MGIC Investment Corp. (MTG)’s Fourth Quarter 2014 Earnings Call Trasncript

Curt S. Culver – Chairman and CEO
Thanks Mike. Good morning y’all. I’m pleased to report that in the fourth quarter we recorded net income of $74 million or $0.19 a share, compared to breakeven quarter in the fourth quarter of last year. I am also pleased to report that we achieved another milestone in our company’s recovery by recording net income of nearly $252 million for the full year 2014 or $0.64 a share on a diluted basis.

It’s not been since fiscal year 2006 that I have reported annual profitability to you. And I’d like to thank you for your support from shareholders and customers and the hard work and dedication of my fellow co-workers at MGIC who made it all happen.

The quarterly financial result was driven primarily by a lower level of incurred losses, which totaled $117 million compared to $196 million last year. The decrease was primarily a result of receiving 17% fewer delinquency notices in the same period last year and an improving cure rate on new notices year-over-year. For the quarter incurred losses had a one-time benefit of approximately $20 million, nearly half of which was attributable to favorable resolution of litigation relating to our bulk business.

During the quarter we made no material changes to our claim rate or severity assumptions, but there were minor changes that involved assumptions regarding loss adjustment expenses and IBNR. We made changes to our claim rate and severity assumptions based on how our delinquent portfolio reacts to changes, positive or negative in housing and economic trends. Changes in the credit performance typically emerge overtime and do not occur suddenly.

95% of the new delinquent notices received during the quarter were generated from the legacy books of 2008 and prior. This is particularly telling when you consider that 53% of our in-force was written after 2008. Approximately 85% of these notices have been previously delinquent and tend to have a higher cure rate than notices of a first default. The delinquent inventory ended the quarter down 23% year over year and down 3.9% sequentially ending at 79,901 loans. We expect to see the inventory continue to decline during 2015.

Paid claims in the fourth quarter were $248 million, down 33% from the same period last year and down 6% from last quarter. As a result of fewer foreclosures being processed, claims received also declined and were down 31% from the same period last year and down 8% quarter to quarter. For the full year we paid $1.1 billion in claims versus $1.8 billion in 2013. Like the delinquent inventory we expect paid losses to be lower in 2015 than in 2014.