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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ________________
Commission file number 1-10816
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MGIC Investment Corporation
(Exact name of registrant as specified in its charter)
Wisconsin 39-1486475
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
MGIC Plaza, 250 East Kilbourn Avenue, Milwaukee, Wisconsin 53202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 347-6480
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Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class: Common Stock, Par Value $1 Per Share
Common Share Purchase Rights
Name of Each Exchange
on Which Registered: New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Class: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of February 1, 2000: $4.3 billion.*
____________________
* Solely for purposes of computing such value and without thereby admitting that
such persons are affiliates of the Registrant, shares held by The Northwestern
Mutual Life Insurance Company and by directors and executive officers of the
Registrant are deemed to be held by affiliates of the Registrant. Shares held
are those shares beneficially owned for purposes of Rule 13d-3 under the
Securities Exchange Act of 1934 but excluding shares subject to stock options.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of February 1, 2000: 105,778,434.
The following documents have been incorporated by reference in this Form 10-K,
as indicated:
Part and Item Number of
Form 10-K Into Which
Document Incorporated
- -------- ------------
1. Information from 1999 Annual Report to Item 1 of Part I
Shareholders (for Fiscal Year Items 5 through 8 of Part II
Ended December 31, 1999)
2. Proxy Statement for the 2000 Annual Items 10 through 13 of Part III
Meeting of Shareholders
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
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Part I
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Item 1. Business.
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A. General
MGIC Investment Corporation (the "Company") is a holding company which,
through its wholly owned subsidiary, Mortgage Guaranty Insurance Corporation
("MGIC"), is the leading provider of private mortgage insurance coverage in the
United States to the home mortgage lending industry. Private mortgage insurance
covers residential first mortgage loans and expands home ownership opportunities
by enabling people to purchase homes with less than 20% down payments. If the
home owner defaults, private mortgage insurance reduces and, in some instances,
eliminates the loss to the insured institution. Private mortgage insurance also
facilitates the sale of low down payment mortgage loans in the secondary
mortgage market, principally to the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac")
(Fannie Mae and Freddie Mac are collectively referred to as the "GSEs"). In
addition to mortgage insurance on first liens, the Company, through other
subsidiaries, insures residential second mortgages and provides lenders with
various underwriting and other services and products related to home mortgage
lending.
MGIC is licensed in all 50 states of the United States, the District of
Columbia and Puerto Rico. The Company is a Wisconsin corporation. Its principal
office is located at MGIC Plaza, 250 East Kilbourn Avenue, Milwaukee, Wisconsin
53202 (telephone number (414) 347-6480).
The Company and its business may be materially affected by the factors
discussed in "Management's Discussion and Analysis -- Risk Factors" in Exhibit
13 to this Annual Report on Form 10-K. These factors may also cause actual
results to differ materially from the results contemplated by forward looking
statements that the Company may make.
B. The MGIC Book
Types of Product
There are two principal types of private mortgage insurance: "primary"
and "pool."
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Primary Insurance. Primary insurance provides mortgage default protection
on individual loans and covers unpaid loan principal, delinquent interest and
certain expenses associated with the default and subsequent foreclosure
(collectively, the "claim amount"). The insurer generally pays the coverage
percentage of the claim amount specified in the primary policy, but has the
option to pay 100% of the claim amount and acquire title to the property. The
claim amount averages about 115% of the unpaid principal balance of the loan.
Primary insurance generally applies to owner occupied, first mortgage loans on
one-to-four family homes, including condominiums. Primary coverage can be used
on any type of residential mortgage loan instrument approved by the mortgage
insurer. References in this document to amounts of insurance written or in
force, risk written or in force and other historical data related to MGIC's
insurance refer only to direct (before giving effect to reinsurance) primary
insurance, unless otherwise indicated.
The following table shows, on a direct basis, primary insurance in force
(the unpaid principal balance of insured loans) and primary risk in force (the
coverage percentage applied to the unpaid principal balance), for insurance that
has been written by MGIC (the "MGIC Book") as of the dates indicated:
Primary Insurance and Risk In Force
December 31,
-------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In millions of dollars)
Direct Primary
Insurance In Force........... $147,607 $137,990 $138,497 $131,397 $120,341
Direct Primary
Risk In Force................ $35,623 $32,891 $32,175 $29,308 $25,502
The coverage percentage provided by MGIC is determined by the lender. For
loans sold by lenders to Fannie Mae or Freddie Mac, the coverage percentage must
comply with the requirements established by the particular GSE to which the loan
is delivered. Effective in the first quarter of 1995, Freddie Mac and Fannie Mae
increased their coverage requirements for, among other loan types, 30-year fixed
rate mortgages with loan-to-value ratios, determined at loan origination
("LTVs"), of 90.01-95.00% ("95s") from 25% coverage to 30% coverage and for such
mortgages with LTVs of 85.01-90.00% ("90s") from 17% to 25%.
During the first quarter of 1999, the GSEs changed their mortgage insurance
requirements for fixed rate and certain other mortgages on owner occupied
properties having terms greater than 20 years when the loan is approved by their
automated underwriting services. Lenders may deliver these loans to the GSEs
with the prior coverage requirements (30% for a 95
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and 25% for a 90), or in the case of 95s, with either (i) 25% coverage or (ii)
18% coverage and the payment of a delivery fee to the GSE, and in the case of
90s, with either (i) 17% coverage or (ii) 12% coverage and the payment of a
delivery fee to the GSE.
The following table shows new insurance written during the last three years
for 95s with 30% coverage and for 90s with 25% coverage:
Coverage Categories as a Percentage of New Insurance Written
Year Ended December 31,
LTV/ -------------------------------------
Coverage 1999 1998 1997
------------ ---- ---- ----
95 /30% 32.0% 33.9% 38.7%
90 /25% 34.7% 38.6% 39.1%
The Company expects the percentage of its new insurance written with 95/30% and
90/25% coverage will decline in response to the GSEs changed mortgage insurance
requirements.
MGIC charges higher premium rates for higher coverages, and the deeper
coverage requirements imposed by the GSEs beginning in 1995 have resulted in
higher earned premiums for loans with the same characteristics (such as LTV and
loan type). MGIC believes depth of coverage requirements have no significant
impact on frequency of default. Higher coverage percentages generally result in
increased severity (which is the amount paid on a claim), and lower coverage
percentages generally result in decreased severity. In accordance with industry
accounting practice, reserves for losses are only established for loans in
default. Because relatively few defaults occur in the early years of a book of
business (see "Past Industry Losses; Defaults; and Claims--Claims" below), the
higher premium revenue from deeper coverage is recognized before any higher
losses resulting from that deeper coverage may be incurred. On the other hand,
while a decline in coverage percentage will result in lower premium revenue, it
should also result in lower incurred (and paid) losses at the same level of
claim incidence. However, given the historical pattern of claims, the decline in
revenue will precede the benefits of reduced severity. MGIC's premium pricing
methodology generally targets substantially similar returns on capital
regardless of the depth of coverage. However, there can be no assurance that
changes in the level of premium rates adequately reflect the risks associated
with changes in the depth of coverage.
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In partnership with mortgage insurers, the GSEs are also beginning to offer
programs under which, on delivery of an insured loan to a GSE, the primary
coverage is restructured to an initial shallow tier of coverage followed by a
second tier that is subject to an overall loss limit and, depending on the
program, some compensation may be paid to the GSE for services. Lenders receive
guaranty fee relief from the GSEs on mortgages delivered with these restructured
coverages.
Mortgage insurance coverage cannot be terminated by the insurer, except for
non-payment of premium, and remains renewable at the option of the insured
lender, generally at the renewal rate fixed when the loan was initially insured.
Lenders may cancel insurance at any time at their option or because of mortgage
repayment, which may be accelerated because of the refinancing of mortgages. In
the case of a loan purchased by Freddie Mac or Fannie Mae, a borrower meeting
certain conditions may require the mortgage servicer to cancel insurance upon
the borrower's request when the principal balance of the loan is 80% or less of
the home's current value.
Under the federal Homeowners Protection Act (the "HPA") a borrower has the
right to stop paying premiums for private mortgage insurance on loans closed
after July 28, 1999 secured by a property comprised of one dwelling unit that is
the borrower's primary residence when certain LTV ratio thresholds determined by
the value of the home at loan origination and other requirements are met. In
general, a borrower may stop making mortgage insurance payments when the LTV
ratio is scheduled to reach 80% (based on the loan's amortization schedule
established at loan origination) if the borrower so requests and if certain
requirements relating to the borrower's payment history and the absence of
junior liens and a decline in the property's value since origination are
satisfied. In addition, a borrower's obligation to make payments for private
mortgage insurance generally terminates regardless of whether a borrower so
requests when the LTV ratio reaches 78% of the unpaid principal balance of the
mortgage and the borrower is (or thereafter becomes) current in his mortgage
payments. A borrower's right to stop paying for private mortgage insurance does
not apply to lender paid mortgage insurance. The HPA requires that lenders give
borrowers certain notices with regard to the cancellation of private mortgage
insurance.
In addition, some states require that mortgage servicers periodically
notify borrowers of the circumstances in which they may request a mortgage
servicer to cancel private mortgage insurance and some states allow the borrower
to require the mortgage servicer to cancel private mortgage insurance under
certain circumstances or require the mortgage servicer to cancel such insurance
automatically in certain circumstances. Under the HPA, states having laws
regarding any requirements relating to private mortgage insurance that were in
effect on January 2, 1998 may provide for mortgage insurance cancellation and
notice requirements that are more favorable to borrowers than under the HPA if
such provisions are enacted by July 29, 2000.
Coverage tends to continue in areas experiencing economic contraction and
housing price depreciation. The persistency of coverage in such areas coupled
with cancellation of coverage in areas experiencing economic expansion and
housing price appreciation can increase the percentage of the insurer's
portfolio comprised of loans in economically weak areas. This development can
also occur during periods of heavy mortgage refinancing because refinanced loans
in areas of
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economic expansion experiencing property value appreciation are less likely to
require mortgage insurance at the time of refinancing, while refinanced loans in
economically weak areas not experiencing property value appreciation are more
likely to require mortgage insurance at the time of refinancing or not qualify
for refinancing at all and, thus, remain subject to the mortgage insurance
coverage.
When a borrower refinances an MGIC-insured mortgage loan by paying it off
in full with the proceeds of a new mortgage, the insurance on that existing
mortgage is cancelled, and insurance on the new mortgage is considered to be new
primary insurance written. Therefore, continuation of MGIC's coverage from a
refinanced loan to a new loan results in both a cancellation of insurance and
new insurance written. The percentage of primary risk written with respect to
loans representing refinances was 22.3% in 1999 as compared to 25.6% in 1998 and
12.2% in 1997.
In addition to varying with the coverage percentage, MGIC's premium rates
vary depending upon the perceived risk of a claim on the insured loan and, thus,
take into account the LTV, the loan type (fixed payment versus non-fixed
payment) and mortgage term and, for MGIC's program to insure subprime loans,
MGIC's evaluation of the borrower's credit worthiness. Premium rates cannot be
changed after the issuance of coverage. Because the Company believes that over
the long term each region of the United States is subject to similar factors
affecting risk of loss on insurance written, MGIC generally utilizes a
nationally based, rather than a regional or local, premium rate policy.
The borrower's mortgage loan instrument may require the borrower to pay the
mortgage insurance premium ("borrower paid mortgage insurance") or there may be
no such requirement imposed on the borrower, in which case the premium is paid
by the lender, usually through an increase in the note rate on the mortgage
("lender paid mortgage insurance"). Almost all of MGIC's primary insurance and
new insurance written is borrower paid mortgage insurance.
Under the monthly premium plan, a monthly premium payment is made to MGIC
to provide only one month of coverage, rather than one year of coverage provided
by the annual premium plan. Under the annual premium plan, the initial premium
is paid to MGIC in advance, and earned over the next twelve months of coverage,
with annual renewal premiums paid in advance thereafter and earned over the
subsequent twelve months of coverage. The annual premiums can be paid with
either a higher premium rate for the initial year of coverage and lower premium
rates for the renewal years, or with premium rates which are equal (level) for
the initial year and subsequent renewal years. Under the single premium plan, a
single payment is made to MGIC, covering a specified term exceeding 12 months.
During 1999 and 1998, the monthly premium plan represented 95.2% and 93.9%,
respectively, of MGIC's new insurance written. The annual premium plan
represented substantially all of the remaining new insurance written.
Pool Insurance. Pool insurance is generally used as an additional "credit
enhancement" for certain secondary market mortgage transactions. Pool insurance
generally covers the loss on a
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defaulted mortgage loan which exceeds the claim payment under the primary
coverage, if primary insurance is required on that mortgage loan, as well as the
total loss on a defaulted mortgage loan which did not require primary insurance,
in each case up to a stated aggregate loss limit.
During the first quarter of 1997, the Company began writing pool insurance
generally covering fixed-rate, 30-year mortgage loans delivered to Freddie Mac
and Fannie Mae ("agency pool insurance"). The aggregate loss limit on agency
pool insurance generally does not exceed 1% of the aggregate original principal
balance of the mortgage loans in the pool. New pool risk written during 1999 was
$564 million and was $618 million in 1998. New pool risk written during these
years was virtually all agency pool insurance, with the remaining risk written
associated with loans insured under state housing finance programs. Net (giving
effect to external reinsurance) MGIC Book pool risk in force at December 31,
1999 was $1.4 billion compared to $927 million and $530 million at December 31,
1998 and 1997, respectively.
In December 1999, a complaint seeking class action status on behalf of a
nationwide class of home mortgage borrowers was filed against MGIC in Federal
District Court in Augusta, Georgia (the "RESPA Litigation"). The complaint in
the RESPA Litigation alleges that MGIC violated the Real Estate Settlement
Procedures Act ("RESPA") by providing agency pool insurance and entering into
other transactions with lenders that were not properly priced, in return for the
referral of mortgage insurance. The complaint seeks damages of three times the
amount of the mortgage insurance premiums that have been paid and that will be
paid for the mortgage insurance that is found to be involved in a violation of
RESPA. In February 2000, MGIC answered the complaint and denied liability. There
can be no assurance, however, regarding the ultimate outcome of the RESPA
Litigation or its effect on the Company. Three other mortgage insurers are also
defendants in equivalent lawsuits pending in Federal District Court in Augusta,
Georgia.
In a February 1, 1999 circular addressed to all mortgage guaranty insurers
licensed in New York, the New York Department of Insurance ("NYID") advised that
"signficantly underpriced" agency pool insurance would violate the provisions of
New York insurance law that prohibit mortgage guaranty insurers from providing
lenders with inducements to obtain mortgage guaranty business. The NYID circular
does not provide standards under which the NYID will evaluate whether agency
pool insurance is "significantly underpriced." In response to subsequent
inquiries from the NYID, MGIC provided various information about agency pool
insurance to the NYID. In a January 31, 2000 letter addressed to all mortgage
guaranty insurers licensed in Illinois, the Illinois Department of Insurance
advised that providing pool insurance at a "discounted or below market premium"
in return for the referral of primary mortgage insurance would violate Illinois
law.
Captive Mortgage Reinsurance. MGIC's products include captive mortgage
reinsurance in which an affiliate of a lender reinsures a portion of the risk on
loans originated or purchased by the lender which have MGIC primary insurance.
Approximately 32% of MGIC's new insurance written in 1999 was subject to captive
mortgage reinsurance and other similar structures compared to approximately 16%
in 1998. The complaint in the RESPA Litigation alleges that MGIC pays "inflated"
captive mortgage reinsurance premiums in violation of RESPA. In a February 1,
1999 circular addressed to all mortgage insurers licensed in New York, the NYID
said that it was in the
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process of developing guidelines that would articulate the parameters under
which captive mortgage reinsurance is permissible under New York insurance law.
Other Reinsurance. At December 31, 1999, disregarding reinsurance under
captive structures, less than 5% of MGIC's insurance in force was reinsured.
Reinsuring against possible loan losses does not discharge MGIC from liability
to a policyholder; however, the reinsurer agrees to indemnify MGIC for the
reinsurer's share of losses incurred.
Customers
Originators of residential mortgage loans such as mortgage bankers, savings
institutions, commercial banks, mortgage brokers, credit unions and other
lenders have historically determined the placement of mortgage insurance and as
a result are the customers of MGIC. To obtain primary insurance from MGIC, a
mortgage lender must first apply for and receive a mortgage guaranty master
policy ("Master Policy") from MGIC. MGIC had approximately 11,000 master
policyholders at December 31, 1999 (not including policies issued to branches
and affiliates of large lenders). In 1999, MGIC issued coverage on mortgage
loans for approximately 4,500 of its master policyholders. MGIC's top 10
customers generated 32.5% of its new insurance written in 1999, compared to
33.7% in 1998 and 27.0% in 1997.
Sales and Marketing and Competition
Sales and Marketing. MGIC sells its insurance products through its own
employees, located throughout the United States. At December 31, 1999, MGIC had
30 underwriting service centers located in 21 states and in Puerto Rico.
Competition. MGIC and other private mortgage insurers compete directly with
federal and state governmental and quasi-governmental agencies, principally the
FHA and, to a lesser degree, the Veterans Administration ("VA"). These agencies
sponsor government-backed mortgage insurance programs, which during 1999
accounted for approximately 48% (compared to approximately 44% during 1998) of
the total low down payment residential mortgages which were subject to
governmental or private mortgage insurance. See "Regulation, Indirect
Regulation" below. In October 1998, the maximum loan amounts that could be
insured by the FHA and the VA were increased as a result of legislation that set
the limit as a higher percentage of the conforming loan limit than in the past.
For 2000, the maximum loan amount for homes with one dwelling unit in "high
cost" counties may be as high as $214,849 compared to $208,800 in 1999.
President Clinton's fiscal year 2001 budget proposes that the maximum loan
amount for homes with one dwelling unit be raised to match the GSEs conforming
loan limit ($252,700 in 2000) regardless of the home's location.
In addition to competition from the FHA and the VA, MGIC and other private
mortgage insurers face competition from state-supported mortgage insurance funds
in several states, including California, Illinois and New York. From time to
time, other state legislatures and agencies consider expansions of the authority
of their state governments to insure residential mortgages.
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Private mortgage insurers may also be subject to competition from Fannie
Mae and Freddie Mac to the extent the GSEs are compensated for assuming default
risk that would otherwise be insured by the private mortgage insurance industry.
Fannie Mae and Freddie Mac each have programs under which an up-front delivery
fee can be paid to the GSE and primary mortgage insurance coverage is
substantially reduced compared to the coverage requirements that would apply in
the absence of the program. See "Types of Product--Primary Insurance" above. In
October 1998, Freddie Mac's charter was amended (and the amendment immediately
repealed) to give Freddie Mac flexibility to use protection against default in
addition to private mortgage insurance and the two other types of credit
enhancement required by the charter for low down payment mortgages purchased by
Freddie Mac. In addition, to the extent up-front delivery fees are not retained
by the GSEs to compensate for their assumption of default risk, and are used
instead to purchase supplemental coverage from mortgage insurers, the resulting
concentration of purchasing power in the hands of the GSEs could increase
competition among insurers to provide such coverage.
The capital markets may also develop as competitors to private mortgage
insurers. During 1998, a newly-organized off-shore company funded by the sale of
notes to institutional investors provided "reinsurance" to Freddie Mac against
default on a specified pool of mortgages owned by Freddie Mac.
MGIC and other mortgage insurers also compete with transactions structured
to avoid mortgage insurance on low down payment mortgage loans. Such
transactions include self-insuring and originating loans comprised of both a
first and a second mortgage, with the LTV ratio of the first mortgage below what
investors require for mortgage insurance, instead of originating a loan in which
the first mortgage covers the entire borrowed amount. Captive mortgage
reinsurance and similar transactions also result in mortgage originators
receiving a portion of the premium and the risk.
The private mortgage insurance industry currently consists of eight active
mortgage insurers and their affiliates; one of the eight is a joint venture in
which a mortgage insurer is one of the joint venturers. For 1995 and subsequent
years, MGIC has been the largest private mortgage insurer based on new primary
insurance written (with a market share of 24.3% in 1999, 23.1% in 1998 and 26.6%
in 1997) and at December 31, 1999, MGIC also had the largest book of direct
primary insurance in force.
The private mortgage insurance industry is highly competitive and, in
recent years, the dynamics of industry competition have undergone significant
change. The Company believes it competes with other private mortgage insurers
principally on the basis of programs involving agency pool insurance, captive
mortgage reinsurance and other similar structures involving lenders; the
provision of contract underwriting and related fee-based services to lenders;
the provision of other products and services that meet lender needs for
underwriting risk management, affordable housing, loss mitigation, capital
markets and training support; the strength of MGIC's management team and field
organization; and the effective use of technology and innovation in the delivery
and servicing
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of MGIC's insurance products. The Company believes MGIC's additional competitive
strengths, compared to other private insurers, are its customer relationships,
name recognition and reputation.
The complaint in the RESPA Litigation alleges, among other things, that
agency pool insurance, captive mortgage reinsurance and contract underwriting as
provided by the Company violate RESPA. Equivalent allegations are made with
respect to the other three mortgage insurance company defendants.
Certain private mortgage insurers compete by offering lower premium rates
than other companies, including MGIC, either in general or with respect to
particular classes of business. MGIC on a case-by-case basis will adjust premium
rates, generally depending on the risk characteristics, loss performance or
class of business of the loans to be insured, or the costs associated with doing
such business. Currently, the Illinois and California insurance laws do not
permit a mortgage insurer licensed in those states (such as MGIC) to insure
loans with LTVs in excess of 97 regardless of the location of the property. At
least one private mortgage insurer has the capability to write mortgage
insurance for such loans through an affiliated company that is not licensed in
Illinois or California. Certain other states (including New Jersey and Ohio) do
not permit a licensed mortgage insurer to insure loans with LTVs in excess of 97
when property is located in that state. While the capability to provide coverage
on loans with LTVs above 97 has not been a significant competitive factor, the
private mortgage insurance industry is working collectively to change these
provisions so that loans with LTVs in excess of 97 could be insured on a
nationwide basis.
If the risk-based capital stress test for the GSEs proposed in March 1999
by the Office of Federal Housing Enterprise Oversight ("OFHEO") as finally
adopted gives more capital credit to mortgage insurance provided by a
"AAA"-rated insurer (as discussed under "Regulation--Direct Regulation" below,
MGIC's claims-paying ability is rated "AA+"), the availability of "AAA" capacity
would likely become a competitive factor among mortgage insurers. See
"Management's Discussion and Analysis--Results of Consolidated Operations--1999
Compared to 1998" under Item 7 hereof for additional information about the
proposed OFHEO stress test.
Contract Underwriting and Related Services
The Company performs contract underwriting services for lenders in which
the Company judges whether the data relating to the borrower and the loan
contained in the lender's mortgage loan application file comply with the
lender's loan underwriting guidelines. The Company also provides an interface to
submit such data to the automated underwriting systems of the GSEs, which
independently judge the data. These services are provided for loans that require
private mortgage insurance as well as for loans that do not require private
mortgage insurance. A material portion of the Company's new insurance written in
recent years involved loans for which the Company provided contract underwriting
services. The complaint in the RESPA Litigation alleges, among other things,
that contract underwriting as provided by the Company violates RESPA.
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Risk Management
Risk Management Approach. MGIC evaluates four major elements of risk:
. Individual Loan and Borrower. Except to the extent its delegated
underwriting program is being utilized or for loans approved by the
automated underwriting services of the GSEs (see "Delegated
Underwriting and GSE Automated Underwriting Approvals" below), MGIC
evaluates insurance applications based on its analysis of the
borrower's ability to repay the mortgage loan and the characteristics
and value of the property. The analysis of the borrower includes
reviewing the borrower's housing and total debt ratios as well as the
borrower's FICO credit score, as reported by credit reporting
agencies. In the case of delegated underwriting, compliance with
program parameters is monitored by periodic audits of delegated
business.
. Geographic Market. MGIC places significant emphasis on the condition
of the housing markets around the nation in determining its
underwriting policies.
. Product. The type of mortgage instrument that the borrower selects and
the purpose of the loan are important factors in MGIC's analysis of
mortgage default risk. MGIC analyzes four general characteristics of
the product to quantify this risk evaluation: (i) LTV ratio; (ii) type
of loan instrument; (iii) type of property; and (iv) purpose of the
loan. In addition to its underwriting guidelines (as referred to
below), pricing is MGIC's principal method used to manage these risks.
Loans with higher LTV ratios generally have a higher premium, as do
instruments such as ARMs with an initial interest period of less than
five years and loans with a maturity longer than fifteen years.
. Mortgage Lender. MGIC evaluates from time to time its major customers
and the performance of their business which MGIC has insured.
The Company believes that the claim incidence for 95s is substantially
higher than for 90s or loans with lower LTV ratios; for loans with LTVs of
95.01-97.00 ("97s") is substantially higher than for 95s; for ARMs during a
prolonged period of rising interest rates would be substantially higher than for
fixed rate loans; for loans in which the original loan amount exceeds the
conforming loan limit is higher than for loans where such amount is below the
conforming loan limit; and for subprime loans (the volume of which prior to 1999
was insignificant) is substantially higher than for prime loans. MGIC charges
higher premium rates for insuring 95s, 97s, ARMs with an initial interest period
of less than five years and subprime loans. However, there can be no assurance
that such higher rates adequately reflect the increased risk associated with
those types of loans, particularly in a period of economic recession.
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There are also other types of loan characteristics relating to the
individual loan or borrower which affect the risk potential for a loan. The
presence of a number of higher-risk characteristics in a loan materially
increases the likelihood of a claim on such a loan unless there are other
characteristics to lower the risk.
Underwriting Process. To obtain primary insurance on a specific mortgage
loan, a master policyholder typically submits an application to an MGIC
underwriting service center, supported by various documents, if required by
MGIC. MGIC utilizes national underwriting guidelines to evaluate the potential
risk of default on mortgage loans submitted for insurance coverage. These
guidelines generally are consistent with Fannie Mae and Freddie Mac underwriting
guidelines and take into account the applicable premium rates charged by MGIC
and the loss experience of the private mortgage insurance industry, as well as
the initiatives to expand home ownership opportunities undertaken by Fannie Mae
and Freddie Mac. MGIC's underwriters have discretionary authority to insure
loans which deviate in one or more respects from MGIC's underwriting guidelines.
In most such cases, offsetting underwriting strengths must be identified.
In order to react to local or regional economic conditions, MGIC has also
developed for use by its underwriting staff certain modified guidelines which
attempt to address particular regional or local market developments. These
"special market underwriting guidelines" are updated from time to time and
deviate in varying degrees from MGIC's national guidelines based on MGIC's
analysis of area housing markets and related economic indicators and conditions.
The special market underwriting guidelines are more liberal than the published
national guidelines in some markets, but in other markets are more restrictive.
To assist its staff of underwriters, MGIC utilizes a computer-assisted
underwriting system which analyzes and approves certain mortgage insurance
applications based on MGIC's underwriting standards, but without personal
underwriter intervention, thereby allowing MGIC's underwriting staff to devote
additional attention to evaluating more difficult underwriting decisions. MGIC
audits a representative sample of applications approved by the system.
Delegated Underwriting and GSE Automated Underwriting Approvals. Delegated
underwriting is a program whereby approved lenders are allowed to commit MGIC to
insure loans utilizing their MGIC-approved underwriting guidelines and
underwriting evaluation. While MGIC does not underwrite on a case-by-case basis
the credit of the borrower, the value of the property, or other factors which it
normally considers in its underwriting decision, it does audit on a regular
basis a sample of the loans insured.
At December 31, 1999, MGIC's delegated underwriting program involved
approximately 606 lenders, including all of MGIC's top twenty customers. Loans
insured under MGIC's delegated underwriting program accounted for approximately
35.4% of MGIC's total risk in force at December 31, 1999. The percentage of new
risk written by delegated underwriters increased to 38.4% in 1999 from 36.2% in
1998 and was 36.8% in 1997. The performance of loans insured under the delegated
underwriting program has been comparable to MGIC's non-delegated business,
although performance of that program has not yet been tested in a period of
severe economic stress.
-13-
Loans covered under agency pool insurance are not underwritten by MGIC on a
loan-by-loan basis. If the loan has primary insurance provided by MGIC,
delegated underwriting is used, and if the loan has primary insurance provided
by another mortgage insurer or has no primary insurance, the lender underwrites
the loan to standards set forth in the agency pool insurance agreement with the
lender.
MGIC also has a reduced document submission program under which it approves
a loan for insurance if the borrower satisfies certain minimum criteria for
credit scores and debt ratios.
Loans approved by the automated underwriting services of the GSEs are
deemed acceptable for MGIC mortgage insurance without MGIC itself underwriting
the loan.
Past Industry Losses; Defaults; and Claims
Past Industry Losses. The private mortgage insurance industry, including
the WMAC Book (see "The WMAC Book" below), experienced substantial unanticipated
incurred losses in the mid-to-late 1980s. From the 1970s until 1981, rising home
prices in the United States generally led to profitable insurance underwriting
results for the industry and caused private mortgage insurers to emphasize
market share. To maximize market share, until the mid-1980s, private mortgage
insurers employed liberal underwriting practices, and charged premium rates
which, in retrospect, generally did not adequately reflect the risk assumed
(particularly on pool insurance). These industry practices compounded the losses
which resulted from changing economic and market conditions which occurred
during the early and mid-1980s, including (i) severe regional recessions and
attendant declines in property values in the nation's energy producing states;
(ii) the development by lenders of new mortgage products to defer the impact on
home buyers of double digit mortgage interest rates; and (iii) changes in
federal income tax incentives which initially encouraged the growth of
investment in non-owner occupied properties.
Defaults. The claim cycle on private mortgage insurance begins with the
insurer's receipt of notification of a default on an insured loan from the
lender. Lenders are required to notify MGIC of defaults within 130 days after
the initial default, although most lenders do so earlier. The incidence of
default is affected by a variety of factors, including the level of borrower
income growth, unemployment, divorce and illness, the level of interest rates
and general borrower creditworthiness. Defaults that are not cured result in a
claim to MGIC. Defaults may be cured by the borrower bringing current the
delinquent loan payments or by a sale of the property and the satisfaction of
all amounts due under the mortgage.
The following table shows the number of primary and pool loans insured in
the MGIC Book, the related number of loans in default and the percentage of
loans in default (default rate) as of the dates indicated:
-14-
Default Statistics for the MGIC Book
December 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
PRIMARY INSURANCE
Insured loans in force ... 1,370,020 1,320,994 1,342,976 1,299,038 1,219,304
Loans in default ......... 29,761 29,253 28,493 25,034 19,980
Percentage of loans in default
(default rate) ........... 2.17% 2.21% 2.12% 1.93% 1.64%
POOL INSURANCE
Insured loans in force ... 1,181,512 899,063 374,378 19,123 20,427
Loans in default ......... 11,638 6,524 2,174 855 1,053
Percentage of loans in default
(default rate) ........... 0.99% 0.73% 0.58% 4.47% 5.15%
The default rate for primary loans has generally increased due to an
increase in the risk profile of loans insured in late 1994 and the first half of
1995 and the continued maturation of MGIC's insurance in force. The number of
pool insurance loans in force increased at December 31, 1997, 1998 and 1999 as a
result of agency pool insurance writings, and the number of pool insurance loans
in default at those dates increased due to the increase in pool insurance in
force. The percentage of pool insurance loans in default decreased from 1996 to
1997 as a result of the increase in pool insurance in force and increased from
1997 to 1999 due to the aging of the underlying loans in earlier pools.
-15-
Regions of the United States may experience different default rates due to
varying localized economic conditions from year to year. The following table
shows the percentage of the MGIC Book's primary loans in default by MGIC region
at the dates indicated:
Default Rates for Primary Insurance By Region*
Dec. 31 Dec. 31 Dec. 31
1999 1998 1997
---- ---- ----
MGIC REGION:
New England............. 1.60% 1.78% 1.89%
Northeast............... 3.02 3.05 3.03
Mid-Atlantic............ 2.19 2.28 2.23
Southeast............... 2.24 2.23 2.13
Great Lakes............. 2.09 1.89 1.75
North Central........... 1.85 1.91 1.72
South Central........... 2.00 2.00 1.86
Plains.................. 1.40 1.40 1.27
Pacific................. 2.42 2.73 2.69
National............. 2.17 2.21% 2.12%
- --------------------
* The default rate is affected by both the number of loans in default at any
given date as well as the number of insured loans in force at such date.
Claims. Claims result from defaults which are not cured. Whether a claim
results from an uncured default principally depends on the borrower's equity in
the home at the time of default and the borrower's (or the lender's) ability to
sell the home for an amount sufficient to satisfy all amounts due under the
mortgage. Claims are affected by various factors, including local housing prices
and employment levels, and interest rates.
Under the terms of the Master Policy, the lender is required to file a
claim for primary insurance with MGIC within 60 days after it has acquired good
and marketable title to the underlying property through foreclosure. Depending
on the applicable state foreclosure law, an average of about 12 months
transpires from the date of default to payment of a claim on an uncured default.
The claim amount generally averages about 115% of the unpaid principal amount of
the loan.
-16-
Within 60 days after the claim has been filed, MGIC has the option of
either (i) paying the coverage percentage specified for that loan, with the
insured retaining title to the underlying property and receiving all proceeds
from the eventual sale of the property or (ii) paying 100% of the claim amount
in exchange for the lender's conveyance of good and marketable title to the
property to MGIC, with MGIC then selling the property for its own account.
Claim activity is not evenly spread throughout the coverage period of a
book of primary business. Relatively few claims are received during the first
two years following issuance of coverage on a loan. This is followed by a period
of rising claims which, based on industry experience, has historically reached
its highest level in the third through fifth years after the year of loan
origination. Thereafter, the number of claims received has historically declined
at a gradual rate, although the rate of decline can be affected by conditions in
the economy, including lower housing price appreciation. There can be no
assurance that this historical pattern of claims will continue in the future.
Moreover, when a loan is refinanced, because the new loan replaces, and is a
continuation of, an earlier loan, the pattern of claims frequency for that new
loan may be different from the historical pattern of other loans. As of December
31, 1999, 65.5% of the MGIC Book primary insurance in force had been written
during 1997, 1998 and 1999, although a portion of such insurance arose from the
refinancing of earlier originations.
In addition to the increasing level of claim activity arising from the
maturing of the MGIC Book, another important factor affecting MGIC Book losses
is the amount of the average claim paid, which is generally referred to as claim
severity. The main determinants of claim severity are the amount of the mortgage
loan and coverage percentage on the loan. The average claim severity on the MGIC
Book primary insurance was $18,319 for 1999 as compared to $20,705 in 1998,
reflecting the decline in the number of claims paid from certain high cost
regions of the country.
Loss Reserves
A significant period of time may elapse between the occurrence of the
borrower's default on a mortgage payment (the event triggering a potential
future claim payment by MGIC), the reporting of such default to MGIC and the
eventual payment of the claim related to such uncured default. To recognize the
liability for unpaid losses related to outstanding reported defaults (known as
the default inventory), the Company (similar to other private mortgage insurers)
establishes loss reserves, representing the estimated percentage of defaults
which will ultimately result in a claim (known as the claim rate), and estimates
of the severity of each claim which will arise from the defaults included in the
default inventory. In accordance with industry accounting practices, the Company
does not establish loss reserves for future claims on insured loans which are
not currently in default.
-17-
The Company also establishes reserves to provide for the estimated costs of
settling claims, including legal and other fees, and general expenses of
administering the claims settlement process ("loss adjustment expenses"), and
for losses and loss adjustment expenses from defaults which have occurred, but
which have not yet been reported to the insurer.
The Company's reserving process is based upon the assumption that past
experience, adjusted for the anticipated effect of current economic conditions
and projected future economic trends, provides a reasonable basis for estimating
future events. However, estimation of loss reserves is a difficult process,
especially in light of the rapidly changing economic conditions over the past
few years in certain regions of the United States. In addition, economic
conditions that have affected the development of the loss reserves in the past
may not necessarily affect development patterns in the future, in either a
similar manner or degree.
For a further description of loss reserves, see Note 6 to the consolidated
financial statements of the Company, included in Exhibit 13 to this Annual
Report on Form 10-K.
Geographic Dispersion
The following table reflects the percentage of primary risk in force in the
top 10 states and top 10 metropolitan statistical areas ("MSAs") for the MGIC
Book at December 31, 1999:
Dispersion of Primary Risk in Force
Top 10 States Top 10 MSAs
------------- -----------
1. California 10.9% 1. Chicago 4.1%
2. Texas 6.6 2. Los Angeles 3.0
3. Illinois 5.4 3. Boston 2.9
4. Michigan 5.4 4. Washington, DC 2.9
5. Florida 5.2 5. Atlanta 2.6
6. Ohio 4.6 6. Philadelphia 2.1
7. New York 4.4 7. Detroit 2.1
8. Pennsylvania 4.3 8. Houston 1.7
9. Georgia 3.3 9. Phoenix 1.7
10. New Jersey 3.2 10. Dallas 1.6
----- ------
Total 53.3% Total 24.7%
===== =====
The percentages shown above for various MSAs can be affected by changes,
from time to time, in the federal government's definition of an MSA.
-18-
Insurance in Force by Policy Year
The following table sets forth the dispersion of MGIC's primary insurance
in force as of December 31, 1999, by year(s) of policy origination since MGIC
began operations in 1985:
Primary Insurance In Force by Policy Year
Primary
Insurance in Percent of
Policy Year Force Total
----------- ----- ----------
(In millions of dollars)
1985-1993 $ 20,519 13.9%
1994 8,423 5.7
1995 9,630 6.5
1996 12,364 8.4
1997 17,823 12.1
1998 39,406 26.7
1999 39,442 26.7
------ ----
Total $147,607 100.0%
======== ======
Product Characteristics of Risk in Force
At December 31, 1999 and 1998, 95.8% and 96.7%, respectively, of MGIC's
risk in force was primary insurance and the remaining risk in force was pool
insurance. The following table reflects at the dates indicated the (i) total
dollar amount of primary risk in force for the MGIC Book and (ii) percentage of
such primary risk in force (as determined on the basis of information available
on the date of mortgage origination) by the categories indicated.
-19-
Characteristics of Primary Risk in Force
December 31, December 31,
1999 1998
---------------------------
Direct Risk in Force (Dollars in Millions):....... $35,623 $32,891
Lender Concentration:
Top 10 lenders................................ 28.4% 26.4%
Top 20 lenders................................ 39.7% 37.3%
LTV(1)
95s(2) ....................................... 49.8% 48.3%
90s(3)........................................ 49.8 51.6
80s........................................... 0.4 0.1
------ ------
Total..................................... 100.0% 100.0%
====== ======
Loan Type:
Fixed(4)...................................... 89.8% 87.6%
ARM(5)........................................ 8.6 10.3
Balloon(6).................................... 1.5 2.0
Other......................................... 0.1 0.1
------ ------
Total..................................... 100.0% 100.0%
====== ======
Original Insured Loan Amount(7):
Conforming loan limit and below............... 91.4% 91.0%
Non-conforming................................ 8.6 9.0
------ ------
Total..................................... 100.0% 100.0%
====== ======
Mortgage Term:
15-years and under............................ 4.6% 4.4%
Over 15 years................................. 95.4 95.6
------ ------
Total..................................... 100.0% 100.0%
====== ======
Property Type:
Single-family(8).............................. 94.0% 93.8%
Condominium................................... 5.7 5.8
Other(9)...................................... 0.3 0.4
------ ------
Total..................................... 100.0% 100.0%
====== ======
Occupancy Status:
Primary residence............................. 97.7% 98.2%
Second home................................... 1.4 1.2
Non-owner occupied............................ 0.9 0.6
------ ------
Total..................................... 100.0% 100.0%
====== ======
- --------------------
-20-
(1) Loan-to-value represents the ratio (expressed as a percentage) of the
dollar amount of the mortgage loan to the value of the property at the time
the loan became insured. They are identified as in excess of 90% LTV
("95s"); in excess of 80% LTV and up to 90% LTV ("90s"); and equal to or
less than 80% LTV ("80s").
(2) Includes 97% LTV loans, which were 4.5% and 3.4%, respectively, of primary
risk in force at December 31, 1999 and 1998.
(3) MGIC includes in its classification of 90s, loans where the borrower makes
a down payment of 10% and finances the associated mortgage insurance
premium payment as part of the mortgage loan. At December 31, 1999 and
1998, 2.9% and 3.1%, respectively, of the primary risk in force consisted
of these types of loans.
(4) Includes fixed rate mortgages with temporary buydowns (where in effect, the
applicable interest rate is typically reduced by one or two percentage
points during the first two years of the loan) and ARMS in which the
initial interest rate is fixed for at least five years.
(5) Includes ARMs where payments adjust fully with interest rate adjustments.
Also includes ARMs with negative amortization, which at December 31, 1999
and 1998, represented 1.1% and 1.5%, respectively, of primary risk in
force. Does not include ARMs in which the initial interest rate is fixed
for at least five years. As of December 31, 1999 and 1998, ARMs with LTVs
in excess of 90% represented 7.0% and 7.5%, respectively, of primary risk
in force.
(6) Balloon payment mortgages are loans with a maturity, typically five to
seven years, that is shorter than the loans' amortization period.
(7) Loans within the conforming loan limit have an original principal balance
that does not exceed the maximum original principal balance of loans that
the GSEs are eligible to purchase. The conforming loan limit is subject to
annual upward adjustment and was $240,000 for 1999 and $227,150 for 1998.
Non-conforming loans are loans with an original principal balance above the
conforming loan limit.
(8) Includes townhouse-style attached housing with fee simple ownership.
(9) Includes cooperatives and manufactured homes deemed to be real estate.
C. The WMAC Book
In 1985, the Company acquired certain assets and businesses of Wisconsin
Mortgage Assurance Corporation ("WMAC") and WMAC's parent, including the MGIC
name and offices of WMAC, and hired substantially all of WMAC's employees
("Acquisition"). WMAC retained substantially all of its insurance in force, net
of domestic reinsurance (the "WMAC Book" and sometimes in other documents
referred to as the "Old Book"). Effective as of the time of the Acquisition,
WMAC reinsured 100% of the WMAC Book with several international reinsurers (the
"WMAC Reinsurers"). As a result of subsequent transactions, at December 31,
1999, approximately 32.0% of the WMAC Book was reinsured with the WMAC
Reinsurers and the remainder was reinsured by MGIC.
-21-
On December 31, 1998, MGIC purchased WMAC from a third party. WMAC's direct
primary insurance in force, direct primary risk in force and direct pool risk in
force was approximately $2.3 billion, $0.6 billion and $0.4 billion,
respectively, at December 31, 1999.
D. Other Business
The Company, through subsidiaries, provides various mortgage services for
the mortgage finance industry, such as contract underwriting, portfolio
retention and secondary marketing of mortgage-related assets. At December 31,
1999, the Company also owned approximately 48% of Credit-Based Asset Servicing
and Securitization LLC and Litton Loan Servicing LP (collectively, "C-BASS") and
approximately 46% of Sherman Financial Group LLC, joint ventures with Enhance
Financial Services Group Inc. and senior management of the joint ventures, and
approximately 47% of Customers Forever LLC, a joint venture with Marshall &
Ilsley Corporation and senior management of the joint venture. For further
information about these joint ventures, see "Management's Discussion and
Analysis--Results of Consolidated Operations--1999 Compared to 1998" and Note 8
to the consolidated financial statements of the Company, both of which are
included in Exhibit 13 to this Annual Report on Form 10-K. The revenues
recognized from these mortgage services operations, other non-insurance services
and the joint ventures represented 4.8% of the Company's consolidated revenues
in both 1999 and 1998.
The Company's eMagic.com, LLC subsidiary, launched in January 2000,
provides an Internet portal through which mortgage originators can access
products and services of wholesalers, investors, and vendors necessary to make a
home mortgage loan.
In 1997, the Company, through subsidiaries, began insuring second
mortgages, including home equity loans. New insurance written on second
mortgages in 1999 was approximately $1.1 billion and was immaterial in 1998.
E. Investment Portfolio
Policy and Strategy
Cash flow from the Company's investment portfolio represented approximately
34% of its total cash flow from operations during 1999. Approximately 82% of the
Company's long-term investment portfolio is managed by a subsidiary of The
Northwestern Mutual Life Insurance Company, although the Company maintains
overall control of investment policy and strategy. The Company maintains direct
management of the remainder of its investment portfolio.
The Company's current policies emphasize preservation of capital, as well
as total return. Therefore, the Company's investment portfolio consists almost
entirely of high-quality, fixed-income investments. Liquidity is sought through
diversification and investment in publicly traded securities. The Company
attempts to maintain a level of liquidity commensurate with its perceived
business outlook and the expected timing, direction and degree of changes in
interest rates. The
-22-
Company's investment policies in effect at December 31, 1999 limited investments
in the securities of a single issuer (other than the U.S. government and its
agencies) and generally did not permit purchasing fixed income securities rated
below "A."
At December 31, 1999, based on amortized cost, approximately 98.8% of the
Company's total fixed income investment portfolio was invested in securities
rated "A" or better, with 64.6% which were rated "AAA" and 26.2% which were
rated "AA," in each case by at least one nationally recognized securities rating
organization.
The Company's investment policies and strategies are subject to change
depending upon regulatory, economic and market conditions and the existing or
anticipated financial condition and operating requirements, including the tax
position, of the Company.
Investment Operations
At December 31, 1999, the consolidated book value (which is equal to market
value) of the Company's investment portfolio was approximately $2.8 billion. At
December 31, 1999, municipal securities represented 77.0% of the book value of
the total investment portfolio. Securities due within one year, within one to
five years, within five to ten years, and after ten years, represented 4.2%,
16.7%, 31.8% and 47.3%, respectively, of the total book value of the Company's
investment in debt securities. The Company's net pre-tax investment income was
$153.1 million for the year ended December 31, 1999, representing an after-tax
yield of 4.9% for the year which was comparable to 1998.
For further information concerning investment operations, see Note 4 to the
consolidated financial statements of the Company, included in Exhibit 13 to this
Annual Report on Form 10-K.
F. Regulation
Direct Regulation
The Company and its insurance subsidiaries, including MGIC, are subject to
regulation, principally for the protection of policyholders, by the insurance
departments of the various states in which each is licensed to do business. The
nature and extent of such regulation varies, but generally depends on statutes
which delegate regulatory, supervisory and administrative powers to state
insurance commissioners.
In general, such regulation relates, among other things, to licenses to
transact business; policy forms; premium rates; annual and other reports on
financial condition; the basis upon which assets and liabilities must be stated;
requirements regarding contingency reserves equal to 50% of premiums earned;
minimum capital levels and adequacy ratios; reinsurance requirements;
limitations on the types of investment instruments which may be held in an
investment portfolio; the size of risks and limits on coverage of individual
risks which may be insured; deposits of securities; limits
-23-
on dividends payable; and claims handling. Most states also regulate
transactions between insurance companies and their parents or affiliates and
have restrictions on transactions that have the effect of inducing lenders to
place business with the insurer. For a discussion of a February 1, 1999 circular
letter from the NYID and a January 31, 2000 letter from the Illinois Department
of Insurance, see "The MGIC Book-Types of Product-Pool Insurance" and "-Captive
Mortgage Reinsurance." For a description of limits on dividends payable, see
Note 11 to the consolidated financial statements of the Company, included in
Exhibit 13 to this Annual Report on Form 10-K.
Mortgage insurance premium rates are also subject to state regulation to
protect policyholders against the adverse effects of excessive, inadequate or
unfairly discriminatory rates and to encourage competition in the insurance
marketplace. Any increase in premium rates must be justified, generally on the
basis of the insurer's loss experience, expenses and future trend analysis. The
general mortgage default experience may also be considered. Premium rates are
subject to review and challenge by state regulators.
A number of states generally limit the amount of insurance risk which may
be written by a private mortgage insurer to 25 times the insurer's total
policyholders' reserves, commonly known as the "risk-to-capital" requirement.
MGIC is required to contribute to a contingency loss reserve an amount
equal to 50% of earned premiums. Such amounts cannot be withdrawn for a period
of 10 years, except under certain circumstances.
Mortgage insurers are generally single-line companies, restricted to
writing residential mortgage insurance business only. This essentially prohibits
MGIC from using its capital resources in support of other types of insurance or
non-insurance business. Although the Company, as an insurance holding company,
is prohibited from engaging in certain transactions with MGIC without submission
to and, in some instances, prior approval of applicable insurance departments,
the Company is not subject to insurance company regulation on its non-insurance
businesses.
As the most significant purchasers and sellers of conventional mortgage
loans and beneficiaries of private mortgage insurance, Freddie Mac and Fannie
Mae impose requirements on private mortgage insurers in order for such insurers
to be eligible to insure loans sold to such agencies. These requirements of
Freddie Mac and Fannie Mae are subject to change from time to time. Currently,
MGIC is an approved mortgage insurer for both Freddie Mac and Fannie Mae. In
addition, to the extent Fannie Mae or Freddie Mac assumes default risk for
itself that would otherwise be insured, changes current guarantee fee
arrangements (including as a result of primary mortgage insurance coverage being
restructured as described under "The MGIC Book--Types of Product--Primary
Insurance"), allows alternative credit enhancement, alters or liberalizes
underwriting guidelines on low down payment mortgages they purchase, or
otherwise changes its business practices or processes with respect to such
mortgages, private mortgage insurers may be affected.
-24-
Fannie Mae has issued primary mortgage insurance master policy guidelines
applicable to MGIC and all other Fannie Mae-approved private mortgage insurers,
establishing certain minimum terms of coverage necessary in order for an insurer
to be eligible to insure loans purchased by Fannie Mae. The terms of MGIC's
Master Policy comply with these guidelines.
MGIC's claims-paying ability is rated "AA+" by Standard & Poor's
Corporation and "Aa2" by Moody's Investors Service, Inc. Maintenance of a
claims-paying ability rating of at least AA-/Aa3 is critical to a mortgage
insurer's ability to continue to write new business. In assigning claims-paying
ability ratings, rating agencies review a mortgage insurer's competitive
position and business, management, corporate strategy, historical and projected
operating and underwriting performance, adequacy of capital to withstand extreme
loss scenarios under assumptions determined by the rating agency, as well as
other factors. The rating agency issuing the claims-paying ability rating can
withdraw or change its rating at any time.
Indirect Regulation
The Company and MGIC are also indirectly, but significantly, impacted by
regulations affecting purchasers of mortgage loans, such as Freddie Mac and
Fannie Mae, and regulations affecting governmental insurers, such as the FHA and
VA, and lenders. Private mortgage insurers, including MGIC, are highly dependent
upon federal housing legislation and other laws and regulations to the extent
they affect the demand for private mortgage insurance and the housing market
generally. From time to time, those laws and regulations have been amended to
affect competition from government agencies. See "The MGIC Book - Sales and
Marketing and Competition - Competition." Proposals are discussed from time to
time by Congress and certain federal agencies to reform or modify the FHA and
the Government National Mortgage Association, which securitizes mortgages
insured by the FHA.
Subject to certain exceptions, in general, RESPA prohibits any person from
giving or receiving any "thing of value" pursuant to an agreement or
understanding to refer settlement services. MGIC is a defendant in the RESPA
Litigation. See "Item 3--Legal Proceedings."
The OTS, the OCC, the Federal Reserve Board, and the Federal Deposit
Insurance Corporation have uniform guidelines on real estate lending by insured
lending institutions under their supervision. The guidelines specify that a
residential mortgage loan originated with an LTV of 90% or greater should have
appropriate credit enhancement in the form of mortgage insurance or readily
marketable collateral, although no depth of coverage percentage is specified in
the guidelines.
Lenders are subject to various laws, including the Home Mortgage Disclosure
Act, the Community Reinvestment Act and the Fair Housing Act, and Fannie Mae and
Freddie Mac are subject to various laws, including laws relating to government
sponsored enterprises, which may impose obligations or create incentives for
increased lending to low and moderate income persons, or in targeted areas.
-25-
There can be no assurance that other federal laws and regulations affecting
such institutions and entities will not change, or that new legislation or
regulations (including legislation or regulation that expands the permissible
insurance activities of affiliates of depositary institutions) will not be
adopted which will adversely affect the private mortgage insurance industry.
G. Employees
At December 31, 1999, the Company had 1,114 full- and part-time employees,
of whom approximately 60% were assigned to its Milwaukee headquarters and 40% to
its field offices. The number of employees given above does not include
"on-call" employees. The number of "on-call" employees can vary substantially,
primarily as a result of changes in demand for contract underwriting services.
Item 2. Properties.
- ------------------
At December 31, 1999, the Company leased office space in various cities
throughout the United States under leases expiring between 2000 and 2006 and
which required annual rentals of $2.6 million in 1999.
The Company owns its headquarters facility and an additional
office/warehouse facility, both located in Milwaukee, Wisconsin, which contain
an aggregate of approximately 310,000 square feet of space.
Item 3. Legal Proceedings.
- --------------------------
The Company is involved in litigation in the ordinary course of business.
No pending litigation is expected to have a material adverse affect on the
financial position of the Company.
In addition, MGIC is a defendant in Lambert v. MGIC. This action was
commenced on December 17, 1999 with the filing of a complaint in Federal
District Court for the Southern District of Georgia seeking class action status
on behalf of a nationwide class of home mortgage borrowers. The complaint
alleges that MGIC violated the Real Estate Settlement Procedures Act ("RESPA")
by providing agency pool insurance and entering into other transactions with
lenders (including captive mortgage reinsurance and contract underwriting) that
were not properly priced, in return for the referral of mortgage insurance. The
complaint seeks damages of three times the amount of the mortgage insurance
premiums that have been paid and that will be paid at the time of judgment for
the mortgage insurance that is found to be involved in a violation of RESPA. The
complaint also seeks injunctive relief, including prohibiting MGIC from
receiving future premium payments. In February 2000, MGIC answered the complaint
and denied liability. There can be no assurance, however, that the ultimate
outcome of this litigation will not materially affect the Company. Three other
mortgage insurers are also defendants in equivalent lawsuits pending in Federal
District Court for the Southern District of Georgia.
-26-
Item 4. Submission of Matters to a Vote of Security Holders.
- -----------------------------------------------------------
None
Executive Officers
Certain information with respect to the Company's executive officers as of
March 1, 2000 is set forth below:
Name and Age Title
- ------------- -----
Curt S. Culver, 47............. President and Chief Executive Officer of the
Company and MGIC; Director of the Company and
MGIC
J. Michael Lauer, 55........... Executive Vice President and Chief Financial
Officer of the Company and MGIC
James S. MacLeod, 52........... Executive Vice President--Field Operations of
MGIC
Lawrence J. Pierzchalski, 47... Executive Vice President--Risk Management of
MGIC
Gordon H. Steinbach, 54........ Executive Vice President--Credit Policy of
MGIC
Lou T. Zellner, 49............. Executive Vice President--Corporate
Development of MGIC
Jeffrey H. Lane, 50............ Senior Vice President, General Counsel and
Secretary of the Company and MGIC
Mr. Culver has served as President of the Company since January 1999 and as
Chief Executive Officer since January 2000. He has been President of MGIC since
May 1996 and was Chief Operating Officer of MGIC from May 1996 until he became
Chief Executive Officer in January 1999. Mr. Culver has been a senior officer of
MGIC since 1988 having responsibility at various times during his career with
MGIC for field operations, marketing and corporate development. From March 1985
to 1988, he held various management positions with MGIC in the areas of
marketing and sales.
Mr. Lauer has served as Executive Vice President and Chief Financial
Officer of the Company and MGIC since March 1989.
-27-
Mr. MacLeod has served as Executive Vice President-Field Operations of MGIC
since January 1998 and was Senior Vice President-Field Operations of MGIC from
May 1996 to January 1998. Mr. MacLeod has been a senior officer of MGIC since
1987 having responsibility at various times during his career with MGIC for
sales, business development and marketing. From March 1985 to 1987, he held
various management positions with MGIC in the areas of underwriting and risk
management .
Mr. Pierzchalski has served as Executive Vice President-Risk Management of
MGIC since May 1996 and prior thereto as Senior Vice President-Risk Management
or Vice President-Risk Management of MGIC from April 1990. From March 1985 to
April 1990, he held various management positions with MGIC in the areas of
market research, corporate planning and risk management.
Mr. Steinbach has served as Executive Vice President-Credit Policy of MGIC
since October 1996. He served as Executive Vice President-Affordable Housing and
Claims of MGIC from July 1992 to October 1996 and prior thereto was a senior
officer of MGIC since March 1985 having responsibility at various times during
his career with MGIC for risk management and underwriting.
Mrs. Zellner has served as Executive Vice President-Corporate Development
of MGIC since January 1999. Prior thereto, she was a senior officer of MGIC
since 1986 having responsibility at various times during her career with MGIC
for corporate development, non-insurance operations, claims and reinsurance.
From 1983-1986, Mrs. Zellner was Wisconsin Deputy Commissioner of Insurance.
Mr. Lane has served as Senior Vice President, General Counsel and Secretary
of the Company and MGIC since August 1996. For more than five years prior to his
joining the Company, Mr. Lane was a partner of Foley & Lardner, a law firm
headquartered in Milwaukee, Wisconsin.
-28-
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- ------ ---------------------------------------------------------------------
The information set forth in the second to last paragraph under the
caption "Management's Discussion and Analysis - Liquidity and Capital
Resources" and under the caption "MGIC Stock" in Exhibit 13 to this
Annual Report on Form 10-K is incorporated herein by reference.
Item 6. Selected Financial Data.
- ------ -----------------------
The information set forth in the tables under the caption "Five-Year
Summary of Financial Information" in Exhibit 13 to this Annual Report
on Form 10-K is hereby incorporated by reference in answer to this
Item.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations.
---------------------
The information set forth under the caption "Management's Discussion
and Analysis" in Exhibit 13 to this Annual Report on Form 10-K is
hereby incorporated by reference in answer to this Item.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- ------- ----------------------------------------------------------
The information set forth in the third to last paragraph under the
caption "Management's Discussion and Analysis - Results of
Consolidated Operations - 1999 Compared with 1998," in the second
paragraph under the caption "Management's Discussion and Analysis
Financial Condition" and in Note 5 of the Notes to the consolidated
financial statements, all in Exhibit 13 to this Annual Report on Form
10-K, is hereby incorporated by reference in answer to this Item.
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
The consolidated statements of operations, of shareholders' equity and
of cash flows for each of the years in the three-year period ended
December 31, 1999, and the related consolidated balance sheet of the
Company as of December 31, 1999 and 1998, together with the related
notes thereto and the report of independent accountants, as well as
the unaudited quarterly financial data, all set forth in Exhibit 13 to
this Annual Report on Form 10-K, are hereby incorporated by reference
in answer to this Item.
-29-
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------ ---------------------------------------------------------------
Financial Disclosure.
--------------------
None.
-30-
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
- ------- --------------------------------------------------
The information on the Directors of the Registrant is included in the
Company's Proxy Statement for the 2000 Annual Meeting of Shareholders,
and is hereby incorporated by reference. The information on the
Executive Officers of the Registrant appears at the end of Part I of
this Form 10-K.
Item 11. Executive Compensation.
- ------- ----------------------
This information is included in the Company's Proxy Statement for the
2000 Annual Meeting of Shareholders (other than information covered by
Instruction (9) to Item 402 (a) of Regulation S-K of the Securities
and Exchange Commission), and is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
This information is included in the Company's Proxy Statement for the
2000 Annual Meeting of Shareholders, and is hereby incorporated by
reference.
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
This information is included in the Company's Proxy Statement for the
2000 Annual Meeting of Shareholders, and is hereby incorporated by
reference.
-31-
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- ------- ----------------------------------------------------------------
(a) 1. Financial statements. The financial statements listed in the
accompanying Index to Consolidated Financial Statements and
Financial Statement Schedules are filed as part of this Form
10-K.
2. Financial statement schedules. The financial statement
schedules listed in the accompanying Index to Consolidated
Financial Statements and Financial Statement Schedules are
filed as part of this Form 10-K.
3. Exhibits. The accompanying Index to Exhibits is incorporated
by reference in answer to this portion of this Item and the
Exhibits listed in such Index are filed as part of this Form
10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1999.
-32-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
---------------------------------
[Item 14(a) 1 and 2]
Consolidated Financial Statements (all contained in Exhibit 13 to this Annual
Report on Form 10-K)
Consolidated statement of operations for each of the three years in the period
ended December 31, 1999
Consolidated balance sheet at December 31, 1999 and 1998
Consolidated statement of shareholders' equity for each of the three years in
the period ended December 31, 1999
Consolidated statement of cash flows for each of the three years in the period
ended December 31, 1999
Notes to consolidated financial statements
Report of independent accountants
Financial Statement Schedules (all contained immediately following the signature
page to this Annual Report on Form 10-K)
Report of independent accountants on financial statement schedules
Schedules at and for the specified years in the three-year period ended
December 31, 1999:
Schedule I - Summary of investments , other than investments in related
parties
Schedule II - Condensed financial information of Registrant
Schedule IV - Reinsurance
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedules, or
because the information required is included in the consolidated financial
statements and notes thereto.
-33-
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 28, 2000.
MGIC INVESTMENT CORPORATION
By /s/ Curt S. Culver
Curt S. Culver
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below as of the date set forth above by the following persons on
behalf of the registrant and in the capacities indicated.
Name and Title
- --------------
/s/ Curt S. Culver /s/ David S. Engelman
- --------------------------------- -------------------------------------
Curt S. Culver David S. Engelman, Director
President, Chief Executive Officer
and Director
/s/ James D. Ericson
-------------------------------------
James D. Ericson, Director
/s/ J. Michael Lauer /s/ Daniel Gross
- --------------------------------- -------------------------------------
J. Michael Lauer Daniel Gross, Director
Executive Vice President and
Chief Financial Officer /s/ Kenneth M. Jastrow, II
(Principal Financial Officer) -------------------------------------
Kenneth M. Jastrow, II, Director
/s/ Patrick Sinks /s/ Daniel P. Kearney
- --------------------------------- -------------------------------------
Patrick Sinks Daniel P. Kearney, Director
Vice President, Controller and
Chief Accounting Officer /s/ Sheldon B. Lubar
(Principal Accounting Officer) -------------------------------------
Sheldon B. Lubar, Director
/s/ James A. Abbott /s/ William A. McIntosh
- --------------------------------- -------------------------------------
James A. Abbott, Director William A. McIntosh, Director
/s/ Mary K. Bush /s/ Leslie M. Muma
- --------------------------------- -------------------------------------
Mary K. Bush, Director Leslie M. Muma, Director
/s/ Karl E. Case /s/ Edward J. Zore
- --------------------------------- -------------------------------------
Karl E. Case, Director Edward J. Zore, Director
-34-
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
of MGIC Investment Corporation:
Our audits of the consolidated financial statements referred to in our report
dated January 12, 2000 appearing in the 1999 Annual Report to Shareholders of
MGIC Investment Corporation (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the financial statement schedules listed in Item 14(a)(2) of this
Form 10-K. In our opinion, these financial statement schedules present fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
January 12, 2000
-35-
MGIC INVESTMENT CORPORATION
SCHEDULE I - SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1999
Amount at
Amortized Market which shown in
Type of Investment Cost Value the balance sheet
------------------ ------------- -------------- -------------------
(In thousands of dollars)
Fixed maturities:
Bonds:
United States Government and government
agencies and authorities $ 163,663 $ 154,806 $ 154,806
States, municipalities and political subdivisions 2,195,031 2,148,904 2,148,904
Foreign governments 13,933 13,973 13,973
Public utilities 55,703 54,373 54,373
All other corporate bonds 304,121 294,506 294,506
------------- ------------- -------------
Total fixed maturities 2,732,451 2,666,562 2,666,562
Equity securities:
Common stocks:
Banks, trust and insurance companies 1,333 4,556 4,556
Industrial, miscellaneous and all other 10,870 10,870 10,870
------------- ------------- -------------
Total equity securities 12,203 15,426 15,426
------------- ------------- -------------
Short-term investments 107,746 107,746 107,746
------------- ------------- -------------
Total investments $ 2,852,400 $ 2,789,734 $ 2,789,734
============= ============= =============
-36-
MGIC INVESTMENT CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
PARENT COMPANY ONLY
December 31, 1999 and 1998
1999 1998
---- ----
(In thousands of dollars)
ASSETS
- ------
Investment portfolio, at market value:
Fixed maturities $ 12,729 $ 1,056
Short-term investments 1,663 21,983
--------------- ---------------
Total investment portfolio 14,392 23,039
Cash - 5
Investment in subsidiaries, at equity in net assets 2,183,599 2,072,944
Income taxes receivable - affiliates 4,518 259
Accrued investment income 209 27
Other assets 958 848
--------------- ---------------
Total assets $ 2,203,676 $ 2,097,122
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Notes payable $ 425,000 $ 442,000
Accounts payable - affiliates 682 11,009
Other liabilities 2,005 3,522
--------------- ---------------
Total liabilities 427,687 456,531
--------------- ---------------
Shareholders' equity (note B):
Common stock, $1 par value, shares authorized
300,000,000; shares issued 121,110,800;
outstanding 1999 - 105,798,034; 1998 - 109,003,032 121,111 121,111
Paid-in surplus 211,593 217,022
Treasury stock (shares at cost, 1999 - 15,312,766;
1998 - 12,107,768) (665,707) (482,465)
Accumulated other comprehensive income - unrealized (depreciation)
appreciation in investment portfolio of subsidiaries, net of tax (40,735) 94,572
Retained earnings 2,149,727 1,690,351
--------------- ---------------
Total shareholders' equity 1,775,989 1,640,591
--------------- ---------------
Total liabilities and shareholders' equity $ 2,203,676 $ 2,097,122
=============== ===============
See accompanying supplementary notes to Parent Company condensed financial statements.
-37-
MGIC INVESTMENT CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF OPERATIONS
PARENT COMPANY ONLY
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
(In thousands of dollars)
Revenue:
Equity in undistributed net income of subsidiaries $ 313,292 $ 368,242 $ 304,434
Dividends received from subsidiaries 169,650 28,394 22,143
Investment income, net 1,362 1,117 1,576
Realized investment (losses) gains, net (216) 334 233
Other income - 9 -
---------------- -------------- --------------
Total revenue 484,088 398,096 328,386
---------------- -------------- --------------
Expenses:
Operating expenses 312 180 374
Interest expense 20,402 18,624 6,080
---------------- -------------- --------------
Total expenses 20,714 18,804 6,454
---------------- -------------- --------------
Income before tax 463,374 379,292 321,932
Credit for income tax (6,827) (6,173) (1,818)
---------------- -------------- --------------
Net income 470,201 385,465 323,750
---------------- -------------- --------------
Other comprehensive income - unrealized
investment (losses) gains, net (135,307) 10,587 43,300
---------------- -------------- --------------
Comprehensive income $ 334,894 $ 396,052 $ 367,050
================ ============== ==============
See accompanying supplementary notes to Parent Company condensed financial statements.
-38-
MGIC INVESTMENT CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF CASH FLOWS
PARENT COMPANY ONLY
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
(in thousands of dollars)
Cash flows from operating activities:
Net income $ 470,201 $ 385,465 $ 323,750
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiaries (313,292) (368,242) (304,434)
(Increase) decrease in income taxes receivable (4,259) 18,653 (6,824)
(Increase) decrease in accrued investment income (182) 197 36
(Decrease) increase in accounts payable - affiliates (10,327) 7,952 (9,299)
(Decrease) increase in other liabilities (1,517) 939 2,583
(Increase) decrease in other assets (110) (839) 6
Other 8,411 8,681 5,679
---------------- ---------------- ----------------
Net cash provided by operating activities 148,925 52,806 11,497
---------------- ---------------- ----------------
Cash flows from investing activities:
Transactions with subsidiaries 67,801 - (5,000)
Purchase of fixed maturities (14,448) (500) (8,650)
Sale of fixed maturities 1,843 10,901 17,756
---------------- ---------------- ----------------
Net cash provided by investing activities 55,196 10,401 4,106
---------------- ---------------- ----------------
Cash flows from financing activities:
Dividends paid to shareholders (10,825) (11,243) (11,029)
Net (decrease) increase in notes payable (17,000) 204,500 237,500
Reissuance of treasury stock 3,912 6,953 7,073
Repurchase of common stock (200,533) (246,840) (248,426)
---------------- ---------------- ----------------
Net cash used in financing activities (224,446) (46,630) (14,882)
---------------- ---------------- ----------------
Net (decrease) increase in cash and short-term investments (20,325) 16,577 721
Cash and short-term investments at beginning of year 21,988 5,411 4,690
---------------- ---------------- ----------------
Cash and short-term investments at end of year 1,663 21,988 5,411
================ ================ ================
See accompanying notes to Parent Company condensed financial statements.
-39-
MGIC INVESTMENT CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY
SUPPLEMENTARY NOTES
Note A
The accompanying Parent Company financial statements should be read in
conjunction with the Consolidated Financial Statements and Notes to Consolidated
Financial Statements appearing on pages 10 through 23 of the MGIC Investment
Corporation 1999 Annual Report to Shareholders.
Note B
The Company's insurance subsidiaries are subject to statutory regulations
as to maintenance of policyholders' surplus and payment of dividends. The
maximum amount of dividends that the insurance subsidiaries may pay in any
twelve-month period without regulatory approval by the Office of the
Commissioner of Insurance of the State of Wisconsin is the lesser of adjusted
statutory net income or 10% of statutory policyholders' surplus as of the
preceding calendar year end. Adjusted statutory net income is defined for this
purpose to be the greater of statutory net income, net of realized investment
gains, for the calendar year preceding the date of the dividend or statutory net
income, net of realized investment gains, for the three calendar years preceding
the date of the dividend less dividends paid within the first two of the
preceding three calendar years. As a result of a $150 million special dividend
paid by Mortgage Guaranty Insurance Corporation ("MGIC"), the Company's
principle insurance subsidiary, MGIC is required to obtain regulatory approval
prior to the payment of dividends in 2000. The other insurance subsidiaries of
the Company can pay $6.3 million of dividends in 2000 without such regulatory
approval.
Certain of the Company's non-insurance subsidiaries also have requirements
as to maintenance of net worth. These restrictions could also affect the
Company's ability to pay dividends.
In 1999, 1998 and 1997, the Company paid dividends of $10.8 million, $11.2
million and $11.0 million, respectively or $.10 per share in 1999 and 1998 and
$.095 per share in 1997.
-40-
MGIC INVESTMENT CORPORATION
SCHEDULE IV - REINSURANCE
MORTGAGE INSURANCE PREMIUMS EARNED
Years Ended December 31, 1999, 1998 and 1997
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed to
Amount Companies Companies Amount Net
-------------- --------------- ------------- -------------- ------------
(In thousands of dollars)
Year ended December 31,
1999 $ 810,974 $ 25,401 $ 7,008 $ 792,581 0.9%
============== =============== ============== ==============
1998 $ 770,775 $ 17,161 $ 9,670 $ 763,284 1.3%
============== =============== ============== ==============
1997 $ 712,069 $ 15,990 $ 12,665 $ 708,744 1.8%
============== =============== ============== ==============
-41-
INDEX TO EXHIBITS
[Item 14(a)3]
Exhibit
Numbers Description of Exhibits
- ------- -----------------------
3.1 Articles of Incorporation, as amended.(1)
3.2 Amended and Restated Bylaws.
4.1 Article 6 of the Articles of Incorporation (included
within Exhibit 3.1)
4.2 Amended and Restated Bylaws (included as Exhibit 3.2)
[The Company is a party to separate Credit Agreements
with different groups of financial institutions. These
Credit Agreements are not being filed pursuant to Reg.
S-K Item 602(b) (4) (iii) (A). The Company hereby
agrees to furnish a copy of such Credit Agreements to
the Commission upon its request.]
4.3 Rights Agreement, dated as of July 22, 1999, between
MGIC Investment Corporation and Firstar Bank Milwaukee,
N.A., which includes as Exhibit A thereto the Form of
Right Certificate and as Exhibit B thereto the Summary
of Rights to Purchase Common shares(2)
10.1 Common Stock Purchase Agreement between the Company and
The Northwestern Mutual Life Insurance Company ("NML"),
dated November 30, 1984(3)
10.2 Tax Agreement between NML, the Company and certain
subsidiaries of the Company, dated January 1, 1986,
including amendment thereto dated as of August 2,
1991(4)
10.3 Tax Sharing Agreement between the Company, MGIC and
certain subsidiaries of MGIC, dated January 22, 1986(5)
10.4 Amendment to Tax Agreement, dated as of August 14,
1991, by and between NML, the Company, and its
subsidiaries(6)
-42-
Exhibit
Numbers Description of Exhibits
- ------- -----------------------
10.5 Amended and Restated Investment Advisory and Servicing
Agreement between the Company and Northwestern Mutual
Investment Services, Inc. ("NMIS"), dated December 5,
1997.(7) [Northwestern Mutual Investment Services, LLC
has succeeded NMIS as a party to such Agreement.]
10.6 MGIC Investment Corporation Amended and Restated 1989
Stock Option Plan (including forms of option
agreement).(8)
10.7 MGIC Investment Corporation 1991 Stock Incentive Plan.
10.8 Employment Agreement, dated as of January 1, 2000,
between Mortgage Guaranty Insurance Corporation and
William H. Lacy.
10.9 Two Forms of Stock Option Agreement under 1991 Stock
Incentive Plan.
10.10 Two Forms of Restricted Stock Award Agreement under
1991 Stock Incentive Plan.
10.11 Executive Bonus Plan
10.12 Supplemental Executive Retirement Plan (9)
10.13 MGIC Investment Corporation Deferred Compensation Plan
for Non-Employee Directors.(10)
10.14 MGIC Investment Corporation 1993 Restricted Stock Plan
for Non-Employee Directors.(11)
10.15 Two Forms of Award Agreement under MGIC Investment
Corporation 1993 Restricted Stock Plan for Non-Employee
Directors.(12)
10.16 Form of MGIC Mortgage Guaranty Master Policy, in effect
generally for insurance commitments issued beginning
March 1, 1995, including the Master Policy Program
Endorsement relating to delegated underwriting.(13)
10.17 Form of Key Executive Employment and Severance
Agreement
11 Statement re: computation of per share earnings
-43-
Exhibit
Numbers Description of Exhibits
- ------- -----------------------
13 Information from the 1999 Annual Report of the Company
to Shareholders which is incorporated by reference in
this Annual Report on Form 10-K.
21 List of Subsidiaries
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
Supplementary List of the above Exhibits which relate to management
contracts or compensatory plans or arrangements.
10.6 MGIC Investment Corporation Amended and Restated 1989
Stock Option Plan (including forms of option
agreement).
10.7 MGIC Investment Corporation 1991 Stock Incentive Plan.
10.8 Employment Agreement, dated as of January 1, 2000,
between Mortgage Guaranty Insurance Corporation and
William H. Lacy.
10.9 Two Forms of Stock Option Agreement under 1991 Stock
Incentive Plan.
10.10 Two Forms of Restricted Stock Award Agreement under
1991 Stock Incentive Plan.
10.11 Executive Bonus Plan
10.12 Supplemental Executive Retirement Plan.
10.13 MGIC Investment Corporation Deferred Compensation Plan
for Non-Employee Directors.
10.14 MGIC Investment Corporation 1993 Restricted Stock Plan
for Non-Employee Directors.
10.15 Two Forms of Award Agreement under MGIC Investment
Corporation 1993 Restricted Stock Plan for Non-Employee
Directors.
10.17 Form of Key Executive Employment and Severance
Agreement
-44-
The following documents, identified in the footnote references above,
are incorporated by reference, as indicated, to: the Company's Form S-1
Registration Statement (No. 33-41289), which became effective in August 1991
(the "1991 S-1"); the Company's Annual Reports on Form 10-K for the years ended
December 31, 1991, 1993, 1994, 1996, or 1997 (the "1991 10-K," "1993 10-K,"
"1994 10-K," "1996 10-K," and "1997 10-K" respectively); to the Company's
Quarterly Reports on Form 10-Q for the Quarters ended June 30, 1994 or 1998 (the
"June 30, 1994 10-Q" and "June 30, 1998 10-Q," respectively; or to the Company's
registration Statement Form 8-A filed July 27, 1999 (the "8-A")). The documents
are further identified by cross-reference to the Exhibits in the respective
documents where they were originally filed:
(1) Exhibit 3 to the June 30, 1998 10-Q.
(2) Exhibit 4.1 to the 8-A.
(3) Exhibit 10.1 to the 1991 S-1.
(4) The Tax Agreement is Exhibit 10.8 to the 1991 S-1 and the amendment
thereto is Exhibit 10.21 to the 1991 S-1.
(5) Exhibit 10.9 to the 1991 S-1.
(6) Exhibit 10.10 to the 1991 10-K.
(7) Exhibit 10.5 to the 1997 10-K.
(8) Exhibit 10.16 to the 1996 S-1.
(9) Exhibit 10.16 to the 1996 10-K.
(10) Exhibit 10.23 to the 1993 10-K.
(11) Exhibit 10.24 to the 1993 10-K.
(12) Exhibits 10.27 and 10.28 to the June 30, 1994 10-Q.
(13) Exhibit 10.26 to the 1994 10-K.
-45-