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Text: Joining me on the call today to discuss the results for the third quarter of 2021, are Chief Executive Officer, Tim Mattke; and Chief Financial Officer, Nathan Colson.
mgic.com under Newsroom, includes certain additional information about the company's quarterly results that we will refer to during the call and includes a reconciliation of the non-GAAP financial measures to the most comparable GAAP measure.
I'm pleased to report that we generated another quarter of very strong financial results.
During the quarter, we earned GAAP net income of $158 million.
Quarterly financial results continue to reflect the solid credit quality of our increased insurance in force, a strong housing market, a decreasing delinquency rate and improving economic conditions as more local economies return to pre-pandemic levels of activity.
As we expected, refinance activity had slowed.
However, the purchase market remains strong and accounted for nearly 90% of the $28.7 billion of new business we wrote in the third quarter.
This level of new business writings combined with a higher annual persistency, resulted in our insurance in force increasing 2.4% to $268 billion, nearly 12% higher than last year.
Reflecting the continued strength of the housing market, purchase applications in our application pipeline, the leading indicator of NIW, continue to account for more than 85% of applications received in recent months.
The last five quarters' NIW were the five biggest in our company's 64-year history.
So it did not surprise anyone that we do not expect to continue writing such high levels of new business.
As we look out over the next several quarters, we expect the refinance activity will remain low, and the purchase activity, while lower than the records of the five prior quarters will remain robust as consumer demand for homes remains strong and interest rates, despite rising modestly, are still attracted by historical standards.
This environment, combined with increasing annual persistency should allow our insurance in force to continue to grow, although perhaps at a slower annual rate than we have been enjoying in recent quarters.
Taking a look at our in-force portfolio, our loss ratio was a low 8.1% in the quarter.
This result primarily reflects the current economic conditions, the quality of our existing book of business and a low number of new delinquency notices received.
I continue to be encouraged by the quality of new insurance written and the positive trends in credit performance, which continued through October.
At quarter end, the excess of our PMIERs available assets over the minimum required assets increased by $300 million to $2.6 billion, and our PMIER sufficiency ratio was 180% at the end of the third quarter.
As we discussed last quarter, our capital management strategy centers on maintaining financial flexibility of both the holding company and the writing company to protect our policyholders and to create long-term value for shareholders.
This value can be created by writing more primary mortgage insurance, pursuing new business opportunities, retiring debt, paying dividends and/or repurchasing stock.
We executed on this strategy during the quarter by writing $28.7 billion of new business and by returning nearly $180 million to shareholders through the repurchase of 10 million shares and paying the increased common stock dividend.
In connection with our strategy, maintaining capital flexibility of the holding company means retaining a target level of liquidity well in excess of our near-term needs.
At the operating company, it means maintaining diverse sources of capital and a PMIER sufficiency ratio that will enable us to grow even in times of stress and will position us for changes to our operating environment.
Of course, these target levels are dynamic and changes with the operating environment changes.
We believe that our holding company and writing company capital management strategy will create long-term value for shareholders while allowing us to continue to be well-capitalized counterparty for our customers.
In summary, we continually look for ways to maximize near-term business opportunities while remaining focused on long-term success of the company and value for our shareholders.
I believe the actions we have taken this quarter in the announcement of the new share purchase authorization that Nathan will discuss demonstrate our commitment to that strategy.
We have a strong and dynamic balance sheet.
We are confident in our positioning in the market, and we like the risk-reward equation that the current conditions offer.
As Tim mentioned, we had another quarter of strong financial results.
In the third quarter, we earned $158 million of net income or $0.46 per diluted share and generated an annualized 13% return on beginning shareholders' equity.
Adjusted net operating income was $157 million compared to $150 million in the third quarter last year.
During the quarter, total revenues were $296 million, the same as last year.
The net premium yield for the third quarter was 38.4 basis points, which was down 7/10 of basis point compared to last quarter.
The decrease was primarily results of a decline in the in-force premium yield as the older policies with generally at higher premium rates continue to run off.
As refinance activity decreased, we also realized less benefit from accelerated premiums earned from single premium policy cancellations.
During the quarter, they were $17 million, which was flat to last quarter but down from $32 million in the third quarter of 2020.
Shifting over to credit.
Net losses incurred were $21 million in the third quarter compared to $29 million last quarter and $41 million in the third quarter last year.
In the quarter, we received approximately 9,900 new delinquency notices, which represents less than 90 basis points of the number of loans insured as of the start of the quarter and drove the low loss ratio of 8.1%.
As a point of comparison, in the third quarter of 2019 before the onset of the COVID-19 pandemic, we received approximately 42% more new delinquency notices and they represented approximately 140 basis points of the number of loans insured at the beginning of that quarter, while the loss ratio in the third quarter of 2019 was 12.7%.
We are encouraged by the strength of the housing market and the credit trends we are experiencing, including the low level of early payment defaults, I believe they are a good indicator of near-term credit performance.
These positive credit trends continued in October, their notice inventory declining by another 1,500 notices as Cures continue to outpace new notices.
The estimated claim rate on new notices received in the third quarter of 2021 was approximately 7.5% compared to approximately 8% in the third quarter of 2020.
In the quarter, we realized $18 million of favorable loss reserve development compared to immaterial development last quarter and in the third quarter of last year.
The favorable development in the quarter was primarily attributable to delinquency notices received prior to the start of the COVID-19 pandemic.
At this point, we still have not seen adequate support to make any adjustments to the reserves associated with the large cohort of COVID-related delinquency notices received primarily in Q2 of last year, but we remain encouraged as we saw a similar level of notices in Cures in October as we did in September.
The number of claims received in the quarter remained very low due to the various foreclosure and eviction moratoriums.
Primary paid claims in the quarter were $18 million compared to $11 million last quarter.
The modest increase in paid claims this quarter was primarily the result of a commutation of coverage on nonperforming loans in the third quarter.
We continue to expect claim payments to remain low for the next few quarters given the timelines for foreclosure and eviction moratoriums for GSE loans and the additional procedural safeguards required by the CFPB.
Next, I wanted to spend a couple of minutes talking about our capital position and capital actions in the quarter.
As Tim mentioned, in the third quarter, we paid an $0.08 per share dividend for a total of $27 million and repurchased 10 million shares for a total of $150 million.
In October, we repurchased an additional 3.8 million shares for a total of $60 million under a 10b5-1 plan, we put in place earlier this year.
The Board also authorized an additional $500 million share repurchase program that expires at the end of 2023.
And as previously announced, the Board declared an $0.08 per share dividend payable on November 23.
At the end of the third quarter, we had $716 million of holding company liquidity and a $2.6 billion access to the PMIERs minimum requirements at the operating company.
MGIC's access to the PMIERs requirements as of September 30 resulted in a PMIERs sufficiency ratio of 180% and remained above our current target level.
Since MGIC's capital position continues to be above our current target level, we are having discussions with our regulator about a dividend to be paid in the fourth quarter of 2021.
As of October 30 -- as of October 31, 2021, our holding company's liquidity also remains above our current target levels even if we fully use the remaining $81 million on the share repurchase authorization that expires at year-end 2021.
Any additional dividends paid from MGIC to the holding company in the fourth quarter would increase the holding company's liquidity.
At this time, our plan is to use those additional dividends if they are received to settle the eventual redemption of our 9% Convertible Junior Debentures due in 2063.
Our most recent 10-K has additional details, but under the terms of the debentures, we can redeem the debentures for principal plus accrued interest when our share price closes above a certain level for 20 of 30 consecutive trading days.
For 2021, that share price level is $17.20.
And the share price level has reduced annually as a result of the dividends paid in the prior year and under certain circumstances as allowed under the debentures.
We hope to provide a redemption notice for the debentures in the near term with the redemption date at least 30 days later.
If we provide a redemption notice, we expect virtually all of the holders of the debentures will elect to convert their debentures into common stock before the redemption date.
Under the terms of the debentures, we may elect to pay cash to converting holders in lieu of issuing shares, and we expect we would do so under most circumstances.
Given our strong operating results and recent share price performance, we felt it was the right time to position the holding company to actively consider the retirement of the debentures.
While the timing remains uncertain, retiring the debentures would eliminate approximately 16 million potentially dilutive shares and $19 million in annual interest expense.
And would reduce our debt-to-capital ratio by approximately 300 basis points as of September 30 on a pro forma basis.
As Tim mentioned, we continue to believe that our balanced approach to maintaining a strong capital position provides the most flexibility to maximize the long-term value of both the writing company and the holding company.
This balanced approach includes using forward commitment quota share reinsurance treaties, accessing the capital markets for excess of loss reinsurance via ILN transactions and seeking dividends from MGIC to the holding company as appropriate.
While not an indication of the amount of dividends we would see, our current expectation is that any future dividends paid from MGIC to the holding company will occur less frequently than the quarterly cadence we had pre-COVID due in part to the robust liquidity position of the holding company.
Before moving to questions, let me address a few additional topics.
The federal government through its various agencies, including FHFA and CFPB continues to focus its housing policy efforts on providing access to sustainable and affordable housing, promoting for closure and eviction mitigation for homeowners impacted by COVID-19 and ensuring a successful economic recovery and not on making large-scale changes to the housing finance infrastructure.
We will continue to advocate for the increased use of private mortgage insurance in the housing finance industry in order to reduce taxpayer exposure to housing while still maintaining a resilient housing finance system.
At MGIC, we are focused on providing critical support to the housing market, especially low and moderate income and first-time home buyers.
Long term, I remain encouraged about the future role that our company and industry can play in housing finance and believe that other regulators and policymakers share a similar view because our company and industry organized solely to provide credit enhancement solutions to lenders, borrowers and the GSEs in all economic cycles.
Not only does private mortgage insurance offer dedicated capital day in and day out to the housing industry, it offers many solutions and a great value proposition for lenders and consumers to overcome the number one barrier to homeownership-the down payment.
In closing, let me recap by saying that we are currently writing high levels of quality new insurance and are experiencing low levels of delinquencies, both newly reported and those already are in our delinquency inventory.
The housing market remains strong, and we have a book of business that has solid underwriting credit characteristics, which is supported by a strong and dynamic balance sheet with a low debt-to-capital ratio, an investment portfolio of nearly $7 billion, contractual premium flow and a robust reinsurance program.
I'm confident in our positioning in this market, and we like the business opportunities that the current operating environment presents.
We have the right team in place to build on our solid foundation to continue to deliver competitive offerings and best-in-class service to our customers and generate strong returns for our shareholders.
With that, operator, let's take questions.

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mgic investment corporation q3 earnings per share $0.46.
q3 earnings per share $0.46.
q3 adjusted non-gaap operating earnings per share $0.46.

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