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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the quarterly period ended | March 31, 2021
☐ | 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 incorporation or organization) |  | (I.R.S. Employer Identification No.)
250 E. Kilbourn Avenue |  | 53202
Milwaukee, | Wisconsin |  | (Zip Code)
(Address of principal executive offices) |  |
(414) |  | 347-6480
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common stock |  | MTG |  | New York Stock Exchange

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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer | ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | ☐ | (Do not check if a smaller reporting company)
Emerging growth company | ☐ | If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of April 30, 2021, there were 339,315,627 shares of common stock of the registrant, par value $1.00 per share, outstanding.

Forward Looking and Other Statements
All statements in this report that address events, developments or results that we expect or anticipate may occur in the future are “forward looking statements.” Forward looking statements consist of statements that relate to matters other than historical fact. In most cases, forward looking statements may be identified by words such as “believe,” “anticipate” or “expect,” or words of similar import. The risk factors referred to in “Forward Looking Statements and Risk Factors – Location of Risk Factors” in Management’s Discussion and Analysis of Financial Condition and Results of Operations below, may cause our actual results to differ materially from the results contemplated by forward looking statements that we may make. We are not undertaking any obligation to update any forward looking statements or other statements we may make in this document even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. Therefore no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.
MGIC Investment Corporation - Q2 2020 | 2

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED March 31, 2021

Table of contents
|  | Page
PART I — FINANCIAL INFORMATION
Item 1 | Financial Statements: |
| Consolidated Balance Sheets - March 31, 2021 (Unaudited) and December 31, 2020 | 8
| Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, 2021 and 2020 | 9
| Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended March 31, 2021 and 2020 | 10
| Consolidated Statements of Shareholders’ Equity (Unaudited) - Three Months Ended March 31, 2021 and 2020 | 11
| Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2021 and 2020 | 12
| Notes to Consolidated Financial Statements (Unaudited) | 13
| Note 1 - Nature of Business and Basis of Presentation | 13
| Note 2 - Significant Accounting Policies | 13
| Note 3 - Debt | 14
| Note 4 - Reinsurance | 15
| Note 5 - Litigation and Contingencies | 19
| Note 6 - Earnings Per Share | 20
| Note 7 - Investments | 21
| Note 8 - Fair Value Measurements | 23
| Note 9 - Other Comprehensive Income | 27
| Note 10 - Benefit Plans | 27
| Note 11 - Loss Reserves | 28
| Note 12 - Shareholders’ Equity | 31
| Note 13 - Share-Based Compensation | 32
| Note 14 - Statutory Information | 32
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 34
Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 61
Item 4 | Controls and Procedures | 61
PART II — OTHER INFORMATION
Item 1 | Legal Proceedings | 62
Item 1A | Risk Factors | 62
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 70
Item 6 | Exhibits | 73
INDEX TO EXHIBITS | 73
SIGNATURES | 74

MGIC Investment Corporation - Q1 2021 | 3

Glossary of terms and acronyms
/ A
ARMs
Adjustable rate mortgages
ABS
Asset-backed securities
ASC
Accounting Standards Codification
Available Assets
Assets, as designated under the PMIERs, that are readily available to pay claims, and include the most liquid investments
/ B
Book or book year
A group of loans insured in a particular calendar year
BPMI
Borrower-paid mortgage insurance
/ C
CECL
Current expected credit losses covered under ASC 326
CFPB
Consumer Financial Protection Bureau
CLO
Collateralized loan obligations
CMBS
Commercial mortgage-backed securities
COVID-19 Pandemic
An outbreak of the novel coronavirus disease, later named COVID-19, that has spread globally, causing significant adverse effects on populations and economies. The outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency in the United States in March 2020
CRT
Credit risk transfer. The transfer of a portion of mortgage credit risk to the private sector through different forms of transactions and structures
/ D
DAC
Deferred insurance policy acquisition costs
Debt-to-income (“DTI”) ratio
The ratio, expressed as a percentage, of a borrower’s total debt payments to gross income
Direct
Before giving effect to reinsurance
Delinquent Loan
A loan that is past due on a mortgage payment. A delinquent loan is typically reported to us by servicers when the loan has missed two or more payments. A loan will continue to be reported as delinquent until it becomes current or a claim payment has been made. A delinquent loan is also referred to as a default
/ E
EPS
Earnings per share
/ F
Fannie Mae
Federal National Mortgage Association
FCRA
Fair Credit Reporting Act
FHA
Federal Housing Administration
FHFA
Federal Housing Finance Agency
FHLB
Federal Home Loan Bank of Chicago, of which MGIC is a member
FICO score
A measure of consumer credit risk provided by credit bureaus, typically produced from statistical models by Fair Isaac Corporation utilizing data collected by the credit bureaus
Freddie Mac
Federal Home Loan Mortgage Corporation
/ G
GAAP
Generally Accepted Accounting Principles in the United States
GSEs
Collectively, Fannie Mae and Freddie Mac
/ H
HAMP
Home Affordable Modification Program
HARP
Home Affordable Refinance Program
MGIC Investment Corporation - Q1 2021 | 4

Home Re Transactions
Excess-of-loss reinsurance transactions with unaffiliated special purpose insurers domiciled in Bermuda
HOPA
Homeowners Protection Act
HUD
Housing and Urban Development
/ I
IBNR Reserves
Loss reserves established on loans we estimate are delinquent, but for which the delinquency has not been reported to us
IIF
Insurance in force, which for loans insured by us, is equal to the unpaid principal balance, as reported to us
ILN
Insurance-linked notes
/ L
LAE
Loss adjustment expenses, which includes the costs of settling claims, including legal and other expenses and general expenses of administering the claims settlement process.
Loan-to-value ("LTV") ratio
The ratio, expressed as a percentage, of the dollar amount of the first mortgage loan to the value of the property at the time the loan became insured and does not reflect subsequent housing price appreciation or depreciation. Subordinate mortgages may also be present.
Long-term debt:
5.75% Notes
5.75% Senior Notes due on August 15, 2023, with interest payable semi-annually on February 15 and August 15 of each year
5.25% Notes
5.25% Senior Notes due on August 15, 2028, with interest payable semi-annually on February 15 and August 15 of each year
9% Debentures
9% Convertible Junior Subordinated Debentures due on April 1, 2063, with interest payable semi-annually on April 1 and October 1 of each year
FHLB Advance or the Advance
1.91% Fixed rate advance from the FHLB due on February 10, 2023, with interest payable monthly
Loss ratio
The ratio, expressed as a percentage, of the sum of incurred losses and loss adjustment expenses to NPE
Low down payment loans or mortgages
Loans with less than 20% down payments
LPMI
Lender-paid mortgage insurance
/ M
MBS
Mortgage-backed securities
MD&A
Management's discussion and analysis of financial condition and results of operations
MGIC
Mortgage Guaranty Insurance Corporation, a subsidiary of MGIC Investment Corporation
MAC
MGIC Assurance Corporation, a subsidiary of MGIC
Minimum Required Assets
The minimum amount of Available Assets that must be held under the PMIERs which is based on an insurer’s book of RIF and is calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor of $400 million.
MPP
Minimum Policyholder Position, as required under certain state requirements. The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve and a portion of the reserves for unearned premiums
/ N
N/A
Not applicable for the period presented
NAIC
The National Association of Insurance Commissioners
NIW
New Insurance Written, is the aggregate original principal amount of the mortgages that are insured during a period
N/M
Data, or calculation, deemed not meaningful for the period presented
NPE
The amount of premiums earned, net of premiums assumed and ceded under reinsurance agreements
MGIC Investment Corporation - Q1 2021 | 5

NPL
Non-performing loan, which is a delinquent loan, at any stage in its delinquency
NPW
The amount of premiums written, net of premiums assumed and ceded under reinsurance agreements
/ O
OCI
Office of the Commissioner of Insurance of the State of Wisconsin
OTTI
Other than temporary impairment
/ P
Persistency
The percentage of our insurance remaining in force from one year prior
PMI
Private Mortgage Insurance (as an industry or product type)
PMIERs
Private Mortgage Insurer Eligibility Requirements issued by each of Fannie Mae and Freddie Mac to set forth requirements that an approved insurer must meet and maintain to provide mortgage guaranty insurance on loans delivered to or acquired by Fannie Mae or Freddie Mac, as applicable.
Premium Yield
The ratio of NPE divided by the average IIF outstanding for the period measured
Premium Rate
The contractual rate charged for coverage under our insurance policies.
Primary Insurance
Insurance that provides mortgage default protection on individual loans. Primary insurance may be written on a "flow" basis, in which loans are insured in individual, loan-by-loan transactions, or on a "bulk" basis, in which each loan in a portfolio of loans is individually insured in a single bulk transaction.
Profit Commission
Payments we receive from reinsurers under each of our quota share reinsurance transactions if the annual loss ratio is below levels specified in the quota share reinsurance transaction
/ Q
QSR Transaction
Quota share reinsurance transaction with a group of unaffiliated reinsurers
2015 QSR
Our QSR transaction that provides coverage on eligible NIW written prior to 2017
2017 QSR
Our QSR transaction that provides coverage on eligible NIW in 2017
2018 QSR
Our QSR transaction that provides coverage on eligible NIW in 2018
2019 QSR
Our QSR transaction that provides coverage on eligible NIW in 2019
2020 QSR
Our QSR transactions that provide coverage on eligible NIW in 2020
2021 QSR
Our QSR transactions that provide coverage on eligible NIW in 2021
2022 QSR
Our QSR transactions that provide coverage on eligible NIW in 2022
Credit Union QSR
Our QSR transaction that provides coverage on eligible NIW from credit union institutions originated from April 1, 2020 through December 31, 2025
QM
A mortgage loan that satisfies the “qualified mortgage” loan characteristics pursuant to the Consumer Financial Protection Bureau’s ability-to-repay under the Truth in Lending Act. Originating a QM loan may provide a lender with legal protection from lawsuits that claim the lender failed to verify a borrower’s ability to repay.
/ R
RESPA
Real Estate Settlement Procedures Act
RIF
Risk in force, which for an individual loan insured by us, is equal to the unpaid loan principal balance, as reported to us, multiplied by the insurance coverage percentage. RIF is sometimes referred to as exposure.
Risk-to-capital
Under certain state regulations, the ratio of RIF, net of reinsurance and exposure on policies currently in default and for which loss reserves have been established, to the level of statutory capital
RMBS
Residential mortgage-backed securities
MGIC Investment Corporation - Q1 2021 | 6

/ S
State Capital Requirements
Under certain state regulations, the minimum amount of statutory capital relative to risk in force (or similar measure)
/ T
TILA
Truth in Lending Act
/ U
Underwriting expense ratio
The ratio, expressed as a percentage, of the underwriting and operating expenses, net and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance subsidiaries) to NPW
Underwriting profit
NPE minus incurred losses and underwriting and operating expenses
USDA
U.S. Department of Agriculture
/ V
VA
U.S. Department of Veterans Affairs
VIE
Variable interest entity
MGIC Investment Corporation - Q1 2021 | 7

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands) |  | Note |  | March 31, 2021 |  | December 31, 2020
|  |  |  |  | (Unaudited) |  |
ASSETS |  |  |  |  |  |
Investment portfolio: |  | 7 / 8 |  |  |  |
Fixed income, available-for-sale, at fair value (amortized cost 2021 - $6,586,020; 2020 - $6,317,164) |  |  |  | $ | 6,811,318 |  |  | $ | 6,661,596 |
Equity securities, at fair value (cost 2021 - $15,052; 2020 - $17,522) |  |  |  | 15,319 |  |  | 18,215 |
Other invested assets, at cost |  |  |  | 3,100 |  |  | 3,100 |
Total investment portfolio |  |  |  | 6,829,737 |  |  | 6,682,911 |
Cash and cash equivalents |  |  |  | 182,930 |  |  | 287,953 |
Restricted cash and cash equivalents |  |  |  | 9,836 |  |  | 8,727 |
Accrued investment income |  |  |  | 51,127 |  |  | 49,997 |
Reinsurance recoverable on loss reserves |  | 4 |  | 102,901 |  |  | 95,042 |
Reinsurance recoverable on paid losses |  |  |  | 606 |  |  | 669 |
Premiums receivable |  |  |  | 55,107 |  |  | 56,044 |
Home office and equipment, net |  |  |  | 46,024 |  |  | 47,144 |
Deferred insurance policy acquisition costs |  |  |  | 22,335 |  |  | 21,561 |
Other assets |  |  |  | 106,413 |  |  | 104,478 |
Total assets |  |  |  | $ | 7,407,016 |  |  | $ | 7,354,526 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |
Liabilities: |  |  |  |  |  |
Loss reserves |  | 11 |  | $ | 913,110 |  |  | $ | 880,537 |
Unearned premiums |  |  |  | 273,553 |  |  | 287,099 |
Federal Home Loan Bank advance |  | 3 |  | 155,000 |  |  | 155,000 |
Senior notes |  | 3 |  | 879,911 |  |  | 879,379 |
Convertible junior subordinated debentures |  | 3 |  | 208,814 |  |  | 208,814 |
Other liabilities |  |  |  | 244,335 |  |  | 244,711 |
Total liabilities |  |  |  | 2,674,723 |  |  | 2,655,540 |
Contingencies |  | 5 |  |  |  |
Shareholders’ equity: |  | 12 |  |  |  |
Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2021 - 371,353; 2020 - 371,353; shares outstanding 2021 - 339,316; 2020 - 338,573) |  |  |  | 371,353 |  |  | 371,353 |
Paid-in capital |  |  |  | 1,782,041 |  |  | 1,862,042 |
Treasury stock at cost (shares 2021 - 32,037; 2020 - 32,779) |  |  |  | (384,550) |  |  | (393,326) |
Accumulated other comprehensive income, net of tax |  |  |  | 123,565 |  |  | 216,821 |
Retained earnings |  |  |  | 2,839,884 |  |  | 2,642,096 |
Total shareholders’ equity |  |  |  | 4,732,293 |  |  | 4,698,986 |
Total liabilities and shareholders’ equity |  |  |  | $ | 7,407,016 |  |  | $ | 7,354,526 |

See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q1 2021 | 8

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |  |  |  |
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
|  |  |  | Three Months Ended March 31, |  |
(In thousands, except per share data) |  | Note |  | 2021 |  | 2020 |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |
Premiums written: |  |  |  |  |  |  |  |  |  |
Direct |  |  |  | $ | 283,005 |  |  | $ | 274,724 |  |  |  |  |
Assumed |  |  |  | 2,131 |  |  | 2,859 |  |  |  |  |
Ceded |  | 4 |  | (43,637) |  |  | (31,576) |  |  |  |  |
Net premiums written |  |  |  | 241,499 |  |  | 246,007 |  |  |  |  |
Decrease in unearned premiums, net |  |  |  | 13,546 |  |  | 14,894 |  |  |  |  |
Net premiums earned |  |  |  | 255,045 |  |  | 260,901 |  |  |  |  |
Investment income, net of expenses |  |  |  | 37,893 |  |  | 41,347 |  |  |  |  |
Net realized investment gains |  | 7 |  | 2,215 |  |  | 1,891 |  |  |  |  |
Other revenue |  |  |  | 2,804 |  |  | 2,754 |  |  |  |  |
Total revenues |  |  |  | 297,957 |  |  | 306,893 |  |  |  |  |
Losses and expenses: |  |  |  |  |  |  |  |  |  |
Losses incurred, net |  | 11 |  | 39,636 |  |  | 60,956 |  |  |  |  |
Amortization of deferred policy acquisition costs |  |  |  | 2,696 |  |  | 2,510 |  |  |  |  |
Other underwriting and operating expenses, net |  |  |  | 48,023 |  |  | 42,262 |  |  |  |  |
Interest expense |  |  |  | 17,985 |  |  | 12,926 |  |  |  |  |
Total losses and expenses |  |  |  | 108,340 |  |  | 118,654 |  |  |  |  |
Income before tax |  |  |  | 189,617 |  |  | 188,239 |  |  |  |  |
Provision for income taxes |  |  |  | 39,596 |  |  | 38,434 |  |  |  |  |
Net income |  |  |  | $ | 150,021 |  |  | $ | 149,805 |  |  |  |  |
Earnings per share: |  |  |  |  |  |  |  |  |  |
Basic |  | 6 |  | $ | 0.44 |  |  | $ | 0.44 |  |  |  |  |
Diluted |  | 6 |  | $ | 0.43 |  |  | $ | 0.42 |  |  |  |  |
Weighted average common shares outstanding - basic |  | 6 |  | 338,904 |  |  | 344,053 |  |  |  |  |
Weighted average common shares outstanding - diluted |  | 6 |  | 356,383 |  |  | 365,216 |  |  |  |  |

See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q1 2021 | 9

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |  |  |  |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) |  |  |  |
|  |  |  | Three Months Ended March 31, |  |
(In thousands) |  | Note |  | 2021 |  | 2020 |  |  |  |
Net income |  |  |  | $ | 150,021 |  |  | $ | 149,805 |  |  |  |  |
Other comprehensive (loss) income, net of tax: |  | 9 |  |  |  |  |  |  |  |
Change in unrealized investment gains and losses |  | 7 |  | (94,129) |  |  | (72,585) |  |  |  |  |
Benefit plan adjustments |  |  |  | 873 |  |  | 1,101 |  |  |  |  |
Other comprehensive (loss) income, net of tax |  |  |  | (93,256) |  |  | (71,484) |  |  |  |  |
Comprehensive income |  |  |  | $ | 56,765 |  |  | $ | 78,321 |  |  |  |  |

See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q1 2021 | 10

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |  |  |  |  |  |  |  |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) |  |  |  |  |  |  |  |
|  |  |  | Three Months Ended March 31, |  |  |  |  |  |
(In thousands) |  | Note |  | 2021 |  | 2020 |  |  |  |  |  |  |  |
Common stock |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning and end of period |  |  |  | $ | 371,353 |  |  | $ | 371,353 |  |  |  |  |  |  |  |  |
Paid-in capital |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period |  |  |  | 1,862,042 |  |  | 1,869,719 |  |  |  |  |  |  |  |  |
Cumulative effect of debt with conversion options accounting standards update |  | 2 |  | (68,289) |  |  | — |  |  |  |  |  |  |  |  |
Reissuance of treasury stock, net under share-based compensation plans |  |  |  | (15,397) |  |  | (18,667) |  |  |  |  |  |  |  |  |
Equity compensation |  |  |  | 3,685 |  |  | 4,319 |  |  |  |  |  |  |  |  |
Balance, end of period |  |  |  | 1,782,041 |  |  | 1,855,371 |  |  |  |  |  |  |  |  |
Treasury stock |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period |  |  |  | (393,326) |  |  | (283,196) |  |  |  |  |  |  |  |  |
Reissuance of treasury stock, net under share-based compensation plans |  |  |  | 8,776 |  |  | 9,768 |  |  |  |  |  |  |  |  |
Repurchase of common stock |  | 12 |  | — |  |  | (119,997) |  |  |  |  |  |  |  |  |
Balance, end of period |  |  |  | (384,550) |  |  | (393,425) |  |  |  |  |  |  |  |  |
Accumulated other comprehensive income (loss) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period |  |  |  | 216,821 |  |  | 72,708 |  |  |  |  |  |  |  |  |
Other comprehensive (loss) income, net of tax |  | 9 |  | (93,256) |  |  | (71,484) |  |  |  |  |  |  |  |  |
Balance, end of period |  |  |  | 123,565 |  |  | 1,224 |  |  |  |  |  |  |  |  |
Retained earnings |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period, as previously reported |  |  |  | 2,642,096 |  |  | 2,278,650 |  |  |  |  |  |  |  |  |
Cumulative effect of debt with conversion options accounting standards update |  | 2 |  | 68,289 |  |  | — |  |  |  |  |  |  |  |  |
Balance, beginning of the period, as adjusted |  |  |  | 2,710,385 |  |  | 2,278,650 |  |  |  |  |  |  |  |  |
Net income |  |  |  | 150,021 |  |  | 149,805 |  |  |  |  |  |  |  |  |
Cash dividends |  | 12 |  | (20,522) |  |  | (21,150) |  |  |  |  |  |  |  |  |
Balance, end of period |  |  |  | 2,839,884 |  |  | 2,407,305 |  |  |  |  |  |  |  |  |
Total shareholders’ equity |  |  |  | $ | 4,732,293 |  |  | $ | 4,241,828 |  |  |  |  |  |  |  |  |

See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q1 2021 | 11

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|  | Three Months Ended March 31,
(In thousands) |  | 2021 |  | 2020
Cash flows from operating activities: |  |  |  |
Net income |  | $ | 150,021 |  |  | $ | 149,805 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |
Depreciation and amortization |  | 17,422 |  |  | 13,052 |
Deferred tax expense |  | 2,635 |  |  | 15,877 |
Net realized investment (gains) losses |  | (2,215) |  |  | (1,891) |
Change in certain assets and liabilities: |  |  |  |
Accrued investment income |  | (1,130) |  |  | 2,763 |
Reinsurance recoverable on loss reserves |  | (7,859) |  |  | (4,115) |
Reinsurance recoverable on paid losses |  | 63 |  |  | (170) |
Premium receivable |  | 937 |  |  | 2,147 |
Deferred insurance policy acquisition costs |  | (774) |  |  | (983) |
Profit commission receivable |  | (5,430) |  |  | 1,121 |
Loss reserves |  | 32,573 |  |  | 19,419 |
Unearned premiums |  | (13,546) |  |  | (14,894) |
Return premium accrual |  | 2,900 |  |  | (400) |
Current income taxes |  | 36,897 |  |  | 22,527 |
Other, net |  | (14,461) |  |  | (19,934) |
Net cash provided by operating activities |  | 198,033 |  |  | 184,324 |
Cash flows from investing activities: |  |  |  |
Purchases of investments |  | (652,328) |  |  | (280,614) |
Proceeds from sales of investments |  | 59,378 |  |  | 224,803 |
Proceeds from maturity of fixed income securities |  | 318,892 |  |  | 222,544 |
Additions to property and equipment |  | (441) |  |  | (580) |
Net cash provided by (used in) investing activities |  | (274,499) |  |  | 166,153 |
Cash flows from financing activities: |  |  |  |
Repurchase of common stock |  | — |  |  | (119,997) |
Dividends paid |  | (20,827) |  |  | (21,111) |
Payment of withholding taxes related to share-based compensation net share settlement |  | (6,621) |  |  | (8,899) |
Net cash provided by (used in) financing activities |  | (27,448) |  |  | (150,007) |
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents |  | (103,914) |  |  | 200,470 |
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period |  | 296,680 |  |  | 169,056 |
Cash and cash equivalents and restricted cash and cash equivalents at end of period |  | $ | 192,766 |  |  | $ | 369,526 |

See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q1 2021 | 12

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
(Unaudited)
Note 1. Nature of Business and Basis of Presentation
MGIC Investment Corporation is a holding company which, through Mortgage Guaranty Insurance Corporation (“MGIC”), is principally engaged in the mortgage insurance business. We provide mortgage insurance to lenders throughout the United States and to government sponsored entities to protect against loss from defaults on low down payment residential mortgage loans. MGIC Assurance Corporation (“MAC”) and MGIC Indemnity Corporation (“MIC”), insurance subsidiaries of MGIC, provide insurance for certain mortgages under Fannie Mae and Freddie Mac (the “GSEs”) credit risk transfer programs.
The accompanying unaudited consolidated financial statements of MGIC Investment Corporation and its wholly-owned subsidiaries have been prepared in accordance with the instructions to Form 10-Q as prescribed by the Securities and Exchange Commission (“SEC”) for interim reporting and do not include all of the other information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020 included in our 2020 Annual Report on Form 10-K. As used below, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as the context requires.
In the opinion of management, the accompanying financial statements include all adjustments, consisting primarily of normal recurring accruals, necessary to fairly state our consolidated financial position and consolidated results of operations for the periods indicated. The consolidated results of operations for an interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
The substantial majority of our NIW has been for loans purchased by the GSEs. The current private mortgage insurer eligibility requirements ("PMIERs") of the GSEs include financial requirements, as well as business, quality control and certain transactional approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s "Available Assets" (generally only the most liquid assets of an insurer) to equal or exceed its "Minimum Required Assets" (which are based on an insurer's book of risk in force, calculated from tables of factors with several risk dimensions). Based on our application of the PMIERs, as of March 31, 2021, MGIC’s Available Assets are in excess of its Minimum Required Assets; and MGIC is in compliance with the PMIERs and eligible to insure loans purchased by the GSEs.
Subsequent events
We have considered subsequent events through the date of this filing.
Note 2. Significant Accounting Policies
Recent accounting and reporting developments
Accounting standards effective in 2021, or early adopted, and relevant to our financial statements are described below:
Simplifying the Accounting for Income Taxes: ASU 2019-12
Effective January 1, 2021, we adopted FASB guidance which simplifies Accounting for Income Taxes (Topic 740). This update simplifies the accounting for income taxes by removing certain exceptions to Topic 740. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Clarification of Accounting for Equity Securities: ASU 2020-01
Effective January 1, 2021, we adopted ASU 2020-01. ASU 2020-1 clarifies certain interactions of accounting for equity securities under Topic 321, under the equity method of accounting in Topic 323, and accounting for certain forward contracts and purchased options in Topic 815. The amendment clarifies the consideration of observable transactions before applying or discounting the equity method of accounting. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs: ASU 2020-08
Effective January 1, 2021 we adopted Accounting Standards Update No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. FASB standard 2017-08 shortened the amortization period for certain purchased callable debt securities held at a premium by requiring that entities amortize the premium associated with those callable debt securities within the scope of paragraph 310-20-25-33 to the earliest call date and clarifies the FASB’s intent that an entity should reevaluate whether a callable debt security that has multiple call dates is within the scope of paragraph 310-20-35-33 for each reporting period. This guidance clarifies the issuer of a callable debt security should utilize the next call date versus the earliest call date in amortizing premium. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity: ASU 2020-06
Effective January 1, 2021 we adopted ASU 2020-06 using a modified retrospective basis. ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. It also includes amendments to EPS guidance. The updated guidance reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and eliminated
MGIC Investment Corporation - Q1 2021 | 13

the cash conversion feature within ASU 470. As a result of these changes, more convertible instruments will be reported as a single unit on the balance sheet. We previously accounted for our 9% Debenture under the cash conversion feature, which required us to account for the conversion features of our 9% Debentures within Paid-in Capital. The adoption of this guidance resulted in a $68.3 million cumulative effective adjustment to our 2021 beginning Retained earnings and Paid-in Capital to reflect the 9% Debenture as if we had always accounted for the debt as a liability in its entirety.
The updated guidance also includes updates to the EPS calculation. The ASU requires companies to use the if-converted method, assume share settlement when settlement can be in cash or in shares, use an average market price for the period if the number of shares is based on an entity’s share price, and use the weighted average shares from each quarter to calculate the year to date weighted average shares. The ASU also includes improvements to the disclosures for convertible instruments and EPS. The updates within ASU 2020-06 to EPS calculations and disclosures did not have a material impact on our consolidated financial statement disclosures.
Reference Rate Reform: ASU 2020-04
In March 2020, the FASB issued ASU 2020-04 to provide temporary optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform. It provides optional expedients and exceptions for applying generally accepted accounting principles to contract, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This standard may be elected and applied prospectively over time from March 12, 2020 through December 31, 2022 as reference rate reform activities occur. The adoption of, and future elections under, this ASU are not expected to have a material impact on our consolidated financial statements as the ASU will ease, if warranted, the requirements for accounting for the future effects of the rate reform. We continue to monitor the impact the discontinuance of LIBOR or another reference rate will have on our contracts and other transactions.
Note 3. Debt
Debt obligations
The aggregate carrying values of our long-term debt obligations and their par values, if different, as of March 31, 2021 and December 31, 2020 are presented in table 3.1 below.

Long-term debt obligations
Table | 3.1 |  |  |  |
(In millions) |  | March 31, 2021 |  | December 31, 2020
FHLB Advance - 1.91%, due February 2023 |  | $ | 155.0 |  |  | $ | 155.0 |
5.75% Notes, due August 2023 (par value: $242.3 million) |  | 240.8 |  |  | $ | 240.6 |
5.25% Notes, due August 2028 (par value: $650 million) |  | 639.1 |  |  | 638.8 |
9% Debentures, due April 2063 (1) |  | 208.8 |  |  | 208.8 |
Long-term debt, carrying value |  | $ | 1,243.7 |  |  | $ | 1,243.2 |

(1)Convertible at any time prior to maturity at the holder’s option, at a conversion rate, which is subject to adjustment, of 75.5932 shares per $1,000 principal amount, representing a conversion price of approximately $13.23 per share.
The 5.75% Senior Notes (“5.75% Notes”), 5.25% Senior Notes (5.25% Notes) and 9% Convertible Junior Subordinated Debentures (“9% Debentures”) are obligations of our holding company, MGIC Investment Corporation. The Federal Home Loan Bank Advance (the “FHLB Advance”) is an obligation of MGIC.
See Note 7 “Debt” in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information pertaining to our debt obligations. As of March 31, 2021 we are in compliance with all of our debt covenants.
Interest payments
Interest payments for the three months ended March 31, 2021 and 2020 were $25.1 million and $13.0 million.
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Note 4. Reinsurance
The reinsurance agreements to which we are a party, excluding captive agreements (which were immaterial), are discussed below. The effect of all of our reinsurance agreements on premiums earned and losses incurred is shown in table 4.1 below.

Reinsurance |  |  |  |
Table | 4.1 |  |  |  |  |  |  |  |
|  |  | Three Months Ended March 31, |  |
(In thousands) |  | 2021 |  | 2020 |  |  |  |
Premiums earned: |  |  |  |  |  |  |  |
Direct |  | $ | 296,271 |  |  | $ | 289,868 |  |  |  |  |
Assumed |  | 2,411 |  |  | 2,609 |  |  |  |  |
Ceded |  | (43,637) |  |  | (31,576) |  |  |  |  |
Net premiums earned |  | $ | 255,045 |  |  | $ | 260,901 |  |  |  |  |
Losses incurred: |  |  |  |  |  |  |  |
Direct |  | $ | 48,071 |  |  | $ | 66,562 |  |  |  |  |
Assumed |  | (25) |  |  | 166 |  |  |  |  |
Ceded |  | (8,410) |  |  | (5,772) |  |  |  |  |
Losses incurred, net |  | $ | 39,636 |  |  | $ | 60,956 |  |  |  |  |

Quota share reinsurance
We have entered into quota share reinsurance ("QSR") agreements with panels of third-party reinsurers to cede a fixed quota share percentage of premiums earned and received and losses incurred on insurance covered by the transactions. We receive the benefit of a ceding commission equal to 20% of premiums ceded before profit commission. We also receive the benefit of a profit commission through a reduction of premiums we cede. The profit commission varies inversely with the level of losses on a “dollar for dollar” basis and can be eliminated at annual loss ratios higher than we have experienced on our QSR agreements.
Each of our QSR agreements typically have annual loss ratio caps of 300% and lifetime loss ratios of 200%.
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Table 4.2 below provides additional detail regarding our QSR agreements.

Reinsurance
Table | 4.2 |  |  |  |  |  |  |  |
Quota Share Contract |  | Policy Year | Quota Share % |  | Annual Loss Ratio to Exhaust Profit Commission (1) |  | Contractual Termination Date
2015 QSR |  | Prior to 2017 | 15.0 | % |  | 68.0 | % |  | December 31, 2031
2017 QSR |  | 2017 | 30.0 | % |  | 60.0 | % |  | December 31, 2028
2018 QSR |  | 2018 | 30.0 | % |  | 62.0 | % |  | December 31, 2029
2019 QSR |  | 2019 | 30.0 | % |  | 62.0 | % |  | December 31, 2030
2020 QSR |  | 2020 | 12.5 | % |  | 62.0 | % |  | December 31, 2031
2020 QSR and 2021 QSR |  | 2020 - 2021 | 17.5 | % |  | 62.0 | % |  | December 31, 2032
2021 QSR |  | 2021 |  | 12.5 | % |  | 57.5 | % |  | December 31, 2032
2022 QSR |  | 2022 |  | 15.0 | % |  | 57.5 | % |  | December 31, 2033
Credit Union QSR (2) |  | 2020-2025 | 65.0 | % |  | 50.0 | % |  | December 31, 2039

(1) We will receive a profit commission provided the annual loss ratio on loans covered under the transaction remains below this ratio.
(2) Eligible credit union business written before April 1, 2020 was covered by our 2019 and prior QSR Transactions.
We can elect to terminate the quota share reinsurance agreements under specified scenarios without penalty upon prior written notice, including if we will receive less than 90% (80% for the Credit Union QSR Transaction ) of the full credit amount under the PMIERs, full financial statement credit or full credit under applicable regulatory capital requirements for the risk ceded in any required calculation period.
Table 4.3 provides additional detail regarding optional termination dates and optional reductions to our quota share percentage which can be elected by us for a fee. The optional reduction to the quota share percentage would give us an option to reduce our quota share percentage from the original percentage as shown in table 4.2.

Reinsurance
Table | 4.3 |  |  |  |  |  |  |
Quota Share Contract |  | Optional Termination Date (1) | Optional Quota Share % Reduction Date (2) |  | Quota Share % Reduction |
2015 QSR |  | June 30, 2021 | NA |  | NA |
2017 QSR |  | December 31, 2021 | NA |  | NA |
2018 QSR |  | December 31, 2021 | NA |  | NA |
2019 QSR |  | December 31, 2021 | July 1, 2020 |  | 25% or 20% |
2020 QSR |  | December 31, 2022 | July 1, 2021 |  | 10.5% or 8% |
2020 QSR and 2021 QSR, 2020 Policy year |  | December 31, 2022 | July 1, 2021 |  | 14.5% or 12% |
2020 QSR and 2021 QSR, 2021 Policy year |  | December 31, 2023 | July 1, 2022 |  | 14.5% or 12% |
2021 QSR |  | December 31, 2023 | July 1, 2022 |  | 10.5% or 8% |
2022 QSR |  | December 31, 2024 | July 1, 2023 |  | 12.5% or 10% |

(1) We can elect early termination of the QSR agreement beginning on this date, and bi-annually thereafter for the 2015 QSR, 2019 QSR, 2020 QSR, 2021 QSR, and 2022 QSR. Early termination of the 2018 QSR can be elected annually after this date.
(2) We can elect to reduce the quota share percentage beginning on this date, and bi-annually thereafter.
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Table 4.4 below provides a summary of our quota share reinsurance agreements, excluding captive agreements, for the three months ended March 31, 2021 and 2020.

Quota Share Reinsurance |  |  |  |
Table | 4.4 |  |  |  |  |  |  |  |
|  |  | Three Months Ended March 31, |  |
(In thousands) |  | 2021 |  | 2020 |  |  |  |
Ceded premiums written and earned, net of profit commission |  | $ | 33,390 |  |  | $ | 26,846 |  |  |  |  |
Ceded losses incurred |  | 8,405 |  |  | 5,804 |  |  |  |  |
Ceding commissions (1) | 13,067 |  |  | 11,365 |  |  |  |  |
Profit commission |  | 31,944 |  |  | 29,979 |  |  |  |  |

(1)Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.
Under the terms of our QSR Transactions, currently in effect, reinsurance premiums, ceding commission and profit commission are settled net on a quarterly basis. The ceded premiums due after deducting the related ceding commission and profit commission is reported within Other liabilities on the consolidated balance sheets.
The reinsurance recoverable on loss reserves related to our QSR Transactions was $102.9 million as of March 31, 2021 and $95.0 million as of December 31, 2020. The reinsurance recoverable balance is secured by funds on deposit from the reinsurers, the amount of which is based on the funding requirements of PMIERs. An allowance for credit losses was not required at March 31, 2021.
Excess of loss reinsurance
We have aggregate excess of loss reinsurance agreements (“Home Re Transactions”) with unaffiliated special purpose insurers domiciled in Bermuda (“Home Re Entities”). For the reinsurance coverage periods, we retain the first layer of the respective aggregate losses paid, and a Home Re Entity will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses paid in excess of the outstanding reinsurance coverage amount. Subject to certain conditions, the reinsurance coverage decreases over a period of either 10 or 12.5 years, depending on the transaction, as the underlying covered mortgages amortize or are repaid, or mortgage insurance losses are paid. MGIC has rights to terminate the Home Re Transactions under certain circumstances.
The Home Re Entities financed the coverages by issuing mortgage insurance-linked notes (“ILNs”) to unaffiliated investors in an aggregate amount equal to the initial reinsurance coverage amounts. The 2018, 2019, and 2020 ILNs each have ten-year legal maturities and the 2021 ILN has a twelve and a half year legal maturity, and each ILN is non-recourse to any assets of MGIC or affiliates. The proceeds of the ILNs, which were deposited into reinsurance trusts for the benefit of MGIC, will be the source of reinsurance claim payments to MGIC and principal repayments on the ILNs.
When a “Trigger Event” is in effect, payment of principal on the related notes will be suspended and the reinsurance coverage available to MGIC under the transactions will not be reduced by such principal payments. As of March 31, 2021 a "Trigger Event" has occurred on each our outstanding ILN transactions. On the 2018 and 2019 ILN transactions a “Trigger Event” has occurred because the reinsured principal balance of loans that were reported 60 or more days delinquent exceeded 4% of the total reinsured principal balance of loans under each transaction. A “Trigger Event” has occurred on our 2020 and 2021 ILN transaction because the credit enhancement of the most senior tranche is less than the target credit enhancement.
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Table 4.6 provides a summary of our excess of loss reinsurance agreements as of March 31, 2021 and December 31, 2020.

Excess of Loss Reinsurance |  |  |  |
Table 4.6 |  |  |  |
($ in thousands) | Home Re 2021-1, Ltd. | Home Re 2020-1, Ltd. | Home Re 2019-1, Ltd. | Home Re 2018-1, Ltd.
Issue Date | February 2, 2021 | October 29, 2020 | May 25, 2019 | October 30, 2018
Policy Inforce Dates | August 1, 2020 - December 31, 2020 | January 1, 2020 - July 31, 2020 | January 1, 2018 - March 31, 2019 | July 1, 2016 - December 31, 2017
Optional Call Date (1) | January 25, 2028 | October 25, 2027 | May 25, 2026 | October 25, 2025
Initial First Layer Retention | 211,159 | 275,283 | 185,730 | 168,691
Initial Excess of Loss Reinsurance Coverage | 398,848 | 412,917 | 315,739 | 318,636
March 31, 2021 |  |  |  |
Remaining First Layer Retention | 211,159 | 275,268 | 184,391 | 165,765
Remaining Excess of Loss Reinsurance Coverage | 398,848 | 412,917 | 208,146 | 218,343
December 31, 2020 |  |  |  |
Remaining First Layer Retention | — | 275,283 | 184,514 | 166,005
Remaining Excess of Loss Reinsurance Coverage | — | 412,917 | 208,146 | 218,343

(1)We have the right to terminate the excess-of-loss reinsurance agreements under certain circumstances and on any payment date on or after the respective termination option date.
The reinsurance premiums ceded to each Home Re Entity are composed of coverage, initial expense and supplemental premiums. The coverage premiums are generally calculated as the difference between the amount of interest payable by the Home Re Entity on the remaining reinsurance coverage levels, and the investment income collected on the collateral assets held in a reinsurance trust account and used to collateralize the Home Re Entity’s reinsurance obligation to MGIC. The amount of monthly reinsurance coverage premium ceded will fluctuate due to changes in one-month LIBOR, (or the fallback reference rate, as applicable) and changes in money market rates that affect investment income collected on the assets in the reinsurance trust. As a result, we concluded that each reinsurance agreement contains an embedded derivative that is accounted for separately as a freestanding derivative. The fair values of the derivatives at March 31, 2021, were not material to our consolidated balance sheet, and the change in fair value during the three months ended March 31, 2021 was not material to our consolidated statements of operations. Total ceded premiums were $10.3 million for the three months ended March 31, 2021, and $4.7 million for the three months ended March 31, 2020, respectively.
At the time the Home Re Transactions were entered into, we concluded that each Home Re Entity is a variable interest entity (“VIE”). A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make sufficient decisions relating to the entity’s operations through voting rights or do not substantively participate in gains and losses of the entity. Given that MGIC (1) does not have the unilateral power to direct the activities that most significantly affect each Home Re Entity’s economic performance and (2) does not have the obligation to absorb losses or the right to receive benefits of each Home Re Entity, consolidation of neither Home Re Entity is required.
We are required to disclose our maximum exposure to loss, which we consider to be an amount that we could be required to record in our statements of operations, as a result of our involvement with the VIEs under our Home Re Transactions. As of March 31, 2021, and December 31, 2020, we did not have material exposure to the VIEs as we have no investment in the VIEs and had no reinsurance claim payments due from the VIEs under our reinsurance agreements. We are unable to determine the timing or extent of claims from losses that are ceded under the reinsurance agreements. The VIE assets are deposited in reinsurance trusts for the benefit of MGIC that will be the source of reinsurance claim payments to MGIC. The purpose of the reinsurance trusts is to provide security to MGIC for the obligations of the VIEs under the reinsurance agreements. The trustee of the reinsurance trusts, a recognized provider of corporate trust services, has established segregated accounts within the reinsurance trusts for the benefit of MGIC, pursuant to the trust agreements. The trust agreements are governed by, and construed in accordance with, the laws of the State of New York. If the trustee of the reinsurance trusts failed to distribute claim payments to us as provided in the reinsurance trusts, we would incur a loss related to our losses ceded under the reinsurance agreements and deemed unrecoverable. We are also unable to determine the impact such possible failure by the trustee to perform pursuant to the reinsurance trust agreements may have on our consolidated financial statements. As a result, we are unable to quantify our maximum exposure to loss related to our involvement with the VIEs. MGIC has certain termination rights under the reinsurance agreements should its claims not be paid. We consider our exposure to loss from our reinsurance agreements with the VIEs to be remote.
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Table 4.7 presents the total assets of the Home Re Entities as of March 31, 2021 and December 31, 2020.

Home Re total assets
Table | 4.7 |  |
(In thousands) |  |
Home Re Entity (Issue date) |  | Total VIE Assets
March 31, 2021 |  |
Home Re 2018-01 Ltd. |  | $ | 218,343 |
Home Re 2019-01 Ltd. |  | 208,146 |
Home Re 2020-01 Ltd. |  | 412,917 |
Home Re 2021-01 Ltd. |  | 398,848 |
December 31, 2020 |  |
Home Re 2018-01 Ltd. |  | $ | 218,343 |
Home Re 2019-01 Ltd. |  | 208,146 |
Home Re 2020-01 Ltd. |  | 412,917 |

The reinsurance trust agreements provide that the trust assets may generally only be invested in certain money market funds that (i) invest at least 99.5% of their total assets in cash or direct U.S. federal government obligations, such as U.S. Treasury bills, as well as other short-term securities backed by the full faith and credit of the U.S. federal government or issued by an agency of the U.S. federal government, (ii) have a principal stability fund rating of “AAAm” by S&P or a money market fund rating of “Aaa-mf” by Moody’s as of the Closing Date and thereafter maintain any rating with either S&P or Moody’s, and (iii) are permitted investments under the applicable credit for reinsurance laws and applicable PMIERs credit for reinsurance requirements.
The total calculated PMIERs credit for risk ceded under our Home Re Transactions is generally based on the PMIERs requirement of the covered loans and the attachment and detachment points of the coverage and is subject to a modest reduction under the PMIERs financial requirements (see Note 1 - “Nature of Business and Basis of Presentation”).
Note 5. Litigation and Contingencies
Before paying an insurance claim, generally we review the loan and servicing files to determine the appropriateness of the claim amount. When reviewing the files, we may determine that we have the right to rescind coverage or deny a claim on the loan (both referred to as “rescissions”). In addition, our insurance policies generally provide that we can reduce a claim if the servicer did not comply with its obligations under our insurance policy (such reduction referred to as a “curtailment”). In recent quarters, an immaterial percentage of claims received in a quarter have been resolved by rescissions. In 2020 and the first three months of 2021, curtailments reduced our average claim paid by approximately 3.6% and 3.9%, respectively. The COVID-19 related foreclosure moratoriums and forbearance plans have decreased our claims paid activity beginning in the second quarter of 2020. It is difficult to predict the level of curtailments once the foreclosure moratoriums and forbearance plans end. Our loss reserving methodology incorporates our estimates of future rescissions, curtailments, and reversals of rescissions and curtailments. A variance between ultimate actual rescission, curtailment and reversal rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses.
When the insured disputes our right to rescind coverage or curtail claims, we generally engage in discussions in an attempt to settle the dispute. If we are unable to reach a settlement, the outcome of a dispute ultimately may be determined by legal proceedings. Under ASC 450-20, until a loss associated with settlement discussions or legal proceedings becomes probable and can be reasonably estimated, we consider our claim payment or rescission resolved for financial reporting purposes and do not accrue an estimated loss. When we determine that a loss is probable and can be reasonably estimated, we record our best estimate of our probable loss. In those cases, until settlement negotiations or legal proceedings are concluded (including the receipt of any necessary GSE approvals), it is reasonably possible that we will record an additional loss. We are currently involved in discussions and/or proceedings with respect to our claims paying practices. Although it is reasonably possible that when resolved we will not prevail on all matters, we are unable to make a reasonable estimate or range of estimates of the potential liability. We estimate the maximum exposure where a loss is reasonably possible to be approximately $43 million. This estimate of maximum exposure is based upon currently available information; is subject to significant judgment, numerous assumptions and known and unknown uncertainties; will include an amount for matters for which we have recorded a probable loss until such matters are concluded; will include different matters from time to time; and does not include interest or consequential or exemplary damages.
In addition to the matters described above, we are involved in other legal proceedings in the ordinary course of business. In our opinion, based on the facts known at this time, the ultimate resolution of these ordinary course legal proceedings will not have a material adverse effect on our financial position or results of operations.
MGIC Investment Corporation - Q1 2021 | 19

Note 6. Earnings per Share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of shares of common stock outstanding. For purposes of calculating basic EPS, vested restricted stock and restricted stock units (“RSUs”) are considered outstanding. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. The determination of whether components are dilutive is calculated independently for each period. We calculate diluted EPS using the treasury stock method and if-converted method. Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if unvested RSUs result in the issuance of common stock. Under the if-converted method, diluted EPS reflects the potential dilution that could occur if our 9% Debentures result in the issuance of common stock. The determination of potentially issuable shares does not consider the satisfaction of the conversion requirements and the shares are included in the determination of diluted EPS as of the beginning of the period, if dilutive.
Table 6.1 reconciles the numerators and denominators used to calculate basic and diluted EPS.

Earnings per share |  |  |  |
Table | 6.1 |  |  |  |  |  |  |  |
|  |  | Three Months Ended March 31, |  |
(In thousands, except per share data) |  | 2021 |  | 2020 |  |  |  |
Basic earnings per share: |  |  |  |  |  |  |  |
Net income |  | $ | 150,021 |  |  | $ | 149,805 |  |  |  |  |
Weighted average common shares outstanding - basic |  | 338,904 |  |  | 344,053 |  |  |  |  |
Basic earnings per share |  | $ | 0.44 |  |  | $ | 0.44 |  |  |  |  |
Diluted earnings per share: |  |  |  |  |  |  |
Net income |  | $ | 150,021 |  |  | $ | 149,805 |  |  |  |  |
Interest expense, net of tax (1): |  |  |  |  |  |  |  |
9% Debentures |  | 3,712 |  |  | 4,566 |  |  |  |  |
Diluted income available to common shareholders |  | $ | 153,733 |  |  | $ | 154,371 |  |  |  |  |
Weighted average common shares outstanding - basic |  | 338,904 |  |  | 344,053 |  |  |  |  |
Effect of dilutive securities: |  |  |  |  |  |  |  |
Unvested RSUs |  | 1,694 |  |  | 2,033 |  |  |  |  |
9% Debentures |  | 15,785 |  |  | 19,130 |  |  |  |  |
Weighted average common shares outstanding - diluted |  | 356,383 |  |  | 365,216 |  |  |  |  |
Diluted earnings per share |  | $ | 0.43 |  |  | $ | 0.42 |  |  |  |  |

(1) Interest expense for the three months ended March 31, 2021 and 2020, respectively, has been tax effected at a rate of 21%.
MGIC Investment Corporation - Q1 2021 | 20

Note 7. Investments
Fixed income securities
Our fixed income securities classified as available-for-sale at March 31, 2021 and December 31, 2020 are shown in tables 7.1a and 7.1b below.

Details of fixed income securities by category as of March 31, 2021
Table | 7.1a |  |  |  |  |  |  |  |  |  |
(In thousands) |  | Amortized Cost |  | Allowance for Expected Credit Loss |  | Gross Unrealized Gains |  | Gross Unrealized (Losses) |  | Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies |  | $ | 252,806 |  |  | $ | — |  |  | $ | 873 |  |  | $ | (222) |  |  | $ | 253,457 |
Obligations of U.S. states and political subdivisions |  | 2,249,876 |  |  | — |  |  | 132,869 |  |  | (14,727) |  |  | 2,368,018 |
Corporate debt securities |  | 2,771,839 |  |  | — |  |  | 104,279 |  |  | (14,990) |  |  | 2,861,128 |
ABS |  | 185,394 |  |  | (31) |  |  | 2,000 |  |  | (222) |  |  | 187,141 |
RMBS |  | 432,148 |  |  | — |  |  | 5,270 |  |  | (1,410) |  |  | 436,008 |
CMBS |  | 317,055 |  |  | — |  |  | 12,875 |  |  | (2,080) |  |  | 327,850 |
CLOs |  | 372,417 |  |  | — |  |  | 966 |  |  | (56) |  |  | 373,327 |
Foreign government debt |  | 4,485 |  |  | — |  |  | — |  |  | (96) |  |  | 4,389 |
Total fixed income securities |  | $ | 6,586,020 |  |  | $ | (31) |  |  | $ | 259,132 |  |  | $ | (33,803) |  |  | $ | 6,811,318 |

Details of fixed income securities by category as of December 31, 2020
Table | 7.1b |  |  |  |  |  |  |  |  |  |
(In thousands) |  | Amortized Cost |  | Allowance for Expected Credit Losses |  | Gross Unrealized Gains |  | Gross Unrealized (Losses) (1) |  | Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies |  | 264,531 |  |  | — |  |  | $ | 1,164 |  |  | $ | (2) |  |  | $ | 265,693 |
Obligations of U.S. states and political subdivisions |  | 2,083,568 |  |  | — |  |  | 166,557 |  |  | (256) |  |  | 2,249,869 |
Corporate debt securities |  | 2,690,860 |  |  | — |  |  | 155,156 |  |  | (1,728) |  |  | 2,844,288 |
ABS |  | 203,807 |  |  | (49) |  |  | 2,946 |  |  | (18) |  |  | 206,686 |
RMBS |  | 425,532 |  |  | — |  |  | 6,472 |  |  | (838) |  |  | 431,166 |
CMBS |  | 312,572 |  |  | — |  |  | 16,055 |  |  | (1,125) |  |  | 327,502 |
CLOs |  | 310,616 |  |  | — |  |  | 566 |  |  | (692) |  |  | 310,490 |
Foreign government debt |  | 4,485 |  |  | — |  |  | 224 |  |  | — |  |  | 4,709 |
Commercial paper |  | 21,193 |  |  | — |  |  | — |  |  | — |  |  | 21,193 |
Total fixed income securities |  | $ | 6,317,164 |  |  | $ | (49) |  |  | $ | 349,140 |  |  | $ | (4,659) |  |  | $ | 6,661,596 |

We had $13.9 million and $14.1 million of investments at fair value on deposit with various states as of March 31, 2021 and December 31, 2020, respectively, due to regulatory requirements of those state insurance departments. In connection with our insurance and reinsurance activities within MAC and MGIC Indemnity Corporation, insurance subsidiaries of MGIC , we are required to maintain assets in trusts for the benefit of contractual counterparties, which had investments at fair value of $167.7 million and $160.3 million at March 31, 2021 and December 31, 2020, respectively.
MGIC Investment Corporation - Q1 2021 | 21

The amortized cost and fair values of fixed income securities at March 31, 2021, by contractual maturity, are shown in table 7.2 below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most ABS, RMBS, CMBS, and CLOs provide for periodic payments throughout their lives, they are listed in separate categories.

Fixed income securities maturity schedule
Table | 7.2 |  |  |  |
|  | March 31, 2021
(In thousands) |  | Amortized cost |  | Fair Value
Due in one year or less |  | $ | 372,100 |  |  | $ | 376,608 |
Due after one year through five years |  | 1,964,439 |  |  | 2,033,836 |
Due after five years through ten years |  | 1,463,849 |  |  | 1,538,784 |
Due after ten years |  | 1,478,618 |  |  | 1,537,764 |
|  | 5,279,006 |  |  | 5,486,992 |
ABS |  | 185,394 |  |  | 187,141 |
RMBS |  | 432,148 |  |  | 436,008 |
CMBS |  | 317,055 |  |  | 327,850 |
CLOs |  | 372,417 |  |  | 373,327 |
Total as of March 31, 2021 |  | $ | 6,586,020 |  |  | $ | 6,811,318 |

Proceeds from sales of fixed income securities classified as available-for-sale were $56.8 million and $212.8 million during the three months ended March 31, 2021 and 2020, respectively. Gross gains of $3.0 million and gross losses of $0.4 million were realized during the three months ended March 31, 2021. We did not record any realized losses for the three months ended March 31, 2021 related to our intent to sell certain securities. During the three months ended March 31, 2020 gross gains and losses of $5.1 million and $1.3 million, respectively, were realized. We also recorded realized losses of $0.3 million related to our intent to sell certain securities.
During the three months ended March 31, 2021, we reduced our expected credit loss on securities where a credit loss was previously recognized by $18 thousand. There was no allowance for credit losses at March 31, 2020.
Equity securities
The cost and fair value of investments in equity securities at March 31, 2021 and December 31, 2020 are shown in tables 7.3a and 7.3b below.

Details of equity security investments as of March 31, 2021
Table | 7.3a |  |  |  |  |  |  |  |
(In thousands) |  | Cost |  | Gross Gains |  | Gross Losses |  | Fair Value
Equity securities |  | $ | 15,052 |  |  | $ | 302 |  |  | $ | (35) |  |  | $ | 15,319 |

Details of equity security investments as of December 31, 2020
Table | 7.3b |  |  |  |  |  |  |  |
(In thousands) |  | Cost |  | Gross Gains |  | Gross Losses |  | Fair Value
Equity securities |  | $ | 17,522 |  |  | $ | 695 |  |  | $ | (2) |  |  | $ | 18,215 |

For the three months ended March 31, 2021, we recognized $0.4 million of net losses on equity securities still held as of March 31, 2021. For the three months ended March 31, 2020, we recognized $0.8 million of net losses on equity securities still held as of March 31, 2020.
Other invested assets
Other invested assets include an investment in Federal Home Loan Bank ("FHLB") stock that is carried at cost, which due to its nature approximates fair value. Ownership of FHLB stock provides access to a secured lending facility, and our current FHLB Advance amount is secured by eligible collateral whose fair value is maintained at a minimum of 102% of the outstanding principal balance of the FHLB Advance. As of March 31, 2021 and December 31, 2020, that collateral consisted of fixed income securities included in our total investment portfolio, and cash and cash equivalents, with a total fair value of $164.1 million and $163.9 million, respectively.
MGIC Investment Corporation - Q1 2021 | 22

Unrealized investment losses
Tables 7.4a and 7.4b below summarize, for all available-for-sale investments in an unrealized loss position at March 31, 2021 and December 31, 2020, the aggregate fair value and gross unrealized loss by the length of time those securities have been continuously in an unrealized loss position. The fair value amounts reported in tables 7.4a and 7.4b are estimated using the process described in Note 8 - “Fair Value Measurements” to these consolidated financial statements and in Note 3 - “Significant Accounting Policies” of the notes to the consolidated financial statements in our 2020 Annual Report on Form 10-K.

Unrealized loss aging for securities by type and length of time as of March 31, 2021
Table | 7.4a |  |  |  |  |  |  |  |  |  |  |  |
|  | Less Than 12 Months |  | 12 Months or Greater |  | Total
(In thousands) |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies |  | $ | 57,006 |  |  | $ | (222) |  |  | $ | — |  |  | $ | — |  |  | $ | 57,006 |  |  | $ | (222) |
Obligations of U.S. states and political subdivisions |  | 522,476 |  |  | (14,727) |  |  | — |  |  | — |  |  | 522,476 |  |  | (14,727) |
Corporate debt securities |  | 580,879 |  |  | (14,990) |  |  | — |  |  | — |  |  | 580,879 |  |  | (14,990) |
ABS |  | 50,656 |  |  | (222) |  |  | — |  |  | — |  |  | 50,656 |  |  | (222) |
RMBS |  | 127,663 |  |  | (1,387) |  |  | 3,254 |  |  | (23) |  |  | 130,917 |  |  | (1,410) |
CMBS |  | 70,193 |  |  | (749) |  |  | 13,150 |  |  | (1,331) |  |  | 83,343 |  |  | (2,080) |
CLOs |  | 55,161 |  |  | (15) |  |  | 24,510 |  |  | (41) |  |  | 79,671 |  |  | (56) |
Foreign government debt |  | 4,389 |  |  | (96) |  |  | — |  |  | — |  |  | 4,389 |  |  | (96) |
Total |  | $ | 1,468,423 |  |  | $ | (32,408) |  |  | $ | 40,914 |  |  | $ | (1,395) |  |  | $ | 1,509,337 |  |  | $ | (33,803) |

Unrealized loss aging for securities by type and length of time as of December 31, 2020
Table | 7.4b |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Less Than 12 Months |  | 12 Months or Greater |  | Total
(In thousands) |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies |  | $ | 2,690 |  |  | $ | (2) |  |  | $ | — |  |  | $ | — |  |  | $ | 2,690 |  |  | $ | (2) |
Obligations of U.S. states and political subdivisions |  | 31,416 |  |  | (256) |  |  | — |  |  | — |  |  | 31,416 |  |  | (256) |
Corporate debt securities |  | 44,968 |  |  | (1,728) |  |  | — |  |  | — |  |  | 44,968 |  |  | (1,728) |
ABS |  | 14,929 |  |  | (18) |  |  | — |  |  | — |  |  | 14,929 |  |  | (18) |
RMBS |  | 98,409 |  |  | (773) |  |  | 3,566 |  |  | (65) |  |  | 101,975 |  |  | (838) |
CMBS |  | 13,212 |  |  | (789) |  |  | 2,799 |  |  | (336) |  |  | 16,011 |  |  | (1,125) |
CLOs |  | 95,287 |  |  | (261) |  |  | 73,904 |  |  | (431) |  |  | 169,191 |  |  | (692) |
Total |  | $ | 300,911 |  |  | $ | (3,827) |  |  | $ | 80,269 |  |  | $ | (832) |  |  | $ | 381,180 |  |  | $ | (4,659) |

Based on current facts and circumstances, we believe the unrealized losses as of March 31, 2021 presented in table 7.4a above are not indicative of the ultimate collectability of the current amortized cost of the securities. The unrealized losses in all categories of our investments at March 31, 2021 were primarily caused by changes in interest rates between the time of purchase and the respective fair value measurement date. We also rely upon estimates of several credit and non-credit factors in our review and evaluation of individual investments to determine whether a credit impairment exists.
There were 403 and 109 securities in an unrealized loss position at March 31, 2021 and December 31, 2020, respectively.
We report accrued investment income separately from fixed income, available-for-sale, securities and we have determined an allowance for credit losses for accrued investment income is not required. Accrued investment income is written off through net realized investment gains (losses) if, and at the time, the issuer of the security defaults or is expected to default on payment s.
MGIC Investment Corporation - Q1 2021 | 23

Note 8. Fair Value Measurements
Recurring fair value measurements
The following describes the valuation methodologies generally used by the independent pricing sources, or by us, to measure financial instruments at fair value, including the general classification of such financial instruments pursuant to the valuation hierarchy.
•Fixed income securities:
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies: Securities with valuations derived from quoted prices for identical instruments in active markets that we can access are categorized in Level 1 of the fair value hierarchy. Securities valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information in the valuation process are categorized as Level 2 of the fair value hierarchy.
Corporate Debt Bonds are valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process. These securities are generally categorized in Level 2 of the fair value hierarchy.
Obligations of U.S. States & Political Subdivisions are valued by tracking, capturing, and analyzing quotes for active issues and trades reported via the Municipal Securities Rulemaking Board records. Daily briefings and reviews of current economic conditions, trading levels, spread relationships, and the slope of the yield curve provide further data for evaluation. These securities are generally categorized in Level 2 of the fair value hierarchy.
Residential Mortgage-Backed Securities ("RMBS") are valued by monitoring interest rate movements, and other pertinent data daily. Incoming market data is enriched to derive spread, yield and/or price data as appropriate, enabling known data points to be extrapolated for valuation application across a range of related securities. These securities are generally categorized in Level 2 of the fair value hierarchy.
Commercial Mortgage-Backed Securities ("CMBS") are valued using techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including quoted prices for similar assets, benchmark yield curves and market corroborated inputs. Evaluation uses regular reviews of the inputs for securities covered, including executed trades, broker quotes, credit information, collateral attributes and/or cash flow waterfall as applicable. These securities are generally categorized in Level 2 of the fair value hierarchy.
Asset-Backed Securities ("ABS") are valued using spreads and other information solicited from market buy-and-sell-side sources, including primary and secondary dealers, portfolio managers, and research analysts. Cash flows are generated for each tranche, benchmark yields are determined, and deal collateral performance and tranche level attributes including trade activity, bids, and offers are applied, resulting in tranche specific prices. These securities are generally categorized in Level 2 of the fair value hierarchy.
Collateralized loan obligations ("CLOs") are valued by evaluating manager rating, seniority in the capital structure, assumptions about prepayment, default and recovery and their impact on cash flow generation. Loan level net asset values are determined and aggregated for tranches and as a final step prices are checked against available recent trade activity. These securities are generally categorized in Level 2 of the fair value hierarchy.
Foreign government debt is valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process. These securities are generally categorized in Level 2 of the fair value hierarchy.
Commercial Paper, which has an original maturity greater than 90 days, is valued using market data for comparable instruments of similar maturity and average yields. These securities are categorized in Level 2 of the fair value hierarchy.
•Equity securities: Consist of actively traded, exchange-listed equity securities, including exchange traded funds (“ETFs”), and Bond Mutual Funds with valuations derived from quoted prices for identical assets in active markets that we can access. These securities are valued in Level 1 of the fair value hierarchy.
•Cash Equivalents: Consists of money market funds and treasury bills with valuations derived from quoted prices for identical assets in active markets that we can access. These securities are valued in level 1 of the fair value hierarchy. Instruments in this category valued using market data for comparable instruments are classified as level 2 in the fair value hierarchy.
•Real estate acquired is valued at the lower of our acquisition cost or a percentage of the appraised value. The percentage applied to the appraised value is based upon our historical sales experience adjusted for current trends. These securities are categorized in level 3 of the fair value hierarchy.
MGIC Investment Corporation - Q1 2021 | 24

Assets measured at fair value, by hierarchy level, as of March 31, 2021 and December 31, 2020 are shown in tables 8.1a and 8.1b below. The fair value of the assets is estimated using the process described above, and more fully in Note 3 - “Significant Accounting Policies” of the notes to the consolidated financial statements in our 2020 Annual Report on Form 10-K.

Assets carried at fair value by hierarchy level as of March 31, 2021
Table | 8.1a |  |  |  |  |  |  |  |
(In thousands) |  | Total Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies |  | $ | 253,457 |  |  | $ | 143,231 |  |  | $ | 110,226 |  |  | $ | — |
Obligations of U.S. states and political subdivisions |  | 2,368,018 |  |  | — |  |  | 2,368,018 |  |  | — |
Corporate debt securities |  | 2,861,128 |  |  | — |  |  | 2,861,128 |  |  | — |
ABS |  | 187,141 |  |  | — |  |  | 187,141 |  |  | — |
RMBS |  | 436,008 |  |  | — |  |  | 436,008 |  |  | — |
CMBS |  | 327,850 |  |  | — |  |  | 327,850 |  |  | — |
CLOs |  | 373,327 |  |  | — |  |  | 373,327 |  |  | — |
Foreign government debt |  | 4,389 |  |  | — |  |  | 4,389 |  |  | — |
Total fixed income securities |  | 6,811,318 |  |  | 143,231 |  |  | 6,668,087 |  |  | — |
Equity securities |  | 15,319 |  |  | 15,319 |  |  | — |  |  | — |
Cash Equivalents |  | 183,960 |  |  | 183,960 |  |  | — |  |  | — |
Real estate acquired (1) |  | 1,794 |  |  | — |  |  | — |  |  | 1,794 |
Total |  | $ | 7,012,391 |  |  | $ | 342,510 |  |  | $ | 6,668,087 |  |  | $ | 1,794 |

Assets carried at fair value by hierarchy level as of December 31, 2020
Table | 8.1b |  |  |  |  |  |  |  |
(In thousands) |  | Total Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies |  | $ | 265,693 |  |  | $ | 149,339 |  |  | $ | 116,354 |  |  | $ | — |
Obligations of U.S. states and political subdivisions |  | 2,249,869 |  |  | — |  |  | 2,249,869 |  |  | — |
Corporate debt securities |  | 2,844,288 |  |  | — |  |  | 2,844,288 |  |  | — |
ABS |  | 206,686 |  |  | — |  |  | 206,686 |  |  | — |
RMBS |  | 431,166 |  |  | — |  |  | 431,166 |  |  | — |
CMBS |  | 327,502 |  |  | — |  |  | 327,502 |  |  | — |
CLOs |  | 310,490 |  |  | — |  |  | 310,490 |  |  | — |
Foreign government debt |  | 4,709 |  |  | — |  |  | 4,709 |  |  | — |
Commercial paper |  | 21,193 |  |  | — |  |  | 21,193 |  |  | — |
Total fixed income securities |  | 6,661,596 |  |  | 149,339 |  |  | 6,512,257 |  |  | — |
Equity securities |  | 18,215 |  |  | 18,215 |  |  | — |  |  | — |
Cash Equivalents |  | 288,941 |  |  | 275,668 |  |  | 13,273 |  |  | — |
Real estate acquired (1) |  | 1,092 |  |  | — |  |  | — |  |  | 1,092 |
Total |  | $ | 6,969,844 |  |  | $ | 443,222 |  |  | $ | 6,525,530 |  |  | $ | 1,092 |

(1)Real estate acquired through claim settlement, which is held for sale, is reported in “Other assets” on the consolidated balance sheets.
Certain financial instruments, including insurance contracts, are excluded from these fair value disclosure requirements. The carrying values of cash and cash equivalents (Level 1) and accrued investment income (Level 2) approximated their fair values. Additional fair value disclosures related to our investment portfolio are included in Note 7 – “Investments.”
MGIC Investment Corporation - Q1 2021 | 25

Reconciliations of Level 3 assets
For assets measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the three months ended March 31, 2021 and 2020 is shown in tables 8.2a and 8.2b below. There were no losses included in earnings for those periods attributable to the change in unrealized losses on assets still held at the end of the applicable period.

Fair value roll-forward for financial instruments classified as Level 3 for the three months ended March 31, 2021
Table | 8.2a |  |
(In thousands) |  | Real Estate Acquired
Balance at December 31, 2020 |  | $ | 1,092 |
Purchases |  | 2,008 |
Sales |  | (1,431) |
Included in earnings and reported as losses incurred, net |  | 125 |
Balance at March 31, 2021 |  | $ | 1,794 |

Fair value roll-forward for financial instruments classified as Level 3 for the three months ended March 31, 2020
Table | 8.2b |  |
(In thousands) |  | Real Estate Acquired
Balance at December 31, 2019 |  | $ | 7,252 |
Purchases |  | 4,115 |
Sales |  | (5,198) |
Included in earnings and reported as losses incurred, net |  | 57 |
Balance at March 31, 2020 |  | $ | 6,226 |

Financial assets and liabilities not measured at fair value
Other invested assets include an investment in FHLB stock that is carried at cost, which due to restrictions that require it to be redeemed or sold only to the security issuer at par value, approximates fair value. The fair value of other invested assets is categorized as Level 2.
Financial liabilities include our outstanding debt obligations. The fair values of our 5.75% and 5.25% Notes and 9% Debentures were based on observable market prices. The fair value of the FHLB Advance was estimated using cash flows discounted at current incremental borrowing rates for similar borrowing arrangements. In all cases the fair values of the financial liabilities below are categorized as Level 2.
Table 8.3 presents the carrying value and fair value of our financial assets and liabilities disclosed, but not carried, at fair value at March 31, 2021 and December 31, 2020.

Financial assets and liabilities not measured at fair value
Table | 8.3 |  |  |  |  |  |  |  |
|  | March 31, 2021 |  | December 31, 2020
(In thousands) |  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Financial assets |  |  |  |  |  |  |  |
Other invested assets |  | $ | 3,100 |  |  | $ | 3,100 |  |  | $ | 3,100 |  |  | $ | 3,100 |
Financial liabilities |  |  |  |  |  |  |  |
FHLB Advance |  | 155,000 |  |  | 160,136 |  |  | 155,000 |  |  | 160,865 |
5.75% Senior Notes |  | 240,762 |  |  | 261,248 |  |  | 240,597 |  |  | 261,752 |
5.25% Senior Notes |  | 639,150 |  |  | 677,235 |  |  | 638,782 |  |  | 696,449 |
9% Convertible Junior Subordinated Debentures |  | 208,814 |  |  | 282,312 |  |  | 208,814 |  |  | 273,569 |
Total financial liabilities |  | $ | 1,243,726 |  |  | $ | 1,380,931 |  |  | $ | 1,243,193 |  |  | $ | 1,392,635 |

MGIC Investment Corporation - Q1 2021 | 26

Note 9. Other Comprehensive Income
The pretax and related income tax benefit (expense) components of our other comprehensive (loss) income for the three months ended March 31, 2021 and 2020 are included in table 9.1 below.

Components of other comprehensive income (loss) |  |  |  |
Table | 9.1 |  |  |  |  |  |  |  |
|  | Three Months Ended March 31, |  |
(In thousands) |  | 2021 |  | 2020 |  |  |  |
Net unrealized investment losses arising during the period |  | $ | (119,150) |  |  | $ | (91,880) |  |  |  |  |
Total income tax benefit (expense) |  | 25,021 |  |  | 19,295 |  |  |  |  |
Net of taxes |  | (94,129) |  |  | (72,585) |  |  |  |  |
Net changes in benefit plan assets and obligations |  | 1,105 |  |  | 1,394 |  |  |  |  |
Total income tax benefit (expense) |  | (232) |  |  | (293) |  |  |  |  |
Net of taxes |  | 873 |  |  | 1,101 |  |  |  |  |
Total other comprehensive loss |  | (118,045) |  |  | (90,486) |  |  |  |  |
Total income tax benefit (expense) |  | 24,789 |  |  | 19,002 |  |  |  |  |
Total other comprehensive loss, net of tax |  | $ | (93,256) |  |  | $ | (71,484) |  |  |  |  |

The pretax and related income tax (expense) benefit components of the amounts reclassified from our accumulated other comprehensive income (loss) (“AOCI”) to our consolidated statements of operations for the three months ended March 31, 2021 and 2020 are included in table 9.2 below.

Reclassifications from AOCI |  |  |  |
Table | 9.2 |  |  |  |  |  |  |  |
|  | Three Months Ended March 31, |  |
(In thousands) |  | 2021 |  | 2020 |  |  |  |
Reclassification adjustment for net realized (losses) gains(1) |  | $ | 3,940 |  |  | $ | 4,714 |  |  |  |  |
Income tax (expense) benefit |  | (827) |  |  | (990) |  |  |  |  |
Net of taxes |  | 3,113 |  |  | 3,724 |  |  |  |  |
Reclassification adjustment related to benefit plan assets and obligations (2) |  | (1,105) |  |  | (1,394) |  |  |  |  |
Income tax (expense) benefit |  | 232 |  |  | 293 |  |  |  |  |
Net of taxes |  | (873) |  |  | (1,101) |  |  |  |  |
Total reclassifications |  | 2,835 |  |  | 3,320 |  |  |  |  |
Income tax (expense) benefit |  | (595) |  |  | (697) |  |  |  |  |
Total reclassifications, net of tax |  | $ | 2,240 |  |  | $ | 2,623 |  |  |  |  |

(1)Increases (decreases) Net realized investment gains (losses) on the consolidated statements of operations.
(2)Decreases (Increases) Other underwriting and operating expenses, net on the consolidated statements of operations.
A rollforward of AOCI for the three months ended March 31, 2021, including amounts reclassified from AOCI, are included in table 9.3 below.

Rollforward of AOCI
Table | 9.3 |  |  |  |  |  |
|  |  | Three Months Ended March 31, 2021
(In thousands) |  | Net unrealized gains and (losses) on available-for-sale securities |  | Net benefit plan assets and (obligations) recognized in shareholders' equity |  | Total accumulated other comprehensive income (loss)
Balance at December 31, 2020, net of tax |  | 272,137 |  |  | (55,316) |  |  | 216,821 |
Other comprehensive income before reclassifications |  | (91,016) |  |  | — |  |  | (91,016) |
Less: Amounts reclassified from AOCI |  | 3,113 |  |  | (873) |  |  | 2,240 |
Balance, March 31, 2021, net of tax |  | $ | 178,008 |  |  | $ | (54,443) |  |  | $ | 123,565 |

MGIC Investment Corporation - Q1 2021 | 27

Note 10. Benefit Plans
Table 10.1 provides the components of net periodic benefit cost for our pension, supplemental executive retirement and other postretirement benefit plans for the three months ended March 31, 2021 and 2020.

Components of net periodic benefit cost
Table | 10.1 |  |  |  |  |  |  |  |
|  | Three Months Ended March 31,
|  | Pension and Supplemental Executive Retirement Plans |  | Other Postretirement Benefit Plans
(In thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Service cost |  | $ | 1,664 |  |  | $ | 1,821 |  |  | $ | 364 |  |  | $ | 309 |
Interest cost |  | 2,810 |  |  | 3,414 |  |  | 164 |  |  | 214 |
Expected return on plan assets |  | (5,202) |  |  | (5,580) |  |  | (2,215) |  |  | (1,852) |
Amortization of net actuarial losses/(gains) |  | 1,550 |  |  | 1,634 |  |  | (439) |  |  | (190) |
Amortization of prior service cost/(credit) |  | (60) |  |  | (62) |  |  | 53 |  |  | 13 |
Net periodic benefit cost (benefit) |  | $ | 762 |  |  | $ | 1,227 |  |  | $ | (2,073) |  |  | $ | (1,506) |

We currently intend to make contributions totaling $6.2 million to our qualified pension plan and supplemental executive retirement plan in 2021.
MGIC Investment Corporation - Q1 2021 | 28

Note 11. Loss Reserves
We establish case reserves and loss adjustment expenses (“LAE”) reserves on delinquent loans that were reported to us as two payments past due and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case reserves are established by estimating the number of loans in our delinquency inventory that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.
IBNR reserves are established for estimated losses from delinquencies we estimate have occurred prior to the close of an accounting period but have not yet been reported to us. IBNR reserves are also established using estimated claim rates and claim severities.
Estimation of losses is inherently judgmental. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment and the current and future strength of local housing markets; exposure on insured loans; the amount of time between delinquency and claim filing; and curtailments and rescissions. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment and the continued impact of the COVID-19 pandemic, leading to a reduction in borrowers’ income and thus their ability to make mortgage payments, the impact of past and future government initiatives and actions taken by the GSEs (including mortgage forbearance programs and foreclosure moratoriums), and a drop in housing values which may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. Loss reserves in future periods will also be dependent on the number of loans reported to us as delinquent.
Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment. It is reasonably possible that given the uncertainty of the impacts of the COVID-19 pandemic, our reserve estimate may continue to be impacted.
In considering the potential sensitivity of the factors underlying our estimate of loss reserves, it is possible that even a relatively small change in our estimated claim rate or severity could have a material impact on loss reserves and, correspondingly, on our consolidated results of operations even in a stable economic environment. For example, as of March 31, 2021, assuming all other factors remain constant, a $1,000 increase/decrease in the average severity reserve factor would change the loss reserve amount by approximately +/- $16 million. A one percentage point increase/decrease in the average claim rate reserve factor would change the loss reserve amount by approximately +/- $31 million.
The “Losses incurred” section of table 11.1 below shows losses incurred on delinquencies that occurred in the current
year and in prior years. The amount of losses incurred relating to delinquencies that occurred in the current year represents the estimated amount to be ultimately paid on such delinquencies. The amount of losses incurred relating to delinquencies that occurred in prior years represents the difference between the actual claim rate and severity associated with those delinquencies resolved in the current year compared to the estimated claim rate and severity at the prior year-end, as well as a re-estimation of amounts to be ultimately paid on delinquencies continuing from the end of the prior year. This re-estimation of the claim rate and severity is the result of our review of current trends in the delinquency inventory, such as percentages of delinquencies that have resulted in a claim, the amount of the claims relative to the average loan exposure, changes in the relative level of delinquencies by geography and changes in average loan exposure.
Losses incurred on delinquencies that occurred in the current year decreased in the first three months of 2021 compared to the same period last year due to a decrease in the claim rate, offset by an increase in new delinquency notices. In addition, we decreased IBNR reserve estimates by $4.4 million in the first three months of 2021, compared to a $7.8 million increase in the first three months of 2020. Given the uncertainty surrounding the long-term impact of COVID-19, it is difficult to predict the ultimate effect of the COVID-19 related delinquencies and forbearances on our loss incidence.
The “Losses paid” section of table 11.1 below shows the amount of losses paid on delinquencies that occurred in the current year and losses paid on delinquencies that occurred in prior years. For several years, the average time it took to receive a claim associated with a delinquency had increased significantly from our historical experience of approximately twelve months. This was, in part, due to new loss mitigation protocols established by servicers and to changes in some state foreclosure laws that may include, for example, a requirement for additional review and/or mediation processes. Prior to 2020, we had experienced a decline in the average time it takes servicers to process foreclosures, which has reduced the average time to receive a claim associated with new delinquency notices that do not cure. All else being equal, the longer the period between delinquency and claim filing, the greater the severity.
In light of the uncertainty caused by the COVID-19 pandemic, specifically the foreclosure moratoriums and forbearance plans, we expect the average time it takes to receive a claim will increase.
Premium refunds
Our estimate of premiums to be refunded on expected claim payments is accrued for separately in “Other Liabilities” on our consolidated balance sheets and approximated $33 million and $30 million at March 31, 2021 and December 31, 2020, respectively.
MGIC Investment Corporation - Q1 2021 | 29

Table 11.1 provides a reconciliation of beginning and ending loss reserves as of and for the three months ended March 31, 2021 and 2020.

Development of reserves for losses and loss adjustment expenses
Table | 11.1 |  |  |  |
|  |  | Three Months Ended March 31,
(In thousands) |  | 2021 |  | 2020
Reserve at beginning of period |  | $ | 880,537 |  |  | $ | 555,334 |
Less reinsurance recoverable |  | 95,042 |  |  | 21,641 |
Net reserve at beginning of period |  | 785,495 |  |  | 533,693 |
Losses incurred: |  |  |  |
Losses and LAE incurred in respect of delinquency notices received in: |  |  |  |
Current year |  | 41,425 |  |  | 59,799 |
Prior years (1) |  | (1,789) |  |  | 1,157 |
Total losses incurred |  | 39,636 |  |  | 60,956 |
Losses paid: |  |  |  |
Losses and LAE paid in respect of delinquency notices received in: |  |  |  |
Current year |  | — |  |  | 39 |
Prior years |  | 14,922 |  |  | 45,633 |
Reinsurance terminations |  | — |  |  | (20) |
Total losses paid |  | 14,922 |  |  | 45,652 |
Net reserve at end of period |  | 810,209 |  |  | 548,997 |
Plus reinsurance recoverables |  | 102,901 |  |  | 25,756 |
Reserve at end of period |  | $ | 913,110 |  |  | $ | 574,753 |

(1)A positive number for prior year loss development indicates a deficiency of prior year reserves. A negative number for prior year loss development indicates a redundancy of prior year loss reserves. See the following table for more information about prior year loss development.
The prior year development of the reserves in the first three months of 2021 and 2020 is reflected in table 11.2 below.

Reserve development on previously received delinquencies
Table | 11.2 |  |  |  |
|  |  | Three Months Ended March 31,
(In thousands) |  | 2021 |  | 2020
Increase (decrease) in estimated claim rate on primary defaults |  | $ | 87 |  |  | $ | (705) |
Increase (decrease) in estimated severity on primary defaults |  | 59 |  |  | 3,833 |
Change in estimates related to pool reserves, LAE reserves, reinsurance, and other |  | (1,935) |  |  | (1,971) |
Total prior year loss development (1) |  | $ | (1,789) |  |  | $ | 1,157 |

(1)A positive number for prior year loss development indicates a deficiency of prior year loss reserves. A negative number for prior year loss development indicates a redundancy of prior year loss reserves.
MGIC Investment Corporation - Q1 2021 | 30

Delinquency inventory
A rollforward of our primary delinquency inventory for the three months ended March 31, 2021 and 2020 appears in table 11.3 below. The information concerning new notices and cures is compiled from monthly reports received from loan servicers. The level of new notice and cure activity reported in a particular month can be influenced by, among other things, the date on which a servicer generates its report, the number of business days in a month and transfers of servicing between loan servicers.

Delinquency inventory rollforward |  |  |  |
Table | 11.3 |  |  |  |  |  |  |  |
|  | Three Months Ended March 31, |  |
|  | 2021 |  | 2020 |  |  |  |
Delinquency inventory at beginning of period |  | 57,710 |  |  | 30,028 |  |  |  |  |
New notices |  | 13,011 |  |  | 12,398 |  |  |  |  |
Cures |  | (17,628) |  |  | (14,113) |  |  |  |  |
Paid claims |  | (312) |  |  | (897) |  |  |  |  |
Rescissions and denials |  | (6) |  |  | (32) |  |  |  |  |
Delinquency inventory at end of period |  | 52,775 |  | 27,384 |  |  |  |

COVID-19 Activity
Our delinquency inventory increased beginning in the second quarter of 2020 because of the impacts of the COVID-19 pandemic, including the high level of unemployment and economic uncertainty resulting from measures to reduce the transmission of COVID-19. Starting in the third quarter of 2020, we experienced an increase in cures associated with our COVID-19 new delinquency notices. Government initiatives and actions taken by the GSEs provide for payment forbearance on mortgages to borrowers experiencing hardship during the COVID-19 pandemic. These forbearance plans generally allow for mortgage payments to be suspended for up to 18 months: an initial forbearance period of up to six months; if requested by the borrower, an extension of up to six months; and, for loans in a COVID-19 forbearance plan as of February 28, 2021, an additional extension up to six months, subject to certain limits.
Table 11.4 below shows the number of consecutive months a borrower is delinquent. Historically as a delinquency ages it becomes more likely to result in a claim.

Primary delinquency inventory - consecutive months delinquent
Table | 11.4 |  |  |
| March 31, 2021 | December 31, 2020 | March 31, 2020
3 months or less | 9,194 |  | 11,542 |  | 7,567 |
4-11 months | 29,832 |  | 34,620 |  | 9,535 |
12 months or more (1) | 13,749 |  | 11,548 |  | 10,282 |
Total | 52,775 |  | 57,710 |  | 27,384 |
3 months or less | 17 | % | 20 | % | 28 | %
4-11 months | 57 | % | 60 | % | 35 | %
12 months or more | 26 | % | 20 | % | 37 | %
Total | 100 | % | 100 | % | 100 | %
Primary claims received inventory included in ending delinquent inventory | 151 |  | 159 |  | 472 |

(1)Approximately 26%, 31%, and 34% of the primary delinquency inventory delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of March 31, 2021, December 31, 2020, and March 31, 2020, respectively.
The increase in delinquency inventory that is 4-11 consecutive months delinquent compared to March 31, 2020 and the increase in delinquency inventory that is 12 months or more delinquent compared to March 31, 2020 and December 31, 2020 is primarily due to the number of new delinquency notices received in the second quarter of 2020 resulting from the impacts of the COVID-19 pandemic. This was partially offset by an increase in cures in the second half of 2020 and in 2021.
Claims paying practices
Our loss reserving methodology incorporates our estimates of future rescissions. A variance between ultimate actual rescission rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses. For information about discussions and legal proceedings with customers with respect to our claims paying practices see Note 5 – “Litigation and Contingencies.”
MGIC Investment Corporation - Q1 2021 | 31

Note 12. Shareholders’ Equity
Change in Accounting Policy
As of January 1, 2021, we adopted the updated guidance for "A ccounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. The application of this guidance resulted in a $68.3 million cumulative effect adjustment to our 2021 beginning retained earnings and paid in capital to reflect the 9% Debenture as if we had always accounted for the debt as a liability in its entirety
Share repurchase programs
We did not repurchase any shares during the three months ended March 31, 2021 compared to the repurchase of 9.6 million shares of commons stock at an average cost of $12.47 for the three months ended March 31, 2020. We may repurchase up to an additional $291 million of our common stock through the end of 2021 under a share repurchase program approved by our Board of Directors in 2020. Repurchases may be made from time to time on the open market or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time, and in light of the uncertainty caused by the COVID-19 pandemic, we had temporarily suspended stock repurchases but may resume them in the future.
Cash dividends
In March of 2021, we paid quarterly cash dividends of $0.06 per share to shareholders which totaled $21 million. On April 29, 2021, the Board of Directors declared a quarterly cash dividend to holders of the company’s common stock of $0.06 per share payable on May 27, 2021, to shareholders of record at the close of business on May 13, 2021.
Note 13. Share-Based Compensation
We have certain share-based compensation plans. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period which generally corresponds to the vesting period. Awards under our plans generally vest over periods ranging from one to three years.
Table 13.1 shows the number of restricted stock units (RSUs) granted to employees and the weighted average fair value per share during the periods presented (shares in thousands).

Restricted stock unit grants
Table | 13.1 |  |  |  |  |
|  | Three months ended March 31,
|  | 2021 |  | 2020
|  | RSUs Granted (in thousands) | Weighted Average Share Fair Value |  | RSUs Granted (in thousands) | Weighted Average Share Fair Value
RSUs subject to performance conditions | 966 |  | $ | 12.82 |  |  | 1,282 |  | $ | 12.87 |
RSUs subject only to service conditions | 398 |  | 12.82 |  |  | 373 |  | 13.11 |

MGIC Investment Corporation - Q1 2021 | 32

Note 14. Statutory Information
Statutory Capital Requirements
The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to the RIF (or a similar measure) in order for the mortgage insurer to continue to write new business. We refer to these requirements as the “State Capital Requirements” and, together with the GSE Financial Requirements, the “Financial Requirements.” While they vary among jurisdictions, the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1. A risk-to-capital ratio will increase if (i) the percentage decrease in capital exceeds the percentage decrease in insured risk, or (ii) the percentage increase in capital is less than the percentage increase in insured risk. Wisconsin does not regulate capital by using a risk-to-capital measure but instead requires a minimum policyholder position (“MPP”). The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve and a portion of the reserves for unearned premiums.
At March 31, 2021, MGIC’s risk-to-capital ratio was 8.8 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.4 billion above the required MPP of $1.7 billion. The calculation of our risk-to-capital ratio and MPP reflect credit for the risk ceded under our reinsurance transactions. It is possible that MGIC will not be allowed full credit for the risk ceded to the reinsurers. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the financial requirements of the PMIERs, MGIC may terminate the reinsurance agreements, without penalty. At this time, we expect MGIC to continue to comply with the current State Capital Requirements; however, you should read the rest of these financial statement footnotes for information about matters that could negatively affect such compliance.
At March 31, 2021, the risk-to-capital ratio of our combined insurance operations was 8.8 to 1.
While MGIC currently meets the State Capital Requirements of Wisconsin and all other jurisdictions, it could be prevented from writing new business in the future in all jurisdictions if it fails to meet the State Capital Requirements of Wisconsin, or it could be prevented from writing new business in a particular jurisdiction if it fails to meet the State Capital Requirements of that jurisdiction, and in each case MGIC does not obtain a waiver of such requirements. It is possible that regulatory action by one or more jurisdictions, including those that do not have specific State Capital Requirements, may prevent MGIC from continuing to write new insurance in such jurisdictions.
If we are unable to write business in all jurisdictions, lenders may be unwilling to procure insurance from us anywhere. In addition, a lender’s assessment of the future ability of our insurance operations to meet the State Capital Requirements or the PMIERs may affect its willingness to procure insurance from us. A possible future failure by MGIC to meet the State Capital Requirements or the PMIERs will not necessarily mean that MGIC lacks sufficient resources to pay claims on its insurance liabilities. While we believe MGIC has sufficient claims paying resources to meet its claim obligations on its insurance in force on a timely basis, you should read the rest
of these financial statement footnotes for information about matters that could negatively affect MGIC’s claims paying resources, including the effects of the COVID-19 pandemic.
Dividend restrictions
MGIC did not pay cash and/or investment security dividends to our holding company during the first quarter of 2021 due to the uncertainty of the COVID-19 pandemic.
MGIC is subject to statutory regulations as to payment of dividends. The maximum amount of dividends that MGIC may pay in any twelve-month period without regulatory approval by the OCI 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. Before making any dividend payments in 2021, we will notify the OCI to ensure it does not object.
Under the PMIERs guidance, any dividend paid by MGIC to our holding company, through June 30, 2021, requires GSE approval.
The OCI recognizes only statutory accounting principles prescribed, or practices permitted by the State of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company. The OCI has adopted certain prescribed accounting practices that differ from those found in other states. Specifically, Wisconsin domiciled companies record changes in their contingency reserves through their income statement as a change in underwriting deduction. As a result, in periods in which MGIC is increasing contingency reserves, statutory net income is reduced.
Statutory Financial Information
The statutory net income, policyholders’ surplus, and contingency reserve liability of the insurance subsidiaries of our holding company are shown in table 14.1. The surplus amounts included in the following table are the combined policyholders’ surplus of our insurance operations as utilized in our risk-to-capital calculations.

Financial information of our insurance subsidiaries
Table 14.1 |  |  |  |
|  | As of and for the Three Months Ended March 31,
(In thousands) |  | 2021 |  | 2020
Statutory net income |  | $ | 47,775 |  |  | $ | 55,746 |
Statutory policyholders' surplus |  | 1,383,114 |  |  | 1,271,244 |
Contingency reserve |  | 3,733,126 |  |  | 3,166,180 |

MGIC Investment Corporation - Q1 2021 | 33

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following is management’s discussion and analysis of the financial condition and results of operations of MGIC Investment Corporation for the first quarter of 2021. While the increased unemployment and economic uncertainty resulting from the COVID-19 pandemic had a material impact on our 2020 financial results, as we reserved for losses associated with the increased delinquency notices received, it had a limited impact on our first quarter 2021 results. While uncertain, the future impact of the COVID-19 pandemic on the Company’s financial results, liquidity and/or financial condition may also be material. As used below, “we” and “our” refer to MGIC Investment Corporation’s consolidated operations. This form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020. See the “Glossary of terms and acronyms” for definitions and descriptions of terms used throughout this MD&A. The Risk Factors referred to under “Forward Looking Statements and Risk Factors” below, discuss trends and uncertainties affecting us and are an integral part of the MD&A.
Forward Looking and Other Statements
As discussed under “Forward Looking Statements and Risk Factors” below, actual results may differ materially from the results contemplated by forward looking statements. These forward looking statements, including the discussion of the impact of the COVID-19 pandemic, speak only as of the date of this filing and are subject to change without notice as the Company cannot predict all risks relating to this evolving set of events. We are not undertaking any obligation to update any forward looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.
MGIC Investment Corporation - Q1 2021 | 34

Overview

Summary financial results of MGIC Investment Corporation |  |  |  |  |  |
|  | Three Months Ended March 31, |  |
(In millions, except per share data, unaudited) |  | 2021 |  | 2020 |  | % Change |  |  |  |  |  |
Selected statement of operations data |  |  |  |  |  |  |  |  |  |  |  |
Net premiums earned | $ | 255.0 |  |  | $ | 260.9 |  |  | (2) |  |  |  |  |  |  |
Investment income, net of expenses |  | 37.9 |  |  | 41.3 |  |  | (8) |  |  |  |  |  |  |
Losses incurred, net |  | 39.6 |  |  | 61.0 |  |  | (35) |  |  |  |  |  |  |
Other underwriting and operating expenses, net |  | 48.0 |  |  | 42.3 |  |  | 13 |  |  |  |  |  |  |
Income before tax |  | 189.6 |  |  | 188.2 |  |  | 1 |  |  |  |  |  |  |
Provision for income taxes |  | 39.6 |  |  | 38.4 |  |  | 3 |  |  |  |  |  |  |
Net income |  | 150.0 |  | 149.8 |  | — |  |  |  |  |  |  |
Diluted income per share |  | $ | 0.43 |  |  | $ | 0.42 |  |  | 2 |  |  |  |  |  |  |
Non-GAAP Financial Measures (1) |  |  |  |  |  |
Adjusted pre-tax operating income |  | $ | 187.0 |  |  | $ | 185.4 |  |  | 1 |  |  |  |  |  |  |
Adjusted net operating income |  | 148.0 |  |  | 147.5 |  |  | — |  |  |  |  |  |  |
Adjusted net operating income per diluted share |  | $ | 0.42 |  |  | $ | 0.42 |  |  | — |  |  |  |  |  |  |

(1) See “Explanation and reconciliation of our use of Non-GAAP financial measures.”
Summary of first quarter 2021 results
Comparative quarterly results
We recorded first quarter 2021 net income of $150.0 million, or $0.43 per diluted share. Net income increased by $0.2 million from net income of $149.8 million in the prior year primarily reflecting a decrease in losses incurred, net, partially offset by higher other underwriting and operating expenses, net, lower net premiums earned, higher interest expense and lower investment income, net of expenses.
Diluted income per share increased slightly due a decrease in the number of diluted weighted average shares outstanding and an increase in net income. Adjusted net operating income for the first quarter 2021 was $148.0 million (Q1 2020: $147.5 million) and adjusted net operating income per diluted share was $0.42 (Q1 2020: $0.42).
Net premiums earned declined as a result of lower net premiums written, partially offset by an increase in accelerated premiums earned from single premium policy cancellations. The decrease in net premium written during the first quarter of 2021 was due to an increase in ceded premiums written and lower average premium rates on our insurance in force. These impacts were partially offset by higher average insurance in force.
Investment income, net of expenses decreased due to lower investment yields, partially offset by an increase in the investment portfolio balance.
Losses incurred, net for the first quarter of 2021 were $39.6 million, a decrease of $21.3 million compared to the prior year.
In the three months ended March 31, 2021 and 2020 our re-estimation of loss reserves on previously received delinquencies did not result in any significant development. The first quarter of 2021 reflects a decrease in our IBNR and other reserve of $4 million compared to an increase in IBNR of $8 million in the first quarter of 2020. In addition, the claim
rate on new notices decreased in the first three months of 2021, compared to the same period last year.
The increase in other underwriting and operating expenses, net is primarily due to an increase in fees for professional and consulting services and share-based compensation benefits.
See “Consolidated Results of Operations” below for additional discussion of our results for the three months ended March 31, 2021 compared to the respective prior year period.
Capital
MGIC dividend payments to our holding company
MGIC did not pay a cash and/or investment security dividend to our holding company in the first quarter of 2021, compared to a $390 million dividend in the first quarter of 2020. Future dividend payments from MGIC to the holding company will continue to be determined on a quarterly basis in consultation with the board, and after considering any updated estimates about the length and severity of the economic impacts of the COVID-19 pandemic on our business. We ask the Wisconsin OCI not to object before MGIC pays dividends to the holding company.
Under the PMIERs guidance, any dividend paid by MGIC to our holding company, through June 30, 2021, requires GSE approval.
MGIC Investment Corporation - Q1 2021 | 35

Share repurchase programs
We did not repurchase any shares during the three months ended March 31, 2021 compared to the repurchase of 9.6 million shares of commons stock for the three months ended March 31, 2020. As of March 31, 2021 we had $291 million remaining to repurchase of our common stock through the end of 2021 under a share repurchase program approved by our Board of Directors in January 2020. Repurchases may be made from time to time on the open market, including through 10b5-1 plans, or through privately negotiated transactions. The repurchase programs may be suspended for periods or discontinued at any time, and in light of the uncertainty caused by the COVID-19 pandemic, we had temporarily suspended stock repurchases, although they may resume in the future. As of March 31, 2021, we had approximately 339 million shares of common stock outstanding.
Dividends to shareholders
In March 2021, we paid a dividend of $0.06 per common share totaling $21 million to our shareholders. On April 29, 2021, our Board of Directors declared a quarterly cash dividend of $0.06 per common share to shareholders of record on May 13, 2021, payable on May 27, 2021.
GSEs
We must comply with a GSE’s PMIERS to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transactional approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s "Available Assets" (generally only the most liquid assets of an insurer) to equal or exceed its "Minimum Required Assets" (which are based on an insurer's book of risk in force, calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor amount). Based on our application of the more restrictive PMIERs as of March 31, 2021, MGIC’s Available Assets totaled $5.5 billion, or $2.3 billion in excess of its Minimum Required Assets.
The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. For delinquent loans whose initial missed payment occurred on or after March 1, 2020 and prior to April 1, 2021 (the "COVID-19 Crisis Period"), the Minimum Required Assets are generally reduced by 70% for at least three months. The 70% reduction will continue, or be newly applied, for delinquent loans that are subject to a forbearance plan that is granted in response to a financial hardship related to COVID-19, the terms of which are materially consistent with terms of forbearance plans offered by Freddie Mac or Fannie Mae. Under the PMIERs, a forbearance plan on a loan with an initial missed payment occurring during the COVID-19 Crisis Period is assumed to have been granted in response to a financial hardship related to COVID-19. Loans considered to be subject to a forbearance plan include those that are in a repayment plan or loan modification trial period following the forbearance plan.
Forbearance for federally-insured mortgages allows for mortgage payments to be suspended for up to 18 month: an initial forbearance period of up to six months; if requested by the borrower following contact by the servicers, an extension of up to six months; and, for loans in a COVID-19 forbearance plan as of February 28, 2021, an additional six months, subject to certain limits. The servicer of the loan must begin attempts to contact the borrower no later than 30 days prior to the expiration of any forbearance plan term and must continue outreach attempts until appropriate contact is made or the forbearance plan term has expired.
If a servicer of a loan is unable to contact the borrower prior to the expiration of the first 180-day forbearance plan term, or if the forbearance plan reaches its twelve-month anniversary and is not further extended, the forbearance plan will generally expire. In such case, if the loan remains delinquent, the 70% reduction in Minimum Required Assets for that loan will no longer be applicable, our Minimum Required Assets will increase and our excess of Available Assets over Minimum Required Assets will decrease.
If MGIC ceases to be eligible to insure loans purchased by one or both of the GSEs, it would significantly reduce the volume of our NIW, the substantial majority of which is for loans delivered to or purchased by the GSEs. In addition to the increase in Minimum Required Assets associated with delinquent loans, factors that may negatively impact MGIC’s ability to continue to comply with the financial requirements of the PMIERs include the following:

è | The GSEs may make the PMIERs more onerous in the future. The PMIERs provide that the factors that determine Minimum Required Assets will be updated periodically, or as needed if there is a significant change in macroeconomic conditions or loan performance. We do not anticipate that the regular periodic updates will occur more frequently than once every two years. The PMIERs state that the GSEs will provide notice 180 days prior to the effective date of updates to the factors; however, the GSEs may amend any portion of the PMIERs at any time, including by imposing restrictions specific to our company..
è | There may be future implications for PMIERs as a result of changes to regulatory capital requirements for the GSEs. In November 2020, the FHFA adopted a rule containing a risk-based capital framework for the GSEs that will increase their capital requirements, effective on the later of (i) the date of termination of the FHFA’s conservatorship of the applicable GSE; (ii) sixty days after publication of the adopted rule in the Federal Register; or (iii) any later compliance date provided in a consent order or other transition order applicable to a GSE. The increase in capital requirements may ultimately result in an increase in the Minimum Required Assets required to be held by mortgage insurers
è | Our future operating results may be negatively impacted by the matters discussed in our risk factors. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby creating a shortfall in Available Assets.

MGIC Investment Corporation - Q1 2021 | 36

Our reinsurance transactions enable us to earn higher returns on our business than we would without them because they reduce the Minimum Required Assets we must hold under PMIERs. However, reinsurance may not always be available to us; or available on similar terms, and our quota share reinsurance subjects us to counterparty credit risk. The calculated credit for excess of loss reinsurance transactions under PMIERs is generally based on the PMIERs requirement of the covered loans and the attachment and detachment point of the coverage. PMIERs credit is generally not given for the reinsured risk above the PMIERs requirement. The total credit under the PMIERS for risk ceded under our reinsurance transactions is subject to a modest reduction. Our existing reinsurance transactions are subject to periodic review by the GSEs and there is a risk we will not receive our current level of credit in future periods for the risk ceded under them. In addition, we may not receive the same level of credit under future transactions that we receive under existing transactions.
State Regulations
The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to its RIF (or a similar measure) in order for the mortgage insurer to continue to write new business. We refer to these requirements as the “State Capital Requirements.” While they vary among jurisdictions, the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1. A risk-to-capital ratio will increase if (i) the percentage decrease in capital exceeds the percentage decrease in insured risk, or (ii) the percentage increase in capital is less than the percentage increase in insured risk. Wisconsin does not regulate capital by using a risk-to-capital measure but instead requires an MPP. The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve, and a portion of the reserve for unearned premiums
At March 31, 2021, MGIC’s risk-to-capital ratio was 8.8 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.4 billion above the required MPP of $1.7 billion. The calculation of our risk-to-capital ratio and MPP reflect credit for the risk ceded under our reinsurance transactions. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded to the reinsurers. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the PMIERs, MGIC may terminate the reinsurance transactions, without penalty. While we expect MGIC to continue to comply with the current State Capital Requirements, refer to our risk factor titled “State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis” for more information about matters that could negatively affect such compliance.
At March 31, 2021, the risk-to-capital ratio of our combined insurance operations was 8.8 to 1.
The NAIC has previously announced plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model Act. In December 2019, a working group of state regulators released an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for
mortgage insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements and certain items have not yet been completely addressed by the framework, including the treatment of ceded risk and minimum capital floors. Currently we believe that the PMIERs contain more restrictive capital requirements than the draft Mortgage Guaranty Insurance Model Act in most circumstances.
GSE reform
The FHFA has been the conservator of the GSEs since 2008 and has the authority to control and direct their operations. The increased role that the federal government has assumed in the residential housing finance system through the GSE conservatorship may increase the likelihood that the business practices of the GSEs change, including through administrative action, in ways that have a material adverse effect on us and that the charters of the GSEs are changed by new federal legislation.
In 2019, the U.S. Treasury Department (“Treasury”) released the “Treasury Housing Reform Plan” (the “Plan”). The Plan recommends administrative and legislative reforms for the housing finance system, with such reforms intended to achieve the goals of ending conservatorships of the GSEs; increasing competition and participation by the private sector in the mortgage market including by authorizing the FHFA to approve additional guarantors of conventional mortgages in the secondary market, simplifying the qualified mortgage (“QM”) rule of the Consumer Financial Protection Bureau (“CFPB”), transferring risk to the private sector, and eliminating the GSE Patch (discussed below); establishing regulation of the GSEs that safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the United States; and providing that the federal government is properly compensated for any explicit or implicit support it provides to the GSEs or the secondary housing finance market.
The GSE capital framework adopted in November 2020 establishes a post-conservatorship regulatory capital framework intended to ensure that the GSEs operate in a safe and sound manner. In January 2021, the GSEs' Preferred Stock Purchase Agreements ("PSPAs") were amended to allow the GSEs to continue to retain earnings until they satisfy the requirements of the 2020 GSE capital framework. In addition, a proposed rule issued by the FHFA in December 2020 would require minimum funding requirements and new liquidity standards.
The impact of the Plan on private mortgage insurance is unclear. The plan does not refer to mortgage insurance explicitly; however, it refers to a requirement for credit enhancement on high LTV ratio loans, which is a requirement of the current GSE charters. The Plan also indicates that the FHFA should continue to support efforts to expand credit risk transfer (“CRT”) programs and should encourage the GSEs to continue to engage in a diverse mix of economically sensible CRT programs, including by increasing reliance on institution-level capital (presumably, as distinguished from capital obtained in the capital markets). For more information about CRT programs, see our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."
In late 2020, the CFPB adopted a rule that would have eliminated the GSE Patch effective upon the earlier of the
MGIC Investment Corporation - Q1 2021 | 37

GSEs’ exit from conservatorship or July 1, 2021. In addition, a new QM definition would have become effective March 1, 2021. Although the CFPB has proposed to delay the elimination of the GSE Patch and the effectiveness of the new QM definition until October 1, 2022, the GSEs have announced that loans with applications received on or after July 1, 2021 cannot be GSE Patch loans and must conform to the new QM definition. The GSE Patch had expanded the definition of QM under the Truth in Lending Act (Regulation Z) ("TILA") to include mortgages eligible to be purchased by the GSEs, even if the mortgages do not meet the debt-to-income ("DTI") ratio limit of 43% that is included in the standard QM definition. Originating a QM may provide a lender with legal protection from lawsuits that claim the lender failed to verify a borrower’s ability to repay. The new QM definition continues to require lenders to consider a borrower's DTI ratio; however, it replaces the DTI ratio cap with a pricing threshold that would exclude from the definition of QM a loan whose annual percentage rate (“APR”) exceeds the average prime offer rate for comparable loans by 2.25 percentage points or more.
Treasury’s Plan indicated that the FHFA and HUD should develop and implement a specific understanding as to the appropriate roles and overlap between the GSEs and FHA, including with respect to the GSEs’ acquisitions of high LTV ratio and high DTI ratio loans. In connection with the 2021 amendment to the PSPAs, the GSEs must limit the acquisition of certain loans with multiple higher risk characteristics related to LTV, DTI and credit score, to levels indicated to be their current levels at the time of the amendment.
For additional information about the business practices of the GSEs, see our risk factor titled “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.”
COVID-19 Pandemic
The increased level of unemployment and economic uncertainty resulting from the COVID-19 pandemic, initiatives to reduce the transmission of COVID-19 (including "shelter-in-place" restrictions), as well as COVID-19‑related illnesses and deaths, had a material impact on our 2020 financial results, as we reserved for losses associated with the increased delinquency notices received. While uncertain, the future impact of the COVID-19 pandemic on the Company’s business, financial results, liquidity and/or financial condition may also be material. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in the United States, the length of time that measures intended to reduce the transmission of COVID-19 remain in place, the level of unemployment, and the impact of past and future government initiatives and actions taken by the GSEs (including mortgage forbearance and modification programs) to mitigate the economic harm caused by the COVID-19 pandemic and efforts to reduce its transmission.
Current mitigation programs include, among others:
•Payment forbearance on federally-backed mortgages (including those delivered to or purchased by the GSEs) to borrowers experiencing a hardship during the COVID-19 pandemic.
•Additional cash payments to individuals provided for in the American Rescue Plan signed into law in March 2021.
•For those mortgages that are not subject to forbearance, a suspension of foreclosures and evictions until at least
June 30, 2021, on mortgages purchased or securitized by the GSEs.
•Enhanced unemployment payments through September 6, 2021.
•An extension of the maximum duration for unemployment benefits, generally through September 6, 2021.
As noted above, the servicer of the loan must begin attempts to contact the borrower no later than 30 days prior to the expiration of any forbearance plan term and must continue outreach attempts until appropriate contact is made or the forbearance plan term has expired. In certain circumstances, the servicer may be unable to contact the borrower and the forbearance plan will expire after the first six months. A delinquent mortgage for which the borrower was unable to be contacted and that is not in a forbearance plan may be more likely to result in a claim than a delinquent loan in a forbearance plan. The substantial majority of our NIW was delivered to or purchased by the GSEs. While servicers of some non-GSE loans may not be required to offer forbearance to borrowers, we allow servicers to apply GSE loss mitigation programs to non-GSE loans. In addition, the CFPB requires substantial loss mitigation efforts be made prior to servicers initiating foreclosure, therefore, servicers of non-GSE loans may have an incentive to offer forbearance or deferment.
Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. As of March 31, 2021 61% of our delinquency inventory was reported to us as in forbearance plans. Whether a loan's delinquency will cure, including through modification, when its forbearance plan ends will depend on the economic circumstances of the borrower at that time. The severity of losses associated with loans whose delinquencies do not cure will depend on economic conditions at that time, including home prices.
The GSEs have introduced specific loss mitigation options for borrowers impacted by COVID-19 when their forbearance plans end, including the COVID-19 Payment Deferral solution for borrowers who are unable to immediately or gradually repay their missed loan payments. Under the COVID-19 Payment Deferral solution, the borrower's monthly loan payment would be returned to its pre-COVID amount and the missed payments would be added to the end of the mortgage term without accruing any additional interest or late fees. The deferred payments would be due when the loan is paid off, refinanced or the home is sold.
The foreclosure moratoriums and forbearance plans in place under the GSE initiatives have delayed, and may continue to delay, the receipt and payment of claims.
Factors affecting our results
As noted above, the COVID-19 pandemic may adversely affect our future business, results of operations, and financial condition. The extent of the adverse effects will depend on the duration and continued severity of the COVID-19 pandemic and its effects on the U.S. economy and housing market. We have addressed some of the potential impacts throughout this document.
MGIC Investment Corporation - Q1 2021 | 38

Our results of operations are generally affected by:
Premiums written and earned
Premiums written and earned in a year are influenced by:
•NIW, which increases IIF. Many factors affect NIW, including the volume of low down payment home mortgage originations and competition to provide credit enhancement on those mortgages from the FHA, the VA, other mortgage insurers, and other alternatives to mortgage insurance, including GSE programs that may reduce or eliminate the demand for mortgage insurance. NIW does not include loans previously insured by us that are modified, such as loans modified under HARP.
•Cancellations, which reduce IIF. Cancellations due to refinancings are affected by the level of current mortgage interest rates compared to the mortgage coupon rates throughout the in force book, current home values compared to values when the loans in the in force book were insured and the terms on which mortgage credit is available. Home price appreciation can give homeowners the right to cancel mortgage insurance on their loans if sufficient home equity is achieved. Cancellations also result from policy rescissions, which require us to return any premiums received on the rescinded policies and claim payments, which require us to return any premium received on the related policies from the date of default on the insured loans. Cancellations of single premium policies, which are generally non-refundable, result in immediate recognition of any remaining unearned premium.
•Premium rates, which are affected by competitive pressures, the risk characteristics of the insured loans, the percentage of coverage on the insured loans, PMIERs capital requirements, and product type. The substantial majority of our monthly and annual mortgage insurance premiums are under premium plans for which, for the first ten years of the policy, the amount of premium is determined by multiplying the initial premium rate by the original loan balance; thereafter, the premium rate resets to a lower rate used for the remaining life of the policy. However, for loans that have utilized HARP, the initial ten-year period resets as of the date of the HARP transaction. The remainder of our monthly and annual premiums are under premium plans for which premiums are determined by a fixed percentage of the loan’s amortizing balance over the life of the policy.
•Premiums ceded, net of a profit commission, under our QSR Transactions and premiums ceded under our Home Re Transactions. The profit commission varies inversely with the level of ceded losses on a “dollar for dollar” basis and can be eliminated at ceded loss levels higher than what we currently are experiencing. Profit commission is higher when there is less benefit from ceded losses incurred and lower when there is more benefit from ceded losses incurred. For certain levels of accident year loss ratios, the profit commission is eliminated). See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance transactions.
Premiums are generated by the insurance that is in force during all or a portion of the period. A change in the average IIF in the current period compared to an earlier period is a
factor that will increase (when the average in force is higher) or reduce (when it is lower) premiums written and earned in the current period, although this effect may be enhanced (or mitigated) by differences in the average premium rate between the two periods as well as by premiums that are returned or expected to be returned in connection with claim payments and rescissions, and premiums ceded under reinsurance agreements. Also, NIW and cancellations during a period will generally have a greater effect on premiums written and earned in subsequent periods than in the period in which these events occur.
Investment income
Our investment portfolio is composed principally of investment grade fixed income securities. The principal factors that influence investment income are the size of the portfolio and its yield. As measured by amortized cost (which excludes changes in fair value, such as from changes in interest rates), the size of the investment portfolio is mainly a function of cash generated from (or used in) operations, such as NPW, investment income, net claim payments and expenses, and cash provided by (or used for) non-operating activities, such as debt, stock issuances or repurchases, and dividends.
Losses incurred
Losses incurred are the current expense that reflects claim payments, costs of settling claims, and estimated payments that will ultimately be made as a result of delinquencies on insured loans. As explained under “Critical Accounting Policies” in our 2020 10-K MD&A, except in the case of a premium deficiency reserve, we recognize an estimate of this expense only for delinquent loans. The level of new delinquencies has historically followed a seasonal pattern, with new delinquencies in the first part of the year lower than new delinquencies in the latter part of the year, though this pattern can be affected by the state of the economy and local housing markets. Pandemics, including COVID-19, and other natural disasters may result in delinquencies not following the typical pattern. Losses incurred are generally affected by:
•The state of the economy, including unemployment and housing values, each of which affects the likelihood that loans will become delinquent and whether loans that are delinquent cure their delinquency.
•The product mix of the in force book, with loans having higher risk characteristics generally resulting in higher delinquencies and claims.
•The size of loans insured, with higher average loan amounts tending to increase losses incurred.
•The percentage of coverage on insured loans, with deeper average coverage tending to increase losses incurred.
•The rate at which we rescind policies or curtail claims. Our estimated loss reserves incorporate our estimates of future rescissions of policies and curtailments of claims, and reversals of rescissions and curtailments. We collectively refer to rescissions and denials as “rescissions” and variations of this term. We call reductions to claims “curtailments.”
•The distribution of claims over the life of a book. Historically, the first few years after loans are originated
MGIC Investment Corporation - Q1 2021 | 39

are a period of relatively low claims, with claims increasing substantially for several years subsequent and then declining, although persistency, the condition of the economy, including unemployment and housing prices, and other factors can affect this pattern. For example, a weak economy or housing value declines can lead to claims from older books increasing, continuing at stable levels or experiencing a lower rate of decline. See further information under “Mortgage insurance earnings and cash flow cycle” below.
•Losses ceded under reinsurance transactions. See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance transactions.
Underwriting and other expenses
Underwriting and other expenses includes items such as employee compensation, fees for professional and consulting services, depreciation and maintenance expense, and premium taxes, and are reported net of ceding commissions associated with our QSR transactions. Employee compensation expenses are variable due to share-based compensation, changes in benefits, and headcount (which can fluctuate due to volume). See Note 4 - “Reinsurance” to our consolidated financial statements for a discussion of the ceding commission on our reinsurance transactions.
Interest expense
Interest expense primarily reflects the interest associated with our outstanding debt obligations discussed in Note 3 - “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” below.
Other
Certain activities that we do not consider part of our fundamental operating activities may also impact our results of operations and include the following.
Net realized investment gains (losses)
•Fixed income securities. Realized investment gains and losses are a function of the difference between the amount received on the sale of a fixed income security and the fixed income security’s cost basis, as well as any credit allowances recognized in earnings. The amount received on the sale of fixed income securities is affected by the coupon rate of the security compared to the yield of comparable securities at the time of sale.
•Equity securities. Realized investment gains and losses are a function of the periodic change in fair value.
Loss on debt extinguishment
Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt. Extinguishing our outstanding debt obligations early through these discretionary activities may result in losses primarily driven by the payment of consideration in excess of our carrying value or their fair value, and the write off of unamortized debt issuance costs on the extinguished portion of the debt.
Refer to “Explanation and reconciliation of our use of Non-GAAP financial measures” below to understand how these items impact our evaluation of our core financial performance.
Mortgage insurance earnings and cash flow cycle
In general, the majority of any underwriting profit that a book generates occurs in the early years of the book, with the largest portion of any underwriting profit realized in the first year following the year the book was written. Subsequent years of a book may result in either underwriting profit or underwriting losses. This pattern of results typically occurs because relatively few of the incurred losses on delinquencies that a book will ultimately experience typically occur in the first few years of the book, when premium revenue is highest, while subsequent years are affected by declining premium revenues, as the number of insured loans decreases (primarily due to loan prepayments) and increasing losses. The typical pattern is also a function of premium rates generally resetting to lower levels after ten years. Changes in economic conditions, including those related to pandemics, including COVID-19, and other natural disasters may result in delinquencies not following the typical pattern.
MGIC Investment Corporation - Q1 2021 | 40

Explanation and reconciliation of our use of non-GAAP financial measures
Non-GAAP financial measures
We believe that use of the Non-GAAP measures of adjusted pre-tax operating income (loss), adjusted net operating income (loss) and adjusted net operating income (loss) per diluted share facilitate the evaluation of the company's core financial performance thereby providing relevant information to investors. These measures are not recognized in accordance with GAAP and should not be viewed as alternatives to GAAP measures of performance.
Adjusted pre-tax operating income (loss) is defined as GAAP income (loss) before tax, excluding the effects of net realized investment gains (losses), gain (loss) on debt extinguishment, net impairment losses recognized in income (loss) and infrequent or unusual non-operating items where applicable.
Adjusted net operating income (loss) is defined as GAAP net income (loss) excluding the after-tax effects of net realized investment gains (losses), gain (loss) on debt extinguishment, net impairment losses recognized in income (loss), and infrequent or unusual non-operating items where applicable. The amounts of adjustments to components of pre-tax operating income (loss) are tax effected using a federal statutory tax rate of 21%.
Adjusted net operating income (loss) per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net operating income (loss) after making adjustments for interest expense on convertible debt, whenever the impact is dilutive by (ii) diluted weighted average common shares outstanding, which reflects share dilution from unvested restricted stock units and from convertible debt when dilutive under the “if-converted” method.
Although adjusted pre-tax operating income (loss) and adjusted net operating income (loss) exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items represent items that are: (1) not viewed as part of the operating performance of our primary activities; or (2) impacted by both discretionary and other economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, along with the reasons for their treatment, are described below. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these adjustments. Other companies may calculate these measures differently. Therefore, their measures may not be comparable to those used by us.
(1)Net realized investment gains (losses). The recognition of net realized investment gains or losses can vary significantly across periods as the timing of individual securities sales is highly discretionary and is influenced by such factors as market opportunities, our tax and capital profile, and overall market cycles.
(2)Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary
activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt.
(3)Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles, individual issuer performance, and general economic conditions.
(4)Infrequent or unusual non-operating items. Items that are non-recurring in nature and are not part of our primary operating activities.
MGIC Investment Corporation - Q1 2021 | 41

Non-GAAP reconciliations
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income
|  | Three Months Ended March 31,
|  | 2021 |  | 2020
(In thousands, except per share amounts) |  | Pre-tax |  | Tax effect |  | Net (after-tax) |  | Pre-tax |  | Tax effect |  | Net (after-tax)
Income before tax / Net income |  | $ | 189,617 |  |  | $ | 39,596 |  |  | $ | 150,021 |  |  | $ | 188,239 |  |  | $ | 38,434 |  |  | $ | 149,805 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |
Net realized investment (gains) losses |  | (2,622) |  |  | (551) |  |  | (2,071) |  |  | (2,875) |  |  | (604) |  |  | (2,271) |
Adjusted pre-tax operating income / Adjusted net operating income |  | $ | 186,995 |  |  | $ | 39,045 |  |  | $ | 147,950 |  |  | $ | 185,364 |  |  | $ | 37,830 |  |  | $ | 147,534 |
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share
Weighted average diluted shares outstanding |  |  |  |  |  | 356,383 |  |  |  |  |  |  | 365,216 |
Net income per diluted share |  |  |  |  |  | $ | 0.43 |  |  |  |  |  |  | $ | 0.42 |
Net realized investment (gains) losses |  |  |  |  |  | (0.01) |  |  |  |  |  |  | — |
Adjusted net operating income per diluted share |  |  |  |  |  | $ | 0.42 |  |  |  |  |  |  | $ | 0.42 |

MGIC Investment Corporation - Q1 2021 | 42

Mortgage Insurance Portfolio
New insurance written
The total amount of mortgage originations is generally influenced by the level of new and existing home sales, the percentage of homes purchased for cash, and the level of refinance activity. PMI market share of total mortgage originations is influenced by the mix of purchase and refinance originations. PMI market share is also impacted by the market share of total originations of the FHA, VA, USDA, and other alternatives to mortgage insurance, including GSE programs that may reduce or eliminate the demand for mortgage insurance.
NIW for the first quarter of 2021 was $30.8 billion (Q1 2020: $17.9 billion) The increase for the three months ended March 31, 2021, compared to the prior periods, was primarily driven by the increase in the mortgage origination market.
The following tables present characteristics of our primary NIW for the three months ended March 31, 2021 and 2020.

Primary NIW by FICO score |  |  |  |
|  | Three Months Ended March 31, |  |
(% of primary NIW) |  | 2021 |  | 2020 |  |  |  |
760 and greater |  | 46.6 | % |  | 45.8 | % |  |  |  |
740 - 759 |  | 17.2 | % |  | 19.9 | % |  |  |  |
720 - 739 |  | 13.5 | % |  | 13.9 | % |  |  |  |
700 - 719 |  | 11.5 | % |  | 10.4 | % |  |  |  |
680 - 699 |  | 7.3 | % |  | 7.0 | % |  |  |  |
660 - 679 |  | 2.1 | % |  | 1.7 | % |  |  |  |
640 - 659 |  | 1.3 | % |  | 0.9 | % |  |  |  |
639 and less |  | 0.5 | % |  | 0.4 | % |  |  |  |

Primary NIW by loan-to-value |  |  |  |
|  | Three Months Ended March 31, |  |
(% of primary NIW) |  | 2021 |  | 2020 |  |  |  |
95.01% and above |  | 7.9 | % |  | 8.4 | % |  |  |  |
90.01% to 95.00% |  | 35.6 | % |  | 43.0 | % |  |  |  |
85.01% to 90.00% |  | 32.8 | % |  | 30.7 | % |  |  |  |
80.01% to 85% |  | 23.7 | % |  | 17.9 | % |  |  |  |

Primary NIW by debt-to-income ratio |  |  |  |
|  |  | Three Months Ended March 31, |  |
(% of primary NIW) |  | 2021 |  | 2020 |  |  |  |
45.01% and above |  | 11.9 | % |  | 12.8 | % |  |  |  |
38.01% to 45.00% |  | 29.3 | % |  | 32.5 | % |  |  |  |
38.00% and below |  | 58.8 | % |  | 54.7 | % |  |  |  |

Primary NIW by policy payment type |  |  |  |
|  | Three Months Ended March 31, |  |
(% of primary NIW) |  | 2021 |  | 2020 |  |  |  |
Monthly premiums |  | 90.6 | % |  | 85.1 | % |  |  |  |
Single premiums |  | 9.3 | % |  | 14.8 | % |  |  |  |
Annual premiums |  | 0.1 | % |  | 0.1 | % |  |  |  |

Primary NIW by type of mortgage |  |  |  |
|  | Three Months Ended March 31, |  |
(% of primary NIW) |  | 2021 |  | 2020 |  |  |  |
Purchases |  | 59.7 | % |  | 65.3 | % |  |  |  |
Refinances |  | 40.3 | % |  | 34.7 | % |  |  |  |

Insurance and risk in force
The amount of our IIF and RIF is impacted by the amount of NIW and cancellations of primary IIF during the period. Cancellation activity is primarily due to refinancing activity, but is also impacted by rescissions, cancellations due to claim payment, and policies cancelled when borrowers achieve the required amount of home equity. Refinancing activity has historically been affected by the level of mortgage interest rates and the level of home price appreciation. Cancellations generally move inversely to the change in the direction of interest rates, although they generally lag a change in direction.
Persistency. Our persistency was 56.2% at March 31, 2021 compared to 60.5% at December 31, 2020 and 73.0% at March 31, 2020. Since 2000, our year-end persistency ranged from a high of 84.7% at December 31, 2009 to a low of 47.1% at December 31, 2003.

IIF and RIF |  |  |  |
|  | Three Months Ended March 31, |  |
(In billions) |  | 2021 |  | 2020 |  |  |  |
NIW |  | $ | 30.8 |  |  | $ | 17.9 |  |  |  |  |
Cancellations |  | (25.7) |  |  | (14.7) |  |  |  |  |
Increase in primary IIF |  | $ | 5.1 |  |  | $ | 3.2 |  |  |  |  |
Direct primary IIF as of March 31, |  | $ | 251.7 |  |  | $ | 225.5 |  |  |  |  |
Direct primary RIF as of March 31, |  | $ | 62.6 |  |  | $ | 57.9 |  |  |  |  |

MGIC Investment Corporation - Q1 2021 | 43

Credit profile of our primary RIF
The proportion of our total primary RIF written after 2008 has been steadily increasing in proportion to our total primary RIF. Our 2009 and later books possess significantly improved risk characteristics when compared to our 2005-2008 books. The credit profile of our pre-2009 RIF has benefited from modification and refinance programs making outstanding loans more affordable to borrowers with the goal of reducing the number of foreclosures. These programs included HAMP and HARP, which expired at the end of 2016 and 2018, respectively, but have been replaced by other GSE modification programs. HARP allowed borrowers who were not delinquent, but who may not otherwise have been able to refinance their loans under the current GSE underwriting standards due to, for example, the current LTV exceeding 100%, to refinance and lower their note rate. As of March 31, 2021, our modifications accounted for 7.3% of our total RIF, compared to 7.8% at December 31, 2020. Loans associated with 85.2% of all our modifications were current as of March 31, 2021.
The following table sets forth certain statistics associated with our primary IIF and RIF as of March 31, 2021, by year(s) of policy origination since 1985.

Primary insurance in force and risk in force by policy year
(in millions) | Insurance in Force |  | Risk In Force |  | Weighted Avg. Interest Rate |  | Delinquency Rate |  | Cede Rate % |  | % of Original Remaining
Policy Year | Total | % of Total |  | Total | % of Total |  |  |  |
2004 and prior | $ | 2,162 |  | 0.9 | % |  | $ | 602 |  | 1.0 | % |  | 7.2 | % |  | 13.9 | % |  | 0.6 | % |  | N.M.
2005-2008 | 17,848 |  | 7.1 | % |  | 4,735 |  | 7.5 | % |  | 6.9 | % |  | 13.3 | % |  | 4.1 | % |  | 7.3 | %
2009-2015 | 17,525 |  | 7.0 | % |  | 4,781 |  | 7.6 | % |  | 4.2 | % |  | 5.8 | % |  | 14.3 | % |  | 9.9 | %
2016 | 14,735 |  | 5.8 | % |  | 3,918 |  | 6.3 | % |  | 3.9 | % |  | 5.2 | % |  | 14.1 | % |  | 30.7 | %
2017 | 17,142 |  | 6.8 | % |  | 4,391 |  | 7.0 | % |  | 4.2 | % |  | 6.5 | % |  | 26.1 | % |  | 34.8 | %
2018 | 17,727 |  | 7.0 | % |  | 4,491 |  | 7.2 | % |  | 4.7 | % |  | 7.3 | % |  | 24.8 | % |  | 35.4 | %
2019 | 36,131 |  | 14.4 | % |  | 9,112 |  | 14.5 | % |  | 4.1 | % |  | 4.5 | % |  | 27.0 | % |  | 55.5 | %
2020 | 103,014 |  | 40.9 | % |  | 24,664 |  | 39.4 | % |  | 3.2 | % |  | 1.0 | % |  | 27.6 | % |  | 90.3 | %
2021 | 25,434 |  | 10.1 | % |  | 5,949 |  | 9.5 | % |  | 2.8 | % |  | — | % |  | 27.3 | % |  | 99.7 | %
Total | $ | 251,719 |  | 100.0 | % |  | $ | 62,642 |  | 100.0 | % |  |  |  |  |  |  |  |

Pool and other insurance
MGIC has written no new pool insurance since 2008; however, for a variety of reasons, including responding to capital market alternatives to PMI and customer demands, MGIC may write pool risk in the future. Our direct pool risk in force was $331 million ($209 million on pool policies with aggregate loss limits and $122 million on pool policies without aggregate loss limits) at March 31, 2021 compared to $340 million ($210 million on pool policies with aggregate loss limits and $130 million on pool policies without aggregate loss limits) at December 31, 2020. If claim payments associated with a specific pool reach the aggregate loss limit, the remaining IIF within the pool would be cancelled and any remaining delinquencies under the pool would be removed from our delinquent inventory.
In connection with the GSEs' CRT programs, an insurance subsidiary of MGIC provides insurance and reinsurance covering portions of the credit risk related to certain reference pools of mortgages acquired by the GSEs. Our RIF, as reported to us, related to these programs was approximately $321 million and $287 million as of March 31, 2021 and December 31, 2020, respectively.
MGIC Investment Corporation - Q1 2021 | 44

Consolidated Results of Operations
The following section of the MD&A provides a comparative discussion of MGIC Investment Corporation’s Consolidated Results of Operations for the three months ended March 31, 2021 and 2020.
Revenues

Revenues |  |  |  |  |  |
|  | Three Months Ended March 31, |  |
(in millions) |  | 2021 |  | 2020 |  | % Change |  |  |  |  |  |
Net premiums written |  | $ | 241.5 |  |  | $ | 246.0 |  |  | (2) |  |  |  |  |  |  |
Net premiums earned |  | $ | 255.0 |  |  | $ | 260.9 |  |  | (2) |  |  |  |  |  |  |
Investment income, net of expenses |  | 37.9 |  |  | 41.3 |  |  | (8) |  |  |  |  |  |  |
Net realized investment gains |  | 2.2 |  |  | 1.9 |  |  | N/M |  |  |  |  |  |
Other revenue |  | 2.8 |  |  | 2.8 |  |  | — |  |  |  |  |  |  |
Total revenues |  | $ | 298.0 |  |  | $ | 306.9 |  |  | (3) |  |  |  |  |  |  |

Net premiums written and earned
Comparative quarterly results
NPW and NPE decreased for the three months ended March 31, 2021 compared with the prior year. The decrease in net premium written was due to an increase in ceded premiums written and lower average premium rates on our insurance in force. This was partially offset by higher average insurance in force. Net premiums earned was also impacted by an increase in accelerated premiums earned from single premium policy cancellations
See “Overview - Factors Affecting Our Results” above for additional factors that influenced the amount of net premiums written and earned during the periods.
Premium yields
Net premium yield is NPE divided by average IIF during the period and is influenced by a number of key drivers. The following table presents the key drivers of our net premium yield for the three months ended March 31, 2021 and from the respective prior year period.

Premium Yield |  |  |
|  | Three Months Ended March 31, |  |
(in basis points) |  | 2021 | 2020 |  |  |
In force portfolio yield | (1) |  | 43.9 |  | 49.2 |  |  |  |
Premium refunds |  | (0.8) |  | (0.7) |  |  |  |
Accelerated earnings on single premium policies |  | 4.4 |  | 3.3 |  |  |  |
Total direct premium yield |  | 47.5 |  | 51.8 |  |  |  |
Ceded premiums earned, net of profit commission and assumed premiums | (2) |  | (6.6) |  | (5.2) |  |  |  |
Net premium yield |  | 40.9 |  | 46.6 |  |  |  |

(1) Total direct premiums earned, excluding premium refunds and accelerated premiums from single premium policy cancellations divided by average primary insurance in force.
(2) Assumed premiums include those from our participation in GSE CRT programs, of which the impact on the net premium yield was 0.4 bps in the first quarter of 2021 compared to 0.5 bps in the first quarter of 2020.
Changes in our premium yields when compared to the respective prior year periods reflect the following:

In force Portfolio Yield
è | A larger percentage of our IIF from book years with lower premium rates due to a decline in premium rates in recent years resulting from pricing competition, insuring mortgages with lower risk characteristics, lower required capital, certain policies undergoing premium rate resets on their ten-year anniversaries, and the availability of reinsurance.
Premium Refunds
è | Premium refunds adversely impact our premium yield and are primarily driven by claim activity and our estimate of refundable premiums on our delinquency inventory.
Accelerated earnings on single premium policies
è | Greater amounts of accelerated earned premium from cancellation of single premium policies prior to their estimated policy life, primarily due to increased refinancing activity.
Ceded premiums earned, net of profit commission and assumed premiums
è | Ceded premiums earned, net of profit commission adversely impact our premium yield. Ceded premiums earned, net of profit commission, were primarily associated with the QSR Transactions and the Home Re Transactions. Assumed premiums consists primarily of premiums from GSE CRT programs. See “Reinsurance agreements “ below for further discussion on our reinsurance transactions and the increase in our ceded premium earned.

MGIC Investment Corporation - Q1 2021 | 45

As discussed in our Risk Factor titled “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses,” the private mortgage insurance industry is highly competitive and premium rates have declined over the past several years. We expect our net premium yield to continue to decline as older insurance policies with higher premium rates run off and are replaced with new insurance policies which generally have lower premium rates.
Reinsurance agreements
Quota share reinsurance
Our quota share reinsurance affects various lines of our statements of operations and therefore we believe it should be analyzed by reviewing its total effect on our pre-tax income, described as follows.

è |  | We cede a fixed percentage of premiums on insurance covered by the agreements.
è |  | We receive the benefit of a profit commission through a reduction in the premiums we cede. The profit commission varies inversely with the level of losses on a “dollar for dollar” basis and can be eliminated at loss levels higher than what we are currently experiencing. As a result, lower levels of ceded losses result in a higher profit commission and less benefit from ceded losses; higher levels of ceded losses result in more benefit from ceded losses and a lower profit commission (or for certain levels of accident year loss ratios, its elimination).
è |  | We receive the benefit of a ceding commission through a reduction in underwriting expenses equal to 20% of premiums ceded (before the effect of the profit commission).
è |  | We cede a fixed percentage of losses incurred on insurance covered by the agreements.

The following table provides information related to our quota share reinsurance agreements for 2021 and 2020.

Quota Share Reinsurance
|  | Three Months Ended March 31, |  |
(Dollars in thousands) |  | 2021 |  | 2020 |  |  |  |
Ceded premiums written and earned, net of profit commission |  | $ | 33,390 |  |  | $ | 26,846 |  |  |  |  |
% of direct premiums written |  | 12 | % |  | 10 | % |  |  |  |
% of direct premiums earned |  | 11 | % |  | 9 | % |  |  |  |
Profit commission |  | $ | 31,944 |  |  | $ | 29,979 |  |  |  |  |
Ceding commissions | $ | 13,067 |  |  | $ | 11,365 |  |  |  |  |
Ceded losses incurred |  | $ | 8,405 |  |  | $ | 5,804 |  |  |  |  |
Mortgage insurance portfolio: |  |
Ceded RIF (in millions) |  | $ | 14,592 |  |  | $ | 11,713 |  |  |  |  |
2015 QSR |  | $ | 1,393 |  |  | $ | 2,460 |  |  |  |  |
2017 QSR | $ | 1,131 |  |  | $ | 2,137 |  |  |  |  |
2018 QSR |  | $ | 1,133 |  |  | $ | 2,194 |  |  |  |  |
2019 QSR | $ | 2,368 |  |  | $ | 3,859 |  |  |  |  |
2020 QSR |  | $ | 5,831 |  |  | $ | 1,063 |  |  |  |  |
2021 QSR |  | $ | 1,738 |  |  | $ | — |  |  |  |  |
Credit Union QSR |  | $ | 998 |  |  | $ | — |  |  |  |  |

Covered risk
The amount of our NIW, new risk written, IIF, and RIF subject to our QSR Transactions as shown in the following table will vary from period to period in part due to the mix of our risk written during the period.

Quota Share Reinsurance
|  | Three Months Ended March 31, |  |
|  | 2021 |  | 2020 |  |  |  |
NIW subject to QSR Transactions |  | 73.7 | % |  | 71.9 | % |  |  |  |
New Risk Written subject to QSR Transactions |  | 85.9 | % |  | 81.6 | % |  |  |  |
IIF subject to QSR Transactions |  | 74.7 | % |  | 78.0 | % |  |  |  |
RIF subject to QSR Transactions |  | 81.6 | % |  | 81.6 | % |  |  |  |

The NIW and new risk written subject to quota share reinsurance increased in the first three months of 2021 when compared to the same period of the prior year primarily due to the Credit Union QSR transaction not being effective until April 1, 2020, offset by an increase in NIW with LTVs less than or equal to 85% which are excluded from the QSR Transactions
As of March 31, 2021, the weighted average coverage percentage of our QSR transactions was 23% based on RIF.
Excess of loss reinsurance
As of March 31, 2021 our excess of loss reinsurance provided $1.2 billion of loss coverage on a portfolio of policies having an in force date from July 1, 2016 through March 31, 2019, and from January 1, 2020 through December 31, 2020; all dates inclusive. As of March 31, 2021, the aggregate exposed principal balances under the Home Re 2018-01, 2019-01, 2020-01 and 2021-01 transactions were approximately $3.0 billion. $2.8 billion, $7.9 billion and $9.2 billion, respectively, which take into account the mortgage insurance coverage percentage, net retained risk after quota share reinsurance, and the reinsurance inclusion percentage of the unpaid principal balance. We ceded premiums of $10.3 million for the three months ended March 31, 2021, and $4.7 million for the three months ended March 31, 2020 .
In February 2021, MGIC entered into $398.8 excess of loss agreement (executed through an insurance linked notes transaction) on a portfolio of policies having in force dates from August 1, 2020 through December 31, 2020.
When a “Trigger Event” is in effect, payment of principal on the related notes will be suspended and the reinsurance coverage available to MGIC under the transactions will not be reduced by such principal payments. As of March 31, 2020 a "Trigger Event" has occurred for each our outstanding ILN transactions. On the 2018 and 2019 ILN transactions a “Trigger Event” has occurred because the reinsured principal balance of loans that were reported 60 or more days delinquent exceeded 4% of the total reinsured principal balance of loans under each transaction. A “Trigger Event” has occurred on our 2020 and 2021 ILN transaction because the credit enhancement of the most senior tranche is less than the target credit enhancement.
MGIC Investment Corporation - Q1 2021 | 46

Investment income
Comparative quarterly results
Net investment income in the three months ended March 31, 2021 was $37.9 million while net investment income in the three months ended March 31, 2020 was $41.3 million. The decrease in net investment income was due to lower investment yields, partially offset by an increase in the investment portfolio.
Losses and expenses

Losses and expenses |  |  |  |
|  | Three Months Ended March 31, |  |
(In millions) |  | 2021 |  | 2020 |  |  |  |
Losses incurred, net |  | $ | 39.6 |  |  | $ | 61.0 |  |  |  |  |
Amortization of deferred policy acquisition costs |  | 2.7 |  |  | 2.5 |  |  |  |  |
Other underwriting and operating expenses, net |  | 48.0 |  |  | 42.3 |  |  |  |  |
Interest expense |  | 18.0 |  |  | 12.9 |  |  |  |  |
Total losses and expenses |  | $ | 108.3 |  |  | $ | 118.7 |  |  |  |  |

Losses incurred, net
As discussed in “Critical Accounting Policies” in our 2020 10-K MD&A, we establish case loss reserves for future claims on delinquent loans that were reported to us as two payments past due and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case loss reserves are established based on estimating the number of loans in our delinquency inventory that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.
IBNR reserves are established for delinquencies estimated to have occurred prior to the close of an accounting period, but not yet reported to us. IBNR reserves are established using estimated claim rates and claim severities.
Estimation of losses is inherently judgmental. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment, and the current and future strength of local housing markets. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment, leading to a reduction in borrower income and thus their ability to make mortgage payments, and a drop in housing values that could result in, among other things, greater losses on loans, and may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. Historically, losses incurred have followed a seasonal trend in which the second half of the year has weaker credit performance than the first half, with higher new notice activity and a lower cure rate. Changes in economic circumstances,
including those associated with COVID-19 pandemic affected this pattern starting in the second quarter of 2020.
As discussed in our Risk Factor titled “The Covid-19 pandemic may continue to materially impact our financial results and may also materially impact our business, liquidity and financial condition" the impact of the COVID-19 pandemic on our future incurred losses is uncertain and may be material. As discussed in our risk factor titled “Because we establish loss reserves only upon a loan delinquency rather than based on estimates of our ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings in certain periods” if we have not received a notice of delinquency with respect to a loan and if we have not estimated the loan to be delinquent as of March 31, 2021 through our IBNR reserve, then we have not yet recorded an incurred loss with respect to that loan.
Our estimates are also affected by any agreements we enter into regarding our claims paying practices. Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment.
Comparative quarterly results
Losses incurred, net in the first quarter of 2021 were $39.6 million compared to $61.0 million in the prior year. In the first quarter of 2021 we reduced our claim rate on new delinquency notices compared to the same period last year when we had increased out claim rate on new notices due to the COVID-19 pandemic and the macroeconomic environment. We also decreased our IBNR reserve $4 million in the first quarter of 2021. The first quarter of 2020 reflected an increase in IBNR estimates of $8 million.

Composition of losses incurred |  |  |  |  |  |
|  | Three Months Ended March 31, |  |
(in millions) |  | 2021 |  | 2020 |  | % Change |  |  |  |  |  |
Current year / New notices | $ | 43.4 |  |  | $ | 59.8 |  |  | (27) |  |  |  |  |  |  |
Prior year reserve development | (3.8) |  |  | 1.2 |  |  | N.M. |  |  |  |  |  |
Losses incurred, net | $ | 39.6 |  |  | $ | 61.0 |  |  | (35) |  |  |  |  |  |  |

Loss ratio
The loss ratio is the ratio, expressed as a percentage, of the sum of incurred losses and loss adjustment expenses to net premiums earned. The decrease in the loss ratio for the three months ended March 31, 2021 compared to the respective prior year periods was primarily due to a decrease in losses incurred discussed above.

|  | Three Months Ended March 31, |  |
|  | 2021 |  | 2020 |  |  |  |
Loss ratio |  | 15.5 | % |  | 23.4 | % |  |  |  |

MGIC Investment Corporation - Q1 2021 | 47

New notice claim rate
New delinquency notices increased 5% from the same period last year, but decreased 14% from the fourth quarter of 2020 as new notice activity returned to pre-COVID-19 pandemic levels.
The new notice claim rate decreased for the three months ended March 31, 2021, compared to three months ended March 31, 2020. The elevated new notice claim rate at March 31, 2020 was primarily due to the uncertainty of the COVID-19 pandemic and the macroeconomic environment.
Many of the loans in our delinquency inventory have entered forbearance plans. Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. Whether a loan's delinquency will cure, including through modification, when its forbearance plan ends will depend on the economic circumstances of the borrower at that time. The severity of losses associated with loans whose delinquencies do not cure will depend on economic conditions at that time, including home prices compared to home prices at the time of placement of coverage. Forbearance information is based on the most recent information provided by the GSEs, as well as loan servicers, and we believe substantially all represent forbearances related to COVID-19. While the forbearance information provided by the GSEs refers to delinquent loans in forbearance as of the prior month-end, the information provided by loan servicers may be more current. As of March 31, 2021 61% of our delinquency inventory were in such plans.

New notices and delinquency inventory during the period
March 31, 2021
Policy Year | New Notices in 2021 | Delinquency Inventory as of 3/31/21 | % of Delinquency Inventory in Forbearance | Avg. Number of Missed Payments of Delinquency Inventory
2004 and prior | 1,133 |  | 3,617 |  | 25.4 | % | 17
2005-2008 | 3,929 |  | 15,892 |  | 37.2 | % | 16
2009-2015 | 1,342 |  | 6,142 |  | 65.3 | % | 10
2016 | 800 |  | 4,026 |  | 74.9 | % | 9
2017 | 1,154 |  | 5,806 |  | 75.4 | % | 9
2018 | 1,341 |  | 6,626 |  | 77.9 | % | 9
2019 | 1,505 |  | 6,954 |  | 82.1 | % | 8
2020 | 1,793 |  | 3,698 |  | 79.2 | % | 6
2021 | 14 |  | 14 |  | — | % | 1
Total | 13,011 |  | 52,775 |  | 60.7 | % | 11
Claim rate on new notices (1) | 7 | % |  |  |
March 31, 2020
Policy Year | New Notices in 2020 | Inventory as of 3/31/20 | Avg. Number of Missed Payments of Delinquency Inventory |
2004 and prior | 1,487 |  | 4,121 |  | 15 |
2005-2008 | 5,630 |  | 14,646 |  | 14 |
2009-2015 | 1,752 |  | 3,285 |  | 7 |
2016 | 834 |  | 1,423 |  | 6 |
2017 | 1,106 |  | 1,824 |  | 5 |
2018 | 1,079 |  | 1,602 |  | 5 |
2019 | 509 |  | 482 |  | 3 |
2020 | 1 |  | 1 |  | 1 |
Total | 12,398 |  | 27,384 |  | 12 |
Claim rate on new notices (1) | 9 | % |  |  |
(1) - Claim rate is the respective full year weighted average rate and is rounded to the nearest whole percent.

MGIC Investment Corporation - Q1 2021 | 48

Claims severity
Factors that impact claim severity include:

è |  | economic conditions at time of claim filing, including home prices compared to home prices at the time of placement of coverage,
è |  | exposure of the loan, which is the unpaid principal balance of the loan times our insurance coverage percentage,
è |  | length of time between delinquency and claim filing (which impacts the amount of interest and expenses, with a longer time between default and claim filing generally increasing severity), and
è |  | curtailments.

As discussed in Note 11 - “Loss Reserves,” the average time for servicers to process foreclosures prior to 2020 has been decreasing. In light of the uncertainty caused by the COVID-19 pandemic, the average number of missed payments at the time a claim is received and expected to be received will increase in 2021. Our loss reserves estimates take into consideration trends over time, because the development of the delinquencies may vary from period to period without establishing a meaningful trend.
The majority of loans from 2005 through 2008 (which represent 30% of the loans in the delinquent inventory) are covered by master policy terms that, except under certain circumstances, do not limit the number of years that an insured can include interest when filing a claim. Under our current master policy terms, an insured can include accumulated interest when filing a claim only for the first three years the loan is delinquent. In each case, the insured must comply with its obligations under the terms of the applicable master policy.

Claims severity trend for claims paid during the period
Period |  | Average exposure on claim paid |  | Average claim paid |  | % Paid to exposure |  | Average number of missed payments at claim received date
Q1 2021 |  | $ | 46,807 |  |  | $ | 36,725 |  |  | 78.5 | % |  | $ | 34 |
Q4 2020 |  | 48,321 |  |  | 40,412 |  |  | 83.6 | % |  | 32 |
Q3 2020 |  | 47,780 |  |  | 40,600 |  |  | 85.0 | % |  | 27 |
Q2 2020 |  | 44,905 |  |  | 42,915 |  |  | 95.6 | % |  | 32 |
Q1 2020 |  | 46,247 |  |  | 47,222 |  |  | 102.1 | % |  | 33 |
Q4 2019 |  | 46,076 |  |  | 46,302 |  |  | 100.5 | % |  | 34 |
Q3 2019 |  | 42,821 |  |  | 44,388 |  |  | 103.7 | % |  | 35 |
Q2 2019 |  | 46,950 |  |  | 46,883 |  |  | 99.9 | % |  | 34 |
Q1 2019 |  | 42,277 |  |  | 43,930 |  |  | 103.9 | % |  | 35 |
Note: Table excludes material settlements. Settlements include amounts paid in settlement disputes for claims paying practices and/or commutations of policies.

The foreclosure moratoriums and forbearance plans in place under GSE initiatives have delayed and may continue to delay the receipt of claims. Claims that were resolved after the first quarter of 2020 experienced an increase in loss mitigation activities, primarily third party acquisitions (sometimes referred to as “short sales”), resulting in a decrease in the average claim paid and the average claim paid as a percentage of exposure. As foreclosure moratoriums and forbearance plans end, we expect to see an increase in claims received and claims paid at exposure levels above those experienced subsequent to the second quarter of 2020. The magnitude and timing of the increases are uncertain.
In considering the potential sensitivity of the factors underlying our estimate of loss reserves, it is possible that even a relatively small change in our estimated claim rate or severity could have a material impact on reserves and, correspondingly, on our consolidated results of operations even in a stable economic environment. For example, as of March 31, 2021, assuming all other factors remain constant, a $1,000 increase/decrease in the average severity reserve factor would change the reserve amount by approximately +/- $16 million. A 1 percentage point increase/decrease in the average claim rate reserve factor would change the reserve amount by approximately +/- $31 million.
See Note 11 – “Loss Reserves” to our consolidated financial statements for a discussion of our losses incurred and claims paying practices (including curtailments).
The length of time a loan is in the delinquency inventory (see Note 11- “Loss Reserves,” table 11.4) can differ from the number of payments that the borrower has not made or is considered delinquent. These differences typically result from a borrower making monthly payments that do not result in the loan becoming fully current. The number of payments that a borrower is delinquent is shown in the following table.
MGIC Investment Corporation - Q1 2021 | 49

Delinquency inventory - number of payments delinquent
|  | March 31, 2021 |  | December 31, 2020 |  | March 31, 2020
3 payments or less |  | 11,440 |  |  | 14,183 |  |  | 12,961 |
4-11 payments |  | 25,016 |  |  | 35,977 |  |  | 8,178 |
12 payments or more (1) |  | 16,319 |  |  | 7,550 |  |  | 6,245 |
Total |  | 52,775 |  |  | 57,710 |  |  | 27,384 |
3 payments or less |  | 22 | % |  | 25 | % |  | 47 | %
4-11 payments |  | 47 | % |  | 62 | % |  | 30 | %
12 payments or more |  | 31 | % |  | 13 | % |  | 23 | %
Total |  | 100 | % |  | 100 | % |  | 100 | %

(1)Approximately 26%, 31%, and 34% of the primary delinquent inventory with 12 payments or more delinquent has at least 36 payments delinquent as of March 31, 2021, December 31, 2020, and March 31, 2020, respectively.
Net losses and LAE paid
Net losses and LAE paid in the three months ended March 31, 2021 declined by $31 million, or 67% compared to the same period in the prior year due to lower claim activity on our primary business due to foreclosure moratoriums and payment forbearance plans in place.
While foreclosure moratoriums and payment forbearance plans remain in place, net losses and LAE paid are expected to continue to be lower. As the various moratorium and forbearance plans end, we expect net losses and LAE paid to increase, however, the magnitude and timing of the increases are uncertain.
The following table presents our net losses and LAE paid for the three months ended March 31, 2021 and 2020.

Net losses and LAE paid
|  | Three Months Ended March 31,
(In millions) |  | 2021 |  | 2020
Total primary (excluding settlements) |  | $ | 12 |  |  | $ | 42 |
Pool |  | — |  |  | 1 |
Direct losses paid |  | 12 |  |  | 43 |
Reinsurance |  | (1) |  |  | (1) |
Net losses paid |  | 11 |  |  | 42 |
LAE |  | 4 |  |  | 4 |
Net losses and LAE paid |  | $ | 15 |  |  | $ | 46 |

Primary claims paid for the top 15 jurisdictions (based on 2021 losses paid) and all other jurisdictions for the three months ended March 31, 2021 and 2020 appears in the following table.

Paid losses by jurisdiction |
|  | Three Months Ended March 31, |
(In millions) |  | 2021 |  | 2020 |
Florida * |  | $ | 2 |  |  | $ | 7 |  |
New York * |  | 2 |  |  | 5 |  |
Illinois * |  | 1 |  |  | 3 |  |
New Jersey * |  | 1 |  |  | 4 |  |
Maryland |  | 1 |  |  | 3 |  |
Pennsylvania * |  | 1 |  |  | 2 |  |
Ohio * |  | 1 |  |  | 1 |  |
Puerto Rico * |  | 1 |  |  | 3 |  |
Virginia |  | — |  |  | 1 |  |
Louisiana * |  | — |  |  | 1 |  |
New Mexico * |  | — |  |  | — |  |
Indiana * |  | — |  |  | 1 |  |
Connecticut * |  | — |  |  | 1 |  |
Wisconsin |  | — |  |  | — |  |
Rhode Island |  | — |  |  | — |  |
All other jurisdictions |  | 2 |  |  | 10 |  |
Total primary (excluding settlements) | $ | 12 |  |  | $ | 42 |  |

Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed
The primary average claim paid for the top 5 states (based on 2021 losses paid) for the three months ended March 31, 2021 and 2020 appears in the following table.

Primary average claim paid
| Three Months Ended March 31,
|  | 2021 |  | 2020
Florida * | $ | 47,451 |  |  | $ | 67,372 |
New York * | 114,177 |  |  | 115,387 |
Illinois * | 33,281 |  |  | 44,121 |
New Jersey * | 89,040 |  |  | 104,728 |
Maryland | 55,869 |  |  | 70,655 |
All other jurisdictions | 26,625 |  |  | 34,541 |
All jurisdictions | 36,725 |  |  | 47,222 |

Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.
The primary average claim paid can vary materially from period to period based upon a variety of factors, including the local market conditions, average loan amount, average coverage percentage, the amount of time between delinquency and claim filing, and our loss mitigation efforts on loans for which claims are paid.
MGIC Investment Corporation - Q1 2021 | 50

The primary average RIF on delinquent loans at March 31, 2021, December 31, 2020 and March 31, 2020 and for the top 5 jurisdictions (based on 2021 losses paid) appears in the following table.

Primary average RIF - delinquent loans
| March 31, 2021 |  | December 31, 2020 |  | March 31, 2020
Florida | $ | 56,930 |  |  | $ | 56,956 |  |  | $ | 54,036 |
New York | 73,708 |  |  | 73,509 |  |  | 72,800 |
Illinois | 41,234 |  |  | 41,451 |  |  | 38,874 |
New Jersey | 67,371 |  |  | 67,709 |  |  | 63,743 |
Maryland | 67,873 |  |  | 68,347 |  |  | 65,595 |
All other jurisdictions | 51,750 |  |  | 52,071 |  |  | 41,732 |
All jurisdictions | 53,497 |  |  | 53,804 |  |  | 45,698 |

The primary average RIF on all loans was $55,418, $54,891, and $53,433 at March 31, 2021, December 31, 2020, and March 31, 2020, respectively.
Loss reserves
Our primary delinquency rate at March 31, 2021 was 4.65% (YE 2020: 5.11%, March 31, 2020: 2.53%). Our primary delinquency inventory was 52,775 loans at March 31, 2021, representing a decrease of 9% from December 31, 2020 and an increase of 93% from March 31, 2020. The increase in our primary delinquency inventory from the prior year is primarily due to the adverse economic impact of the COVID-19 pandemic. As of March 31,2021, 61% of our delinquency inventory were reported to us as subject to forbearance plans. We believe substantially all represent forbearance plans related to COVID-19. Prior to 2020, we experienced a decline in the number of delinquencies in inventory with twelve or more missed payments. Generally, a defaulted loan with fewer missed payments is less likely to result in a claim. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. Whether a loan’s delinquency will cure when its forbearance plan ends will depend on the economic circumstances of the borrower at that time.
The gross reserves at March 31, 2021, December 31, 2020, and March 31, 2020 appear in the table below.

Gross reserves
|  | March 31, 2021 | December 31, 2020 | March 31, 2020
Primary: |  |  |  |  |  |  |
Direct case loss reserves (in millions) |  | $ | 825 |  |  | $ | 789 |  |  | $ | 501 |  |
Direct IBNR and LAE reserves |  | 80 |  |  | 82 |  |  | 65 |  |
Total primary direct loss reserves |  | $ | 905 |  |  | $ | 871 |  |  | $ | 566 |  |
Ending delinquent inventory |  |  | 52,775 |  |  | 57,710 |  |  | 27,384 |
Percentage of loans delinquent (delinquency rate) |  |  | 4.65 | % |  | 5.11 | % |  | 2.53 | %
Average total primary loss reserves per delinquency |  |  | $ | 17,147 |  |  | $ | 15,100 |  |  | $ | 20,658 |
Primary claims received inventory included in ending delinquent inventory |  |  | 151 |  |  | 159 |  |  | 472 |
Pool (1): |  |  |  |  |  |  |
Direct loss reserves (in millions): |  |  |  |  |  |  |
With aggregate loss limits |  | $ | 5 |  |  | $ | 6 |  |  | $ | 6 |  |
Without aggregate loss limits |  | 2 |  |  | 2 |  |  | 2 |  |
Total pool direct loss reserves |  | $ | 7 |  |  | $ | 8 |  |  | $ | 8 |  |
Ending default inventory: |  |  |  |  |  |  |
With aggregate loss limits |  |  | 395 |  |  | 442 |  |  | 373 |
Without aggregate loss limits |  |  | 210 |  |  | 238 |  |  | 203 |
Total pool ending delinquent inventory |  |  | 605 |  |  | 680 |  |  | 576 |
Pool claims received inventory included in ending delinquent inventory |  |  | 6 |  |  | 10 |  |  | 13 |
Other gross reserves (2) (in millions) |  | $ | 1 |  |  | $ | 2 |  |  | $ | 1 |  |

(1)Since a number of our pool policies include aggregate loss limits and/or deductibles, we do not disclose an average direct reserve per delinquency for our pool business.
(2)Other Gross Reserves includes direct and assumed reserves that are not included within our primary or pool loss reserves.
MGIC Investment Corporation - Q1 2021 | 51

The primary delinquency inventory for the top 15 jurisdictions (based on 2021 losses paid) at March 31, 2021, December 31, 2020 and March 31, 2020 appears in the following table.

Primary delinquency inventory by jurisdiction
|  |  |  |  |  | March 31, 2021 |  | December 31, 2020 |  | March 31, 2020
Florida * |  |  |  |  |  | 5,198 |  |  | 5,936 |  |  | 2,250 |
New York * |  |  |  |  |  | 2,253 |  |  | 2,416 |  |  | 1,551 |
Illinois * |  |  |  |  |  | 3,345 |  |  | 3,460 |  |  | 1,657 |
New Jersey * |  |  |  |  |  | 1,749 |  |  | 1,960 |  |  | 897 |
Maryland |  |  |  |  |  | 1,469 |  |  | 1,556 |  |  | 743 |
Pennsylvania * |  |  |  |  |  | 2,375 |  |  | 2,593 |  |  | 1,598 |
Ohio * |  |  |  |  |  | 2,260 |  |  | 2,541 |  |  | 1,326 |
Puerto Rico * |  |  |  |  |  | 1,265 |  |  | 1,458 |  |  | 1,089 |
Virginia |  |  |  |  |  | 1,289 |  |  | 1,377 |  |  | 504 |
Louisiana * |  |  |  |  |  | 910 |  |  | 979 |  |  | 580 |
New Mexico * |  |  |  |  |  | 326 |  |  | 323 |  |  | 170 |
Indiana * |  |  |  |  |  | 1,065 |  |  | 1,163 |  |  | 779 |
Connecticut * |  |  |  |  |  | 804 |  |  | 909 |  |  | 473 |
Wisconsin |  |  |  |  |  | 931 |  |  | 1,056 |  |  | 604 |
Rhode Island |  |  |  |  |  | 194 |  |  | 201 |  |  | 125 |
All other jurisdictions |  |  |  |  |  | 27,342 |  |  | 29,782 |  |  | 13,038 |
Total |  |  |  |  |  | 52,775 |  |  | 57,710 |  |  | 27,384 |

Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.
The primary delinquency inventory by policy year at March 31, 2021, December 31, 2020 and March 31, 2020 appears in the following table.

Primary delinquency inventory by policy year
| March 31, 2021 |  | December 31, 2020 |  | March 31, 2020
Policy year: |  |  |  |  |
2004 and prior | 3,617 |  |  | 3,885 |  |  | 4,121 |
2004 and prior % | 7 | % |  | 7 | % |  | 15 | %
2005 | 2,265 |  |  | 2,462 |  |  | 2,526 |
2006 | 4,013 |  |  | 4,265 |  |  | 4,166 |
2007 | 7,469 |  |  | 8,011 |  |  | 6,316 |
2008 | 2,145 |  |  | 2,346 |  |  | 1,638 |
2005 - 2008 % | 30 | % |  | 30 | % |  | 53 | %
2009 | 149 |  |  | 159 |  |  | 118 |
2010 | 95 |  |  | 99 |  |  | 87 |
2011 | 137 |  |  | 151 |  |  | 125 |
2012 | 314 |  |  | 357 |  |  | 202 |
2013 | 816 |  |  | 929 |  |  | 498 |
2014 | 1,849 |  |  | 2,089 |  |  | 956 |
2015 | 2,782 |  |  | 3,133 |  |  | 1,299 |
2009 - 2015 % | 12 | % |  | 12 | % |  | 12 | %
2016 | 4,026 |  |  | 4,599 |  |  | 1,423 |
2017 | 5,806 |  |  | 6,746 |  |  | 1,824 |
2018 | 6,626 |  |  | 7,468 |  |  | 1,602 |
2019 | 6,954 |  |  | 7,929 |  |  | 482 |
2020 | 3,698 |  |  | 3,082 |  |  | 1 |
2021 | 14 |  |  |  |  |
2016 and later % | 51 | % |  | 52 | % |  | 20 | %
Total | 52,775 |  |  | 57,710 |  |  | 27,384 |

We expect that delinquencies will remain at elevated levels in 2021 as a result of the COVID-19 pandemic, including as a result of the increase in unemployment associated with initiatives intended to reduce the transmission of COVID-19.
On our primary business, the highest claim frequency years have typically been the third and fourth year after loan origination. However, the pattern of claim frequency can be affected by many factors, including persistency and deteriorating economic conditions. Deteriorating economic conditions, including the impacts of the COVID-19 pandemic, can result in increasing claims following a period of declining claims. As of March 31, 2021, 63% of our primary RIF was written subsequent to December 31, 2018, 71% of our primary RIF was written subsequent to December 31, 2017, and 78% of our primary RIF was written subsequent to December 31, 2016.
COVID-19 Delinquency Activity
The delinquency inventory increased after the first quarter of 2020 because of the impacts of the COVID-19 pandemic, including the high level of unemployment and economic uncertainty resulting from measures to reduce the transmission of the COVID-19.
MGIC Investment Corporation - Q1 2021 | 52

Forbearance programs enacted by the GSEs provide for payment forbearance on mortgages to borrowers experiencing a hardship during the COVID-19 pandemic. As of March 31, 2021 and December 31, 2020, 61% and 62%, respectively, of our delinquency inventory was reported as subject to a forbearance plan. We believe substantially all represent forbearances related to COVID-19. The following tables present characteristics of our primary delinquency inventory in forbearance plans.
The number of payments that a borrower in forbearance is delinquent as of March 31, 2021 and December 31, 2020 is shown in the following table.

Forbearance Delinquency inventory - number of payments delinquent
| March 31, 2021 |  | December 31, 2020 |
3 payments or less | 5,011 |  |  | 6,580 |  |
4-11 payments | 18,095 |  |  | 28,153 |  |
12 payments or more (1) | 8,928 |  |  | 1,145 |  |
Total | 32,034 |  |  | 35,878 |  |
3 payments or less | 16 | % |  | 18 | % |
4-11 payments | 56 | % |  | 79 | % |
12 payments or more | 28 | % |  | 3 | % |
Total | 100 | % |  | 100 | % |

The primary delinquency inventory in forbearance for the top 15 jurisdictions (based on 2021 losses paid) at March 31, 2021 and December 31, 2020 appears in the following table.

Primary delinquency inventory in forbearance by jurisdiction
|  | March 31, 2021 |  | December 31, 2020
Florida * |  | 3,501 |  |  | 4,150 |
New York * |  | 1,008 |  |  | 1,088 |
Illinois * |  | 2,025 |  |  | 2,162 |
New Jersey * |  | 1,016 |  |  | 1,174 |
Maryland |  | 934 |  |  | 994 |
Pennsylvania * |  | 1,170 |  |  | 1,294 |
Ohio * |  | 1,078 |  |  | 1,228 |
Puerto Rico * |  | 537 |  |  | 630 |
Virginia |  | 837 |  |  | 935 |
Louisiana * |  | 525 |  |  | 562 |
New Mexico * |  | 209 |  |  | 213 |
Indiana * |  | 472 |  |  | 538 |
Connecticut * |  | 483 |  |  | 565 |
Wisconsin |  | 473 |  |  | 536 |
Rhode Island |  | 85 |  |  | 91 |
All other jurisdictions |  | 17,681 |  |  | 19,718 |
Total |  | 32,034 |  |  | 35,878 |

The primary delinquency inventory in forbearance by policy year at March 31, 2021 and December 31, 2020 appears in the following table.

Primary delinquency inventory in forbearance by policy year
| March 31, 2021 |  | December 31, 2020
Policy year: |  |  |
2004 and prior | 917 |  |  | 937 |
2004 and prior % | 3 | % |  | 3 | %
2005 | 611 |  |  | 671 |
2006 | 1,255 |  |  | 1,293 |
2007 | 2,984 |  |  | 3,330 |
2008 | 1,061 |  |  | 1,197 |
2005 - 2008 % | 18 | % |  | 18 | %
2009 | 72 |  |  | 84 |
2010 | 42 |  |  | 38 |
2011 | 63 |  |  | 66 |
2012 | 186 |  |  | 229 |
2013 | 507 |  |  | 583 |
2014 | 1,227 |  |  | 1,389 |
2015 | 1,916 |  |  | 2,180 |
2009 - 2015 % | 13 | % |  | 13 | %
2016 | 3,014 |  |  | 3,490 |
2017 | 4,376 |  |  | 5,180 |
2018 | 5,163 |  |  | 5,927 |
2019 | 5,711 |  |  | 6,670 |
2020 | 2,929 |  |  | 2,614 |
2021 | — |  |  | — |
2016 and later % | 66 | % |  | 67 | %
Total | 32,034 |  |  | 35,878 |

MGIC Investment Corporation - Q1 2021 | 53

Underwriting and other expenses, net
Underwriting and other expenses includes items such as employee compensation costs, fees for professional and consulting services, depreciation and maintenance expense, and premium taxes, and are reported net of ceding commissions.
Underwriting and other expenses, net for the three months ended March 31, 2021 were $48.0 million, an increase from $42.3 million in the prior year period primarily due to increases in professional and consulting services related to our investments in technology and business processes, as well as an increase in share-based compensation benefits. This was partially offset by decreases in employee compensation costs.

|  | Three Months Ended March 31, |  |
|  | 2021 |  | 2020 |  |  |  |
Underwriting expense ratio |  | 19.8 | % |  | 17.3 | % |  |  |  |

The underwriting expense ratio is the ratio, expressed as a percentage, of the underwriting and operating expenses, net and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance subsidiaries) to NPW. The underwriting expense ratio in the three months ended March 31, 2021 increased due to a decrease in NPW and an increase in underwriting expenses compared with the same period the prior year.
Provision for income taxes and effective tax rate

Income tax provision and effective tax rate |  |  |  |
|  | Three Months Ended March 31, |  |
(In millions, except rate) |  | 2021 |  | 2020 |  |  |  |
Income before tax |  | $ | 189.6 |  |  | $ | 188.2 |  |  |  |  |
Provision for income taxes |  | $ | 39.6 |  |  | $ | 38.4 |  |  |  |  |
Effective tax rate |  | 20.9 | % |  | 20.4 | % |  |  |  |

The difference between our statutory tax rate of 21% and our effective tax rate of 20.9% and 20.4% for the three months ended March 31, 2021 and 2020, respectively, was primarily due to the benefits of tax preferenced securities.
MGIC Investment Corporation - Q1 2021 | 54

Balance Sheet Review
Total assets, liabilities, and shareholders’ equity
As of March 31, 2021 and December 31, 2020, total assets were $7.4 billion and total liabilities were $2.7 billion. Shareholders’ equity was $4.7 billion as of March 31, 2021 and December 31, 2020. Net income in the first three months of 2021 was offset by a decrease in unrealized gains, dividends paid, and reissuance of treasury stock, net under share-based compensation plans.
The following sections mainly focus on our cash and cash equivalents, investments and loss reserves as these reflect the major developments in our assets and liabilities since December 31, 2020.
Consolidated balance sheets - Assets
as of March 31, 2021 (In thousands)

● | Cash and cash equivalents | $ | 192,766 |
● | Investments | 6,829,737 |
● | Premiums receivable | 55,107 |
● | Reinsurance Recoverable | 102,901 |
● | Other assets | 226,505 |

Cash and cash equivalents (including restricted) - Our cash and cash equivalents balance decreased to $193 million as of March 31, 2021, from $297 million as of December 31, 2020, as net cash generated from operating activities was used in investing and financing activities.
Consolidated balance sheets - Liabilities and equity
as of March 31, 2021 (In thousands)

● | Loss reserves | $ | 913,110 |
● | Unearned premiums | 273,553 |
● | Long-term debt | 1,243,725 |
● | Other liabilities | 244,335 |
● | Shareholders’ equity | 4,732,293 |

Loss reserves - Our loss reserves include estimates of losses and settlement expenses on (1) loans in our delinquency inventory (known as case reserves), (2) IBNR delinquencies, and (3) LAE. Our gross reserves are reduced by reinsurance recoverable on our estimated losses and settlement expenses to calculate a net reserve balance. Loss reserves increased by 4% to $913 million as of March 31, 2021, from $881 million as of December 31, 2020. Reinsurance recoverables on our estimated losses and settlement expenses were $103 million and $95 million as of March 31, 2021 and December 31, 2020, respectively. The increase in loss reserves is primarily due to loss reserves established on new delinquency notices received in the quarter. In the first quarter of 2021, our re-estimation of reserves on previous delinquencies did not result in any meaningful loss reserve development.
Income Taxe s - Our current income tax liability (receivable) was $34.8 million and ($2.1) million at March 31, 2021 and December 31, 2020, respectively and is included as a component of other liabilities (assets) in our consolidated balance sheets. The increase in our current income tax liability was primarily due to our first quarter estimated income tax payment not being due until the second quarter of 2021. Our deferred income tax liability was $37.9 million and $60.0 million at March 31, 2021 and December 31, 2020, respectively and is included as a component of other liabilities in our consolidated balance sheets. The decrease in our deferred income tax liability was primarily due to the tax effect of unrealized losses generated by the investment portfolio during
MGIC Investment Corporation - Q1 2021 | 55

the first quarter of 2021. At March 31, 2021 and December 31, 2020, we owned $271.0 million of tax and loss bonds. If the federal income tax rate increases, our net deferred income tax liability or asset would increase. In addition, we would set up a deferred income tax liability related to tax and loss bonds accrued on the effective date of the tax rate increase. The amount of the deferred income tax liability would be for the difference in the new federal income tax rate and the 21% federal income tax rate at which the tax and loss bonds were accrued.
Investment portfolio
The average duration and investment yield of our investment portfolio as of March 31, 2021, December 31, 2020, and March 31, 2020 are shown in the table below.

Portfolio duration and embedded investment yield
|  | March 31, 2021 |  | December 31, 2020 |  | March 31, 2020
Duration (in years) |  | 4.5 |  | 4.3 |  | 4.0
Pre-tax yield (1) |  | 2.5% |  | 2.6% |  | 3.1%
After-tax yield (1) |  | 2.1% |  | 2.1% |  | 2.5%

(1)Embedded investment yield is calculated on a yield-to-worst basis.
The security ratings of our fixed income investments as of March 31, 2021, December 31, 2020, and March 31, 2020 are shown in the following table.

Fixed income security ratings
| Security Ratings (1)
Period | AAA | AA | A | BBB
March 31, 2021 | 21% | 24% | 35% | 20%
December 31, 2020 | 23% | 22% | 35% | 20%
March 31, 2020 | 22% | 20% | 35% | 22%

(1)Ratings are provided by one or more of: Moody's, Standard & Poor's and Fitch Ratings. If three ratings are available, the middle rating is utilized; otherwise the lowest rating is utilized.
Off-Balance Sheet Arrangements
Home Re 2018-1 Ltd., Home Re 2019-1 Ltd. Home Re 2020-1 Ltd. and Home Re 2021-1 Ltd. are special purpose variable interest entities that are not consolidated in our consolidated financial statements because we do not have the unilateral power to direct those activities that are significant to their economic performance. See Note 4 - “Reinsurance,” to our consolidated financial statements for additional information.
MGIC Investment Corporation - Q1 2021 | 56

Liquidity and Capital Resources
Consolidated Cash Flow Analysis
We have three primary types of cash flows: (1) operating cash flows, which consist mainly of cash generated by our insurance operations and income earned on our investment portfolio, less amounts paid for claims, interest expense and operating expenses, (2) investing cash flows related to the purchase, sale and maturity of investments and purchases of property and equipment and (3) financing cash flows generally from activities that impact our capital structure, such as changes in debt and shares outstanding, and dividend payouts. The following table summarizes our consolidated cash flows from operating, investing and financing activities:

Summary of consolidated cash flows
|  | Three Months Ended March 31,
(In thousands) |  | 2021 |  | 2020
Total cash provided by (used in): |  |  |  |
Operating activities |  | $ | 198,033 |  |  | $ | 184,324 |
Investing activities |  | (274,499) |  |  | 166,153 |
Financing activities |  | (27,448) |  |  | (150,007) |
Increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents |  | $ | (103,914) |  |  | $ | 200,470 |

Net cash provided by operating activities for the three months ended March 31, 2021 increased compared to the same period of 2020 primarily due to a lower level of losses paid, net, offset by an increase in interest payments on our outstanding debt obligations.
Net cash used in investing activities for the three months ended March 31, 2021 primarily reflects purchases of fixed income and equity securities during the period that exceeded sales and maturities of fixed income and equity securities during the period as cash from operations was available for additional investment. Net cash provided by investing activities for the three months ended March 31, 2020 primarily reflects sales and maturities of fixed income and equity securities in amounts that exceeded our purchases of fixed income and equity securities during the period.
Net cash from financing activities for the three months ended March 31, 2021 primarily reflects dividends to shareholders, and the payment of withholding taxes related to share-based compensation net share settlement. Net cash used in financing activities for the three months ended March 31, 2020 reflects share repurchases during the period, as well as dividends paid to shareholders, and payments of withholding taxes related to share-based compensation net share settlement.
Capitalization
Debt - holding company
As of March 31, 2021, our holding company’s debt obligations were $1.1 billion in aggregate principal consisting of our 5.75% Notes, 5.25% Notes, and 9% Debentures. In the third quarter of 2020, MGIC distributed to the holding company, as a dividend, its ownership in the 9% Debentures, retiring those 9%
Debentures. As of March 31, 2020 MGIC's ownership of our holding company's 9% Debentures of $132.7 million was eliminated in consolidation, but remained an obligation of our holding company.
Liquidity analysis - holding company
As of March 31, 2021, we had approximately $802 million in cash and investments at our holding company. These resources are maintained primarily to service our debt interest expense, pay debt maturities, repurchase shares, repurchase debt, pay dividends to shareholders, and to settle intercompany obligations. While these assets are held, we generate investment income that serves to offset a portion of our interest expense. Investment income and the payment of dividends from our insurance subsidiaries are the principal sources of holding company cash inflow. MGIC is the principal source of dividends, and their payment is restricted by insurance regulation and under the PMIERS guidance, requires GSE approval through June 30, 2021. See Note 14 - “Statutory Information” to our consolidated financial statement for additional information about MGIC’s dividend restrictions. The payment of dividends from MGIC is also influenced by our view of the appropriate level of PMIERs Available Assets to maintain in excess of Minimum Required Assets. Other sources of holding company liquidity include raising capital in the public markets. The ability to raise capital in the public markets is subject to prevailing market conditions, investor demand for the securities to be issued, and our deemed creditworthiness.
In the first quarter of 2021 we paid $21 million in dividends to shareholders. On April 29, 2021, our Board of Directors declared a quarterly cash dividend of $0.06 per common share to shareholders of record on May 13, 2021, payable on May 27, 2021.
In the first three months of 2021, our holding company cash and investments decreased by $45 million to $802 million as of March 31, 2021.
Significant cash and investments inflows during the first three months:
•$ 4.5 million of investment income.
Significant cash outflows during the first three months:
•$21 million in cash dividends paid to shareholders
•$24 million of interest payments on our 5.75% Notes and 5.25% Notes.
We did not repurchase any shares during the three months ended March 31, 2021 compared to the repurchase of 9.6 million shares of common stock for the three months ended March 31, 2020. The share repurchase programs may be suspended or discontinued at any time, and in light of the uncertainty caused by the COVID-19 pandemic, we had temporarily suspended stock repurchases, but may resume them in the future. See “Overview - Capital” of this MD&A for a discussion of the share repurchase program authorized in January 2020.
MGIC Investment Corporation - Q1 2021 | 57

MGIC did not pay a cash and/or investment security dividend to our holding company in the first three months 2021, compared to a $390 million dividend in the first three months of 2020. Future dividend payments from MGIC to the holding company will be determined on a quarterly basis, in consultation with the board, and after considering any updated estimates about the length and severity of the economic impacts of the COVID-19 pandemic on our business. We ask the Wisconsin OCI not to object before MGIC pays dividends to the holding company. Under the PMIERS guidance, any dividend paid by MGIC to our holding company, through June 30, 2021, requires GSE approval.
The net unrealized gains on our holding company investment portfolio were approximately $2.0 million at March 31, 2021 and the portfolio had a modified duration of approximately 1.9 years.
Subject to certain limitations and restrictions, holders of each of the 9% Debentures may convert their notes into shares of our common stock at their option prior to certain dates under the terms of their issuance, in which case our corresponding obligation will be eliminated.
See Note 7 – “Debt” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information about the conversion terms of our 9% Debentures and the terms of our indebtedness, including our option to defer interest on our 9% Debentures. The description in Note 7 - “Debt” to our consolidated financial statements in our Annual Report on Form 10-K is qualified in its entirety by the terms of the notes and debentures.
Although not anticipated in the near term, we may also contribute funds to our insurance operations to comply with the PMIERs or the State Capital Requirements. See “Overview - Capital” above for a discussion of these requirements.
Debt at subsidiaries
MGIC is a member of the FHLB, which provides MGIC access to an additional source of liquidity via a secured lending facility. MGIC borrowed $155 million in the form of a fixed rate advance from the FHLB. Interest on the Advance is payable monthly at an annual rate, fixed for the term of the Advance, of 1.91%. The principal of the Advance matures on February 10, 2023. MGIC may prepay the Advance at any time. Such prepayment would be below par if interest rates have risen after the Advance was originated, or above par if interest rates have declined. The Advance is secured by eligible collateral whose fair value is maintained at a minimum of 102% of the outstanding principal balance. MGIC provided eligible collateral from its investment portfolio.
Capital Adequacy
PMIERs
As of March 31, 2021, MGIC’s Available Assets under the PMIERs totaled approximately $5.5 billion, an excess of approximately $2.3 billion over its Minimum Required Assets; and MGIC is in compliance with the requirements of the PMIERs and eligible to insure loans delivered to or purchased by the GSEs. Our reinsurance transactions provided an aggregate of approximately $1.8 billion of capital credit under the PMIERs as of March 31, 2021. Refer to Note 4 - “Reinsurance” to our consolidated financial statements for additional information on our QSR and Home Re Transactions.
We anticipate our delinquency inventory to remain elevated due to the impacts of the COVID-19 pandemic. The PMIERS generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. For delinquent loans whose initial missed payment occurred on or after March 1, 2020 and prior to April 1, 2021 (the "COVID-19 Crisis Period"), the Minimum Required Assets are generally reduced by 70% for at least three months. The 70% reduction will continue, or be newly applied, for delinquent loans that are subject to a forbearance plan that is granted in response to a financial hardship related to COVID-19, the terms of which are materially consistent with terms of forbearance plans offered by Freddie Mac or Fannie Mae. Under the PMIERs, a forbearance plan on a loan with an initial missed payment occurring during the COVID-19 Crisis Period is assumed to have been granted in response to a financial hardship related to COVID-19. Loans considered to be subject to a forbearance plan include those that are in a repayment plan or loan modification trial period following the forbearance plan.
Forbearance for federally-insured mortgages allows for mortgage payments to be suspended for up to 18 months: an initial forbearance period of up to six months; if requested by the borrower following contact by the servicers, an extension of up to six months; and for loans in a COVID-19 forbearance plan as of February 28, 2021 an additional six months, subject to certain limits. The servicer of the mortgage must begin attempts to contact the borrower no later than 30 days prior to the expiration of any forbearance plan term and must continue outreach attempts until appropriate contact is made or the forbearance plan term has expired. If a servicer of a loan is unable to contact the borrower prior to the expiration of the first six month forbearance plan term, or if the forbearance plan reaches its twelve-month anniversary and is not further extended, the forbearance plan will expire. In such case, the 70% reduction in Minimum Required Assets for that loan will no longer be applicable and our Minimum Required Assets will increase.
We expect the GSEs and servicers will provide us with information about the forbearance status for nearly all of the loans in our delinquency inventory. The forbearance information provided by the GSEs will be with respect to delinquent loans in forbearance as of the prior month-end, while the information provided by loan servicers may be more current. As a result, in some cases, there may be a delay in our ability to take advantage of the 70% reduction.
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Refer to “Overview - Capital - GSEs” of this MD&A and our risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility” for further discussion of PMIERs.
Risk-to-capital
The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to its RIF (or a similar measure) in order for the mortgage insurer to continue to write new business. While they vary among jurisdictions, the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1.
We compute our risk-to-capital ratio on a separate company statutory basis, as well as on a combined insurance operation basis. The risk-to-capital ratio is our net RIF divided by our policyholders’ position. Our net RIF includes both primary and pool risk in force, net of reinsurance and excludes risk on policies that are currently in default and for which loss reserves have been established. The risk amount includes pools of loans with contractual aggregate loss limits and without these limits. Policyholders’ position consists primarily of statutory policyholders’ surplus (which increases as a result of statutory net income and decreases as a result of statutory net loss and dividends paid), plus the statutory contingency reserve, and a portion of the reserves for unearned premiums. The statutory contingency reserve is reported as a liability on the statutory balance sheet. A mortgage insurance company is required to make annual additions to the contingency reserve of approximately 50% of net earned premiums. These contributions must generally be maintained for a period of ten years. However, with regulatory approval a mortgage insurance company may make early withdrawals from the contingency reserve when incurred losses exceed 35% of net earned premiums in a calendar year.
MGIC’s separate company risk-to-capital calculation is shown in the table below.

Risk-to-capital - MGIC separate company
(In millions, except ratio) |  | March 31, 2021 |  | December 31, 2020
RIF - net (1) |  | $ | 44,642 |  |  | $ | 44,511 |
Statutory policyholders’ surplus |  | 1,380 |  |  | 1,336 |
Statutory contingency reserve |  | 3,667 |  |  | 3,521 |
Statutory policyholders’ position |  | $ | 5,047 |  |  | $ | 4,857 |
Risk-to-capital |  | 8.8:1 |  | 9.2:1

(1)RIF – net, as shown in the table above is net of reinsurance and exposure on policies currently delinquent ($2.7 billion at March 31, 2021 and $2.9 billion December 31, 2020) for which loss reserves have been established.
Our combined insurance companies’ risk-to-capital calculation is shown in the table below.

Risk-to-capital - Combined insurance companies
(In millions, except ratio) |  | March 31, 2021 |  | December 31, 2020
RIF - net (1) |  | $ | 45,061 |  |  | $ | 44,868 |
Statutory policyholders’ surplus |  | 1,383 |  |  | 1,340 |
Statutory contingency reserve |  | 3,733 |  |  | 3,586 |
Statutory policyholders’ position |  | $ | 5,116 |  |  | $ | 4,926 |
Risk-to-capital |  | 8.8:1 |  | 9.1:1

(1)RIF – net, as shown in the table above, is net of reinsurance and exposure on policies currently delinquent ($2.7 billion at March 31, 2021 and $2.9 billion December 31, 2020) for which loss reserves have been established.
The decrease in MGIC's risk-to-capital and our combined insurance companies’ risk to capital in the first three months of 2021 was primarily due to an increase in the statutory policyholders’ position.
For additional information regarding regulatory capital see Note 14 – “Statutory Information” to our consolidated financial statements as well as our risk factor titled “State Capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis.”
Financial Strength Ratings

MGIC financial strength ratings
Rating Agency |  | Rating |  | Outlook
Moody’s Investor Services |  | Baa1 |  | Stable
Standard and Poor’s Rating Services |  | BBB+ |  | Stable
A.M. Best |  | A- |  | Stable

MAC financial strength ratings
Rating Agency |  | Rating |  | Outlook
A.M. Best |  | A- |  | Stable

For further information about the importance of MGIC’s ratings, see our risk factor titled “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.”
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Contractual Obligations
The following table summarizes, as of March 31, 2021, the approximate future payments under our contractual obligations and estimated claim payments on established loss reserves.

Contractual obligations
|  | Payments due by period
(In millions) |  | Total |  | Less than 1 year |  | 1-3 years |  | 3-5 years |  | More than 5 years
Long-term debt obligations |  | $ | 2,351.2 |  |  | $ | 69.9 |  |  | $ | 526.6 |  |  | $ | 105.8 |  |  | $ | 1,648.9 |
Operating lease obligations |  | 1.7 |  |  | 0.8 |  |  | 0.9 |  |  | — |  |  | — |
Purchase obligations |  | 56.8 |  |  | 28.7 |  |  | 28.1 |  |  | — |  |  | — |
Other long-term liabilities |  | 913.1 |  |  | 127.9 |  |  | 392.6 |  |  | 392.6 |  |  | — |
Total |  | $ | 3,322.8 |  |  | $ | 227.3 |  |  | $ | 948.2 |  |  | $ | 498.4 |  |  | $ | 1,648.9 |

Our long-term debt obligations as of March 31, 2021 include their related interest and are discussed in Note 3 - “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” above. Our operating lease obligations include operating leases on certain office space, data processing equipment and autos, as discussed in Note 16 – “Leases” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020. Purchase obligations consist primarily of agreements to purchase items related to our continued investment in our information technology infrastructure in the normal course of business.
Our other long-term liabilities represent the case and LAE loss reserves established to recognize the liability for losses and LAE related to existing delinquency inventory on insured mortgage loans and our IBNR reserve. The timing of the future claim payments associated with the established case loss reserves was determined primarily based on two key assumptions: the length of time it takes for a notice of delinquency to develop into a received claim and the length of time it takes for a received claim to be ultimately paid. The future claim payment periods are estimated based on historical experience, and could emerge differently than this estimate, in part, due to uncertainty regarding the impact of certain factors, such as impacts from the COVID-19 pandemic, loss mitigation protocols established by servicers and changes in some state foreclosure laws that may include, for example, a requirement for additional review and/or mediation process.
See Note 11 – “Loss Reserves” to our consolidated financial statements. In accordance with GAAP for the mortgage insurance industry, we establish case loss reserves only for delinquent loans that were reported to us as two payments past due and have not become current or resulted in a claim payment. Because our reserving method does not take into account the impact of future losses that could occur from loans that are not delinquent, our obligation for ultimate losses that we expect to occur under our policies in force at any period end is not reflected in our consolidated financial statements or in the table above.
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Forward Looking Statements and Risk Factors
General: Our business, results of operations, and financial condition could be affected by the risk factors referred to under “Location of Risk Factors” below. These risk factors are an integral part of Management’s Discussion and Analysis.
These factors may also cause actual results to differ materially from the results contemplated by forward looking statements that we may make. Forward looking statements consist of statements which relate to matters other than historical fact. Among others, statements that include words such as we “believe,” “anticipate” or “expect,” or words of similar import, are forward looking statements. These risk factors, including the discussion of the impact of the COVID-19 pandemic, speak only as of the date of this press release and are subject to change without notice as the Company cannot predict all risks relating to this evolving set of events. We are not undertaking any obligation to update any forward looking statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.
While we communicate with security analysts from time to time, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report, and such reports are not our responsibility.
Location of Risk Factors: The risk factors are in Item 1 A of our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented by Part II, Item 1 A of this Quarterly Report on Form 10-Q. The risk factors in the 10-K, as supplemented by those 10‑Qs and through updating of various statistical and other information, are reproduced in Exhibit 99 to this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our investment portfolio is essentially a fixed income portfolio and is exposed to market risk. Important drivers of the market risk are credit spread risk and interest rate risk.
Credit spread risk is the risk that we will incur a loss due to adverse changes in credit spreads. Credit spread is the additional yield on fixed income securities above the risk-free rate (typically referenced as the yield on U.S. Treasury securities) that market participants require to compensate them for assuming credit, liquidity and/or prepayment risks.
We manage credit risk via our investment policy guidelines which primarily place our investments in investment grade securities and limit the amount of our credit exposure to any one issue, issuer and type of instrument. Guideline and investment portfolio detail is available in "Business – Section C, Investment Portfolio" in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2020.
Interest rate risk is the risk that we will incur a loss due to adverse changes in interest rates relative to the characteristics of our interest bearing assets.
One of the measures used to quantify this exposure is modified duration. Modified duration measures the price sensitivity of the assets to the changes in spreads. At March 31, 2021, the modified duration of our fixed income investment portfolio was 4.5 years, which means that an instantaneous parallel shift in the yield curve of 100 basis points would result in a change of 4.5% in the fair value of our fixed income portfolio. For an upward shift in the yield curve, the fair value of our portfolio would decrease and for a downward shift in the yield curve, the fair value would increase. See Note 7 – “Investments” to our consolidated financial statements for additional disclosure surrounding our investment portfolio.
Item 4. Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer concluded that such controls and procedures were effective as of the end of such period. There was no change in our internal control over financial reporting that occurred during the first quarter of 2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Certain legal proceedings arising in the ordinary course of business may be filed or pending against us from time to time. For information about such legal proceedings, you should review Note 5 - “Litigation and Contingencies” to our consolidated financial statements our risk factor titled “We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future” in Exhibit 99.
Item 1 A. Risk Factors
With the exception of the changes described and set forth below, there have been no material changes in our risk factors from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The risk factors in the 10-K, as supplemented by this 10-Q and through updating of various statistical and other information, are reproduced in their entirety in Exhibit 99 to this Quarterly Report on Form 10‑Q.
Risk Factors Relating to the COVID-19 Pandemic
The COVID-19 pandemic may continue to materially impact our financial results and may also materially impact our business, liquidity and financial condition.
The COVID-19 pandemic had a material impact on our 2020 financial results. While uncertain, the future impact of the COVID-19 pandemic on the Company’s business, financial results, liquidity and/or financial condition may also be material. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in the United States, the length of time that measures intended to reduce the transmission of COVID-19 remain in place, the level of unemployment, and the impact of government initiatives and actions taken by Fannie Mae and Freddie Mac (the "GSEs") (including mortgage forbearance and modification programs) to mitigate the economic harm caused by COVID-19.
The COVID-19 pandemic may continue to impact our business in various ways, including the following, each of which is described in more detail in the remainder of these risk factors:
•Our incurred losses will increase if the number of insured mortgages in our delinquency inventory increases. We establish reserves for insurance losses when delinquency notices are received on loans that are two or more payments past due and for loans we estimate are delinquent prior to the close of the accounting period but for which delinquency notices have not yet been reported to us (this is often referred to as “IBNR”). In addition, our current estimates of the number of delinquencies for which we will receive claims, and the amount, or severity, of each claim, may increase.
•We may be required to maintain more capital under the private mortgage insurer eligibility requirements ("PMIERs") of the GSEs, which generally require more capital to be held for delinquent loans than for performing loans and require more capital to be held as the number of payments missed on delinquent loans increases.
•If the number of delinquencies increases, the number of claims we must pay over time will generally increase.
•Our access to the reinsurance and capital markets may be limited and the terms under which we are able to access such markets may be less attractive than the terms of our previous transactions.
Risk Factors Relating to the Mortgage Insurance Industry and its Regulation
Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.
Losses result from events that reduce a borrower’s ability or willingness to make mortgage payments, such as unemployment, health issues, family status, and whether the home of a borrower who defaults on a mortgage can be sold for an amount that will cover unpaid principal and interest and the expenses of the sale. A deterioration in economic conditions, including an increase in unemployment, generally increases the likelihood that borrowers will not have sufficient income to pay their mortgages and can also adversely affect home prices, which in turn can influence the willingness of borrowers with sufficient resources to make mortgage payments when the mortgage balance exceeds the value of the home. In 2020, according to the Purchase-Only U.S. Home Price Index of the Federal Housing Finance Agency (the “FHFA”), which is based on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac, home prices increased by 10.9% in 2020, after increasing by 5.5%, 5.8%, 6.4% and 6.0% in 2016, 2017, 2018 and 2019, respectively. Home prices may decline even absent a deterioration in economic conditions due to declines in demand for homes, which in turn may result from changes in buyers’ perceptions of the potential for future appreciation, restrictions on and the cost of mortgage credit due to more stringent underwriting standards, higher interest rates, changes to the tax deductibility of mortgage interest, decreases in the rate of household formations, or other factors.
The unemployment rate rose from 3.5% as of December 31, 2019, to 14.7% as of April 30, 2020. It was 6.0% as of March 31, 2021. High levels of unemployment may result in an increasing number of loans in our delinquency inventory and an increasing number of insurance claims; however, the increases are difficult to predict given the uncertainty in the current market environment, including uncertainty about the length and severity of the COVID-19 pandemic; the length of time that measures intended to reduce the transmission of COVID-19 remain in place; effects of forbearance programs enacted by the GSEs, various states and municipalities; and effects of past and future government stimulus programs. Current programs include, among others:
•Payment forbearance on federally-backed mortgages (including those delivered to or purchased by the GSEs) to borrowers experiencing a hardship during the COVID-19 pandemic.
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•Additional cash payments to individuals provided for in the American Rescue Plan Act signed into law in March 2021.
•For those mortgages that are not subject to forbearance, a suspension of foreclosures and evictions until at least June 30, 2021, on mortgages purchased or securitized by the GSEs.
•Enhanced unemployment payments through September 6, 2021.
•An extension of the maximum duration for unemployment benefits, generally through September 6, 2021.
Forbearance for federally-insured mortgages allows for mortgage payments to be suspended for up to 18 months: an initial forbearance period of up to six months; if requested by the borrower following contact by the servicer, an extension of up to six months; and, for loans in a COVID-19 forbearance plan as of February 28, 2021, an additional extension of up to six months, subject to certain limits. The servicer of the loan must begin attempts to contact the borrower no later than 30 days prior to the expiration of any forbearance plan term and must continue outreach attempts until appropriate contact is made or the forbearance plan term has expired. In certain circumstances, the servicer will be unable to contact the borrower and the forbearance plan will expire after the first 180-day plan. A delinquent loan for which the borrower was unable to be contacted and that is not in a forbearance plan may be more likely to result in a claim than a delinquent loan in a forbearance plan.
Of our insurance in force written in 2020, approximately 13.1% was not delivered to or purchased by the GSEs. While servicers of some non-GSE loans may not be required to offer forbearance to borrowers, we allow servicers to apply GSE loss mitigation programs to non-GSE loans. In addition, the Consumer Financial Protection Bureau ("CFPB") requires substantial loss mitigation efforts be made prior to servicers initiating foreclosures, therefore, servicers of non-GSE loans may have an incentive to offer forbearance or deferment.
On April 5, 2021, the CFPB issued a Notice of Proposed Rulemaking ("NPR") regarding mortgage servicing. Although we cannot predict the contents or timing of a final rule, the NPR included a provision that would require a pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after December 2021, with the review period intended to allow for loss mitigation options to be explored.
Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. Of the loans in our delinquency inventory at March 31, 2021, 32,034 were reported to us as in forbearance. Of the 46,684 loans in our delinquency inventory as of June 30, 2020 that were reported to us as in forbearance, 58.8% are no longer in the default inventory as of March 31, 2021; 34.4% are still in the delinquency inventory and reported to us as in forbearance; and 6.7% are still in the
delinquency inventory but no longer reported to us as in forbearance. Based on the date each loan in our delinquency inventory was reported to us as being in forbearance, we estimate that during the second quarter of 2021, 62% of those will reach their twelve-month anniversary of having been in forbearance and, unless their forbearance plans are extended, their forbearance plans may end. Whether a loan delinquency will cure, including through modification, when forbearance ends will depend on the economic circumstances of the borrower at that time. The severity of losses associated with delinquencies that do not cure will depend on economic conditions at that time, including home prices.
We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility.
We must comply with a GSE's PMIERs to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transaction approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s “Available Assets” (generally only the most liquid assets of an insurer) to equal or exceed its “Minimum Required Assets” (which are generally based on an insurer’s book of risk in force and calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance agreements).
Based on our interpretation of the PMIERs, as of March 31, 2021, MGIC’s Available Assets totaled $5.5 billion, or $2.3 billion in excess of its Minimum Required Assets. MGIC is in compliance with the PMIERs and eligible to insure loans purchased by the GSEs. Our "Minimum Required Assets" reflect a credit for risk ceded under our reinsurance transactions, which are discussed in our risk factor titled "The mix of business we write affects our Minimum Required Assets under the PMIERs, our premium yields and the likelihood of losses occurring." The calculated credit for excess of loss reinsurance transactions under PMIERs is generally based on the PMIERs requirement of the covered loans and the attachment and detachment points of the coverage, all of which fluctuate over time. PMIERs credit is generally not given for the reinsured risk above the PMIERs requirement. The GSEs have discretion to further limit reinsurance credit under the PMIERs. The total credit for risk ceded under our reinsurance transactions is subject to a modest reduction and is subject to periodic review by the GSEs. There is a risk we will not receive our current level of credit in future periods for ceded risk. In addition, we may not receive the same level of credit under future reinsurance transactions that we receive under existing transactions. If MGIC is not allowed certain levels of credit under the PMIERs, under certain circumstances, MGIC may terminate the reinsurance transactions without penalty.
The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. For delinquent loans whose initial missed payment occurred on or after March 1, 2020 and prior
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to April 1, 2021 (the "COVID-19 Crisis Period"), the Minimum Required Assets are generally reduced by 70% for at least three months. The 70% reduction will continue, or be newly applied, for delinquent loans that are subject to a forbearance plan that is granted in response to a financial hardship related to COVID-19, the terms of which are materially consistent with terms of forbearance plans offered by Freddie Mac or Fannie Mae. Under the PMIERs, a forbearance plan on a loan with an initial missed payment occurring during the COVID-19 Crisis Period is assumed to have been granted in response to a financial hardship related to COVID-19. Loans considered to be subject to a forbearance plan include those that are in a repayment plan or loan modification trial period following the forbearance plan. As noted above, if a servicer of a loan is unable to contact the borrower prior to the expiration of the first 180-day forbearance plan term, or if the forbearance plan reaches its twelve-month anniversary and is not further extended, the forbearance plan generally will expire. In such case, the 70% reduction in Minimum Required Assets for that loan will no longer be applicable, our Minimum Required Assets will increase and our excess of Available Assets over Minimum Required Assets will decrease. As of March 31, 2021, application of the 70% reduction decreased our Minimum Required Assets from approximately $3.9 billion to approximately $3.2 billion. We do not expect our Minimum Required Assets for the loans in forbearance at March 31, 2021 to increase by the full amount of the reduction upon expiration of the forbearance plans because we expect some loans whose forbearance plans expire to have their delinquencies cured through modification or otherwise.
Despite reducing the Minimum Required Assets for certain delinquent loans by 70%, an increasing number of loan delinquencies caused by the COVID-19 pandemic may cause our Minimum Required Assets to exceed our Available Assets. As of March 31, 2021, there were 52,775 loans in our delinquency inventory, of which 61% were reported to us as being subject to a forbearance plan. We believe substantially all of the reported forbearance plans are COVID-19-related. We are unable to predict the ultimate number of loans that will become delinquent as a result of the COVID-19 pandemic.
If our Available Assets fall below our Minimum Required Assets, we would not be in compliance with the PMIERs. The PMIERs provide a list of remediation actions for a mortgage insurer's non-compliance, with additional actions possible in the GSEs' discretion. At the extreme, the GSEs may suspend or terminate our eligibility to insure loans purchased by them. Such suspension or termination would significantly reduce the volume of our new insurance written ("NIW"); the substantial majority of which is for loans delivered to or purchased by the GSEs. In addition to the increase in Minimum Required Assets associated with delinquent loans, factors that may negatively impact MGIC’s ability to continue to comply with the financial requirements of the PMIERs include the following:
•The GSEs may make the PMIERs more onerous in the future. The PMIERs provide that the factors that determine Minimum Required Assets will be updated periodically, or as needed if there is a significant change in macroeconomic conditions or loan performance. We do not anticipate that the regular periodic updates will occur more frequently than once every two years. The PMIERs state that the GSEs will provide notice 180 days prior to
the effective date of updates to the factors; however, the GSEs may amend the PMIERs at any time, including by imposing restrictions specific to our company.
•There may be future implications for PMIERs as a result of changes to the regulatory capital requirements for the GSEs. In November 2020, the FHFA adopted a rule containing a risk-based capital framework for the GSEs that will increase their capital requirements, effective on the later of (i) the date of termination of the FHFA’s conservatorship of the applicable GSE; (ii) sixty days after publication of the adopted rule in the Federal Register; or (iii) any later compliance date provided in a consent order or other transition order applicable to a GSE. The increase in capital requirements may ultimately result in an increase in the Minimum Required Assets required to be held by mortgage insurers.
•Our future operating results may be negatively impacted by the matters discussed in the rest of these risk factors. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby creating a shortfall in Available Assets.
Should capital be needed by MGIC in the future, capital contributions from our holding company may not be available due to competing demands on holding company resources, including for repayment of debt.
Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.
The substantial majority of our NIW is for loans purchased by the GSEs; therefore, the business practices of the GSEs greatly impact our business and they include:
•The GSEs' PMIERs, the financial requirements of which are discussed in our risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility.”
•The capital and collateral requirements for participants in the GSEs' alternative forms of credit enhancement discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."
•The level of private mortgage insurance coverage, subject to the limitations of the GSEs’ charters, when private mortgage insurance is used as the required credit enhancement on low down payment mortgages (the GSEs generally require a level of mortgage insurance coverage that is higher than the level of coverage required by their charters; any change in the required level of coverage will impact our new risk written).
•The amount of loan level price adjustments and guaranty fees (which result in higher costs to borrowers) that the GSEs assess on loans that require private mortgage
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insurance. The recently adopted GSE capital framework may lead the GSEs to increase their guaranty fees.
•Whether the GSEs select or influence the mortgage lender’s selection of the mortgage insurer providing coverage.
•The underwriting standards that determine which loans are eligible for purchase by the GSEs, which can affect the quality of the risk insured by the mortgage insurer and the availability of mortgage loans.
•The terms on which mortgage insurance coverage can be canceled before reaching the cancellation thresholds established by law.
•The programs established by the GSEs intended to avoid or mitigate loss on insured mortgages and the circumstances in which mortgage servicers must implement such programs.
•The terms that the GSEs require to be included in mortgage insurance policies for loans that they purchase, including limitations on the rescission rights of mortgage insurers.
•The extent to which the GSEs intervene in mortgage insurers’ claims paying practices, rescission practices or rescission settlement practices with lenders.
•The maximum loan limits of the GSEs compared to those of the FHA and other investors.
The FHFA has been the conservator of the GSEs since 2008 and has the authority to control and direct their operations. The increased role that the federal government has assumed in the residential housing finance system through the GSE conservatorship may increase the likelihood that the business practices of the GSEs change, including through administrative action, in ways that have a material adverse effect on us and that the charters of the GSEs are changed by new federal legislation.
In 2019, the U.S. Treasury Department ("Treasury") released the “Treasury Housing Reform Plan” (the "Plan"). The Plan recommends administrative and legislative reforms for the housing finance system, with such reforms intended to achieve the goals of ending the conservatorships of the GSEs; increasing competition and participation by the private sector in the mortgage market including by authorizing the FHFA to approve additional guarantors of conventional mortgages in the secondary market, simplifying the qualified mortgage ("QM") rule of the CFPB, transferring risk to the private sector, and eliminating the "GSE Patch" (discussed below); establishing regulation of the GSEs that safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the United States; and providing that the federal government is properly compensated for any explicit or implicit support it provides to the GSEs or the secondary housing finance market. The GSE capital framework adopted in November 2020 establishes a post-conservatorship regulatory capital framework intended to ensure that the GSEs operate in a safe and sound manner. In
January 2021, the GSEs' Preferred Stock Purchase Agreements ("PSPAs") were amended to allow the GSEs to continue to retain earnings until they satisfy the requirements of the 2020 GSE capital framework. In addition, a proposed rule issued by the FHFA in December 2020 would require minimum funding requirements and new liquidity standards. The impact of the Plan on private mortgage insurance is unclear. The Plan does not refer to mortgage insurance explicitly; however, it refers to a requirement for credit enhancement on high LTV ratio loans, which is a requirement of the current GSE charters. The Plan also indicates that the FHFA should continue to support efforts to expand credit risk transfer ("CRT") programs and should encourage the GSEs to continue to engage in a diverse mix of economically sensible CRT programs, including by increasing reliance on institution-level capital (presumably, as distinguished from capital obtained in the capital markets). For more information about CRT programs, see our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."
In late 2020, the CFPB adopted a rule that would have eliminated the GSE Patch effective upon the earlier of the GSEs' exit from conservatorship or July 1, 2021. In addition, a new QM definition would have become effective March 1, 2021. Although the CFPB has proposed to delay the elimination of the GSE Patch and the effectiveness of the new QM definition until October 1, 2022, the GSEs have announced that loans with applications received on or after July 1, 2021 cannot be GSE Patch loans and must conform to the new QM definition. The GSE Patch had expanded the definition of QM under the Truth in Lending Act (Regulation Z) ("TILA") to include mortgages eligible to be purchased by the GSEs, even if the mortgages did not meet the debt-to-income ("DTI") ratio limit of 43% that was included in the standard QM definition. Originating a QM may provide a lender with legal protection from lawsuits that claim the lender failed to verify a borrower’s ability to repay. The new QM definition continues to require lenders to consider a borrower's DTI ratio; however, it replaces the DTI ratio cap with a pricing threshold that excludes from the definition of QM a loan whose annual percentage rate ("APR") exceeds the average prime offer rate for comparable loans by 2.25 percentage points or more. Although approximately 20% of our first quarter 2021 NIW was on loans with DTI ratios greater than 43%, we believe less than 2% of our first quarter 2021 NIW was on loans whose APR exceeded the maximum to qualify as a QM.
Treasury's Plan indicated that the FHFA and the Department of Housing and Urban Development ("HUD") should develop and implement a specific understanding as to the appropriate roles and overlap between the GSEs and FHA, including with respect to the GSEs’ acquisitions of high LTV ratio loans and high DTI ratio loans. In connection with the 2021 amendment to the PSPAs, the GSEs must limit the acquisition of certain loans with multiple higher risk characteristics related to LTV, DTI and credit score, to levels indicated to be their current levels at the time of the amendment.
As a result of the matters referred to above and the change in the Presidential Administration occurring in January 2021, it is uncertain what role the GSEs, FHA and private capital, including private mortgage insurance, will play in the residential housing finance system in the future. The timing
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and impact on our business of any resulting changes is uncertain. Many of the proposed changes would require Congressional action to implement and it is difficult to estimate when Congressional action would be final and how long any associated phase-in period may last.
Pandemics, hurricanes and other natural disasters may impact our incurred losses, the amount and timing of paid claims, our inventory of notices of default and our Minimum Required Assets under PMIERs.
Pandemics and other natural disasters, such as hurricanes, tornadoes, earthquakes, wildfires and floods, or other events related to changing climatic conditions, could trigger an economic downturn in the affected areas, or in areas with similar risks, which could result in a decline in our business and an increased claim rate on policies in those areas. Natural disasters and rising sea levels could lead to a decrease in home prices in the affected areas, or in areas with similar risks, which could result in an increase in claim severity on policies in those areas. In addition, the inability of a borrower to obtain hazard and/or flood insurance, or the increased cost of such insurance, could lead to an increase in defaults or a decrease in home prices in the affected areas. If we were to attempt to limit our new insurance written in disaster-prone areas, lenders may be unwilling to procure insurance from us anywhere.
Pandemics and other natural disasters could also lead to increased reinsurance rates or reduced availability of reinsurance. This may cause us to retain more risk than we otherwise would retain and could negatively affect our compliance with the financial requirements of the PMIERs.
The PMIERs require us to maintain significantly more "Minimum Required Assets" for delinquent loans than for performing loans; however, the increase in Minimum Required Assets is not as great for certain delinquent loans in areas that the Federal Emergency Management Agency has declared major disaster areas and for certain loans whose borrowers have been affected by COVID-19. An increase in delinquency notices resulting from a pandemic, such as the COVID-19 pandemic, or other natural disaster may result in an increase in "Minimum Required Assets" and a decrease in the level of our excess "Available Assets" which is discussed in our risk factor titled "We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility."
On January 19, 2021, the FHFA issued a Request for Input (“RFI”) regarding Climate and Natural Disaster Risk Management at the Regulated Entities (i.e. the GSEs and the Federal Home Loan Bank system). It is possible that efforts to manage this risk by the FHFA, GSEs or others could materially impact the volume and characteristics of our NIW, home prices in certain areas and defaults by borrowers in certain areas.
Risk Factors Relating to Our Business Generally
Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.
The private mortgage insurance industry is highly competitive and is expected to remain so. We believe we currently compete with other private mortgage insurers based on premium rates, underwriting requirements, financial strength (including based on credit or financial strength ratings), customer relationships, name recognition, reputation, strength of management teams and field organizations, the ancillary products and services provided to lenders and the effective use of technology and innovation in the delivery and servicing of our mortgage insurance products.
Our relationships with our customers, which may affect the amount of our NIW, could be adversely affected by a variety of factors, including if our premium rates are higher than those of our competitors, our underwriting requirements are more restrictive than those of our competitors, or our customers are dissatisfied with our claims-paying practices (including insurance policy rescissions and claim curtailments).
In recent years, much of the competition in the industry has centered on pricing practices which have included: (a) decreased use of standard rate cards; and (b) increased use of (i) "risk-based pricing systems" that use a spectrum of filed rates to allow for formulaic, risk-based pricing based on multiple attributes that may be quickly adjusted within certain parameters, and (ii) customized rate plans, both of which typically have rates lower than the standard rate card. While our increased use of reinsurance over the past several years has helped to mitigate the negative effect of declining premium rates on our returns, refer to our risk factor titled "Reinsurance may not always be available or affordable" for a discussion of the risks associated with the availability of reinsurance.
The widespread use of risk-based pricing systems by the private mortgage insurance industry makes it more difficult to compare our rates to those offered by our competitors. We may not be aware of industry rate changes until we observe that our volume of NIW has changed. In addition, business under customized rate plans is awarded by certain customers for only limited periods of time. As a result, our NIW may fluctuate more than it had in the past. Regarding the concentration of our new business, our top ten customers accounted for approximately 41% and 26% of our NIW, in each of the twelve months ended March 31, 2021 and March 31, 2020, respectively.
We monitor various competitive and economic factors while seeking to balance both profitability and market share considerations in developing our pricing strategies. Premium rates on NIW will change our premium yield (net premiums earned divided by the average insurance in force) over time as older insurance policies run off and new insurance policies with different premium rates are written.
Certain of our competitors have access to capital at a lower cost than we do (including, through off-shore intercompany
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reinsurance vehicles, which have tax advantages that may increase if U.S. corporate income taxes increase). As a result, they may be able to achieve higher after-tax rates of return on their NIW compared to us, which could allow them to leverage reduced premium rates to gain market share, and they may be better positioned to compete outside of traditional mortgage insurance, including by participating in alternative forms of credit enhancement pursued by the GSEs discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."
Although the current PMIERs of the GSEs do not require an insurer to maintain minimum financial strength ratings, our financial strength ratings can affect us in the ways set forth below. If we are unable to compete effectively in the current or any future markets as a result of the financial strength ratings assigned to our insurance subsidiaries, our future new insurance written could be negatively affected.
•A downgrade in our financial strength ratings could result in increased scrutiny of our financial condition by the GSEs and/or our customers, potentially resulting in a decrease in the amount of our NIW.
•Our ability to participate in the non-GSE residential mortgage-backed securities market (the size of which has been limited since 2008, but may grow in the future), could depend on our ability to maintain and improve our investment grade ratings for our insurance subsidiaries. We could be competitively disadvantaged with some market participants because the financial strength ratings of our insurance subsidiaries are lower than those of some competitors. MGIC's financial strength rating from A.M. Best is A- (with a stable outlook), from Moody’s is Baa1 (with a stable outlook) and from Standard & Poor’s is BBB+ (with a stable outlook).
•Financial strength ratings may also play a greater role if the GSEs no longer operate in their current capacities, for example, due to legislative or regulatory action. In addition, although the PMIERs do not require minimum financial strength ratings, the GSEs consider financial strength ratings to be important when using forms of credit enhancement other than traditional mortgage insurance, as discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance." The final GSE capital framework provides more capital credit for transactions with higher rated counterparties, as well as those who are diversified. Although we are currently unaware of a direct impact on MGIC, this could potentially become a competitive disadvantage in the future.
We rely on our management team and our business could be harmed if we are unable to retain qualified personnel or successfully develop and/or recruit their replacements.
Our success depends, in part, on the skills, working relationships and continued services of our management team and other key personnel. The unexpected departure of key personnel could adversely affect the conduct of our business.
In such event, we would be required to obtain other personnel to manage and operate our business. In addition, we will be required to replace the knowledge and expertise of our aging workforce as our workers retire. In either case, there can be no assurance that we would be able to develop or recruit suitable replacements for the departing individuals; that replacements could be hired, if necessary, on terms that are favorable to us; or that we can successfully transition such replacements in a timely manner. We currently have not entered into any employment agreements with our officers or key personnel. Volatility or lack of performance in our stock price may affect our ability to retain our key personnel or attract replacements should key personnel depart. Without a properly skilled and experienced workforce, our costs, including productivity costs and costs to replace employees may increase, and this could negatively impact our earnings.
In response to the COVID-19 pandemic, the Company activated its business continuity program by transitioning to a virtual workforce model with certain essential activities supported by limited staff in controlled office environments. This transition was made to responsibly provide for the safety of employees and to continue to serve customers across our businesses. We have established an interim succession plan for each of our key executives, should an executive be unable to perform his or her duties.
The mix of business we write affects our Minimum Required Assets under the PMIERs, our premium yields and the likelihood of losses occurring.
The Minimum Required Assets under the PMIERs are, in part, a function of the direct risk-in-force and the risk profile of the loans we insure, considering LTV ratio, credit score, vintage, Home Affordable Refinance Program ("HARP") status and delinquency status; and whether the loans were insured under lender-paid mortgage insurance policies or other policies that are not subject to automatic termination consistent with the Homeowners Protection Act requirements for borrower-paid mortgage insurance. Therefore, if our direct risk-in-force increases through increases in NIW, or if our mix of business changes to include loans with higher LTV ratios or lower FICO scores, for example, all other things equal, we will be required to hold more Available Assets in order to maintain GSE eligibility.
The minimum capital required by the risk-based capital framework contained in the exposure draft released by the NAIC in December 2019 would be, in part, a function of certain loan and economic factors, including property location, LTV ratio and credit score; general underwriting quality in the market at the time of loan origination; the age of the loan; and the premium rate we charge. Depending on the provisions of the capital requirements when they are released in final form and become effective, our mix of business may affect the minimum capital we are required to hold under the new framework.
The percentage of our NIW from all single-premium policies was 9% in the first quarter of 2021 and 9% in 2020 and has ranged from approximately 9% in 2020 and 2021 to 19% in 2017. Depending on the actual life of a single premium policy and its premium rate relative to that of a monthly premium
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policy, a single premium policy may generate more or less premium than a monthly premium policy over its life.
As discussed in our risk factor titled "Reinsurance may not always be available or affordable," we have in place various QSR transactions. Although the transactions reduce our premiums, they have a lesser impact on our overall results, as losses ceded under the transactions reduce our losses incurred and the ceding commissions we receive reduce our underwriting expenses. The effect of the QSR transactions on the various components of pre-tax income will vary from period to period, depending on the level of ceded losses. We also have in place various excess-of-loss ("XOL") reinsurance transactions, under which we cede premiums. Under the XOL reinsurance transactions, for the respective reinsurance coverage periods, we retain the first layer of aggregate losses, and a special purpose entity provides second layer coverage up to the outstanding reinsurance coverage amount.
In addition to the effect of reinsurance on our premiums, we expect a decline in our premium yield because an increasing percentage of our insurance in force is from recent book years whose premium rates had been trending lower.
Our ability to rescind insurance coverage became more limited for new insurance written beginning in mid-2012, and it became further limited for new insurance written under our revised master policy that became effective March 1, 2020. These limitations may result in higher losses than would be the case under our previous master policies. In addition, our rescission rights temporarily have become more limited due to accommodations we have made in connection with the COVID-19 pandemic. We have waived our rescission rights in certain circumstances where the failure to make payments was associated with a COVID-19 pandemic-related forbearance.
From time to time, in response to market conditions, we change the types of loans that we insure. We also may change our underwriting guidelines, in part by agreeing with certain approval recommendations from a GSE automated underwriting system. We also make exceptions to our underwriting requirements on a loan-by-loan basis and for certain customer programs. Our underwriting requirements are available on our website at http://www.mgic.com/underwriting/index.html.
Even when home prices are stable or rising, mortgages with certain characteristics have higher probabilities of claims. As of March 31, 2021, mortgages with these characteristics in our primary risk in force included mortgages with LTV ratios greater than 95% (14.5%), mortgages with borrowers having FICO scores below 680 (8.9%), including those with borrowers having FICO scores of 620-679 (7.5%), mortgages with limited underwriting, including limited borrower documentation (1.3%), and mortgages with borrowers having DTI ratios greater than 45% (or where no ratio is available) (13.4%), each attribute as determined at the time of loan origination. Loans with more than one of these attributes accounted for 2.5% of our primary risk in force as of March 31, 2021, and less than one percent of our NIW in the first quarter of 2021 and in 2020.
From time to time, we change the processes we use to underwrite loans. For example, we may rely on information provided to us by a lender that was obtained from certain of the GSEs’ automated appraisal and income verification tools. Those tools may produce results that differ from the results that would have determined using different methods. For example, the appraisal tools may indicate property values that differ from the values that would have been determined by onsite appraisals. In addition, we continue to further automate our underwriting processes. It is possible that our automated processes result in our insuring loans that we would not otherwise have insured under our prior processes. In addition, the number of refinance loans receiving appraisal waivers from the GSEs increased significantly beginning in 2020 and temporary policies adopted by the GSEs in response to COVID-19, which we follow, allow for property valuations in certain transactions to be based on appraisals that do not involve an onsite or interior property inspection of the property. Our acceptance of GSE appraisal waivers and appraisal flexibilities may affect our pricing and risk assessment.
Approximately 69.4% of our first quarter 2021 NIW and 70.2% of our 2020 NIW (by risk written) was originated under delegated underwriting programs pursuant to which the loan originators had authority on our behalf to underwrite the loans for our mortgage insurance. For loans originated through a delegated underwriting program, we depend on the originators' compliance with our guidelines and rely on the originators' representations that the loans being insured satisfy the underwriting guidelines, eligibility criteria and other requirements. While we have established systems and processes to monitor whether certain aspects of our underwriting guidelines were being followed by the originators, such systems may not ensure that the guidelines were being strictly followed at the time the loans were originated.
The widespread use of risk-based pricing systems by the private mortgage insurance industry (discussed in our risk factor titled "Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses") makes it more difficult to compare our premium rates to those offered by our competitors. We may not be aware of industry rate changes until we observe that our mix of new insurance written has changed and our mix may fluctuate more as a result.
If state or federal regulations or statutes are changed in ways that ease mortgage lending standards and/or requirements, or if lenders seek ways to replace business in times of lower mortgage originations, it is possible that more mortgage loans could be originated with higher risk characteristics than are currently being originated, such as loans with lower FICO scores and higher DTI ratios. Lenders could pressure mortgage insurers to insure such loans, which are expected to experience higher claim rates. Although we attempt to incorporate these higher expected claim rates into our underwriting and pricing models, there can be no assurance that the premiums earned and the associated investment income will be adequate to compensate for actual losses even under our current underwriting requirements.
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Our holding company debt obligations materially exceed our holding company cash and investments.
At March 31, 2021, we had approximately $802 million in cash and investments at our holding company and our holding company’s debt obligations were $1.1 billion in aggregate principal amount, consisting of $242 million of 5.75% Senior Notes due in 2023 ("5.75% Notes"), $650 million of 5.25% Senior Notes due 2028 (the 5.25% Notes), and $209 million of 9% Convertible Junior Subordinated Debentures due in 2063 ("9% Debentures"). Annual debt service on the 5.75% Notes, 5.25% Notes and 9% Debentures outstanding as of March 31, 2021, is approximately $70 million.
The 5.75% Senior Notes, 5.25% Senior Notes and 9% Debentures are obligations of our holding company, MGIC Investment Corporation, and not of its subsidiaries. The payment of dividends from our insurance subsidiaries which, other than investment income and raising capital in the public markets, is the principal source of our holding company cash inflow, is restricted by insurance regulation. In addition, through June 30, 2021, dividends paid by MGIC to our holding company require GSE approval. MGIC is the principal source of dividends, and in the first quarter of 2020, it paid a total of $390 million in dividends of cash and investments to our holding company. We ask the OCI not to object before MGIC pays dividends and, due to the uncertainty surrounding the COVID-19 pandemic, MGIC did not pay a dividend of cash and/or investment securities to the holding company after the first quarter of 2020; however, in the third quarter of 2020, MGIC distributed to the holding company, as a dividend, its ownership in $133 million of the 9% Debentures, with a fair value of $167 million. Future dividend payments from MGIC to the holding company will be determined on a quarterly basis in consultation with the board of directors, and after considering any updated estimates about the length and severity of the economic impacts of the COVID-19 pandemic on our business.
In 2020, we issued the 5.25% Senior Notes and used a portion of the proceeds to repurchase $183 million of our 5.75% Senior Notes and $48 million of our 9% Debentures. We may, from time to time, repurchase our debt obligations on the open market (including through 10b5-1 plans) or through privately negotiated transactions.
In 2020 we repurchased approximately 9.6 million shares of our common stock, using approximately $120 million of holding company resources. As of March 31, 2021, we had $291 million of authorization remaining to repurchase our common stock through the end of 2021 under a share repurchase program approved by our Board of Directors in January 2020. Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time. Due to the uncertainty caused by the COVID-19 pandemic, we had temporarily suspended stock repurchases but may resume them in the future. If any additional capital contributions to our subsidiaries were required, such contributions would decrease our holding company cash and investments. As described in our Current Report on Form 8-K filed with the SEC on February 11, 2016, MGIC borrowed $155
million from the Federal Home Loan Bank of Chicago. This is an obligation of MGIC and not of our holding company.
The Company may be adversely impacted by the transition from LIBOR as a reference rate.
The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that after 2021 it would no longer publish one-week and two-month tenor USD LIBOR and that after June 30, 2023, it would no longer publish all other USD LIBOR tenors. Efforts are underway to identify and transition to a set of alternative reference rates. The set of alternative rates includes the Secured Overnight Financing Rate (“SOFR”), which the Federal Reserve Bank of New York began publishing in 2018. Because SOFR is calculated based on different criteria than LIBOR, SOFR and LIBOR may diverge.
While it is not currently possible to determine precisely whether, or to what extent, the replacement of LIBOR would affect us, the implementation of alternative benchmark rates to LIBOR may have an adverse effect on our business, results of operations or financial condition. We have three primary types of transactions that involve financial instruments referencing LIBOR. First, as of March 31, 2021, approximately 6% of the fair value of our investment portfolio consisted of securities referencing LIBOR, none of which reference one-week and two-month tenors. Second, as of December 31, 2020, approximately $0.8 billion of our risk in force was on adjustable rate mortgages whose interest is referenced to one-month USD LIBOR. A change in reference rate associated with these loans may affect their principal balance, which may affect our risk-in-force and the amount of Minimum Required Assets we are required to maintain under PMIERs. A change in reference rate may also affect the amount of principal and/or accrued interest we are required to pay in the event of a claim payment. Third, we enter into reinsurance agreements under which our premiums are determined, in part, by the difference between interest payable on the reinsurers’ notes which reference one-month USD LIBOR and earnings from a pool of securities receiving interest that may reference LIBOR (in 2020, our total premiums on such transactions were approximately $20.8 million).
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Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table provides information about purchases of MGIC Investment Corporation common stock by us during the three months ended March 31, 2021.

Share repurchases
Period Beginning |  | Period Ending |  | Total number of shares purchased |  | Average price paid per share |  | Total number of shares purchased as part of publicly announced plans or programs |  | Approximate dollar value of shares that may yet be purchased under the programs (1)
January 1, 2021 |  | January 31, 2021 |  | — |  |  | $ | — |  |  | — |  |  | $ | 290,818,024 |
February 1, 2021 |  | February 28, 2021 |  | — |  |  | $ | — |  |  | — |  |  | $ | 290,818,024 |
March 1, 2021 |  | March 31, 2021 |  | — |  |  | $ | — |  |  | — |  |  | $ | 290,818,024 |
|  |  |  | — |  |  | $ | — |  |  | — |  |  |

(1) On January 28, 2020, our Board of Directors authorized a share repurchase program under which we may repurchase up to an additional $291 million of our common stock through the end of 2021. Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time, and in light of the uncertainty caused by the COVID-19 pandemic, we had temporarily suspended stock repurchases but may resume in the future.
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Item 5. Other Information
In accordance with applicable SEC rules, the following is intended to satisfy the Company's Item 5.02(e) Form 8-K reporting obligations by making timely disclosure in accordance with Item 5(a) of Form 10-Q.
On May 5, 2021, the Company entered into amended and restated Key Executive Employment and Severance Agreements (“KEESAs”) with each of its named executive officers.
The KEESAs provide the executive officer with certain protections during the three-year period after a change in control (the “Employment Period”). While the executive officer is employed during the Employment Period, the executive officer is entitled to a base salary no less than the base salary in effect prior to the change in control. The executive officer is also entitled to participate in medical, life insurance and other benefit plans made available to salaried employees generally and other benefits provided to executives of comparable rank, including bonus programs, stock awards, supplemental retirement benefits and periodic physicals. If the executive officer experiences a termination of the employment by the Company other than for cause and not due to death or disability, or by the executive officer for good reason, in either case during the Employment Period (a “Covered Termination”), he or she is entitled to a termination payment (the “Termination Payment”), continued life and health insurance for the remainder of the Employment Period or, if earlier, until the time he or she obtains similar coverage from a new employer, outplacement services and up to a total of $10,000 to cover tax preparation, legal and accounting services relating to the KEESA termination payment. Neither the prior KEESAs nor the amended and restated KEESAs provide for any gross-ups for excise taxes resulting from payment upon a change in control.
The amended and restated KEESAs generally include the same terms, and involve generally the same potential payment amounts, as the prior KEESAs that are described and quantified under the heading “Compensation and Related Tables – Potential Payments Upon Termination or Change-in-Control” in the Company’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on March 26, 2021, except for the following changes:
•The executive officer’s bonus opportunity during the Employment Period must have target and maximum levels that are no less than the corresponding target and maximum bonus levels under the executive officer’s bonus opportunity prior to the change in control. The prior KEESAs had described the required bonus opportunity only in terms of a percentage of the maximum bonus opportunity prior to the change in control.
•During the Employment Period, the executive officer will be entitled to receive annual grants of equity awards that are as favorable to the executive officer as the equity awards granted to the executive officer in either the year of, or the year immediately preceding, the change in control. The prior KEESAs required the aggregate value of equity awards and other fringe benefits to be not less than 75% of the aggregate annual value of such benefits made available to the executive officers prior to the change in control.
•Upon a change in control, the amended and restated KEESA provides for the same “double trigger” vesting that is currently set forth in the Company’s 2015 and 2020 Omnibus Incentive Plans except that, if outstanding equity awards are not assumed or the executive officer does not receive a substitute award from the acquirer in the change in control transaction, performance-vesting restricted stock units will vest based on the greater of target performance, performance as measured through the date of the change in control (as measured against a pro-rated portion of the performance goal) or the most recently forecasted performance through the end of the performance period, instead of in the maximum amount, as under the prior KEESAs.
The amended and restated KEESA would apply the same approach to unvested performance-vesting restricted stock units upon a Covered Termination.
•Upon a Covered Termination, the amended and restated KEESAs modify the calculation of the Termination Payment that will be payable to the executive officer so that (a) the calculation is the same regardless of when during the Employment Period the Covered Termination occurs and (b) the bonus component of the Termination Payment calculation is based, in relevant part, on the executive officer’s target, rather than maximum, bonus. In addition, the amended and restated KEESAs modify the calculation of the Termination Payment such that rather than taking into account, as under the prior KEESAs, an amount equal to the actuarial equivalent of the executive officer’s life annuity benefit accruals under the Company’s pension plan and supplemental executive retirement plan (“SERP”) for the year of termination or a prior year (whichever is greater), under the amended and restated KEESAs, the calculation takes into account the dollar value of the amounts that were or would have been credited to the executive officer’s account as a cash balance contribution credit under the pension plan and the SERP.
•The amended and restated KEESAs will modify the definition of “good reason” following a change in control to add as a triggering event certain relocations of the executive officer’s principal place of employment more than 50 miles.
•Upon a Covered Termination, rather than receiving, as under the prior KEESAs, the bonus otherwise payable to the executive officer for the year of termination , under the amended and restated KEESAs, an executive officer would receive only a pro rata bonus; such pro rata bonus would be calculated and paid on the basis of the greater of performance as
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measured through the termination date or the most recently forecasted performance through the end of the performance period.
•Upon a Covered Termination, the duration of health and welfare benefits under the amended and restated KEESAs will match the severance period rather than, as under the prior KEESAs, being linked to the end of the Employment Period.
•Following a Covered Termination, in addition to a 12-month non-competition provision similar to the non-competition provision in the prior KEESAs, the executive officer will be subject to a 12-month non-solicitation provision with respect to the Company’s employees and customers.
As under the prior KEESAs, under the amended and restated KEESAs, if a change in control and Covered Termination occur, the executive officer is entitled to receive a Termination Payment equal to a multiple of the sum of his or her annual base salary, a bonus component and an amount representing benefit credits under certain of the Company’s retirement plans. This Termination Payment is payable in one or two lump sums, depending on limits on amounts that may be paid within six months of termination under applicable tax rules and regulations. The first lump sum is payable within 10 business days after the termination date and the second lump sum, if required by applicable tax rules and regulations, is payable six months thereafter.
If the payments and benefits under the prior KEESAs would result in an excise tax under the “golden parachute” rules, then, depending on an executive officer’s pay grade and the date of his or her KEESA, the payments and benefits would either be reduced to a level that would not trigger the excise tax, or they would be determined using a “net best” approach. Under the “net best” approach, the amount of the payments and benefits would either be reduced to a level that would not trigger the excise tax or paid in full, with the executive officer being responsible for the excise tax, whichever was more favorable to the executive officer on an after-tax basis. Under the amended and restated KEESA, the “net best” approach applies to all executive officers.
In addition to the non-competition and non-solicitation provisions described above, the KEESAs also impose confidentiality obligations on the executive officers.
Under the KEESAs, a change in control generally would occur upon the acquisition by certain unrelated persons of 50% or more of the Company’s Common Stock; an exogenous change in the majority of the Company’s Board of Directors; certain mergers, consolidations or share exchanges or related share issuances; or the Company’s sale or disposition of all or substantially all of its assets. The Company would have “cause” to terminate an executive under a KEESA if the executive officer were to: intentionally engage in certain bad faith conduct causing demonstrable and serious financial injury to the Company; be convicted of certain felonies; or willfully, unreasonably and continuously refuse to perform his or her existing duties or responsibilities. An executive officer would have “good reason” under his or her KEESA if the Company were to breach the terms of the KEESA or make certain changes to the executive officer’s position, principal place of employment or working conditions.
The form of amended and restated KEESA is filed as Exhibit 10.11.5 to this Quarterly Report on Form 10-Q. The foregoing description is only a summary and is qualified by the actual terms of the amended and restated KEESA.
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Item 6. Exhibits
The accompanying Index to Exhibits is incorporated by reference in answer to this portion of this Item, and except as otherwise indicated in the next sentence, the Exhibits listed in such Index are filed as part of this Form 10-Q. Exhibit 32 is not filed as part of this Form 10-Q but accompanies this Form 10-Q.
(Part II, Item 6)
Index to exhibits

Exhibit Number |  | Description of Exhibit | Form | Exhibit(s) | Filing Date |  |  |  |
3.2 |  | Amended and Restated Bylaws, as amended | 8-K | 3.2 | May 3, 2021 |  |  |  |
4.2 |  | Amended and Restated Bylaws, as amended (included as Exhibit 3.2) | 8-K | 3.2 | May 3, 2021 |  |  |  |
10.2.25 |  | Form of Restricted Stock Unit Agreement under 2020 Omnibus Incentive Plan (Adopted March 2021), as Amended May 2021 * † |  |  |  |  |  |  |
10.6 |  | Executive Bonus Plan * † |  |  |  |  |  |  |
10.11.5 |  | Form of Amended and Restated Key Executive Employment and Severance Agreement (Adopted May 2021) * † |  |  |  |  |  |  |
31.1 |  | Certification of CEO under Section 302 of Sarbanes-Oxley Act of 2002 † |  |  |  |  |  |  |
31.2 |  | Certification of CFO under Section 302 of Sarbanes-Oxley Act of 2002 † |  |  |  |  |  |  |
32 |  | Certification of CEO and CFO under Section 906 of Sarbanes-Oxley Act of 2002 (as indicated in Item 6 of Part II, this Exhibit is not being “filed”) †† |  |  |  |  |  |  |
99 |  | Risk Factors included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented by Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and through updating of various statistical and other information † |  |  |  |  |  |  |
101.INS |  | Inline XBRL Instance Document |  |  |  |  |  |  |
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document |  |  |  |  |  |  |
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document |  |  |  |  |  |  |
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document |  |  |  |  |  |  |
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document |  |  |  |  |  |  |
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document |  |  |  |  |  |  |
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |  |  |  |  |  |  |

* Denotes a management contract or compensatory plan.
† Filed herewith.
†† Furnished herewith.
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SIGNATURES
Pursuant to the requirements 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 May 5, 2021.

| MGIC INVESTMENT CORPORATION
| /s/ Nathaniel H. Colson
| Nathaniel H. Colson
| Executive Vice President and
| Chief Financial Officer
| /s/ Julie K. Sperber
| Julie K. Sperber
| Vice President, Controller and Chief Accounting Officer

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