MGIC Investment Corporation Aktie

Ladies and gentlemen, thank you for standing by, and welcome to the MGIC Investment Corporation First Quarter 2026 Earnings Call. [Operator Instructions]

I will now turn the conference call over to Dianna Higgins, Head of Investor Relations. Please go ahead.

Thank you, Kelly. Good morning, and welcome, everyone. Thank you for your interest in MGIC. Joining me on the call today to discuss our results for the first quarter are Tim Mattke, Chief Executive Officer; and Nathan Colson, Chief Financial Officer and Chief Risk Officer. Our press release, which contains MGIC's first quarter financial results was issued yesterday and is available on our website at mtg.mgic.com, under Newsroom, includes additional information about our quarterly results that we will refer to during the call today.

It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk in force and other information you may find valuable. As a reminder, from time to time, we may post information about our underwriting guidelines and other presentations, or corrections to past presentations on our website.

Before getting started today, I want to remind everyone that during the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Our 8-K and 10-Q filed yesterday includes additional information about the factors that could cause actual results to differ materially from those discussed on the call today. If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. No one should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call, or the issuance of our 8-K or 10-Q.

With that, I now have the pleasure to turn the call over to Tim.

Thanks, Dianna, and good morning, everyone. I'm pleased to report a strong start to 2026 as we continue to execute our business strategies while maintaining the momentum we have built over the past several years. Our performance demonstrates the strength of our business model, disciplined market approach and long-standing commitment to meeting the evolving needs of our customers in the broader market, a commitment we have maintained since 1957.

For the first quarter, we generated net income of $165 million, delivering an annualized return on equity of 13%. Our solid operating performance, combined with the strength of our balance sheet, drove book value per share to $23.63, an increase of 10% year-over-year.

Turning to NIW. We wrote $14 billion of new insurance in the first quarter, an increase of 41% from last year and our largest first quarter of NIW since 2022. The increase was driven by higher refinance activity, as well as what we expect was a modestly larger purchase market. Insurance in force at the end of the first quarter stood at approximately $303 billion, relatively flat quarter-over-quarter, and up 3% from a year ago with annual persistency ending the quarter at 84%, down from 85% last quarter. Both insurance in force and annual persistency are in line with our expectations entering the year.

Overall, we continue to expect our insurance in force to remain relatively flat in 2026. If mortgage rates were to decline more than currently predicted, we'd expect the size of the MI market to benefit from increased refinance activity, although the growth in insurance in force would be offset by lower persistency, which is consistent with what happened in the first quarter to some degree.

We continue to be pleased with the overall credit quality and performance of our well-balanced portfolio. Our underwriting standards remain strong, and to date, we have not seen a material change in the credit performance of our portfolio. Early payment defaults remain low, which we believe is a positive indicator of near-term credit trends.

Our capital structure remains robust with $6 billion of balance sheet capital and a well-established reinsurance program with a large panel of highly rated reinsurers that continues to be a core component of our risk and capital management strategy. These reinsurance agreements reduce loss volatility and stress scenarios while providing capital diversification and flexibility at attractive costs. At the end of the first quarter, our reinsurance program reduced our PMIERs required assets by $3.1 billion or approximately 52%.

Our capital management approach remains unchanged. We prioritize prudent insurance in force growth over capital return. Market conditions have constrained insurance in force growth in recent years. And against that backdrop, our capital return activity reflects our robust position, continued strong credit performance and financial results, and share price levels that we believe are attractive to generate long-term value for our shareholders. Consistent with our commitment to disciplined capital allocation and long-term shareholder value, last week, the Board authorized an additional $750 million share repurchase program.

We actively monitor capital levels at both MGIC and the holding company, carefully balancing the amount of capital we return to shareholders with what we retain to preserve financial strength and resilience across a range of macroeconomic environments. In doing so, we consider both current conditions and expected future operating environments, while continually evaluating the most effective ways to allocate capital to drive long-term shareholder value, an approach that served our shareholders well. Consistent with this approach, earlier this week, MGIC paid a $400 million dividend to the holding company, enhancing holding company liquidity and overall financial flexibility.

With that, let me turn it over to Nathan to provide more details on our financial results and capital management activities for the first quarter.

Thanks, Tim, and good morning. As Tim discussed, we had solid financial results for the first quarter. We earned net income of $0.76 per diluted share, compared to $0.75 per diluted share last year. Our reestimation of ultimate losses on prior delinquencies resulted in $31 million of favorable loss reserve development in the quarter. This favorable development was primarily due to delinquency notices received in 2025. Cure rates on those delinquency notices have exceeded our expectations, and we have adjusted our ultimate loss expectations accordingly.

As a quick reminder, delinquency notices we received during the quarter span across various book year vintages. For the delinquency notices we received in the quarter, we continue to apply the initial claim rate assumption of 7.5%.

Looking at delinquency trends, our account-based delinquency rate increased 14 basis points year-over-year and 1 basis point in the quarter. Seasonal trends, which are historically a tailwind to mortgage credit performance in the first quarter, were less pronounced this year. Cures on new notices remain strong, and we expect the delinquency rate and the level of new notices to continue to normalize. Overall, both the number of new notices and the delinquency rate remain low by historical standards.

The in force premium yield was 38 basis points in the quarter, flat sequentially and consistent with what we expected. With another year of high persistency expected and MI origination trends similar to last year, we continue to expect the in force premium yield to remain relatively flat during the year. Investment income totaled $62 million in the first quarter, flat sequentially and year-over-year as the book yield on our investment portfolio has been approximately 4% for the last year. During the quarter, reinvestment rates on our fixed income portfolio continued to exceed our book yield, but our capital return activities have limited the growth in the investment portfolio and the resulting investment income.

Underwriting and other expenses in the quarter were $48 million, down from $53 million in the first quarter last year, as we remain focused on disciplined expense management. We continue to expect operating expenses for the full year to be in the range of $190 million to $200 million, as I shared in February.

In the quarter, we continued to allocate excess capital to share repurchases, which totaled 7.2 million shares for $193 million. We also paid a quarterly common stock dividend of $35 million. Over the prior 4 quarters, share repurchases totaled $750 million and shareholder dividends totaled $138 million. Combined, they represented a 123% payout of the net income earned over the period. In the second quarter, through April 24, we repurchased an additional 1.7 million shares of common stock for a total of $47 million. In addition, the Board approved a $0.15 per share common stock dividend payable on May 21. These actions are all consistent with our capital allocation approach.

With that, let me turn it back over to Tim.

Thanks, Nathan. A few additional comments before we open it up for questions. Housing affordability remains a challenge for many prospective homebuyers. Private mortgage insurance plays a critical role in supporting housing affordability by enabling low down payment borrowers to enter the market and achieve homeownership sooner. We remain actively engaged in industry discussions and regularly advocate for responsible policy solutions that improve affordability.

Last week, FHFA announced advances in credit score modernization and that the GSEs are moving forward with VantageScore 4.0 and FICO Score 10 T, with the intent of lowering cost to borrowers. We are fully supportive of these credit score modernization advances and are actively working with the GSEs, lenders and their technology partners to operationalize these changes.

In closing, our first quarter results reflect consistent execution of our business strategies and disciplined capital allocation. With our strong foundation and deep industry expertise, we remain well positioned to navigate dynamic environments and create long-term shareholder value.

With that, Kelly, let's take questions.

[Operator Instructions] Our first question comes from the line of Terry Ma of Barclays.

I wanted to start with credit. Any color you can provide on, kind of, the trends you saw this quarter? The default rate was -- I think it was up 1 basis point quarter-over-quarter versus the normal seasonality of down. So just curious if you can kind of provide any color there.

Yes. Terry, it's Nathan. Thanks for the question. It is something that we looked into quite a bit this quarter. And while I think broad-based didn't see as much, maybe, seasonal benefit as we have in recent years in the first quarter, there were a couple of unique items that we identified just relative to the timing within the month that certain large servicers provide their delinquency information. So as a practical matter, we get delinquency reporting beginning on the 16th of the month for loans that have 2 missed payments. So the earlier in the month that servicers report, the more new notices they're likely to report just because those borrowers have had only 16 days in the month to make a payment.

We had a couple of servicers that gave us reporting earlier in March than they had in prior periods. That may have accelerated, or may have increased a little bit the amount of new notices and decreased the cures that we have seen. From -- we don't have full April information yet, but from what we've seen so far in April, those trends look pretty favorable and more in line with what we would have expected.

So I think time will ultimately tell, but it did seem like there were a couple of, maybe, unique items in the quarter. But at the end of the day, long-term cure rates still are very attractive and haven't shown much sign of slowing down, which has led to us consistently releasing reserves and having favorable development. So all in all, I think that the credit picture is still quite favorable.

Got it. That's helpful. And then I guess as a follow-up, would the servicer reporting issue also kind of impact roll rates? So as I look at those between the buckets, those are also a little bit worse on a year-over-year basis. And then maybe just taking a step back, any commentary on how you're thinking about just the level of gas and energy prices, how it may kind of impact your borrowers?

Yes, Terry, it's Nathan. I'll take those. I think certainly, the same reporting for new delinquencies that I talked about is also the reporting for cure activity on previously reported items. So that could definitely have an impact. We are coming off historically good levels, especially for long-term cure rates. So we've always expected some normalization. That may be happening to some degree.

But even post the COVID crisis, we have noticed that earlier period cure rates, 1 month, 3 months, 6 months, are a little -- are running at lower levels than we saw pre-COVID. But that later stage cure rates, 12 months, 18, 24 are much better, which is ultimately leading to a lot of that favorable development that I mentioned. But the servicer reporting timing does impact both new notices and cures.

Relative to energy prices and just general price levels and the impact on consumers and on borrowers that we ensure. But I think any macroeconomic headwind is something that we're conscious of and something that we think a lot about. To date, I don't think we've seen a lot of direct impact. Certainly, the power of interest rates, we saw that with refinance activity, more than 20% of our NIW with rates still not meaningfully below 6%. So I do think that rates drive activity and behavior in our space a lot more than maybe higher prices for certain goods.

But it's certainly something that we'll actively monitor. The rate of unemployment is a key factor for us. But wage growth has still been strong and nominal GDP continues to be running very high. So those are offsetting factors. But again, always an uncertain macroeconomic environment and something that we try to maintain both from a credit policy perspective, underwriting perspective and a balance sheet and capital position, that we have flexibility to react to whatever the macroeconomic environment is that comes next.

Our next question comes from the line of Bose George of KBW.

Just on capital return. So last year, it was -- your payout ratio is 124%. It sounds like it's similar in the first quarter. I mean last year, looking at your capital, the AOCI reversal helped keep the capital fairly flat, and that wasn't the case in the first quarter. So the question is, does AOCI play a role in how you think about the payout ratio? Or could it continue at this level even if it pushes up leverage a little bit?

Bose, it's Tim. It's a good question. Generally, we don't really think about AOCI as something that really impacts our thought about capital return. It's much more of a GAAP concept. And so looking at statutory PMIERs. Obviously, stay focused on what might be happening with the investment portfolio. But again, I think those are viewed as sort of temporary and obviously just unrealized that we normally hold those to maturity. So that's just -- it's noise and obviously impacts sort of book value per share. But from a capital return, it's really not a major consideration in our discussions.

Okay. So just given your comments on the insurance in force being fairly flat, this is kind of a reasonable payout ratio at least for this year?

Yes. I think with all the caveats that we put on about, obviously, performance, the macroeconomic environment, all of those things being consistent, those are things that we pay close attention to make sure that we should continue at a pace that we have been. But assuming those things stay relative to how they've been in the past, that we've been very comfortable with the rate at which we've been returning capital.

Okay. Great. And then just on the positive development this quarter, it looks like a bigger portion than usual just came from loss severity. Anything to call out there? Or is that just noise?

I don't think there's anything specific to call out there. We did see a little bit of a decline in the exposure on new notices, but some of that has to do with just which loans are curing and the exposure on the inventory. We've kept our, kind of, reserving approach relative to exposure pretty consistent. So I think that's more of just the underlying loans, what's curing, what's remaining than any active change that we made.

Our next question comes from the line of Mihir Bhatia of Bank of America.

I wanted to start maybe going back to some of the questions around credit that Terry was talking about. I think you did mention that you expect normalization of delinquency rates to continue. Maybe the portfolio has changed a little bit over time and with regulations and stuff also. So just, maybe, help us where do you expect the delinquency rate to stabilize? And like what's the path to get there from here?

Yes. Mihir, it's Nathan. Thanks for the question. I think there's a couple of things that, that becomes dependent on. For the last couple of years, and there's been some periods where it's not exactly this, but we've been between a 10 and 15 basis point year-over-year increase in the delinquency rate. And that feels very consistent with normalizing credit conditions. But we also have a unique book historically right now where we have a significant amount of our in force that is 3, 4, 5, 6 years aged. And those are typically higher delinquency periods, but often, they're not a significant portion of the in force book because so much of those books have run off.

That isn't the case today. So if that continues, I think we would expect a gradual upward movement in the delinquency rate if the '20, '21, '22, '23 books persist as they have. But if we do get in a rate environment where we're resetting a lot of the book towards more recent vintages, if rates were to go down and we were to write a lot more new business, that would be a tailwind, I think, for the delinquency rate.

So part of the answer to that question is dependent on what happens to rates and how much new business we write. But I would say the environment where the existing loans persist, even if the delinquency rate continues to tick up modestly, that's a really good environment for us because we get the renewal premium on those loans, and that's been the way that the last couple of years have gone for us, and we've had very good results.

So I think we can do well in either environment. In one environment, there's probably more pressure on the premium rates because we'd be resetting a lot of loans, refinance is typically lower LTV, higher lower DTI, higher FICO. But we'd be resetting a lot of the premium to lower levels, but the delinquency rate would be benefited. In an environment that continues to persist, there's probably more upward pressure on the delinquency rate, but we continue to get the renewal premium off of those vintages, which is also an attractive environment for us.

Got it. And then just along those lines towards the end, you mentioned the refinances have ticked up. I think it's like up to 21% of NIW. But your premium rate, I think, is steady. That's the outlook you're calling for and persistency has stayed elevated.

Can you just talk a little bit about that? Like your -- I think your refinance share of NIW has gone from like 6% to 20%, but persistency is basically 84%, 85% still. So just what's driving that dynamic? And where would persistency rate stay at around these levels?

Yes. Mihir, it's Nathan again. The -- there was a slight decline in the persistency rate during the quarter. And again, this is an annual measure. And refinance activity was a little elevated in the fourth quarter, but we've seen that taper off since then. So if refinance activity remained at the 20% level of NIW, I do think that, that would work its way into the premium yield that we're seeing and persistency would continue to tick down.

I think if you -- if we look at what we would term the persistency run rate, which would be just looking at the quarterly activity, it's closer to 80% -- 84%. But our expectations now with rates where they are today, more in that 6.25% to 6.5%, we are seeing a falloff in refinance activity, and that's more kind of the expectations that we were calling out in terms of, maybe, a slightly larger purchase market but that a lot of the refinance activity for the year may be behind us.

If that's not correct, if rates do go down and there's a lot of refinance activity, then I think you'd see lower persistency, higher NIW and potentially, depending on how much volume it was and which loans were refi-ing, you could see maybe slight headwinds to the in force premium yield. But I think our expectations are more for rates in and around the area that they are now and for moderation in refinance activity in the second quarter and the second half of the year.

Got it. And then I'll just ask one last question and jump back in queue. But in terms of new notice severity, it has increased a little bit sequentially. Just wanted to check, are you seeing any regional or vintage-specific pressures? Maybe also just talk a little bit about early performance of the '24 through '26 vintages. Anything you're seeing in there that makes you pause?

Yes. Mihir it's Nathan. I mean the #1 driver of our new notice severity assumption is the exposure, the risk associated with the new delinquencies. And as we've gotten less new delinquencies on a relative basis, relatively less delinquencies from the 2008 and prior vintages at lower loan amounts and more from the 2023, '24, starting in 2025 at much higher loan amounts. It's just the average loan size and thus the average exposure is higher. So I think the changing vintage mix just moving closer to today's values is far and away the driver of that increase versus anything you'd see maybe regionally, or anything that we're seeing or changing from an assumption standpoint.

There are no further questions. I will now turn the call back over to management for closing remarks.

Thanks, Kelly. I want to thank everyone for your interest in MGIC. We will be participating in the BTIG Housing and Real Estate Conference and the KBW Virtual Real Estate Finance and Technology Conference in May. I look forward to talking to all of you in the near future. Have a great rest of your week.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the MGIC Investment Corporation Fourth Quarter 2025 Earnings Call. [Operator Instructions] At this time, I would like to turn the conference over to Dianna Higgins, Head of Investor Relations. Please go ahead.

Thank you, Howard. Good morning, and welcome, everyone. Thank you for your interest in MGIC. Joining me on today's call to discuss our results for the fourth quarter are Tim Mattke, Chief Executive Officer; and Nathan Colson, Chief Financial Officer and Chief Risk Officer.

Our press release, which contains MGIC's fourth quarter financial results was issued yesterday and is available on our website at mtg.mgic.com under Newsroom, includes additional information about our quarterly results that we will reference during today's call. As well as a reconciliation of non-GAAP financial measures to their most comparable GAAP measures.

In addition, we posted a quarterly supplement on our website that provides details about our primary risk in force and other information you may find valuable.

As a reminder, from time to time, we may post updates to our underwriting guidelines, additional presentations or corrections to past materials on our website.

Before we get started today, I want to remind everyone that during today's call, we may make forward-looking statements regarding our expectations for the future. Actual results could differ materially from those expressed in these forward-looking statements. Additional information about the factors that could cause actual results to differ materially from those discussed in today's call, is included in our 8-K filed yesterday.

If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent events. No one should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of our 8-K. With that, I now have the pleasure of turning the call over to Tim.

Thank you, Dianna, and good morning, everyone. We delivered another quarter of solid financial results, closing 2025 strong and entering the new year from a position of strength. This performance is a continuation of the sustained momentum we've built over the past several years.

Our performance stems from being grounded in decades of experience across a wide range of market cycles disciplined risk management and a thoughtful measured approach to the market. We pair our expertise with a customer-centric mindset continually evolving to meet the changing needs of our customers in the broader market.

Turning to a few financial highlights. In the quarter, we earned net income of $169 million, producing an annualized 13% return on equity. For the full year, we earned net income of $738 million a full year return on equity was 14.3%. Our strong operating performance and robust balance sheet enabled us to grow book value per share to $23.47, 13% higher year-over-year.

As I mentioned on last quarter's call, we are proud to have achieved a significant milestone in our company's history in the industry first during the year, surpassing $300 billion of insurance in force.

We continue to grow insurance in force in the fourth quarter, ending the year with more than $303 billion, up 3% from a year ago. Annual persistency remained elevated and stable throughout 2025, and ending the quarter at 85%, in line with our expectations at the start of the year.

We wrote $17 billion of high-quality new business in the fourth quarter and $60 billion for the full year, an increase of 8% from the prior year. Consensus mortgage origination forecasts project the size of the MI market in 2026 will be relatively similar to 2025 with mortgage rates remaining elevated. Overall, we expect insurance in force to remain relatively flat in 2026.

If mortgage rates were to decrease more in 2026 than currently predicted, we expect the size of the MI market would benefit due to increased refinance volume but growth in insurance in force would be offset by lower persistency.

Our focus remains on building and maintaining a strong, well-diversified insurance portfolio. Credit quality of our insurance portfolio remains solid with an average credit score at origination of 748. To date, we have not seen a material change in the credit performance of our portfolio and early payment defaults remain low, which we believe is a good indicator of near-term credit trends.

As discussed throughout the year, financial strength and flexibility are the cornerstones of our capital management strategy, positioning us to perform well across a range of economic environments. As part of our strategy, we regularly evaluate capital levels at both the operating company and holding company, taking into account current and potential future environments to position ourselves for success, an approach that has consistently served our stakeholders well.

As part of this, we continue to bolster our reinsurance program through the use of forward commitment quota share agreements in excess of loss agreements executed in either the traditional reinsurance or capital markets.

In addition to reducing loss volatility in stress scenarios, these agreements provide capital diversification and flexibility at attractive costs.

We remained active in the reinsurance market in the fourth quarter and in January. In the fourth quarter, as previously announced, we further strengthened our reinsurance program with a $250 million excess of loss transaction covering our 2021 NIW and a 40% quota share transaction that will cover most of our 2027 NIW. We also amended the terms of our quota share treaties covering our 2022 NIW with most participants from the existing reinsurance panel, reducing the ongoing cost by approximately 40% beginning in 2026.

In addition, in January, we completed our eighth insurance-linked note transaction, which provides $324 million of loss protection and cover certain policies written between January 2022 and March 2025. These reinsurance activities are aligned with our long-term strategy and reflect our consistent disciplined approach to managing risk and capital.

At the end of the fourth quarter, our reinsurance program reduced our PMIERs required assets by $2.8 billion for approximately 47%. With that, let me turn it over to Nathan to provide more details on our financial results and capital management activities for the quarter.

Thanks, Tim, and good morning. As Tim mentioned, we had another quarter of solid financial results. We earned net income of $0.75 per diluted share compared to $0.72 during the fourth quarter last year. For the full year, we earned net income of $3.14 per diluted share compared to $2.89 per diluted share last year. .

Our reestimation of ultimate losses on prior delinquencies resulted in $31 million of favorable loss reserve development in the quarter. The favorable development was primarily driven by delinquency notices we received in 2024 and in the first half of 2025 as curates on recent new notices continue to exceed our expectations.

For new delinquency notices received in the quarter, we continue to apply the initial claim rate assumption of 7.5%, consistent with recent periods.

Our account-based delinquency rate increased 3 basis points from the prior year and 11 basis points in the quarter. The sequential increase was in line with our expectations and reflects normal seasonal patterns as well as the continued aging of our 2021 and 2022 book years, as we have discussed on prior calls.

The 3 basis point year-over-year increase was the slowest rate of increase since the first quarter of 2024, and we believe reflects the continued normalization of credit conditions that we have discussed throughout the year.

Turning to our revenue. The in-force premium yield was 38 basis points in the quarter and remained relatively flat during the year, consistent with what we expected at the start of the year.

Given expectations of a similar MI market to 2025, we expect the [ in-force ] premium yields to remain near 38 basis points again in 2026.

Investment income totaled $62 million in the fourth quarter and again contributed meaningfully to revenue. The book yield on our investment portfolio was 4% at the end of the quarter. Investment income remained relatively flat sequentially and year-over-year as both the book yield and the size of the investment portfolio have also remained relatively flat.

During the quarter, reinvestment rates on our fixed income portfolio continued to exceed our book yield and remain relatively flat for the year. The unrealized loss position on our portfolio narrowed again this quarter by $16 million, primarily driven by lower interest rates.

Underwriting and other expenses in the quarter were $46 million, down from $49 million in the fourth quarter last year. For the full year, expenses were $201 million, down $17 million from 2024 and within the $195 million to $205 million range we shared throughout the year. We remain committed to disciplined expense management and ongoing operational efficiency across the organization.

For 2026, we expect operating expenses to decline further to a range of $190 million to $200 million due primarily to higher expected ceding commissions as we have recently renegotiated several seasoned quota share reinsurance treaties instead of canceling those treaties.

Turning to our capital management activities. Consistent with our approach over the past several years, we prioritized prudent insurance in-force growth over capital return. Over the past several years, market conditions have constrained the growth of our insurance in force. Against that backdrop, our capital return activity reflects our robust capital position, continued strong credit performance and financial results and share price levels that we believe are attractive to generate long-term value for our shareholders.

In the fourth quarter, we paid a quarterly common stock dividend of $33 million and repurchased 6.8 million shares of common stock for $189 million. For the full year, we returned $915 million of capital to our shareholders through a combination of share repurchases and dividends and reduced shares outstanding by 12%. This represents a 124% payout ratio of the year's net income our quarterly dividend increased by 15% in the third quarter, marking 5 consecutive years of dividend growth.

In January, we repurchased an additional 2.7 million shares of common stock for a total of $73 million. In addition, in January, as previously announced, the board approved the quarterly common stock dividend of $0.15 per share payable on March 6.

All of these actions were taken while continuing to strengthen our balance sheet and enhance flexibility during the year. We paid $800 million in dividends from MGIC to the holding company during the year, ending the year with $1 billion of liquidity at the holding company and in excess to PMIERs of $2.5 billion at the operating company. With that, let me turn it back over to Tim.

Thanks, Nathan. As the founder of modern private Mortgage Insurance nearly 70 years ago, we strive to be the most trusted and transparent partner in the MI industry. We are proud of the critical role private MI plays in the housing finance system. We look forward to continuing to work with industry stakeholders, including the FHFA and the GSEs to responsibly serve low down payment borrowers, expand the use of private MI protect the taxpayer for mortgage credit risk and help shape the future of housing finance system.

With that said, housing affordability remains a challenge for many prospective home buyers. We continue to actively participate in industry discussions and support responsible policy changes that improve affordability. The passage of the working families tax cut restored the tax deductibility of MI premiums, providing meaningful tax relief to homeowners without increasing risk to the housing finance system.

In addition, the cost of private mortgage insurance premiums represents a temporary expense unlike other ongoing homeownership costs such as homeowners insurance and property taxes, which have risen significantly. Private mortgage insurance plays an important role in enabling low down payment borrowers to enter the market and achieve the American dream of homeownership sooner.

In closing, we had a strong year successfully executing our business strategies and returning meaningful capital to our shareholders. I'm confident in our talented team, our position in the market as well as our ability to continue executing and delivering on our business strategies in 2026 and beyond to create long-term value for all of our stakeholders. With that, Howard, let's take questions.

[Operator Instructions] Our first question or comment comes from the line of Bose George from KBW.

Actually, first, I wanted to ask about any price competition or changes you're seeing in the industry? I mean, based on your comments, it sounds like premiums are very stable, but just wanted to confirm that.

Yes. I think, Bose, I mean, I think we don't like to comment too much on industry pricing generally. But I think from our perspective, we were able to sort of find the value where we wanted it this quarter, similar to what we've been seeing for the majority of the year without having major sort of adjustments in our premium in the quarter. So I think we feel good about that. Again, we focus on the returns ultimately and what we can get, but felt pretty good stability there back -- looking back the last quarter.

Okay. Great. And then switching over to sort of regulatory stuff. The market seems quite worked up about a potential reduction in FHFA premiums, have you seen anything from the FHFA itself or from the administration that suggests that, that is a possibility?

I always view when it comes to affordability and sort of looking at different levers, I always view it as a possibility. I don't get the sense that it's viewed as any more possible or any more work is being done specifically on it right now than sort of making sure they understand sort of the different levers that can be pulled. So again, it's really tough to sort of try to put odds on it other than I would say that I don't get the sense that there is any increasing sort of discussion of people we've talked with about it other than I think whenever you look at affordability, we know that certain constituencies will advocate for reducing the FHA premium. And that always creates external pressure, but haven't been just to believe that, that is imminent, but that can change quickly in this world, right?

Our next question comment comes from the line of Terry Ma from Barclays.

Yes. Sorry, I was muted. I was interested to see if you could provide kind of any color on kind of credit trends that you're seeing kind of by region or state.

Terry, it's Nathan. I'll take that one. We do look at the mix of new delinquencies that we're seeing on a monthly basis and really haven't seen much in the way of movement on a geographic basis, whether it be state or even at the market level.

I think when we look at the mix of new notices from the first quarter, the second quarter, the third quarter compared to the fourth not seeing states that are really standing out one way or the other. I think there's always some noise, especially with the relatively low level of new notices that we have. Some of the jurisdictions have relatively small numbers, so it can be a little bit noisier but as a kind of percent of the total, really not seeing areas that are standing out or areas of concern for us right now.

Got it. That's helpful. And then on the reserve release, [indiscernible], I appreciate the color on kind of makeup. But can you maybe just kind of remind us how that compare is going to make up or the drivers of the release that you've had in the last few quarters. I know not a great way to look at it, but at least the magnitude of release was noticeably lower than what you saw in the last few quarters.

Yes. Terry, it's Nathan again. I think the way that we've approached reserving and the way that then the reserve releases have kind of mechanically worked as unchanged. We're always comparing our initial estimates to what we now think is the best estimate.

In our business, cures come earlier than claims. So early cures don't give you as much new information about ultimate losses. So from what we're seeing a couple of quarters ago, we would have seen reserve development coming out of maybe notice is that we had received 2, 3, 4, 5 quarters before, and it kind of keeps moving forward as time advances. So I would say the quarters where development is coming from are different, but mostly because we're just further in time. So we had development, say, on the notices from the first half of 2025, we wouldn't have had that, say, in Q2, but it would have been from the back half of '24. Those notices that had been aged for 2 or 3 quarters.

So -- and that's not kind of a rule or anything for us. It's really looking at how many are curing what is the monthly pace and quarterly pace at which they're curing? How closely are they following previously identified trends and cure activity and really where do we think it will ultimately play out? And continue to be reestimating down new notice quarters from our initial estimates of 7.5% down into the lower single digits.

Our next question comment comes from the line of Doug Harter from UBS.

I guess along those lines of the last question, can you just talk about the composition of the NODs and kind of what vintages those are coming from? And kind of as we get to the newer vintages with less HPA, how do you think that might impact yours?

Yes, Doug, it's Nathan. I think on the cure side, really haven't seen a lot of divergence in cure activity based on vintage. I think perhaps the 2022 vintage is at the lower end of the range as we would look at cure rates by vintage for delinquent loans, but still all within, I'd say, a pretty tight band and much better than pre-COVID levels. The long-term cure rates are really what are driving the ultimate reductions in our ultimate loss expectation. So I think not seeing much on the cure rate side.

On the delinquency emergence, we have got a couple of tables and charts in the supplement. One of them does look at delinquency rates over time by vintage. And you can see 2022 is running modestly higher than '21 or '20 or even 2019. But the recent vintages are all tracking very close to that or inside of that.

So again, I think this is all consistent in our mind with the normalization in credit conditions coming off of kind of early post-COVID conditions that just led to very, very low losses for those vintages.

Our next question or comment comes from the line of Giuliano Bologna from Compass.

Congrats on the can execution and especially on the expense management side. when I look forward to next year, obviously, you put out the $190 million to $200 million range for underwriting operating expenses. I'd be curious, especially looking at this environment, are there any other levers that you could pull to have improved returns on capital, at least in the near term? The environment is relatively tough when interns and forces was barely growing or expected to be roughly flat. I'm curious what are the levers you might have that you can pull to push some of the rental margin at this point?

Yes, it's Nathan. I'll get started on it. I think the biggest thing that we've done this year really in anticipation of a normalization in credit conditions and the movement away from what has been close to 0 losses for the last couple of years is really getting the reinsurance program really bolstered with really attractive costs on our in-force book, but increasingly covering our future new business, 2026 and 2027, NIW is now covered.

And when you think about return on capital, we often think about that as a return on PMIERs capital. And the reinsurance at the cost that we're able to procure it does provide us better returns on equity than we earn on a return on capital basis.

And that's why I think capital management for us is so important, and it's not just the capital return side of it. It's also how we're constructing our capital balance sheet for our regulatory capital measures, our risk-based capital measures, rating agencies and the like. And increasingly, that has taken on an even heavier reinsurance line partly because of the attractiveness of that market and the tail risk protection that it provides, but partly because we do think that, that is the best way to earn -- continue to earn kind of good risk-adjusted returns on equity.

That's very helpful. And then maybe just partially addressed, but obviously, during the pickup in refinancing activity and kind of the expected continuation of that, it's somewhat disproportionately impacting disproportionately impact your high at coupons that you have out there.

I'm curious, is there any -- is there a big divergence in the premium rates between some of your [indiscernible] [ investment in-force ] versus some of the more recent vintages that seem to be they're being much more exposed to refinance activity at the moment? And should that impact your average rain rate throughout the year?

Yes. It's an interesting question. I don't -- premium rates on average have been relatively flat for the last 5 or 6 years. You can see that in our [ in-force ] premium yield. The really low coupon books that we wrote in 2020 and 2021 had much lower credit risk at origination characteristics. So all else equal, they would have had lower premium rates. There's a lot of refinance activity in those books. Whereas the more recent higher coupon books have been purchase-dominated higher LTV, still really good credit profile, especially from a credit score perspective.

But I don't think that -- I think it's less about maybe the vintage effect and more if we're already ensuring a loan if that refis into something that has a lower capital charge and lower kind of ad origination credit characteristics, all else equal, we get lower premium for that loan in a risk-based pricing market.

Our next question or comment comes from the line of Mihir Bhatia from Bank of America.

The first one I wanted to ask was just about in-force premium yield declined to touch this quarter after being steady for most of '25, what drove that?

Yes. Here, it's Nathan. It was down a couple of tens of basis points. And I think that's just -- I think for us, within the margin of flat. It does fluctuate a little bit. I think we wrote more business in Q4 than we would have otherwise anticipated due to refinance activity. So that increases the ending in force, but it doesn't add to premium because we don't collect premium in the -- often in the first month, it really starts in the second month.

So I think you're dealing with some really situations like that versus there being any substantive change in the mix of the [ in-force ] or the premium dollars on a direct basis were up. So I think it probably has more to do with the insurance [ in-force ] dollars going up at the end, such that the average is a little bit higher and drove the yield lower. But those things often it will normalize over more than a quarter.

Got it. And then I guess, somewhat related, but in your prepared remarks, you talked about insurance [ in-force ] is flat even if you even if the market ends up being a little bigger because you think you'll have maybe a give back, if you will, on persistency. That didn't happen this quarter. So I guess, maybe just talk a little bit about that, why do you think it would happen at least early on in the early stages of a rate cut potentially or a larger market? Just given that didn't happen in fourth quarter where you wrote more NIW but persistency stayed pretty high.

Yes. I think, Mihir, it's Tim. I think it's all within sort of a range of outcomes. I think what we want to make sure that we are clear about is that when refi activity, normally, it's the time refi that happens from MI into MI and that there's going to be downward pressure on persistency. And so it just if there's more NIW volume, it doesn't just inure to sort of a total increase in insurance [ in-force ]. So yes, we did have a slight increase this quarter, I could call it with an increase in sort of refi activity, pretty substantial increased refi activity. So it's a very, I'd say, marginal sort of increase in insurance [ in-force ]. And so I think just trying to make sure temper the expectations appropriately that even if interest rates fall and the majority of the pickup in volume is from refi activity that, that has downward pressure on persistency.

Got it. And then maybe just -- I'll just wrap with this one. Just in terms of credit trends from here. Anything we should be keeping in mind as we think about default rate as we look at '26 and '27, just from a -- even from a vintage size perspective, are we through the peak years for the last vintages? Does vintage size maybe become a bit of a good guy for DQ rate from here given persistency staying elevated? Just any thoughts there on the default rate?

[indiscernible] here, it's Nathan. I think that's possible. Our expectations now are for a pretty similarly sized market. And with home price appreciation being relatively modest, the dollar growth that we've enjoyed in certain years, even if the units weren't growing as much, we don't think we'll be as strong.

So -- it does feel like we're off of the lows, though in terms of the new business that we wrote, say, in '23 or '24. And it also feels like there's maybe more upside risk to NIW than downside at this point given the refi volume we saw when rates went directionally lower but not that much lower, just into the low 6s generated a lot of refi activity. So that could become -- it could definitely become something that is a benefit to the in-force delinquency rate. But I think as we're seeing it today, the next couple of vintages are maybe modestly higher. So any impact like that would be relatively modest.

I'm showing no additional questions in the queue at this time. I'd like to -- sorry, we do have a follow-up question from Mr. Bose George from KBW.

Actually, for the -- for modeling the ceded premium number going forward, like what's the good run rate for that? Just the impact on the premium.

I think many of the lines for ceded premium, and we have this in our earnings release in the supplement think the challenging one to model is the profit commission on the quota share deals because as we have higher losses, we're seeding those losses to the quota share deals, but then earning less profit commission.

So the answer to that question is quite a bit dependent on your expectations around future losses. And that's something that we haven't given guidance on and don't intend to going forward just because the nature of our business and the potential variability there. But if it would be helpful to work through the mechanics of the profit commission happy to follow up offline to.

Okay. And just to understand, so the increase in the ceded premiums this quarter was a reflection of that was a reflection of a change in the profit commission? Is that right?

That's largely the case. The profit commission was down about $4 million sequentially. And that's really because we ceded additional losses under the quota share agreement. So we're -- from a net cost perspective, it doesn't have an impact. We're getting it back on the loss line, but it does impact the premium line.

So -- and we do have the profit commission broken out separately for each quarter, so you can see that. But it was down, like I said, about $4 million in the quarter.

I'm showing no additional questions in the queue at this time. I would like to turn the conference back over to management for any closing remarks.

Thank you, Howard. I want to thank everyone for your interest in MGIC. We were participating in the UBS and BofA financial services conferences next week. I look forward to talking to all of you in the near future. Have a great rest of your week.

Thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speakers, stand by.

Ladies and gentlemen, thank you for standing by, and welcome to the MGIC Investment Corporation's Third Quarter 2025 Earnings Call. [Operator Instructions] I will now turn the conference over to Dianna Higgins, Head of Investor Relations. Please go ahead.

Thank you, Josh. Good morning, and welcome, everyone. Thank you for your interest in MGIC. Joining me on the call today to discuss our results for the third quarter are Tim Mattke, Chief Executive Officer; and Nathan Colson, Chief Financial Officer and Chief Risk Officer.

Our press release, which contains MGIC's third quarter financial results, was issued yesterday and is available on our website at mtg.mgic.com under Newsroom, includes additional information about our quarterly results that we will refer to during the call today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures.

In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk in-force and other information you may find valuable. As you remember, from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website.

Before getting started today, I want to remind everyone that during the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results to differ materially from those discussed on the call today are contained in our Form 8-K and 10-Q filed yesterday also. If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent events.

No one should rely on the fact that such guidance or forward-looking statements are current at any other time than the time of this call or the issuance of our 8-K or 10-Q.

Now with that, I now have the pleasure to turn the call over to Tim.

Thanks, Dianna, and good morning, everyone. We maintained our strong momentum in the third quarter, delivering solid financial results and meaningful capital returns to our shareholders. For the quarter, we recorded net income of $191 million, and annualized return on equity of 14.8%, once again demonstrating the durability of our business model and the rigor around our risk management and capital strategies.

Our consistent performance reflects our leadership in the market and the ongoing support and confidence our stakeholders place in us. We remain focused on operational excellence, disciplined execution and sustainable long-term value for our stakeholders. Our solid operating results, together with our robust balance sheet, enabled us to grow book value per share to $22.87, up 11% compared to a year ago. During that same period, we returned [$980] million of capital to shareholders through dividends and share repurchases, and reduced outstanding shares by 12%.

In the third quarter, we achieved another significant milestone in our company's history and an industry first, ending the quarter with more than $300 billion of insurance in-force. This milestone reflects our historical and ongoing leadership in the market. This achievement also reflects the dedication and excellence of our talented team, their integrity, adaptability and focus sets us apart from others and propels our success.

We continue to be pleased with the credit quality and strong performance of our insurance portfolio. Our prudent risk management and underwriting standards remain key drivers in the quality of our portfolio. During the quarter, our NIW was $16.5 billion of high-quality business with strong credit characteristics.

Shifting to capital management. Our strategy remains consistent and grounded on maintaining financial strength and flexibility to support our long-term success across economic cycles. Key objectives included supporting prudent growth through strong capital levels at both the operating and holding company, maintaining a low to mid-teens debt-to-capital ratio and maintaining a healthy liquidity buffer. Our adherence to these strategies has put us in a position to return excess capital to shareholders through share repurchases and common stock dividends.

In the quarter, share repurchases totaled 7 million shares for $188 million. We also paid a quarterly common stock dividend of $0.15 per share, totaling $34 million. Taking a longer view, over the prior 4 quarters, share repurchases totaled $786 million and shareholder dividends totaled $132 million. Combined, this represents a 122% payout of the net income we earned in that period. This share repurchase activity reflects both our capital strength and excellent financial results. We continue to expect share repurchases will remain our primary method of returning capital to shareholders, while at the same time continuing to pay a quarterly common stock dividend.

As announced on October 23, the Board approved a quarterly common stock dividend of $0.15 per share payable on November 20. Additionally, earlier this week, MGIC paid a $400 million dividend to the holding company, reflecting capital levels at MGIC that were above our target. This dividend further enhances our liquidity position and financial flexibility of the holding company.

Our capital structure remains robust, with $6 billion in balance sheet capital, along with our well-established reinsurance program, which remains a core element of our risk and capital management approach. Our reinsurance program reduces loss volatility in stress scenarios while also providing capital diversification and flexibility at attractive costs. We were active in the reinsurance market in the third quarter, and Nathan will provide more detail on that shortly. At the end of the third quarter, our reinsurance program reduced our PMIERs required assets by $2.5 billion or approximately 43%.

Now let me turn it over to Nathan to provide more details on our financial results for the quarter.

Thanks, Tim, and good morning. As Tim discussed, we had excellent financial results for the third quarter. We earned net income and adjusted net operating income of $0.83 per diluted share compared to $0.77 per diluted share during the same period last year. A detailed reconciliation of GAAP net income to adjusted net operating income can be found in our earnings release.

In the quarter, our reestimation of ultimate losses on prior delinquencies resulted in $47 million of favorable loss reserve development. The favorable development this quarter primarily came from delinquency notices we received in 2024 and early 2025 as curates on recent new notices continue to exceed our expectations. For new delinquency notices received in the quarter, we continued to use the initial claim rate assumption of 7.5%, which is consistent with recent periods.

Looking at delinquency trends, our count-based delinquency rate increased 11 basis points in the quarter to 2.32%, in line with what we expected and consistent with the seasonal trends we have discussed on past calls. We received 13,600 new delinquency notices in the third quarter, slightly less than the third quarter last year and 3% less than the third quarter of 2019, just prior to the onset of the COVID-19 pandemic. The delinquency rate at the end of the third quarter was 8 basis points higher than a year ago, and the number of new notices and delinquency rates continue to remain low by historical standards.

As we look ahead, we continue to expect that the combination of seasonality and the aging of our large 2021 and 2022 book years will result in an increase in new delinquency notices received and the delinquency rate.

Turning to our revenue. The in-force premium yield was 38.3 basis points in the quarter, remaining relatively flat during the year, consistent with what we expected at the beginning of the year. Investment income was $62 million in the third quarter, contributing meaningfully to our revenue again. The book yield on our investment portfolio was 4% at the end of the quarter. Investment income remained relatively flat sequentially and year-over-year as both the book yield and the size of the investment portfolio have also remained relatively flat.

During the quarter, reinvestment rates on our fixed income portfolio continued to exceed our book yield. However, we anticipate the overall book yield will remain relatively flat for the remainder of the year. The unrealized loss position on our portfolio narrowed by $57 million in the quarter, primarily driven by a decrease in interest rates.

Operating expenses were $50 million this quarter, down from $53 million in the third quarter last year. Through the first 3 quarters of 2025, operating expenses decreased 8.5% compared to the same period last year. We continue to expect the full year operating expenses to fall within our previously communicated range of $195 million to $205 million, but now expect it will be toward the higher end of that range due primarily to the pension settlement charges we discussed last quarter.

As Tim mentioned, we have been very busy in the reinsurance market. We further bolstered our reinsurance program with a $250 million seasoned excess of loss transaction covering our 2021 NIW and a 40% quota share transaction that will cover most of our 2027 NIW. In addition, we amended the terms on our quota share treaties covering our 2022 NIW with most participants from the existing reinsurance panel. The amended terms will reduce the ongoing costs by approximately 40% starting in 2026. Because they are all effective in the future, none of these reinsurance transactions impact our reinsurance program at the end of the third quarter, but all set us up for continued success and are all consistent with our long-term reinsurance strategy and follow the same approach we have taken in recent years to managing our overall risk and capital positions.

With that, let me turn it back over to Tim.

Thanks, Nathan. We are beginning to see some modest improvements in home affordability driven by easing mortgage rates and slower national home price appreciation. Housing inventory remains tight, but like affordability, it has improved since last year, and there's been a slow but steady increase in purchase applications. With that said, affordability challenges do remain, but private mortgage insurance continues to play a critical role in helping low down payment borrowers access the American dream of home ownership sooner.

Last year, private MI helped more than 800,000 borrowers achieve their dream of home ownership. We are proud of the vital role private mortgage insurance plays in the housing finance system. We remain committed to working with FHFA, the GSEs and other industry stakeholders to responsibly serve low down payment borrowers and make homeownership more accessible for Americans, while also protecting taxpayers for mortgage credit risk.

In closing, we delivered a strong quarter and continued to build on the momentum we have established over the past few years. We are committed to delivering high-quality offerings and solutions and best-in-class service to our customers. I remain confident in our talented team, leadership and position in the market and the ability to execute and deliver on our business strategies.

With that, Josh, let's take questions.

[Operator Instructions] Our first question comes from Graham Bundy with KBW.

This is Bose. This is -- in terms of your provision, what was your provision per loan on the new notices? And just from an accounting standpoint, does your provision for new notices for the quarter just net out the new notices that were -- new notices from the year that were also cured during the year?

Yes. This is Nathan. From a new notice perspective, we had very similar assumptions for the provision this quarter. I mentioned in the prepared remarks, the new notice claim rate was 7.5%, and we followed a similar methodology for the severity on new notices, really tracking to the exposure. The total provision is inclusive of the favorable reserve development that we had, which was $47 million in the quarter. And we've got some details of that in our portfolio supplement that's on the website as well in terms of the kind of new notice, reserving assumptions and the full notice inventory.

Okay. Great. And then actually, I wanted to just ask about the debate on the credit scores that's going on. Can you just talk about how you're looking at it? And just -- in terms of PMIERs, does PMIERs just use FICO and what happens if Vantage score becomes part of what lenders are starting to use or at some point?

Yes. Bose, it's Tim. Obviously, we're paying close attention. I think it's safe to say that we try to be active in the conversations, but we know that we're just one part of the ecosystem. And so for us, it's really important to understand as an example how the GSEs are going to utilize it, what they're going to do? You referenced PMIERs right, will they make any changes with regards to that? We haven't heard anything definitive in that regard, but we stand sort of ready to incorporate whatever the industry sort of moves to and are very supportive of what makes the industry stronger. So again, I don't think we have a lot of exact answers at this point. We've had a lot of good dialogue and I think we're ready to sort of move as the rest of the industry moves.

Our next question comes from Doug Harter with UBS.

This is actually Will Nasta on for Doug today. And I guess just given some recent industry news about potential new entrants into the MI space, I was just curious your thoughts on how you guys are thinking about potential increased competition in this space and any real impact this could have on MGIC.

Yes. We're aware that someone is looking at potentially into the market. We've seen that in the past to varying degrees. The question I most often get asked is six too many. So whether another ultimately joins, they have all the PMI requirements, things like that and having to raise the capital and have all the operational requirements that we have. So again, I -- it's tough to say. I think at this point, speculation, but we're definitely aware of it. But I assume they'd be on the same playing field, et cetera. But again, I more often get asked, should there be fewer than should there be more. So I think that's something that might have to ultimately overcome on top of sort of GSE approval for PMIERs.

Got it. And then I guess just moving to capital return. I know you guys mentioned 122% payout recently. I'm just curious about how you guys are thinking about that going forward? Then obviously the balance between repurchases and dividends within that payout?

Yes. Will, it's Nathan. Thanks for the question. I think our approach has been pretty consistent over time, which is really around maintaining the right financial strength at the operating company. Once we've achieved that and have capital levels above our targets, using that to pay dividends to the holding company. And we did that again recently with another $400 million dividend. At the holding company level, we've been targeting payout ratios given the valuation of the stock, which we found to be attractive in recent periods and the strength of the financial results. The payout ratio has been a little bit elevated where the share repurchase level has approximated our net income over the last 4 quarters, and then the dividend is a little bit above that.

So I think that's -- given these market conditions right now with very good credit performance, not a lot of growth in the in-force book, really strong capital levels at MGIC. This feels like a comfortable payout ratio given those conditions. But obviously, if those conditions change, we've maintained the flexibility to react to that as well.

Our next question comes from [Meher Bhatia] with Bank of America.

This is Caroline on for Meher here. So it looks like persistency was actually modestly up quarter-over-quarter despite the rate cut. Is there anything to call out there? And then also with rates coming down prospectively, how can we think about persistency moving forward? Like how fast and how much can it come down?

Caroline, it's Nathan. In the quarter, I would view it more as flat than up. I mean I think it was up maybe a couple of tenths of a percentage point, but I think that's -- we would view it as pretty flat over the year. And really, the impact of rates coming down, if you think about our NIW for the third quarter and then cancellation activity for the third quarter, that really would reflect the rate environment, say, in June and July, more than the rate environment in September and October.

So we have seen a recent uptick in recent weeks and the number of refinance transactions that are coming through from a quote and application standpoint for us. So if there is some headwinds or persistency, it's likely to be at least somewhat offset by increased NIW or at least increased refinance volume in the third quarter and beyond. But in terms of the magnitude of the persistency change, I do think it's obviously very rate dependent, and we've had periods where persistency was much lower. We've been in a stable range for now. But I think our history shows that in the periods where persistency trends lower, they tend to be also the periods where NIW trends higher.

Okay. Awesome. That's really helpful. And then just are there any markets you're seeing good opportunity in and you're leaning in on? Or similarly, are there any markets that you're more cautious on and pulling back on?

It's Nathan again. I think this is something that we're doing on a continuous basis. So the approach that we have, given the strong capital levels is really to try to find the places where we think there's the most economic value. And that's a combination of risk factors and kind of the market rate for risk for that opportunity. So we don't really have strategy to lean in or out of any one thing. It's more like kind of our models that our views of economic value dictate where we want to go without a lot of say, capital overlays on that just given the robust capital position that we've developed over the last few years.

There are no further questions. I will now turn the call back over to management for closing remarks.

Thanks, Josh. I want to thank everyone for your participation in today's call and interest in MGIC. Have a great rest of your week.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Ladies and gentlemen, thank you for standing by, and welcome to the MGIC Investment Corporation Second Quarter 2025 Earnings Call. [Operator Instructions].

I will now turn the conference over to Dianna Higgins, Head of Investor Relations. Please go ahead.

Thank you, Brittany. Good morning, and welcome, everyone. Thank you for your interest in MGIC. Joining me on the call today to discuss our results for the second quarter are Tim Mattke, Chief Executive Officer; and Nathan Colson, Chief Financial Officer and Chief Risk Officer.

Our press release, which contains MGIC's second quarter financial results was issued yesterday and is available on our website at mtg.mgic.com under Newsroom, includes additional information about our quarterly results that we will refer to during the call today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk in force and other information you may find valuable. As a reminder, from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website.

Before getting started today, I want to remind everyone that during the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results to differ materially from those discussed on the call today are contained in our Form 8-K and 10-Q filed yesterday. If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. No one should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of our 8-K or 10-Q.

With that, I now have the pleasure to turn the call over to Tim.

Thanks, Dianna, and good morning, everyone. In the second quarter, we recorded net income of $193 million and an annualized return on equity of 15%. Our performance this quarter and throughout the first half of the year reflects our continued disciplined approach to the market, prudent risk and capital management strategies and our ongoing commitment to creating long-term value for our stakeholders.

During the quarter, we wrote $16 billion of new insurance. Insurance in force, the primary driver of our revenue ended the quarter at $297 billion. Annual persistency was 85% at the end of the quarter. Both insurance in force and annual persistency remained relatively flat over the past 2 quarters, in line with our expectations at the start of the year. We continue to be encouraged by the strong credit performance of our insurance portfolio. Our disciplined risk management and strong underwriting standards remain key drivers of the quality of our portfolio and the new insurance we've written continues to have solid credit characteristics.

As always, we remain focused on building and maintaining a high-quality, well-diversified portfolio that supports our long-term success.

Turning to capital management. As we discussed on prior calls, our strategy is grounded in maintaining financial strength and flexibility to best position ourselves to navigate and achieve success in a range of economic scenarios. Key objectives include supporting growth by maintaining strong capital at the operating company and the holding company, sustaining a low to mid-teens debt-to-capital ratio and a healthy liquidity buffer. When these objectives are met, we remain committed to returning excess capital to shareholders through share repurchases and common stock dividends.

During the second quarter, we continue to allocate excess capital to share repurchases, which totaled 7.1 million shares for $181 million. We also paid a quarterly common stock dividend of $0.13 per share, totaling $31 million. Over the prior 4 quarters, share repurchases totaled $721 million and shareholder dividends totaled $132 million. Combined, this represents a 112% payout on the net income we earned in the period. In addition, in the third quarter, through July 25, we repurchased an additional 2.6 million shares of common stock for $68 million.

This share repurchase activity continues to reflect our capital strength and solid financial results. As of July 25, we had $734 million remaining on our current share repurchase authorization. We continue to expect share repurchases will remain our primary method of returning capital to shareholders, while at the same time continuing to pay a quarterly common stock dividend.

As previously announced, in the second quarter, we paid a $400 million dividend from MGIC to the holding company, ending the quarter with $1 billion of liquidity at the holding company. As always, we prioritize prudent growth over capital return. However, market conditions have continued to limit our growth of insurance in force, a trend we expect will persist through the remainder of the year. As a result, our credit performance remained strong, we anticipate capital levels of both MGIC and the holding company will stay above targets supporting the continuation of elevated payout ratios.

The strong financial position of both the holding company and the operating company were key factors in the Board last week authorizing a 15% increase to our quarterly common stock dividend to $0.15 per share, marking 5 consecutive years of dividend increases with a compound annual growth rate of 20% over that period.

Turning more broadly to the current environment. While the housing market continues to face headwinds from elevated interest rates, ongoing affordability challenges and a slowdown in home sales, we remain encouraged by demographic trends and pent-up demand supporting long-term growth in MI opportunities. Nationally, home price growth has moderated in many markets, particularly in the South and West are seeing rising inventory, but to date, the housing market has remained resilient. While affordability remains a challenge for many prospective homebuyers, private mortgage insurance continues to play a critical role in helping low down payment borrowers access homeownership sooner.

Now let me turn it over to Nathan to get into more details on our financial results for the quarter.

Thanks, Tim, and good morning. As Tim discussed, we had solid financial results for the second quarter. We earned net income of $0.81 per diluted share, compared to $0.77 per diluted share during the same period last year. Adjusted net operating income was $0.82 per diluted share, compared to $0.77 last year. A detailed reconciliation of GAAP net income to adjusted net operating income can be found in our earnings release.

Our solid operating performance and strong balance sheet drove an increase in book value per share to $22.11, an increase of 13% year-over-year.

In the quarter, our reestimation of ultimate losses on prior delinquencies resulted in $54 million of favorable loss reserve development. The favorable development this quarter primarily came from delinquency notices we received in 2023 and 2024. Cure rates on recent delinquency notices continue to exceed our expectations and we adjusted our ultimate loss expectations accordingly. For new delinquency notices, we continue to use the initial claim rate assumption of 7.5%, which is consistent with recent quarters.

Taking a look at delinquency trends, our account-based delinquency rate decreased 9 basis points in the quarter to 2.21%, consistent with the seasonal trends we have discussed on past calls. Historically, February, March and April are seasonally the best months for mortgage credit performance. We continue to see evidence that seasonal credit trends have returned after being disrupted during the pandemic. As a result, we do not expect the decrease in the delinquency rate in the first half of the year, will continue in the back half of the year. We received 12,000 new delinquency notices in the second quarter, 5% higher than the second quarter of last year and 7% less than the second quarter of 2019.

Cures outpaced new notices in the quarter, reflecting the seasonality we've been discussing. Although the delinquency rate at the end of the second quarter was 12 basis points higher than a year ago, the number of new notices and the delinquency rate remained low by historical standards.

Looking ahead, we continue to expect that the combination of seasonality and the aging of our large 2021 and 2022 book year vintages into what are historically higher loss emergence years will result in an increase in new delinquency notices and the delinquency rate in the second half of the year.

The in-force premium yield was 38.3 basis points in the quarter, relatively flat sequentially and with the second quarter last year and consistent with what we expected. As I mentioned on prior calls, with high persistency expected again this year and MI origination trends similar to last year, we continue to expect in-force premium yield to remain relatively flat for 2025.

Investment income continues to contribute meaningfully to our revenue. The book yield on the portfolio was 4% at the end of the second quarter, relatively flat quarter-over-quarter, but up 10 basis points from a year ago. Net investment income was $61 million in the quarter, relatively flat sequentially and year-over-year. During the quarter, reinvestment rates on our fixed income portfolio continued to exceed our book yield. However, we anticipate the overall book yield will remain relatively flat for the remainder of the year. This is primarily due to a decline in shorter-term interest rates and elevated levels of capital return, both of which limit the growth of the investment portfolio.

The unrealized loss position on our portfolio narrowed by $36 million, primarily driven by a decrease in interest rates.

We remain focused on disciplined expense management and continuing to drive operational efficiency across the organization. Operating expenses were $52 million this quarter, down from $55 million in the second quarter last year. Included in operating expenses this quarter was a $4 million accounting charge related to lump sum settlements from our pension plan due to the amount of those settlements. As a reminder, we froze the pension plan at the end of 2022. But as the plan gets smaller, we are more likely to trigger these accounting charges as lump sum settlements are paid out of the plan. We continue to expect the full year operating expenses will be in the range we previously provided of $195 million to $205 million.

As Tim mentioned earlier, our capital management strategy is grounded in maintaining flexibility and resilience in various environments. Our capital structure includes $6 billion of balance sheet capital and our well-established reinsurance program remains a key component of our risk and capital management strategies. In addition to reducing the loss volatility and stress scenarios, our reinsurance agreements provide capital diversification and flexibility at attractive costs and reduced our PMIERs required assets by $2.5 billion or approximately 43% at the end of the second quarter.

We further bolstered our reinsurance program in the second quarter with two excess of loss agreements with panels of highly rated reinsurers to cover most of our 2025 and 2026 NIW. These reinsurance agreements complement the 40% quota share agreements we had in place at the start of the year to cover the same in NIW.

With that, let me turn it back over to Tim.

Thanks, Nathan. A couple of additional comments before we open it up for questions. The passing of One Big Beautiful Bill Act restores and makes permanent the tax deduction of MI premium, delivering meaningful tax relief to homeowners without increasing risk to the housing finance system. We are very pleased with the inclusion of this deduction and the tax relief that will be delivered to millions of homeowners. Private MI allows down payment to homebuyers to get off the sidelines and achieve the American dream of homeownership sooner.

In closing, I am pleased with our financial performance in the second quarter and throughout the first half of the year. As we look ahead, our focus remains on driving long-term value creation for our shareholders while continuing to support our customers with high-quality products and solutions. Together, we are helping low down payment borrowers achieve the dream of homeownership sooner. With that, Brittany, let's take questions.

[Operator Instructions] Our first question comes from the line of Doug Harter with UBS.

Kind of -- can you remind us how you are thinking about sizing the level of capital return you're doing? How you're thinking about the amount of holdco liquidity you want to hold? And kind of what are the gating factors as far as getting dividends up from the MI subsidiary?

Yes, Doug, it's Nathan. Thanks for the question. Maybe I'll start at the operating company level. We've been paying dividends twice a year for the last several years in the range of $300 million to $400 million every 6 months. And that's really been driven based on excellent credit performance and excellent financial results that are continuing to generate a lot of organic capital that we've been able to dividend out. So I think the first order condition for us is continued excellent financial results, not feeling like we can prudently redeploy that capital at the operating company into growth, that would always be the priority, but we just don't think that the current environment really supports that right now.

So if the credit conditions continue to be attractive and the lack of growth on the in-force side persists, then we expect that we will continue to generate excess capital and be able to continue to pay dividends from the operating company to the holding company. I think the size of those dividends is dependent on a number of factors. But as long as our capital levels are above our targets, I think dividends at similar levels to what we've paid out the last couple of years are kind of how we would think about things going forward.

And then at the holding company level, we do have about $1 billion in cash at the end of Q2. And that's really been because of the larger dividends that we've paid, I think we've got the debt-to-capital position where we want it. And all of these things have supported the elevated payout ratios that Tim has talked about, a little more than 110% over the trailing 4 quarters and a similar level in Q2. So I think if we continue in this environment where it's hard for us to prudently grow, but credit conditions remain favorable and financial results are excellent, then we do think that elevated payout ratios can continue.

And I guess just taking the other side, if these conditions continue, I mean what -- could there be a case where you could even increase the payout further just given the strong capital and strong capital generation?

At the operating company level, we are constrained at some level by our contingency reserve balance. So we do still have enough statutory surplus to continue to pay out dividends at these levels, but we have been drawing down that surplus level over time. So there is kind of a natural governor there over time. But I think for us, we do like to think about, it's a long-term business. We like to think about things in the long term. So the idea of resetting the capital levels with maybe significant returns at any one time is not likely how we would approach it. I think this elevated payout ratio is a way to slowly draw down the excess capital while keeping an eye on what's going on in the market is what's been our approach the last several years, and I think it's worked well for us, and I think that's how we would think about it going forward.

Our next question comes from the line of Bose George with KBW.

Can you talk about your expectation for home prices. And to the extent home prices continue to slow or potentially turn negative, could we see the industry pricing adjust for that?

Bose, it's Nathan. Thanks for the question. I think a lot of the forecast right now for national home prices are really flat over the next several years. So -- but increasingly, it looks like different parts of the country may behave differently and places like Florida, Texas, across the South and the West, it feels like there's maybe more supply than demand in some markets in the Northeast and Midwest, kind of the opposite dynamic. So I think one of the things that is most attractive about risk-based pricing for us is that we really can price risk at a very granular level, including all kinds of factors like the market that a particular property is in.

So for us, this is something that is just part of our day-to-day operations, too, to think about the risks in the markets that we take, the risk with the products that we ensure. And it's another factor that certainly goes into pricing. I think pricing is pretty dynamic to the risk that we feel like we're facing, and we have the ability to modify that very quickly to be reactive. But I think right now, these are risk factors, not really things that we're seeing in terms of realizing those risks. There aren't large parts of the country where we're seeing home price declines. And in a long-term sense, slowing home price appreciation kind of derisk things over the long term.

So I think if we see home price declines in some areas, we have a very geographically diverse portfolio. I feel like we're in a great position for that. But seeing longer periods here with low single-digit home price growth, I think is long term good for our performance, because I think the thing that we worry the most about is that home price growth is really not sustained, and then that could lead to more significant home price declines in the future. So something that we're watching every day. And I think increasingly, it does look like certain parts of the country are behaving differently or have different supply-demand dynamics than other parts of the country, but we're in a position to react to that now in a way that we really weren't in a position to react to when we use rate cards prior to maybe 6, 7 years ago.

So like I said, just kind of a core part of what we do and something that we were monitoring when home prices are going up everywhere. We'll continue to monitor it kind of no matter what the situation just because it's so fundamental to our business.

Okay. That makes sense. And then actually switching to the OpEx guidance. The $195 million to $205 million, does that exclude that $4 million? And then just going forward, is that kind of a number that we could see like maybe annually or something until that thing -- until the pension thing runs out fully?

Yes. The $4 million charge that we incurred in the second quarter is in, obviously, the Q2 number, and it's in the full year kind of reiteration of the guidance that we have. So we think that even after the $4 million charge that we had, and we do expect to have smaller, but still have charges again in the third and fourth quarter based on lump sum activity. But that's all in the expectations for the full year now. And going forward, we'll have that in the expense guide. But it is something that in the footnotes of the financial statements as always called out, so there's a footnote about the pension plan. So you can see it there, you can see it over time there.

Just called it out here because it was a large enough item and kind of unique enough to the second quarter that I just wanted to highlight it for everyone.

Thank you so much. There are no further questions. I would now like to turn the call back over to management for closing remarks.

Thank you, Brittany. I want to thank everyone for your participation in today's call and interest in MGIC. We will be participating in the Barclays Financial Services Conference and the Zelman Housing Summit in September. I look forward to talking to all of you again in the near future. Have a great rest of your week.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.