MGIC Investment Corporation - Q2 2019 | 38~~


IIF and RIF	IIF and RIF													IIF and RIF
		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(In billions)	(In billions)	2019			2018			2019			2018			(In billions)	2020			2019
NIW	NIW	$	14.9		$	13.2		$	25.0		$	23.8		NIW	$	17.9		$	10.1
Cancellations	Cancellations	(12.4		)	(10.0		)	(20.8		)	(18.0		)	Cancellations	(14.7		)	(8.4		)
Increase in primary IIF	Increase in primary IIF	$	2.5		$	3.2		$	4.2		$	5.8		Increase in primary IIF	$	3.2		$	1.7

(In billions)		2019			2018
Direct primary IIF as of June 30,		$	213.9		$	200.7
Direct primary RIF as of June 30,		$	55.2		$	51.7
Direct primary IIF as of March 31,														Direct primary IIF as of March 31,	$	225.5		$	211.4
Direct primary RIF as of March 31,														Direct primary RIF as of March 31,	$	57.9		$	54.5

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 ~~origination years.~~books. The credit profile of our pre-2009 RIF has benefited from modification and refinance programs making outstanding loans more affordable to borrowers with the goal of reducing the number of foreclosures. These programs included HAMP and HARP, which expired at the end of 2016 and 2018, respectively, but have been replaced by other GSE modification programs. HARP allowed borrowers who were not delinquent, but who may not otherwise have been able to refinance their loans under the current GSE underwriting standards due to, for example, the current LTV exceeding 100%, to refinance and lower their note rate.

~~As shown in the following table, as of June 30, 2019 approximately 11% of our primary RIF has been modified.~~

Modifications
Policy year
HARP Modifications ⁽¹⁾
HAMP & Other Modifications
2003 and prior 9.7 % 46.5 %
2004 17.4 % 50.7 %
2005 25.3 % 48.5 %
2006 28.6 % 45.3 %
2007 41.0 % 35.1 %
2008 57.8 % 21.6 %
2009 47.2 % 9.5 %
2010 - Q2 2019 — % 0.5 %

Total 5.4 % 6.0 %


⁽¹⁾	~~Includes proprietary programs that are substantially the same as HARP.~~

~~As of June 30, 2019, based on loan count, the loans~~ Loans associated with 97.7% of all our HARP modifications were current as of March 31, 2020. The aggregate of our 2009 and ~~80.5%~~later books and our HARP modifications accounted for approximately 92% of ~~HAMP and other modifications were current.~~our total primary RIF at March 31, 2020.

We cannot determine the total benefit we may derive from loan modification programs, particularly given the uncertainty around the re-default rates for defaulted loans that have been modified. Our loss reserves do not account for potential re-defaults of current loans.

The composition of our primary RIF as of March 31, 2020, December 31, 2019, and March 31, 2019 is shown below:



Primary RIF
($ in millions)	March 31, 2020				December 31, 2019				March 31, 2019
Policy Year	RIF		% of RIF		RIF		% of RIF		RIF		% of RIF
2009+	$	51,066	88	%	$	50,044	88	%	$	45,947	84	%
2005 - 2008 (HARP)	2,367		4	%	2,485		4	%	2,979		6	%
Other years (HARP)	154		—	%	165		—	%	213		1	%
Subtotal	53,588		92	%	52,694		92	%	49,139		91	%
2005- 2008 (Non-HARP)	3,692		6	%	3,868		7	%	4,588		8	%
Other years (Non-HARP)	626		2	%	651		1	%	810		1	%
Subtotal	4,318		8	%	4,519		8	%	5,398		9	%
Total Primary RIF	$	57,906	100	%	$	57,213	100	%	$	54,537	100	%

~~The aggregate of our 2009-2019 books and our HARP modifications accounted for approximately 91% of our total primary RIF at June 30, 2019.~~

Primary RIF
($ in millions) June 30, 2019 December 31, 2018 June 30, 2018
Policy Year RIF % of RIF RIF % of RIF RIF % of RIF
2009+ $ 47,141
85 % $ 45,083
83 % $ 41,799
81 %
2005 - 2008 (HARP) 2,805
5 % 3,109
5 % 3,425
6 %
Other years (HARP) 196
1 % 229
1 % 266
1 %
Subtotal 50,142
91 % 48,421
89 % 45,490
88 %
2005- 2008 (Non-HARP) 4,287
8 % 4,796
9 % 5,289
10 %
Other years (Non-HARP) 775
1 % 846
2 % 965
2 %
Subtotal 5,062
9 % 5,642
11 % 6,254
12 %
Total Primary RIF $ 55,204
100 % $ 54,063
100 % $ 51,744
100 %

~~MGIC Investment Corporation - Q2 2019 | 39~~

Pool and other insurance

MGIC has written no new pool insurance since 2008; however, for a variety of reasons, including responding to capital market alternatives to PMI and customer demands, MGIC may write pool risk in the future. Our direct pool risk in force was ~~$393~~$368 million ($~~215~~212.0 million on pool policies with aggregate loss limits and ~~$178~~$156.0 million on pool policies without aggregate loss limits) at ~~June 30, 2019~~March 31, 2020 compared to ~~$419~~$376 million ($~~228~~213.0 million on pool policies with aggregate loss limits and ~~$191~~$163.0 million on pool policies without aggregate loss limits) at December 31, ~~2018.~~2019. If claim payments associated with a specific pool reach the aggregate loss limit, the remaining IIF within the pool would be cancelled and any remaining delinquencies under the pool would be removed from our delinquent inventory.

In connection with the GSEs' ~~credit risk transfer~~CRT programs, an insurance ~~subsidiaries~~subsidiary of MGIC provide 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 ~~$88~~$263 million and $182 million as of ~~June 30, 2019.~~

March 31, 2020 and December 31, 2019, respectively.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 40

Consolidated Results of Operations

The following section of the MD&A provides a comparative discussion of MGIC Investment Corporation’s Consolidated Results of Operations for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

Revenues


Revenues	Revenues																Revenues
		Three Months Ended June 30,							Six Months Ended June 30,									Three Months Ended March 31,
(in millions)	(in millions)	2019		2018			% Change		2019			2018			% Change		(in millions)	2020		2019			% Change
Net premiums written	Net premiums written	$	243.6	$	255.4		(5	)	$	487.9		$	492.3		(1	)	Net premiums written	$	246.0	$	244.3		1

Net premiums earned	Net premiums earned	$	247.1	$	247.0		—		$	496.9		$	479.1		4		Net premiums earned	$	260.9	$	249.8		4
Investment income, net of expenses	Investment income, net of expenses	42.4		34.5			23		83.0			66.6			25		Investment income, net of expenses	41.3		40.6			2
Net realized investment gains (losses)	Net realized investment gains (losses)	0.3		(1.9		)	N/M		(0.2		)	(2.2		)	N/M		Net realized investment gains (losses)	1.9		(0.5		)	N/M
Other revenue	Other revenue	2.5		2.4			2		4.3			4.3			—		Other revenue	2.8		1.8			N/M
Total revenues	Total revenues	$	292.3	$	282.0		4		$	584.0		$	547.8		7		Total revenues	$	306.9	$	291.7		5

Net premiums written and earned

Comparative quarterly results

NPW ~~decreased~~ and NPE ~~was flat~~increased for the three months ended ~~June 30, 2019 from~~March 31, 2020 compared with the prior year ~~reflecting an increase in ceded premiums compared~~due to ~~the same period of prior year, which offset an increase in premiums from a~~ higher average insurance in force and ~~a decrease in premium refunds from lower claim activity. The~~an increase in ceded premiums was due to a non-recurring termination fee related to our 2015 QSR Transaction, premiums ceded under our Home Re Transactions, and a lower profit commission due to higher ceded losses. NPE also reflects lower premium rates on our IIF and an increase inaccelerated premiums from single premium policy cancellations, ~~when compared to the prior year.~~

~~Comparative year to date results~~

NPW decreased and NPE increased for the six months ended June 30, 2019 when compared to the prior year period. NPW and NPE reflect an increase in ceded premiums compared to the same period of the prior year, whichpartially offset an increase in premiums from higher average insurance in force and a decrease in premium refunds from lower claim activity. The increase in ceded premiums was due to a non-recurring termination fee related to our 2015 QSR Transaction, premiums ceded under our Home Re Transactions, and a higher percentage of our IIF covered by ~~quota share reinsurance. The negative effect of higher ceded premiums and IIF having~~ lower premium rates on our ~~NPE was offset by an increase~~insurance in ~~premiums from single premium policy cancellations when compared to the prior year.~~force.

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

Premium ~~yield~~yields

Premium yield ~~(NPE~~is NPE divided by average ~~IIF) for the second quarter of 2019 was 46.5 basis points (Q2 2018: 49.6 basis points)~~IIF during year and ~~our premium yield for the six months ended June 30, 2019 was 46.9 basis points (YTD 2018: 48.5 basis points). Our premium yield~~ is influenced by a number of key ~~drivers, which have a varying impact from period to period.~~

drivers. The following table ~~reconciles~~presents the key drivers of our net premium yield for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and from the respective prior year ~~period.~~period

Premium yield
(in basis points) Three Months Ended Six Months Ended
Premium yield - June 30, 2018 49.6
48.5
Reconciliation:
Change in premium rates (1.2 ) (1.3 )
Change in premium refunds and accruals 0.6
0.5
Single premium policy persistency 0.8
0.3
Reinsurance (3.3 ) (1.1 )
Premium yield - June 30, 2019 46.5
46.9



Premium Yield

			Three Months Ended March 31,
(in basis points)			2020		2019
In force portfolio yield	(1	)	49.2		52.5
Premium refunds			(0.7	)	(0.5	)
Accelerated earnings on single premium policies			3.3		1.1
Total direct premium yield			51.8		53.1
Ceded premiums earned, net of profit commission and assumed premiums	(2	)	(5.2	)	(5.7	)
Net premium yield			46.6		47.4

~~Our~~(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 ~~declined~~was 0.5 bps at March 31, 2020 compared to 0.2 bps at March 31, 2019.

Changes in our premium yields when compared to the respective prior year periods ~~and reflects~~reflect the following:



In force Portfolio Yield
~~Negative drivers:~~
è		A larger percentage of our IIF from book years with lower premium rates due to a decline in premium rates in recent years resulting from pricing competition, insuring mortgages with lower risk characteristics, ~~and pricing competition, and~~ certain policies undergoing premium rate resets on their ten-year anniversaries, and the availability of reinsurance.
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		~~more of an adverse impact from our reinsurance primarily due to the non-recurring termination fee on our 2015 QSR Transaction and ceded premiums under our Home Re Transactions.~~
~~Positive drivers:~~
è		~~less of an adverse impact from premium refunds primarily due to lower claim activity, and~~
è		~~greater~~Greater amounts of accelerated earned premium from ~~cancellations~~cancellation of single premium policies prior to their estimated policy life, primarily due to increased refinancing activity.
Ceded premiums earned, net of profit commission and assumed premiums
è	Ceded premiums earned, net of profit commission adversely impact our premium yield. Ceded premiums earned, net of profit commission, consist primarily of the QSR Transactions and the Home Re Transactions. Assumed premiums consists primarily of premiums from GSE CRT programs. See “Reinsurance agreements “ below for further discussion on our reinsurance transactions.

As discussed in our Risk Factor titled “ Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses,” the private mortgage insurance industry is highly competitive and premium rates have declined over the past several years. We expect our net premium yield to continue to decline ~~in 2019, primarily due to lower average~~as older insurance policies with higher premium rates ~~on our IIF.~~run off or have their premium rates reset, and new insurance policies with lower premium rates are written.

~~MGIC Investment Corporation - Q2 2019 | 41~~

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 total effect on our pre-tax income, described as follows.

MGIC Investment Corporation - Q1 2020 | 41



è		We cede a fixed percentage of premiums on insurance covered by the agreements.
è		We 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 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 result in a higher profit commission and less benefit from ceded losses; higher levels of losses result in more benefit from ceded losses and a lower profit commission (or for levels of losses we do not expect, its elimination).
è		We 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).
è		We cede a fixed percentage of losses incurred on insurance covered by the agreements.

The following table provides information related to our quota share reinsurance agreements for 2020 and 2019.



Quota Share Reinsurance

	As of and For the Three Months Ended March 31,
(Dollars in thousands)	2020			2019

Ceded premiums written and earned, net of profit commission	$	26,846		$	28,164
% of direct premiums written	10		%	12		%
% of direct premiums earned	9		%	11		%
Profit commission	$	29,979		$	38,881
Ceding commissions	$	11,365		$	13,409
Ceded losses incurred	$	5,804		$	1,676

Ceded RIF (in millions)	$	11,713		$	13,034

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. The 2019 QSR Transaction covering our 2019 NIW 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.



Quota Share Reinsurance

	As of and For the Three Months Ended March 31,
	2020		2019
NIW subject to QSR Transactions	72	%	84	%
New Risk Written subject to QSR Transactions	82	%	90	%
IIF subject to QSR Transactions	78	%	78	%
RIF subject to QSR Transactions	81	%	91	%

The NIW subject to quota share reinsurance ~~increased for~~decreased in the ~~six~~first three months ~~ended June 30, 2019~~of 2020 when compared to the same period of the prior year primarily due to ~~the increased threshold on risk written on loans with DTI ratios greater than 45% and a decrease~~an increase in ~~the percentage of our~~ NIW with ~~DTI ratios greater~~LTV’s less than ~~45%. In~~or equal to 85% and amortization terms less than or equal to 20 years, which are excluded from the ~~first six months~~QSR Transactions.

As of ~~2018, the~~March 31, 2020, our total RIF was reduced by a weighted average of approximately 20% for risk ~~written on loans with DTI ratios greater than 45% exceeded the threshold.~~ceded under our QSR transactions.

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 in July to participants~~The lower cede rate reduced our ceded RIF but does not impact our determination of the reinsurance panel that are not participating in the amended 2015 QSR Transaction. Under the amended terms we will generally receive a profit commission provided that the loss ratio on the covered loans remains below 68%.

~~The following table provides information related~~amount of IIF or RIF subject to ~~our~~ quota share reinsurance ~~agreements for 2019 and 2018.~~

Quota share reinsurance
As of and For the Six Months Ended June 30,
($ in thousands, unless otherwise stated) 2019 2018
NIW subject to quota share reinsurance agreements 83 % 75 %
IIF subject to quota share reinsurance agreements 78 % 78 %

Statements of operations:
Ceded premiums written and earned, net of profit commission $ 64,689
$ 54,468
% of direct premiums written 12 % 10 %
% of direct premiums earned 11 % 10 %
Profit commission 75,902
71,958
Ceding commissions 26,765
25,285
Ceded losses incurred 5,116
4,053

Mortgage insurance portfolio:

Ceded RIF (in millions)
$ 10,212
$ 12,236
agreements.

Excess-of-loss reinsurance

Our excess-of-loss reinsurance provides ~~$634.4~~$463.3 million of loss coverage on an existing portfolio of inforce policies having an inforce date on or after July 1, 2016 and before April 1, 2019. As of ~~June 30, 2019,~~March 31, 2020, the aggregate exposed principal balances under the Home Re 2018-01 ~~Ltd.~~ and 2019-01 ~~Ltd.~~ transactions were approximately ~~$6.6~~$5.5 billion and ~~$7.1~~$5.4 billion, respectively, which take into account the mortgage insurance coverage percentage, net retained risk after quota share reinsurance, and the reinsurance inclusion percentage of the unpaid principal balance. We ceded premiums of ~~$4.5~~$4.7 million and ~~$7.0~~$2.5 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and March 31, 2019, respectively.

We expect that we may enter into ~~similar excess-of-loss reinsurance~~other ILN transactions if the capital market conditions ~~remain favorable.~~are favorable; however, the market volatility caused by the COVID-19 pandemic has caused a disruption of uncertain duration in the market for new ILN transactions.

Investment income

Comparative quarterly and year to date results

Net investment income in the ~~second~~first quarter ~~and first six months~~ of ~~2019~~2020 was ~~$42.4~~$41.3 million and ~~$83.0 million, respectively, up from $34.5 million and $66.6~~$40.6 million in the ~~respective~~ prior ~~year periods.~~year. The increases in investment income were due to an increase in the average balance of the investment ~~portfolio along with higher investment yields over the periods.~~

portfolio.

~~MGIC Investment Corporation - Q2 2019 | 42~~

Losses and expenses


Losses and expenses	Losses and expenses										Losses and expenses
		Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,
(In millions)	(In millions)	2019		2018			2019		2018		(In millions)	2020		2019
Losses incurred, net	Losses incurred, net	$	21.8	$	(13.5	)	$	60.9	$	10.4	Losses incurred, net	$	61.0	$	39.1
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs	2.8		2.8			5.2		5.4		Amortization of deferred policy acquisition costs	2.5		2.5
Other underwriting and operating expenses, net	Other underwriting and operating expenses, net	43.0		41.8			88.9		87.9		Other underwriting and operating expenses, net	42.3		45.9
Interest expense	Interest expense	13.6		13.2			26.8		26.5		Interest expense	12.9		13.2
Total losses and expenses	Total losses and expenses	$	81.2	$	44.3		$	181.8	$	130.2	Total losses and expenses	$	118.7	$	100.7

Losses incurred, net

As discussed in “Critical Accounting Policies” in our ~~2018~~2019 10-K MD&A and consistent with industry practices, we establish case loss reserves for future claims ~~only for~~when notices of delinquency on insured mortgage loans ~~that~~ are ~~currently delinquent.~~received. The terms “delinquent” and “default” are used interchangeably by us. ~~We consider a loan~~Notices of delinquency are typically reported to ~~be delinquent~~us when ~~it is~~loans are two ~~or more~~ payments past due. ~~Loss~~Case loss reserves are established based on estimating the number of loans in our delinquent inventory that will result in a claim payment, which is referred to as the claim rate, and further

MGIC Investment Corporation - Q1 2020 | 42

estimating the amount of the claim payment, which is referred to as claim severity.

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, 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. Historically, losses incurred have followed a seasonal trend in which the second half of the year has weaker credit performance than the first half, with higher new notice activity and a lower cure rate.

As discussed in our Risk Factors 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” the COVID-19 pandemic will negatively impact the number of delinquencies and our loss incurred and may be material.

Our estimates are also affected by any agreements we enter into regarding our claims paying practices, such as the settlement agreements discussed in Note 5 – “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.

Comparative quarterly results

Losses incurred, net in the ~~second~~first quarter of ~~2019~~2020 were ~~$21.8~~$61.0 million compared to ~~($13.5)~~$39.1 million in the prior year. ~~The increase was due to a lower amount~~In the first quarter of 2020, we received approximately 9% fewer new delinquency notices than we did in the same period last year. Over the past several quarters we had recorded favorable reserve development including $31 million in favorable development in the first quarter of 2019. In the first quarter of 2020, our re-estimation of reserves on previous delinquencies resulted in minimal adverse loss reserve ~~development on previously received delinquencies. During the second~~development. The first quarter of ~~2019 there was a~~2020 also reflects an increase in IBNR estimates from $22 million to $30 million, ~~reduction in losses incurred due to positive development on our primary loss reserves, before reinsurance, for previously received delinquent notices, compared to $70 million in the second quarter~~as well as an increased estimate of ~~2018. Current year losses incurred declined due to a lower estimated~~ claim ~~rate~~rates on new notices ~~when compared~~due to the ~~prior year.~~

~~Comparative year to date results~~

Losses incurred, net in the six months ended June 30, 2019 were $60.9 million compared to $10.4 million in the prior year period. The increase was due to lower favorable loss reserve development on previously received delinquencies inCOVID-19 pandemic and the current year period, which includes the recognition of a probable loss of $23.5 million for litigation of our claims paying practices. Losses incurred on current year delinquencies declined primarily due to a lower estimated claim rate on new delinquent notices received compared to the prior year.macroeconomic environment.

																										Composition of losses incurred
		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended March 31,
(in millions)	(in millions)	2019			2018			% Change		2019			2018			% Change		(in millions)	2020		2019			% Change
Current year / New notices	Current year / New notices	$	46.6		$	49.3		(5	)	$	94.1		$	108.4		(13	)	Current year / New notices	$	59.8	$	47.5		26
Prior year reserve development	Prior year reserve development	(24.8		)	(62.7		)	(61	)	(33.2		)	(98.0		)	(66	)	Prior year reserve development	1.2		(8.4		)	(114	)
Losses incurred, net	Losses incurred, net	$	21.8		$	(13.5	)	261		$	60.9		$	10.4		486		Losses incurred, net	$	61.0	$	39.1		56

Loss ratio

The loss ratio is the ratio, expressed as a percentage, of the sum of incurred losses and loss adjustment expenses to net premiums earned. The increase in the loss ratio for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 compared to the respective prior year periods was primarily due to an increase in losses incurred, net, offset in part by an increase in ~~earned premiums.~~net premiums earned.

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Loss ratio 8.8 % (5.4 )% 12.3 % 2.2 %

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 with the duration that defaults may ultimately remain in our notice inventory, results in significant judgment in establishing the estimated claim rate. The increase in the new notice claim rate for the three months ended March 31, 2020 is primarily due to the uncertainty of the COVID-19 pandemic and the current macroeconomic environment.



New notice claim rate
	Three Months Ended March 31,
	2020				2019
New notices - 2008 and prior ⁽¹⁾	7,117		57	%	8,882		65	%
New notices - 2009 and later	5,281		43	%	4,729		35	%
Total	12,398		100	%	13,611		100	%
Claim rate	9.0	%			8.0	%
⁽¹⁾ previously delinquent %	95.0	%			94.0	%

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 43

New notice claim rate
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
New notices - 2008 and prior ⁽¹⁾
8,573
9,031
17,455
19,680
New notices - 2009 and later 4,342
3,128
9,009
7,102
Total 12,915
12,159
26,464
26,782
Claim rate 8.0 % 9.5 % 8.0 % 9.0 %
⁽¹⁾ previously delinquent %
94.0 % 93.0 % 94.0 % 92.0 %

Claims severity

Factors that impact claim severity include:



è		exposure to the loan, which is the unpaid principal balance of the loan times our insurance coverage percentage,
è		length of time between delinquency and claim filing (which impacts the amount of interest and expenses, with a longer time between default and claim filing generally increasing severity), and
è		curtailments.

As discussed in Note 11 - “Loss Reserves,” the average time for servicers to process foreclosures has recently shortened. ~~Therefore, we expect~~In light of the uncertainty caused by the COVID-19 pandemic, the average number of missed payments at the time a claim is received and expected to be ~~approximately 18 to 24 for new notices~~ received ~~and expect to receive~~will increase in ~~2019, compared to an average of 37 missed payments at the claim received date for claims paid in 2018.~~2020. Our loss reserves estimates take into consideration trends over time, because the development of the delinquencies may vary from period to period without establishing a meaningful trend.

The majority of loans from 2005 through 2008 (which represent ~~58%~~53% 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.

																	Claims severity trend for claims paid during the period
Period	Period	Average exposure on claim paid		Average claim paid		% Paid to exposure		Average number of missed payments at claim received date	Period	Average exposure on claim paid		Average claim paid		% Paid to exposure		Average number of missed payments at claim received date
Q1 2020									Q1 2020	$	46,247	$	47,222	102.1	%	33
Q4 2019									Q4 2019	46,076		46,302		100.5	%	34
Q3 2019									Q3 2019	42,821		44,388		103.7	%	35
Q2 2019	Q2 2019	$	46,950	$	46,883	99.9	%	34	Q2 2019	46,950		46,883		99.9	%	34
Q1 2019	Q1 2019	42,277		43,930		103.9	%	35	Q1 2019	42,277		43,930		103.9	%	35
Q4 2018	Q4 2018	45,366		47,980		105.8	%	35	Q4 2018	45,366		47,980		105.8	%	35
Q3 2018	Q3 2018	43,290		47,230		109.1	%	35	Q3 2018	43,290		47,230		109.1	%	35
Q2 2018	Q2 2018	44,522		50,175		112.7	%	38	Q2 2018	44,522		50,175		112.7	%	38
Q1 2018	Q1 2018	45,597		51,069		112.0	%	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 disputes for claims paying practices and commutations of pools of NPLs.
Note: Table excludes material settlements. Settlements include amounts paid in settlement disputes for claims paying practices and/or commutations of policies.									Note: Table excludes material settlements. Settlements include amounts paid in settlement disputes for claims paying practices and/or commutations of policies.

In considering the potential sensitivity of the factors underlying our estimate of loss reserves, it is possible that even a relatively small change in our estimated claim rate or severity could have a material impact on reserves and, correspondingly, on our consolidated results of operations even in a stable economic environment. For example, as of ~~June 30, 2019,~~March 31, 2020, assuming all other factors remain constant, a $1,000 increase/decrease in the average severity reserve factor would change the reserve amount by approximately +/- ~~$11~~$10 million. A 1 percentage point increase/decrease in the average claim rate reserve factor would change the reserve amount by approximately +/- ~~$17~~$16 million.

See Note 11 – “Loss Reserves” to our consolidated financial statements for a discussion of our losses incurred and claims paying practices (including curtailments).

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 44

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

															Delinquent inventory - number of payments delinquent
		June 30, 2019		December 31, 2018		June 30, 2018			March 31, 2020		December 31, 2019		March 31, 2019
3 payments or less	3 payments or less	14,071		15,519		14,178		3 payments or less	12,961		14,895		14,129
4-11 payments	4-11 payments	8,194		8,842		11,429		4-11 payments	8,178		8,519		8,833
12 payments or more ⁽¹⁾	12 payments or more ⁽¹⁾	7,530		8,537		10,430		12 payments or more ⁽¹⁾	6,245		6,614		7,959
Total	Total	29,795		32,898		36,037		Total	27,384		30,028		30,921

3 payments or less	3 payments or less	47	%	47	%	39	%	3 payments or less	47	%	50	%	46	%
4-11 payments	4-11 payments	27	%	27	%	32	%	4-11 payments	30	%	28	%	28	%
12 payments or more	12 payments or more	26	%	26	%	29	%	12 payments or more	23	%	22	%	26	%
Total	Total	100	%	100	%	100	%	Total	100	%	100	%	100	%


⁽¹⁾	Approximately ~~35%~~34%, ~~38%~~33%, and ~~41%~~36% of the primary delinquent inventory with 12 payments or more delinquent has at least 36 payments delinquent as of ~~June 30,~~March 31, 2020, December 31, 2019, ~~December 31, 2018,~~ and ~~June 30, 2018~~March 31, 2019, respectively.

Net losses and LAE paid

Net losses and LAE paid in the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 declined ~~54% and 43%, respectively,~~19% compared to the same ~~periods~~period in the prior year due to lower claim activity on our primary ~~business~~business.

Due to the foreclosure moratoriums and ~~NPL settlement activity~~payment forbearance in place under the CARES act, net losses and LAE paid are expected to decrease in the ~~prior year.~~short term. We expect net losses and LAE paid to increase, however, the magnitude and timing are uncertain.

The following table presents our net losses and LAE paid for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.


Net losses and LAE paid	Net losses and LAE paid													Net losses and LAE paid
		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(In millions)	(In millions)	2019			2018			2019			2018			(In millions)	2020			2019
Total primary (excluding settlements)	Total primary (excluding settlements)	$	52		$	75		$	104		$	155		Total primary (excluding settlements)	$	42		$	52
Claims paying practices and NPL settlements ⁽¹⁾		—			14			—			21
Pool	Pool	—			1			1			3			Pool	1			1
Direct losses paid	Direct losses paid	52			90			105			179			Direct losses paid	43			53
Reinsurance	Reinsurance	(2		)	(3		)	(5		)	(14		)	Reinsurance	(1		)	(3		)
Net losses paid	Net losses paid	50			87			100			165			Net losses paid	42			50
LAE	LAE	5			4			12			8			LAE	4			7
Net losses and LAE paid	Net losses and LAE paid	$	55		$	91		112			173			Net losses and LAE paid	$	46		$	57
Reinsurance terminations		(14		)	(2		)	(14		)	(2		)
Net losses and LAE paid		$	41		$	89		$	98		$	171


⁽¹⁾	~~See~~ ~~Note 11 - “Loss Reserves”~~ ~~for additional information on our settlements of disputes for claims paying practices and commutations of NPLs.~~

Primary claims paid for the top 15 jurisdictions (based on ~~2019~~2020 losses paid) and all other jurisdictions for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ appears in the following table.


Paid losses by jurisdiction	Paid losses by jurisdiction									Paid losses by jurisdiction
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
(In millions)	(In millions)	2019		2018		2019		2018		(In millions)	2020		2019
Florida		$	7	$	9	$	15	$	15
New York		6		8		14		18
New Jersey		6		12		12		26
Illinois		4		6		7		11
Puerto Rico		2		2		6		3
Florida *										Florida *	$	7	$	8
New York *										New York *	5		8
New Jersey *										New Jersey *	4		5
Illinois *										Illinois *	3		2
Maryland	Maryland	3		5		5		10		Maryland	3		2
Pennsylvania		2		3		5		6
Ohio		1		2		3		4
Connecticut		1		2		3		4
Puerto Rico *										Puerto Rico *	3		4
Pennsylvania *										Pennsylvania *	2		3
California	California	2		4		2		6		California	1		1
Ohio *										Ohio *	1		2
Massachusetts										Massachusetts	1		1
Virginia	Virginia	1		2		2		4		Virginia	1		1
Texas	Texas	1		2		2		3		Texas	1		1
Massachusetts		1		2		2		4
Michigan	Michigan	1		1		2		2		Michigan	1		1
Georgia		1		1		2		3
Missouri										Missouri	1		—
Louisiana										Louisiana	1		—
All other jurisdictions	All other jurisdictions	13		14		22		36		All other jurisdictions	7		13
Total primary (excluding settlements)	Total primary (excluding settlements)	$	52	$	75	$	104	155		Total primary (excluding settlements)	$	42	$	52

Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed

The primary average claim paid for the top 5 states (based on ~~2019~~2020 losses paid) for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ appears in the following table.

Primary average claim paid
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Florida* $ 65,399
$ 61,281
$ 66,667
$ 58,893
New York* 108,858
96,747
108,975
97,145
New Jersey* 90,028
90,885
79,986
92,096
Illinois* 45,430
47,734
39,917
44,412
Puerto Rico* 38,883
51,337
43,174
47,406
All other jurisdictions 35,896
39,284
34,169
40,471
All jurisdictions 46,883
50,175
45,358
50,632



Primary average claim paid
	Three Months Ended March 31,
	2020		2019
Florida *	$	67,372	$	67,958
New York *	115,387		109,064
New Jersey *	104,728		70,351
Illinois *	44,121		33,461
Maryland	70,655		45,213
All other jurisdictions	34,541		33,280
All jurisdictions	47,222		43,930

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.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 45

The primary average RIF on delinquent loans at ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018~~2019 and ~~June 30, 2018~~March 31, 2019 and for the top 5 jurisdictions (based on ~~2019~~2020 losses paid) appears in the following table.

															Primary average RIF - delinquent loans
		June 30, 2019		December 31, 2018		June 30, 2018			March 31, 2020		December 31, 2019		March 31, 2019
Florida	Florida	$	53,333	$	53,371	$	55,039	Florida	$	54,036	$	52,566	$	53,015
New York	New York	72,057		71,795		71,933		New York	72,800		72,188		72,453
New Jersey	New Jersey	66,284		65,521		66,465		New Jersey	63,743		64,444		67,208
Illinois	Illinois	40,339		39,753		40,505		Illinois	38,874		38,740		40,566
Puerto Rico		34,704		35,420		36,569
Maryland								Maryland	65,595		64,028		65,526
All other jurisdictions	All other jurisdictions	41,798		41,331		41,508		All other jurisdictions	42,456		41,754		41,800
All jurisdictions	All jurisdictions	44,915		44,584		45,302		All jurisdictions	45,698		45,028		45,127

The primary average RIF on all loans was ~~$51,791, $51,085,~~$53,433, $52,995, and ~~$50,075~~$51,464 at ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018,~~2019, and ~~June 30, 2018,~~March 31, 2019, respectively.

Loss reserves

Our primary delinquency rate at ~~June 30, 2019~~March 31, 2020 was ~~2.80%~~2.53% (YE ~~2018: 3.11%~~2019: 2.78%, ~~June 30, 2018: 3.49%~~March 31, 2019: 2.92%). Our primary delinquent inventory was ~~29,795~~27,384 loans at ~~June 30, 2019,~~March 31, 2020, representing a decrease of 9% from December 31, ~~2018~~2019 and ~~17%~~11% from ~~June 30, 2018.~~March 31, 2019. The reduction in our primary delinquent inventory is the result of the total number of delinquent loans: (1) that have cured; (2) for which claim payments have been made; or (3) that have resulted in rescission, claim denial, or removal from inventory due to settlements of claims paying disputes or commutations of ~~coverage of pools of NPLs,~~policies, collectively, exceeding the total number of new delinquencies on insured loans. In recent periods, we have experienced improved cure rates and the number of delinquencies in inventory with twelve or more missed payments has been declining. Generally, a defaulted loan with fewer missed payments is less likely to result in a claim.

The gross reserves at ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018,~~2019, and ~~June 30, 2018~~March 31, 2019 appear in the table below.

																																	Gross reserves
		June 30, 2019					December 31, 2018					June 30, 2018						March 31, 2020					December 31, 2019					March 31, 2019
Primary:	Primary:																Primary:
Direct loss reserves (in millions)	Direct loss reserves (in millions)	$	537				$	610				$	746				Direct loss reserves (in millions)	$	501				$	490				$	574
IBNR and LAE	IBNR and LAE	73					50					53					IBNR and LAE	65					56					68
Total primary loss reserves	Total primary loss reserves	$	610				$	660				$	799				Total primary loss reserves	$	566				$	546				$	642

Ending delinquent inventory	Ending delinquent inventory			29,795					32,898					36,037			Ending delinquent inventory			27,384					30,028					30,921
Percentage of loans delinquent (delinquency rate)	Percentage of loans delinquent (delinquency rate)			2.80		%			3.11		%			3.49		%	Percentage of loans delinquent (delinquency rate)			2.53		%			2.78		%			2.92		%
Average total primary loss reserves per delinquency	Average total primary loss reserves per delinquency			$	19,684				$	20,077				$	22,178		Average total primary loss reserves per delinquency			$	20,658				$	18,171				$	20,014
Primary claims received inventory included in ending delinquent inventory	Primary claims received inventory included in ending delinquent inventory			630					809					827			Primary claims received inventory included in ending delinquent inventory			472					538					665

Pool ⁽¹⁾:	Pool ⁽¹⁾:																Pool ⁽¹⁾:
Direct loss reserves (in millions):	Direct loss reserves (in millions):																Direct loss reserves (in millions):
With aggregate loss limits	With aggregate loss limits	$	9				$	10				$	9				With aggregate loss limits	$	6				$	7				$	9
Without aggregate loss limits	Without aggregate loss limits	2					3					4					Without aggregate loss limits	2					2					3
Total pool direct loss reserves	Total pool direct loss reserves	$	11				$	13				$	13				Total pool direct loss reserves	$	8				$	9				$	12

Ending default inventory:	Ending default inventory:																Ending default inventory:
With aggregate loss limits	With aggregate loss limits			432					595					779			With aggregate loss limits			373					430					483
Without aggregate loss limits	Without aggregate loss limits			209					264					288			Without aggregate loss limits			203					223					240
Total pool ending delinquent inventory	Total pool ending delinquent inventory			641					859					1,067			Total pool ending delinquent inventory			576					653					723
Pool claims received inventory included in ending delinquent inventory	Pool claims received inventory included in ending delinquent inventory			19					24					49			Pool claims received inventory included in ending delinquent inventory			13					11					—
Other gross reserves (in millions)	Other gross reserves (in millions)	$	1				$	1				$	1				Other gross 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 delinquency for our pool business.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 46

~~Hurricane activity~~

~~2017 hurricanes.~~ Hurricane activity primarily impacting Texas, Florida, and Puerto Rico in the third quarter of 2017 increased the number of new notices of delinquency reported to us in the fourth quarter of 2017. Consistent with our analysis and past experience, the majority of the delinquent notices in the hurricane affected areas that we estimated to be caused by the hurricanes have cured and did not result in a material increase in our incurred losses or losses paid. Paid losses on all loans in those jurisdictions were impacted in part because foreclosure moratoriums in the Texas and Florida IADAs through December 31, 2017 and Puerto Rico through May 31, 2018, impacted all delinquent loans in those areas, including those not affected by hurricanes. For those notices we estimated to be caused by the hurricanes, we established our loss reserves with a lower estimated claim rate than the claim rate we applied to other notices in our delinquent inventory. When excluding the impact of those notices we estimated to be caused by the hurricanes, the average total primary loss reserves per delinquency was approximately $24,000 at June 30, 2018.

~~See our risk factors titled “~~Our financial results may be adversely impacted by natural disasters; certain hurricanes 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.~~” and~~ “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” ~~for factors that could cause our actual results to differ from our expectations expressed in this paragraph.~~

The primary delinquent inventory for the top 15 jurisdictions (based on ~~2019~~2020 losses paid) at ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018~~2019 and ~~June 30, 2018~~March 31, 2019 appears in the following table.

									Primary delinquent inventory by jurisdiction
		June 30, 2019	December 31, 2018	June 30, 2018		March 31, 2020	December 31, 2019	March 31, 2019
Florida*		2,497	2,853	4,101
New York*		1,692	1,855	2,034
New Jersey*		986	1,151	1,318
Illinois*		1,610	1,781	1,797
Puerto Rico*		1,257	1,503	2,377
Florida *					Florida *	2,250	2,504	2,635
New York *					New York *	1,551	1,634	1,756
New Jersey *					New Jersey *	897	992	1,080
Illinois *					Illinois *	1,657	1,749	1,656
Maryland	Maryland	785	842	876	Maryland	743	796	801
Pennsylvania*		1,769	1,929	2,049
Ohio*		1,449	1,627	1,648
Connecticut*		468	480	505
Puerto Rico *					Puerto Rico *	1,089	1,122	1,397
Pennsylvania *					Pennsylvania *	1,598	1,755	1,786
California	California	1,178	1,260	1,236	California	1,138	1,213	1,237
Ohio *					Ohio *	1,326	1,498	1,498
Massachusetts					Massachusetts	486	544	538
Virginia	Virginia	586	588	627	Virginia	504	580	603
Texas	Texas	2,136	2,369	2,682	Texas	1,974	2,251	2,220
Massachusetts		525	596	629
Michigan	Michigan	932	1,041	1,032	Michigan	831	921	980
Georgia		1,112	1,220	1,252
Missouri					Missouri	478	564	533
Louisiana					Louisiana	580	628	620
All other jurisdictions	All other jurisdictions	10,813	11,803	11,874	All other jurisdictions	10,282	11,277	11,581
Total	Total	29,795	32,898	36,037	Total	27,384	30,028	30,921

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 - Q2 2019 | 47~~

The primary delinquent inventory by policy year at ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018~~2019 and ~~June 30, 2018~~March 31, 2019 appears in the following table.

															Primary delinquent inventory by policy year
		June 30, 2019		December 31, 2018		June 30, 2018			March 31, 2020		December 31, 2019		March 31, 2019
Policy year:	Policy year:							Policy year:
2004 and prior	2004 and prior	5,451		6,061		6,949		2004 and prior	4,121		4,686		5,565
2004 and prior %	2004 and prior %	18	%	18	%	19	%	2004 and prior %	15	%	16	%	18	%
2005	2005	3,029		3,340		3,893		2005	2,526		2,799		3,089
2006	2006	4,780		5,299		5,987		2006	4,166		4,582		4,905
2007	2007	7,429		8,702		9,837		2007	6,316		7,096		8,034
2008	2008	1,934		2,369		2,688		2008	1,638		1,798		2,178
2005 - 2008 %	2005 - 2008 %	58	%	60	%	62	%	2005 - 2008 %	53	%	54	%	59	%
2009	2009	154		172		204		2009	118		148		167
2010	2010	115		121		151		2010	87		115		135
2011	2011	156		159		193		2011	125		143		163
2012	2012	245		312		386		2012	202		231		272
2013	2013	502		592		689		2013	498		521		532
2014	2014	1,021		1,264		1,272		2014	956		1,101		1,131
2015	2015	1,292		1,418		1,447		2015	1,299		1,388		1,343
2016	2016	1,393		1,459		1,449		2016	1,423		1,578		1,460
2017	2017	1,476		1,282		860		2017	1,824		1,989		1,374
2018	2018	772		348		32		2018	1,602		1,521		573
2019	2019	46		—		—		2019	482		332		—
2020								2020	1		—		—
2009 and later %	2009 and later %	24	%	22	%	19	%	2009 and later %	32	%	30	%	23	%

Total	Total	29,795		32,898		36,037		Total	27,384		30,028		30,921

~~The delinquent inventory~~We expect that delinquencies will increase from their current level as a result of ~~June~~the COVID-19 pandemic, including the increase in unemployment associated with initiatives intended to reduce the transmission of COVID-19. As of April 30, ~~2018 included delinquencies from hurricane impacted areas, of which a majority had cured as of December 31, 2018.~~2020 there were 30,243 loans in our delinquency inventory.

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 represented approximately ~~13%~~10% and ~~15%~~11% of our total primary RIF at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Approximately ~~40% and~~ 39% of the remaining primary RIF on our 2005 through 2008 books of business benefited from HARP ~~as of June 30, 2019~~at both March 31, 2020 and December 31, ~~2018, respectively.~~2019.

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 ~~June 30, 2019, 49%~~March 31, 2020, 47% of our primary RIF was written subsequent to December 31, 2017, 61% of our primary RIF was written subsequent to December 31, 2016, ~~64%~~and 73% of our primary RIF was written subsequent to December 31, ~~2015, and 74% of our primary RIF was written subsequent to December 31, 2014.~~2015.

MGIC Investment Corporation - Q1 2020 | 47

Underwriting and other expenses, net

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

Underwriting and other expenses, net for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 were ~~$43.0~~$42.3 million, ~~and $88.9 million, respectively, increases~~a decrease from ~~$41.8 million and $87.9~~$45.9 million in the ~~respective~~ prior year ~~periods~~period primarily due to ~~increases~~decreases in ~~benefits~~professional and deferred compensation expenses.

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Underwriting expense ratio 17.6 % 16.4 % 18.3 % 17.9 %

The underwriting expense ratio is the ratio, expressed as a percentage, of the underwriting and operating expenses, net and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance subsidiaries) to NPW. The underwriting expense ratio in the three ~~and six~~ months ended ~~June 30, 2019 increased compared to the respective prior year periods. The increases in the ratio for the three and six months ended June 30, 2019 were primarily~~March 31, 2020 decreased due to ~~decreases~~decrease in ~~NPW when compared to the same periods~~underwriting expenses and an increase in ~~the prior year.~~NPW.

Provision for income taxes and effective tax rate

																					Income tax provision and effective tax rate
		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(in millions, except rate)		2019			2018			2019			2018
(In millions, except rate)														(In millions, except rate)	2020			2019
Income before tax	Income before tax	$	211.2		$	237.5		$	402.1		$	417.5		Income before tax	$	188.2		$	190.9
Provision for income taxes	Provision for income taxes	$	43.4		$	50.7		$	82.4		$	87.1		Provision for income taxes	$	38.4		$	39.0
Effective tax rate	Effective tax rate	20.5		%	21.3		%	20.5		%	20.9		%	Effective tax rate	20.4		%	20.4		%

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 48

Balance Sheet Review

Total assets, liabilities, and shareholders’ equity

As of ~~June 30, 2019,~~March 31, 2020, total assets were ~~$6.1~~$6.2 billion, ~~an increase of $378 million,~~a slight decrease from December 31, 2019 , and total liabilities were ~~$2.0~~$1.9 billion, ~~down $76 million, each when~~flat compared to December 31, ~~2018.~~2019. Shareholders’ equity ~~increased~~decreased approximately ~~$454 million~~$0.1 billion primarily due to the repurchases of our common stock and dividends paid, offset by net income in the first ~~six~~three months of ~~2019 and an increase in the fair value of our investment portfolio, offset in part by repurchases of our common stock.~~2020 .

The following sections mainly focus on our cash and cash equivalents, investments ~~deferred income taxes, net,~~ and loss reserves as these reflect the major developments in our assets and liabilities since December 31, ~~2018.~~2019.

Consolidated balance sheets - Assets

as of ~~June 30, 2019~~March 31, 2020 (In thousands)


●	Cash and cash equivalents	$	225,183	Cash and cash equivalents	$	369,526
●	Investments	5,512,037		Investments	5,490,838
●	Premiums receivable	57,492		Premiums receivable	53,440
●	Deferred income taxes, net	20,932		Other assets	241,483
●	Other assets	239,893

Cash and cash equivalents (including restricted) - Our cash and cash equivalents balance increased to ~~$225~~$370 million as of ~~June 30, 2019,~~March 31, 2020, from ~~$155~~$169 million as of December 31, ~~2018,~~2019, as net cash generated from operating and investing activities was only partly offset by net cash used in ~~investing and~~ financing activities.

~~Deferred income taxes, net~~ - ~~The decrease in our deferred income taxes, net, to $21 million as of~~ ~~June 30, 2019, from $69 million as of~~ ~~December 31, 2018, was primarily due to the tax effect of unrealized gains generated by the investment portfolio during the first six months of 2019.~~

Consolidated balance sheets - Liabilities and equity

as of ~~June 30, 2019~~March 31, 2020 (In thousands)


●	Loss reserves	$	621,902	Loss reserves	$	574,753
●	Unearned premiums	400,999		Unearned premiums	365,408
●	Long-term debt	832,162		Long-term debt	833,027
●	Other liabilities	164,809		Other liabilities	140,271
●	Shareholders’ equity	4,035,665		Shareholders’ equity	4,241,828

Loss reserves - Our loss reserves ~~include: (1) reserves representing~~include estimates of losses and settlement expenses on (1) reported delinquencies known as case reserves, (2) IBNR, and ~~(2) IBNR.~~(3) LAE reserves. Our gross reserves are reduced by reinsurance recoverable on our estimated losses and settlement expenses to calculate a net reserve balance. The net reserve balance ~~decreased~~increased by 6%3% to ~~$604~~$549 million as of ~~June 30, 2019,~~March 31, 2020, from ~~$641~~$534 million as of December 31, ~~2018.~~2019. Reinsurance recoverables on our estimated losses and settlement expenses were ~~$18~~$26 million and ~~$33~~$22 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The overall ~~decrease~~increase in our net loss reserves during the first ~~six~~three months of ~~2019~~2020 was due to ~~a higher level of losses~~reserves established on new notices in the quarter, including IBNR, exceeding claims paid ~~relative to losses incurred.~~in the quarter.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 49

Investment portfolio

The average duration and investment yield of our investment portfolio as of ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018,~~2019, and ~~June 30, 2018~~March 31, 2019 are shown in the table below.

									Portfolio duration and embedded investment yield
		June 30, 2019	December 31, 2018	June 30, 2018		March 31, 2020	December 31, 2019	March 31, 2019
Duration (in years)	Duration (in years)	4.0	4.1	4.2	Duration (in years)	4.0	3.9	4.0
Pre-tax yield ⁽¹⁾	Pre-tax yield ⁽¹⁾	3.2%	3.1%	2.9%	Pre-tax yield ⁽¹⁾	3.1%	3.1%	3.2%
After-tax yield ⁽¹⁾	After-tax yield ⁽¹⁾	2.6%	2.6%	2.4%	After-tax yield ⁽¹⁾	2.5%	2.5%	2.6%


⁽¹⁾	Embedded investment yield is calculated on a yield-to-worst basis.

The security ratings of our fixed income investments as of ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018,~~2019, and ~~June 30, 2018~~March 31, 2019 are shown in the following table.

Fixed income security ratings

Security Ratings ⁽¹⁾
Period AAA AA A BBB
June 30, 2019 21% 22% 33% 24%
December 31, 2018 19% 23% 33% 25%
June 30, 2018 21% 24% 35% 20%



Fixed income security ratings
	Security Ratings ⁽¹⁾
Period	AAA	AA	A	BBB
March 31, 2020	22%	20%	35%	22%
December 31, 2019	21%	20%	34%	24%
March 31, 2019	21%	23%	32%	24%


⁽¹⁾	Ratings are provided by one or more of: Moody's, Standard & Poor's and Fitch Ratings. If three ratings are available, the middle rating is utilized; otherwise the lowest rating is utilized.

Off-Balance Sheet Arrangements

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 4 - “Reinsurance,” to our consolidated financial statements for additional information.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 50

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.~~outstanding, and dividend payouts. The following table summarizes our consolidated cash flows from operating, investing and financing activities:

															Summary of consolidated cash flows
		Six Months Ended June 30,							Three Months Ended March 31,
(In thousands)	(In thousands)	2019			2018			(In thousands)	2020			2019
Total cash provided by (used in):	Total cash provided by (used in):							Total cash provided by (used in):
Operating activities	Operating activities	$	281,611		$	262,593		Operating activities	$	184,324		$	164,881
Investing activities	Investing activities	(169,233		)	(62,418		)	Investing activities	166,153			(40,115		)
Financing activities	Financing activities	(42,233		)	(108,132		)	Financing activities	(150,007		)	(17,292		)
Increase in cash and cash equivalents and restricted cash and cash equivalents	Increase in cash and cash equivalents and restricted cash and cash equivalents	$	70,145		$	92,043		Increase in cash and cash equivalents and restricted cash and cash equivalents	$	200,470		$	107,474

Net cash provided by operating activities for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 increased compared to the same period of ~~2018~~2019 primarily due to a lower level of losses paid, net, an increase in investment income, and an increase in net premiums ~~written, offset~~written.

Net cash provided by investing activities for the three months ended March 31, 2020 primarily reflects sales and maturities of fixed income and equity securities in ~~part by an increase in tax payments.~~amounts that exceeded our purchases of fixed income and equity securities during the period.

Net cash used in investing activities for the ~~six~~three months ended ~~June 30,~~March 31, 2019 reflects purchases of fixed income securities in an amount that exceeded our proceeds from sales and maturities of fixed income securities during the period as cash from operations was available for additional investment.

~~Net cash used in investing activities for the six months ended June 30, 2018~~ reflects purchases of fixed income securities in an amount that exceeded our proceeds from the sales and maturities of fixed income securities during the period as cash from operations was available for additional ~~investment, as well as, amounts spent on property and equipment.~~investment.

Net cash used in financing activities for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 primarily reflects ~~the cash settlement of share repurchase transactions executed at the end of the fourth quarter of 2018,~~ share repurchases during the period in , cash dividends paid to shareholders, and the payment of withholding taxes related to share-based compensation net share settlement.

Net cash used in financing activities for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 reflects share repurchases and the payment of withholding taxes related to share-based compensation net share settlement.

Capitalization

Debt - holding company

As of ~~June 30, 2019,~~March 31, 2020, our holding company’s debt obligations were ~~$814.5~~$815 million in aggregate principal consisting of our

5.75% Notes and 9% Debentures. MGIC’s ownership of $132.7 million

of our holding company’s 9% Debentures is eliminated in consolidation, but they remain outstanding obligations owed by our holding company to MGIC.

Liquidity analysis - holding company

As of ~~June 30, 2019,~~March 31, 2020, we had approximately ~~$333~~$562.5 million in cash and investments at our holding company. These resources are maintained primarily to service our debt interest expense, pay debt maturities, repurchase shares, pay dividends to shareholders, and to settle intercompany obligations. While these assets are held, we generate investment income that serves to offset a portion of our interest expense. Investment income and the payment of dividends from our insurance subsidiaries are the principal sources of holding company cash inflow. MGIC is the principal source of dividends, and their payment is restricted by insurance regulation. See Note 14 - “Statutory Information” to our consolidated financial statement for additional information about MGIC’s dividend restrictions. The payment of dividends from MGIC is also influenced by our view of the appropriate level of PMIERs Available Assets to maintain an excess over Minimum Required Assets. Other sources of holding company liquidity include raising capital in the public markets. The ability to raise capital in the public markets is subject to prevailing market conditions, investor demand for the securities to be issued, and our deemed creditworthiness.

In the ~~second~~first quarter of ~~2019~~2020 we used ~~$25~~$120 million of holding company cash to repurchase ~~shares and 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~~shares. In light of the uncertainty caused by ~~debt) and/or exchanges for other securities, and may be made in open market purchases, privately negotiated acquisitions or other transactions.~~the COVID-19 pandemic, we have temporarily suspended stock repurchases. See “Overview - Capital” of this MD&A for a discussion of the additional share repurchase program authorized in ~~March 2019.~~January 2020.

In the first ~~six~~quarter of 2020 we used $21 million to pay cash dividends to shareholders. On April 23, 2020, our Board of Directors declared a quarterly cash dividend of $0.06 per common share to shareholders of record on May 11, 2020, payable on May 29, 2020.

In the first three months of ~~2019,~~2020, our holding company cash and investments increased by ~~$85~~$238 million, to ~~$333~~$563 million as of ~~June 30, 2019.~~March 31, 2020.

~~Cash~~Significant cash and investments inflows during the first ~~six~~three months:

$~~140~~390 million of dividends received from MGIC

~~$8 million of investment income,~~ and

$4 million of ~~other inflows.~~investment income.

~~Cash~~Significant cash outflows during the first ~~six~~three months:

$30120 million of share repurchase transactions,

$21 million in cash dividends paid to shareholders, and

$12 million of interest payments on our 5.75% Notes and 9% Debentures,

~~$25 million of share repurchase transactions,~~

~~$12 million for share repurchase transactions in 2018 that settled~~MGIC is not planning to request a dividend from its regulator, the Wisconsin OCI, to be paid in the ~~first quarter of 2019.~~

second quarter. We ~~expect~~ask the Wisconsin OCI not to object before MGIC pays dividends to the holding company. Future dividend payments from MGIC to ~~continue to pay quarterly dividends of at least~~ the ~~$70 million amount paid in each of the first and second quarters of 2019, subject to approval by MGIC’s board of directors and non-disapproval by the OCI.~~

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 51

holding company will be determined on a quarterly basis, in consultation with the board, and after considering any updated estimates about the length and severity of the economic impacts of the COVID-19 pandemic on our business.

The net unrealized ~~gains~~losses on our holding company investment portfolio were approximately ~~$2.3~~$1.7 million at ~~June 30, 2019~~March 31, 2020 and the portfolio had a modified duration of approximately ~~1.8~~1.3 years.

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

See Note 7 – “Debt” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for additional information about the conversion terms of our 9% Debentures and the terms of our indebtedness, including our option to defer interest on our 9% Debentures. The description in Note 7 - “Debt” to our consolidated financial statements in our Annual Report on Form 10-K is qualified in its entirety by the terms of the notes and debentures.

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 discussion of our non-insurance contract underwriting services in Note 5 – “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, which provides MGIC access to an additional source of liquidity via a secured lending facility. MGIC ~~has $155.0~~borrowed $155 million ~~of debt outstanding~~ in the form of a fixed rate advance from the FHLB. Interest on the Advance is payable monthly at an annual rate, fixed for the term of the Advance, of 1.91%. The principal of the Advance matures on February 10, 2023. MGIC may prepay the Advance at any time. Such prepayment would be below par if interest rates have risen after the Advance was originated, or above par if interest rates have declined. The Advance is secured by eligible collateral whose fair value is maintained at a minimum of 102% of the outstanding principal balance. MGIC provided eligible collateral from its investment portfolio.

Capital Adequacy

PMIERs

As of ~~June 30, 2019,~~March 31, 2020, MGIC’s Available Assets under the PMIERs totaled approximately ~~$4.4~~$4.3 billion, an excess of approximately ~~$1.1~~$1.0 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 Available Assets will allow MGIC to remain in compliance with the PMIERs financial ~~requirements, including, we believe, to the extent they are revised.~~requirements. Our reinsurance transactions provided an aggregate of approximately $1.3 billion of ~~PMIERs~~ capital credit under the PMIERs as of ~~June 30, 2019.~~March 31, 2020. Refer to Note 4 - “Reinsurance” to our consolidated financial statements for additional information on our QSR and Home Re Transactions.

We ~~plan~~anticipate an increase to ~~continuously comply with~~our delinquency inventory caused by the COVID-19 pandemic. The PMIERs generally require us to maintain significantly more Minimum Required Assets for delinquent loans than for performing loans; however, delinquent loans whose borrowers have been affected by the COVID-19 pandemic may be given the same treatment under the PMIERs ~~through our operational activities or through~~as delinquent loans in areas that the ~~contribution of funds~~Federal Emergency Management Agency ("FEMA") has declared major disaster areas in connection with hurricanes. Specifically, the Minimum Required Assets would be reduced by 70% for at least 120 days from ~~our holding company,~~the date the loan becomes delinquent, and longer if the loan is subject to ~~demands on the holding company's resources, as outlined above.~~ a forbearance plan that meets certain requirements.

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

Risk-to-capital

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

~~Risk-to-capital~~

We compute our risk-to-capital ratio on a separate company statutory basis, as well as on a combined insurance operation basis. The risk-to-capital ratio is our net RIF divided by our policyholders’ position. Our net RIF includes both primary and pool risk in force and excludes risk on policies that are currently in default and for which loss reserves have been established, and those 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 the 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.

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MGIC’s separate company risk-to-capital calculation is shown in the table below.

											Risk-to-capital - MGIC separate company
(In millions, except ratio)	(In millions, except ratio)	June 30, 2019		December 31, 2018		(In millions, except ratio)	March 31, 2020		December 31, 2019
RIF - net ⁽¹⁾	RIF - net ⁽¹⁾	$	43,391	$	34,502	RIF - net ⁽¹⁾	$	44,772	$	44,338
Statutory policyholders’ surplus	Statutory policyholders’ surplus	1,633		1,682		Statutory policyholders’ surplus	1,268		1,619
Statutory contingency reserve	Statutory contingency reserve	2,670		2,138		Statutory contingency reserve	3,106		2,963
Statutory policyholders’ position	Statutory policyholders’ position	$	4,303	$	3,820	Statutory policyholders’ position	$	4,374	$	4,582
Risk-to-capital	Risk-to-capital	10.1:1		9.0:1		Risk-to-capital	10.2		9.7:1


⁽¹⁾	RIF – net, as shown in the table above is net of reinsurance and exposure on policies currently delinquent for which loss reserves have been established.

Our combined insurance companies’ risk-to-capital calculation is shown in the table below.

											Risk-to-capital - Combined insurance companies
(In millions, except ratio)	(In millions, except ratio)	June 30, 2019		December 31, 2018		(In millions, except ratio)	March 31, 2020		December 31, 2019
RIF - net ⁽¹⁾	RIF - net ⁽¹⁾	$	43,488	$	40,239	RIF - net ⁽¹⁾	$	45,069	$	44,550
Statutory policyholders’ surplus	Statutory policyholders’ surplus	1,634		1,683		Statutory policyholders’ surplus	1,271		1,619
Statutory contingency reserve	Statutory contingency reserve	2,729		2,443		Statutory contingency reserve	3,166		3,021
Statutory policyholders’ position	Statutory policyholders’ position	$	4,363	$	4,126	Statutory policyholders’ position	$	4,437	$	4,640
Risk-to-capital	Risk-to-capital	10.0:1		9.8:1		Risk-to-capital	10.2		9.6:1


⁽¹⁾	RIF – net, as shown in the table above, is net of reinsurance and exposure on policies currently delinquent ($~~2.1~~1.5 billion at ~~June 30, 2019~~March 31, 2020 and ~~$1.6 billion at~~ December 31, ~~2018)~~2019) for which loss reserves have been established.

~~MGIC Investment Corporation - Q2 2019 | 52~~

The ~~increases~~increase in MGIC's risk-to-capital and our combined insurance companies’ ~~risk-to-capital~~risk to capital in the first ~~six~~three months of ~~2019 were~~2020 was due to a decrease in the statutory policyholders’ position, offset by an increase in our RIF, net of ~~reinsurance, partially offset by an increase~~reinsurance. The decrease in statutory ~~policyholders’~~policyholder’s position is primarily due to ~~an increase~~dividends paid to our holding company in ~~statutory contingency reserves.~~ the first three months of 2020 of $390 million. For additional information on dividends paid from MGIC to the holding company refer to “Overview - Capital” of this MD&A”

Our RIF, net of reinsurance, increased in the first ~~six~~three months of 2019, due to an increase in our IIF, ~~and a reduction~~offset by an increase in our ceded RIF under our ~~2015~~ QSR ~~Transaction. MGIC’s risk-to-capital ratio also increased due to the commutation of an affiliate reinsurance agreement.~~Transactions. Our risk-to-capital ratio will increase if the percentage increase in net insured risk exceeds the percentage increase in 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.”

Financial Strength Ratings



MGIC financial strength ratings
Rating Agency	Rating	Outlook
Moody’s Investor Services	~~Baa2~~Baa1	Stable
Standard and Poor’s Rating Services	BBB+	~~Stable~~Negative
A.M. Best	A-	Stable

Standard and Poor's recently revised its outlook for the U.S. Mortgage Insurers market segment to "negative,” due to the risks associated with the COVID-19 pandemic. A.M. Best recently revised its outlook for the U.S. Mortgage Insurers market segment to "negative," but did not change MGIC's or MAC’s outlook at that time. For further information about the importance of MGIC’s ratings, see our risk factor titled “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.”



MAC financial strength ratings
Rating Agency	Rating	Outlook
A.M. Best	A-	Stable

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Contractual Obligations

The following table summarizes, as of ~~June 30, 2019,~~March 31, 2020, the approximate future payments under our contractual obligations and estimated claim payments on established loss reserves.

																							Contractual obligations
		Payments due by period											Payments due by period
(In millions)	(In millions)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		(In millions)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term debt obligations	Long-term debt obligations	$	1,975.4	$	51.1	$	101.1	$	664.7	$	1,158.5	Long-term debt obligations	$	1,936.7	$	50.6	$	255.7	$	483.5	$	1,146.9
Operating lease obligations	Operating lease obligations	2.3		1.2		1.0		0.1		—		Operating lease obligations	2.0		1.1		0.9		—		—
Purchase obligations	Purchase obligations	7.8		5.4		2.1		0.3		—		Purchase obligations	8.9		5.4		3.5		—		—
Other long-term liabilities	Other long-term liabilities	621.9		233.2		282.3		106.4		—		Other long-term liabilities	574.8		215.6		260.9		98.3		—
Total	Total	$	2,607.4	$	290.9	$	386.5	$	771.5	$	1,158.5	Total	$	2,522.4	$	272.7	$	521.0	$	581.8	$	1,146.9

Our long-term debt obligations as of ~~June 30, 2019~~March 31, 2020 include their related interest and are discussed in Note 3 - “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” above. Our operating lease obligations include operating leases on certain office space, data processing equipment and autos, as discussed in Note 16 – “Leases” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Purchase obligations consist primarily of agreements to purchase items related to our corporate headquarters update and continued investment in our information technology infrastructure in the normal course of business.

Our other long-term liabilities represent the case and LAE loss reserves established to recognize the liability for losses and LAE related to existing 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 impacts from the COVID-19 pandemic, loss mitigation protocols established by servicers and changes in some state foreclosure laws that may include, for example, a requirement for additional review and/or mediation process.

See Note 11 – “Loss Reserves” to our consolidated financial statements. In accordance with GAAP for the mortgage insurance industry, we establish 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.

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Forward Looking Statements and Risk Factors

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

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

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

Location of Risk Factors: The risk factors are in Item 1 A of our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as supplemented by Part II, Item 1 A of our ~~Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, and by Part II, Item 1A of this~~ Quarterly Report on Form 10-Q. The risk factors in the 10-K, as supplemented by this 10‑Q and through updating of various statistical and other information, are reproduced in Exhibit 99 to this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

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

We manage credit risk via our investment policy guidelines which primarily place our investments in investment grade securities and limit the amount of our credit exposure to any one issue, issuer and type of instrument. Guideline and investment portfolio detail is available in "Business – Section C, Investment Portfolio" in Item 1 of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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

One of the measures used to quantify this exposure is modified duration. Modified duration measures the price sensitivity of the assets to the changes in spreads. At ~~June 30, 2019,~~March 31, 2020, the modified duration of our fixed income investment portfolio was 4.0 years, which means that an instantaneous parallel shift in the yield curve of 100 basis points would result in a change of 4.0% in the fair value of our fixed income portfolio. For an upward shift in the yield curve, the fair value of our portfolio would decrease and for a downward shift in the yield curve, the fair value would increase. See Note 7 – “Investments” to our consolidated financial statements for additional disclosure surrounding our investment portfolio.

Item 4. Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer concluded that such controls and procedures were effective as of the end of such period. There was no change in our internal control over financial reporting that occurred during the ~~second~~first quarter of ~~2019~~2020 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 55

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Certain legal proceedings arising in the ordinary course of business may be filed or pending against us from time to time. For information about such legal proceedings, you should review our risk factor titled “We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future” in ~~Item 1A.~~Exhibit 99.

Item 1 A. Risk Factors

With the exception of the changes described and set forth below, there have been no material changes in our risk factors from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018, as supplemented by Part II, Item I A of our Quarterly Report on Form 10-Q for the Quarter ended March 31,~~ 2019. The risk factors in the 10-K, as supplemented by ~~that 10-Q and~~ this 10-Q, and through updating of various statistical and other information, are reproduced in their entirety in Exhibit 99 to this Quarterly Report on Form 10‑Q.

The impact of the COVID-19 pandemic on our business and financial condition may be material.

While uncertain, the impact of the COVID-19 pandemic on the Company’s business, financial results, liquidity and/or financial condition may be material. We expect that the increase in unemployment and economic uncertainty resulting from initiatives to reduce the transmission of COVID-19 (including "shelter-in-place" restrictions), as well as COVID-19‑related illnesses and deaths, will negatively impact our business. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in the United States, the length of time that measures intended to reduce the transmission of COVID-19 remain in place, the resulting level of unemployment, and the impact of various government initiatives (including the enactment of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act")) and actions taken by Fannie Mae and Freddie Mac (the "GSEs") (including implementation of mortgage forbearance and modification programs) to mitigate the economic harm caused by COVID-19 and efforts to reduce its transmission.

The COVID-19 pandemic has impacted and may continue to impact our business in various ways, including the following:

•

Our incurred losses will increase as the number of insured mortgage delinquencies increase. We establish case reserves for insurance losses when delinquency notices are received 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 (this is often referred to as “IBNR”). For information about our loss reserving methodology, see our risk factors titled "Because we establish loss reserves only upon a loan delinquency rather than based on estimates of our ultimate losses or 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."

We will be required to maintain more capital under the private mortgage insurer eligibility requirements ("PMIERs") of the GSEs, which generally require more capital to be held

for delinquent loans than for performing loans. For more information about the capital requirements of the PMIERs, 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."

•

Over time, as the number of delinquencies increases, the number of claims that we must pay is likely to increase. For more information, see our risk factor titled "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."


•	As the number of purchase mortgage originations decreases, and if the number of refinance mortgage originations decreases, the number of mortgages available for us to insure in the near term will also decrease. For more information, see our risk factor titled "If the volume of low down payment home mortgage originations declines, the amount of insurance that we write could decline."


•	We may be unable to secure excess of loss reinsurance through insurance-linked notes transactions in the near term. For more information, see our risk factor titled "Reinsurance may not always be available or affordable."


•	Our receipt of premiums may be delayed. For more information, see our risk factor titled "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."


•	Our operations may be impacted if our management or other employees are unable to perform their duties as a result of COVID-19-related illnesses. For more information, see our risk factor titled "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."

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

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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.

The unemployment rate rose from 3.5% as of December 31, 2019, to 4.4 % as of March 31, 2020, and, on May 3, 2020, The Wall Street Journal reported that economists it surveyed forecast that unemployment rose to 16.1% as of April 30, 2020. We expect increasing unemployment to result in an increasing number of mortgage delinquencies and 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; the length of time that measures intended to reduce the transmission of COVID-19 remain in place; effects of forbearance programs enacted by the GSEs, various states and municipalities; and effects of stimulus programs, including those contained in the CARES Act. The programs contained in the CARES Act include, among many others:

For those mortgages that are not subject to forbearance, a suspension of foreclosures and evictions for at least 60 days from March 18, 2020, on mortgages purchased or securitized by the GSEs.

Direct aid to individuals in the form of refundable tax credit rebates paid in April 2020.

"Paycheck Protection Program " to provide small businesses with funds to pay up to eight weeks of payroll costs, and certain other expenses.

Enhanced unemployment benefits.

Increased flexibility under retirement plans.

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 insurance 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 March 31, 2020, MGIC’s Available Assets totaled $4.3 billion, or $1.0 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.

While loans that were current at the time a COVID-19 pandemic-related forbearance was initiated are not to be reported as delinquent for consumer credit reporting purposes, they may be reported to mortgage insurers and the GSEs as delinquent, and are treated as delinquent for purposes of the PMIERs. Loans that were delinquent at the time such a forbearance was initiated are expected to be reported as delinquent to mortgage insurers and the GSEs. The PMIERs generally require us to maintain significantly more Minimum Required Assets for delinquent loans than for performing loans; however, delinquent loans whose borrowers have been affected by the COVID-19 pandemic may be given the same treatment under the PMIERs as delinquent loans in areas that the Federal Emergency Management Agency ("FEMA") has declared major disaster areas in connection with hurricanes. Specifically, the Minimum Required Assets would be reduced by 70% for at least 120 days from the date the loan becomes delinquent, and longer if the loan is subject to a forbearance plan that meets certain requirements.

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1)	The loan is subject to a forbearance plan executed in response to a FEMA Declared Major Disaster Area eligible for Individual Assistance, the terms of which are materially consistent with terms of forbearance plans offered by Freddie Mac or Fannie Mae. As of the date of this report, not all states have delegated eligible individual assistance.


2)	The loan has an initial default date occurring up to either (i) 30 days prior to or (ii) 90 days following the Major Disaster event. It is uncertain how the date of the "Major Disaster event" will be determined for the COVID-19 pandemic.

The mortgage insurance industry has asked the Federal Housing Finance Agency (the "FHFA") and the GSEs to consider revisions to the PMIERs in light of the differences between FEMA declarations associated with hurricanes and those associated with the COVID-19 pandemic. Among other things, the industry asked the FHFA and GSEs to specify how "Major Disaster event" will be determined and to not limit the forbearance plans described in 1) above to those executed in response to a FEMA Declared Major Disaster Area eligible for Individual Assistance. We applied the 70% reduction discussed above when calculating our PMIERs Minimum Required Assets for March 31, 2020. We expect to receive guidance from the GSEs before we calculate our PMIERs Minimum Required Assets for June 30, 2020.

Although we have requested servicers to provide us with information about the forbearance status of loans, we may not receive such reporting and, therefore, may not be able to take advantage of the 70% reduction after a loan has been delinquent 120 days.

It is possible that, despite reducing the Minimum Required Assets for certain delinquent loans by 70%, the increasing number of delinquent loans caused by the COVID-19 pandemic will cause our Available Assets to be less than our Minimum Required Assets. As of March 31, 2020 and April 30, 2020, there were 27,384 and 30,243 loans in our delinquency inventory, respectively. We expect that the majority of COVID-19 pandemic-related delinquencies have not yet been reported; however, we are unable to predict the number of loans that will become delinquent as a result of the COVID-19 pandemic. We estimate that, as of March 31, 2020, our delinquency inventory would have had to have grown by approximately 235,000 loans to cause our Available Assets to be less than our Minimum Required Assets. This estimation was based on several simplifying assumptions, including that all incremental delinquencies were associated with the COVID-19 pandemic (and, therefore, receive the 70% reduction in Minimum Required Assets discussed above), reflect the same mix of book years and risk characteristics as our remaining risk-in force, and are subject to 21% quota share reinsurance (the weighted average quota share reinsurance on our risk in force).

If our Available Assets are less than our Minimum Required Assets, then 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 eligibility to insure loans purchased by them. Such suspension or termination would significantly reduce the volume of our new business writings; the vast majority of our NIW since 2008 has been for loans delivered to or purchased by the GSEs.

In addition to the increase in Minimum Required Assets associated with delinquent loans whose borrowers are affected by the COVID-19 pandemic, 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. It is possible that the FHFA and GSEs will not agree to the COVID-19-specific changes requested by the mortgage insurance industry or that they will revise the PMIERs to provide that there is no reduction in the Minimum Required Assets for COVID-19-related delinquencies.

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. A re-proposed capital rule is expected to be released; however, the timing and content of the re-proposal are 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.

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 consider 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. A premium deficiency exists when the present value of expected future losses and expenses exceed the present value of expected future premiums and already established loss

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reserves on the applicable loans. As a result, future losses on loans that are not currently delinquent may have a material impact on future results as such losses emerge. As of March 31, 2020, we had established case reserves and reported losses incurred for 27,384 loans in our delinquency inventory and increased our IBNR reserve from $22 million at December 31, 2019 to $30 million at March 31, 2020. Though not reflected in our March 31, 2020 financial results, as of April 30, 2020, our delinquency inventory had increased to 30,243 loans. We expect that delinquencies will increase from that level as a result of the COVID-19 pandemic, including as a result of the increase in unemployment associated with initiatives intended to reduce the transmission of COVID-19. As a result, we expect our losses incurred to increase in future periods. 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 impact of the COVID-19 pandemic on our business and financial condition may be material."

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, the impact of various government actions (including the enactment of the CARES Act) and actions taken by the GSEs (including implementation of mortgage forbearance and modification programs) to mitigate the economic harm caused by the COVID-19 pandemic and efforts to reduce the transmission of COVID-19, and a change in the length of time loans are delinquent before claims are received. The change in conditions may include changes in unemployment, including prolonged unemployment as a result of the COVID-19 pandemic, 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. 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 filed with the SEC. Changes to our claim rate and claim severity 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.

The premiums we ~~write~~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. In addition, our customized rate plans may delay our ability to increase our premiums on the NIW covered by such plans. Generally, we cannot cancel mortgage insurance 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 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 a policy was written, we cannot adjust premiums to compensate for this and our returns may be lower than we assumed. For a discussion of the effect of the COVID-19 pandemic on 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."

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.

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

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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 ~~investors select alternatives~~(iii) use of a spectrum of filed rates to ~~private mortgage insurance.~~

~~Alternatives to private mortgage insurance include:~~

~~lenders using FHA, VA and other government mortgage insurance programs,~~

~~investors using risk mitigation and credit risk transfer techniques other than private mortgage insurance,~~

~~lenders and other investors holding mortgages in portfolio and self-insuring, and~~

lenders originating mortgages using piggyback structures to avoid private mortgage insurance, such as a first mortgage with an 80% loan-to-value ratio and a second mortgage with a 10%, 15% or 20% loan-to-value ratioallow for formulaic, risk-based pricing that may be quickly adjusted within certain parameters (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% loan-to-value ratio that~~"risk-based pricing systems"). While our increased use of reinsurance over the past several years has ~~private mortgage insurance.~~

In 2018, Freddie Mac and Fannie Mae initiated 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 byhelped to mitigate the ~~lenders. These programs compete with traditional private mortgage insurance and, due to differences in policy terms, they may offer~~negative effect of declining premium rates ~~that are below prevalent single premium lender paid mortgage insurance ("LPMI") rates. We participate in these programs from time~~on our returns, refer to ~~time. See~~ our risk factor titled “~~Changes in the business practices of the GSEs, federal legislation that changes their charters~~"Reinsurance may not always be available or ~~a restructuring of the GSEs could reduce our revenues or increase our losses”~~affordable" for a discussion of ~~various~~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 ~~practices~~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 26% and 25% of our NIW, in each of the ~~GSEs~~twelve months ended March 31, 2020 and 2019.

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 different 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. In addition, our customized rate plans may delay our ability to increase our premiums on the NIW covered by such plans.

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 business, results of operations and financial condition."

Certain of our competitors have access 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 ~~changed, including through expansion or modification~~able to achieve higher after-tax rates of ~~these programs.~~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

~~The GSEs (and other investors) have also used other~~compete outside of traditional mortgage insurance, including by participating in alternative forms of credit enhancement ~~that did not involve traditional private mortgage insurance, such as engaging~~pursued by Fannie Mae and Freddie Mac (the "GSEs") discussed 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.

The FHA's share of the low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance was 31.1% in the first quarter of 2019, 30.5% in 2018 and 33.9% in 2017. In the past ten years, the FHA’s share has been as low as 30.5% in 2018 and as high as 66.8% in 2009. 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. 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 23.4% in the first quarter of 2019, 22.9% in 2018 and 24.7% in 2017. In the past ten years, the VA’s share has been as low as 14.3% in 2009 and as high as 27.2% in 2016. 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% loan-to-value ratio ("LTV") 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.~~

The GSEs’ charters generally require credit enhancement for a low down payment mortgage loan (a loan with an amount that exceeds 80% of a home’s value) in order for such loan to be eligible for purchase by the GSEs. Lenders generally have used private mortgage insurance to satisfy this credit enhancement requirement. (For information about GSE programs initiated in 2018 that provide loan level default coverage by various (re)insurers (which may include affiliates of private mortgage insurers), 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.~~insurance."

~~) Because low down payment mortgages~~The vast majority of our insurance written since 2008 has been for loans purchased by the ~~GSEs have generally been insured with~~GSEs. The current private mortgage ~~insurance, the business practices~~insurer eligibility requirements ("PMIERs") of each of the GSEs ~~greatly impact~~require a mortgage insurer to maintain a minimum amount of assets to support its insured risk, as discussed in our ~~business~~risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and ~~include:~~our returns may decrease if we are required to maintain more capital in order to maintain our eligibility.” The PMIERs do not require an insurer to maintain minimum financial strength ratings; however, our financial strength ratings can affect us in the following ways:

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. Standard and Poor's recently revised its outlook, to "negative," for MGIC and other U.S. mortgage insurers due to the risks associated with the COVID-19 pandemic. A.M. Best recently revised its outlook for the U.S. Private Mortgage Insurers market segment to "negative," but did not change MGIC's outlook at that time.

Our ability to participate in the non-GSE mortgage 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 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 negative outlook).

~~MGIC Investment Corporation - Q2 2019 | 56~~

•

~~private mortgage insurer eligibility requirements of~~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 ~~requirements of which are discussed in our risk factor titled~~ ~~“We may not continue~~strength ratings, the GSEs consider financial strength ratings to ~~meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease as we are required to maintain more capital in order to maintain our eligibility,”~~


•	~~the capital and collateral requirements for participants in the GSEs' alternative~~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,~~insurance."

~~the level of private mortgage insurance coverage, subject~~If we are unable to ~~the limitations of the GSEs’ charters, when private mortgage insurance is used as the required credit enhancement on low down payment mortgages,~~

~~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,~~

~~whether the GSEs select or influence the mortgage lender’s selection of the mortgage insurer providing coverage,~~

the underwriting standards that determine which loans are eligible for purchase by the GSEs, which can affect the quality of the risk insured by the mortgage insurer and the availability of mortgage loans,

~~the terms on which mortgage insurance coverage can be canceled before reaching the cancellation thresholds established by law,~~

~~the programs established by the GSEs intended to avoid or mitigate loss on insured mortgages and the circumstances in which mortgage servicers must implement such programs,~~

~~the terms that the GSEs require to be included in mortgage insurance policies for loans that they purchase, including limitations on the rescission rights of mortgage insurers,~~


•	~~the extent to which the GSEs intervene in mortgage insurers’ claims paying practices, rescission practices or rescission settlement practices with lenders,and~~

~~the maximum loan limits of the GSEs compared to those of the FHA and other investors.~~

The Federal Housing Finance Agency (“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 assumedcompete effectively 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 the past, members of Congress have introduced several bills intended to change the

~~business practices of the GSEs and the FHA; however, no legislation has been enacted.~~

In March 2019, President Trump directed the U.S. Treasury Department to develop a plan, as soon as practicable, for administrative and legislative reforms for the housing finance system (“Treasury Housing Reform Plan”), with such reforms to reduce taxpayer risk, expand the private sector’s role, modernize the government housing programs, and achieve sustainable homeownership. The directive outlines numerous goals and objectives, including but not limited to, the end of conservatorship of the GSEs, increased competition and participation of the private sector in the mortgage market including by authorizing the FHFA to approve additional guarantors of conventional mortgages in the secondary market, appropriate capital and liquidity requirements for the GSEs, and evaluation of the GSE Patch. The GSE Patch expands the definition of Qualified Mortgage (“QM”) under the Truth in Lending Act (Regulation Z) 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.

The GSE Patch is scheduled to expire no later than January 2021. In July 2019, the CFPB released an Advanced Notice of Proposed Rulemaking on the QM definition. The director of the CFPB indicated that the CFPB would consider only a short-term extension of the GSE Patch. Approximately 30% and 24% of our NIW in the first and second quarters of 2019, respectively, was on loans with DTI ratios greater than 43%. However, it is possible that not all loans with DTI ratios greater than 43% will be affected by a sunset of the GSE Patch, in part because the standard QM definition may be liberalized under the new rules. In this regard, we note that the CFPB asked for comment about whether the definition of QM should retain a direct measure of a consumer’s personal finances (for example, DTI ratio); whether the definition should include an alternative method for assessing financial capacity; whether, if the QM definition retains a DTI ratio limit, the limit should remain 43%current or ~~be increased or decreased; and whether loans with DTI ratios above a prescribed limit should be given QM status if certain compensating factors are present.~~

We may 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 “ability to repay” rules 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 rule that includes the QM definition that applies to loans insured by the FHA was issued by the Department of Housing and Urban Development (“HUD”) and that definition is less restrictive than the CFPB’s definition in certain respects, including that (i) it has no DTI ratio limit, and (ii) it allows the lender certain presumptions about compliance with the “ability to repay” requirements on higher priced loans. It is possible that lenders will prefer FHA-insured loans to loans insured by private mortgage insuranceany future markets as a result of the ~~FHA’s less restrictive QM definition.~~financial strength ratings assigned to our insurance subsidiaries, our future new insurance written could be negatively affected.

~~In March 2019, the President also directed the Secretary of HUD to develop a plan that would recommend administrative and legislative reforms to the programs HUD oversees, including~~

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~~those~~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 ~~FHA~~PMIERs, our premium yields and the ~~Government National Mortgage Association. As a result~~likelihood of ~~the matters referred~~losses occurring," we have in place quota share and excess of loss reinsurance transactions providing various amounts of coverage on 86% of our risk in force. These reinsurance transactions enable us to ~~above, 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~~earn higher returns on our business ~~of any resulting changes is uncertain. Most meaningful changes~~than we would ~~require Congressional action~~without them because fewer Available Assets are required to ~~implement~~be held under PMIERs. 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 ~~it is difficult to estimate when Congressional action would be final and how long any associated phase-in period~~the GSEs may ~~last.~~

~~We are involved in legal proceedings and are subject to~~change the credit they allow under the PMIERs for 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 “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 obligationsceded 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 the first half of 2019, curtailments reduced our average claim paid by approximately 5.8% and 4.7%, respectively.

~~When the insured disputes our right to rescind coverage or curtail claims, we generally engage in discussions in an attempt to settle the dispute.~~reinsurance transactions. If we are unable to ~~reach~~obtain reinsurance for NIW, our returns may decrease absent an increase in premium rates. An increase in our premium rates may lead to a ~~settlement,~~decrease in our NIW.

We have in place quota share reinsurance ("QSR") transactions with unaffiliated reinsurers that cover most of our insurance written from 2013 through 2021, and a portion of our insurance written prior to 2013. The quota share reinsurance coverage percentages range from 15% to 30%. We also have in place reinsurance agreements that provide excess-of-loss reinsurance coverage for a portion of the ~~outcome of a dispute ultimately may be determined by legal proceedings.~~

~~Under ASC 450-20, until a liability~~risk associated with ~~settlement discussions~~certain mortgage insurance policies having an insurance coverage in force date on or ~~legal proceedings becomes probable~~after July 1, 2016 and ~~can~~before April 1, 2019. The transactions were entered into with special purpose insurers that issued notes linked to the reinsurance coverage ("Insurance Linked Notes" or "ILNs"). The market volatility caused by the COVID-19 pandemic has caused a disruption of uncertain duration in the market for new ILN transactions. The most recent ILN transaction in the market closed on February 3, 2020.

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 of our Annual Report on Form 10-K for the year ended December 31, 2019, may not be ~~reasonably estimated,~~effective in identifying, or adequate in controlling or mitigating, the risks we ~~consider~~face in our ~~claim payment~~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, especially in unprecedented circumstances such as those surrounding the COVID-19 pandemic. In addition, from time to time we seek to improve certain models, and the conversion process may result in material changes to assumptions, including those about returns and financial results. The models we employ are complex, which increases our risk of error in their design, implementation or ~~rescission resolved for financial reporting purposes~~use. Also, the

associated input data, assumptions and docalculations may not ~~accrue an estimated loss. Where~~be correct, and the controls we have ~~determined~~in place to mitigate that ~~a loss is probable and can~~risk may not be ~~reasonably estimated, we have recorded our best estimate of our probable loss, including recording a probable loss of $23.5 million~~effective in the first quarter of 2019. Until settlement negotiations or legal proceedings for which we have recorded a probable loss are concluded, it is reasonably possible that we will record an additional loss. In addition to matters for which we have recorded a probable loss, we are involved in other discussions and/or proceedings with insureds with respectall cases. The risks related to our ~~claims paying practices. Although it is reasonably possible that~~models may increase when ~~all of these matters are resolved~~ we ~~will not prevail in all cases,~~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 use information we receive through enhancements to refine or otherwise change existing assumptions and/or methodologies.

We rely on our management team and our business could be harmed if we are unable to ~~make a reasonable estimate~~retain qualified personnel or ~~range of estimates of~~successfully develop and/or recruit their replacements.

Our success depends, in part, on the potential liability. We estimate the maximum exposure associated with matters where a loss is reasonably possible to be approximately $289 million more than the amount of probable loss we have recorded. This estimate of maximum exposure is based upon currently available informationskills, working relationships and ~~is subject to significant judgment, numerous assumptions and~~

known and unknown uncertainties, and will include an amount for matters for which we have recorded a probable loss until such matters are concluded. We do not consider settlements concluded until any required GSE approval for such settlements is obtained. On August 2, 2019, we entered into an agreement to settle a claims paying practices dispute for which we previously had recognized a probable loss. There was no additional loss recognized as a result of entering into the agreement, as the settlement amount is in line with our original estimate of the probable loss. The agreement remains subject to GSE approval. The matters underlying the estimate of maximum exposure will change from time to time. This estimatecontinued services of our ~~maximum exposure does not include interest or consequential or exemplary damages.~~

~~Mortgage insurers, including MGIC, have been involved in litigation~~management team and ~~regulatory actions related~~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 ~~alleged violations~~obtain other personnel to manage and operate our business. In addition, we will be required to replace the knowledge and expertise of ~~the anti-referral fee provisions of the Real Estate Settlement Procedures Act, which is commonly known~~our aging workforce as ~~RESPA, and the notice provisions of the Fair Credit Reporting Act, which is commonly known as FCRA. While these proceedings in the aggregate have not resulted in material liability for MGIC,~~our workers retire. In either case, there can be no assurance that we would be able to develop or recruit suitable replacements for the ~~outcome~~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 ~~future proceedings, if any, under these laws would not~~performance in our stock 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.

The Company has activated its business continuity program by transitioning to a remote worker virtual workforce model with certain essential activities supported by limited staff in controlled office environments. This transition was made to responsibly provide for the safety of employees related to the COVID-19 pandemic and to continue to serve customers across our businesses. We have established a ~~material adverse~~temporary succession plan for each of our key executives, should an executive be unable to perform his or her duties due to a COVID-19 related illness; however, it is uncertain what impact COVID-19-related illnesses may have on our operations in the future.

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 domestic economy as well as 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,

MGIC Investment Corporation - Q1 2020 | 61

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. The COVID-19 pandemic, including the related restrictions on business in most parts of the U.S., and its effect on ~~us. In addition, various regulators, including~~unemployment and consumer confidence, may affect the ~~CFPB, state~~number of purchase mortgage originations. Underwriting standards have become more stringent as a result of the economic uncertainty caused by the COVID-19 pandemic and that may also cause a decline in the volume of low down payment home mortgage originations. For other factors that could decrease the demand for mortgage insurance, ~~commissioners and state attorneys general may bring other actions seeking various forms of relief in connection with alleged violations of RESPA.~~ see our risk factor titled “The ~~insurance law provisions of many states prohibit paying for the referral~~amount of insurance ~~business~~we write could be adversely affected if lenders and ~~provide various mechanisms~~investors select alternatives to enforce this prohibition. While we believe our practices are in conformity with applicable laws and regulations, 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 theprivate mortgage ~~insurance industry.~~

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 ~~loan-to-value~~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 paid mortgage insurance. Therefore, if our direct risk-in-force increases through increases in ~~new insurance written,~~NIW, or if our mix of business changes to include loans with higher ~~loan-to-value~~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.

~~MGIC Investment Corporation - Q2 2019 | 58~~

The minimum capital required by the risk-based capital framework contained in the exposure draft released by the NAIC in ~~May 2016~~December 2019 would be, in part, a function of certain loan and economic factors, including property location, ~~loan-to-value~~LTV ratio and credit score; general underwriting quality in the market at the time of loan origination; the age of the loan; and the premium rate we charge. Depending onupon 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 ~~(LPMI and BPMI, combined)~~ has ranged from approximately 10% in 2013 to 19% in 2017 and was ~~17%~~15% in ~~2018~~the first quarter of 2020 and 16% in ~~the first half of~~ 2019. Depending onupon 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.

We have in place quota share reinsurance ("QSR") transactions with unaffiliated reinsurers that cover most of our insurance written from 2013 through ~~2019,~~2021, and a portion of our insurance written prior to 2013. 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 income will vary from period to period, depending onupon the level of ceded losses.

In 2018 and 2019, MGIC entered into reinsurance agreements that provide excess-of-loss reinsurance coverage for a portion of the risk associated with certain mortgage insurance policies having an insurance coverage in force date on or after July 1, 2016 and before April 1, 2019. The transactions were entered into with special purpose insurers that issued notes linked to the reinsurance coverage ("Insurance Linked Notes" or "ILNs"). We expect that we may enter into other ILN transactions if capital market conditions ~~remain~~are favorable. However, the market volatility caused by the COVID-19 pandemic has caused a disruption of uncertain duration in the market for new ILN transactions. The most recent ILN transaction in the market closed on February 3, 2020.

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 ~~have~~had been trending lower.

Our ability to rescind insurance coverage became more limited for insurance we wrote beginning in ~~mid-2012, which, as of June 30, 2019, represents approximately 84% of our flow, primary insurance in force.~~mid-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, subject to state regulatory approvals.~~2020. Our ability to rescind insurance coverage will become further limited for insurance we write under the new master policy, potentially resulting in higher losses than would be the case under our existing 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. We also change our underwriting guidelines, in part through aligning most of them with ~~Fannie Mae and Freddie Mac~~the GSEs for loans that receive and are processed in accordance with certain approval recommendations from a GSE automated underwriting system. 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.

MGIC Investment Corporation - Q1 2020 | 62

Even when home prices are stable or rising, mortgages with certain characteristics have higher probabilities of claims. As of ~~June 30, 2019,~~March 31, 2020, mortgages with these characteristics in our primary risk in force included mortgages with LTV ratios greater than 95% ~~(15.4%~~(15.1%), loans with borrowers having FICO scores below 620 ~~(2.1%~~(1.9%), mortgages with borrowers having FICO scores of 620-679 ~~(9.9%~~(8.7%), mortgages with limited underwriting, including limited borrower documentation ~~(1.9%~~(1.6%), and mortgages with borrowers having DTI ratios greater than 45% (or where no ratio is available) ~~(14.6%~~(14.1%), each attribute as determined at the time of loan origination. An individual loan may have more than one of these attributes.

Beginning in 2017, the percentage of NIW that we have written on mortgages with LTV ratios greater than 95% and mortgages with DTI ratios greater than 45% has ~~increased.~~increased, although the percentage of NIW that we have written on mortgages with DTI ratios greater than 45% has declined in 2019 and the first quarter of 2020 from its 2018 level. 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~~revised our operational procedures to account for this possibility, 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 addition, we expect to insure certain loans that would not have previously met our guidelines and to offer premium rates for certain loans lower than would have been offered under our previous methodology.

The widespread use of ~~loan level~~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") ~~will make~~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 ~~DTIs.~~DTI ratios. 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 even under our current underwriting requirements.

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. As discussed below, the increase in

delinquent loans expected to be caused by the COVID-19 pandemic may result in liquidity issues and operational burdens for servicers, which may result in a delay in our receipt of premiums and disruptions in servicing.

The CARES Act provides for payment forbearance on loans purchased or secured by the GSEs to borrowers experiencing a hardship during the COVID-19 pandemic. During the forbearance period, mortgage servicers are required to pay four months of principal and interest to investors in the securities backed by the loans, even though the servicers are not receiving payments from borrowers. This may cause liquidity issues for especially non-bank servicers (who service approximately 40% of the loans underlying our insurance in force) 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 April 2020, we expect that if servicers experience future liquidity issues, they may be less likely to advance premiums to us on policies covering delinquent loans because they are not receiving payments from borrowers. Servicers experiencing liquidity issues may also be less likely to remit our 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.

The increased operational burdens associated with the likely increase in delinquent loans caused by the COVID-19 pandemic, as well as the possible transfer of servicing resulting from liquidity issues, may cause a disruption in the servicing of delinquent loans and reduce servicers’ ability 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. 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 ~~however, believe~~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 ~~insurance written beginning in the second half of 2008 will generate underwriting profits.~~reports continue to reflect, as active, policies on mortgage loans that have been repaid.

~~MGIC Investment Corporation - Q2 2019 | 59~~

Our holding company debt obligations materially exceed our holding company cash and investments.

At ~~June 30,2019,~~March 31, 2020, we had approximately ~~$333~~$563 million in cash and investments at our holding company and our holding company’s debt obligations were $815 million in aggregate principal amount, consisting of $425 million of 5.75% Senior Notes due in 2023 ("5.75% Notes") and $390 million of 9% Debentures due in 2063 (of which approximately $133 million

MGIC Investment Corporation - Q1 2020 | 63

was purchased, and is held, by MGIC, and is eliminated on the consolidated balance sheet). Annual debt service on the 5.75% Notes and 9% Debentures outstanding as of ~~June 30, 2019,~~March 31, 2020, is approximately $60 million (of which approximately $12 million will be paid to MGIC and will be eliminated on the consolidated statement of operations).

The 5.75% Senior Notes and 9% Debentures are obligations of our holding company, MGIC Investment Corporation, and not of its subsidiaries. The payment of dividends from our insurance subsidiaries which, other than investment income and raising capital in the public markets, is the principal source of our holding company cash inflow, is restricted by insurance regulation. MGIC is the principal source of dividends, and in the first ~~half~~quarter of ~~2019~~2020 and in ~~2018,~~the full year 2019, it paid a total of ~~$140~~$390 million and ~~$220~~$280 million, respectively, in dividends to our holding company. ~~We expect MGIC to continue to pay quarterly dividends of at least the $70 million amount paid in the second quarter of 2019, subject to approval by its Board of Directors.~~ We ask the OCI not to object before MGIC pays ~~dividends.~~

Individends and, due to the uncertainty surrounding the COVID-19 pandemic, we do not expect MGIC to pay a dividend to the holding company in the second quarter of ~~2019~~2020.

In the first quarter of 2020 and in ~~2018,~~2019, we repurchased approximately ~~1.8~~9.6 million and ~~16.0~~8.7 million shares of our common stock, respectively, using approximately ~~$25~~$120 million and ~~$175~~$114 million of holding company resources, respectively. ~~Since the end~~As of ~~the second quarter, through August 5, 2019,~~March 31, 2020, we ~~repurchased approximately 1.8~~had $291 million ~~shares for approximately $23 million. We may~~of authorization remaining to repurchase ~~up to an additional $177 million of~~ our common stock through the end of ~~2020~~2021 under a share repurchase program approved by our Board of Directors in ~~the first quarter of 2019.~~January 2020. 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.~~time, and due to the uncertainty caused by the COVID-19 pandemic, we have temporarily suspended stock repurchases. If any additional capital contributions to our subsidiaries were required, such contributions would decrease our holding company cash and investments. As described in our Current Report on Form 8-K filed 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.

~~The~~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 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 ~~may fluctuate significantly,~~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 March 31, 2020, we had outstanding $390 million principal amount of 9% Convertible Junior Subordinated Debentures due in 2063 ("9% Debentures") (of which ~~may make it difficult for holders to resell common stock when they want or~~approximately $133 million

was purchased, and is held, by MGIC, and is eliminated on the consolidated balance sheet). 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 74.4718 common shares per $1,000 principal amount of debentures. This represents a conversion price ~~they find attractive.~~of approximately $13.43 per share. The payment of dividends by our holding company results in an adjustment to the conversion rate and price, with such adjustment generally deferred until the end of the year.

~~The market~~We may redeem the 9% Debentures in whole or in part from time to time, at our option, at a redemption price ~~for~~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 for at least 20 of the 30 trading days preceding notice of the redemption.

We have the right, and may ~~fluctuate significantly.~~elect, to defer interest payable under the debentures in the future. If a holder elects to convert its debentures, the interest that has been deferred on the 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 of our Annual Report on Form 10-K for the year ended December 31, 2019.

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 of our Annual Report on Form 10-K for the year ended December 31, 2019. As noted above, in the first quarter of 2020 and in 2019, we repurchased shares of our common stock and may do so in the future. In addition, we have in the past purchased, and may in the future purchase, our debt securities.

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 disrupt our operations.

As part of our business, we maintain large amounts of personal information on consumers. Federal and state laws designed to promote the protection of personal information of consumers require businesses that collect or maintain consumer information to adopt information security programs, 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.

MGIC Investment Corporation - Q1 2020 | 64

We rely 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 through the actions of third parties. Due to our reliance on information technology systems, including ours and those of our customers and third party service providers, their damage or interruption could severely disrupt our operations, which could have a material adverse effect on our business, business prospects and results of operations.

In response to the ~~risk factors described herein,~~COVID-19 pandemic, the ~~following factors~~Company activated its business continuity program by transitioning to a remote worker virtual workforce model with certain essential activities supported by limited staff in controlled office environments. While we continue to maintain our full operations, the virtual workforce model may be more vulnerable to security breaches, damage or disruption.

In addition, we are in the process of upgrading certain of our information systems that have been in place for a number of years and continue to deploy and enhance our risk-based pricing system. The implementation of these technological improvements, as well as their integration with customer and third party systems when applicable, is complex, expensive and time consuming. If we fail to timely and successfully implement and integrate the new technology systems, or if the systems do not operate as expected, it could have an adverse impact on ~~the market price for~~ our ~~common stock: announcements by us or~~business, business prospects and results of operations.

Pandemics, hurricanes and other natural disasters may impact 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, 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, 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 ~~force); changes~~disaster-prone 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 ~~estimates~~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 pandemic, such as the COVID-19 pandemic, or other natural disaster may result in an increase in "Minimum Required Assets" and a decrease in the level of ~~securities analysts or rating agencies; actual or anticipated~~our excess "Available Assets" which is discussed in our risk factor titled "We may not continue to meet

~~changes~~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 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).eligibility."

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 6065

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

Issuer Purchases of Equity Securities

The following table provides information about purchases of MGIC Investment Corporation common stock by us during the three months ended ~~June 30, 2019.~~March 31, 2020.

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 programs ⁽¹⁾
April 1, 2019 April 30, 2019 —
$ —
—
$ 224,940,973
May 1, 2019 May 31, 2019 —
$ —
—
$ 224,940.973
June 1, 2019 June 30, 2019 1,808,739
$ 13.79
1,808,739
$ 200,000,000
1,808,739
$ 13.79
1,808,739



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 programs ⁽¹⁾
January 1, 2020	January 1, 2020	—	$	—	—	$	410,815,326
February 1, 2020	February 29, 2020	5,849,932	$	13.28	5,849,932	$	333,132,019
March 1, 2020	March 31, 2020	3,762,014	$	11.25	3,762,014	$	290,818,024
		9,611,946	$	12.47	9,611,946

⁽¹⁾

~~The share repurchase activity completed the $200 million share repurchase program authorized by the Board of Directors on April 26, 2018.~~ On ~~March 19, 2019,~~January 28, 2020, our Board of Directors authorized ~~an additional~~a share repurchase program under which we may repurchase up to ~~$200~~an additional $300 million of our common stock through the end of ~~2020.~~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 - ~~Q2 2019~~Q1 2020 | 6166

Item 6. Exhibits

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

(Part II, Item 6)

Index to exhibits





~~Exhibit Number~~		~~Description of Exhibit~~
~~10.18~~		~~Separation Agreement between Stephen Mackey and Mortgage Guaranty Insurance Corporation dated as of May 14, 2019 *, †~~
~~31.1~~		~~Certification of CEO under Section 302 of Sarbanes-Oxley Act of 2002 †~~
~~31.2~~		~~Certification of CFO under Section 302 of Sarbanes-Oxley Act of 2002 †~~
32		~~Certification of CEO and CFO under Section 906 of Sarbanes-Oxley Act of 2002 (as indicated in Item 6 of Part II, this Exhibit is not being “filed”) ††~~
99		Risk Factors included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, as supplemented by Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019, and through updating of various statistical and other information †
~~101.INS~~		~~Inline XBRL Instance Document~~
~~101.SCH~~		~~Inline XBRL Taxonomy Extension Schema Document~~
~~101.CAL~~		~~Inline XBRL Taxonomy Extension Calculation Linkbase Document~~
~~101.DEF~~		~~Inline XBRL Taxonomy Extension Definition Linkbase Document~~
~~101.LAB~~		~~Inline XBRL Taxonomy Extension Label Linkbase Document~~
~~101.PRE~~		~~Inline XBRL Taxonomy Extension Presentation Linkbase Document~~
~~104~~		~~Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)~~





Exhibit Number	Description of Exhibit	Form	Exhibit(s)	Filing Date
3.2	Amended and Restated Bylaws, as amended.	8-K	3.2	March 25, 2020
4.2	Amended and Restated Bylaws, as amended (included as Exhibit 3.2)	8-K	3.2	March 25, 2020
31.1	Certification of CEO under Section 302 of Sarbanes-Oxley Act of 2002 †
31.2	Certification of CFO under Section 302 of Sarbanes-Oxley Act of 2002 †
32	Certification of CEO and CFO under Section 906 of Sarbanes-Oxley Act of 2002 (as indicated in Item 6 of Part II, this Exhibit is not being “filed”) ††
99	Risk Factors included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and through updating of various statistical and other information †
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 †
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 †
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Denotes a management contract or compensatory plan.

† Filed herewith.

†† Furnished herewith.

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 6267

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on ~~August 5, 2019.~~May 7, 2020.



	MGIC INVESTMENT CORPORATION

	/s/ Nathaniel H. Colson
	Nathaniel H. Colson
	Executive Vice President and
	Chief Financial Officer

	/s/ Julie K. Sperber
	Julie K. Sperber
	Vice President, Controller and Chief Accounting Officer

MGIC Investment Corporation - ~~Q2 2019~~Q1 2020 | 6368



Fair value roll-forward for financial instruments classified as Level 3 for the three months ended June 30, 2018
Table	8.2c
(In thousands)		Fixed income			Equity Securities		Total Investments			Real Estate Acquired
Balance at March 31, 2018		254			1,168		1,422			10,078
Purchases		—			—		—			10,869
Sales		(62		)	—		(62		)	(6,630		)
Included in earnings and reported as losses incurred, net		—			—		—			(996		)
Balance at June 30, 2018		$	192		$	1,168	$	1,360		$	13,321



Fair value roll-forward for financial instruments classified as Level 3 for the six months ended June 30, 2018
Table	8.2d
(In thousands)		Fixed income			Equity Securities			Total Investments			Real Estate Acquired
Balance at December 31, 2017		271			4,268			4,539			12,713
Transfers out of Level 3		—			(3,100		)	(3,100		)	—
Purchases		—			—			—			16,763
Sales		(79		)	—			(79		)	(15,500		)
Included in earnings and reported as losses incurred, net		—			—			—			(655		)
Balance at June 30, 2018		$	192		$	1,168		$	1,360		$	13,321



Primary NIW by debt-to-income ratio ⁽¹⁾
	Three Months Ended June 30,				Six Months Ended June 30,
(% of primary NIW)	2019		2018		2019		2018
45.01% and above	14.7	%	19.2	%	16.3	%	19.6	%
38.01% to 45.00%	31.9	%	32.1	%	32.8	%	31.9	%
38.00% and below	53.4	%	48.7	%	50.9	%	48.5	%



Modifications
Policy year	HARP Modifications ⁽¹⁾		HAMP & Other Modifications
2003 and prior	9.7	%	46.5	%
2004	17.4	%	50.7	%
2005	25.3	%	48.5	%
2006	28.6	%	45.3	%
2007	41.0	%	35.1	%
2008	57.8	%	21.6	%
2009	47.2	%	9.5	%
2010 - Q2 2019	—	%	0.5	%

Total	5.4	%	6.0	%



Premium yield
(in basis points)	Three Months Ended		Six Months Ended
Premium yield - June 30, 2018	49.6		48.5
Reconciliation:
Change in premium rates	(1.2	)	(1.3	)
Change in premium refunds and accruals	0.6		0.5
Single premium policy persistency	0.8		0.3
Reinsurance	(3.3	)	(1.1	)
Premium yield - June 30, 2019	46.5		46.9



Quota share reinsurance
	As of and For the Six Months Ended June 30,
($ in thousands, unless otherwise stated)	2019			2018
NIW subject to quota share reinsurance agreements	83		%	75		%
IIF subject to quota share reinsurance agreements	78		%	78		%

Statements of operations:
Ceded premiums written and earned, net of profit commission	$	64,689		$	54,468
% of direct premiums written	12		%	10		%
% of direct premiums earned	11		%	10		%
Profit commission	75,902			71,958
Ceding commissions	26,765			25,285
Ceded losses incurred	5,116			4,053

Mortgage insurance portfolio:
Ceded RIF (in millions)	$	10,212		$	12,236

Three Months Ended March 31,

Loss ratio