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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, 1998
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
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
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 347-6480
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class: Common Stock, Par Value $1 Per Share
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, 1999: $3.6 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.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of February 1, 1999: 109,002,358.
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 1998 Annual Report to Item 1 of Part I
Shareholders (for Fiscal Year Items 5 through 8 of Part II
Ended December 31, 1998)
2. Proxy Statement for the 1999 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. [ ]
2
Part I
Item 1. Business.
A. General
MGIC Investment Corporation (the "Company") is a holding company which,
through its indirect 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 114% 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,
-------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In millions of dollars)
Direct Primary
Insurance In Force......... $137,990 $138,497 $131,397 $120,341 $104,416
Direct Primary
Risk In Force.............. $ 32,891 $ 32,175 $ 29,308 $ 25,502 $ 20,756
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%.
As a result of these deeper coverage requirements, coverage percentages on
new insurance written in 1995-1998 were higher than coverages on loans insured
in prior years. The following table shows new insurance written during the last
three years for 95s with 30% coverage and for 90s with 25% coverage:
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Coverage Categories as a Percentage of New Insurance Written
Year Ended December 31,
LTV/
Coverage 1998 1997 1996
-------------------- ---- ---- ----
95 /30% 33.9% 38.7% 38.4%
90 /25% 38.6% 39.1% 38.9%
Effective March 1, 1999, Fannie Mae changed its mortgage insurance
requirements for fixed rate mortgages on owner occupied properties having terms
greater than 20 years when the loan is approved by Desktop Underwriter (Fannie
Mae's automated underwriting service). Lenders may deliver these loans to Fannie
Mae with the coverage requirements in effect immediately prior to March 1, 1999
(30% for a 95 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 Fannie Mae,
and in the case of 90s, with either (i) 17% coverage or (ii) 12% coverage and
the payment of a delivery fee to Fannie Mae. Fannie Mae has publicly stated that
it intends to purchase supplemental private mortgage insurance coverage on those
loans delivered for which it is paid a delivery fee. In March 1999, Freddie Mac
introduced comparable mortgage insurance requirements for loans approved by its
Loan Prospector automated underwriting service, except that in addition to fixed
rate mortgages having terms greater than 20 years, other loan types (such as
adjustable rate mortgages ("ARMs") and mortgages in which the amortization
period exceeds the term of the loan (balloon mortgages)) are eligible for the
18%/12% coverage with the payment of a delivery fee to Freddie Mac.
In response to Fannie Mae's new coverage options, MGIC introduced new
premium plans that provide 25% coverage on 95s and 17% coverage on 90s (these
coverages satisfy GSE requirements on loans described above) when an up-front
premium is paid to MGIC.
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
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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.
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 and in certain circumstances when such principal
balance is 80% or less of the home's original value.
Under the federal Homeowners Protection Act (the "HPA"), enacted in
July 1998, 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 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. For loans within the conforming loan limit that are classified as high
risk by Fannie Mae and Freddie Mac and for loans above the conforming loan limit
that are so classified by the originating lender, the borrower's right to stop
paying for private mortgage insurance occurs at a later point in time. 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
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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 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. Reflecting the historically low level of interest rates
that prevailed throughout 1998, the percentage of primary risk written with
respect to loans representing refinances was 25.6% in 1998 as compared to 12.2%
in 1997 and 13.7% in 1996.
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 A minus 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
fund 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 funded 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. To offset the reduced initial cash flow, the
annualized premium rates for the monthly premium plan are higher than the
premium rates for the annual plan for comparable loans. 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.
7
During 1998 and 1997, the monthly premium plan represented 93.9% and
92.8%, 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 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 1998 was $618 million and was $394 million in 1997. 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, 1998 was $927 million compared to $530 million and $181 million at
December 31, 1997 and 1996, respectively.
In a letter received by MGIC in January 1998, the U.S. Department of
Housing and Urban Development ("HUD") wrote to MGIC seeking an analysis of
MGIC's agency pool insurance transactions under the Real Estate Settlement
Procedures Act of 1974 ("RESPA"). In February 1998, MGIC provided HUD with
MGIC's analysis, which set forth MGIC's opinion that MGIC's agency pool
transactions comply with RESPA. There can be no assurance that HUD will agree
with MGIC's analysis. In March 1998, HUD wrote to the other private mortgage
insurers and offered them an opportunity to submit their views in writing on
agency pool insurance under RESPA. HUD's publicly announced regulatory agenda
for 1999 includes the issuance of a statement that will set forth HUD's views on
the application of RESPA to agency pool insurance. Among other things, RESPA
generally prohibits any person from giving or receiving any "thing of value"
pursuant to an agreement or understanding to refer settlement services. Among
other remedies, there is civil liability for violation of this provision of
RESPA in an amount equal to three times the amount of any charge paid for the
settlement service involved in the violation. Under regulations adopted by HUD,
"settlement services" are services provided in connection with settlement of a
mortgage loan, including services involving mortgage insurance.
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." The Company
understands that during 1998 the California Department of Insurance was
reviewing for compliance with California
8
insurance law agency pool insurance as well as products, such as captive
mortgage reinsurance, offered by private mortgage insurers.
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 16% of MGIC's new insurance written in 1998 was subject to captive
mortgage reinsurance and other similar structures. In an August 1997 letter, HUD
set forth tests to determine whether, in HUD's view, captive mortgage
reinsurance programs comply with RESPA. Certain of the tests involve complex
judgments regarding premium and risk ceded and there can be no assurance that
MGIC's captive program complies with RESPA. In a February 1, 1999 circular
addressed to all mortgage insurers licensed in New York, the NYID said that it
was in the 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, 1998, 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 10,000 master
policyholders at December 31, 1998 (not including policies issued to branches
and affiliates of large lenders). In 1998, MGIC issued coverage on mortgage
loans for approximately 4,600 of its master policyholders. Reflecting
consolidation among large residential lenders, MGIC's top 10 customers generated
33.7% of its new insurance written in 1998, compared to 27.0% in 1997 and 20.0%
in 1996.
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, 1998, 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
1998 accounted for approximately 44% (compared to approximately 46% during 1997)
of the total low down payment residential mortgages which were
9
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 1999, the maximum loan amount in "high cost" counties may be as high
as $208,800.
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.
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. During 1998, Fannie Mae and Freddie Mac each introduced programs under
which for certain loans an up-front delivery fee is 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. During the first
quarter of 1999, Fannie Mae and Freddie Mac implemented changes in their
mortgage insurance requirements which use an equivalent structure. 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 nine
active mortgage insurers (including 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
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insurance written (with a market share of 23.1% in 1998 and 26.6% in 1997) and
at December 31, 1998, MGIC also had the largest book of direct primary insurance
in force. The parent companies of mortgage insurers ranked fifth and seventh in
market share of new insurance written in 1998 are parties to a definitive merger
agreement. The combined companies would have had the second largest market share
of new insurance written in 1998 if their individual market shares were
aggregated. The source of the market share information in this paragraph
regarding the fifth and seventh ranked companies is Inside Mortgage Finance, a
mortgage industry trade publication.
The private mortgage insurance industry is highly competitive and, in
recent years, the dynamics of industry competition have undergone significant
change. The Company believes MGIC competes with other private mortgage insurers
principally on the basis of programs involving agency pool insurance, captive
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 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.
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.
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.
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
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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 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.
Based on historical performance, the Company believes that the claim
incidence for 95s is substantially higher than for 90s or loans with lower LTV
ratios; 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 $200,000 is higher than for loans where such amount is
$200,000 or less; and for loans with FICO credit scores below 620 is higher than
for loans with FICO credit scores of 620 and above. While there is no meaningful
data on claim incidence for loans with LTVs in excess of 95% ("97s") because
this product has only been recently offered by the industry, the Company
anticipates that claim incidence on 97s will be higher than on 95s. MGIC charges
higher premium rates for insuring 95s, 97s, ARMs and A minus 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.
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At December 31, 1998, MGIC's delegated underwriting program involved
approximately 625 lenders, including all of MGIC's top twenty customers. Loans
insured under MGIC's delegated underwriting program accounted for approximately
33.6% of MGIC's total risk in force at December 31, 1998. The percentage of new
risk written by delegated underwriters decreased to 36.2% in 1998 from 36.8% in
1997 and 41.0% in 1996. The Company believes that the decreases in 1997 and 1998
are attributable to MGIC's introduction in mid-1996 of a program under which
MGIC approves a loan for insurance if the borrower satisfies certain minimum
criteria for credit scores and debt ratios. 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.
Beginning in 1998, 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.
14
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:
Default Statistics for the MGIC Book
December 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
PRIMARY INSURANCE
Insured loans in force ... 1,320,994 1,342,976 1,299,038 1,219,304 1,080,882
Loans in default ......... 29,253 28,493 25,034 19,980 15,439
Percentage of loans in
default (default rate) ... 2.21% 2.12% 1.93% 1.64% 1.43%
POOL INSURANCE
Insured loans in force ... 899,063 374,378 19,123 20,427 23,242
Loans in default ......... 6,524 2,174 855 1,053 1,097
Percentage of loans in
default (default rate) ... 0.73% 0.58% 4.47% 5.15% 4.72%
The default rate for primary loans has increased since 1994 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, 1998 and 1997 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 1998 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,
1998 1997 1996
---- ---- ----
MGIC REGION:
New England............. 1.78% 1.89% 2.09%
Northeast............... 3.05 3.03 2.74
Mid-Atlantic............ 2.28 2.23 1.96
Southeast............... 2.23 2.13 1.83
Great Lakes............. 1.89 1.75 1.57
North Central........... 1.91 1.72 1.49
South Central........... 2.00 1.86 1.56
Plains.................. 1.40 1.27 0.97
Pacific................. 2.73 2.69 2.70
National............... 2.21% 2.12% 1.93%
- --------------------
* 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 114% 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, 1998, 59.6% of the MGIC Book primary insurance in force had been written
during 1996, 1997, and 1998, 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 $20,705 for 1998 as compared to $21,669 in 1997,
reflecting the decline in the number of claims paid from certain high cost
regions of the country. Although prior to 1995 the coverage percentage remained
relatively constant on the MGIC Book, claim severity may increase for books with
higher coverage percentages (generally written beginning in 1995).
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, 1998:
Dispersion of Primary Risk in Force
Top 10 States Top 10 MSAs
1. California 11.7% 1. Chicago 4.1%
2. Texas 6.8 2. Los Angeles 3.2
3. Illinois 5.5 3. Boston 3.1
4. Michigan 5.2 4. Washington, DC 3.0
5. Florida 4.7 5. Atlanta 2.5
6. Ohio 4.6 6. Philadelphia 2.2
7. New York 4.5 7. Detroit 2.0
8. Pennsylvania 4.3 8. Dallas 1.7
9. New Jersey 3.5 9. Houston 1.7
10. Massachusetts 3.3 10. Seattle 1.6
----- -----
Total 54.1% Total 25.1%
===== =====
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, 1998, 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)
1985-1992 $ 14,498 10.5%
1993 14,635 10.6
1994 12,433 9.0
1995 14,230 10.3
1996 18,516 13.4
1997 24,781 18.0
1998 38,897 28.2
-------- -----
Total $137,990 100.0%
======== =====
Product Characteristics of Risk in Force
At December 31, 1998 and 1997, 96.7% and 98.2%, 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,
1998 1997
----------- ------------
Direct Risk in Force (Dollars in Millions):...... $32,891 $32,175
Lender Concentration:
Top 10 lenders............................... 26.4% 20.5%
Top 20 lenders............................... 37.3% 31.0%
LTV:(1)
95s(2)....................................... 48.3% 46.6%
90s(3)....................................... 51.6 53.2
80s.......................................... 0.1 0.2
------ ------
Total..................................... 100.0% 100.0%
====== ======
Loan Type:
Fixed(4)..................................... 80.4% 73.6%
ARM(5)....................................... 17.5 23.4
Balloon(6)................................... 2.0 2.9
Other........................................ 0.1 0.1
------ ------
Total..................................... 100.0% 100.0%
====== ======
Original Insured Loan Amount:
$200,000 and less ........................... 86.6% 87.0%
Over $200,000 ............................... 13.4 13.0
------ ------
Total..................................... 100.0% 100.0%
====== ======
Mortgage Term:
15-years and under........................... 4.4% 4.4%
Over 15-years................................ 95.6 95.6
------ ------
Total..................................... 100.0% 100.0%
====== ======
Property Type:
Single-family(7)............................. 93.8% 93.6%
Condominium.................................. 5.8 6.0
Other(8)..................................... 0.4 0.4
------ ------
Total..................................... 100.0% 100.0%
====== ======
Occupancy Status:
Primary residence............................ 98.2% 98.6%
Second home.................................. 1.2 1.0
Non-owner occupied........................... 0.6 0.4
------ ------
Total..................................... 100.0% 100.0%
====== ======
- --------------------
(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
20
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 3.4% and 2.3%, respectively, of primary
risk in force at December 31, 1998 and 1997.
(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, 1998 and 1997, 3.1%
and 3.2%, 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).
(5) Includes ARMs where payments adjust fully with interest rate adjustments.
Also includes ARMs with negative amortization, which at December 31, 1998
and 1997, represented 1.5% and 2.1%, respectively, of primary risk in force.
As of December 31, 1998 and 1997, ARMs with LTVs in excess of 90%
represented 7.5% and 9.5%, 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) Includes townhouse-style attached housing with fee simple ownership.
(8) 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, 1998, approximately 33.6% of the WMAC Book was reinsured with the
WMAC Reinsurers and the remainder was reinsured by a subsidiary of the Company.
On December 31, 1998, MGIC purchased WMAC from a third party for $2
million. MGIC contributed an additional $13 million of capital to WMAC to comply
with minimum regulatory capital requirements. The acquisition had no impact on
the Company's earnings during 1998. WMAC's direct primary insurance in force,
direct primary risk in force and direct pool risk in force was approximately
$3.5 billion, $.9 billion and $.4 billion, respectively, at December 31, 1998.
D. Other Business
The Company, through subsidiaries, provides various mortgage services
for the mortgage finance industry, such as contract underwriting, premium
reconciliation and claims administration for HUD and the Federal Deposit
Insurance Corporation (as successor to the Resolution Trust Corporation),
respectively, and secondary marketing of mortgage-related assets. The Company
also
21
owns approximately 48% of Credit-Based Asset Servicing and Securitization LLC
and Litton Loan Servicing LP (collectively, "C-BASS"). C-BASS, which began
operations in mid-1996, is principally engaged in the acquisition, sale and
servicing of delinquent and other residential mortgage assets. For a further
description of C-BASS, see Note 8 to the consolidated financial statements of
the Company, 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 C-BASS represented 4.8% and 3.8% of the Company's consolidated
revenues in 1998 and 1997, respectively.
In 1997, the Company, through subsidiaries, began insuring second
mortgages, including home equity loans. New insurance written on second
mortgages in 1998 was immaterial.
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 1998.
Approximately 87% 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 Company's investment policies in effect at
December 31, 1998 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, 1998, based on amortized cost, approximately 98.9% of
the Company's total fixed income investment portfolio was invested in securities
rated "A" or better, with 61.5% which were rated "AAA" and 27.7% 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.
22
Investment Operations
At December 31, 1998, the consolidated book value (which is equal to
market value) of the Company's investment portfolio was approximately $2.8
billion. At December 31, 1998, municipal securities represented 77.3% 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 6.3%, 11.2%, 38.5% and 44.0%, respectively, of the total book value
of the Company's investment in debt securities. The Company's net pre-tax
investment income was $143.0 million for the year ended December 31, 1998,
representing an after-tax yield of 4.9% for the year, a decline from 5.0% for
1997, resulting from a decline in the average interest rate on investments in
1998 as compared to 1997.
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 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, 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
23
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, 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.
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.
24
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. In 1998, the FHA's authority was
expanded by legislation to permit it to insure mortgages having higher principal
balances. 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. Among other remedies, there is civil
liability for violation of this provision of RESPA in an amount equal to three
times the amount of any charge paid for the settlement service involved in the
violation. Under regulations adopted by HUD, "settlement services" are services
provided in connection with settlement of a mortgage loan, including services
involving mortgage insurance. In recent years, RESPA has been a source of
substantial uncertainty and litigation for the home mortgage lending and real
estate settlement services industries.
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, 1998, the Company had 1,200 full- and part-time
employees, of whom approximately one-half were assigned to its Milwaukee
headquarters and the other half assigned 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, 1998, the Company leased office space in various cities
throughout the United States under leases expiring between 1999 and 2006 and
which required annual rentals of $2.1 million in 1998.
The Company owns its headquarters facility and an additional
office/warehouse facility, both located in Milwaukee, Wisconsin, which contain
an aggregate of approximately 340,000 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.
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, 1999 is set forth below:
Name and Age Title
William H. Lacy, 54........... Chairman of the Board and Chief Executive Officer
of the Company and Chairman of the Board of MGIC;
Director of the Company and MGIC
Curt S. Culver, 46............ President of the Company and President and Chief
Executive Officer of MGIC; Director of the
Company and MGIC
J. Michael Lauer, 54.......... Executive Vice President and Chief Financial
Officer of the Company and MGIC
James S. MacLeod, 51.......... Executive Vice President-Field Operations of MGIC
Lawrence J. Pierzchalski, 46.. Executive Vice President, Risk Management of MGIC
Gordon H. Steinbach, 53....... Executive Vice President, Credit Policy of MGIC
Lou T. Zellner, 48............ Executive Vice President-Corporate Development
of MGIC
Jeffrey H. Lane, 49........... Senior Vice President, General Counsel and
Secretary of the Company and MGIC
Mr. Lacy has served as Chief Executive Officer of the Company since
October 1987 and as Chairman of the Board of the Company since January 1999. He
has been Chairman of the Board of MGIC since May 1996 and was Chief Executive
Officer of MGIC from the beginning of its business operations in March 1985
until January 1999.
27
Mr. Culver has served as President of the Company and as Chief
Executive Officer of MGIC since January 1999. 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. 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.
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 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 - 1998 Compared with 1997," 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, 1998, and the related consolidated balance sheet of the
Company as of December 31, 1998 and 1997, 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 1999 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
1999 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
1999 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
1999 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)1. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1998.
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, 1998
Consolidated balance sheet at December 31, 1998 and 1997
Consolidated statement of shareholders' equity for each of the three years in
the period ended December 31, 1998
Consolidated statement of cash flows for each of the three years in the period
ended December 31, 1998
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, 1998:
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 30, 1999.
MGIC INVESTMENT CORPORATION
By /s/ William H. Lacy
William H. Lacy
Chairman 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/ William H. Lacy /s/ David S. Engelman
William H. Lacy David S. Engelman, Director
Chairman, Chief Executive Officer
and Director
/s/ James D. Ericson
/s/ J. Michael Lauer James D. Ericson, Director
J. Michael Lauer
Executive Vice President and /s/ Daniel Gross
Chief Financial Officer Daniel Gross, Director
(Principal Financial Officer)
/s/ Kenneth M. Jastrow, II
/s/ Patrick Sinks Kenneth M. Jastrow, II, Director
Patrick Sinks
Vice President, Controller and /s/ Sheldon B. Lubar
Chief Accounting Officer Sheldon B. Lubar, Director
(Principal Accounting Officer)
/s/ William A. McIntosh
/s/ James A. Abbott William A. McIntosh, Director
James A. Abbott, Director
/s/ Leslie M. Muma
/s/ Mary K. Bush Leslie M. Muma, Director
Mary K. Bush, Director
/s/ Peter J. Wallison
/s/ Karl E. Case Peter J. Wallison, Director
Karl E. Case, Director
/s/ Edward J. Zore
/s/ Curt S. Culver Edward J. Zore, Director
Curt S. Culver, 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 6, 1999 appearing in the 1998 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) 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 6, 1999
35
MGIC INVESTMENT CORPORATION
SCHEDULE I - SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1998
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 $ 65,811 $ 71,416 $ 71,416
States, municipalities and political subdivisions 2,030,847 2,149,590 2,149,590
Foreign governments 15,884 17,256 17,256
Public utilities 56,600 60,263 60,263
All other corporate bonds 291,276 304,345 304,345
--------------- --------------- ---------------
Total fixed maturities 2,460,418 2,602,870 2,602,870
Equity securities:
Common stocks:
Banks, trust and insurance companies 1,333 4,377 4,377
Industrial, miscellaneous and all other 250 250 250
--------------- --------------- ---------------
Total equity securities 1,583 4,627 4,627
--------------- --------------- ---------------
Short-term investments 172,209 172,209 172,209
--------------- --------------- ---------------
Total investments $ 2,634,210 $ 2,779,706 $ 2,779,706
=============== =============== ===============
36
MGIC INVESTMENT CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET AND COMPREHENSICE INCOME
PARENT COMPANY ONLY
December 31, 1998 and 1997
1998 1997
(In thousands of dollars)
ASSETS
Investment portfolio, at market value:
Fixed maturities $ 1,056 $ 11,487
Short-term investments 21,983 5,411
--------------- ---------------
Total investment portfolio 23,039 16,898
Cash 5 -
Investment in subsidiaries, at equity in net assets 2,072,944 1,693,879
Income taxes receivable - affiliates 259 18,912
Accrued investment income 27 224
Other assets 848 9
--------------- ---------------
Total assets $ 2,097,122 $ 1,729,922
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 442,000 $ 237,500
Accounts payable - affiliates 11,009 3,057
Other liabilities 3,522 2,583
--------------- ---------------
Total liabilities 456,531 243,140
--------------- ---------------
Shareholders' equity (note B):
Common stock, $1 par value, shares authorized
300,000,000; shares issued 121,110,800;
outstanding 1998 - 109,003,032; 1997 - 113,791,593 121,111 121,111
Paid-in surplus 217,022 218,499
Treasury stock (shares at cost, 1998 - 12,107,768;
1997 - 7,319,207) (482,465) (252,942)
Accumulated other comprehensive income - unrealized
appreciation in investment portfolio of subsidiaries, net of tax 94,572 83,985
Retained earnings 1,690,351 1,316,129
--------------- ---------------
Total shareholders' equity 1,640,591 1,486,782
--------------- ---------------
Total liabilities and shareholders' equity $ 2,097,122 $ 1,729,922
=============== ===============
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 AND COMPREHENSIVE INCOME
PARENT COMPANY ONLY
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
(In thousands of dollars)
Revenue:
Equity in undistributed net income of subsidiaries $ 368,242 $ 304,434 $ 240,631
Dividends received from subsidiaries 28,394 22,143 16,349
Investment income, net 1,117 1,576 1,256
Realized investment gains (losses), net 334 233 (32)
Other income 9 - 3
---------------- -------------- --------------
Total revenue 398,096 328,386 258,207
---------------- -------------- --------------
Expenses:
Operating expenses 180 374 216
Interest expense 18,624 6,080 -
---------------- -------------- --------------
Total expenses 18,804 6,454 216
---------------- -------------- --------------
Income before tax 379,292 321,932 257,991
Credit for income tax (6,173) (1,818) -
---------------- -------------- --------------
Net income 385,465 323,750 257,991
---------------- -------------- --------------
Other comprehensive income - unrealized
investment gains (losses), net 10,587 43,300 (14,052)
---------------- -------------- --------------
Comprehensive income $ 396,052 $ 367,050 $ 243,939
================ ============== ==============
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, 1998, 1997 and 1996
1998 1997 1996
(In thousands of dollars)
Cash flows from operating activities:
Net income $ 385,465 $ 323,750 $ 257,991
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiaries (368,242) (304,434) (240,631)
Decrease (increase) in income taxes receivable 18,653 (6,824) (6,443)
Decrease in accrued investment income 197 36 18
Increase (decrease) in accounts payable - affiliates 7,952 (9,299) 1,413
Increase in other liabilities 939 2,583 -
(Increase) decrease in other assets (839) 6 (16)
Other 17,845 3,516 3,840
---------------- -------------- --------------
Net cash provided by operating activities 61,970 9,334 16,172
---------------- -------------- --------------
Cash flows from investing activities:
Increase in investment in subsidiaries - (5,000) (10,000)
Purchase of fixed maturities (500) (8,650) (7,232)
Sale of fixed maturities 10,901 17,756 4,600
Sale of equity securities - - 30
---------------- -------------- --------------
Net cash provided by (used in) investing activities 10,401 4,106 (12,602)
---------------- -------------- --------------
Cash flows from financing activities:
Dividends paid to shareholders (11,243) (11,029) (9,425)
Net increase in notes payable 204,500 237,500 -
Interest payments on notes payable (17,665) (3,836) (3,793)
Reissuance of treasury stock 15,454 13,072 10,209
Repurchase of common stock (246,840) (248,426) -
---------------- -------------- --------------
Net cash (used in) provided by financing activities (55,794) (12,719) (3,009)
---------------- -------------- --------------
Net increase in cash and short-term investments 16,577 721 561
Cash and short-term investments at beginning of year 5,411 4,690 4,129
---------------- -------------- --------------
Cash and short-term investments at end of year $ 21,988 $ 5,411 $ 4,690
================ ============== ==============
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 14 through 31 of the MGIC Investment
Corporation 1998 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. In 1999, the Company's principal insurance
subsidiary, Mortgage Guaranty Insurance Corporation can pay $49.4 million of
dividends and the other insurance subsidiaries of the Company can pay $4.5
million of dividends 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 1998, 1997 and 1996, the Company paid dividends of $11.2 million, $11.0
million and $9.4 million, respectively or $.10 per share in 1998, $.095 per
share in 1997 and $.08 per share in 1996.
40
MGIC INVESTMENT CORPORATION
SCHEDULE IV - REINSURANCE
MORTGAGE INSURANCE PREMIUMS EARNED
Years Ended December 31, 1998, 1997 and 1996
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,
1998 $770,775 $ 17,161 $ 9,670 $763,284 1.3%
======== ========= ======== ========
1997 $712,069 $ 15,990 $12,665 $708,744 1.8%
======== ========= ======== ========
1996 $623,148 $ 19,350 $13,245 $617,043 2.1%
======== ========= ======== ========
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.]
10.1 Common Stock Purchase Agreement between the Company and The
Northwestern Mutual Life Insurance Company ("NML"), dated November 30,
1984(2)
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(3)
10.3 Tax Sharing Agreement between the Company, MGIC and certain
subsidiaries of MGIC, dated January 22, 1986(4)
10.4 Amendment to Tax Agreement, dated as of August 14, 1991, by and between
NML, the Company, and its subsidiaries(5)
10.5 Amended and Restated Investment Advisory and Servicing Agreement
between the Company and Northwestern Mutual Investment Services, Inc.
("NMIS"), dated December 5, 1997.(6) [Northwestern Mutual Investment
Services, LLC has succeed to NMIS as a party to such Agreement.]
Exhibit
Numbers Description of Exhibits
10.6 MGIC Investment Corporation Amended and Restated 1989 Stock Option Plan
(including forms of option agreement).(7)
10.7 MGIC Investment Corporation 1991 Stock Incentive Plan.
10.8 Form of Stock Option Agreement under 1991 Stock Option Plan (now known
as the 1991 Stock Incentive Plan).(8)
10.9 Form of Stock Option Agreement under 1991 Stock Incentive Plan (1997
Form 1).(9)
10.10 Form of Restricted Stock Award Agreement under 1991 Stock Incentive
Plan.
10.11 Executive Bonus Plan
10.12 Supplemental Executive Retirement Plan.(10)
10.13 MGIC Investment Corporation Deferred Compensation Plan for Non-Employee
Directors.(11)
10.14 MGIC Investment Corporation 1993 Restricted Stock Plan for Non-Employee
Directors.(12)
10.15 Two forms of Award Agreement under MGIC Investment Corporation 1993
Restricted Stock Plan for Non-Employee Directors.(13)
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.(14)
11 Statement re: computation of per share earnings
13 Information from the 1998 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 Price Waterhouse LLP
27 Financial Data Schedule
Supplementary List of the above Exhibits which relate to management
contracts or compensatory plans or arrangements.
Exhibit
Numbers Description of Exhibits
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 Form of Stock Option Agreement under 1991 Stock Option Plan (now known
as the 1991 Stock Incentive Plan).
10.9 Form of Stock Option Agreement under 1991 Stock Incentive Plan (1997
Form 1).
10.10 Form 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.
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); or to the 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). 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 10.1 to the 1991 S-1.
(3) 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.
(4) Exhibit 10.9 to the 1991 S-1.
(5) Exhibit 10.10 to the 1991 10-K.
(6) Exhibit 10.5 to the 1997 10-K.
(7) Exhibit 10.16 to the 1991 S-1.
(8) Exhibit 10.19 to the 1991 10-K.
(9) Exhibit 10.9 to the 1997 10-K.
(10) Exhibit 10.16 to the 1996 10-K
(11) Exhibit 10.23 to the 1993 10-K.
(12) Exhibit 10.24 to the 1993 10-K.
(13) Exhibits 10.27 and 10.28 to the June 30, 1994 10-Q.
(14) Exhibit 10.26 to the 1994 10-K.