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MGIC Investment Corporation Reports Fourth Quarter 2012 Results



       MGIC Investment Corporation Reports Fourth Quarter 2012 Results

PR Newswire

MILWAUKEE, Feb. 28, 2013

MILWAUKEE, Feb. 28, 2013 /PRNewswire/ -- MGIC Investment Corporation
(NYSE:MTG) today reported a net loss for the quarter ended December 31, 2012
of $386.7 million, compared with a net loss of $135.3 million for the same
quarter a year ago.  The quarterly loss includes a previously announced
one-time charge of $267.5 million which was recorded to reflect the settlement
of the Freddie Mac pool dispute.  Additionally in the fourth quarter, loss
reserve estimates were increased by approximately $100 million to reflect
probable settlements regarding previously disclosed rescission disputes with
Countrywide and another lender.       

Curt S. Culver, CEO and Chairman of the Board of Mortgage Guaranty Insurance
Corporation ("MGIC") and MTG, said that "I am pleased that we have settled our
Freddie Mac dispute and have made substantial progress towards resolving
the Countrywide dispute. In tandem with these efforts we are continuing to
execute our strategy of writing new business through a combination of MGIC
and, as it is needed, its wholly owned subsidiary, MGIC Indemnity
Corporation."  He added that "our strategy, which is approved by the Office of
the Commissioner of Insurance for the State of Wisconsin, Fannie Mae and
Freddie Mac, provides borrowers with a more affordable insurance option,
for higher quality loans, than they could find with the FHA." 

Diluted loss per share was $1.91 for the quarter ending December 31, 2012,
compared to diluted loss per share of $0.67 for the same quarter a year ago. 
The net loss for the full year ending December 31, 2012 was $927.1 million,
compared to a net loss of $485.9 million for the full year 2011. For the full
year 2012, diluted loss per share was $4.59 compared to a diluted loss per
share of $2.42 for the full year 2011.

Culver further added that, "while the weak employment market continues to
challenge the pace of recovery of the legacy books and our financial results,
I am pleased to report that new insurance written volume is up 70% while
delinquency notices are down 21% year over year, and new business written
since the second half of 2008 accounts for 33% of our primary in force."

Total revenues for the fourth quarter were $371.4 million, compared with
$447.0 million in the fourth quarter last year. Net premiums written for the
quarter were $260.7 million, compared with $263.8 million for the same period
last year. Net premiums written for the full year 2012 were $1.017 billion,
compared with $1.064 billion for the full year 2011.  Realized gains in the
fourth quarter of 2011 were $87.4 million compared to $104.5 million for the
same period last year.   

New insurance written in the fourth quarter was $7.0 billion, compared to $4.2
billion in the fourth quarter of 2011. In addition, the Home Affordable
Refinance Program ("HARP") accounted for $3.5 billion of insurance that is not
included in the new insurance written total for the quarter due to these
transactions being treated as modifications of the coverage on existing
insurance in force.  New insurance written for full year 2012 was $24.1
billion compared to $14.2 billion for the full year 2011.  HARP activity for
2012 totaled $11.2 billion compared to $2.9 billion 2011. 

As of December 31, 2012, MGIC's primary insurance in force was $162.1 billion,
compared with $172.9 billion at December 31, 2011, and $191.3 billion at
December 31, 2010.  Persistency, or the percentage of insurance remaining in
force from one year prior, was 79.8 percent at December 31, 2012, compared
with 82.9 percent at December 31, 2011, and 84.4 percent at December 31,
2010.  The fair value of MGIC Investment Corporation's investment portfolio,
cash and cash equivalents was $5.3 billion at December 31, 2012 compared with
$6.8 billion at December 31, 2011, and $8.8 billion at December 31, 2010.

At December 31, 2012, the percentage of loans that were delinquent, excluding
bulk loans, was 11.87 percent, compared with 13.79 percent at December 31,
2011, and 14.94 percent at December 31, 2010. Including bulk loans, the
percentage of loans that were delinquent at December 31, 2012 was 13.90
percent, compared to 16.11 percent at December 31, 2011, and 17.48 percent at
December 31, 2010.

Losses incurred in the fourth quarter were $688.6 million up from $482.1
million reported for the same period last year due to the previously announced
one-time charge of $267.5 million which was recorded to reflect the settlement
of the Freddie Mac pool dispute and an increase to loss reserve estimates of
approximately $100 million to reflect the settlement agreements discussed
above.  For the full year 2012, losses incurred were $2.067 billion compared
to $1.715 billion in 2011.  Net underwriting and other expenses were $51.5
million in the fourth quarter as compared to $50.7 million reported for the
same period last year.  For the full year 2012 net underwriting and other
expenses were $201.4 million compared to $214.8 million in 2011.

Conference Call and Webcast Details

MGIC Investment Corporation will hold a conference call today, February 28,
2013 at 10 a.m. ET to allow securities analysts and shareholders the
opportunity to hear management discuss the company's quarterly results. The
conference call number is 1-866-847-7859.  The call is being webcast and can
be accessed at the company's website at http://mtg.mgic.com. The webcast is
also being distributed over CCBN's Investor Distribution Network to both
institutional and individual investors.  Investors can listen to the call
through CCBN's individual investor center at www.companyboardroom.com or by
visiting any of the investor sites in CCBN's Individual Investor Network. The
webcast will be available for replay on the company's website through April
28, 2013 under Investor Information.

About MGIC

MGIC (www.mgic.com), the principal subsidiary of MGIC Investment Corporation,
is the nation's largest private mortgage insurer as measured by $162.1 billion
primary insurance in force covering 1.0 million mortgages as of December 31,
2012. MGIC serves lenders throughout the United States, Puerto Rico, and other
locations helping families achieve homeownership sooner by making affordable
low-down-payment mortgages a reality.

This press release, which includes certain additional statistical and other
information, including non-GAAP financial information and a supplement that
contains various portfolio statistics and a summary of excess claims paying
resources are both available on the Company's website at http://mtg.mgic.com/
under Investor Information,  Press Releases or Presentations/Webcasts.

From time to time MGIC Investment Corporation releases important information
via postings on its corporate website without making any other disclosure and
intends to continue to do so in the future. Investors and other interested
parties are encouraged to enroll to receive automatic email alerts and Really
Simple Syndication (RSS) feeds regarding new postings.  Enrollment information
can be found at http://mtg.mgic.com under Investor Information.

Safe Harbor Statement

Forward Looking Statements and Risk Factors

As used below, "we," "our" and "us" refer to MGIC Investment Corporation's
consolidated operations or to MGIC Investment Corporation, as the context
requires; "MGIC" refers to Mortgage Guaranty Insurance Corporation; and "MIC"
refers to MGIC Indemnity Corporation.

Our actual results could be affected by the risk factors below. These risk
factors should be reviewed in connection with this press release and our
periodic reports to the Securities and Exchange Commission. These risk factors
may also cause actual results to differ materially from the results
contemplated by forward looking statements that we may make. Forward looking
statements consist of statements which relate to matters other than historical
fact, including matters that inherently refer to future events. Among others,
statements that include words such as "believe," "anticipate," "will" or
"expect," or words of similar import, are forward looking statements. We are
not undertaking any obligation to update any forward looking statements or
other statements we may make even though these statements may be affected by
events or circumstances occurring after the forward looking statements or
other statements were made. No investor should rely on the fact that such
statements are current at any time other than the time at which this press
release was issued.

Capital requirements may prevent us from continuing to write new insurance on
an uninterrupted basis.

The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary
state, require a mortgage insurer to maintain a minimum amount of statutory
capital relative to the risk in force (or a similar measure) in order for the
mortgage insurer to continue to write new business. We refer to these
requirements as the "Capital Requirements." New insurance written in the
jurisdictions that have Capital Requirements represented approximately 50% of
new insurance written in 2011 and 2012. While formulations of minimum capital
vary among jurisdictions, the most common formulation allows for a maximum
risk-to-capital ratio of 25 to 1. A risk-to-capital ratio will increase if the
percentage decrease in capital exceeds the percentage decrease in insured
risk. Therefore, as capital decreases, the same dollar decrease in capital
will cause a greater percentage decrease in capital and a greater increase in
the risk-to-capital ratio. Wisconsin does not regulate capital by using a
risk-to-capital measure but instead requires a minimum policyholder position
("MPP"). The "policyholder position" of a mortgage insurer is its net worth or
surplus, contingency reserve and a portion of the reserves for unearned
premiums.

At December 31, 2012, MGIC's risk-to-capital ratio was 44.7 to 1, exceeding
the maximum allowed by many jurisdictions, and its policyholder position was
$640 million below the required MPP of $1.2 billion. We expect MGIC's
risk-to-capital ratio to increase above its December 31, 2012 level. At
December 31, 2012, the risk-to-capital ratio of our combined insurance
operations (which includes reinsurance affiliates) was 47.8 to 1. A higher
risk-to-capital ratio on a combined basis may indicate that, in order for MGIC
or MIC to continue to utilize reinsurance arrangements with its subsidiaries
or subsidiaries of our holding company, additional capital contributions to
the reinsurance affiliates could be needed. These reinsurance arrangements
permit MGIC and MIC to write insurance with a higher coverage percentage than
they could on their own under certain state-specific requirements.

Statement of Statutory Accounting Principles No. 101 ("SSAP No. 101") became
effective January 1, 2012 and prescribed new standards for determining the
amount of deferred tax assets that can be recognized as admitted assets for
determining statutory capital. Under a permitted practice effective September
30, 2012 and until further notice, the Office of the Commissioner of Insurance
of the State of Wisconsin ("OCI") has approved MGIC to report its net deferred
tax asset as an admitted asset in an amount not to exceed 10% of surplus as
regards policyholders, notwithstanding contrary provisions of SSAP No. 101. At
December 31, 2012, had MGIC calculated its net deferred tax assets based on
the provisions of SSAP No. 101, no deferred tax assets would have been
admitted. Pursuant to the permitted practice, deferred tax assets of $63
million were included in statutory capital.

Although MGIC does not meet the Capital Requirements of Wisconsin, the OCI has
waived them until December 31, 2013. In place of the Capital Requirements, the
OCI Order containing the waiver of Capital Requirements (the "OCI Order")
provides that MGIC can write new business as long as it maintains regulatory
capital that the OCI determines is reasonably in excess of a level that would
constitute a financially hazardous condition. The OCI Order requires MGIC
Investment Corporation, through the earlier of December 31, 2013 and the
termination of the OCI Order (the "Covered Period"), to make cash equity
contributions to MGIC as may be necessary so that its "Liquid Assets" are at
least $1 billion (this portion of the OCI Order is referred to as the
"Keepwell Provision"). "Liquid Assets," which include those of MGIC as well as
those held in certain of our subsidiaries, including our Australian
subsidiaries, but excluding MIC and its reinsurance affiliates, are the sum of
(i) the aggregate cash and cash equivalents, (ii) fair market value of
investments and (iii) assets held in trusts supporting the obligations of
captive mortgage reinsurers to MGIC. As of December 31, 2012, "Liquid Assets"
were approximately $4.8 billion. Although we do not expect that MGIC's Liquid
Assets will fall below $1 billion during the Covered Period, we do expect the
amount of Liquid Assets to continue to decline materially after December 31,
2012 and through the end of the Covered Period as MGIC's claim payments and
other uses of cash continue to exceed cash generated from operations. You
should read the rest of these risk factors for additional information about
factors that could negatively affect MGIC's Liquid Assets.

The OCI, in its sole discretion, may modify, terminate or extend its waiver of
Capital Requirements, although any modification or extension of the Keepwell
Provision requires our written consent. If the OCI modifies or terminates its
waiver, or if it fails to renew its waiver upon expiration, depending on the
circumstances, MGIC could be prevented from writing new business in all
jurisdictions if MGIC does not comply with the Capital Requirements. We cannot
assure you that MGIC could obtain the additional capital necessary to comply
with the Capital Requirements. At present, the amount of additional capital we
would need to comply with the Capital Requirements would be substantial. See
"— Your ownership in our company may be diluted by additional capital that we
raise or if the holders of our outstanding convertible debt convert that debt
into shares of our common stock." If MGIC were prevented from writing new
business in all jurisdictions, our insurance operations in MGIC would be in
run-off (meaning no new loans would be insured but loans previously insured
would continue to be covered, with premiums continuing to be received and
losses continuing to be paid on those loans) until MGIC either met the Capital
Requirements or obtained a necessary waiver to allow it to once again write
new business. Furthermore, if the OCI revokes or fails to renew MGIC's waiver,
MIC's ability to write new business would be severely limited because approval
by Fannie Mae and Freddie Mac (the "GSEs") of MIC (discussed below) is
conditioned upon the continued effectiveness of the OCI Order.

MGIC applied for waivers in the other jurisdictions with Capital Requirements
and, at this time, has active waivers from seven of them. MIC is writing new
business in the jurisdictions where MGIC does not have active waivers. As a
result, MGIC and MIC are collectively writing business on a nationwide basis.

Insurance departments, in their sole discretion, may modify, terminate or
extend their waivers of Capital Requirements. If an insurance department other
than the OCI modifies or terminates its waiver, or if it fails to grant a
waiver or renew its waiver after expiration, depending on the circumstances,
MGIC could be prevented from writing new business in that particular
jurisdiction. Also, depending on the level of losses that MGIC experiences in
the future, it is possible that regulatory action by one or more
jurisdictions, including those that do not have specific Capital Requirements,
may prevent MGIC from continuing to write new insurance in that jurisdiction.
As discussed below, under certain conditions, this business would be written
in MIC. You should read the rest of these risk factors for additional
information about factors that could negatively affect MGIC's statutory
capital and compliance with Capital Requirements.

MGIC's failure to meet the Capital Requirements to insure new business does
not necessarily mean that MGIC does not have sufficient resources to pay
claims on its insurance liabilities. While we believe that MGIC has sufficient
claims paying resources to meet its claim obligations on its insurance in
force on a timely basis, we cannot assure you that the events that led to MGIC
failing to meet Capital Requirements would not also result in it not having
sufficient claims paying resources. Furthermore, our estimates of MGIC's
claims paying resources and claim obligations are based on various
assumptions. These assumptions include the timing of the receipt of claims on
loans in our delinquency inventory and future claims that we anticipate will
ultimately be received, our anticipated rescission activity, premiums, housing
values and unemployment rates. These assumptions are subject to inherent
uncertainty and require judgment by management. Current conditions in the
domestic economy make the assumptions about when anticipated claims will be
received, housing values, and unemployment rates highly volatile in the sense
that there is a wide range of reasonably possible outcomes. Our anticipated
rescission activity is also subject to inherent uncertainty due to the
difficulty of predicting the amount of claims that will be rescinded and the
outcome of any legal proceedings or settlement discussions related to
rescissions. You should read the rest of these risk factors for additional
information about factors that could negatively affect MGIC's claims paying
resources.

As part of our longstanding plan to write new business in MIC, a direct
subsidiary of MGIC, MGIC has made capital contributions to MIC. As of December
31, 2012, MIC had statutory capital of $448 million. In the third quarter of
2012, we began writing new mortgage insurance in MIC on the same policy terms
as MGIC, in those jurisdictions where we did not have active waivers of
Capital Requirements for MGIC. In the second half of 2012, MIC's new insurance
written was $2.4 billion, which includes business from certain jurisdictions
for which new insurance is again being written in MGIC after it received the
necessary waivers. We are currently writing new mortgage insurance in MIC in
Florida, Idaho, Missouri, New Jersey, New York, North Carolina, Ohio and
Puerto Rico. Approximately 19% of new insurance written in 2011 and 2012 was
from jurisdictions in which MIC is currently writing business. We project MIC
can write 100% of our new insurance for at least five years if MGIC is unable
to write new business.  This projection is based on the 18:1 risk-to-capital
limitation prescribed by Freddie Mac's approval of MIC (discussed below) and
assumes the mix and level of new insurance written in the future would be the
same as we wrote in 2012.  It also assumes MIC's GSE eligibility would extend
throughout this period. If we had to write substantially more of our business
in MIC and our levels of new insurance written were to increase materially,
MIC may require additional capital to stay below Freddie Mac's prescribed
risk-to-capital limitation or a waiver of that limitation may be required. MIC
is licensed to write business in all jurisdictions and, subject to the
conditions and restrictions discussed below, has received the necessary
approvals from GSEs and the OCI to write business in all of the jurisdictions
that have not waived their Capital Requirements for MGIC.

Under an agreement in place with Fannie Mae, as amended November 30, 2012, MIC
will be eligible to write mortgage insurance through December 31, 2013, in
those jurisdictions (other than Wisconsin) in which MGIC cannot write new
insurance due to MGIC's failure to meet Capital Requirements and to obtain a
waiver of them. MIC is also approved to write mortgage insurance for 60 days
in jurisdictions that do not have Capital Requirements if a jurisdiction
notifies MGIC that, due to its financial condition, it may no longer write new
business. The agreement provides that Fannie Mae may, in its discretion,
extend such approval to no later than December 31, 2013. The agreement with
Fannie Mae, including certain conditions and restrictions to its continued
effectiveness, is summarized more fully in, and included as an exhibit to, our
Form 8-K filed with the Securities and Exchange Commission (the "SEC") on
November 30, 2012. Such conditions include the continued effectiveness of the
OCI Order and the continued applicability of the Keepwell Provision of the OCI
Order.

Under a letter from Freddie Mac that was amended and restated as of November
30, 2012, Freddie Mac approved MIC to write business only in those
jurisdictions (other than Wisconsin) where either (a) MGIC is unable to write
business because it does not meet the Capital Requirements and does not obtain
waivers of them, or (b) MGIC received notice that it may not write business
because of that jurisdiction's view of MGIC's financial condition. This
approval of MIC, which may be withdrawn at any time, expires December 31,
2013, or earlier if a financial examination by the OCI determines that there
is a reasonable probability that MGIC will be unable to honor claim
obligations at any time in the five years after the examination, or if MGIC
fails to honor claim payments. The approval from Freddie Mac, including
certain conditions and restrictions to its continued effectiveness, is
summarized more fully in, and included as an exhibit to, our Form 8-K filed
with the SEC on November 30, 2012. Such conditions include requirements that
MIC not exceed a risk-to-capital ratio of 18:1 (at December 31, 2012, MIC's
risk-to-capital ratio was 1.2 to 1); MGIC and MIC comply with all terms and
conditions of the OCI Order; the OCI Order remain effective; we contribute
$100 million to MGIC on or before December 3, 2012 (which we did); MGIC enter
into and comply with the payment terms of the settlement agreement with
Freddie Mac and the FHFA dated December 1, 2012 (for more information about
the settlement agreement, see "— We are involved in legal proceedings and are
subject to the risk of additional legal proceedings in the future"); the OCI
issue the order described in the next paragraph (which it did); and MIC
provide MGIC access to the capital of MIC in an amount necessary for MGIC to
maintain sufficient liquidity to satisfy its obligations under insurance
policies issued by MGIC.

On November 29, 2012, the OCI issued an order, effective until December 31,
2013, establishing a procedure for MIC to pay a dividend to MGIC if either of
the following two events occurs: (1) an OCI examination determines that there
is a reasonable probability that MGIC will be unable to honor its policy
obligations at any time during the five years after the examination, or (2)
MGIC fails to honor its policy obligations that it in good faith believes are
valid. If one of these events occurs, the OCI is to conduct a review (to be
completed within 60 days after the triggering event) to determine the maximum
single dividend MIC could prudently pay to MGIC for the benefit of MGIC's
policyholders, taking account of the interests of MIC's policyholders and the
general public and certain standards for dividends imposed by Wisconsin law.
Upon the completion of the review, the OCI will authorize, and MIC will pay,
such a dividend within 30 days.

We cannot assure you that the GSEs will approve or continue to approve MIC to
write new business in all jurisdictions in which MGIC is unable to do so. If
one GSE does not approve MIC in all jurisdictions in which MGIC is unable to
write new business, MIC may be able to write insurance on loans that will be
sold to the other GSE or retained by private investors. However, because
lenders may not know which GSE will purchase their loans until mortgage
insurance has been procured, lenders may be unwilling to procure mortgage
insurance from MIC. Furthermore, if we are unable to write business on a
nationwide basis utilizing a combination of MGIC and MIC, lenders may be
unwilling to procure insurance from us anywhere. In addition, new insurance
written can be influenced by a lender's assessment of the financial strength
of our insurance operations. In this regard, see "— Competition or changes in
our relationships with our customers could reduce our revenues or increase our
losses."

The amount of insurance we write could be adversely affected if the definition
of Qualified Residential Mortgage results in a reduction of the number of low
down payment loans available to be insured or if lenders and investors select
alternatives to private mortgage insurance.

The financial reform legislation that was passed in July 2010 (the "Dodd-Frank
Act" or "Dodd-Frank") requires a securitizer to retain at least 5% of the risk
associated with mortgage loans that are securitized, and in some cases the
retained risk may be allocated between the securitizer and the lender that
originated the loan. This risk retention requirement does not apply to
mortgage loans that are Qualified Residential Mortgages ("QRMs") or that are
insured by the FHA or another federal agency. In March 2011, federal
regulators requested public comments on a proposed risk retention rule that
includes a definition of QRM. The proposed definition of QRM contains many
underwriting requirements, including a maximum loan-to-value ratio ("LTV") of
80% on a home purchase transaction, a prohibition on seller contributions
toward a borrower's down payment or closing costs, and certain limits on a
borrower's debt-to-income ratio. The LTV is to be calculated without including
mortgage insurance. None of our new risk written in 2012 was on loans that
would qualify as QRMs under the March 2011 proposed rules.

The regulators also requested public comments regarding an alternative QRM
definition, the underwriting requirements of which would allow loans with a
maximum LTV of 90% and higher debt-to-income ratios than allowed under the
proposed QRM definition, and that may consider mortgage insurance in
determining whether the LTV requirement is met. We estimate that approximately
22% of our new risk written in 2012 was on loans that would have met the
alternative QRM definition. The regulators also requested that the public
comments include information that may be used to assess whether mortgage
insurance reduces the risk of default. We submitted a comment letter,
including studies to the effect that mortgage insurance reduces the risk of
default.

Under the proposed rule, because of the capital support provided by the U.S.
Government, the GSEs satisfy the Dodd-Frank risk-retention requirements while
they are in conservatorship. Therefore, under the proposed rule, lenders that
originate loans that are sold to the GSEs while they are in conservatorship
would not be required to retain risk associated with those loans. The public
comment period for the proposed rule expired in August 2011. At this time we
do not know when a final rule will be issued, although it was not expected
that the final QRM rule would be issued until the final rule defining
Qualified Mortgages ("QMs") (discussed below) was issued. The Consumer
Financial Protection Bureau (the "CFPB") issued the final QM rule on January
10, 2013.

Depending on, among other things, (a) the final definition of QRM and its
requirements for LTV, seller contributions and debt-to-income ratio, (b) to
what extent, if any, the presence of mortgage insurance would allow for a
higher LTV in the definition of QRM, and (c) whether lenders choose mortgage
insurance for non-QRM loans, the amount of new insurance that we write may be
materially adversely affected. For other factors that could decrease the
demand for mortgage insurance, see "— If the volume of low down payment home
mortgage originations declines, the amount of insurance that we write could
decline, which would reduce our revenues" and "— The implementation of the
Basel III capital accord, or other changes to our customers' capital
requirements, may discourage the use of mortgage insurance."

As noted above, on January 10, 2013, the CFPB issued the final rule defining
QM, in order to implement laws requiring lenders to consider a borrower's
ability to repay a home loan before extending credit. The QM rule prohibits
loans with certain features, such as negative amortization, points and fees in
excess of 3% of the loan amount, and terms exceeding 30 years, from being
considered QMs. The rule also establishes general underwriting criteria for
QMs including that a borrower have a total debt-to-income ratio of less than
or equal to 43%. The rule provides a temporary category of QMs that have more
flexible underwriting requirements so long as they satisfy the general product
feature requirements of QMs and so long as they meet the underwriting
requirements of the GSEs or those of the U.S. Department of Housing and Urban
Development, Department of Veterans Affairs or Rural Housing Service
(collectively, "Other Federal Agencies"). The temporary category of QMs that
meet the underwriting requirements of the GSEs or the Other Federal Agencies
will phase out when the GSEs or the Other Federal Agencies issue their own
qualified mortgage rules, if the GSEs' conservatorship ends, and in any case
after seven years. We expect that most lenders will be reluctant to make loans
that do not qualify as QMs because they will not be entitled to the
presumptions about compliance with the ability-to-pay requirements. Given the
credit characteristics presented to us, we estimate that 99% of our new risk
written in 2012 was for mortgages that would have met the QM definition and
91% of our new risk written in 2012 was for mortgages that would have met the
QM definition even without the temporary category allowed for mortgages that
meet the GSEs' underwriting requirements. In making these estimates, we have
not considered the limitation on points and fees because the information is
not available to us. We do not believe such limitation would materially affect
the percentage of our new risk written meeting the QM definition. The QM rule
is scheduled to become effective in January 2014.

Alternatives to private mortgage insurance include:

  o lenders using government mortgage insurance programs, including those of
    the Federal Housing Administration, or FHA, and the Veterans
    Administration,
  o lenders and other investors holding mortgages in portfolio and
    self-insuring,
  o investors using risk mitigation techniques other than private mortgage
    insurance, using other risk mitigation techniques in conjunction with
    reduced levels of private mortgage insurance coverage, or accepting credit
    risk without credit enhancement, and
  o lenders originating mortgages using piggyback structures to avoid private
    mortgage insurance, such as a first mortgage with an 80% loan-to-value
    ratio and a second mortgage with a 10%, 15% or 20% loan-to-value ratio
    (referred to as 80-10-10, 80-15-5 or 80-20 loans, respectively) rather
    than a first mortgage with a 90%, 95% or 100% loan-to-value ratio that has
    private mortgage insurance.

The FHA substantially increased its market share beginning in 2008, and
beginning in 2011, that market share began to gradually decline. We believe
that the FHA's market share increased, in part, because private mortgage
insurers tightened their underwriting guidelines (which led to increased
utilization of the FHA's programs) and because of increases in the amount of
loan level delivery fees that the GSEs assess on loans (which result in higher
costs to borrowers). In addition, federal legislation and programs provided
the FHA with greater flexibility in establishing new products and increased
the FHA's competitive position against private mortgage insurers. We believe
that the FHA's current premium pricing, when compared to our current
credit-tiered premium pricing (and considering the effects of GSE pricing
changes), has allowed us to be more competitive with the FHA than in the
recent past for loans with high FICO credit scores. We cannot predict,
however, the FHA's share of new insurance written in the future due to, among
other factors, different loan eligibility terms between the FHA and the GSEs;
future increases in guarantee fees charged by the GSEs; changes to the FHA's
annual premiums; and the total profitability that may be realized by mortgage
lenders from securitizing loans through Ginnie Mae when compared to
securitizing loans through Fannie Mae or Freddie Mac.

Changes in the business practices of the GSEs, federal legislation that
changes their charters or a restructuring of the GSEs could reduce our
revenues or increase our losses.

Substantially all of our insurance written is for loans sold to Fannie Mae and
Freddie Mac. The business practices of the GSEs affect the entire relationship
between them, lenders and mortgage insurers and include:

  o the level of private mortgage insurance coverage, subject to the
    limitations of the GSEs' charters (which may be changed by federal
    legislation), when private mortgage insurance is used as the required
    credit enhancement on low down payment mortgages,
  o the amount of loan level delivery fees (which result in higher costs to
    borrowers) that the GSEs assess on loans that require mortgage insurance,
  o whether the GSEs influence the mortgage lender's selection of the mortgage
    insurer providing coverage and, if so, any transactions that are related
    to that selection,
  o the underwriting standards that determine what loans are eligible for
    purchase by the GSEs, which can affect the quality of the risk insured by
    the mortgage insurer and the availability of mortgage loans,
  o the terms on which mortgage insurance coverage can be canceled before
    reaching the cancellation thresholds established by law,
  o the programs established by the GSEs intended to avoid or mitigate loss on
    insured mortgages and the circumstances in which mortgage servicers must
    implement such programs,
  o the terms that the GSEs require to be included in mortgage insurance
    policies for loans that they purchase, and
  o the extent to which the GSEs intervene in mortgage insurers' rescission
    practices or rescission settlement practices with lenders. For additional
    information, see "— Our losses could increase if we do not prevail in
    proceedings challenging whether our rescissions were proper, we enter into
    material resolution arrangements or rescission rates decrease faster than
    we are projecting."

The FHFA is the conservator of the GSEs and has the authority to control and
direct their operations. The increased role that the federal government has
assumed in the residential mortgage market through the GSE conservatorship may
increase the likelihood that the business practices of the GSEs change in ways
that have a material adverse effect on us. In addition, these factors may
increase the likelihood that the charters of the GSEs are changed by new
federal legislation. The Dodd-Frank Act required the U.S. Department of the
Treasury to report its recommendations regarding options for ending the
conservatorship of the GSEs. This report was released in February 2011 and
while it does not provide any definitive timeline for GSE reform, it does
recommend using a combination of federal housing policy changes to wind down
the GSEs, shrink the government's footprint in housing finance, and help bring
private capital back to the mortgage market. In 2012, Members of Congress
introduced several bills intended to scale back the GSEs, however, no
legislation was enacted. As a result of the matters referred to above, it is
uncertain what role the GSEs, FHA and private capital, including private
mortgage insurance, will play in the domestic residential housing finance
system in the future or the impact of any such changes on our business. In
addition, the timing of the impact on our business is uncertain. Most
meaningful changes would require Congressional action to implement and it is
difficult to estimate when Congressional action would be final and how long
any associated phase-in period may last.

The GSEs have different loan purchase programs that allow different levels of
mortgage insurance coverage. Under the "charter coverage" program, on certain
loans lenders may choose a mortgage insurance coverage percentage that is less
than the GSEs' "standard coverage" and only the minimum required by the GSEs'
charters, with the GSEs paying a lower price for such loans. In 2011 and 2012,
nearly all of our volume was on loans with GSE standard coverage. We charge
higher premium rates for higher coverage percentages. To the extent lenders
selling loans to the GSEs in the future choose charter coverage for loans that
we insure, our revenues would be reduced and we could experience other adverse
effects.

We may not continue to meet the GSEs' mortgage insurer eligibility
requirements.

Substantially all of our insurance written is for loans sold to Fannie Mae and
Freddie Mac, each of which has mortgage insurer eligibility requirements to
maintain the highest level of eligibility, including a financial strength
rating of Aa3/AA-. Because MGIC does not meet such financial strength rating
requirements of Fannie Mae and Freddie Mac (its financial strength rating from
Moody's is B2 with a negative outlook and from Standard & Poor's is B- with a
negative outlook), MGIC is currently operating with each GSE as an eligible
insurer under a remediation plan. We believe that the GSEs view remediation
plans as a continuing process of interaction with a mortgage insurer and MGIC
will continue to operate under a remediation plan for the foreseeable future.
There can be no assurance that MGIC will be able to continue to operate as an
eligible mortgage insurer under a remediation plan. In particular, the GSEs
are currently in discussions with mortgage insurers regarding their standard
mortgage insurer eligibility requirements. We also understand the FHFA and the
GSEs are separately developing mortgage insurer capital standards that would
replace the use of external credit ratings. The GSEs may include any new
eligibility requirements as part of our current remediation plan. MIC's
financial strength rating from Moody's is Ba3 with a negative outlook and from
Standard & Poor's is B- with a negative outlook Therefore, MIC also does not
meet the financial strength rating requirements of the GSEs and is currently
operating with each GSE as an eligible insurer under the approvals discussed
above. See "— Capital requirements may prevent us from continuing to write new
insurance on an uninterrupted basis." If MGIC or MIC cease to be eligible to
insure loans purchased by one or both of the GSEs, it would significantly
reduce the volume of our new business writings.

We have reported net losses for the last six years, expect to continue to
report annual net losses, and cannot assure you when we will return to
profitability.

For the years ended December 31, 2012, 2011, 2010, 2009, 2008 and 2007, we had
a net loss of $0.9 billion, $0.5 billion, $0.4 billion, $1.3 billion,
$0.5 billion and $1.7 billion, respectively. We currently expect to continue
to report annual net losses, the size of which will depend primarily on the
amount of our incurred and paid losses from our business written prior to
2009. Our incurred and paid losses are dependent on factors that make
prediction of their amounts difficult and any forecasts are subject to
significant volatility. Although we currently expect to return to
profitability on an annual basis, we cannot assure you when, or if, this will
occur. Conditions that could delay our return to profitability include high
unemployment rates, low cure rates, low housing values, changes to our current
rescission practices and unfavorable resolution of ongoing legal proceedings.
You should read the rest of these risk factors for additional information
about factors that could increase our net losses in the future. The net losses
we have experienced have eroded, and any future net losses will erode, our
shareholders' equity and could result in equity being negative.

Our losses could increase if we do not prevail in proceedings challenging
whether our rescissions were proper, we enter into material resolution
arrangements or rescission rates decrease faster than we are projecting.

Prior to 2008, rescissions of coverage on loans were not a material portion of
our claims resolved during a year. However, beginning in 2008, our rescissions
of coverage on loans have materially mitigated our paid losses. In each of
2009 and 2010, rescissions mitigated our paid losses by approximately $1.2
billion; in 2011, rescissions mitigated our paid losses by approximately $0.6
billion; and in 2012, rescissions mitigated our paid losses by approximately
$0.3 billion (in each case, the figure includes amounts that would have either
resulted in a claim payment or been charged to a deductible under a bulk or
pool policy, and may have been charged to a captive reinsurer). In recent
quarters, less than 10% of claims received in a quarter have been resolved by
rescissions, down from the peak of approximately 28% in the first half of
2009.

Our loss reserving methodology incorporates our estimates of future
rescissions and reversals of rescissions. Historically, the number of
rescissions that we have reversed has been immaterial. A variance between
ultimate actual rescission and reversal rates and our estimates, as a result
of the outcome of claims investigations, litigation, settlements or other
factors, could materially affect our losses. See "— Because loss reserve
estimates are subject to uncertainties and are based on assumptions that are
currently very volatile, paid claims may be substantially different than our
loss reserves." We estimate rescissions mitigated our incurred losses by
approximately $2.5 billion in 2009 and $0.2 billion in 2010. In 2011, we
estimate that rescissions had no significant impact on our losses incurred.
All of these figures include the benefit of claims not paid in the period as
well as the impact of changes in our estimated expected rescission activity on
our loss reserves in the period. In the fourth quarter of 2012, we estimate
that our rescission benefit in loss reserves was reduced due to probable
rescission settlement agreements and that other rescissions had no significant
impact on our losses incurred in 2012. For more information about the
rescission benefit in loss reserves and the two settlements that we believe
are probable, as defined in ASC 450-20, see "— We are involved in legal
proceedings and are subject to the risk of additional legal proceedings in the
future." The completion of those settlements, assuming they occur, may
encourage other customers to seek remedies against us.

If the insured disputes our right to rescind coverage, the outcome of the
dispute ultimately would be determined by legal proceedings. Under our
policies, legal proceedings disputing our right to rescind coverage may be
brought up to three years after the lender has obtained title to the property
(typically through a foreclosure) or the property was sold in a sale that we
approved, whichever is applicable, although in a few jurisdictions there is a
longer time to bring such an action. For the majority of our rescissions since
the beginning of 2009 that are not subject to a settlement agreement, this
period in which a dispute may be brought has not ended. Until a liability
associated with a settlement agreement or litigation becomes probable and can
be reasonably estimated, we consider a rescission resolved for financial
reporting purposes even though legal proceedings have been initiated and are
ongoing. Although it is reasonably possible that, when the proceedings are
completed, there will be a determination that we were not entitled to rescind
in all cases, we are sometimes unable to make a reasonable estimate or range
of estimates of the potential liability. Under ASC 450-20, an estimated loss
from such proceedings is accrued for only if we determine that the loss is
probable and can be reasonably estimated. Therefore, when establishing our
loss reserves, we do not generally include additional loss reserves that would
reflect an adverse outcome from ongoing legal proceedings.

In April 2011, Freddie Mac advised its servicers that they must obtain its
prior approval for rescission settlements and Fannie Mae advised its servicers
that they are prohibited from entering into such settlements. In addition, in
April 2011, Fannie Mae notified us that we must obtain its prior approval to
enter into certain settlements. Since those announcements, the GSEs have
approved our settlement agreement with one customer and have rejected
settlement agreements that were structured differently. We have reached and
implemented settlement agreements that do not require GSE approval, but they
have not been material in the aggregate.

As noted in "— We are involved in legal proceedings and are subject to the
risk of additional legal proceedings in the future," we have been in mediation
with Countrywide Home Loans ("Countrywide") concerning our dispute regarding
rescissions and have made substantial progress in reaching an agreement to
settle it. In addition to the proceedings involving Countrywide, we are
involved in legal proceedings with respect to rescissions that we do not
consider to be collectively material in amount. We continue to discuss with
other customers their objections to material rescissions and have reached
settlement terms with several of our significant customers. In connection with
some of these settlement discussions, we have suspended rescissions related to
loans that we believe could be included in potential settlements. As of
December 31, 2012, approximately 240 rescissions, representing total potential
claim payments of approximately $16 million, were affected by our decision to
suspend rescissions for customers other than the two customers for which we
consider a settlement agreement probable, as defined in ASC 450-20. Although
it is reasonably possible that, when the discussions or legal proceedings with
customers regarding rescissions are completed, there will be a conclusion or
determination that we were not entitled to rescind in all cases, we are unable
to make a reasonable estimate or range of estimates of the potential
liability.

We are involved in legal proceedings and are subject to the risk of additional
legal proceedings in the future.

Consumers continue to bring lawsuits against home mortgage lenders and
settlement service providers. Mortgage insurers, including MGIC, have been
involved in litigation alleging violations of the anti-referral fee provisions
of the Real Estate Settlement Procedures Act, which is commonly known as
RESPA, and the notice provisions of the Fair Credit Reporting Act, which is
commonly known as FCRA. MGIC's settlement of class action litigation against
it under RESPA became final in October 2003. MGIC settled the named
plaintiffs' claims in litigation against it under FCRA in December 2004,
following denial of class certification in June 2004. Since December 2006,
class action litigation has been brought against a number of large lenders
alleging that their captive mortgage reinsurance arrangements violated RESPA.
Beginning in December 2011, MGIC, various mortgage lenders and various other
mortgage insurers have been named as defendants in twelve lawsuits, alleged to
be class actions, filed in various U.S. District Courts. Three of those cases
have previously been dismissed. The complaints in all nine of the remaining
cases allege various causes of action related to the captive mortgage
reinsurance arrangements of the mortgage lenders, including that the
defendants violated RESPA by paying excessive premiums to the lenders' captive
reinsurer in relation to the risk assumed by that captive. MGIC denies any
wrongdoing and intends to vigorously defend itself against the allegations in
the lawsuits. There can be no assurance that we will not be subject to further
litigation under RESPA (or FCRA) or that the outcome of any such litigation,
including the lawsuits mentioned above, would not have a material adverse
effect on us.

Since June 2005, various state and federal regulators have also conducted
investigations or requested information regarding captive mortgage reinsurance
arrangements, including (1) a request received by MGIC in June 2005 from the
New York Department of Financial Services for information regarding captive
mortgage reinsurance arrangements and other types of arrangements in which
lenders receive compensation; (2) the Minnesota Department of Commerce (the
"MN Department"), which regulates insurance, began requesting information in
February 2006, regarding captive mortgage reinsurance and certain other
matters in response to which MGIC has provided information on several
occasions, including as recently as May 2011; (3) various subpoenas received
by MGIC beginning in March 2008 from the U.S. Department of Housing and Urban
Development ("HUD"), seeking information about captive mortgage reinsurance
similar to that requested by the MN Department, but not limited in scope to
the state of Minnesota; and (4) correspondence received by MGIC in January
2012 from the CFPB indicating that HUD had transferred authority to the CFPB
to investigate captive reinsurance arrangements in the mortgage insurance
industry and requesting, among other things, certain information regarding
captive mortgage reinsurance transactions in which we participated. In June
2012, we received a Civil Investigative Demand ("CID") from the CFPB requiring
additional information and documentation regarding captive mortgage
reinsurance. We have met with, and expect to continue to meet with, the CFPB
to discuss the CID and how to resolve its investigation. MGIC has also filed a
petition to modify the CID which petition is currently pending. While MGIC
believes it would have strong defenses to any claims the CFPB might bring
against it as a result of the investigation, it continues to work with the
CFPB to try to resolve the investigation and any concerns that the CFPB may
have about MGIC's past and current captive reinsurance practices. If MGIC
cannot resolve the concerns of the CFPB, it is possible that the CFPB would
assert various RESPA and possibly other claims against it. Other insurance
departments or other officials, including attorneys general, may also seek
information about or investigate captive mortgage reinsurance.

Various regulators, including the CFPB, state insurance commissioners and
state attorneys general may bring actions seeking various forms of relief,
including civil penalties and injunctions against violations of RESPA. The
insurance law provisions of many states prohibit paying for the referral of
insurance business and provide various mechanisms to enforce this prohibition.
While we believe our captive reinsurance arrangements are in conformity with
applicable laws and regulations, it is not possible to predict the eventual
scope, duration or outcome of any such reviews or investigations nor is it
possible to predict their effect on us or the mortgage insurance industry.

We are subject to comprehensive, detailed regulation by state insurance
departments. These regulations are principally designed for the protection of
our insured policyholders, rather than for the benefit of investors. Although
their scope varies, state insurance laws generally grant broad supervisory
powers to agencies or officials to examine insurance companies and enforce
rules or exercise discretion affecting almost every significant aspect of the
insurance business. Given the recent significant losses incurred by many
insurers in the mortgage and financial guaranty industries, our insurance
subsidiaries have been subject to heightened scrutiny by insurance regulators.
State insurance regulatory authorities could take actions, including changes
in capital requirements or termination of waivers of capital requirements,
that could have a material adverse effect on us. As noted above, in January
2013, the CFPB issued rules to implement laws requiring mortgage lenders to
make ability-to-pay determinations prior to extending credit. We are uncertain
whether the CFPB will issue any other rules or regulations that affect our
business apart from any action it may take as a result of its investigation of
captive mortgage reinsurance. Such rules and regulations could have a material
adverse effect on us.

In October 2010, a purported class action lawsuit was filed against MGIC in
the U.S. District Court for the Western District of Pennsylvania by a loan
applicant on whose behalf a now-settled action we previously disclosed had
been filed by the U.S. Department of Justice. In this lawsuit, the loan
applicant alleged that MGIC discriminated against her and certain proposed
class members on the basis of sex and familial status when MGIC underwrote
their loans for mortgage insurance. In May 2011, the District Court granted
MGIC's motion to dismiss with respect to all claims except certain Fair
Housing Act claims. On November 29, 2012, the District Court granted final
approval for a class action settlement of the lawsuit. The settlement created
a settlement class of 265 borrowers.  Under the terms of the settlement, MGIC
deposited $500,000 into an escrow account to fund possible payments to
affected borrowers. In addition, MGIC paid the named plaintiff an "incentive
fee" of $7,500 and paid class counsels' fees of $337,500.  Any funds remaining
in the escrow account after payment of all claims approved under the
procedures established by the settlement will be returned to MGIC.

We understand several law firms have, among other things, issued press
releases to the effect that they are investigating us, including whether the
fiduciaries of our 401(k) plan breached their fiduciary duties regarding the
plan's investment in or holding of our common stock or whether we breached
other legal or fiduciary obligations to our shareholders. We intend to defend
vigorously any proceedings that may result from these investigations.

With limited exceptions, our bylaws provide that our officers and 401(k) plan
fiduciaries are entitled to indemnification from us for claims against them.

We have made substantial progress in reaching an agreement with Countrywide to
settle the dispute we have regarding rescissions. Since December 2009, we have
been involved in legal proceedings with Countrywide in which Countrywide
alleged that MGIC denied valid mortgage insurance claims. (In our SEC reports,
we refer to rescissions of insurance and denials of claims collectively as
"rescissions" and variations of that term.) In addition to the claim amounts
it alleged MGIC had improperly denied, Countrywide contended it was entitled
to other damages of almost $700 million as well as exemplary damages. We
sought a determination in those proceedings that we were entitled to rescind
coverage on the applicable loans. From January 1, 2008 through December 31,
2012, rescissions of coverage on Countrywide-related loans mitigated our paid
losses on the order of $445 million. This amount is the amount we estimate we
would have paid had the coverage not been rescinded. In addition, in
connection with mediation we were holding with Countrywide, we voluntarily
suspended rescissions related to loans that we believed could be covered by a
settlement. As of December 31, 2012, coverage on approximately 2,150 loans,
representing total potential claim payments of approximately $160 million,
that we had determined was rescindable was affected by our decision to suspend
such rescissions. While there can no assurance that we will actually enter
into a settlement agreement with Countrywide, we have determined that a
settlement with Countrywide is probable. 

We are also discussing a settlement with another customer. We have
also determined that it is probable we will reach a settlement of our dispute
with this customer. As of December 31, 2012, coverage on approximately 250
loans, representing total potential claim payments of approximately $17
million, was affected by our decision to suspend rescissions for that
customer.

We are now able to reasonably estimate the probable loss associated with each
probable settlement and, as required by ASC 450-20, we have recorded the
estimated impact of the two probable settlements referred to above in our
financial statements for the quarter ending December 31, 2012. The aggregate
impact to loss reserves for the probable settlement agreements was an increase
of approximately $100 million. This impact was somewhat offset by impacts to
our return premium accrual and premium deficiency reserve. All of these
impacts were reflected in the fourth quarter 2012 financial results. If we are
not able to reach settlement with Countrywide, we intend to defend MGIC
against any related legal proceedings, vigorously. 

The flow policies at issue with Countrywide are in the same form as the flow
policies that we use with all of our customers, and the bulk policies at issue
vary from one another, but are generally similar to those used in the majority
of our Wall Street bulk transactions. A settlement with Countrywide may
encourage other customers to pursue remedies against us. From January 1, 2008
through December 31, 2012, we estimate that total rescissions mitigated our
incurred losses by approximately $2.9 billion, which included approximately
$2.9 billion of mitigation on paid losses, excluding $0.6 billion that would
have been applied to a deductible. At December 31, 2012, we estimate that our
total loss reserves were benefited from anticipated rescissions by
approximately $0.2 billion.

Before paying a claim, we review the loan and servicing files to determine the
appropriateness of the claim amount. All of our insurance policies provide
that we can reduce or deny a claim if the servicer did not comply with its
obligations under our insurance policy, including the requirement to mitigate
our loss by performing reasonable loss mitigation efforts or, for example,
diligently pursuing a foreclosure or bankruptcy relief in a timely manner. We
call such reduction of claims submitted to us "curtailments." In 2012,
curtailments reduced our average claim paid by approximately 4%. In addition,
the claims submitted to us sometimes include costs and expenses not covered by
our insurance policies, such as mortgage insurance premiums, hazard insurance
premiums for periods after the claim date and losses resulting from property
damage that has not been repaired. These other adjustments reduced claim
amounts by less than the amount of curtailments.

After we pay a claim, servicers and insureds sometimes object to our
curtailments and other adjustments. We review these objections if they are
sent to us within 90 days after the claim was paid. Historically, we have not
had material disputes regarding our curtailments or other adjustments. As part
of our settlement discussions, Countrywide informed us that they object to
approximately $40 million of curtailment and other adjustments. In connection
with any settlement agreement with Countrywide, we expect we would enter into
a separate agreement with them that  would provide for a process to resolve
this dispute. However, we do not believe a loss is probable regarding this
curtailment dispute and have not accrued any reserves that would reflect an
adverse outcome to this dispute. We intend to defend vigorously our position
regarding the correctness of these curtailments under our insurance policy.
Although we have not had other material objections to our curtailment and
adjustment practices, there can be no assurances that we will not face
additional challenges to such practices.

A non-insurance subsidiary of our holding company is a shareholder of the
corporation that operates the Mortgage Electronic Registration System
("MERS").  Our subsidiary, as a shareholder of MERS, has been named as a
defendant (along with MERS and its other shareholders) in nine lawsuits
asserting various causes of action arising from allegedly improper recording
and foreclosure activities by MERS. Three of those lawsuits remain pending and
the other six lawsuits have been dismissed without an appeal.  The damages
sought in the remaining cases are substantial. We deny any wrongdoing and
intend to defend ourselves against the allegations in the lawsuits,
vigorously.

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

Resolution of our dispute with the Internal Revenue Service could adversely
affect us.

The Internal Revenue Service ("IRS") completed examinations of our federal
income tax returns for the years 2000 through 2007 and issued assessments for
unpaid taxes, interest and penalties related to our treatment of the
flow-through income and loss from an investment in a portfolio of residual
interests of Real Estate Mortgage Investment Conduits ("REMICs"). This
portfolio has been managed and maintained during years prior to, during and
subsequent to the examination period. The IRS indicated that it did not
believe that, for various reasons, we had established sufficient tax basis in
the REMIC residual interests to deduct the losses from taxable income. The IRS
assessment related to the REMIC issue is $190.7 million in taxes and
penalties. There would also be applicable interest which, when computed on the
amount of the assessment, is substantial. Depending on the outcome of this
matter, additional state income taxes along with any applicable interest may
become due when a final resolution is reached and could also be substantial.

We appealed these assessments within the IRS and, in 2007, we made a payment
of $65.2 million to the United States Department of the Treasury related to
this assessment. In August 2010, we reached a tentative settlement agreement
with the IRS which was not finalized. We currently expect to receive a
statutory notice of deficiency (commonly referred to as a "90-day letter") for
the disputed amounts after the first quarter of 2013. We would then be
required to litigate their validity in order to avoid payment to the IRS of
the entire amount assessed. Any such litigation could be lengthy and costly in
terms of legal fees and related expenses. We continue to believe that our
previously recorded tax provisions and liabilities are appropriate. However,
we would need to make appropriate adjustments, which could be material, to our
tax provision and liabilities if our view of the probability of success in
this matter changes, and the ultimate resolution of this matter could have a
material negative impact on our effective tax rate, results of operations,
cash flows and statutory capital. In this regard, see "— Capital requirements
may prevent us from continuing to write new insurance on an uninterrupted
basis."

Because we establish loss reserves only upon a loan default rather than based
on estimates of our ultimate losses on risk in force, losses may have a
disproportionate adverse effect on our earnings in certain periods.

In accordance with accounting principles generally accepted in the United
States, commonly referred to as GAAP, we establish loss reserves only for
loans in default. Reserves are established for reported insurance losses and
loss adjustment expenses based on when notices of default on insured mortgage
loans are received. Reserves are also established for estimated losses
incurred on notices of default that have not yet been reported to us by the
servicers (this is often referred to as "IBNR"). We establish reserves using
estimated claim rates and claim amounts in estimating the ultimate loss.
Because our reserving method does not take account of the impact of future
losses that could occur from loans that are not delinquent, our obligation for
ultimate losses that we expect to occur under our policies in force at any
period end is not reflected in our financial statements, except in the case
where a premium deficiency exists. As a result, future losses may have a
material impact on future results as such losses emerge.

Because loss reserve estimates are subject to uncertainties and are based on
assumptions that are currently very volatile, paid claims may be substantially
different than our loss reserves.

We establish reserves using estimated claim rates and claim amounts in
estimating the ultimate loss on delinquent loans. The estimated claim rates
and claim amounts represent our best estimates of what we will actually pay on
the loans in default as of the reserve date and incorporate anticipated
mitigation from rescissions. We rescind coverage on loans and deny claims in
cases where we believe our policy allows us to do so. Therefore, when
establishing our loss reserves, unless we have determined that a loss is
probable and can be reasonably estimated, we do not include additional loss
reserves that would reflect an adverse development from ongoing dispute
resolution proceedings. For more information regarding our legal proceedings ,
see "— We are involved in legal proceedings and are subject to the risk of
additional legal proceedings in the future."

The establishment of loss reserves is subject to inherent uncertainty and
requires judgment by management. Current conditions in the housing and
mortgage industries make the assumptions that we use to establish loss
reserves more volatile than they would otherwise be. The actual amount of the
claim payments may be substantially different than our loss reserve estimates.
Our estimates could be adversely affected by several factors, including a
deterioration of regional or national economic conditions, including
unemployment, leading to a reduction in borrowers' income and thus their
ability to make mortgage payments, a drop in housing values that could result
in, among other things, greater losses on loans that have pool insurance, and
may affect borrower willingness to continue to make mortgage payments when the
value of the home is below the mortgage balance, and mitigation from
rescissions being materially less than assumed. Changes to our estimates could
result in material impact to our results of operations, even in a stable
economic environment, and there can be no assurance that actual claims paid by
us will not be substantially different than our loss reserves.

We rely on our management team and our business could be harmed if we are
unable to retain qualified personnel.

Our industry is undergoing a fundamental shift following the mortgage crisis:
long-standing competitors have gone out of business and two newly capitalized,
privately-held start-ups that are not encumbered with a portfolio of
pre-crisis mortgages, have been formed. Former executives from other mortgage
insurers have joined these two new competitors. In addition, in February 2013,
a worldwide insurer and reinsurer with mortgage insurance operations in Europe
announced that it was purchasing CMG Mortgage Insurance Company. Our success
depends, in part, on the skills, working relationships and continued services
of our management team and other key personnel. The departure of key personnel
could adversely affect the conduct of our business. In such event, we would be
required to obtain other personnel to manage and operate our business, and
there can be no assurance that we would be able to employ a suitable
replacement for the departing individuals, or that a replacement could be
hired on terms that are favorable to us. We currently have not entered into
any employment agreements with our officers or key personnel. Volatility or
lack of performance in our stock price may affect our ability to retain our
key personnel or attract replacements should key personnel depart.

Loan modification and other similar programs may not continue to provide
material benefits to us and our losses on loans that re-default can be higher
than what we would have paid had the loan not been modified.

Beginning in the fourth quarter of 2008, the federal government, including
through the Federal Deposit Insurance Corporation and the GSEs, and several
lenders have adopted programs to modify loans to make them more affordable to
borrowers with the goal of reducing the number of foreclosures. During 2010,
2011 and 2012, we were notified of modifications that cured delinquencies that
had they become paid claims would have resulted in approximately $3.2 billion,
$1.8 billion and $1.2 billion, respectively, of estimated claim payments. As
noted below, we cannot predict with a high degree of confidence what the
ultimate re-default rate on these modifications will be. Although the recent
re-default rate has been lower, for internal reporting purposes, we assume
approximately 50% of these modifications will ultimately re-default, and those
re-defaults may result in future claim payments. Because modifications cure
the defaults with respect to the previously defaulted loans, our loss reserves
do not account for potential re-defaults unless at the time the reserve is
established, the re-default has already occurred. Based on information that is
provided to us, most of the modifications resulted in reduced payments from
interest rate and/or amortization period adjustments; less than 5% resulted in
principal forgiveness.

One loan modification program is the Home Affordable Modification Program
("HAMP"). Some of HAMP's eligibility criteria relate to the borrower's current
income and non-mortgage debt payments. Because the GSEs and servicers do not
share such information with us, we cannot determine with certainty the number
of loans in our delinquent inventory that are eligible to participate in HAMP.
We believe that it could take several months from the time a borrower has made
all of the payments during HAMP's three month "trial modification" period for
the loan to be reported to us as a cured delinquency.

We rely on information provided to us by the GSEs and servicers. We do not
receive all of the information from such sources that is required to determine
with certainty the number of loans that are participating in, or have
successfully completed, HAMP. We are aware of approximately 9,300 loans in our
primary delinquent inventory at December 31, 2012 for which the HAMP trial
period has begun and which trial periods have not been reported to us as
completed or cancelled. Through December 31, 2012 approximately 44,400
delinquent primary loans have cured their delinquency after entering HAMP and
are not in default. In 2011 and 2012, approximately 18% and 17%, respectively,
of our primary cures were the result of a modification, with HAMP accounting
for approximately 70% of those modifications in each year. By comparison, in
2010, approximately 27% of our primary cures were the result of a
modification, with HAMP accounting for approximately 60% of those
modifications. We believe that we have realized the majority of the benefits
from HAMP because the number of loans insured by us that we are aware are
entering HAMP trial modification periods has decreased significantly since
2010. Recent announcements by the U.S. Treasury have extended the end date of
the HAMP program through 2013, expanded the eligibility criteria of HAMP and
increased lenders' incentives to modify loans through principal forgiveness.
Approximately 66% of the loans in our primary delinquent inventory are
guaranteed by the GSEs. The GSEs have informed us that they already use
expanded criteria (beyond the HAMP guidelines) for determining eligibility for
loan modification and currently do not offer principal forgiveness. Therefore,
we currently expect new loan modifications will continue to only modestly
mitigate our losses in 2013.

In 2009, the GSEs began offering the Home Affordable Refinance Program
("HARP"). HARP allows borrowers who are not delinquent but who may not
otherwise be able to refinance their loans under the current GSE underwriting
standards, to refinance their loans. We allow the HARP refinances on loans
that we insure, regardless of whether the loan meets our current underwriting
standards, and we account for the refinance as a loan modification (even where
there is a new lender) rather than new insurance written. To incent lenders to
allow more current borrowers to refinance their loans, in October 2011, the
GSEs and their regulator, FHFA, announced an expansion of HARP. The expansion
includes, among other changes, releasing certain representations in certain
circumstances benefitting the GSEs. We have agreed to allow these additional
HARP refinances, including releasing the insured in certain circumstances from
certain rescission rights we would have under our policy. While an expansion
of HARP may result in fewer delinquent loans and claims in the future, our
ability to rescind coverage will be limited in certain circumstances. We are
unable to predict what net impact these changes may have on our incurred or
paid losses. Approximately 11% of our primary insurance in force has
benefitted from HARP and is still in force.

The effect on us of loan modifications depends on how many modified loans
subsequently re-default, which in turn can be affected by changes in housing
values. Re-defaults can result in losses for us that could be greater than we
would have paid had the loan not been modified. At this point, we cannot
predict with a high degree of confidence what the ultimate re-default rate
will be. In addition, because we do not have information in our database for
all of the parameters used to determine which loans are eligible for
modification programs, our estimates of the number of loans qualifying for
modification programs are inherently uncertain. If legislation is enacted to
permit a portion of a borrower's mortgage loan balance to be reduced in
bankruptcy and if the borrower re-defaults after such reduction, then the
amount we would be responsible to cover would be calculated after adding back
the reduction. Unless a lender has obtained our prior approval, if a
borrower's mortgage loan balance is reduced outside the bankruptcy context,
including in association with a loan modification, and if the borrower
re-defaults after such reduction, then under the terms of our policy the
amount we would be responsible to cover would be calculated net of the
reduction.

Eligibility under certain loan modification programs can also adversely affect
us by creating an incentive for borrowers who are able to make their mortgage
payments to become delinquent in an attempt to obtain the benefits of a
modification. New notices of delinquency increase our incurred losses.

If the volume of low down payment home mortgage originations declines, the
amount of insurance that we write could decline, which would reduce our
revenues.

The factors that affect the volume of low down payment mortgage originations
include:

  o restrictions on mortgage credit due to more stringent underwriting
    standards, liquidity issues and risk-retention requirements associated
    with non-QRM loans affecting lenders,
  o the level of home mortgage interest rates and the deductibility of
    mortgage interest for income tax purposes,
  o the health of the domestic economy as well as conditions in regional and
    local economies,
  o housing affordability,
  o population trends, including the rate of household formation,
  o the rate of home price appreciation, which in times of heavy refinancing
    can affect whether refinance loans have loan-to-value ratios that require
    private mortgage insurance, and
  o government housing policy encouraging loans to first-time homebuyers.

As noted above, in January 2013, the CFPB issued rules to implement laws
requiring mortgage lenders to make ability-to-pay determinations prior to
extending credit. We are uncertain whether this Bureau will issue any other
rules or regulations that affect our business or the volume of low down
payment home mortgage originations. Such rules and regulations could have a
material adverse effect on our financial position or results of operations.

A decline in the volume of low down payment home mortgage originations could
decrease demand for mortgage insurance, decrease our new insurance written and
reduce our revenues. For other factors that could decrease the demand for
mortgage insurance, see "— The amount of insurance we write could be adversely
affected if the definition of Qualified Residential Mortgage results in a
reduction of the number of low down payment loans available to be insured or
if lenders and investors select alternatives to private mortgage insurance"
and "— The implementation of the Basel III capital accord, or other changes to
our customers' capital requirements, may discourage the use of mortgage
insurance."

Competition or changes in our relationships with our customers could reduce
our revenues or increase our losses.

As noted above, the FHA substantially increased its market share beginning in
2008 and beginning in 2011, that market share began to gradually decline. It
is difficult to predict the FHA's future market share due to, among other
factors, different loan eligibility terms between the FHA and the GSEs, future
increases in guarantee fees charged by the GSEs, changes to the FHA's annual
premiums, and the total profitability that may be realized by mortgage lenders
from securitizing loans through Ginnie Mae when compared to securitizing loans
through Fannie Mae or Freddie Mac.

In recent years, the level of competition within the private mortgage
insurance industry has been intense as many large mortgage lenders reduced the
number of private mortgage insurers with whom they do business. At the same
time, consolidation among mortgage lenders has increased the share of the
mortgage lending market held by large lenders. During 2011 and 2012,
approximately 9% and 10%, respectively, of our new insurance written was for
loans for which one lender was the original insured, although revenue from
such loans was significantly less than 10% of our revenues during each of
those periods. Our private mortgage insurance competitors include:

  o Genworth Mortgage Insurance Corporation,
  o United Guaranty Residential Insurance Company,
  o Radian Guaranty Inc.,
  o CMG Mortgage Insurance Company (whose owners have agreed to sell it to a
    worldwide insurer and reinsurer), and
  o Essent Guaranty, Inc.

Until 2010 the mortgage insurance industry had not had new entrants in many
years. In 2010, Essent Guaranty, Inc. began writing new mortgage insurance.
Essent has publicly reported that one of our customers, JPMorgan Chase, is one
of its investors. During 2012, another new company, NMI Holdings Inc., raised
$550 million in order to enter the mortgage insurance business. NMI Holdings
has been approved as an eligible mortgage insurer by the GSEs and we believe
that NMI Holdings expects to launch its business in the second quarter of
2013. In addition, in February 2013, a worldwide insurer and reinsurer with
mortgage insurance operations in Europe announced that it was purchasing CMG
Mortgage Insurance Company. The perceived increase in credit quality of loans
that are being insured today, the deterioration of the financial strength
ratings of the existing mortgage insurance companies and the possibility of a
decrease in the FHA's share of the mortgage insurance market may encourage
additional new entrants.

PMI Mortgage Insurance Company and Republic Mortgage Insurance Company ceased
writing business in 2011. Based on public disclosures, these competitors
approximated slightly more than 20% of the private mortgage insurance industry
volume in the first half of 2011. Most of the market share of these two former
competitors has gone to other mortgage insurers and not to us because, among
other reasons, some competitors have materially lower premiums than we do on
single premium policies, one of these competitors also uses a risk weighted
pricing model that typically results in lower premiums than we charge on
certain loans and several of these competitors have streamlined their
underwriting to be closely aligned with that of the GSEs. We continuously
monitor the competitive landscape and make adjustments to our pricing and
underwriting guidelines as warranted.

Our relationships with our customers could be adversely affected by a variety
of factors, including tightening of and adherence to our underwriting
guidelines, which have resulted in our declining to insure some of the loans
originated by our customers and rescission of coverage on loans that affect
the customer. We have ongoing discussions with lenders who are significant
customers regarding their objections to our rescissions. In the fourth quarter
of 2009, Countrywide commenced litigation against us as a result of its
dissatisfaction with our rescission practices shortly after Countrywide ceased
doing business with us. See "— We are involved in legal proceedings and are
subject to the risk of additional legal proceedings in the future" for more
information, including about the probable settlement of that litigation.

We believe many lenders assess a mortgage insurer's financial strength rating
and risk-to-capital ratio as important elements of the process through which
they select mortgage insurers. As a result of MGIC's and MIC's less than
investment grade financial strength ratings and MGIC's risk-to-capital ratio
level being above the maximum allowed by some jurisdictions, MGIC and MIC may
be competitively disadvantaged with these lenders. MGIC's financial strength
rating from Moody's is B2 with a negative outlook and from Standard & Poor's
is B- with a negative outlook. MIC's financial strength rating from Moody's is
Ba3 with a negative outlook and from Standard & Poor's is B- with a negative
outlook. It is possible that MGIC's financial strength ratings could decline
from these levels. MGIC's risk-to-capital ratio exceeds 25:1 and the
applicable minimum capital requirement of certain states. We currently expect
to continue to report a risk-to-capital ratio in excess of 25:1. Our
risk-to-capital ratio will depend primarily on the level of incurred losses,
any settlement with the IRS, and the volume of new risk written. Our incurred
losses are dependent upon factors that make prediction of their amounts
difficult and any forecasts are subject to significant volatility. Although we
expect the risk-to-capital ratio to eventually decline, we cannot assure you
of when, or if, this will occur. Conditions that could delay the decline in
the risk-to-capital ratio include high unemployment rates, low cure rates, low
housing values, changes to our current rescission practices, unfavorable
resolution of ongoing legal proceedings and the volume of new insurance
written in MIC.

Downturns in the domestic economy or declines in the value of borrowers' homes
from their value at the time their loans closed may result in more homeowners
defaulting and our losses increasing.

Losses result from events that reduce a borrower's ability to continue to make
mortgage payments, such as unemployment, and whether the home of a borrower
who defaults on his mortgage can be sold for an amount that will cover unpaid
principal and interest and the expenses of the sale. In general, favorable
economic conditions reduce the likelihood that borrowers will lack sufficient
income to pay their mortgages and also favorably affect the value of homes,
thereby reducing and in some cases even eliminating a loss from a mortgage
default. A deterioration in economic conditions, including an increase in
unemployment, generally increases the likelihood that borrowers will not have
sufficient income to pay their mortgages and can also adversely affect housing
values, which in turn can influence the willingness of borrowers with
sufficient resources to make mortgage payments to do so when the mortgage
balance exceeds the value of the home. Housing values may decline even absent
a deterioration in economic conditions due to declines in demand for homes,
which in turn may result from changes in buyers' perceptions of the potential
for future appreciation, restrictions on and the cost of mortgage credit due
to more stringent underwriting standards, liquidity issues and risk-retention
requirements associated with non-QRM loans affecting lenders, higher interest
rates generally or changes to the deductibility of mortgage interest for
income tax purposes, or other factors. The residential mortgage market in the
United States has for some time experienced a variety of poor or worsening
economic conditions, including a material nationwide decline in housing
values, with declines continuing into early 2012 in a number of geographic
areas. Although housing values have recently been increasing in certain
markets, they generally remain significantly below their early 2007 levels.
Changes in housing values and unemployment levels are inherently difficult to
forecast given the uncertainty in the current market environment, including
uncertainty about the effect of actions the federal government has taken and
may take with respect to tax policies, mortgage finance programs and policies,
and housing finance reform.

The mix of business we write also affects the likelihood of losses occurring.

Even when housing values are stable or rising, mortgages with certain
characteristics have higher probabilities of claims. These characteristics
include loans with loan-to-value ratios over 95% (or in certain markets that
have experienced declining housing values, over 90%), FICO credit scores below
620, limited underwriting, including limited borrower documentation, or higher
total debt-to-income ratios, as well as loans having combinations of higher
risk factors. As of December 31, 2012, approximately 24.2% of our primary risk
in force consisted of loans with loan-to-value ratios greater than 95%, 7.8%
had FICO credit scores below 620, and 8.5% had limited underwriting, including
limited borrower documentation, each attribute as determined at the time of
loan origination. A material portion of these loans were written in 2005 —
2007 or the first quarter of 2008. In accordance with industry practice, loans
approved by GSEs and other automated underwriting systems under "doc waiver"
programs that do not require verification of borrower income are classified by
us as "full documentation." For additional information about such loans, see
footnote (1) to Additional Information at the end of this press release.

From time to time, in response to market conditions, we change the types of
loans that we insure and the guidelines under which we insure them. In
addition, we make exceptions to our underwriting guidelines on a loan-by-loan
basis and for certain customer programs. Together, the number of loans for
which exceptions were made accounted for fewer than 5% of the loans we insured
in 2011 and fewer than 2% of the loans we insured in 2012. A large percentage
of the exceptions were made for loans with debt-to-income ratios slightly
above our guidelines or financial reserves slightly below our guidelines.
While the debt-to-income ratio contained in our guidelines exceeds the general
requirements of the Qualified Mortgage ("QM") definition, it is within the
underwriting guidelines of the GSEs. The rule containing the QM definition
provides a temporary category of QMs that have more flexible underwriting
requirements so long as they satisfy the general product feature requirements
of QMs and so long as they meet the underwriting requirements of certain
agencies, including the GSEs. For more information, see "— The amount of
insurance we write could be adversely affected if the definition of Qualified
Residential Mortgage results in a reduction of the number of low down payment
loans available to be insured or if lenders and investors select alternatives
to private mortgage insurance." Beginning in September 2009, we have made
changes to our underwriting guidelines that have allowed certain loans to be
eligible for insurance that were not eligible prior to those changes and we
expect to continue to make changes in appropriate circumstances in the future.
As noted above in "— Competition or changes in our relationships with our
customers could reduce our revenues or increase our losses," in the first
quarter of 2012, we made changes to streamline our underwriting guidelines and
lowered our premium rates on loans with credit scores of 760 or higher. Our
underwriting guidelines are available on our website at
http://www.mgic.com/underwriting/index.html.

During the second quarter of 2012, we began writing a portion of our new
insurance under an endorsement to our master policy that limits our ability to
rescind coverage on loans that meet the conditions in that endorsement, which
is filed as Exhibit 99.7 to our quarterly report on Form 10-Q for the quarter
ended March 31, 2012 (filed with the SEC on May 10, 2012). Availability of the
endorsement is subject to approval in specified jurisdictions. We estimate
that approximately 33% of our new insurance written in the fourth quarter of
2012 and 41% of our new insurance written in December 2012, was written under
this endorsement. We expect that eventually a significant portion of our new
insurance written will have rescission terms equivalent to those in this
endorsement.

As of December 31, 2012, approximately 2.2% of our primary risk in force
written through the flow channel, and 27.5% of our primary risk in force
written through the bulk channel, consisted of adjustable rate mortgages in
which the initial interest rate may be adjusted during the five years after
the mortgage closing ("ARMs"). In the current interest rate environment,
interest rates resetting in the near future are unlikely to exceed the
interest rates at origination. We classify as fixed rate loans adjustable rate
mortgages in which the initial interest rate is fixed during the five years
after the mortgage closing. If interest rates should rise between the time of
origination of such loans and when their interest rates may be reset, claims
on ARMs and adjustable rate mortgages whose interest rates may only be
adjusted after five years would be substantially higher than for fixed rate
loans. In addition, we have insured "interest-only" loans, which may also be
ARMs, and loans with negative amortization features, such as pay option ARMs.
We believe claim rates on these loans will be substantially higher than on
loans without scheduled payment increases that are made to borrowers of
comparable credit quality.

Although we attempt to incorporate these higher expected claim rates into our
underwriting and pricing models, there can be no assurance that the premiums
earned and the associated investment income will be adequate to compensate for
actual losses even under our current underwriting guidelines. We do, however,
believe that given the various changes in our underwriting guidelines that
were effective beginning in the first quarter of 2008, our insurance written
beginning in the second quarter of 2008 will generate underwriting profits.

The premiums we charge may not be adequate to compensate us for our
liabilities for losses and as a result any inadequacy could materially affect
our financial condition and results of operations.

We set premiums at the time a policy is issued based on our expectations
regarding likely performance over the long-term. Our premiums are subject to
approval by state regulatory agencies, which can delay or limit our ability to
increase our premiums. Generally, we cannot cancel the mortgage insurance
coverage or adjust renewal premiums during the life of a mortgage insurance
policy. As a result, higher than anticipated claims generally cannot be offset
by premium increases on policies in force or mitigated by our non-renewal or
cancellation of insurance coverage. The premiums we charge, and the associated
investment income, may not be adequate to compensate us for the risks and
costs associated with the insurance coverage provided to customers. An
increase in the number or size of claims, compared to what we anticipate,
could adversely affect our results of operations or financial condition.

In January 2008, we announced that we had decided to stop writing the portion
of our bulk business that insures loans included in Wall Street
securitizations because the performance of such loans deteriorated materially
in the fourth quarter of 2007 and this deterioration was materially worse than
we experienced for loans insured through the flow channel or loans insured
through the remainder of our bulk channel. As of December 31, 2007 we
established a premium deficiency reserve of approximately $1.2 billion. As of
December 31, 2012, the premium deficiency reserve was $74 million, which
reflects the present value of expected future losses and expenses that exceeds
the present value of expected future premium and already established loss
reserves on these bulk transactions.

We continue to experience material losses, especially on the 2006 and 2007
books. The ultimate amount of these losses will depend in part on general
economic conditions, including unemployment, and the direction of home prices,
which in turn will be influenced by general economic conditions and other
factors. Because we cannot predict future home prices or general economic
conditions with confidence, there is significant uncertainty surrounding what
our ultimate losses will be on our 2006 and 2007 books. Our current
expectation, however, is that these books will continue to generate material
incurred and paid losses for a number of years. There can be no assurance that
an additional premium deficiency reserve on Wall Street Bulk or on other
portions of our insurance portfolio will not be required.

It is uncertain what effect the extended timeframes in the foreclosure
process, due to moratoriums, suspensions or issues arising from the
investigation of servicers' foreclosure procedures, will have on us.

In response to the significant increase in the number of foreclosures that
began in 2009, various government entities and private parties have from time
to time enacted foreclosure (or equivalent) moratoriums and suspensions (which
we collectively refer to as moratoriums). In October 2010, a number of
mortgage servicers temporarily halted some or all of the foreclosures they
were processing after discovering deficiencies in their foreclosure processes
and those of their service providers.  In response to the deficiencies, some
states changed their foreclosure laws to require additional review and
verification of the accuracy of foreclosure filings. Some states also added
requirements to the foreclosure process, including mediation processes and
requirements to file new affidavits.  Certain state courts have issued rulings
calling into question the validity of some existing foreclosure practices.
These actions halted or significantly delayed foreclosures. Furthermore five
of the nation's largest mortgage servicers agreed to implement new servicing
and foreclosure practices as part of a settlement announced in February 2012,
with the federal government and the attorneys general of 49 states.

Past moratoriums or delays were designed to afford time to determine whether
loans could be modified and did not stop the accrual of interest or affect
other expenses on a loan, and we cannot predict whether any future moratorium
or lengthened timeframes would do so. Therefore, unless a loan is cured during
a moratorium or delay, at the completion of a foreclosure, additional interest
and expenses may be due to the lender from the borrower. In some
circumstances, our paid claim amount may include some additional interest and
expenses. For moratoriums or delays resulting from investigations into
servicers and other parties' actions in foreclosure proceedings, our
willingness to pay additional interest and expenses may be different, subject
to the terms of our mortgage insurance policies. The various moratoriums and
extended timeframes may temporarily delay our receipt of claims and may
increase the length of time a loan remains in our delinquent loan inventory.

We do not know what effect improprieties that may have occurred in a
particular foreclosure have on the validity of that foreclosure, once it was
completed and the property transferred to the lender. Under our policy, in
general, completion of a foreclosure is a condition precedent to the filing of
a claim. Beginning in 2011 and from time to time, various courts have ruled
that servicers did not provide sufficient evidence that they were the holders
of the mortgages and therefore they lacked authority to foreclose. Some courts
in other jurisdictions have considered similar issues and reached similar
conclusions, but other courts have reached different conclusions. These
decisions have not had a direct impact on our claims processes or rescissions.

We are susceptible to disruptions in the servicing of mortgage loans that we
insure.

We depend on reliable, consistent third-party servicing of the loans that we
insure. Over the last several years, the mortgage loan servicing industry has
experienced consolidation. The resulting reduction in the number of servicers
could lead to disruptions in the servicing of mortgage loans covered by our
insurance policies. In addition, current housing market trends have led to
significant increases in the number of delinquent mortgage loans requiring
servicing. These increases have strained the resources of servicers, reducing
their ability to undertake mitigation efforts that could help limit our
losses, and have resulted in an increasing amount of delinquent loan servicing
being transferred to specialty servicers. The transfer of servicing can cause
a disruption in the servicing of delinquent loans. Future housing market
conditions could lead to additional increases in delinquencies. Managing a
substantially higher volume of non-performing loans could lead to increased
disruptions in the servicing of mortgages. Investigations into whether
servicers have acted improperly in foreclosure proceedings may further strain
the resources of servicers.

If interest rates decline, house prices appreciate or mortgage insurance
cancellation requirements change, the length of time that our policies remain
in force could decline and result in declines in our revenue.

In each year, most of our premiums are from insurance that has been written in
prior years. As a result, the length of time insurance remains in force, which
is also generally referred to as persistency, is a significant determinant of
our revenues. The factors affecting the length of time our insurance remains
in force include:

  o the level of current mortgage interest rates compared to the mortgage
    coupon rates on the insurance in force, which affects the vulnerability of
    the insurance in force to refinancings, and
  o mortgage insurance cancellation policies of mortgage investors along with
    the current value of the homes underlying the mortgages in the insurance
    in force.

Our persistency rate was 79.8% at December 31, 2012, compared to 82.9% at
December 31, 2011 and 84.4% at December 31, 2010. During the 1990s, our
year-end persistency ranged from a high of 87.4% at December 31, 1990 to a low
of 68.1% at December 31, 1998. Since 2000, our year-end persistency ranged
from a high of 84.7% at December 31, 2009 to a low of 47.1% at December 31,
2003.

Current mortgage interest rates are at or near historic lows. The high-quality
mortgages insured by us in recent years that have not experienced significant
declines in underlying home prices, are especially vulnerable to refinancing.
Future premiums on our insurance in force represent a material portion of our
claims paying resources. We are unsure what the impact on our revenues will be
as mortgages are refinanced, because the number of policies we write for
replacement mortgages may be more or less than the terminated policies
associated with the refinanced mortgages.

Your ownership in our company may be diluted by additional capital that we
raise or if the holders of our outstanding convertible debt convert that debt
into shares of our common stock.

As noted above under "— Capital requirements may prevent us from continuing to
write new insurance on an uninterrupted basis," we may need to raise
additional equity capital. Any future issuance of equity securities may
substantially dilute your ownership interest in our company. In addition, the
market price of our common stock could decline as a result of sales of a large
number of shares or similar securities in the market or the perception that
such sales could occur.

We have $389.5 million principal amount of 9% Convertible Junior Subordinated
Debentures outstanding. The principal amount of the debentures is currently
convertible, at the holder's option, at an initial conversion rate, which is
subject to adjustment, of 74.0741 common shares per $1,000 principal amount of
debentures. This represents an initial conversion price of approximately
$13.50 per share. We have elected to defer the payment of approximately $17.5
million of interest on these debentures that was scheduled to be paid on
October 1, 2012. We expect to defer additional interest in the future. If a
holder elects to convert its debentures, the interest that has been deferred
on the debentures being converted is also converted into shares of our common
stock. The conversion rate for such deferred interest is based on the average
price that our shares traded at during a 5-day period immediately prior to the
election to convert the associated debentures. We also have $345 million
principal amount of 5% Convertible Senior Notes outstanding. The Convertible
Senior Notes are convertible, at the holder's option, at an initial conversion
rate, which is subject to adjustment, of 74.4186 shares per $1,000 principal
amount at any time prior to the maturity date. This represents an initial
conversion price of approximately $13.44 per share. We do not have the right
to defer interest on these Convertible Senior Notes.

Our common stock could be delisted from the NYSE

The listing of our common stock on the New York Stock Exchange, or NYSE, is
subject to compliance with NYSE's continued listing standards. Among other
things, those standards require that the average closing price of our common
stock during any consecutive 30-day trading period not fall below $1.00.
Although we have not failed this standard, on three trading days in August
2012, the closing price of our stock fell below $1.00. If we are notified by
the NYSE that we have not satisfied this stock price standard, then we would
have a period of time in which to cure the deficiency, such as by effecting a
reverse stock split. The NYSE can also, in its discretion, discontinue listing
our common stock under certain circumstances. For example, if we cease writing
new insurance, our common stock could be delisted from the NYSE unless we cure
the deficiency during the time provided by the NYSE. If the NYSE were to
delist our common stock, it likely would result in a significant decline in
the trading price, trading volume and liquidity of our common stock. We also
expect that the suspension and delisting of our common stock would lead to
decreases in analyst coverage and market-making activity relating to our
common stock, as well as reduced information about trading prices and volume.
As a result, it could become significantly more difficult for our shareholders
to sell their shares of our common stock at prices comparable to those in
effect prior to delisting or at all.

Our debt obligations materially exceed our holding company cash and
investments

At December 31, 2012, we had approximately $315 million in cash and
investments at our holding company and our holding company's debt obligations
were $835 million in par value, consisting of $100 million of Senior Notes due
in November 2015, $345 million of Convertible Senior Notes due in 2017, and
$390 million of Convertible Junior Debentures due in 2063. Annual debt service
on the debt outstanding as of December 31, 2012, is $58 million, including
approximately $35 million on the Convertible Junior Debentures for which we
have deferred the interest that was scheduled to be paid on October 1, 2012.
Any deferred interest compounds at the stated rate of 9%.

The Senior Notes, Convertible Senior Notes and Convertible Junior Debentures
are obligations of our holding company, MGIC Investment Corporation, and not
of its subsidiaries. Our holding company has no material sources of cash
inflows other than investment income. The payment of dividends from our
insurance subsidiaries, which prior to raising capital in the public markets
in 2008 and 2010 had been the principal source of our holding company cash
inflow, is restricted by insurance regulation. MGIC is the principal source of
dividend-paying capacity.  Since 2008, MGIC has not paid any dividends to our
holding company. Through 2013, MGIC cannot pay any dividends to our holding
company without approval from the OCI. In connection with the approval of MIC
as an eligible mortgage insurer, Freddie Mac and Fannie Mae have imposed
dividend restrictions on MGIC and MIC through December 31, 2013. Any
additional capital contributions to our subsidiaries, including our
non-insurance subsidiaries, would further decrease our holding company cash
and investments. See Note 8 – "Debt" to our consolidated financial statements
included in our Annual Report on Form 10-K for the year ended December 31,
2011 for additional information about the holding company's debt obligations,
including restrictive covenants in our Senior Notes and our right to defer
interest on our Convertible Junior Debentures.

We could be adversely affected if personal information on consumers that we
maintain is improperly disclosed.

As part of our business, we maintain large amounts of personal information on
consumers. While we believe we have appropriate information security policies
and systems to prevent unauthorized disclosure, there can be no assurance that
unauthorized disclosure, either through the actions of third parties or
employees, will not occur. Unauthorized disclosure could adversely affect our
reputation and expose us to material claims for damages.

The implementation of the Basel III capital accord, or other changes to our
customers' capital requirements, may discourage the use of mortgage insurance.

In 1988, the Basel Committee on Banking Supervision (the "Basel Committee")
developed the Basel Capital Accord (Basel I), which set out international
benchmarks for assessing banks' capital adequacy requirements. In June 2005,
the Basel Committee issued an update to Basel I (as revised in November 2005,
Basel II). Basel II was implemented by many banks in the United States and
many other countries in 2009 and 2010.

In December 2010, the Basel Committee released the nearly final version of
Basel III. In June 2012, federal regulators requested public comments on
proposed rules to implement Basel III. The proposed Basel III rules would
increase the capital requirements of many banking organizations. Among other
provisions, the proposed rules contain a range of risk weightings for
residential mortgages held for investment by certain banking organizations,
with the specific weighting dependent upon, among other things, a loan's LTV.
Unlike previous Basel rules, the proposed Basel III rules do not consider
mortgage insurance when calculating a loan's risk weighting. The rules, if
implemented as proposed, may reduce the incentive of banking organizations to
purchase mortgage insurance for loans held for investment. The proposed Basel
III rules continue to afford FHA-insured loans and Ginnie Mae mortgage-backed
securities ("MBS") a lower risk weighting than Fannie Mae and Freddie Mac MBS.
Therefore, with respect to capital requirements, FHA-insured loans will
continue to have a competitive advantage over loans insured by private
mortgage insurance and then sold to and securitized by the GSEs. Public
comments to the proposed rules were due by October 22, 2012. It is uncertain
what form the final rules will take. We are continuing to evaluate the
potential effects of the proposed Basel III rules on our business.

Our Australian operations may suffer significant losses.

We began international operations in Australia, where we started to write
business in June 2007. Since 2008, we are no longer writing new business in
Australia. Our existing risk in force in Australia is subject to the risks
described in the general economic and insurance business-related factors
discussed above. In addition to these risks, we are subject to a number of
other risks from having deployed capital in Australia, including foreign
currency exchange rate fluctuations and interest-rate volatility particular to
Australia.

 

 

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
                           Three Months Ended      Year Ended December 31,
                           December 31,
                           2012         2011       2012           2011
                           (Unaudited)
                            (In thousands, except per share data)
Net premiums written       $            $          $              $        
                           260,736      263,773    1,017,832      1,064,380
Net premiums earned        $            $          $              $        
                           261,705      275,741    1,033,170      1,123,835
Investment income          21,660       40,339     121,640        201,270
Realized gains, net        87,362       104,530    197,719        143,430
Total other-than-temporary
                           (1,970)      (462)      (2,310)        (715)
  impairment losses
Portion of loss recognized

  in other comprehensive
income (loss), before      -            -          -              -
taxes
Net impairment losses
                           (1,970)      (462)      (2,310)        (715)
  recognized in earnings
Other revenue              2,615        26,842     28,145         36,459
Total revenues             371,372      446,990    1,378,364      1,504,279
Losses and expenses:
Losses incurred            688,636      482,070    2,067,253      1,714,707
Change in premium          (10,351)     (11,709)   (61,036)       (44,150)
deficiency reserve
Underwriting and other     51,516       50,680     201,447        214,750
expenses, net
Interest expense           25,327       25,142     99,344         103,271
Total losses and expenses  755,128      546,183    2,307,008      1,988,578
Loss before tax            (383,756)    (99,193)   (928,644)      (484,299)
Provision for (benefit     2,935        36,101     (1,565)        1,593
from) income taxes
Net Loss                   $            $          $              $        
                           (386,691)    (135,294)   (927,079)      (485,892)
Diluted weighted average
common shares
outstanding                202,014      201,125    201,892        201,019
                           $            $          $              $          
Diluted loss per share        (1.91)                   (4.59)          (2.42)
                                         (0.67)

NOTE: See "Certain Non-GAAP Financial Measures" for diluted earnings per
share contribution from realized gains and losses.

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF

 
                             December 31,      December 31,     December 31,
                             2012              2011             2010
                             (Unaudited)
                             (In thousands, except per share data)
ASSETS
Investments (1)              $      4,230,275  $                $        
                                               5,823,647        7,458,282
Cash and cash equivalents    1,027,625         995,799          1,304,154
Reinsurance recoverable on   104,848           154,607          275,290
loss reserves (2)
Prepaid reinsurance          841               1,617            2,637
premiums
Home office and equipment,   27,190            28,145           28,638
net
Deferred insurance policy    11,245            7,505            8,282
acquisition costs
Other assets                 172,300           204,910          256,359
                             $      5,574,324  $                $        
                                               7,216,230        9,333,642
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Loss reserves (2)            $      4,056,843  $                $        
                                               4,557,512        5,884,171
Unearned premiums            138,840           154,866          215,157
Premium deficiency reserve   73,781            134,817          178,967
Senior notes                 99,910            170,515          376,329
Convertible senior notes     345,000           345,000          345,000
Convertible junior           379,609           344,422          315,626
debentures
Other liabilities            283,401           312,283          349,337
Total liabilities            5,377,384         6,019,415        7,664,587
Shareholders' equity         196,940           1,196,815        1,669,055
                             $      5,574,324  $                $        
                                               7,216,230        9,333,642
Book value per share (3)     $                 $                $            
                              0.97                 5.95               8.33
(1) Investments include
net unrealized               41,541            120,087          88,424

gains on securities
(2) Loss reserves, net of
reinsurance
                             3,951,995         4,402,905        5,608,881
recoverable on loss
reserves
(3) Shares outstanding       202,032           201,172          200,450

CERTAIN NON-GAAP FINANCIAL MEASURES

 
                         Three Months Ended        Year Ended December 31,
                         December 31,
                         2012         2011         2012          2011
                         (Unaudited)
                         (In thousands, except per share data)
Diluted earnings per
share contribution

  from realized gains
(losses):
Realized gains and       $            $            $             $          
impairment losses         85,392      104,068        195,409       142,715
Income taxes at 35% (1)  -            -            -             -
After tax realized gains 85,392       104,068      195,409       142,715
Weighted average shares  202,014      201,125      201,892       201,019
Diluted EPS contribution
from realized

   gains and
impairment losses        $            $            $             $          
                              0.42         0.52            0.97          0.71

     Due to the establishment of a valuation allowance, income taxes provided
     are not currently affected by realized gains or losses. Management
 (1) believes the diluted earnings per share contribution from realized gains
     or losses provides useful information to investors because it shows the
     after-tax effect of these items, which can be discretionary.

 

                       Additional Information
             Q3 2011       Q4 2011       Q1 2012       Q2 2012       Q3 2012       Q4 2012
New primary
insurance
written      $ 3.9         $ 4.2         $ 4.2         $ 5.9         $ 7.0         $ 7.0
(NIW)
(billions)
New primary
risk written $ 1.0         $ 1.0         $ 1.0         $ 1.5         $ 1.8         $ 1.7
(billions)
Product mix
as a % of
primary flow
NIW
>95% LTVs    2%            2%            2%            3%            3%            3%
ARMs         1%            1%            1%            1%            1%            1%
Refinances   20%           39%           42%           32%           32%           41%
Primary
Insurance In
Force (IIF)  $ 179.0       $ 172.9       $ 169.0       $ 166.7       $ 164.9       $ 162.1
(billions)
(1)
Flow         $ 158.3       $ 153.5       $ 150.3       $ 148.6       $ 147.5       $ 146.2
Bulk         $ 20.7        $ 19.4        $ 18.7        $ 18.1        $ 17.4        $ 15.9
Prime (620 & $ 150.9       $ 146.3       $ 143.5       $ 142.3       $ 141.7       $ 140.4
>)
A minus (575 $ 10.1        $ 9.7         $ 9.3         $ 8.9         $ 8.5         $ 8.2
- 619)
Sub-Prime (< $ 2.7         $ 2.6         $ 2.5         $ 2.4         $ 2.3         $ 2.3
575)
Reduced Doc  $ 15.3        $ 14.3        $ 13.7        $ 13.1        $ 12.4        $ 11.2
(All FICOs)
Annual       83.7%         82.9%         82.2%         81.4%         80.2%         79.8%
Persistency
Primary Risk
In Force
(RIF)        $ 46.0        $ 44.5        $ 43.5        $ 42.9        $ 42.5        $ 41.7
(billions)
(1)
Prime (620 & $ 38.3        $ 37.2        $ 36.5        $ 36.2        $ 36.1        $ 35.8
>)
A minus (575 $ 2.7         $ 2.6         $ 2.6         $ 2.4         $ 2.3         $ 2.2
- 619)
Sub-Prime (< $ 0.8         $ 0.8         $ 0.7         $ 0.7         $ 0.7         $ 0.7
575)
Reduced Doc  $ 4.2         $ 3.9         $ 3.7         $ 3.6         $ 3.4         $ 3.0
(All FICOs)
RIF by FICO
FICO 620 & > 91.5%         91.5%         91.7%         91.9%         92.1%         92.2%
FICO 575 -   6.6%          6.6%          6.4%          6.3%          6.1%          6.0%
619
FICO < 575   1.9%          1.9%          1.9%          1.8%          1.8%          1.8%
Average
Coverage
Ratio
(RIF/IIF)
(1)
Total        25.7%         25.7%         25.7%         25.8%         25.8%         25.7%
Prime (620 & 25.4%         25.4%         25.4%         25.5%         25.5%         25.5%
>)
A minus (575 27.2%         27.3%         27.3%         27.4%         27.4%         27.4%
- 619)
Sub-Prime (< 28.8%         28.9%         28.9%         28.9%         29.0%         29.0%
575)
Reduced Doc  27.3%         27.2%         27.3%         27.2%         27.2%         27.0%
(All FICOs)
Average Loan
Size
(thousands)
(1)
Total IIF    $ 156.79      $ 158.59      $ 158.89      $ 159.59      $ 160.70      $ 161.06
Flow         $ 155.72      $ 157.87      $ 158.28      $ 159.20      $ 160.62      $ 161.42
Bulk         $ 165.42      $ 164.55      $ 163.99      $ 162.80      $ 161.38      $ 157.85
Prime (620 & $ 156.55      $ 158.87      $ 159.29      $ 160.26      $ 161.69      $ 162.45
>)
A minus (575 $ 130.60      $ 130.70      $ 130.37      $ 129.86      $ 129.43      $ 128.85
- 619)
Sub-Prime (< $ 120.73      $ 121.13      $ 120.98      $ 120.65      $ 120.01      $ 119.63
575)
Reduced Doc  $ 196.26      $ 194.06      $ 193.54      $ 192.23      $ 191.18      $ 188.21
(All FICOs)
Primary IIF
- # of loans 1,141,442     1,090,086     1,063,797     1,044,342     1,026,200     1,006,346
(1)
Prime (620 & 964,011       921,112       901,300       887,967       875,953       864,432
>)
A minus (575 77,548        74,036        71,250        68,538        65,878        63,438
- 619)
Sub-Prime (< 22,252        21,391        20,633        20,003        19,371        18,805
575)
Reduced Doc  77,631        73,547        70,614        67,834        64,998        59,671
(All FICOs)
             Q3 2011       Q4 2011       Q1 2012       Q2 2012       Q3 2012       Q4 2012
Primary IIF
- Delinquent
Roll Forward
- # of Loans
Beginning
Delinquent   184,452       180,894       175,639       160,473       153,990       148,885
Inventory
Plus: New    44,342        41,796        34,781        32,241        34,432        31,778
Notices
Less: Cures  (34,335)      (33,837)      (37,144)      (26,368)      (27,384)      (29,352)
Less: Paids
(including
those        (12,033)      (12,086)      (11,909)      (11,738)      (11,344)      (10,750)
charged to a
deductible
or captive)
Less:
Rescissions  (1,532)       (1,128)       (894)         (618)         (809)         (716)
and denials
(5)
Ending
Delinquent   180,894       175,639       160,473       153,990       148,885       139,845
Inventory
Primary
claim
received
inventory
included in  13,799        12,610        12,758        13,421        12,508        11,731
ending
delinquent
inventory
(5)
Composition
of Cures
Reported
delinquent   10,240        9,333         11,353        7,104         8,097         7,819
and cured
intraquarter
Number of
payments
delinquent
prior to
cure
3 payments   12,663        13,883        16,523        11,875        10,593        11,651
or less
4-11         6,840         6,298         6,277         5,349         5,433         5,476
payments
12 payments  4,592         4,323         2,991         2,040         3,261         4,406
or more
Total Cures  34,335        33,837        37,144        26,368        27,384        29,352
in Quarter
Composition
of Paids
Number of
payments
delinquent
at time of
claim
payment
3 payments   55            38            44            50            71            55
or less
4-11         1,317         1,600         1,776         1,840         1,771         1,584
payments
12 payments  10,661        10,448        10,089        9,848         9,502         9,111
or more
Total Paids  12,033        12,086        11,909        11,738        11,344        10,750
in Quarter
Aging of
Primary
Delinquent
Inventory
Consecutive
months in
default
3 months or  33,167    18% 31,456    18% 22,516    14% 24,488    16% 25,593    17% 23,282    17%
less
4-11 months  45,110    25% 46,352    26% 45,552    28% 38,400    25% 35,029    24% 34,688    25%
12 months or 102,617   57% 97,831    56% 92,405    58% 91,102    59% 88,263    59% 81,875    58%
more
Number of
payments
delinquent
3 payments   43,312    24% 42,804    24% 33,579    21% 33,677    22% 35,130    24% 34,245    24%
or less
4-11         47,929    26% 47,864    27% 45,539    28% 39,744    26% 36,359    24% 34,458    25%
payments
12 payments  89,653    50% 84,971    49% 81,355    51% 80,569    52% 77,396    52% 71,142    51%
or more
Primary IIF
- # of       180,894       175,639       160,473       153,990       148,885       139,845
Delinquent
Loans (1)
Flow         137,084       134,101       121,959       116,798       113,339       107,497
Bulk         43,810        41,538        38,514        37,192        35,546        32,348
Prime (620 & 114,828       112,403       102,884       98,447        95,517        90,270
>)
A minus (575 26,600        25,989        23,002        22,428        21,865        20,884
- 619)
Sub-Prime (< 9,562         9,326         8,434         8,175         7,999         7,668
575)
Reduced Doc  29,904        27,921        26,153        24,940        23,504        21,023
(All FICOs)
Primary IIF
Delinquency  15.85%        16.11%        15.09%        14.75%        14.51%        13.90%
Rates (1)
Flow         13.49%        13.79%        12.84%        12.51%        12.34%        11.87%
Bulk         35.02%        35.33%        33.82%        33.50%        32.97%        32.10%
Prime (620 & 11.91%        12.20%        11.42%        11.09%        10.90%        10.44%
>)
A minus (575 34.30%        35.10%        32.28%        32.72%        33.19%        32.92%
- 619)
Sub-Prime (< 42.97%        43.60%        40.88%        40.87%        41.29%        40.78%
575)
Reduced Doc  38.52%        37.96%        37.04%        36.77%        36.16%        35.23%
(All FICOs)
             Q3 2011       Q4 2011       Q1 2012       Q2 2012       Q3 2012       Q4 2012
Reserves
Primary
Direct Loss
Reserves     $ 4,403       $ 4,249       $ 3,985       $ 3,934       $ 3,855       $ 3,744
(millions)
Average
Direct       $ 24,342      $ 24,193      $ 24,835      $ 25,547      $ 25,890      $ 26,771
Reserve Per
Default
Pool
Direct Loss
Reserves     $ 379         $ 299         $ 216         $ 168         $ 144         $ 140
(millions)
Ending
Delinquent   33,792        32,971        26,601        25,178        9,337     (6) 8,594
Inventory
Pool claim
received
inventory
included in  1,345         1,398         893           1,154         255           304
ending
delinquent
inventory
Reserves
related to
Freddie Mac  -             -             -             -             -             167
settlement
(6)
Other Gross
Reserves     $ 10          $ 10          $ 8           $ 7           $ 5           $ 6
(millions)
(4)
Net Paid
Claims       $ 751         $ 704         $ 673         $ 636         $ 587         $ 628
(millions)
(1) (2)
Flow         $ 475         $ 484         $ 459         $ 466         $ 430         $ 425
Bulk         $ 137         $ 135         $ 124         $ 113         $ 115         $ 98
Pool - with
aggregate    $ 138         $ 90          $ 95          $ 64          $ 42          $ 9
loss limits
Pool -
without      $ 6           $ 4           $ 4           $ 6           $ 7           $ 7
aggregate
loss limits
Pool -
Freddie Mac  $ -           $ -           $ -           $ -           $ -           $ 100
settlement
(6)
Reinsurance  $ (20)        $ (28)        $ (24)        $ (25)        $ (21)        $ (20)
Other (4)    $ 15          $ 19          $ 15          $ 12          $ 14          $ 9
Reinsurance
terminations $ (36)        $ -           $ -           $ -           $ -           $ (6)
(2)
Prime (620 & $ 419         $ 430         $ 408         $ 402         $ 378         $ 370
>)
A minus (575 $ 68          $ 62          $ 64          $ 63          $ 57          $ 51
- 619)
Sub-Prime (< $ 17          $ 14          $ 18          $ 18          $ 16          $ 13
575)
Reduced Doc  $ 108         $ 113         $ 93          $ 96          $ 94          $ 89
(All FICOs)
Primary
Average
Claim        $ 50.9        $ 51.1        $ 48.9        $ 49.3        $ 48.0        $ 48.6
Payment
(thousands)
(1)
Flow         $ 48.0        $ 48.3        $ 46.2        $ 46.8        $ 44.8        $ 45.8
Bulk         $ 64.2        $ 64.5        $ 62.6        $ 63.2        $ 65.4        $ 66.4
Prime (620 & $ 49.5        $ 49.6        $ 47.4        $ 47.6        $ 45.9        $ 46.7
>)
A minus (575 $ 46.1        $ 44.3        $ 44.5        $ 44.6        $ 42.5        $ 43.1
- 619)
Sub-Prime (< $ 43.9        $ 40.7        $ 44.9        $ 44.4        $ 46.2        $ 44.6
575)
Reduced Doc  $ 63.9        $ 66.8        $ 62.6        $ 64.3        $ 65.6        $ 65.9
(All FICOs)
Risk sharing
Arrangements
- Flow Only
% insurance
inforce      14.4%         13.8%         13.1%         12.7%         12.2%         11.3%
subject to
risk sharing
% Quarterly
NIW subject  5.6%          5.3%          5.4%          5.6%          5.6%          4.6%
to risk
sharing
Premium
ceded        $ 11.4        $ 9.9         $ 9.2         $ 8.7         $ 8.2         $ 7.3
(millions)
Captive
trust fund
assets       $ 392         $ 386         $ 371         $ 360         $ 350         $ 328
(millions)
(2)
Captive
Reinsurance
Ceded Losses $ 17.4        $ 15.5        $ 13.5        $ 12.2        $ 12.2        $ 10.6
Incurred -
Flow Only
(millions)
Active
excess of
Loss
Book Year
2005         $ 4.4         $ 3.5         $ 2.5         $ 3.2         $ 2.2         $ 3.1
2006         $ 1.6         $ 1.5         $ 1.5         $ 0.8         $ 0.5         $ 0.5
2007         $ 0.9         $ 0.8         $ 0.6         $ 0.8         $ 0.2         $ 0.3
2008         $ 2.3         $ 1.8         $ 1.9         $ 1.5         $ 0.3         $ 0.1
Active quota
Share
Book Year
2005         $ 1.0         $ 1.4         $ 1.1         $ 1.2         $ 1.6         $ 1.1
2006         $ 1.2         $ 1.5         $ 1.2         $ 1.0         $ 1.5         $ 1.1
2007         $ 4.2         $ 4.3         $ 3.7         $ 3.4         $ 5.2         $ 4.0
2008         $ 1.1         $ 0.6         $ 0.9         $ 0.3         $ 0.6         $ 0.5
2009         $ -           $ 0.1         $ 0.1         $ -           $ -           $ -
2010         $ -           $ -           $ -           $ -           $ 0.1         $ -
Terminated   $ 0.7         $ -           $ -           $ -           $ -           $ (0.1)
agreements
             Q3 2011       Q4 2011       Q1 2012       Q2 2012       Q3 2012       Q4 2012
Direct Pool
RIF
(millions)
With
aggregate    $ 770         $ 674         $ 569         $ 508         $ 469         $ 439
loss limits
Without
aggregate    $ 1,260       $ 1,177       $ 1,092       $ 1,024       $ 945         $ 879
loss limits
Mortgage
Guaranty
Insurance    22.2:1        20.3:1        20.3:1        27.8:1        31.5:1        44.7:1
Corporation
- Risk to
Capital
Combined
Insurance
Companies -  24.0:1        22.2:1        22.2:1        30.0:1        34.1:1        47.8:1
Risk to
Capital
GAAP loss
ratio
(insurance   168.2%        174.8%        128.5%        227.3%        184.0%        263.1%
operations
only) (3)
GAAP
underwriting
expense
ratio        16.4%         14.9%         16.7%         16.6%         13.6%         14.2%
(insurance
operations
only)

 

Note: The FICO credit score for a loan with multiple borrowers is the lowest
of the borrowers' "decision FICO scores." A borrower's "decision FICO score"
is determined as follows: if there are three FICO scores available, the middle
FICO score is used; if two FICO scores are available, the lower of the two is
used; if only one FICO score is available, it is used.
Note: The results of our operations in Australia are included in the financial
statements in this document but the additional information in this document
does not include our Australian operations, unless otherwise noted, which are
immaterial.
Note: During the fourth quarter of 2012, 941 loans were cured as a result of
the aggregate loss limits on certain policies being reached. These policies
are not related to the recently disclosed Freddie Mac settlement.
(1) In accordance with industry practice, loans approved by GSE and other
automated underwriting (AU) systems under "doc waiver" programs that do not
require verification of borrower income are classified by MGIC as "full doc."
Based in part on information provided by the GSEs, MGIC estimates full doc
loans of this type were approximately 4% of 2007 NIW. Information for other
periods is not available. MGIC understands these AU systems grant such doc
waivers for loans they judge to have higher credit quality. MGIC also
understands that the GSEs terminated their "doc waiver" programs in the second
half of 2008. Reduced documentation loans only appear in the reduced
documentation category and do not appear in any of the other categories.
(2) Net paid claims, as presented, does not include amounts received in
conjunction with termination of reinsurance agreements. In a termination, the
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 the investment portfolio (including cash and cash equivalents)
and there is a corresponding decrease in reinsurance recoverable on loss
reserves. This results in an increase in net loss reserves, which is offset by
a decrease in net losses paid.
(3) As calculated, does not reflect any effects due to premium deficiency.
(4) Includes Australian operations
(5) Refer to our risk factor titled "Our losses could increase if we do not
prevail in proceedings challenging whether our rescissions were proper, we
enter into material resolution arrangements or rescission rates decrease
faster than we are projecting" above for information about our suspension of
certain rescissions and the number of rescissions suspended as of December 31,
2012.
(6) During the third quarter of 2012, approximately 15,600 pool notices were
removed from the pool notice inventory due to the exhaustion of the aggregate
loss on a pool policy we have with Freddie Mac. 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 this pool policy. 

 

SOURCE MGIC Investment Corporation

Website: http://www.mgic.com
Contact: Investors, Michael J. Zimmerman, Investor Relations, (414) 347-6596,
mike_zimmerman@mgic.com, or Media, Katie Monfre, Corporate Communications,
(414) 347-2650, katie_monfre@mgic.com
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