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~~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,~~2020, there were ~~354,154,379~~338,573,493 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~~2020 | 2

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

FORM 10-Q

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



Table of contents
		Page
PART I — FINANCIAL INFORMATION
Item 1	Financial Statements:
	Consolidated Balance Sheets - June 30, ~~2019~~2020 (Unaudited) and December 31, ~~2018~~2019	7
	Consolidated Statements of Operations (Unaudited) - Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~ 2019	8
	Consolidated Statements of Comprehensive Income (Unaudited) - Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~ 2019	9
	Consolidated Statements of Shareholders’ Equity (Unaudited) - Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~ 2019	10
	Consolidated Statements of Cash Flows (Unaudited) - Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~ 2019	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	2526
	Note 11 - Loss Reserves	2627
	Note 12 - Shareholders’ Equity	2829
	Note 13 - Share-Based Compensation	2830
	Note 14 - Statutory Information	2830

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	3032
Item 3	Quantitative and Qualitative Disclosures about Market Risk	5560
Item 4	Controls and Procedures	5560

PART II — OTHER INFORMATION
Item 1	Legal Proceedings	5661
Item 1A	Risk Factors	5661
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	6169
Item 6	Exhibits	6270
INDEX TO EXHIBITS		6270
SIGNATURES		6371

MGIC Investment Corporation - Q2 ~~2019~~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 covered under Accounting Standards Codification 326

CFPB

Consumer Financial Protection Bureau

CLO

Collateralized loan obligations

CMBS

Commercial mortgage-backed securities

COVID-19 Pandemic

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

CRT

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

Credit Union QSR Transaction

Quota share reinsurance transaction with an unaffiliated reinsurer to cede business from credit union institutions.

/ 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

Delinquent Loan

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

/ 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

MGIC Investment Corporation - Q2 2020 | 4

/ 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

HOPA

Homeowners Protection Act

HUD

Housing and Urban Development

/ I

~~IADA~~

~~Individual Assistance Disaster Area~~

IBNR

Losses incurred ~~but~~on delinquent loans for which the delinquency has not been 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

MGIC Investment Corporation - Q2 2020 | 5

NPL

Non-performing loan, which is a delinquent loan, at any stage in its delinquency

NPW

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

/ O

OCI

Office of the Commissioner of Insurance of the State of Wisconsin

OTTI

Other than temporary impairment

/ P

Persistency

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

PMI

Private Mortgage Insurance (as an industry or product type)

~~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~~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	June 30, 2020			December 31, 2019
ASSETS	ASSETS		(Unaudited)						ASSETS
Investment portfolio:	Investment portfolio:	7 / 8							Investment portfolio:	2 / 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 - $5,597,554; 2019 - $5,562,550)									Fixed income, available-for-sale, at fair value (amortized cost 2020 - $5,597,554; 2019 - $5,562,550)		$	5,862,262		$	5,737,892
Equity securities, at fair value (cost 2020 - $17,467; 2019 - $17,188)									Equity securities, at fair value (cost 2020 - $17,467; 2019 - $17,188)		17,953			17,328
Other invested assets, at cost	Other invested assets, at cost	2 / 7 / 8	3,100			3,100			Other invested assets, at cost		3,100			3,100
Total investment portfolio	Total investment portfolio		5,512,037			5,159,019			Total investment portfolio		5,883,315			5,758,320
Cash and cash equivalents	Cash and cash equivalents		218,908			151,892			Cash and cash equivalents		366,715			161,847
Restricted cash and cash equivalents	Restricted cash and cash equivalents		6,275			3,146			Restricted cash and cash equivalents		4,678			7,209
Accrued investment income	Accrued investment income		48,272			48,001			Accrued investment income		46,790			49,705
Reinsurance recoverable on loss reserves	Reinsurance recoverable on loss reserves	4	18,402			33,328			Reinsurance recoverable on loss reserves	2/4	63,444			21,641
Reinsurance recoverable on paid losses	Reinsurance recoverable on paid losses		16,903			2,948			Reinsurance recoverable on paid losses	2	1,351			1,521
Premiums receivable	Premiums receivable		57,492			55,090			Premiums receivable	2	54,028			55,587
Home office and equipment, net	Home office and equipment, net		51,607			51,734			Home office and equipment, net		47,738			50,121
Deferred insurance policy acquisition costs	Deferred insurance policy acquisition costs		17,669			17,888			Deferred insurance policy acquisition costs		20,645			18,531
Deferred income taxes, net	Deferred income taxes, net		20,932			69,184			Deferred income taxes, net		—			5,742
Other assets	Other assets		87,040			85,572			Other assets		85,884			99,347
Total assets	Total assets		$	6,055,537		$	5,677,802		Total assets		$	6,574,588		$	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	$	797,396		$	555,334
Unearned premiums	Unearned premiums		400,999			409,985			Unearned premiums		343,229			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	421,443			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		217,293			151,962
Total liabilities	Total liabilities		2,019,872			2,095,911			Total liabilities		2,191,233			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		1,859,195			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		145,412			72,708
Retained earnings	Retained earnings		1,966,994			1,647,275			Retained earnings		2,400,820			2,278,650
Total shareholders’ equity	Total shareholders’ equity		4,035,665			3,581,891			Total shareholders’ equity		4,383,355			4,309,234
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity		$	6,055,537		$	5,677,802		Total liabilities and shareholders’ equity		$	6,574,588		$	6,229,571

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

See “Consolidated Results of Operations” below for additional discussion of our results for the three and six months ended June 30, ~~2019~~2020 compared to the respective prior year periods.

Capital

MGIC ~~Investment Corporation - Q2 2019 | 31~~dividend payments to our holding company

In the second quarter of 2020, MGIC did not pay dividends to our holding company due to the uncertainty arising from the COVID-19 pandemic. 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. We ask the Wisconsin OCI not to object before MGIC pays dividends to the holding company.

Under the PMIERs guidance, any dividend paid by MGIC to our holding company, through March 31, 2021, requires GSE approval.

~~Capital~~

Share repurchase programs

~~On March 19, 2019,~~In the second quarter of 2020, we did not repurchase any shares of our ~~board of directors authorized an additional share repurchase program under which we~~common stock. 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,~~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 May 2020, we paid a dividend of $0.06 per common share totaling $21 million to our shareholders. On July ~~25, 2019, the~~30, 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.~~11, 2020, payable on August 28, 2020.

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 our capital adequacy~~credit given for risk ceded under ~~PMIERs.~~reinsurance transactions).

Based on our interpretation of the PMIERs, as of June 30, 2020, MGIC’s Available Assets totaled $4.5 billion, or $1.1 billion in excess of its Minimum Required Assets.

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

We expect the GSEs and servicers will provide us with information about the forbearance status for nearly all of the loans in our delinquency inventory. The forbearance information provided by the GSEs will be with respect to delinquent loans in forbearance as of the prior month-end, while the information provided by loan servicers may be more current. As a result, in some cases, there may be a delay in our ability to take advantage of the 70% reduction.

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; in 2019, the substantial majority of our NIW has been for loans 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 that there~~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.

MGIC Investment Corporation - Q2 2020 | 34



è	There may be ~~potential~~ future implications for PMIERs based upon ~~feedback~~ the ~~FHFA receives on its June 2018~~ proposed ~~rule on~~changes to the regulatory capital requirements for the GSEs. In May 2020, the FHFA re-proposed a capital rule for the GSEs ~~which~~that, if enacted, would increase the capital requirements of the GSEs. That increase may ultimately result in an increase in the Minimum Required Assets required to be held by mortgage insurers. The re-proposed capital rule included a framework for determining the capital relief allowed to the GSEs for loans with private mortgage insurance ~~(public comments were due~~and it affords more capital relief to the GSEs when its counterparty is a more diversified entity. The proposed changes also decreased the GSEs' capital credit provided by ~~November 16, 2018).~~credit risk transfer transactions, which could result in decreased PMIERs credit for existing or future reinsurance or insurance linked notes transactions entered into by MGIC. 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~~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,~~2020, MGIC’s risk-to-capital ratio was ~~10.1~~9.6 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was ~~$2.7~~$2.9 billion above the required MPP of $1.6 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.~~reinsurance transactions. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded to the reinsurers. If

MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the PMIERs, MGIC may terminate the reinsurance transactions, without penalty. 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,~~2020, the risk-to-capital ratio of our combined insurance operations (which includes a reinsurance affiliate) was 109.5 to 1.

The NAIC has previously announced plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model Act. In ~~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.

~~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~~simplifying the qualified mortgage (“QM”) rule of the Consumer Financial Protection Bureau (“CFPB”), transferring risk to the private sector, and eliminating the GSE Patch (discussed below); establishing regulation of the GSEs that safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the United States; and providing that the Federal Government is properly compensated for any explicit or implicit support it provides to the GSEs or the secondary housing finance market. Also, in September 2019, the Treasury and FHFA entered into a letter agreement that will allow the GSEs to remit less of their earnings to the government, which will help them rebuild their capital.

The impact of the Plan on private mortgage insurance is unclear. The plan does not refer to mortgage insurance explicitly; however, it refers to a requirement for credit enhancement on high LTV ratio loans, which is a requirement of the current GSE

MGIC Investment Corporation - Q2 2020 | 35

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 ~~liquidity requirements~~investors select alternatives to private mortgage insurance."

In May 2020, the FHFA re-proposed a capital rule for the GSEs ~~and evaluation~~that, if enacted, would increase the capital requirements of the ~~GSE Patch.~~GSEs. The proposed capital rule may result in the GSEs purchasing fewer loans, charging higher guaranty fees and favoring a lower mortgage insurance coverage percentage than is typically used, each of which may reduce the size of the private mortgage insurance market. For information about the possible impact of the re-proposed capital rule on the Minimum Required Assets required to be held by mortgage insurers under the PMIERs, see our risk factor title "We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility."

In June 2020, it was announced that each of the GSEs has selected an underwriting financial advisor to assist with their recapitalization and exit from conservatorship.

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%~~20% and ~~24%~~23% of our NIW in the ~~first~~second and ~~second~~first quarters of ~~2019,~~2020, 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 expiration. In this regard, we note that in June 2020, the CFPB ~~asked~~issued for comment, ~~about whether~~a proposed definition of QM that would replace the use of the DTI ratio in the definition with a pricing threshold that would exclude from the definition of QM ~~should retain~~ a ~~direct measure of a consumer’s personal finances (for example, DTI ratio); whether~~loan whose annual percentage rate exceeds the ~~definition should include an alternative method~~average prime offer rate for ~~assessing financial capacity; whether, if the QM definition retains a DTI ratio limit, the limit should remain 43%~~comparable loans by two percentage points 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.~~ more.

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 current 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

The COVID-19 pandemic had a material impact on our second quarter 2020 financial results. While uncertain, the future impact of the COVID-19 pandemic on the Company’s business, financial results, liquidity and/or financial condition may also be material. 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 past and future 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.

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. The substantial majority of our 2019 NIW was delivered to or purchased by the GSEs. While servicers of some non-GSE loans may not be required to offer forbearance to borrowers, we allow servicers to apply GSE loss mitigation programs to non-GSE loans. In addition, the 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 until at least August 31, 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.

MGIC Investment Corporation - Q2 2020 | 36

"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.

The number of loans entering forbearance plans is unprecedented. Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. Whether a loan's delinquency will cure when its forbearance plan ends will depend on the economic circumstances of the borrower at that time. The severity of losses associated with loans whose delinquencies do not cure will depend on economic conditions at that time, including home prices. The GSEs have introduced specific loss mitigation options for borrowers impacted by COVID-19 when their forbearance plans end, including the COVID-19 Payment Deferral solution for borrowers who are unable to immediately or gradually repay their missed loan payments. Under the COVID-19 Payment Deferral solution, the borrower's monthly loan payment would be returned to its pre-COVID amount and the missed payments would be added to the end of the mortgage term without accruing any additional interest or late fees. The deferred payments would be due when the loan is paid off, refinanced or the home is sold.

The foreclosure moratoriums and forbearance plans 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 did not materially impact our financial results.

Factors affecting our results

The COVID-19 pandemic may adversely affect our future business, results of operations, and financial condition. The extent of the adverse effects will depend on the duration and 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 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. The profit commission varies directly and inversely with the level of ceded losses on a “dollar for dollar” basis and can be eliminated at ceded loss levels higher than we experienced in the first half of 2020. 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 certain levels of accident year loss ratios, its elimination). 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

MGIC Investment Corporation - Q2 2020 | 37

for) non-operating activities, such as debt, stock issuances or repurchases, orand 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 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~~2020 | 3538

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.~~

MGIC Investment Corporation - Q2 ~~2019~~2020 | 3639

																																						Non-GAAP reconciliations

Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income	Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income																		Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income
		Three Months Ended June 30,																		Three Months Ended June 30,
		2019									2018									2020									2019
(In thousands, except per share amounts)		Pre-tax			Tax effect			Net (after-tax)			Pre-tax		Tax effect			Net (after-tax)				Pre-tax			Tax effect			Net (after-tax)			Pre-tax			Tax effect			Net (after-tax)
Income before tax / Net income		$	211,211		$	43,433		$	167,778		$	237,522	$	50,708		$	186,814			$	16,483		$	2,436		$	14,047		$	211,211		$	43,433		$	167,778
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				(5,274		)	(1,107		)	(4,167		)	(217		)	(46		)	(171		)
Adjusted pre-tax operating income / Adjusted net operating income		$	210,994		$	43,387		$	167,607		$	239,419	$	50,183		$	189,236			$	11,209		$	1,329		$	9,880		$	210,994		$	43,387		$	167,607

Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share	Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share																		Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share
Weighted average diluted shares outstanding								376,603								388,881										339,661									376,603

Net income per diluted share								$	0.46							$	0.49									$	0.04								$	0.46
Additional income tax provision related to IRS litigation								—								—		⁽¹⁾
Net realized investment losses								—								—		⁽¹⁾
Net realized investment (gains) losses																										(0.01		)							—
Adjusted net operating income per diluted share								$	0.46							$	0.50									$	0.03								$	0.46

⁽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	Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income																		Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income
		Six Months Ended June 30,																		Six Months Ended June 30,
		2019									2018									2020									2019
(In thousands, except per share amounts)		Pre-tax			Tax effect			Net (after-tax)			Pre-tax		Tax effect			Net (after-tax)				Pre-tax			Tax effect			Net (after-tax)			Pre-tax			Tax effect			Net (after-tax)
Income before tax / Net income		$	402,147		$	82,428		$	319,719		$	417,547	$	87,096		$	330,451			$	204,722		$	40,870		$	163,852		$	402,147		$	82,428		$	319,719
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
Net realized investment (gains) losses																				(8,149		)	(1,711		)	(6,438		)	403			85			318
Adjusted pre-tax operating income / Adjusted net operating income		$	402,550		$	82,513		$	320,037		$	419,773	$	85,932		$	333,841			$	196,573		$	39,159		$	157,414		$	402,550		$	82,513		$	320,037

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

Weighted average diluted shares outstanding								376,635								390,236										362,003									376,635

Net income per diluted share								$	0.87							$	0.87									$	0.48								$	0.87
Additional income tax provision related to IRS litigation								—								—		⁽¹⁾
Net realized investment losses								—								—		⁽¹⁾
Net realized investment (gains) losses																										(0.02		)							—
Adjusted net operating income per diluted share								$	0.87							$	0.88									$	0.46								$	0.87

⁽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.

Net premiums written and earned

Comparative quarterly results

NPW ~~decreased~~ and NPE ~~was flat~~decreased for the three months ended June 30, ~~2019 from~~2020 compared with the prior year ~~reflecting~~due to lower premium rates on our insurance in force and an increase in the reduction for ceded premiums ~~compared~~due to the ~~same period~~decrease in profit commission from our QSR Transactions. The decrease in profit commission was a result of ~~prior year, which~~higher ceded losses incurred. These decreases to NPW and NPE were partially offset ~~an increase in premiums from a~~by 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, which 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 in premiums from single premium policy cancellations when compared to the prior year.cancellations.

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~~IIF during the ~~second quarter of 2019 was 46.5 basis points (Q2 2018: 49.6 basis points)~~period 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~~2020 and from the respective prior year 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 June 30,				Six Months Ended June 30,
(in basis points)			2020		2019		2020		2019
In force portfolio yield	(1	)	48.1		52.2		48.6		52.3
Premium refunds			(0.3	)	(0.3	)	(0.5	)	(0.4	)
Accelerated earnings on single premium policies			5.9		2.1		4.6		1.6
Total direct premium yield			53.7		54.0		52.7		53.5
Ceded premiums earned, net of profit commission and assumed premiums	(2	)	(11.0	)	(7.5	)	(8.1	)	(6.6	)
Net premium yield			42.7		46.5		44.6		46.9

~~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) Assumed premiums include those from our participation in GSE CRT programs, of which the impact on the net premium yield ~~declined~~was 0.7 bps at June 30, 2020 compared to 0.5 bps at June 30, 2019.

MGIC Investment Corporation - Q2 2020 | 43

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 delinquency 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, were primarily associated with 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.



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.~~experienced in the first half of 2020. As a result, lower levels of ceded losses result in a higher profit commission and less benefit from ceded losses; higher levels of ceded losses result in more benefit from ceded losses and a lower profit commission (or for certain levels of ~~losses we do not expect,~~accident year loss ratios, 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 June 30,						As of and For the Six Months Ended June 30,
(Dollars in thousands)	2020			2019			2020			2019

Ceded premiums written and earned, net of profit commission	$	61,357		$	36,525		$	88,203		$	64,689
% of direct premiums written	22		%	13		%	16		%	12		%
% of direct premiums earned	20		%	13		%	15		%	11		%
Profit commission	$	(1,231	)	$	37,021		$	28,748		$	75,902
Ceding commissions	$	12,025		$	13,356		$	23,390		$	26,765
Ceded losses incurred	$	38,982		$	3,440		$	44,786		$	5,116
Ceded RIF (in millions)	$	12,292		$	10,212		$	12,292		$	10,212

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
NIW subject to QSR Transactions	73.5	%	83.0	%	72.9	%	83.4	%
New Risk Written subject to QSR Transactions	85.2	%	90.5	%	83.8	%	90.4	%
IIF subject to QSR Transactions	77.0	%	78.2	%	77.0	%	78.2	%
RIF subject to QSR Transactions	81.3	%	80.2	%	81.3	%	80.2	%

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

As of June 30, 2020, the weighted average coverage percentage of our ~~NIW with DTI ratios greater than 45%. In the first six months of 2018, the risk written~~QSR transactions was 21% based on ~~loans with DTI ratios greater than 45% exceeded the threshold.~~RIF.

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 lower cede rate reduced the weighted average coverage percentage but does not impact our determination of the amount of IIF or RIF subject to quota share reinsurance agreements. We

MGIC Investment Corporation - Q2 2020 | 44

incurred a $6.8 million termination fee in the second quarter of 2019 ~~we incurred a termination fee of $6.8 million, which was paid~~ in ~~July to participants of~~conjunction with 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 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
termination.

Excess-of-loss reinsurance

Our excess-of-loss reinsurance provides ~~$634.4~~$426.5 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,~~2020, the aggregate exposed principal balances under the Home Re 2018-01 ~~Ltd.~~ and 2019-01 ~~Ltd.~~ transactions were approximately ~~$6.6~~$4.8 billion and ~~$7.1~~$4.6 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 $4.4 million and $9.1 million for the three and six months ended June 30, 2020, respectively and $4.5 million and $7.0 million for the three and six months ended June 30, 2019, respectively. The market volatility caused by the COVID-19 pandemic has caused a disruption in the market for new ILN transactions. Although new ILN transactions closed in the market in June and July 2020, we consider their structure and/or terms to be less attractive than prior ILN transactions.

~~We expect~~For each of our outstanding ILN transactions, a “Trigger Event” has occurred because the reinsured principal balance of loans that ~~we may enter into similar excess-of-loss~~were reported 60 or more days delinquent exceeded 4% of the total reinsured principal balance of loans under each transaction. While the “Trigger Event” is in effect, payment of principal on the related notes will be suspended and the reinsurance coverage available to MGIC under the transactions ~~if capital market conditions remain favorable.~~will not be reduced by such principal payments.

Investment income

Comparative quarterly and year to date results

Net investment income in the ~~second quarter~~three and ~~first~~ six months ofended June 30, 2020 was $39.7 million and $81.0 million, respectively. Net investment income in the three and six months ended June 30, 2019 was $42.4 million and $83.0 million, ~~respectively, up from $34.5 million and $66.6 million in the respective prior year periods.~~respectively. The ~~increases~~decreases in investment income were due to lower investment yields, partially offset by 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 June 30,				Six Months Ended June 30,
(In millions)	(In millions)	2019		2018			2019		2018		(In millions)	2020		2019		2020		2019
Losses incurred, net	Losses incurred, net	$	21.8	$	(13.5	)	$	60.9	$	10.4	Losses incurred, net	$	217.4	$	21.8	$	278.3	$	60.9
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	2.9		2.8		5.4		5.2
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	44.3		43.0		86.5		88.9
Interest expense	Interest expense	13.6		13.2			26.8		26.5		Interest expense	12.9		13.6		25.9		26.8
Total losses and expenses	Total losses and expenses	$	81.2	$	44.3		$	181.8	$	130.2	Total losses and expenses	$	277.5	$	81.1	$	396.1	$	181.8

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~~on delinquent loans that ~~are currently delinquent. The terms “delinquent” and “default” are used interchangeably by us. We consider a loan~~were reported to ~~be delinquent when it is~~us as two ~~or more~~ payments past ~~due. Loss~~

due and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case loss reserves are established based on estimating the number of loans in our ~~delinquent~~delinquency inventory that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.

IBNR reserves are established for estimated losses from delinquencies occurring prior to the close of an accounting period that have not yet been reported to us. IBNR reserves are established using estimated notices of delinquency, claim rates and claim severities.

Estimation of losses is inherently judgmental. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment, and the current and future strength of local housing markets. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment, 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 losses incurred, and the impact 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.~~practices. 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.

MGIC Investment Corporation - Q2 2020 | 45

Comparative quarterly results

Losses incurred, net in the second quarter of ~~2019~~2020 were ~~$21.8~~$217.4 million compared to ~~($13.5)~~$21.8 million in the prior year. The second quarter of 2020 was impacted by an increase ~~was~~in new delinquency notices as well as an increase in IBNR estimates due to ~~a lower amount~~the impacts of ~~favorable~~the COVID-19 pandemic, including unemployment resulting from initiatives intended to reduce the transmission of COVID-19. In the second quarter of 2020, we received 44,669 more new delinquency notices than we did in the same period last year. IBNR and other reserve estimates increased from $30 million at December 31, 2019 to $61 million at June 30, 2020. In the second quarter of 2020, our re-estimation of loss reserves on previously received delinquencies resulted in $10 million adverse loss reserve development, ~~on previously received delinquencies. During~~compared to favorable development in the second quarter of 2019 there was a $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 of ~~2018. Current year losses incurred declined due to a lower estimated claim rate on new notices when compared to the prior year.~~$31 million.

Comparative year to date results

Losses incurred, net in the six months ended June 30, ~~2019~~2020 were ~~$60.9~~$278.3 million compared to ~~$10.4~~$60.9 million in the prior year period. The increase ~~was~~is due to ~~lower favorable loss reserve development on previously received delinquencies~~an increase in the ~~current year period, which includes~~delinquency inventory. The delinquency inventory increased by 39,298 in the ~~recognition~~six months ended June 30, 2020, compared to a decrease of ~~a probable loss of $23.5 million for litigation of our claims paying practices. Losses incurred on current year delinquencies declined primarily~~3,103 in the six months ended June 30, 2019 due to ~~a lower estimated claim rate on new delinquent notices received compared~~the impacts of the COVID-19 pandemic, including unemployment resulting from initiatives intended to reduce the ~~prior year.~~transmission of COVID-19.

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



Composition of losses incurred
	Three Months Ended June 30,							Six Months Ended June 30,
(in millions)	2020		2019			% Change		2020		2019			% Change
Current year / New notices	$	205.7	$	46.6		342		$	265.5	$	94.1		182
Prior year reserve development	11.6		(24.8		)	(147	)	12.8		(33.2		)	(139	)
Losses incurred, net	$	217.4	$	21.8		897		$	278.3	$	60.9		357

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~~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.~~discussed above.

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Loss ratio	89.2	%	8.8	%	55.2	%	12.3	%

New notice claim rate

New notice activity ~~continues to be~~was primarily driven by a sharp increase in delinquency notices received during the second quarter related to the COVID-19 pandemic and its related effects (including higher unemployment and the widespread introduction of loan forbearance plans as a mechanism for economic relief).

The number of loans ~~insured~~entering forbearance plans is unprecedented. Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the

uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. Whether a loan's delinquency will cure when its forbearance plan ends will depend on the economic circumstances of the borrower at that time. Forbearance information is based on the most recent information provided by the GSEs, as well as loan servicers, and we believe represents only forbearances related to COVID-19. While the forbearance information provided by the GSEs refers to delinquent loans in ~~2008 and~~forbearance as of the prior ~~which~~month-end, the information provided by loan servicers may be more current. We expect our delinquency inventory to continue to ~~experience~~increase as a ~~cycle whereby many loans default, cure,~~result of the COVID-19 pandemic.

The decrease in the new notice claim rate for the three and ~~re-default. This cycle, along with~~six months ended June 30, 2020 is primarily due to the ~~duration that defaults may ultimately remain~~increase in new notices of delinquency reported to as being in a COVID-19 related forbearance plan. As of June 30, 2020 67% of our ~~notice~~delinquency inventory ~~results~~were in ~~significant judgment in establishing the estimated claim rate.~~such plans.

MGIC Investment Corporation - Q2 ~~2019~~2020 | 4346

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 %



New notice claim rate
	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
New notices - 2008 books and prior (1)	13,824		24	%	8,573		66	%	20,941		30	%	17,455		66	%
New notices - 2009 books and later	43,760		76	%	4,342		34	%	49,041		70	%	9,009		34	%
Total	57,584		100	%	12,915		100	%	69,982		100	%	26,464		100	%
Claim rate	6.6	%			8.0	%			7.0	%			8.0	%
⁽¹⁾ previously delinquent % for 2008 books and prior	79.8	%			94.0	%			84.9	%			94.0	%

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%~~28% 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
Q2 2020									Q2 2020	44,905	42,915	95.6	%	32
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		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.

on our business. We ask the Wisconsin OCI not to object before MGIC pays dividends to the holding company. Under the PMIERS guidance, any dividend paid by MGIC to our holding company, through March 31, 2021, requires GSE approval.

The net unrealized gains on our holding company investment portfolio were approximately ~~$2.3~~$2.6 million at June 30, ~~2019~~2020 and the portfolio had a modified duration of approximately ~~1.8~~1.7 years.

Subject to certain limitations and restrictions, holders of each of the 9% Debentures may convert their notes into shares of our common stock at their option 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,~~2020, MGIC’s Available Assets under the PMIERs totaled approximately ~~$4.4~~$4.5 billion, an excess of approximately $1.1 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~~$1.2 billion of ~~PMIERs~~ capital credit under the PMIERs as of June 30, ~~2019.~~2020. Refer to Note 4 - “Reinsurance” to our consolidated financial statements for additional information on our QSR and Home Re Transactions.

We anticipate an increase to our delinquency inventory due to the impacts of the COVID-19 pandemic. The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. For delinquent loans whose initial missed payment occurred on or after March 1, 2020 and prior to January 1, 2021 (the "COVID-19 Crisis Period"), the Minimum Required Assets are generally reduced by 70% for at least three months. The 70% reduction will continue, or be newly applied, for delinquent loans that are subject to a forbearance plan that is granted in response to ~~continuously comply~~a financial hardship related to COVID-19, the terms of which are materially consistent with terms of forbearance plans offered by Freddie Mac or Fannie Mae. Under the PMIERs, ~~through our operational activities or through~~a forbearance plan on a loan with an initial missed payment occurring during the ~~contribution of funds from our holding company,~~COVID-19 Crisis Period is assumed to have been granted in response to a financial hardship related to COVID-19. Loans considered to be subject to ~~demands on~~a forbearance plan include those that are in a repayment plan or loan modification trial period following the ~~holding company's resources,~~forbearance plan.

We expect the GSEs and servicers will provide us with information about the forbearance status for nearly all of the loans in our delinquency inventory. The forbearance information provided by the GSEs will be with respect to delinquent loans in forbearance as ~~outlined above.~~ of the prior month-end, while the information provided by loan servicers may be more current. As a result, in some cases, there may be a delay in our ability to take advantage of the 70% reduction.

Refer to “Overview - Capital - GSEs” 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

MGIC Investment Corporation - Q2 2020 | 57

must generally be maintained for a period of ten years. However, with regulatory approval a mortgage insurance company may make early withdrawals from the contingency reserve when incurred losses exceed 35% of net earned premiums in a calendar year.

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

Risk-to-capital - MGIC separate company
(In millions, except ratio) June 30, 2019 December 31, 2018
RIF - net ⁽¹⁾
$ 43,391
$ 34,502
Statutory policyholders’ surplus 1,633
1,682
Statutory contingency reserve 2,670
2,138
Statutory policyholders’ position $ 4,303
$ 3,820
Risk-to-capital 10.1:1
9.0:1


⁽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
Risk-to-capital - MGIC separate company						Risk-to-capital - MGIC separate company
(In millions, except ratio)	(In millions, except ratio)	June 30, 2019		December 31, 2018		(In millions, except ratio)	June 30, 2020		December 31, 2019
RIF - net ⁽¹⁾	RIF - net ⁽¹⁾	$	43,488	$	40,239	RIF - net ⁽¹⁾	$	42,406	$	44,338
Statutory policyholders’ surplus	Statutory policyholders’ surplus	1,634		1,683		Statutory policyholders’ surplus	1,246		1,619
Statutory contingency reserve	Statutory contingency reserve	2,729		2,443		Statutory contingency reserve	3,168		2,963
Statutory policyholders’ position	Statutory policyholders’ position	$	4,363	$	4,126	Statutory policyholders’ position	$	4,415	$	4,582
Risk-to-capital	Risk-to-capital	10.0:1		9.8:1		Risk-to-capital	9.6:1		9.7:1


⁽¹⁾	RIF – net, as shown in the table above is net of reinsurance and exposure on policies currently delinquent ($~~2.1~~4.0 billion at June 30, ~~2019~~2020 and ~~$1.6~~$1.5 billion at December 31, ~~2018)~~2019) 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)	June 30, 2020		December 31, 2019
RIF - net ⁽¹⁾	$	42,715	$	44,550
Statutory policyholders’ surplus	1,250		1,619
Statutory contingency reserve	3,230		3,021
Statutory policyholders’ position	$	4,480	$	4,640
Risk-to-capital	9.5:1		9.6:1


⁽¹⁾	RIF – net, as shown in the table above, is net of reinsurance and exposure on policies currently delinquent ($4.0 billion at June 30, 2020 and $1.5 billion December 31, 2019) for which loss reserves have been established.

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

The ~~increases~~decrease in MGIC's risk-to-capital and our combined insurance companies’ ~~risk-to-capital~~risk to capital in the first six months of ~~2019 were~~2020 was due to ~~an increase~~a decreases in the statutory policyholders’ position, and 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 in statutory contingency reserves. Our RIF, net of reinsurance, increased~~dividends paid to our holding company in the first ~~six~~three months of ~~2019, due to an increase in our IIF and a reduction in our ceded RIF under our 2015 QSR Transaction. MGIC’s risk-to-capital ratio also increased due~~2020 of $390 million. For additional information on dividends paid from MGIC to the ~~commutation~~holding company refer to “Overview - Capital” of ~~an affiliate reinsurance agreement. Our risk-to-capital ratio will increase if the percentage increase in net insured risk exceeds the percentage increase in capital.~~this MD&A”

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 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 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,~~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	$	1,924.0	$	50.6	$	254.9	$	483.5	$	1,135.0
Operating lease obligations	Operating lease obligations	2.3		1.2		1.0		0.1		—		Operating lease obligations	1.7		0.9		0.8		—		—
Purchase obligations	Purchase obligations	7.8		5.4		2.1		0.3		—		Purchase obligations	28.0		17.1		10.4		0.5		—
Other long-term liabilities	Other long-term liabilities	621.9		233.2		282.3		106.4		—		Other long-term liabilities	797.4		299.0		362.0		136.4		—
Total	Total	$	2,607.4	$	290.9	$	386.5	$	771.5	$	1,158.5	Total	$	2,751.1	$	367.6	$	628.1	$	620.4	$	1,135.0

Our long-term debt obligations as of June 30, ~~2019~~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~~delinquency inventory 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.~~loans that were reported to us as two payments past due and have not become current or resulted in a claim payment. 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,~~2020, and by Part II, Item 1A1 A of this Quarterly Report on Form 10-Q. The risk factors in the 10-K, as supplemented by ~~this~~those 10‑QQs 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,~~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 quarter of ~~2019~~2020 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Certain legal proceedings arising in the ordinary course of business may be filed or pending against us from time to time. For information about such legal proceedings, you should review 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,~~2019, as supplemented by Part II, Item I A of our Quarterly Report on Form 10-Q for the Quarter ended March 31, ~~2019.~~2020. 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 COVID-19 pandemic may continue to materially impact our financial results and may also materially impact our business, liquidity and financial condition.

The COVID-19 pandemic had a material impact on our second quarter 2020 financial results. While uncertain, the future impact of the COVID-19 pandemic on the Company’s business, financial results, liquidity and/or financial condition may also be material. We expect that unemployment and economic uncertainty resulting from measures to reduce the transmission of COVID-19 (including previous "shelter-in-place" restrictions and continuing limitations on business), 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 past and future 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.

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 on loans that are two or more payments past due and for loans we estimate are delinquent prior to the close of the accounting period but for which delinquency notices have not yet been reported to us (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 and require more capital to be held as the number of payments missed on delinquent loans increase. 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."


•	If the number of purchase and/or refinance mortgage originations decreases, the number of mortgages available for us to insure in the near term may 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."


•	Our access to the markets for excess of loss reinsurance through insurance-linked notes transactions and for quota share reinsurance may be limited and the terms under which we are able to secure such reinsurance may be less attractive than the terms of our previous transactions. For more information, see our risk factor titled "Reinsurance may not always be available or affordable."

Our access to the capital markets may be limited and the terms under which we may access the capital markets may be less attractive than the terms of our previous transactions.


•	Receipt of a portion of our 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."

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Downturns in the domestic economy or declines in the value of borrowers’ homes from their value at the time their loans closed may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.

Losses result from events that reduce a borrower’s ability or willingness to continue to make mortgage payments, such as unemployment, health issues, family status, and whether the home of a borrower who defaults on his mortgage can be sold for an amount that will cover unpaid principal and interest and the expenses of the sale. In general, favorable economic conditions reduce the likelihood that borrowers will lack sufficient income to pay their mortgages and also favorably affect the value of homes, thereby reducing and in some cases even eliminating a loss from a mortgage default. A deterioration in economic conditions, including an increase in unemployment, generally increases the likelihood that borrowers will not have sufficient income to pay their mortgages and can also adversely affect home prices, which in turn can influence the willingness of borrowers with sufficient resources to make mortgage payments to do so when the mortgage balance exceeds the value of the home. Home prices may decline even absent a deterioration in economic conditions due to declines in demand for homes, which in turn may result from changes in buyers’ perceptions of the potential for future appreciation, restrictions on and the cost of mortgage credit due to more stringent underwriting standards, higher interest rates generally, changes to the deductibility of mortgage interest for income tax purposes, decreases in the rate of household formations, or other factors.

The unemployment rate rose from 3.5% as of December 31, 2019, to 14.7% as of April 30, 2020. It was 11.1% as of June 30, 2020 and is expected by the Federal Reserve to be 9.3% as of December 31, 2020, and to remain elevated for some time. We expect the high levels of unemployment to result in an increasing number of loans in our delinquency inventory and an increasing number of insurance claims; however, the increases are difficult to predict given the uncertainty in the current market environment, including uncertainty about the length and severity of the COVID-19 pandemic; 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 past and future stimulus programs, including those contained in the CARES Act. The programs contained in the CARES Act 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 until at least August 31, 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, which expired July 31, 2020.

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 June 30, 2020, MGIC’s Available Assets totaled $4.5 billion, or $1.1 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

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the PMIERs, under certain circumstances, MGIC may terminate the reinsurance transactions, without penalty.

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 June 30, 2020, there were 69,326 loans in our delinquency inventory, of which 67% were reported to us as subject to a COVID-19 related forbearance plan. We are unable to predict the ultimate number of loans that will become delinquent as a result of the COVID-19 pandemic.

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 our eligibility to insure loans purchased by them. Such suspension or termination would significantly reduce the volume of our new business writings; the substantial majority of our 2019 NIW was for loans delivered to or purchased by the GSEs. In addition to the increase in Minimum Required Assets associated with delinquent loans, factors that may negatively impact MGIC’s ability to continue to comply with the financial requirements of the PMIERs include the following:

The GSEs may make the PMIERs more onerous in the future. The PMIERs provide that the factors that determine Minimum Required Assets will be updated periodically, or as needed if there is a significant change in macroeconomic conditions or loan performance. We do not anticipate that the regular periodic updates will occur more frequently than

once every two years. The PMIERs state that the GSEs will provide notice 180 days prior to the effective date of updates to the factors; however, the GSEs may amend any portion of the PMIERs at any time.

There may be future implications for PMIERs based upon the proposed changes to the regulatory capital requirements for the GSEs. In May 2020, the FHFA re-proposed a capital rule for the GSEs that, if enacted, would increase the capital requirements of the GSEs. That increase may ultimately result in an increase in the Minimum Required Assets required to be held by mortgage insurers. The re-proposed capital rule included a framework for determining the capital relief allowed to the GSEs for loans with private mortgage insurance and it affords more capital relief to the GSEs when its counterparty is a more diversified entity. The proposed changes also decreased the GSEs' capital credit provided by credit risk transfer transactions, which could result in decreased PMIERs credit for existing or future reinsurance or insurance linked notes transactions entered into by MGIC. 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 on loans that are two or more payments past due 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 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 would be recorded if the present value of expected future losses and expenses exceeds the present value of expected future premiums and already established loss reserves on the applicable loans. As a result, future losses on loans that are not currently delinquent may have a material impact on future results as such losses emerge. As of June 30, 2020, we had established case reserves and reported losses incurred for 69,326 loans in our delinquency inventory and increased our IBNR reserve from $30 million at March 31, 2020 to $61 million at June 30, 2020. Though not reflected in our June 30, 2020 financial results, as of July 31, 2020, our delinquency inventory had decreased to

MGIC Investment Corporation - Q2 2020 | 63

68,206 loans. We expect that the number of loans in our delinquency inventory will increase from that level as a result of the COVID-19 pandemic, including as a result of high 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 past and future government actions (including the enactment of the CARES Act) and actions taken by the GSEs (including implementation of foreclosure moratoriums and 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. All else being equal, the longer a loan is delinquent before a claim is received, the greater the severity. In light of the uncertainty caused by the COVID-19 pandemic, including the impact of foreclosure moratoriums and forbearance programs, the average time it takes to receive a claim may increase. The change in economic 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 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."

Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.

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

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

Much of the competition in the industry in the last few years has centered on pricing practices which have included: (i) reductions in standard filed rates; (ii) use of customized rate plans (typically lower than standard rates) that are made available to lenders that meet certain criteria; and (iii) use of a spectrum of filed rates

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to allow for formulaic, risk-based pricing that may be quickly adjusted within certain parameters (referred to as "risk-based pricing systems"). While our increased use of reinsurance over the past several years has helped to mitigate the negative effect of declining premium rates on our returns, refer to our risk factor titled "Reinsurance may not always be available or affordable" for a discussion of the risks associated with the availability of reinsurance.

In 2019, we introduced MiQ, our risk-based pricing system that establishes our premium rates based on more risk attributes than were considered in 2018. The widespread use of risk-based pricing systems by the private mortgage insurance industry makes it more difficult to compare our rates to those offered by our competitors. We may not be aware of industry rate changes until we observe that our volume of new insurance written ("NIW") has changed. In addition, business under customized rate plans is awarded by certain customers for only limited periods of time. As a result, our NIW may fluctuate more than it had in the past. Regarding the concentration of our new business, our top ten customers accounted for approximately 31% and 27% of our NIW, in each of the twelve months ended June 30, 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 able to achieve higher after-tax rates of return on their NIW compared to us, which could allow them to leverage reduced premium rates to gain market share, and they may be better positioned to compete outside of traditional mortgage insurance, including by participating in alternative forms of credit enhancement pursued by Fannie Mae and Freddie Mac (the "GSEs") discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage ~~insurance.~~insurance."

~~Alternatives to~~

The current private mortgage ~~insurance include:~~

~~lenders using FHA, VA and other government~~insurer eligibility requirements ("PMIERs") of each of the GSEs require a mortgage ~~insurance programs,~~

~~investors using~~insurer to maintain a minimum amount of assets to support its insured risk, ~~mitigation and credit risk transfer techniques other than private mortgage insurance,~~

~~lenders and other investors holding mortgages~~as discussed 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 ratio (referred to as 80-10-10, 80-15-5 or 80-20 loans, respectively) rather than a first mortgage with a 90%, 95% or 100% loan-to-value ratio that 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 by the lenders. These programs compete with traditional private mortgage insurance and, due to differences in policy terms, they may offer premium rates that are below prevalent single premium lender paid mortgage insurance ("LPMI") rates. We participate in these programs from time to time. See our risk factor titled “~~Changes~~“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 PMIERs do not require an insurer to maintain minimum financial strength ratings; however, our financial strength ratings can affect us in the ~~business practices~~following ways:

A downgrade in our financial strength ratings could result in increased scrutiny of our financial condition by the GSEs ~~federal legislation that changes their charters~~ and/or our customers, potentially resulting in a ~~restructuring~~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 ~~GSEs could reduce our revenues or increase our losses”~~risks associated with the COVID-19 pandemic. A.M. Best recently revised its outlook for ~~a discussion of various business practices of~~ the ~~GSEs that may be changed, including through expansion or modification of these programs.~~

~~The GSEs (and other investors) have also used other forms of credit enhancement that~~U.S. Private Mortgage Insurers market segment to "negative," but did not ~~involve traditional private mortgage insurance, such as engaging in credit-linked note transactions executed~~change MGIC's outlook at that time.

Our ability to participate in the ~~capital markets, or using other forms~~non-GSE residential mortgage-backed securities (RMBS) market (the size 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%~~which has been limited since 2008, but may grow in the ~~first quarter~~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 ~~2019, 30.5%~~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).

•

Financial strength ratings may also play a greater role if the GSEs no longer operate in their current capacities, for example, due to legislative or regulatory action. In addition, although the PMIERs do not require minimum financial strength ratings, the GSEs consider financial strength ratings to be important when using forms of credit enhancement other than traditional mortgage insurance, as discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance." In addition, the final GSE capital rule, when enacted, may provide the GSEs more capital credit for transactions with higher rated counterparties.

If we are unable to compete effectively 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 productscurrent or any future markets as a result of ~~federal legislation and programs; returns expected~~the financial strength ratings assigned 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 cancelour insurance ~~coverage under certain circumstances. We cannot predict how the factors that affect the FHA’s share of~~subsidiaries, our future 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 cancould be ~~included in the loan amount, and because eligible borrowers have opted to use the VA program when refinancing their mortgages.~~negatively affected.

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~~In 2019, the substantial majority of our NIW was 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.") Because low down payment mortgages~~loans purchased by the GSEs, ~~have generally been insured with private mortgage insurance,~~therefore, the business practices of the GSEs greatly impact our business and they include:

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


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

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meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility,”


•	the capital and collateral requirements for participants in the GSEs' alternative forms of credit enhancement discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance,"

the level of private mortgage insurance coverage, subject to the limitations of the GSEs’ charters, when private mortgage insurance is used as the required credit enhancement on low down payment mortgages (the GSEs generally require a level of mortgage insurance coverage that is higher than the level of coverage required by their charters; any change in the required level of coverage will impact our new risk written),

the amount of loan level price adjustments and guaranty fees (which result in higher costs to borrowers) that the GSEs assess on loans that require private mortgage insurance,

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”)~~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~~In September 2019, at the direction 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~~("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~~goals of ending the ~~government housing programs, and achieve sustainable homeownership. The directive outlines numerous goals and objectives, including but not limited to, the end of conservatorship~~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 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."

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%~~21% and ~~24%~~22% of our NIW in the first half of 2020 and ~~second quarters~~the last half 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 expiration. In this regard, we note that in June 2020, the CFPB ~~asked~~issued for comment, ~~about whether~~a proposed definition of QM that would replace the use of the DTI ratio in the definition with a pricing threshold that would exclude from the definition of QM ~~should retain~~ a ~~direct measure~~loan whose annual percentage rate exceeds the average prime offer rate for comparable loans by two percentage points or more. The CFPB proposed extending the expiration of ~~a consumer’s personal finances (for example, DTI ratio); whether~~ the ~~definition should include an alternative method for assessing financial capacity; whether, if~~GSE Patch until the ~~QM definition retains a DTI ratio limit,~~effective date of the ~~limit should remain 43% or be increased or decreased; and whether loans with DTI ratios above a prescribed limit should be given QM status if certain compensating factors~~final rule. Comments are ~~present.~~due on the proposed rule by September 8, 2020.

We ~~may~~ insure loans that do not qualify as ~~QMs,~~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

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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, which was issued by the Department of Housing and Urban Development (“HUD”) ~~and that definition~~, is less restrictive than the CFPB’s current 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.

However, in September 2019, HUD released its Housing Reform Plan and indicated that the FHA should refocus on its mission of providing housing finance support to low- and moderate-income families that cannot be fulfilled through traditional underwriting. In ~~March 2019,~~addition, Treasury's Plan indicated that the ~~President also directed the Secretary of~~FHFA and HUD toshould develop and implement a ~~plan that would recommend administrative and legislative reforms~~specific understanding as to the ~~programs HUD oversees,~~appropriate roles and overlap between the GSEs and FHA, including

with respect to the GSEs’ acquisitions of high LTV ratio loans and high DTI ratio loans.

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~~those of the FHA and the Government National Mortgage Association.~~ As a result of the matters referred 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 on our business of any resulting changes is uncertain. ~~Most meaningful~~Many of the proposed changes would require Congressional action to implement and it is difficult to estimate when Congressional action would be final and how long any associated phase-in period may last.

~~We are involved~~Reinsurance may not always be available or affordable.

As discussed in ~~legal proceedings~~our risk factor titled "The mix of business we write affects our Minimum Required Assets under the PMIERs, our premium yields and ~~are subject to~~ the ~~risk~~likelihood 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~~losses occurring," we have ~~the right to rescind~~in place quota share and excess of loss reinsurance transactions providing various amounts of coverage on 85% of our risk in force as of June 30, 2020. These reinsurance transactions enable us to earn higher returns on our business than we would without them because fewer Available Assets are required to be held under PMIERs. However, reinsurance may not always be available to us or available on similar terms, the ~~loan. In our SEC reports, we refer~~quota share reinsurance transactions subject us to ~~insurance rescissions~~counterparty credit risk, 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~~GSEs may change the credit they allow under the PMIERs for risk ceded 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.

Our loss reserving methodology incorporates our estimates of future rescissions, curtailments, and reversals of rescissions and curtailments. A variance between ultimate actual rescission, curtailment and reversal rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses.

~~When the insured disputes our right to rescind coverage or curtail claims, we generally engage in discussions in an attempt to settle the dispute.~~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 smaller portions of our insurance written prior to 2013 and from 2022 through 2025. As of June 30, 2020, the ~~outcome~~weighted average coverage percentage of our QSR transactions was 21%, based on risk in force. We also have in place reinsurance agreements that provide excess-of-loss reinsurance coverage for a ~~dispute ultimately may be determined by legal proceedings.~~

~~Under ASC 450-20, until a liability~~portion of the 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 be reasonably estimated, we consider our claim payment or rescission resolved for financial reporting purposes and do not accrue an estimated loss. Where we have determined that a loss is probable and can be reasonably estimated, we have recorded our best estimate of our probable loss, including recording a probable loss of $23.5 million in the first quarter ofbefore April 1, 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 proceedingsThe transactions were entered into with insureds with respect to our claims paying practices. Although it is reasonably possible that when all of these matters are resolved we will not prevail in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability. We estimate the maximum exposure associated with matters where a loss is reasonably possible to be approximately $289 million more than the amount of probable loss we have recorded. This estimate of maximum exposure is based upon currently available information and is subject to significant judgment, numerous assumptions andspecial purpose

~~known~~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 in the market for new ILN transactions. Although new ILN transactions closed in the market in June and ~~unknown uncertainties,~~July 2020, we consider their structures and/or terms to be less attractive than prior ILN transactions.

We are subject to comprehensive regulation and ~~will include an amount for matters for~~other requirements, which we ~~have recorded a probable loss until such matters~~may fail to satisfy.

We 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~~comprehensive, detailed regulation, including by state insurance departments. Many of these regulations are designed for the ~~estimate of maximum exposure will change from time to time. This estimate~~protection of our ~~maximum exposure does not include interest or consequential or exemplary damages.~~

insured policyholders and consumers, rather than for the benefit of investors. Mortgage insurers, including MGIC, have in the past been involved in litigation and regulatory actions related to alleged violations of the anti-referral fee provisions of the Real Estate Settlement Procedures Act ~~which is commonly known as RESPA,~~("RESPA"), and the notice provisions of the Fair Credit Reporting Act ~~which is commonly known as FCRA.~~("FCRA"). While these proceedings in the aggregate ~~have~~did not ~~resulted~~result in material liability for MGIC, there can be no assurance that the outcome of future proceedings, if any, under these laws would not have a material adverse effect on us. ~~In addition, various regulators, including~~To the ~~CFPB, state insurance commissioners and state attorneys general may bring other actions seeking various forms of relief~~extent that we are construed to make independent credit decisions in connection with ~~alleged violations~~our contract underwriting activities, we also could be subject to increased regulatory requirements under the Equal Credit Opportunity Act ("ECOA"), FCRA, and other laws. Under ECOA, examination may also be made of ~~RESPA. The~~whether a mortgage insurer's underwriting decisions have a disparate impact on persons belonging to a protected class in violation of the law.

Although their scope varies, state insurance ~~law provisions~~laws generally grant broad supervisory powers to agencies or officials to examine insurance companies and enforce rules or exercise discretion affecting almost every significant aspect of ~~many states prohibit paying~~the insurance business, including payment for the referral of insurance business, premium rates and ~~provide~~discrimination in pricing, and minimum capital requirements. The increased use, by the private mortgage insurance industry, of risk-based pricing systems that establish premium rates based on more attributes than previously considered may result in increased state and/or federal scrutiny of premium rates. For more information about state capital requirements, see our risk factor titled “State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis.” For information about regulation of data privacy, see our risk factor titled “We could be adversely affected if personal information on consumers that we maintain is improperly disclosed; and damage to, or interruption in, our information technology systems may disrupt our operations.” For more details about the various ~~mechanisms to enforce this prohibition.~~ways in which our subsidiaries are regulated, see “Business - Regulation” in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2019. 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.

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

~~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 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, or if our mix of business changes to include loans with higher loan-to-value 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.

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The minimum capital required by the risk-based capital framework contained in the exposure draft released by the NAIC in May 2016 would be, in part, a function of certain loan and economic factors, including property location, loan-to-value 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 on 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% in 2018 and 16% in the first half of 2019. Depending on 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, 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 on 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 favorable.

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 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. 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. 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.

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 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~~.

Even when home prices are stable or rising, mortgages with certain characteristics have higher probabilities of claims. As of June 30, 2019, mortgages with these characteristics in our primary risk in force included mortgages with LTV ratios greater than 95% (15.4%), loans with borrowers having FICO scores below 620 (2.1%), mortgages with borrowers having FICO scores of 620-679 (9.9%), mortgages with limited underwriting, including limited borrower documentation (1.9%), and mortgages with borrowers having DTI ratios greater than 45% (or where no ratio is available) (14.6%), 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. In 2018, we started considering DTI ratios when setting our premium rates, and we changed our methodology for calculating DTI ratios for pricing and eligibility purposes to exclude the impact of mortgage insurance premiums. As a result of this change, loan originators may have changed the information they provide to us. Although we have changed our operational procedures to account for this, we cannot be sure that the DTI ratio we report for each loan beginning in late 2018 includes the related mortgage insurance premiums in the calculation. In 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 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 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. 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 do, however, believe that our insurance written beginning in the second half of 2008 will generate underwriting profits.

~~MGIC Investment Corporation - Q2 2019 | 59~~67

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

At June ~~30,2019,~~30, 2020, we had approximately ~~$333~~$530 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 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,~~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. In addition, through March 31, 2021, dividends paid by MGIC to our holding company require GSE approval. 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, MGIC did not pay a dividend to the holding company in the second quarter of ~~2019~~2020. Future dividend payments from MGIC to the holding company will be determined on a quarterly basis in consultation with the board of directors, and after considering any updated estimates about the length and severity of the economic impacts of the COVID-19 pandemic on our business.

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,~~June 30, 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 price~~Our success depends, in part, on our ability to manage risks in our investment portfolio.

Our investment portfolio is an important source of revenue and is our primary source of claims paying resources. Although our investment portfolio consists mostly of highly-rated fixed income investments, our investment portfolio is affected by

general economic conditions and tax policy, which may adversely affect the markets for credit and interest-rate-sensitive securities, including the extent and timing of investor participation in these markets, the level and volatility of interest rates and credit spreads and, consequently, the value of our ~~common stock~~fixed income securities. The value of our investment portfolio may ~~fluctuate significantly, which may make it difficult for holders to resell common stock when they want or at a price they find attractive.~~

~~The market price for our common stock may fluctuate significantly.~~also be adversely affected by ratings downgrades, increased bankruptcies and credit spreads widening in distressed industries, such as energy, lodging and leisure, autos, transportation and retail. In addition, the collectability and valuation of our municipal bond portfolio may be adversely affected if state and local municipalities incur increased costs to respond to COVID-19 and receive fewer tax revenues due to adverse economic conditions. Our investment portfolio also includes commercial mortgage-backed securities, collateralized loan obligations, and asset-backed securities, which could be adversely affected by declines in real estate valuations and/or financial market disruption, including a heightened collection risk on the underlying loans. As a result of these matters, we may not achieve our investment objectives and a reduction in the market value of our investments could have an adverse effect on our liquidity, financial condition and results of operations.

For the significant portion of our investment portfolio that is held by MGIC, to receive full capital credit under insurance regulatory requirements and under the PMIERs, we generally are limited to investing in investment grade fixed income securities whose yields reflect their lower credit risk ~~factors described herein,~~profile. Our investment income depends upon the ~~following factors may~~size of the portfolio and its reinvestment at prevailing interest rates. A prolonged period of low investment yields would have an adverse impact on our investment income as would a decrease in the ~~market price for~~size of the portfolio.

In addition, we structure our ~~common stock: announcements by us or~~investment portfolio to satisfy our competitors of acquisitions or strategic initiatives; our actual or anticipated quarterly and annual operating results; changes in expectations of future financial performance (including incurred losses on our insurance in force); changes in estimates of securities analysts or rating agencies; actual or anticipated

~~changes~~expected liabilities, including claim payments in our ~~share repurchase program or dividends; changes in general conditions in the economy, the~~ mortgage insurance ~~industry~~business. If we underestimate our liabilities or improperly structure our investments to meet these liabilities, we could have unexpected losses resulting from the ~~financial markets; changes in operating performance or market valuation~~forced liquidation of ~~companies in the mortgage insurance industry; the addition or departure~~fixed income investments before their maturity, which could adversely affect our results 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).operations.

MGIC Investment Corporation - Q2 ~~2019~~2020 | 6068

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.~~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⁾
April 1, 2020	April 30, 2020	—	$	—	—	$	290,818,024
May 1, 2020	May 31, 2020	—	$	—	—	$	290,818,024
June 1, 2020	June 30, 2020	—	$	—	—	$	290,818,024
		—	$	—	—

⁽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.~~time, and in light of the uncertainty caused by the COVID-19 pandemic, we have temporarily suspended stock repurchases.

MGIC Investment Corporation - Q2 ~~2019~~2020 | 6169

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	May 19, 2020
4.2	Amended and Restated Bylaws, as amended (included as Exhibit 3.2)	8-K	3.2	May 19, 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 quarters ended March 31, 2020 and June 30, 2020, 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)

* Denotes a management contract or compensatory plan.

† Filed herewith.

†† Furnished herewith.

MGIC Investment Corporation - Q2 ~~2019~~2020 | 6270

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.~~4, 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~~2020 | 6371


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 June 30,						Six Months Ended June 30,
(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			2020			2019
Revenues:	Revenues:														Revenues:
Premiums written:	Premiums written:														Premiums written:
Direct	Direct		$	283,189		$	274,726		$	557,086		$	544,760		Direct		$	283,224		$	283,189		$	557,948		$	557,086
Assumed	Assumed		1,505			2,085			2,612			2,177			Assumed		3,899			1,505			6,758			2,612
Ceded	Ceded	4	(41,096		)	(21,375		)	(71,819		)	(54,595		)	Ceded	4	(65,738		)	(41,096		)	(97,314		)	(71,819		)
Net premiums written	Net premiums written		243,598			255,436			487,879			492,342			Net premiums written		221,385			243,598			467,392			487,879
Decrease (increase) in unearned premiums, net			3,504			(8,472		)	8,984			(13,271		)
Decrease in unearned premiums, net															Decrease in unearned premiums, net		22,177			3,504			37,071			8,984
Net premiums earned	Net premiums earned		247,102			246,964			496,863			479,071			Net premiums earned		243,562			247,102			504,463			496,863
Investment income, net of expenses	Investment income, net of expenses		42,423			34,502			83,008			66,623			Investment income, net of expenses		39,679			42,423			81,026			83,008
Net realized investment gains (losses)	Net realized investment gains (losses)	7	307			(1,897		)	(219		)	(2,226		)	Net realized investment gains (losses)	7	6,701			307			8,592			(219		)
Other revenue	Other revenue		2,485			2,431			4,315			4,302			Other revenue		4,026			2,485			6,780			4,315
Total revenues	Total revenues		292,317			282,000			583,967			547,770			Total revenues		293,968			292,317			600,861			583,967

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	217,374			21,836			278,330			60,899
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		2,909			2,760			5,419			5,238
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		44,273			42,960			86,535			88,900
Interest expense	Interest expense		13,550			13,246			26,783			26,479			Interest expense		12,929			13,550			25,855			26,783
Total losses and expenses	Total losses and expenses		81,106			44,478			181,820			130,223			Total losses and expenses		277,485			81,106			396,139			181,820
Income before tax	Income before tax		211,211			237,522			402,147			417,547			Income before tax		16,483			211,211			204,722			402,147
Provision for income taxes	Provision for income taxes		43,433			50,708			82,428			87,096			Provision for income taxes		2,436			43,433			40,870			82,428
Net income	Net income		$	167,778		$	186,814		$	319,719		$	330,451		Net income		$	14,047		$	167,778		$	163,852		$	319,719

Earnings per share:	Earnings per share:														Earnings per share:
Basic	Basic	6	$	0.47		$	0.51		$	0.90		$	0.89		Basic	6	$	0.04		$	0.47		$	0.48		$	0.90
Diluted	Diluted	6	$	0.46		$	0.49		$	0.87		$	0.87		Diluted	6	$	0.04		$	0.46		$	0.48		$	0.87

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	338,593			355,734			341,323			355,694
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	339,661			376,603			362,003			376,635


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 June 30,				Six Months Ended June 30,
(In thousands)		Note	2019		2018			2019		2018				Note	2020		2019		2020		2019
Net income			$	167,778	$	186,814		$	319,719	$	330,451				$	14,047	$	167,778	$	163,852	$	319,719
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	143,181		70,754		70,596		151,825
Benefit plan adjustments			1,549		388			3,199		882					1,007		1,549		2,108		3,199
Other comprehensive income (loss), net of tax			72,303		(9,534		)	155,024		(73,493		)
Other comprehensive (loss) income, net of tax															144,188		72,303		72,704		155,024
Comprehensive income			$	240,081	$	177,280		$	474,743	$	256,958				$	158,235	$	240,081	$	236,556	$	474,743

													MGIC INVESTMENT CORPORATION AND SUBSIDIARIES	CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Six Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2019			2018			2020			2019
Cash flows from operating activities:
Net income	$	319,719		$	330,451		$	163,852		$	319,719
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23,464			31,395			25,457			23,464
Deferred tax expense	7,043			92,428			14,834			7,043
Net realized investment losses	219			2,226
Net realized investment (gains) losses							(8,592		)	219
Change in certain assets and liabilities:
Accrued investment income	(271		)	(1,065		)	2,915			(271		)
Reinsurance recoverable on loss reserves	14,926			11,423			(41,803		)	14,926
Reinsurance recoverable on paid losses	(13,955		)	577			170			(13,955		)
Premium receivable	(2,402		)	(2,168		)	1,559			(2,402		)
Deferred insurance policy acquisition costs	219			34			(2,114		)	219
Profit commission receivable	(976		)	(11,202		)	32,331			(976		)
Loss reserves	(52,117		)	(172,620		)	242,062			(52,117		)
Unearned premiums	(8,986		)	13,225			(37,071		)	(8,986		)
Return premium accrual	(7,300		)	(12,200		)	(1,900		)	(7,300		)
Current income taxes	(2,300		)	(21,936		)	26,371			(2,300		)
Other, net	4,328			2,025			2,054			4,328
Net cash provided by operating activities	281,611			262,593			420,125			281,611

Cash flows from investing activities:
Purchases of investments	(677,391		)	(516,712		)	(992,722		)	(677,391		)
Proceeds from sales of investments	183,620			25,185			476,639			183,620
Proceeds from maturity of fixed income securities	327,818			423,933			469,559			327,818
Net increase in payable for securities	—			13,432
Additions to property and equipment	(3,280		)	(8,256		)	(942		)	(3,280		)
Net cash used in investing activities	(169,233		)	(62,418		)	(47,466		)	(169,233		)

Cash flows from financing activities:
Repurchase of common stock	(36,581		)	(100,059		)	(119,997		)	(36,581		)
Dividends paid							(41,426		)	—
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		)	(170,322		)	(42,233		)
Net increase in cash and cash equivalents and restricted cash and cash equivalents	70,145			92,043			202,337			70,145
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		$	371,393		$	225,183



Standard / Interpretation
Table	2.1

Amended Standards				Effective date
ASC ~~326~~321, 323, 815		~~Financial Instruments - Credit Losses~~Investments
		•	ASU ~~2016-13~~2020-01 - ~~Measurement of Credit Losses on Financial Instruments~~Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)	January 1, ~~2020~~2021
ASC ~~820~~740		~~Fair Value Measurement~~Income Taxes
		•	ASU ~~2018-13~~2019-12 - ~~Changes to~~Simplifying the ~~Disclosure Requirements~~Accounting for ~~Fair Value Measurements~~Income Taxes	January 1, ~~2020~~2021
ASC 715		Compensation - Retirement Benefits
		•	ASU 2018-14 - Changes to the Disclosure Requirements for Defined Benefit Plans	January 1, 2021

											Long-term debt obligations
Table	3.1					3.1
(In millions)	(In millions)	June 30, 2019		December 31, 2018		(In millions)	June 30, 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)	421.4		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	$	833.3	$	832.7


Reinsurance	Reinsurance													Reinsurance
Table	4.1													4.1
		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	(In thousands)	2019			2018			2019			2018			(In thousands)	2020			2019			2020			2019
Premiums earned:	Premiums earned:													Premiums earned:
Direct	Direct	$	287,183		$	268,236		$	566,796		$	533,487		Direct	$	305,921		$	287,183		$	595,789		$	566,796
Assumed	Assumed	1,015			106			1,887			227			Assumed	3,381			1,015			5,990			1,887
Ceded		(41,096		)	(21,378		)	(71,820		)	(54,643		)
Ceded ⁽¹⁾														Ceded ⁽¹⁾	(65,740		)	(41,096		)	(97,316		)	(71,820		)
Net premiums earned	Net premiums earned	$	247,102		$	246,964		$	496,863		$	479,071		Net premiums earned	$	243,562		$	247,102		$	504,463		$	496,863

Losses incurred:	Losses incurred:													Losses incurred:
Direct	Direct	$	25,276		$	(16,778	)	$	66,080		$	14,723		Direct	$	256,224		$	25,276		$	322,786		$	66,080
Assumed	Assumed	(9		)	(100		)	(76		)	(10		)	Assumed	133			(9		)	299			(76		)
Ceded	Ceded	(3,431		)	3,423			(5,105		)	(4,318		)	Ceded	(38,983		)	(3,431		)	(44,755		)	(5,105		)
Losses incurred, net	Losses incurred, net	$	21,836		$	(13,455	)	$	60,899		$	10,395		Losses incurred, net	$	217,374		$	21,836		$	278,330		$	60,899


⁽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~~a $6.8 million termination fee ~~discussed in “2015~~related to our 2015 QSR ~~Transaction” above.~~ Transaction.


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


Home Re entities
Excess of Loss Reinsurance								Excess of Loss Reinsurance
Table	4.3							4.3
(In thousands)	(In thousands)							(In thousands)			June 30, 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	$	166,573	$	218,343	$	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	185,162		208,146		185,636		271,021
Total	Total			$	354,421	$	634,375	Total			$	351,735	$	426,489	$	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.


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



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


⁽¹⁾	At June 30, ~~2019~~2020 ~~and~~there was no credit loss 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.

											Fixed income securities maturity schedule
Table	7.2					7.2
		June 30, 2019					June 30, 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	$	465,716	$	469,024
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	1,854,619		1,935,032
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	1,009,452		1,096,842
Due after ten years	Due after ten years	1,132,469		1,203,911		Due after ten years	1,197,637		1,283,527
		4,330,677		4,478,080			4,527,424		4,784,425

ABS	ABS	215,016		217,701		ABS	198,238		199,556
RMBS	RMBS	213,024		208,497		RMBS	293,790		299,492
CMBS	CMBS	268,189		271,889		CMBS	264,857		273,899
CLOs	CLOs	330,530		328,656		CLOs	313,245		304,890
Total as of June 30, 2019		$	5,357,436	$	5,504,823
Total as of June 30, 2020						Total as of June 30, 2020	$	5,597,554	$	5,862,262



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


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 June 30, 2020																	Unrealized loss aging for securities by type and length of time as of June 30, 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	$	207,786	$	(41	)	$	—	$	—		$	207,786	$	(41	)
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	37,445		(1,291		)	—		—			37,445		(1,291		)
Corporate debt securities	Corporate debt securities	29,333		(1,987		)	298,419		(1,147		)	327,752		(3,134		)	Corporate debt securities	175,570		(5,160		)	—		—			175,570		(5,160		)
ABS	ABS	9,257		(102		)	—		—			9,257		(102		)	ABS	17,415		(2,716		)	—		—			17,415		(2,716		)
RMBS	RMBS	32,181		(297		)	158,325		(4,413		)	190,506		(4,710		)	RMBS	51,169		(284		)	4,913		(69		)	56,082		(353		)
CMBS	CMBS	—		—			78,697		(750		)	78,697		(750		)	CMBS	28,609		(1,397		)	3,225		(14		)	31,834		(1,411		)
CLOs	CLOs	247,983		(1,587		)	45,137		(342		)	293,120		(1,929		)	CLOs	162,838		(3,831		)	142,051		(4,524		)	304,889		(8,355		)
Total	Total	$	333,520	$	(4,460	)	$	683,194	$	(6,940	)	$	1,016,714	$	(11,400	)	Total	$	680,832	$	(14,720	)	$	150,189	$	(4,607	)	$	831,021	$	(19,327	)


Assets carried at fair value by hierarchy level as of June 30, 2019
Assets carried at fair value by hierarchy level as of June 30, 2020										Assets carried at fair value by hierarchy level as of June 30, 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	$	348,617	$	164,052	$	184,565	$	—
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	1,788,977		—		1,788,977		—
Corporate debt securities	Corporate debt securities	2,628,614		—		2,628,614		—		Corporate debt securities	2,646,831		—		2,646,831		—
ABS	ABS	217,701		—		217,701		—		ABS	199,556		—		199,556		—
RMBS	RMBS	208,497		—		208,497		—		RMBS	299,492		—		299,492		—
CMBS	CMBS	271,889		—		271,889		—		CMBS	273,899		—		273,899		—
CLOs	CLOs	328,656		—		328,656		—		CLOs	304,890		—		304,890		—
Total fixed income securities	Total fixed income securities	5,504,823		42,825		5,461,998		—		Total fixed income securities	5,862,262		164,052		5,698,210		—
Equity securities	Equity securities	4,114		4,114		—		—		Equity securities	17,953		17,953		—		—
Other ⁽¹⁾	Other ⁽¹⁾	169,584		169,584		—		—		Other ⁽¹⁾	362,417		362,417		—		—
Real estate acquired ⁽²⁾	Real estate acquired ⁽²⁾	10,250		—		—		10,250		Real estate acquired ⁽²⁾	1,963		—		—		1,963
Total	Total	$	5,688,771	$	216,523	$	5,461,998	$	10,250	Total	$	6,244,595	$	544,422	$	5,698,210	$	1,963


⁽¹⁾	~~Consists of~~Includes 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.



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

																			Financial assets and liabilities not measured at fair value
Table	8.3									8.3
		June 30, 2019				December 31, 2018					June 30, 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	$	161,773	$	155,000	$	156,422
5.75% Senior Notes	5.75% Senior Notes	420,290		462,702		419,713		425,791		5.75% Senior Notes	421,443		441,545		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		305,562		256,872		346,289
Total financial liabilities	Total financial liabilities	$	832,162	$	959,061	$	831,585	$	914,411	Total financial liabilities	$	833,315	$	908,880	$	832,739	$	974,538


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 June 30,						Six Months Ended June 30,
(In thousands)	(In thousands)	2019			2018			2019			2018			(In thousands)	2020			2019			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 gains arising during the period														Net unrealized investment gains arising during the period	$	181,242		$	89,562		$	89,362		$	192,183
Total income tax benefit (expense)														Total income tax benefit (expense)	(38,061		)	(18,808		)	(18,766		)	(40,358		)
Net of taxes	Net of taxes	70,754			(9,922		)	151,825			(74,375		)	Net of taxes	143,181			70,754			70,596			151,825

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	1,275			1,961			2,669			4,050
Income tax expense		(412		)	(103		)	(851		)	(234		)
Total income tax benefit (expense)														Total income tax benefit (expense)	(268		)	(412		)	(561		)	(851		)
Net of taxes	Net of taxes	1,549			388			3,199			882			Net of taxes	1,007			1,549			2,108			3,199

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 income														Total other comprehensive income	182,517			91,523			92,031			196,233
Total income tax benefit (expense)														Total income tax benefit (expense)	(38,329		)	(19,220		)	(19,327		)	(41,209		)
Total other comprehensive income, net of tax														Total other comprehensive income, net of tax	$	144,188		$	72,303		$	72,704		$	155,024


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 June 30,						Six Months Ended June 30,
(In thousands)	(In thousands)	2019			2018			2019			2018			(In thousands)	2020			2019			2020			2019
Reclassification adjustment for net realized gains (losses) ⁽¹⁾		$	1,701		$	(3,621	)	$	(978	)	$	(3,712	)
Reclassification adjustment for net realized (losses) gains⁽¹⁾														Reclassification adjustment for net realized (losses) gains⁽¹⁾	$	(6,390	)	$	1,701		$	(1,676	)	$	(978	)
Income tax (expense) benefit	Income tax (expense) benefit	(357		)	760			206			779			Income tax (expense) benefit	1,342			(357		)	352			206
Net of taxes	Net of taxes	1,344			(2,861		)	(772		)	(2,933		)	Net of taxes	(5,048		)	1,344			(1,324		)	(772		)

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⁾	(1,275		)	(1,961		)	(2,669		)	(4,050		)
Income tax benefit		412			103			851			234
Income tax (expense) benefit														Income tax (expense) benefit	268			412			561			851
Net of taxes	Net of taxes	(1,549		)	(388		)	(3,199		)	(882		)	Net of taxes	(1,007		)	(1,549		)	(2,108		)	(3,199		)

Total reclassifications	Total reclassifications	(260		)	(4,112		)	(5,028		)	(4,828		)	Total reclassifications	(7,665		)	(260		)	(4,345		)	(5,028		)
Total income tax benefit		55			863			1,057			1,013
Income tax (expense) benefit														Income tax (expense) benefit	1,610			55			913			1,057
Total reclassifications, net of tax	Total reclassifications, net of tax	$	(205	)	$	(3,249	)	$	(3,971	)	$	(3,815	)	Total reclassifications, net of tax	$	(6,055	)	$	(205	)	$	(3,432	)	$	(3,971	)


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


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

																					Rollforward of AOCI
Table	9.3										9.3
		Six Months Ended June 30, 2019										Six Months Ended June 30, 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	69,272			—			69,272
Less: Amounts reclassified from AOCI	Less: Amounts reclassified from AOCI	(772		)	(3,199		)	(3,971		)	Less: Amounts reclassified from AOCI	(1,324		)	(2,108		)	(3,432		)
Balance, June 30, 2019, net of tax		$	116,436		$	(85,626	)	$	30,810
Balance, June 30, 2020, net of tax											Balance, June 30, 2020, net of tax	$	209,117		$	(63,705	)	$	145,412

																											Components of net periodic benefit cost
Table	10.1													10.1
		Three Months Ended June 30,													Three Months Ended June 30,
		Pension and Supplemental Executive Retirement Plans						Other Postretirement Benefit Plans							Pension and Supplemental Executive Retirement Plans						Other Postretirement Benefit Plans
(In thousands)	(In thousands)	2019			2018			2019			2018			(In thousands)	2020			2019			2020			2019
Service cost	Service cost	$	2,176		$	2,703		$	360		$	310		Service cost	$	1,876		$	2,176		$	322		$	360
Interest cost	Interest cost	3,898			3,765			274			203			Interest cost	3,336			3,898			202			274
Expected return on plan assets	Expected return on plan assets	(4,825		)	(5,555		)	(1,447		)	(1,591		)	Expected return on plan assets	(5,473		)	(4,825		)	(1,852		)	(1,447		)
Amortization of net actuarial losses/(gains)	Amortization of net actuarial losses/(gains)	2,039			1,684			—			(79		)	Amortization of net actuarial losses/(gains)	1,526			2,039			(201		)	—
Amortization of prior service cost/(credit)	Amortization of prior service cost/(credit)	(70		)	(88		)	(9		)	(1,026		)	Amortization of prior service cost/(credit)	(62		)	(70		)	12			(9		)
Net periodic benefit cost (benefit)	Net periodic benefit cost (benefit)	$	3,218		$	2,509		$	(822	)	$	(2,183	)	Net periodic benefit cost (benefit)	$	1,203		$	3,218		$	(1,517	)	$	(822	)



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	)

															Development of reserves for losses and loss adjustment expenses
Table	11.1							11.1
		Six Months Ended June 30,							Six Months Ended June 30,
(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	265,546			94,063
Prior years ⁽¹⁾	Prior years ⁽¹⁾	(33,164		)	(97,966		)	Prior years ⁽¹⁾	12,784			(33,164		)
Total losses incurred	Total losses incurred	60,899			10,395			Total losses incurred	278,330			60,899

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	271			2,650
Prior years	Prior years	109,420			173,313			Prior years	77,820			109,420
Reinsurance terminations	Reinsurance terminations	(13,980		)	(1,984		)	Reinsurance terminations	(20		)	(13,980		)
Total losses paid	Total losses paid	98,090			171,592			Total losses paid	78,071			98,090
Net reserve at end of period	Net reserve at end of period	603,500			775,964			Net reserve at end of period	733,952			603,500
Plus reinsurance recoverables	Plus reinsurance recoverables	18,402			37,051			Plus reinsurance recoverables	63,444			18,402
Reserve at end of period	Reserve at end of period	$	621,902		$	813,015		Reserve at end of period	$	797,396		$	621,902


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

															Reserve development on previously received delinquencies
Table	11.2							11.2
		Six Months Ended June 30,							Six Months Ended June 30,
(In millions)		2019			2018
(In thousands)								(In thousands)	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	$	(2,104	)	$	(67,465	)
Increase in estimated severity on primary defaults	Increase in estimated severity on primary defaults	3			19			Increase in estimated severity on primary defaults	13,767			3,140
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	1,121			31,161
Total prior year loss development ⁽¹⁾	Total prior year loss development ⁽¹⁾	$	(33	)	$	(98	)	Total prior year loss development ⁽¹⁾	$	12,784		$	(33,164	)