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Share Name | Share Symbol | Market | Type |
---|---|---|---|
MGIC Investment Corp | NYSE:MTG | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.27 | 1.33% | 20.55 | 20.78 | 20.275 | 20.32 | 1,829,176 | 21:10:26 |
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x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended
|
June 30, 2016
|
o
|
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
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WISCONSIN
|
|
39-1486475
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(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
250 E. KILBOURN AVENUE
|
|
53202
|
MILWAUKEE, WISCONSIN
|
|
(Zip Code)
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(Address of principal executive offices)
|
|
|
YES
x
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NO
o
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YES
x
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NO
o
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
|
YES
o
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NO
x
|
CLASS OF STOCK
|
|
PAR VALUE
|
|
DATE
|
|
NUMBER OF SHARES
|
Common stock
|
|
$1.00
|
|
July 29, 2016
|
|
340,641,277
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|
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|
|
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TABLE OF CONTENTS
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Page
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(In thousands)
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|
June 30,
2016 |
|
December 31,
2015 |
||||
ASSETS
|
|
|
|
|
||||
Investment portfolio (notes 7 and 8):
|
|
|
|
|
||||
Securities, available-for-sale, at fair value:
|
|
|
|
|
||||
Fixed maturities (amortized cost, 2016 - $4,421,363; 2015 - $4,684,148)
|
|
$
|
4,556,202
|
|
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$
|
4,657,561
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Equity securities
|
|
9,876
|
|
|
5,645
|
|
||
Total investment portfolio
|
|
4,566,078
|
|
|
4,663,206
|
|
||
Cash and cash equivalents
|
|
300,974
|
|
|
181,120
|
|
||
Accrued investment income
|
|
39,709
|
|
|
40,224
|
|
||
Reinsurance recoverable on loss reserves (note 4)
|
|
45,215
|
|
|
44,487
|
|
||
Reinsurance recoverable on paid losses
|
|
4,773
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|
|
3,319
|
|
||
Premiums receivable
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|
46,602
|
|
|
48,469
|
|
||
Home office and equipment, net
|
|
30,800
|
|
|
30,095
|
|
||
Deferred insurance policy acquisition costs
|
|
16,680
|
|
|
15,241
|
|
||
Deferred income taxes, net (note 11)
|
|
617,266
|
|
|
762,080
|
|
||
Other assets
|
|
76,689
|
|
|
80,102
|
|
||
Total assets
|
|
$
|
5,744,786
|
|
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$
|
5,868,343
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|
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||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
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|
||||
Liabilities:
|
|
|
|
|
||||
Loss reserves (note 12)
|
|
$
|
1,632,333
|
|
|
$
|
1,893,402
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|
Unearned premiums
|
|
308,424
|
|
|
279,973
|
|
||
Federal Home Loan Bank advance (note 3)
|
|
155,000
|
|
|
—
|
|
||
Convertible senior notes (note 3)
|
|
636,324
|
|
|
822,301
|
|
||
Convertible junior subordinated debentures (note 3)
|
|
256,872
|
|
|
389,522
|
|
||
Other liabilities
|
|
244,154
|
|
|
247,005
|
|
||
Total liabilities
|
|
3,233,107
|
|
|
3,632,203
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Contingencies (note 5)
|
|
|
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Shareholders’ equity (note 13):
|
|
|
|
|
||||
Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2016 - 341,076; 2015 - 340,097; shares outstanding 2016 - 340,636; 2015 - 339,657)
|
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341,076
|
|
|
340,097
|
|
||
Paid-in capital
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|
1,660,666
|
|
|
1,670,238
|
|
||
Treasury stock at cost (shares - 440)
|
|
(3,362
|
)
|
|
(3,362
|
)
|
||
Accumulated other comprehensive income (loss), net of tax (note 9)
|
|
44,840
|
|
|
(60,880
|
)
|
||
Retained earnings
|
|
468,459
|
|
|
290,047
|
|
||
Total shareholders’ equity
|
|
2,511,679
|
|
|
2,236,140
|
|
||
Total liabilities and shareholders’ equity
|
|
$
|
5,744,786
|
|
|
$
|
5,868,343
|
|
|
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Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(In thousands, except per share data)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Revenues:
|
|
|
|
|
|
|
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|
||||||||
Premiums written:
|
|
|
|
|
|
|
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||||||||
Direct
|
|
$
|
282,113
|
|
|
$
|
261,404
|
|
|
$
|
547,404
|
|
|
$
|
526,816
|
|
Assumed
|
|
182
|
|
|
308
|
|
|
390
|
|
|
646
|
|
||||
Ceded (note 4)
|
|
(32,280
|
)
|
|
(34,937
|
)
|
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(66,498
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)
|
|
(66,231
|
)
|
||||
Net premiums written
|
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250,015
|
|
|
226,775
|
|
|
481,296
|
|
|
461,231
|
|
||||
Increase in unearned premiums, net
|
|
(18,559
|
)
|
|
(13,267
|
)
|
|
(28,499
|
)
|
|
(30,435
|
)
|
||||
Net premiums earned
|
|
231,456
|
|
|
213,508
|
|
|
452,797
|
|
|
430,796
|
|
||||
Investment income, net of expenses
|
|
27,248
|
|
|
25,756
|
|
|
55,057
|
|
|
49,876
|
|
||||
Net realized investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total other-than-temporary impairment losses
|
|
—
|
|
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—
|
|
|
—
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|
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—
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|
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Portion of losses recognized in comprehensive income, before taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Net impairment losses recognized in earnings
|
|
—
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|
|
—
|
|
|
—
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|
|
—
|
|
||||
Other realized investment gains
|
|
836
|
|
|
166
|
|
|
3,892
|
|
|
26,493
|
|
||||
Net realized investment gains
|
|
836
|
|
|
166
|
|
|
3,892
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|
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26,493
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|
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Other revenue
|
|
3,994
|
|
|
3,699
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|
|
10,367
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|
|
6,179
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|
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Total revenues
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|
263,534
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|
243,129
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|
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522,113
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|
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513,344
|
|
||||
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||||||||
Losses and expenses:
|
|
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|
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|
|
|
|
||||||||
Losses incurred, net (note 12)
|
|
46,590
|
|
|
90,238
|
|
|
131,602
|
|
|
172,023
|
|
||||
Change in premium deficiency reserve
|
|
—
|
|
|
(17,333
|
)
|
|
—
|
|
|
(23,751
|
)
|
||||
Amortization of deferred policy acquisition costs
|
|
2,245
|
|
|
2,046
|
|
|
4,206
|
|
|
3,803
|
|
||||
Other underwriting and operating expenses, net
|
|
35,348
|
|
|
35,829
|
|
|
75,125
|
|
|
75,097
|
|
||||
Interest expense
|
|
12,244
|
|
|
17,373
|
|
|
26,945
|
|
|
34,735
|
|
||||
Loss on debt extinguishment (note 3)
|
|
1,868
|
|
|
—
|
|
|
15,308
|
|
|
—
|
|
||||
Total losses and expenses
|
|
98,295
|
|
|
128,153
|
|
|
253,186
|
|
|
261,907
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Income before tax
|
|
165,239
|
|
|
114,976
|
|
|
268,927
|
|
|
251,437
|
|
||||
Provision for income taxes (note 11)
|
|
56,018
|
|
|
1,322
|
|
|
90,515
|
|
|
4,707
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
|
$
|
109,221
|
|
|
$
|
113,654
|
|
|
$
|
178,412
|
|
|
$
|
246,730
|
|
|
|
|
|
|
|
|
|
|
||||||||
Income per share (note 6)
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
$
|
0.32
|
|
|
$
|
0.33
|
|
|
$
|
0.52
|
|
|
$
|
0.73
|
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
0.28
|
|
|
$
|
0.43
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding - basic (note 6)
|
|
340,678
|
|
|
339,705
|
|
|
340,411
|
|
|
339,406
|
|
||||
Weighted average common shares outstanding - diluted (note 6)
|
|
446,139
|
|
|
439,127
|
|
|
450,354
|
|
|
439,200
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Net income
|
|
$
|
109,221
|
|
|
$
|
113,654
|
|
|
$
|
178,412
|
|
|
$
|
246,730
|
|
Other comprehensive income (loss), net of tax (note 9):
|
|
|
|
|
|
|
|
|
||||||||
Change in unrealized investment gains and losses (note 7)
|
|
56,338
|
|
|
(63,646
|
)
|
|
107,165
|
|
|
(44,083
|
)
|
||||
Benefit plan adjustments
|
|
(173
|
)
|
|
(392
|
)
|
|
(481
|
)
|
|
(1,092
|
)
|
||||
Foreign currency translation adjustment
|
|
11
|
|
|
390
|
|
|
(964
|
)
|
|
(1,624
|
)
|
||||
Other comprehensive income (loss), net of tax
|
|
56,176
|
|
|
(63,648
|
)
|
|
105,720
|
|
|
(46,799
|
)
|
||||
Comprehensive income
|
|
$
|
165,397
|
|
|
$
|
50,006
|
|
|
$
|
284,132
|
|
|
$
|
199,931
|
|
|
|
Six Months Ended June 30,
|
||||||
(In thousands)
|
|
2016
|
|
2015
|
||||
Common stock
|
|
|
|
|
||||
Balance, beginning of period
|
|
$
|
340,097
|
|
|
$
|
340,047
|
|
Net common stock issued under share-based compensation plans
|
|
979
|
|
|
32
|
|
||
Balance, end of period
|
|
341,076
|
|
|
340,079
|
|
||
|
|
|
|
|
||||
Paid-in capital
|
|
|
|
|
||||
Balance, beginning of period
|
|
1,670,238
|
|
|
1,663,592
|
|
||
Net common stock issued under share-based compensation plans
|
|
(5,954
|
)
|
|
(32
|
)
|
||
Reissuance of treasury stock, net
|
|
—
|
|
|
(7,181
|
)
|
||
Tax benefit from share-based compensation
|
|
115
|
|
|
2,568
|
|
||
Equity compensation
|
|
6,017
|
|
|
5,984
|
|
||
Reacquisition of convertible junior subordinated debentures-equity component (note 3)
|
|
(9,750
|
)
|
|
—
|
|
||
Balance, end of period
|
|
1,660,666
|
|
|
1,664,931
|
|
||
|
|
|
|
|
||||
Treasury stock
|
|
|
|
|
||||
Balance, beginning of period
|
|
(3,362
|
)
|
|
(32,937
|
)
|
||
Reissuance of treasury stock, net
|
|
—
|
|
|
29,575
|
|
||
Balance, end of period
|
|
(3,362
|
)
|
|
(3,362
|
)
|
||
|
|
|
|
|
||||
Accumulated other comprehensive income (loss)
|
|
|
|
|
||||
Balance, beginning of period
|
|
(60,880
|
)
|
|
(81,341
|
)
|
||
Other comprehensive income (loss), net of tax (note 9)
|
|
105,720
|
|
|
(46,799
|
)
|
||
Balance, end of period
|
|
44,840
|
|
|
(128,140
|
)
|
||
|
|
|
|
|
||||
Retained earnings (deficit)
|
|
|
|
|
||||
Balance, beginning of period
|
|
290,047
|
|
|
(852,458
|
)
|
||
Net income
|
|
178,412
|
|
|
246,730
|
|
||
Reissuance of treasury stock, net
|
|
—
|
|
|
(29,496
|
)
|
||
Balance, end of period
|
|
468,459
|
|
|
(635,224
|
)
|
||
|
|
|
|
|
||||
Total shareholders’ equity
|
|
$
|
2,511,679
|
|
|
$
|
1,238,284
|
|
|
|
Six Months Ended June 30,
|
||||||
(In thousands)
|
|
2016
|
|
2015
|
||||
Cash flows from operating activities:
|
|
|
|
|
||||
Net income
|
|
$
|
178,412
|
|
|
$
|
246,730
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
||||
Depreciation and amortization
|
|
28,477
|
|
|
23,938
|
|
||
Deferred tax expense (benefit)
|
|
88,157
|
|
|
(13
|
)
|
||
Realized investment gains, net
|
|
(3,892
|
)
|
|
(26,493
|
)
|
||
Excess tax benefits related to share-based compensation
|
|
(115
|
)
|
|
(2,568
|
)
|
||
Payment of original issue discount-convertible junior subordinated debentures
|
|
(41,540
|
)
|
|
—
|
|
||
Change in certain assets and liabilities:
|
|
|
|
|
||||
Accrued investment income
|
|
515
|
|
|
(4,043
|
)
|
||
Prepaid insurance premium
|
|
48
|
|
|
(10,462
|
)
|
||
Reinsurance recoverable on loss reserves
|
|
(728
|
)
|
|
4,385
|
|
||
Reinsurance recoverable on paid losses
|
|
(1,454
|
)
|
|
506
|
|
||
Premium receivable
|
|
1,867
|
|
|
4,974
|
|
||
Deferred insurance policy acquisition costs
|
|
(1,439
|
)
|
|
(1,920
|
)
|
||
Profit commission receivable
|
|
(2,793
|
)
|
|
(50,957
|
)
|
||
Loss reserves
|
|
(261,069
|
)
|
|
(286,046
|
)
|
||
Premium deficiency reserve
|
|
—
|
|
|
(23,751
|
)
|
||
Unearned premiums
|
|
28,451
|
|
|
40,874
|
|
||
Return premium accrual
|
|
(7,300
|
)
|
|
(3,500
|
)
|
||
Income taxes payable - current
|
|
523
|
|
|
526
|
|
||
Other
|
|
(13,063
|
)
|
|
27,929
|
|
||
Net cash used in operating activities
|
|
(6,943
|
)
|
|
(59,891
|
)
|
||
|
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
|
||||
Purchases of investments:
|
|
|
|
|
||||
Fixed maturities
|
|
(723,409
|
)
|
|
(1,499,319
|
)
|
||
Equity securities
|
|
(3,128
|
)
|
|
(39
|
)
|
||
Proceeds from sales of fixed maturities
|
|
649,776
|
|
|
1,218,688
|
|
||
Proceeds from maturity of fixed maturities
|
|
313,484
|
|
|
298,618
|
|
||
Proceeds from sale of equity securities
|
|
2,525
|
|
|
—
|
|
||
Net increase in payable for securities
|
|
24,519
|
|
|
41,762
|
|
||
Net decrease in restricted cash
|
|
—
|
|
|
17,212
|
|
||
Additions to property and equipment
|
|
(2,724
|
)
|
|
(1,711
|
)
|
||
Net cash provided by investing activities
|
|
261,043
|
|
|
75,211
|
|
||
|
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
|
||||
Proceeds from issuance of long-term debt
|
|
155,000
|
|
|
—
|
|
||
Purchase of convertible senior notes
|
|
(188,501
|
)
|
|
—
|
|
||
Purchase of convertible junior subordinated debentures-liability component
|
|
(91,110
|
)
|
|
—
|
|
||
Purchase of convertible junior subordinated debentures-equity component
|
|
(9,750
|
)
|
|
—
|
|
||
Excess tax benefits related to share-based compensation
|
|
115
|
|
|
2,568
|
|
||
Net cash (used in) provided by financing activities
|
|
(134,246
|
)
|
|
2,568
|
|
||
|
|
|
|
|
||||
Net increase in cash and cash equivalents
|
|
119,854
|
|
|
17,888
|
|
||
Cash and cash equivalents at beginning of period
|
|
181,120
|
|
|
197,882
|
|
||
Cash and cash equivalents at end of period
|
|
$
|
300,974
|
|
|
$
|
215,770
|
|
|
|
December 31, 2015
|
||||||||||
(In millions)
|
|
As previously reported
|
|
Adjustment
|
|
As Adjusted
|
||||||
Convertible Senior Notes, interest at 5% per annum, due May 2017
|
|
$
|
333.5
|
|
|
$
|
(2.0
|
)
|
|
$
|
331.5
|
|
Convertible Senior Notes, interest at 2% per annum, due April 2020
|
|
500.0
|
|
|
(9.2
|
)
|
|
490.8
|
|
|||
Convertible Junior Subordinated Debentures, interest at 9% per annum, due April 2063
|
|
389.5
|
|
|
—
|
|
|
389.5
|
|
|||
Total long-term debt
|
|
$
|
1,223.0
|
|
|
$
|
(11.2
|
)
|
|
$
|
1,211.8
|
|
(In millions)
|
|
June 30,
2016 |
|
December 31,
2015 |
||||
FHLB Advance, interest at 1.91% per annum, due February 2023
|
|
$
|
155.0
|
|
|
$
|
—
|
|
Convertible Senior Notes, interest at 5% per annum, due May 2017
(1)
|
|
145.0
|
|
|
333.5
|
|
||
Convertible Senior Notes, interest at 2% per annum, due April 2020
(2) (3)
|
|
500.0
|
|
|
500.0
|
|
||
Convertible Junior Subordinated Debentures, interest at 9% per annum, due April 2063
(4)
|
|
256.9
|
|
|
389.5
|
|
||
Long-term debt, par value
|
|
1,056.9
|
|
|
1,223.0
|
|
||
Less: Debt issuance costs on convertible senior notes
|
|
(8.7
|
)
|
|
(11.2
|
)
|
||
Long-term debt, carrying value
|
|
$
|
1,048.2
|
|
|
$
|
1,211.8
|
|
(1)
|
Convertible at any time prior to maturity at the holder’s option, at an initial conversion rate, which is subject to adjustment, of
74.4186
shares per
$1,000
principal amount, representing an initial conversion price of approximately
$13.44
per share.
|
(2)
|
Prior to January 1, 2020, the
2%
Convertible Senior Notes are convertible only upon satisfaction of one or more conditions. One such condition is that during any calendar quarter commencing after March 31, 2014, the last reported sale price of our common stock for each of at least
20
trading days during the
30
consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter be greater than or equal to
130%
of the applicable conversion price on each applicable trading day. The
2%
Notes are convertible at an initial conversion rate, which is subject to adjustment, of
143.8332
shares per
$1,000
principal amount, representing an initial conversion price of approximately
$6.95
per share.
130%
of such conversion price is
$9.03
. On or after January 1, 2020, holders may convert their notes irrespective of satisfaction of the conditions.
|
(3)
|
Prior to April 10, 2017, the notes will not be redeemable. On any business day on or after April 10, 2017 we may redeem for cash all or part of the notes, at our option, at a redemption rate equal to
100%
of the principal amount of the notes being redeemed, plus any accrued and unpaid interest, if the closing sale price of our
|
(4)
|
Convertible at any time prior to maturity at the holder’s option, at an initial conversion rate, which is subject to adjustment, of
74.0741
shares per
$1,000
principal amount, representing an initial conversion price of approximately
$13.50
per share. If a holder elects to convert their debentures, deferred interest owed on the debentures being converted is also converted into shares of our common stock. The conversion rate for any deferred interest is based on the average price that our shares traded at during a
5
-day period immediately prior to the election to convert. In lieu of issuing shares of common stock upon conversion of the debentures, we may, at our option, make a cash payment to converting holders for all or some of the shares of our common stock otherwise issuable upon conversion.
|
|
|
Six Months Ended June 30,
|
||||||
(In millions)
|
|
2016
|
|
2015
|
||||
FHLB Advance, interest at 1.91% per annum, due February 2023
|
|
$
|
0.9
|
|
|
$
|
—
|
|
Senior Notes, interest at 5.375% per annum, due November 2015
|
|
—
|
|
|
1.7
|
|
||
Convertible Senior Notes, interest at 5% per annum, due May 2017
|
|
6.9
|
|
|
8.6
|
|
||
Convertible Senior Notes, interest at 2% per annum, due April 2020
|
|
5.0
|
|
|
5.0
|
|
||
Convertible Junior Subordinated Debentures, interest at 9% per annum, due April 2063
|
|
15.9
|
|
|
17.5
|
|
||
Total interest payments
|
|
$
|
28.7
|
|
|
$
|
32.8
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Premiums earned:
|
|
|
|
|
|
|
|
|
||||||||
Direct
|
|
$
|
263,566
|
|
|
$
|
240,171
|
|
|
$
|
518,953
|
|
|
$
|
485,919
|
|
Assumed
|
|
182
|
|
|
308
|
|
|
390
|
|
|
646
|
|
||||
Ceded
|
|
(32,292
|
)
|
|
(26,971
|
)
|
|
(66,546
|
)
|
|
(55,769
|
)
|
||||
Net premiums earned
|
|
$
|
231,456
|
|
|
$
|
213,508
|
|
|
$
|
452,797
|
|
|
$
|
430,796
|
|
|
|
|
|
|
|
|
|
|
||||||||
Losses incurred:
|
|
|
|
|
|
|
|
|
||||||||
Direct
|
|
$
|
54,863
|
|
|
$
|
95,710
|
|
|
$
|
147,295
|
|
|
$
|
183,746
|
|
Assumed
|
|
339
|
|
|
198
|
|
|
440
|
|
|
766
|
|
||||
Ceded
|
|
(8,612
|
)
|
|
(5,670
|
)
|
|
(16,133
|
)
|
|
(12,489
|
)
|
||||
Net losses incurred
|
|
$
|
46,590
|
|
|
$
|
90,238
|
|
|
$
|
131,602
|
|
|
$
|
172,023
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
2013 QSR Transaction
|
|
|
|
|
|
|
|
|
||||||||
Ceded premiums written, net of profit commission
|
|
n/a
|
|
|
$
|
30,919
|
|
|
n/a
|
|
|
$
|
58,055
|
|
||
Ceded premiums earned, net of profit commission
|
|
n/a
|
|
|
22,954
|
|
|
n/a
|
|
|
47,567
|
|
||||
Ceded losses incurred
|
|
n/a
|
|
|
1,187
|
|
|
n/a
|
|
|
6,060
|
|
||||
Ceding commissions
(1)
|
|
n/a
|
|
|
11,681
|
|
|
n/a
|
|
|
21,803
|
|
||||
Profit commission
|
|
n/a
|
|
|
27,483
|
|
|
n/a
|
|
|
50,957
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
2015 QSR Transaction (Effective July 1, 2015)
|
||||||||||||||||
Ceded premiums written, net of profit commission
(2)
|
|
$
|
29,961
|
|
|
n/a
|
|
|
$
|
61,627
|
|
|
n/a
|
|
||
Ceded premiums earned, net of profit commission
(2)
|
|
29,961
|
|
|
n/a
|
|
|
61,627
|
|
|
n/a
|
|
||||
Ceded losses incurred
|
|
6,070
|
|
|
n/a
|
|
|
14,583
|
|
|
n/a
|
|
||||
Ceding commissions
(1)
|
|
11,946
|
|
|
n/a
|
|
|
23,522
|
|
|
n/a
|
|
||||
Profit commission
|
|
29,767
|
|
|
n/a
|
|
|
55,982
|
|
|
n/a
|
|
(1)
|
Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.
|
(2)
|
Effective July 1, 2015 premiums are ceded on an earned and received basis as defined in our 2015 QSR Transaction.
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(In thousands, except per share data)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Basic earnings per share:
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
|
$
|
109,221
|
|
|
$
|
113,654
|
|
|
$
|
178,412
|
|
|
$
|
246,730
|
|
Weighted average common shares outstanding
|
|
340,678
|
|
|
339,705
|
|
|
340,411
|
|
|
339,406
|
|
||||
Basic income per share
|
|
$
|
0.32
|
|
|
$
|
0.33
|
|
|
$
|
0.52
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
|
$
|
109,221
|
|
|
$
|
113,654
|
|
|
$
|
178,412
|
|
|
$
|
246,730
|
|
Interest expense, net of tax
(1)
:
|
|
|
|
|
|
|
|
|
||||||||
2% Convertible Senior Notes due 2020
|
|
1,982
|
|
|
3,049
|
|
|
3,964
|
|
|
6,098
|
|
||||
5% Convertible Senior Notes due 2017
|
|
1,728
|
|
|
4,692
|
|
|
4,406
|
|
|
9,384
|
|
||||
9% Convertible Junior Subordinated Debentures due 2063
|
|
3,757
|
|
|
—
|
|
|
8,379
|
|
|
—
|
|
||||
Diluted income available to common shareholders
|
|
$
|
116,688
|
|
|
$
|
121,395
|
|
|
$
|
195,161
|
|
|
$
|
262,212
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted average shares - basic
|
|
340,678
|
|
|
339,705
|
|
|
340,411
|
|
|
339,406
|
|
||||
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
||||||||
Unvested restricted stock units
|
|
1,209
|
|
|
1,831
|
|
|
1,444
|
|
|
2,203
|
|
||||
2% Convertible Senior Notes due 2020
|
|
71,917
|
|
|
71,917
|
|
|
71,917
|
|
|
71,917
|
|
||||
5% Convertible Senior Notes due 2017
|
|
13,307
|
|
|
25,674
|
|
|
15,449
|
|
|
25,674
|
|
||||
9% Convertible Junior Subordinated Debentures due 2063
|
|
19,028
|
|
|
—
|
|
|
21,133
|
|
|
—
|
|
||||
Weighted average shares - diluted
|
|
446,139
|
|
|
439,127
|
|
|
450,354
|
|
|
439,200
|
|
||||
Diluted income per share
|
|
$
|
0.26
|
|
|
$
|
0.28
|
|
|
$
|
0.43
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
||||||||
Antidilutive securities (in millions)
|
|
—
|
|
|
28.9
|
|
|
—
|
|
|
28.9
|
|
(1)
|
Due to the valuation allowance recorded against deferred tax assets, the three and six months ended June 30, 2015 were not tax effected. The three and six months ended June 30, 2016 have been tax effected at a rate of 35%.
|
June 30, 2016
|
||||||||||||||||
(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
|
|
$
|
59,860
|
|
|
$
|
2,276
|
|
|
$
|
(806
|
)
|
|
$
|
61,330
|
|
Obligations of U.S. states and political subdivisions
|
|
1,968,194
|
|
|
109,789
|
|
|
(531
|
)
|
|
2,077,452
|
|
||||
Corporate debt securities
|
|
1,704,917
|
|
|
31,769
|
|
|
(6,721
|
)
|
|
1,729,965
|
|
||||
Asset-backed securities
|
|
104,221
|
|
|
236
|
|
|
(50
|
)
|
|
104,407
|
|
||||
Residential mortgage-backed securities
|
|
241,314
|
|
|
600
|
|
|
(3,574
|
)
|
|
238,340
|
|
||||
Commercial mortgage-backed securities
|
|
281,502
|
|
|
3,547
|
|
|
(891
|
)
|
|
284,158
|
|
||||
Collateralized loan obligations
|
|
61,355
|
|
|
44
|
|
|
(849
|
)
|
|
60,550
|
|
||||
Total debt securities
|
|
4,421,363
|
|
|
148,261
|
|
|
(13,422
|
)
|
|
4,556,202
|
|
||||
Equity securities
|
|
6,228
|
|
|
3,651
|
|
|
(3
|
)
|
|
9,876
|
|
||||
Total investment portfolio
|
|
$
|
4,427,591
|
|
|
$
|
151,912
|
|
|
$
|
(13,425
|
)
|
|
$
|
4,566,078
|
|
December 31, 2015
|
||||||||||||||||
(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
|
|
$
|
160,393
|
|
|
$
|
2,133
|
|
|
$
|
(1,942
|
)
|
|
$
|
160,584
|
|
Obligations of U.S. states and political subdivisions
|
|
1,766,407
|
|
|
33,410
|
|
|
(7,290
|
)
|
|
1,792,527
|
|
||||
Corporate debt securities
|
|
2,046,697
|
|
|
2,836
|
|
|
(44,770
|
)
|
|
2,004,763
|
|
||||
Asset-backed securities
|
|
116,764
|
|
|
56
|
|
|
(203
|
)
|
|
116,617
|
|
||||
Residential mortgage-backed securities
|
|
265,879
|
|
|
161
|
|
|
(8,392
|
)
|
|
257,648
|
|
||||
Commercial mortgage-backed securities
|
|
237,304
|
|
|
162
|
|
|
(3,975
|
)
|
|
233,491
|
|
||||
Collateralized loan obligations
|
|
61,345
|
|
|
3
|
|
|
(1,148
|
)
|
|
60,200
|
|
||||
Debt securities issued by foreign sovereign governments
|
|
29,359
|
|
|
2,474
|
|
|
(102
|
)
|
|
31,731
|
|
||||
Total debt securities
|
|
4,684,148
|
|
|
41,235
|
|
|
(67,822
|
)
|
|
4,657,561
|
|
||||
Equity securities
|
|
5,625
|
|
|
38
|
|
|
(18
|
)
|
|
5,645
|
|
||||
Total investment portfolio
|
|
$
|
4,689,773
|
|
|
$
|
41,273
|
|
|
$
|
(67,840
|
)
|
|
$
|
4,663,206
|
|
(1)
|
At
June 30, 2016
and
December 31, 2015
, there were no other-than-temporary impairment losses recorded in other comprehensive income.
|
June 30, 2016
|
|
|
|
|
||||
(In thousands)
|
|
Amortized Cost
|
|
Fair Value
|
||||
Due in one year or less
|
|
$
|
272,706
|
|
|
$
|
273,365
|
|
Due after one year through five years
|
|
1,143,174
|
|
|
1,163,590
|
|
||
Due after five years through ten years
|
|
1,128,998
|
|
|
1,156,648
|
|
||
Due after ten years
|
|
1,188,093
|
|
|
1,275,144
|
|
||
|
|
$
|
3,732,971
|
|
|
$
|
3,868,747
|
|
|
|
|
|
|
||||
Asset-backed securities
|
|
104,221
|
|
|
104,407
|
|
||
Residential mortgage-backed securities
|
|
241,314
|
|
|
238,340
|
|
||
Commercial mortgage-backed securities
|
|
281,502
|
|
|
284,158
|
|
||
Collateralized loan obligations
|
|
61,355
|
|
|
60,550
|
|
||
Total as of June 30, 2016
|
|
$
|
4,421,363
|
|
|
$
|
4,556,202
|
|
June 30, 2016
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
||||||||||||||||||
(In thousands)
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
|
$
|
8,996
|
|
|
$
|
(806
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,996
|
|
|
$
|
(806
|
)
|
Obligations of U.S. states and political subdivisions
|
|
30,347
|
|
|
(303
|
)
|
|
15,842
|
|
|
(228
|
)
|
|
46,189
|
|
|
(531
|
)
|
||||||
Corporate debt securities
|
|
110,610
|
|
|
(2,341
|
)
|
|
167,209
|
|
|
(4,381
|
)
|
|
277,819
|
|
|
(6,722
|
)
|
||||||
Asset-backed securities
|
|
13,440
|
|
|
(45
|
)
|
|
8,047
|
|
|
(5
|
)
|
|
21,487
|
|
|
(50
|
)
|
||||||
Residential mortgage-backed securities
|
|
2,383
|
|
|
(68
|
)
|
|
203,939
|
|
|
(3,505
|
)
|
|
206,322
|
|
|
(3,573
|
)
|
||||||
Commercial mortgage-backed securities
|
|
33,169
|
|
|
(553
|
)
|
|
38,382
|
|
|
(338
|
)
|
|
71,551
|
|
|
(891
|
)
|
||||||
Collateralized loan obligations
|
|
—
|
|
|
—
|
|
|
52,050
|
|
|
(849
|
)
|
|
52,050
|
|
|
(849
|
)
|
||||||
Equity securities
|
|
—
|
|
|
—
|
|
|
154
|
|
|
(3
|
)
|
|
154
|
|
|
(3
|
)
|
||||||
Total
|
|
$
|
198,945
|
|
|
$
|
(4,116
|
)
|
|
$
|
485,623
|
|
|
$
|
(9,309
|
)
|
|
$
|
684,568
|
|
|
$
|
(13,425
|
)
|
December 31, 2015
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
||||||||||||||||||
(In thousands)
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
|
$
|
60,548
|
|
|
$
|
(1,467
|
)
|
|
$
|
1,923
|
|
|
$
|
(475
|
)
|
|
$
|
62,471
|
|
|
$
|
(1,942
|
)
|
Obligations of U.S. states and political subdivisions
|
|
417,615
|
|
|
(6,404
|
)
|
|
37,014
|
|
|
(886
|
)
|
|
454,629
|
|
|
(7,290
|
)
|
||||||
Corporate debt securities
|
|
1,470,628
|
|
|
(38,519
|
)
|
|
114,982
|
|
|
(6,251
|
)
|
|
1,585,610
|
|
|
(44,770
|
)
|
||||||
Asset-backed securities
|
|
86,604
|
|
|
(173
|
)
|
|
5,546
|
|
|
(30
|
)
|
|
92,150
|
|
|
(203
|
)
|
||||||
Residential mortgage-backed securities
|
|
35,064
|
|
|
(312
|
)
|
|
209,882
|
|
|
(8,080
|
)
|
|
244,946
|
|
|
(8,392
|
)
|
||||||
Commercial mortgage-backed securities
|
|
134,488
|
|
|
(2,361
|
)
|
|
69,927
|
|
|
(1,614
|
)
|
|
204,415
|
|
|
(3,975
|
)
|
||||||
Collateralized loan obligations
|
|
—
|
|
|
—
|
|
|
51,750
|
|
|
(1,148
|
)
|
|
51,750
|
|
|
(1,148
|
)
|
||||||
Debt securities issued by foreign sovereign governments
|
|
4,463
|
|
|
(102
|
)
|
|
—
|
|
|
—
|
|
|
4,463
|
|
|
(102
|
)
|
||||||
Equity securities
|
|
355
|
|
|
(8
|
)
|
|
171
|
|
|
(10
|
)
|
|
526
|
|
|
(18
|
)
|
||||||
Total
|
|
$
|
2,209,765
|
|
|
$
|
(49,346
|
)
|
|
$
|
491,195
|
|
|
$
|
(18,494
|
)
|
|
$
|
2,700,960
|
|
|
$
|
(67,840
|
)
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Realized investment gains (losses) on investments:
|
|
|
|
|
|
|
|
|
||||||||
Fixed maturities
|
|
$
|
831
|
|
|
$
|
161
|
|
|
$
|
3,886
|
|
|
$
|
26,485
|
|
Equity securities
|
|
5
|
|
|
5
|
|
|
6
|
|
|
8
|
|
||||
Net realized investment gains
|
|
$
|
836
|
|
|
$
|
166
|
|
|
$
|
3,892
|
|
|
$
|
26,493
|
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Realized investment gains (losses) on investments:
|
|
|
|
|
|
|
|
|
||||||||
Gains on sales
|
|
$
|
1,404
|
|
|
$
|
785
|
|
|
$
|
5,509
|
|
|
$
|
27,991
|
|
Losses on sales
|
|
(568
|
)
|
|
(619
|
)
|
|
(1,617
|
)
|
|
(1,498
|
)
|
||||
Net realized investment gains
|
|
$
|
836
|
|
|
$
|
166
|
|
|
$
|
3,892
|
|
|
$
|
26,493
|
|
June 30, 2016
|
||||||||||||||||
(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
|
|
$
|
61,330
|
|
|
$
|
14,678
|
|
|
$
|
46,652
|
|
|
$
|
—
|
|
Obligations of U.S. states and political subdivisions
|
|
2,077,452
|
|
|
—
|
|
|
2,076,396
|
|
|
1,056
|
|
||||
Corporate debt securities
|
|
1,729,965
|
|
|
—
|
|
|
1,729,965
|
|
|
—
|
|
||||
Asset-backed securities
|
|
104,407
|
|
|
—
|
|
|
104,407
|
|
|
—
|
|
||||
Residential mortgage-backed securities
|
|
238,340
|
|
|
—
|
|
|
238,340
|
|
|
—
|
|
||||
Commercial mortgage-backed securities
|
|
284,158
|
|
|
—
|
|
|
284,158
|
|
|
—
|
|
||||
Collateralized loan obligations
|
|
60,550
|
|
|
—
|
|
|
60,550
|
|
|
—
|
|
||||
Total debt securities
|
|
4,556,202
|
|
|
14,678
|
|
|
4,540,468
|
|
|
1,056
|
|
||||
Equity securities
(1)
|
|
9,876
|
|
|
2,936
|
|
|
—
|
|
|
6,940
|
|
||||
Total investment portfolio
|
|
$
|
4,566,078
|
|
|
$
|
17,614
|
|
|
$
|
4,540,468
|
|
|
$
|
7,996
|
|
Real estate acquired
(2)
|
|
$
|
9,642
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,642
|
|
December 31, 2015
|
||||||||||||||||
(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
|
|
$
|
160,584
|
|
|
$
|
46,197
|
|
|
$
|
114,387
|
|
|
$
|
—
|
|
Obligations of U.S. states and political subdivisions
|
|
1,792,527
|
|
|
—
|
|
|
1,791,299
|
|
|
1,228
|
|
||||
Corporate debt securities
|
|
2,004,763
|
|
|
—
|
|
|
2,004,763
|
|
|
—
|
|
||||
Asset-backed securities
|
|
116,617
|
|
|
—
|
|
|
116,617
|
|
|
—
|
|
||||
Residential mortgage-backed securities
|
|
257,648
|
|
|
—
|
|
|
257,648
|
|
|
—
|
|
||||
Commercial mortgage-backed securities
|
|
233,491
|
|
|
—
|
|
|
233,491
|
|
|
—
|
|
||||
Collateralized loan obligations
|
|
60,200
|
|
|
—
|
|
|
60,200
|
|
|
—
|
|
||||
Debt securities issued by foreign sovereign governments
|
|
31,731
|
|
|
31,731
|
|
|
—
|
|
|
—
|
|
||||
Total debt securities
|
|
4,657,561
|
|
|
77,928
|
|
|
4,578,405
|
|
|
1,228
|
|
||||
Equity securities
(1)
|
|
5,645
|
|
|
2,790
|
|
|
—
|
|
|
2,855
|
|
||||
Total investment portfolio
|
|
$
|
4,663,206
|
|
|
$
|
80,718
|
|
|
$
|
4,578,405
|
|
|
$
|
4,083
|
|
Real estate acquired
(2)
|
|
$
|
12,149
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,149
|
|
(1)
|
Certain equity securities in Level 3 are carried at cost, which approximates fair value.
|
(2)
|
Real estate acquired through claim settlement, which is held for sale, is reported in Other assets on the consolidated balance sheets.
|
Three Months Ended June 30, 2015
|
||||||||||||||||
(In thousands)
|
|
Debt
Securities |
|
Equity
Securities |
|
Total
Investments |
|
Real Estate
Acquired |
||||||||
Balance at March 31, 2015
|
|
$
|
1,791
|
|
|
$
|
321
|
|
|
$
|
2,112
|
|
|
$
|
10,897
|
|
Total realized/unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Included in earnings and reported as losses incurred, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31
|
|
||||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,917
|
|
||||
Sales
|
|
(157
|
)
|
|
—
|
|
|
(157
|
)
|
|
(8,850
|
)
|
||||
Balance at June 30, 2015
|
|
$
|
1,634
|
|
|
$
|
321
|
|
|
$
|
1,955
|
|
|
$
|
7,995
|
|
Six Months Ended June 30, 2016
|
||||||||||||||||
(In thousands)
|
|
Debt Securities
|
|
Equity Securities
|
|
Total Investments
|
|
Real Estate Acquired
|
||||||||
Balance at December 31, 2015
|
|
$
|
1,228
|
|
|
$
|
2,855
|
|
|
$
|
4,083
|
|
|
$
|
12,149
|
|
Total realized/unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Included in other comprehensive income
|
|
—
|
|
|
3,519
|
|
|
3,519
|
|
|
—
|
|
||||
Included in earnings and reported as losses incurred, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
358
|
|
||||
Purchases
|
|
—
|
|
|
3,091
|
|
|
3,091
|
|
|
19,015
|
|
||||
Sales
|
|
(172
|
)
|
|
(2,525
|
)
|
|
(2,697
|
)
|
|
(21,880
|
)
|
||||
Balance at June 30, 2016
|
|
$
|
1,056
|
|
|
$
|
6,940
|
|
|
$
|
7,996
|
|
|
$
|
9,642
|
|
Six Months Ended June 30, 2015
|
||||||||||||||||
(In thousands)
|
|
Debt Securities
|
|
Equity Securities
|
|
Total Investments
|
|
Real Estate Acquired
|
||||||||
Balance at December 31, 2014
|
|
$
|
1,846
|
|
|
$
|
321
|
|
|
$
|
2,167
|
|
|
$
|
12,658
|
|
Total realized/unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Included in earnings and reported as losses incurred, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(472
|
)
|
||||
Purchases
|
|
7
|
|
|
—
|
|
|
7
|
|
|
16,714
|
|
||||
Sales
|
|
(219
|
)
|
|
—
|
|
|
(219
|
)
|
|
(20,905
|
)
|
||||
Balance at June 30, 2015
|
|
$
|
1,634
|
|
|
$
|
321
|
|
|
$
|
1,955
|
|
|
$
|
7,995
|
|
June 30, 2016
|
|
|
|
|
||||
(In thousands)
|
|
Carrying Value
|
|
Fair Value
|
||||
Financial liabilities:
|
|
|
|
|
||||
FHLB Advance due 2023
|
|
$
|
155,000
|
|
|
$
|
160,025
|
|
Convertible Senior Notes due 2017
|
|
144,470
|
|
|
150,070
|
|
||
Convertible Senior Notes due 2020
|
|
491,854
|
|
|
554,670
|
|
||
Convertible Junior Subordinated Debentures due 2063
|
|
256,872
|
|
|
285,244
|
|
||
Total Debt
|
|
$
|
1,048,196
|
|
|
$
|
1,150,009
|
|
December 31, 2015
|
|
|
|
|
||||
(In thousands)
|
|
Carrying Value
|
|
Fair Value
|
||||
Financial liabilities:
|
|
|
|
|
||||
|
|
|
|
|
||||
Convertible Senior Notes due 2017
|
|
$
|
331,546
|
|
|
$
|
345,616
|
|
Convertible Senior Notes due 2020
|
|
490,755
|
|
|
701,955
|
|
||
Convertible Junior Subordinated Debentures due 2063
|
|
389,522
|
|
|
455,067
|
|
||
Total Debt
|
|
$
|
1,211,823
|
|
|
$
|
1,502,638
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Net unrealized holding gains (losses) arising during the period
|
|
$
|
86,674
|
|
|
$
|
(64,118
|
)
|
|
$
|
165,058
|
|
|
$
|
(44,397
|
)
|
Income tax (expense) benefit
|
|
(30,336
|
)
|
|
22,362
|
|
|
(57,893
|
)
|
|
15,486
|
|
||||
Valuation allowance
(1)
|
|
—
|
|
|
(21,890
|
)
|
|
—
|
|
|
(15,172
|
)
|
||||
Net of taxes
|
|
56,338
|
|
|
(63,646
|
)
|
|
107,165
|
|
|
(44,083
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Net changes in benefit plan assets and obligations
|
|
(266
|
)
|
|
(392
|
)
|
|
(740
|
)
|
|
(1,092
|
)
|
||||
Income tax benefit
|
|
93
|
|
|
137
|
|
|
259
|
|
|
382
|
|
||||
Valuation allowance
(1)
|
|
—
|
|
|
(137
|
)
|
|
—
|
|
|
(382
|
)
|
||||
Net of taxes
|
|
(173
|
)
|
|
(392
|
)
|
|
(481
|
)
|
|
(1,092
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Net changes in unrealized foreign currency translation adjustment
|
|
16
|
|
|
598
|
|
|
(1,480
|
)
|
|
(2,504
|
)
|
||||
Income tax (expense) benefit
|
|
(5
|
)
|
|
(208
|
)
|
|
516
|
|
|
880
|
|
||||
Net of taxes
|
|
11
|
|
|
390
|
|
|
(964
|
)
|
|
(1,624
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Total other comprehensive income (loss)
|
|
86,424
|
|
|
(63,912
|
)
|
|
162,838
|
|
|
(47,993
|
)
|
||||
Total income tax (expense) benefit, net of valuation allowance
|
|
(30,248
|
)
|
|
264
|
|
|
(57,118
|
)
|
|
1,194
|
|
||||
Total other comprehensive income (loss), net of tax
|
|
$
|
56,176
|
|
|
$
|
(63,648
|
)
|
|
$
|
105,720
|
|
|
$
|
(46,799
|
)
|
(1)
|
See Note 11 – “Income Taxes” for a discussion of the valuation allowance recorded against deferred tax assets.
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Reclassification adjustment for net realized gains (losses)
(1)
|
|
$
|
98
|
|
|
$
|
477
|
|
|
$
|
710
|
|
|
$
|
11,711
|
|
Income tax expense
|
|
(34
|
)
|
|
(161
|
)
|
|
(126
|
)
|
|
(4,092
|
)
|
||||
Valuation allowance
(2)
|
|
—
|
|
|
122
|
|
|
—
|
|
|
4,048
|
|
||||
Net of taxes
|
|
64
|
|
|
438
|
|
|
584
|
|
|
11,667
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Reclassification adjustment related to benefit plan assets and obligations
(3)
|
|
266
|
|
|
392
|
|
|
740
|
|
|
1,092
|
|
||||
Income tax expense
|
|
(93
|
)
|
|
(137
|
)
|
|
(259
|
)
|
|
(382
|
)
|
||||
Valuation allowance
(2)
|
|
—
|
|
|
137
|
|
|
—
|
|
|
382
|
|
||||
Net of taxes
|
|
173
|
|
|
392
|
|
|
481
|
|
|
1,092
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Reclassification adjustment related to foreign currency
(4)
|
|
—
|
|
|
—
|
|
|
1,467
|
|
|
—
|
|
||||
Income tax expense
|
|
—
|
|
|
—
|
|
|
(513
|
)
|
|
—
|
|
||||
Net of taxes
|
|
—
|
|
|
—
|
|
|
954
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Total reclassifications
|
|
364
|
|
|
869
|
|
|
2,917
|
|
|
12,803
|
|
||||
Total income tax expense, net of valuation allowance
|
|
(127
|
)
|
|
(39
|
)
|
|
(898
|
)
|
|
(44
|
)
|
||||
Total reclassifications, net of tax
|
|
$
|
237
|
|
|
$
|
830
|
|
|
$
|
2,019
|
|
|
$
|
12,759
|
|
(1)
|
Increases (decreases) Net realized investment gains on the consolidated statements of operations.
|
(2)
|
See Note 11 – “Income Taxes” for a discussion of the valuation allowance recorded against deferred tax assets.
|
(3)
|
Decreases (increases) Other underwriting and operating expenses, net on the consolidated statements of operations.
|
(4)
|
Increases (decreases) Other revenue on the consolidated statements of operations.
|
|
|
Six Months Ended June 30, 2016
|
||||||||||||||
(In thousands)
|
|
Net unrealized gains and losses on available-for-sale securities
|
|
Net benefit plan assets and obligations recognized in shareholders' equity
|
|
Net unrealized foreign currency translation
|
|
Total accumulated other comprehensive income (loss)
|
||||||||
Balance at December 31, 2015, net of tax
|
|
$
|
(17,148
|
)
|
|
$
|
(44,652
|
)
|
|
$
|
920
|
|
|
$
|
(60,880
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
107,749
|
|
|
—
|
|
|
(10
|
)
|
|
107,739
|
|
||||
Less: Amounts reclassified from accumulated other comprehensive income (loss)
|
|
584
|
|
|
481
|
|
|
954
|
|
|
2,019
|
|
||||
Balance at June 30, 2016, net of tax
|
|
$
|
90,017
|
|
|
$
|
(45,133
|
)
|
|
$
|
(44
|
)
|
|
$
|
44,840
|
|
|
|
Three Months Ended June 30,
|
||||||||||||||
(In thousands)
|
|
Pension and Supplemental Executive Retirement Plans
|
|
Other Postretirement Benefits
|
||||||||||||
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Service cost
|
|
$
|
2,402
|
|
|
$
|
2,680
|
|
|
$
|
201
|
|
|
$
|
214
|
|
Interest cost
|
|
4,024
|
|
|
4,016
|
|
|
180
|
|
|
171
|
|
||||
Expected return on plan assets
|
|
(4,865
|
)
|
|
(5,259
|
)
|
|
(1,221
|
)
|
|
(1,247
|
)
|
||||
Recognized net actuarial loss (gain)
|
|
1,567
|
|
|
1,533
|
|
|
—
|
|
|
(53
|
)
|
||||
Amortization of prior service cost
|
|
(171
|
)
|
|
(211
|
)
|
|
(1,663
|
)
|
|
(1,663
|
)
|
||||
Net periodic benefit cost (benefit)
|
|
$
|
2,957
|
|
|
$
|
2,759
|
|
|
$
|
(2,503
|
)
|
|
$
|
(2,578
|
)
|
|
|
Six Months Ended June 30,
|
||||||||||||||
(In thousands)
|
|
Pension and Supplemental Executive Retirement Plans
|
|
Other Postretirement Benefits
|
||||||||||||
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Service cost
|
|
$
|
4,565
|
|
|
$
|
5,128
|
|
|
$
|
376
|
|
|
$
|
416
|
|
Interest cost
|
|
7,953
|
|
|
7,924
|
|
|
352
|
|
|
349
|
|
||||
Expected return on plan assets
|
|
(9,754
|
)
|
|
(10,554
|
)
|
|
(2,443
|
)
|
|
(2,495
|
)
|
||||
Recognized net actuarial loss (gain)
|
|
2,928
|
|
|
2,742
|
|
|
—
|
|
|
(88
|
)
|
||||
Amortization of prior service cost
|
|
(343
|
)
|
|
(422
|
)
|
|
(3,325
|
)
|
|
(3,325
|
)
|
||||
Net periodic benefit cost (benefit)
|
|
$
|
5,349
|
|
|
$
|
4,818
|
|
|
$
|
(5,040
|
)
|
|
$
|
(5,143
|
)
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
||||||||||||
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Provision for income tax
|
|
$
|
56,018
|
|
|
$
|
39,991
|
|
|
$
|
90,515
|
|
|
$
|
87,874
|
|
Change in valuation allowance
|
|
—
|
|
|
(38,669
|
)
|
|
—
|
|
|
(83,167
|
)
|
||||
Provision for income taxes
|
|
$
|
56,018
|
|
|
$
|
1,322
|
|
|
$
|
90,515
|
|
|
$
|
4,707
|
|
|
|
Six months ended June 30,
|
||||||
(In thousands)
|
|
2016
|
|
2015
|
||||
Reserve at beginning of period
|
|
$
|
1,893,402
|
|
|
$
|
2,396,807
|
|
Less reinsurance recoverable
|
|
44,487
|
|
|
57,841
|
|
||
Net reserve at beginning of period
|
|
1,848,915
|
|
|
2,338,966
|
|
||
|
|
|
|
|
||||
Losses incurred:
|
|
|
|
|
||||
Losses and LAE incurred in respect of defaults related to:
|
|
|
|
|
||||
Current year
|
|
196,543
|
|
|
223,564
|
|
||
Prior years
(1)
|
|
(64,941
|
)
|
|
(51,541
|
)
|
||
Subtotal
|
|
131,602
|
|
|
172,023
|
|
||
|
|
|
|
|
||||
Losses paid:
|
|
|
|
|
||||
Losses and LAE paid in respect of defaults related to:
|
|
|
|
|
||||
Current year
|
|
1,396
|
|
|
2,382
|
|
||
Prior years
|
|
392,007
|
|
|
451,317
|
|
||
Reinsurance terminations
(2)
|
|
(4
|
)
|
|
(15
|
)
|
||
Subtotal
|
|
393,399
|
|
|
453,684
|
|
||
|
|
|
|
|
||||
Net reserve at end of period
|
|
1,587,118
|
|
|
2,057,305
|
|
||
Plus reinsurance recoverables
|
|
45,215
|
|
|
53,456
|
|
||
|
|
|
|
|
||||
Reserve at end of period
|
|
$
|
1,632,333
|
|
|
$
|
2,110,761
|
|
(1)
|
A negative number for prior year losses incurred indicates a redundancy of prior year loss reserves.
|
(2)
|
In a termination or commutation, the reinsurance agreement is cancelled, with no future premium ceded and funds for any incurred but unpaid losses transferred to us. The transferred funds result in an increase in our investment portfolio (including cash and cash equivalents) and a decrease in net losses paid (reduction in losses incurred). In addition, there is an offsetting decrease in the reinsurance recoverable (increase in losses incurred), and thus there is no net impact to losses incurred.
|
|
|
Six months ended June 30,
|
||||||
(In millions)
|
|
2016
|
|
2015
|
||||
Decrease in estimated claim rate on primary defaults
|
|
$
|
(76
|
)
|
|
$
|
(59
|
)
|
Increase in estimated severity on primary defaults
|
|
17
|
|
|
15
|
|
||
Change in estimates related to pool reserves, LAE reserves and reinsurance
|
|
(6
|
)
|
|
(8
|
)
|
||
Total prior year loss development
(1)
|
|
$
|
(65
|
)
|
|
$
|
(52
|
)
|
(1)
|
A negative number for prior year loss development indicates a redundancy of prior year loss reserves, and a positive number indicates a deficiency of prior year loss reserves.
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
||||||||
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||
Default inventory at beginning of period
|
|
55,590
|
|
|
72,236
|
|
|
62,633
|
|
|
79,901
|
|
New notices
|
|
16,080
|
|
|
17,451
|
|
|
32,811
|
|
|
36,347
|
|
Cures
|
|
(15,640
|
)
|
|
(17,897
|
)
|
|
(34,693
|
)
|
|
(39,664
|
)
|
Paids (including those charged to a deductible or captive)
|
|
(3,195
|
)
|
|
(4,140
|
)
|
|
(6,568
|
)
|
|
(8,713
|
)
|
Rescissions and denials
|
|
(142
|
)
|
|
(172
|
)
|
|
(352
|
)
|
|
(393
|
)
|
Other items removed from inventory
|
|
(135
|
)
|
|
(1,121
|
)
|
|
(1,273
|
)
|
|
(1,121
|
)
|
Default inventory at end of period
|
|
52,558
|
|
|
66,357
|
|
|
52,558
|
|
|
66,357
|
|
Consecutive months in default
|
June 30, 2016
|
|
December 31, 2015
|
|
June 30, 2015
|
||||||||||||
3 months or less
|
11,547
|
|
|
22
|
%
|
|
13,053
|
|
|
21
|
%
|
|
12,545
|
|
|
19
|
%
|
4 - 11 months
|
12,680
|
|
|
24
|
%
|
|
15,763
|
|
|
25
|
%
|
|
15,487
|
|
|
23
|
%
|
12 months or more
(1)
|
28,331
|
|
|
54
|
%
|
|
33,817
|
|
|
54
|
%
|
|
38,325
|
|
|
58
|
%
|
Total primary default inventory
|
52,558
|
|
|
100
|
%
|
|
62,633
|
|
|
100
|
%
|
|
66,357
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Primary claims received inventory included in ending default inventory
|
1,829
|
|
|
3
|
%
|
|
2,769
|
|
|
4
|
%
|
|
3,440
|
|
|
5
|
%
|
(1)
|
Approximately
49%
,
50%
, and
51%
of the primary default inventory in default for 12 consecutive months or more has been in default for at least 36 consecutive months as of
June 30, 2016
,
December 31, 2015
, and
June 30, 2015
, respectively.
|
Number of payments delinquent
|
June 30, 2016
|
|
December 31, 2015
|
|
June 30, 2015
|
||||||||||||
3 payments or less
|
17,299
|
|
|
33
|
%
|
|
20,360
|
|
|
33
|
%
|
|
19,274
|
|
|
29
|
%
|
4 - 11 payments
|
12,746
|
|
|
24
|
%
|
|
15,092
|
|
|
24
|
%
|
|
15,710
|
|
|
24
|
%
|
12 payments or more
|
22,513
|
|
|
43
|
%
|
|
27,181
|
|
|
43
|
%
|
|
31,373
|
|
|
47
|
%
|
Total primary default inventory
|
52,558
|
|
|
100
|
%
|
|
62,633
|
|
|
100
|
%
|
|
66,357
|
|
|
100
|
%
|
|
Six months ended June 30,
|
||||||||||||
|
2016
|
|
2015
|
||||||||||
|
Shares
Granted
|
|
Weighted Average Share Fair Value
|
|
Shares
Granted
|
|
Weighted Average Share Fair Value
|
||||||
RSUs subject to performance conditions
|
1,257
|
|
|
$
|
5.66
|
|
|
1,114
|
|
|
$
|
8.99
|
|
RSUs subject only to service conditions
|
433
|
|
|
5.67
|
|
|
410
|
|
|
8.99
|
|
OVERVIEW
|
•
|
The GSEs may reduce the amount of credit they allow under the PMIERs for the risk ceded under our quota share reinsurance transaction. The GSEs’ ongoing approval of that transaction is subject to several conditions and the transaction will be reviewed under the PMIERs at least annually by the GSEs. For more information about the transaction, see Note 4 - “Reinsurance” to our consolidated financial statements.
|
•
|
The GSEs could make the PMIERs more onerous in the future; in this regard, the PMIERs provide that the tables of 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 will provide notice 180 days prior to the effective date of table updates. In addition, the GSEs may amend the PMIERs at any time.
|
•
|
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.
|
•
|
Should additional capital be needed by MGIC in the future, additional capital contributions from our holding company may not be available due to competing demands on holding company resources, including for repayment of debt.
|
Modifications
|
|||||||||
Policy year
|
|
HARP
(1)
|
|
HAMP
|
|
Other
|
|||
2003 and Prior
|
|
11.1
|
%
|
|
18.5
|
%
|
|
15.6
|
%
|
2004
|
|
17.9
|
%
|
|
18.8
|
%
|
|
13.8
|
%
|
2005
|
|
24.4
|
%
|
|
19.7
|
%
|
|
13.6
|
%
|
2006
|
|
27.4
|
%
|
|
20.7
|
%
|
|
13.6
|
%
|
2007
|
|
37.9
|
%
|
|
19.9
|
%
|
|
8.6
|
%
|
2008
|
|
52.0
|
%
|
|
12.2
|
%
|
|
4.3
|
%
|
2009
|
|
26.1
|
%
|
|
1.6
|
%
|
|
1.2
|
%
|
2010 - Q2 2016
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|||
Total
|
|
11.6
|
%
|
|
6.2
|
%
|
|
3.4
|
%
|
(1)
|
Includes proprietary programs that are substantially the same as HARP.
|
•
|
Premiums written and earned
|
•
|
New insurance written, which increases insurance in force, and is the aggregate principal amount of the mortgages that are insured during a period. Many factors affect new insurance written, including the volume of low down payment home mortgage originations and competition to provide credit enhancement on those mortgages, including competition from the FHA, the VA, other mortgage insurers, GSE programs that may reduce or eliminate the demand for mortgage insurance and other alternatives to mortgage insurance. New insurance written does not include loans previously insured by us which are modified, including loans refinanced under HARP.
|
•
|
Cancellations, which reduce insurance in force. 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 became insured and the terms on which mortgage credit is available. Generally, single premium policies are not refundable; therefore, if a single premium policy is cancelled, because the loan is repaid, the remaining unearned premium is earned immediately. Cancellations also include rescissions, which require us to return any premiums received related to the rescinded policy, and policies cancelled due to claim payment, which require us to return any premium received from the date of default. Finally, cancellations are affected by home price appreciation, which can give homeowners the right to cancel the mortgage insurance on their loans.
|
•
|
Premium rates, which are affected by product type, competitive pressures, the risk characteristics of the loans insured, the percentage of coverage on the loans, and in some cases the age of the insurance policy. The substantial majority of our monthly mortgage insurance premiums are under a premium plan in which, for the first ten years of the policy, the amount of premium is determined by multiplying the initial premium rate by the original loan balance; thereafter, the premium declines because a lower premium rate is used for the remaining life of the policy. However, for loans that have utilized HARP, the initial ten-year period resets to begin as of the date of the HARP transaction. The remainder of our monthly premiums are under a premium plan in 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 reinsurance agreements. See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance agreements.
|
•
|
Investment income
|
•
|
Losses incurred
|
•
|
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 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.
|
•
|
The product mix of the in force book, with loans having higher risk characteristics generally resulting in higher delinquencies and claims.
|
•
|
The size of loans insured, with higher average loan amounts tending to increase losses incurred.
|
•
|
The percentage of coverage on insured loans, with deeper average coverage tending to increase incurred losses.
|
•
|
Changes in housing values, which affect our ability to mitigate our losses through sales of properties with delinquent mortgages as well as borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance.
|
•
|
The rate at which we rescind policies or curtail claims. Our estimated loss reserves reflect mitigation from rescissions of policies, curtailments, and denials of claims. We collectively refer to such rescissions and denials as “rescissions” and variations of this term.
|
•
|
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 (percentage of insurance remaining in force from one year prior), the condition of the economy, including unemployment and housing prices, and other factors can affect this pattern. For example, a weak economy or housing price declines can lead to claims from older books increasing, continuing at stable levels or experiencing a lower rate of decline. See further information under “Mortgage Insurance Earnings and Cash Flow Cycle” below.
|
•
|
Losses ceded under reinsurance agreements. See “Results of Consolidated Operations -
Reinsurance agreements
” below.
|
•
|
Underwriting and other expenses
|
•
|
Interest expense
|
MORTGAGE INSURANCE PORTFOLIO
|
Primary NIW by FICO score
|
||||||||||||||||
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(In billions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
740 and greater
|
|
$
|
7.3
|
|
|
$
|
7.0
|
|
|
$
|
11.9
|
|
|
$
|
12.2
|
|
700-739
|
|
3.3
|
|
|
2.9
|
|
|
5.4
|
|
|
5.2
|
|
||||
660-699
|
|
1.6
|
|
|
1.5
|
|
|
2.9
|
|
|
2.7
|
|
||||
659 and less
|
|
0.4
|
|
|
0.4
|
|
|
0.7
|
|
|
0.7
|
|
||||
Total Primary
|
|
$
|
12.6
|
|
|
$
|
11.8
|
|
|
$
|
20.9
|
|
|
$
|
20.8
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||
Percentage of primary NIW
|
|
|
|
|
|
|
|
|
||||
Policy payment type:
|
|
|
|
|
|
|
|
|
||||
Monthly premiums
|
|
78.5
|
%
|
|
79.9
|
%
|
|
78.3
|
%
|
|
78.4
|
%
|
Single premiums
|
|
21.2
|
%
|
|
19.8
|
%
|
|
21.4
|
%
|
|
21.3
|
%
|
Annual premiums
|
|
0.3
|
%
|
|
0.3
|
%
|
|
0.3
|
%
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
||||
Type of mortgage:
|
|
|
|
|
|
|
|
|
||||
Purchases
|
|
83.1
|
%
|
|
80.1
|
%
|
|
82.7
|
%
|
|
76.3
|
%
|
Refinances
|
|
16.9
|
%
|
|
19.9
|
%
|
|
17.3
|
%
|
|
23.7
|
%
|
|
|
|
|
|
|
|
|
|
||||
LTV:
|
|
|
|
|
|
|
|
|
||||
95.01% and above
|
|
5.4
|
%
|
|
4.8
|
%
|
|
5.1
|
%
|
|
4.1
|
%
|
90.01% to 95.00%
|
|
49.7
|
%
|
|
50.6
|
%
|
|
50.1
|
%
|
|
49.8
|
%
|
85.01% to 90.00%
|
|
31.4
|
%
|
|
32.8
|
%
|
|
31.8
|
%
|
|
33.0
|
%
|
80.01% to 85%
|
|
13.5
|
%
|
|
11.8
|
%
|
|
13.0
|
%
|
|
13.1
|
%
|
Conditions and Trends impacting our NIW
|
•
|
New insurance written continues to have strong underlying credit characteristics as from our perspective lenders maintain high underwriting standards.
|
•
|
An improved employment environment and what we view as solid housing market fundamentals, such as household formations, increased home sales and low interest rates, have resulted in an increase in the percentage and volume of new insurance written resulting from purchase mortgage transactions during both the second quarter and the first half of 2016 when compared to the same periods in the prior year. Since mortgage interest rates are expected to remain low and housing market fundamentals are expected to remain stable to modestly improving most forecasts are calling for an increase in purchase activity in future periods. Increasing purchase activity is generally a net positive as we estimate that our industry’s market share is approximately 3-4 times higher for purchase loans compared to refinances. However, these same forecasts for low mortgage rates are predicting an increase in the volume of refinances in the second half of 2016, which could cause the percentage of purchase transactions to decline but that will be highly dependent on the future level of mortgage interest rates.
|
•
|
Competitive pricing practices within the private mortgage insurance industry remain in the market, including: (i) reductions to standard filed rates on borrower-paid policies, (ii) use by certain competitors of a spectrum of filed rates to allow for formulaic, risk-based pricing; and (iii) use of customized rates (discounted from published rates) on lender-paid single premium policies.
|
◦
|
In response to the competitive dynamics in the market, we revised our filed premium rates effective April 2016. In general, the revisions decreased our filed premium rates on some higher-FICO score loans and increased our filed premium rates on some lower-FICO loans. In addition to the revisions of our filed rates, we continue to use the authority set forth in our rate filings to negotiate customized lender-paid single premium policy rates on a selective basis.
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(In billions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
NIW
|
|
$
|
12.6
|
|
|
$
|
11.8
|
|
|
$
|
20.9
|
|
|
$
|
20.8
|
|
Cancellations
|
|
(10.1
|
)
|
|
(9.1
|
)
|
|
(17.9
|
)
|
|
(16.9
|
)
|
||||
Change in primary insurance in force
|
|
$
|
2.5
|
|
|
$
|
2.7
|
|
|
$
|
3.0
|
|
|
$
|
3.9
|
|
|
|
|
|
|
|
|
|
|
||||||||
Direct primary insurance in force as of June 30,
|
|
$
|
177.5
|
|
|
$
|
168.8
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Direct primary risk in force as of June 30,
|
|
$
|
46.2
|
|
|
$
|
44.0
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
RESULTS OF CONSOLIDATED OPERATIONS
|
Revenue
|
||||||||||||||||||||||
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||||||||
(In millions)
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
||||||||||
Net premiums written
|
|
$
|
250.0
|
|
|
$
|
226.8
|
|
|
10
|
%
|
|
$
|
481.3
|
|
|
$
|
461.2
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net premiums earned
|
|
$
|
231.5
|
|
|
$
|
213.5
|
|
|
8
|
%
|
|
$
|
452.8
|
|
|
$
|
430.8
|
|
|
5
|
%
|
Investment income, net of expenses
|
|
27.2
|
|
|
25.8
|
|
|
5
|
%
|
|
55.1
|
|
|
49.9
|
|
|
10
|
%
|
||||
Net realized investment gains
|
|
0.8
|
|
|
0.2
|
|
|
300
|
%
|
|
3.9
|
|
|
26.5
|
|
|
(85
|
)%
|
||||
Other revenue
|
|
4.0
|
|
|
3.7
|
|
|
8
|
%
|
|
10.4
|
|
|
6.2
|
|
|
68
|
%
|
||||
Total revenue
|
|
$
|
263.5
|
|
|
$
|
243.1
|
|
|
8
|
%
|
|
$
|
522.2
|
|
|
$
|
513.3
|
|
|
2
|
%
|
•
|
We cede a fixed percentage of premiums on insurance covered by the agreement.
|
•
|
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 is eliminated at levels of losses that we do not expect to occur. This means that lower levels of losses result in a higher profit commission and less benefit from ceded losses; higher levels of losses result in more benefit from ceded losses and a lower profit commission (or for levels of losses we do not expect, its elimination).
|
•
|
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).
|
•
|
We cede a fixed percentage of losses incurred on insurance covered by the agreement.
|
|
|
As of and For the Six Months Ended June 30,
|
||||||
(Dollars in thousands)
|
|
2016
|
|
2015
|
||||
New insurance written subject to quota share reinsurance agreements
|
|
90
|
%
|
|
92
|
%
|
||
Insurance in force subject to quota share reinsurance agreements
|
|
75
|
%
|
|
59
|
%
|
||
Insurance in force subject to captive reinsurance agreements
|
|
2
|
%
|
|
4
|
%
|
||
|
|
|
|
|
||||
2015 QSR Transaction
|
|
|
|
|
||||
Ceded premiums written, net of profit commission
|
|
$
|
61,627
|
|
|
n/a
|
|
|
% of direct premiums written
|
|
11
|
%
|
|
n/a
|
|
||
Ceded premiums earned, net of profit commission
|
|
$
|
61,627
|
|
|
n/a
|
|
|
% of direct premiums earned
|
|
12
|
%
|
|
n/a
|
|
||
Ceding commissions
|
|
$
|
23,522
|
|
|
n/a
|
|
|
Ceded risk in force
|
|
$
|
10,313,374
|
|
|
n/a
|
|
|
|
|
|
|
|
||||
2013 QSR Transaction
|
|
|
|
|
||||
Ceded premiums written, net of profit commission
|
|
n/a
|
|
|
$
|
58,055
|
|
|
% of direct premiums written
|
|
n/a
|
|
|
11
|
%
|
||
Ceded premiums earned, net of profit commission
|
|
n/a
|
|
|
$
|
47,567
|
|
|
% of direct premiums earned
|
|
n/a
|
|
|
10
|
%
|
||
Ceding commissions
|
|
n/a
|
|
|
$
|
21,803
|
|
|
Ceded risk in force
|
|
n/a
|
|
|
$
|
8,716,188
|
|
|
|
|
|
|
|
||||
Captives
|
|
|
|
|
||||
Ceded premiums written
|
|
$
|
4,630
|
|
|
$
|
7,814
|
|
% of direct premiums written
|
|
1
|
%
|
|
1
|
%
|
||
Ceded premiums earned
|
|
$
|
4,679
|
|
|
$
|
7,841
|
|
% of direct premiums earned
|
|
1
|
%
|
|
2
|
%
|
Losses incurred, net
|
||||||||||||||||||||||
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||||||||
(In millions)
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Losses and LAE incurred in respect of defaults related to:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Current year
|
|
$
|
104.1
|
|
|
$
|
114.2
|
|
|
(9
|
)%
|
|
$
|
196.5
|
|
|
$
|
223.6
|
|
|
(12
|
)%
|
Prior years
|
|
(57.5
|
)
|
|
(23.9
|
)
|
|
140
|
%
|
|
(64.9
|
)
|
|
(51.5
|
)
|
|
26
|
%
|
||||
Losses incurred, net
|
|
$
|
46.6
|
|
|
$
|
90.3
|
|
|
(48
|
)%
|
|
$
|
131.6
|
|
|
$
|
172.0
|
|
|
(23
|
)%
|
Primary average claim paid
|
|||||||||||
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||
Florida
|
59,824
|
|
|
56,855
|
|
|
62,039
|
|
|
57,865
|
|
New Jersey
|
77,922
|
|
|
71,211
|
|
|
81,898
|
|
|
70,373
|
|
Illinois
|
48,778
|
|
|
51,384
|
|
|
48,586
|
|
|
49,590
|
|
New York
|
69,563
|
|
|
64,512
|
|
|
67,408
|
|
|
69,849
|
|
Maryland
|
70,368
|
|
|
80,448
|
|
|
75,889
|
|
|
74,195
|
|
All other jurisdictions
|
40,655
|
|
|
40,612
|
|
|
41,030
|
|
|
40,795
|
|
|
|
|
|
|
|
|
|
||||
All jurisdictions
|
47,953
|
|
|
47,371
|
|
|
48,635
|
|
|
47,368
|
|
Primary average exposure
|
|||||||||||
|
June 30, 2016
|
|
December 31, 2015
|
|
June 30, 2015
|
||||||
Florida
|
$
|
49,650
|
|
|
$
|
49,095
|
|
|
$
|
48,094
|
|
New Jersey
|
62,795
|
|
|
62,496
|
|
|
61,495
|
|
|||
Illinois
|
40,707
|
|
|
40,368
|
|
|
39,918
|
|
|||
New York
|
51,623
|
|
|
50,964
|
|
|
50,320
|
|
|||
Maryland
|
63,236
|
|
|
62,912
|
|
|
62,587
|
|
|||
All other jurisdictions
|
45,739
|
|
|
44,887
|
|
|
43,922
|
|
|||
|
|
|
|
|
|
||||||
All jurisdictions
|
$
|
46,604
|
|
|
$
|
45,820
|
|
|
$
|
44,892
|
|
(1)
|
See our “Q2 2016 Portfolio Supplement” at https://mtg.mgic.com/index.html - Investor Information for the
Flow
primary default inventory by policy year.
|
Primary default inventory by jurisdiction
|
||||||||
|
June 30, 2016
|
|
December 31, 2015
|
|
June 30, 2015
|
|||
Florida
|
4,626
|
|
|
5,903
|
|
|
6,968
|
|
New Jersey
|
2,878
|
|
|
3,498
|
|
|
3,741
|
|
Illinois
|
2,748
|
|
|
3,301
|
|
|
3,585
|
|
New York
|
3,377
|
|
|
3,901
|
|
|
4,122
|
|
Maryland
|
1,344
|
|
|
1,609
|
|
|
1,715
|
|
Pennsylvania
|
3,003
|
|
|
3,574
|
|
|
3,680
|
|
California
|
1,660
|
|
|
2,019
|
|
|
2,186
|
|
Ohio
|
2,726
|
|
|
3,209
|
|
|
3,287
|
|
Washington
|
851
|
|
|
1,049
|
|
|
1,183
|
|
Puerto Rico
|
2,012
|
|
|
2,221
|
|
|
2,346
|
|
Michigan
|
1,544
|
|
|
1,877
|
|
|
1,960
|
|
Virginia
|
932
|
|
|
1,109
|
|
|
1,129
|
|
Connecticut
|
698
|
|
|
832
|
|
|
902
|
|
Massachusetts
|
1,192
|
|
|
1,390
|
|
|
1,504
|
|
Georgia
|
1,864
|
|
|
2,225
|
|
|
2,319
|
|
All other jurisdictions
|
21,103
|
|
|
24,916
|
|
|
25,730
|
|
Total primary default inventory
|
52,558
|
|
|
62,633
|
|
|
66,357
|
|
Net losses paid
|
||||||||||||||||
(In millions)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Total primary (excluding settlements)
|
|
$
|
153
|
|
|
$
|
196
|
|
|
$
|
319
|
|
|
$
|
413
|
|
Rescission settlements
|
|
4
|
|
|
10
|
|
|
51
|
|
|
10
|
|
||||
Pool
(1)
|
|
14
|
|
|
18
|
|
|
28
|
|
|
35
|
|
||||
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Direct losses paid
|
|
171
|
|
|
224
|
|
|
398
|
|
|
458
|
|
||||
Reinsurance
|
|
(4
|
)
|
|
(8
|
)
|
|
(14
|
)
|
|
(16
|
)
|
||||
Net losses paid
|
|
167
|
|
|
216
|
|
|
384
|
|
|
442
|
|
||||
LAE
|
|
5
|
|
|
6
|
|
|
10
|
|
|
12
|
|
||||
Net losses and LAE paid
|
|
$
|
172
|
|
|
$
|
222
|
|
|
$
|
394
|
|
|
$
|
454
|
|
(1)
|
The three months ended
June 30, 2016
and
2015
each include $11 million and the six months ended
June 30, 2016
and
2015
each include $21 million paid under the terms of the settlement with Freddie Mac.
|
Gross Reserves
|
|
June 30, 2016
|
|
December 31, 2015
|
|
June 30, 2015
|
||||||
Primary:
|
|
|
|
|
|
|
||||||
Direct loss reserves (in millions)
|
|
$
|
1,483
|
|
|
$
|
1,681
|
|
|
$
|
1,856
|
|
IBNR and LAE
|
|
91
|
|
|
126
|
|
|
137
|
|
|||
Total primary loss reserves
|
|
$
|
1,574
|
|
|
$
|
1,807
|
|
|
$
|
1,993
|
|
|
|
|
|
|
|
|
||||||
Ending default inventory
|
|
52,558
|
|
|
62,633
|
|
|
66,357
|
|
|||
Percentage of loans delinquent (default rate)
|
|
5.30
|
%
|
|
6.31
|
%
|
|
6.78
|
%
|
|||
Average total primary loss reserves per default
|
|
$
|
29,939
|
|
|
$
|
28,859
|
|
|
$
|
30,033
|
|
|
|
|
|
|
|
|
||||||
Primary claims received inventory included in ending default inventory
|
|
1,829
|
|
|
2,769
|
|
|
3,440
|
|
|||
|
|
|
|
|
|
|
||||||
Pool
(1)
:
|
|
|
|
|
|
|
|
|
|
|||
Direct loss reserves (in millions):
|
|
|
|
|
|
|
|
|||||
With aggregate loss limits
|
|
$
|
29
|
|
|
$
|
34
|
|
|
$
|
42
|
|
Without aggregate loss limits
|
|
8
|
|
|
9
|
|
|
10
|
|
|||
Reserve related to Freddie Mac Settlement
(2)
|
|
21
|
|
|
42
|
|
|
63
|
|
|||
Total pool direct loss reserves
|
|
$
|
58
|
|
|
$
|
85
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
||||||
Ending default inventory:
|
|
|
|
|
|
|
|
|
|
|||
With aggregate loss limits
|
|
1,492
|
|
|
2,126
|
|
|
2,463
|
|
|||
Without aggregate loss limits
|
|
532
|
|
|
613
|
|
|
666
|
|
|||
Total pool ending default inventory
|
|
2,024
|
|
|
2,739
|
|
|
3,129
|
|
|||
|
|
|
|
|
|
|
||||||
Pool claims received inventory included in ending default inventory
|
|
95
|
|
|
60
|
|
|
97
|
|
|||
|
|
|
|
|
|
|
||||||
Other gross reserves (in millions)
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
3
|
|
(1)
|
Since a number of our pool policies include aggregate loss limits and/or deductibles, we do not disclose an average direct reserve per default for our pool business.
|
(2)
|
See our Form 8-K filed with the Securities and Exchange Commission on November 30, 2012 for a discussion of our settlement with Freddie Mac regarding a pool policy.
|
Underwriting and other expenses
|
||||||||||||||||||||||
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||||||||
(In millions)
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
||||||||||
Other underwriting and operating expenses, net
|
|
$
|
35.3
|
|
|
$
|
35.8
|
|
|
(1
|
)%
|
|
$
|
75.1
|
|
|
$
|
75.1
|
|
|
—
|
%
|
|
Underwriting expense ratio (Net premiums written basis)
|
|
Loss ratio (Net premiums earned basis)
|
Interest expense
|
||||||||||||||||||||||
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||||||||
(In millions)
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
||||||||||
Interest expense
|
|
$
|
12.2
|
|
|
$
|
17.4
|
|
|
(30
|
)%
|
|
$
|
26.9
|
|
|
$
|
34.7
|
|
|
(22
|
)%
|
Income tax expense
|
||||||||||||||||||||||
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||||||||
(In millions, except rate)
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
||||||||||
Income before tax
|
|
$
|
165.2
|
|
|
$
|
115.0
|
|
|
44
|
%
|
|
$
|
268.9
|
|
|
$
|
251.4
|
|
|
7
|
%
|
Income tax expense
|
|
$
|
56.0
|
|
|
$
|
1.3
|
|
|
N/M
|
|
|
$
|
90.5
|
|
|
$
|
4.7
|
|
|
N/M
|
|
Effective tax rate
|
|
33.9
|
%
|
|
1.1
|
%
|
|
N/M
|
|
|
33.7
|
%
|
|
1.9
|
%
|
|
N/M
|
|
FINANCIAL CONDITION
|
•
|
Investment Portfolio 2016 Summary
|
◦
|
Investments totaled
$4.57 billion
as of
June 30, 2016
, decreasing from
$4.66 billion
as of
December 31, 2015
.
|
◦
|
Unrealized net capital gains totaled
$138.5 million
as of
June 30, 2016
compared to unrealized net capital losses of
$26.6 million
as of
December 31, 2015
.
|
◦
|
Net investment income was
$27.2 million
in the
second
quarter of 2016, an increase of
6%
from
$25.8 million
in the
second
quarter of 2015, and
$55.1 million
in the first
six
months of
2016
, an increase of
10%
from
$49.9 million
in the first
six
months of
2015
.
|
◦
|
Net realized investment gains totaled
$0.8 million
in the
second
quarter of 2016 compared to
$0.2 million
in the
second
quarter of 2015 and
$3.9 million
in the first
six
months of
2016
compared to
$26.5 million
in the first
six
months of
2015
.
|
•
|
Investment Portfolio Composition
|
LIQUIDITY AND CAPITAL RESOURCES
|
|
|
Six Months Ended June 30,
|
||||||
(In thousands)
|
|
2016
|
|
2015
|
||||
Total cash provided by (used in):
|
|
|
|
|
||||
Operating activities
|
|
(6,943
|
)
|
|
(59,891
|
)
|
||
Investing activities
|
|
261,043
|
|
|
75,211
|
|
||
Financing activities
|
|
(134,246
|
)
|
|
2,568
|
|
||
Increase in cash and cash equivalents
|
|
$
|
119,854
|
|
|
$
|
17,888
|
|
•
|
$145 million of 5% Convertible Senior Notes due 2017, with an annual interest cost of $7 million;
|
•
|
$500 million of 2% Convertible Senior Notes due 2020, with an annual interest cost of $10 million;
|
•
|
$390 million of 9% Convertible Junior Subordinated Debentures due 2063 (of which approximately
$133 million
is held by MGIC), with an annual interest cost of $35 million (of which approximately $12 million is payable to MGIC). See
“2016
Debt transactions
”
discussion above for the accounting treatment of the debentures held by MGIC.
|
(In millions, except ratio)
|
|
June 30, 2016
|
|
December 31, 2015
|
||||
Risk in force - net
(1)
|
|
$
|
27,976
|
|
|
$
|
27,301
|
|
|
|
|
|
|
||||
Statutory policyholders’ surplus
|
|
$
|
1,476
|
|
|
$
|
1,574
|
|
Statutory contingency reserve
|
|
942
|
|
|
691
|
|
||
Statutory policyholders’ position
|
|
$
|
2,418
|
|
|
$
|
2,265
|
|
|
|
|
|
|
||||
Risk-to-capital
|
|
11.6:1
|
|
|
12.1:1
|
|
(1)
|
Risk in force – net, as shown in the table above is net of reinsurance and exposure on policies currently in default for which loss reserves have been established.
|
(In millions, except ratio)
|
|
June 30, 2016
|
|
December 31, 2015
|
||||
Risk in force - net
(1)
|
|
$
|
33,791
|
|
|
$
|
33,072
|
|
|
|
|
|
|
||||
Statutory policyholders’ surplus
|
|
$
|
1,479
|
|
|
$
|
1,608
|
|
Statutory contingency reserve
|
|
1,088
|
|
|
827
|
|
||
Statutory policyholders’ position
|
|
$
|
2,567
|
|
|
$
|
2,435
|
|
|
|
|
|
|
||||
Risk-to-capital
|
|
13.2:1
|
|
|
13.6:1
|
|
(1)
|
Risk in force – net, as shown in the table above, is net of reinsurance and exposure on policies currently in default ($2.8 billion at
June 30, 2016
and $3.2 billion at December 31, 2015) for which loss reserves have been established.
|
Rating Agency
|
|
Rating
|
|
Outlook
|
Moody’s Investor Services
|
|
Baa3
|
|
Stable
|
Standard and Poor’s Rating Services’
|
|
BBB
|
|
Stable
|
CONTRACTUAL OBLIGATIONS
|
Contractual Obligations
|
||||||||||||||||||||
|
|
Payments due by period
|
||||||||||||||||||
(In millions)
|
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
||||||||||
Long-term debt obligations
|
|
$
|
2,210
|
|
|
$
|
188
|
|
|
$
|
72
|
|
|
$
|
562
|
|
|
$
|
1,388
|
|
Operating lease obligations
|
|
3
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|||||
Tax obligations
|
|
20
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|||||
Purchase obligations
|
|
3
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|||||
Pension, SERP and other post-retirement plans
|
|
275
|
|
|
24
|
|
|
47
|
|
|
55
|
|
|
149
|
|
|||||
Other long-term liabilities
|
|
1,632
|
|
|
767
|
|
|
653
|
|
|
212
|
|
|
—
|
|
|||||
Total
|
|
$
|
4,143
|
|
|
$
|
982
|
|
|
$
|
794
|
|
|
$
|
830
|
|
|
$
|
1,537
|
|
|
MGIC INVESTMENT CORPORATION
|
|
|
|
/s/ Timothy J. Mattke
|
|
Timothy J. Mattke
|
|
Executive Vice President and
|
|
Chief Financial Officer
|
|
|
|
/s/ Julie K. Sperber
|
|
Julie K. Sperber
|
|
Vice President, Controller and Chief Accounting Officer
|
Exhibit Number
|
Description of Exhibit
|
12
|
Ratio of Earnings to Fixed Charges
|
|
|
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, 2015, as supplemented by Part II, Item 1A of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016 and June 30, 2016, and through updating of various statistical and other information
|
|
|
101
|
The following financial information from MGIC Investment Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2016 and 2015, (iv) Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2016 and 2015, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015, and (vi) the Notes to Consolidated Financial Statements.
|
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