Ladies and gentlemen, thank you for standing by and welcome to the MGIC Investment Corporation First Quarter 2026 Earnings Call. At this time, all lines have been placed on mute to prevent any background noise. At the end of today's presentation, we'll have a question and answer session. To ask a question during the session you will need to press star one one on your telephone, you will then hear an automated message advising your hand is raised. To withdraw your question please press star one one again. I will now turn the conference call over to Dianna Higgins, Head of Investor Relations. Please go ahead.
Thank you, Kelly. Good morning and welcome everyone. Thank you for your interest in MGIC. Joining me on the call today to discuss our results for the first quarter are Tim Mattke, Chief Executive Officer, and Nathan Colson, Chief Financial Officer and Chief Risk Officer. Our press release, which contains MGIC's first quarter financial results, was issued yesterday and is available on our website at mtg.mgic.com under Newsroom. Includes additional information about our quarterly results that we will refer to during the call today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk in force and other information you may find valuable.
As a reminder, from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website. Before getting started today, I want to remind everyone that during the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Our Form 8-K and Form 10-Q filed yesterday includes additional information about the factors that could cause actual results to differ materially from those discussed on the call today. If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments.
No one should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of our Form 8-K or Form 10-Q. With that, I now have the pleasure to turn the call over to Tim.
Thanks, Dianna. Good morning, everyone. I'm pleased to report a strong start to 2026 as we continue to execute our business strategies while maintaining the momentum we have built over the past several years. Our performance demonstrates the strength of our business model, disciplined market approach, and long-standing commitment to meeting the evolving needs of our customers in the broader market, a commitment we have maintained since 1957. For the first quarter, we generated net income of $165 million, delivering an annualized return on equity of 13%. Our solid operating performance, combined with the strength of our balance sheet, drove book value per share to $23.63, an increase of 10% year-over-year.
Turning to NIW, we wrote $14 billion of new insurance in the first quarter, an increase of 41% from last year and our largest first quarter of NIW since 2022. The increase was driven by higher refinance activity, as well as what we expect was a modestly larger purchase market. Insurance in force at the end of the first quarter stood at approximately $303 billion, relatively flat quarter-over-quarter and up 3% from a year ago, with annual persistency ending the quarter at 84%, down from 85% last quarter. Both insurance in force and annual persistency are in line with our expectations entering the year. Overall, we continue to expect our insurance in force to remain relatively flat in 2026.
If mortgage rates were to decline more than currently predicted, we'd expect the size of the MI market to benefit from increased refinance activity. Although the growth in insurance in force would be offset by lower persistency, which is consistent with what happened in the first quarter to some degree. We continue to be pleased with the overall credit quality and performance of our well-balanced portfolio. Our underwriting standards remain strong, and to date, we have not seen a material change in the credit performance of our portfolio. Early payment defaults remain low, which we believe is a positive indicator of near-term credit trends. Our capital structure remains robust, with $6 billion of balance sheet capital and a well-established reinsurance program with a large panel of highly rated reinsurers that continues to be a core component of our risk and capital management strategy.
These reinsurance agreements reduce loss volatility and stress scenarios while providing capital diversification and flexibility at attractive costs. At the end of the first quarter, our reinsurance program reduced our PMIERs required assets by $3.1 billion, or approximately 52%. Our capital management approach remains unchanged. We prioritize prudent insurance in force growth over capital return. Market conditions have constrained insurance in force growth in recent years. Against that backdrop, our capital return activity reflects our robust position, continued strong credit performance and financial results, and share price levels that we believe are attractive to generate long-term value for our shareholders. Consistent with our commitment to disciplined capital allocation and long-term shareholder value, last week the board authorized an additional $750 million share repurchase program.
We actively monitor capital levels of both MGIC and the holding company, carefully balancing the amount of capital we return to shareholders with what we retain to preserve financial strength and resilience across a range of macroeconomic environments. In doing so, we consider both current conditions and expected future operating environments while continually evaluating the most effective ways to allocate capital to drive long-term shareholder value. An approach that served our shareholders well. Consistent with this approach, earlier this week, MGIC paid a $400 million dividend to the holding company, enhancing holding company liquidity and overall financial flexibility. With that, let me turn it over to Nathan to provide more details on our financial results and capital management activities for the first quarter.
Thanks, Tim. Good morning. As Tim discussed, we had solid financial results for the first quarter. We earned net income of $0.76 per diluted share compared to $0.75 per diluted share last year. Our re-estimation of ultimate losses on prior delinquencies resulted in $31 million of favorable loss reserve development in the quarter. This favorable development was primarily due to delinquency notices received in 2025. Cure rates on those delinquency notices have exceeded our expectations. We have adjusted our ultimate loss expectations accordingly. As a quick reminder, delinquency notices we receive during a quarter span across various book year vintages. For the delinquency notices we received in the quarter, we continue to apply the initial claim rate assumption of 7.5%.
Looking at delinquency trends, our count-based delinquency rate increased 14 basis points year-over-year and 1 basis point in the quarter. Seasonal trends, which are historically a tailwind of mortgage credit performance in the first quarter, were less pronounced this year. Cures on new notices remain strong, and we expect the delinquency rate and the level of new notices to continue to normalize. Overall, both the number of new notices and the delinquency rate remain low by historical standards. The in-force premium yield was 38 basis points in the quarter, flat sequentially and consistent with what we expected. With another year of high persistency expected and MI origination trends similar to last year, we continue to expect the in-force premium yield to remain relatively flat during the year.
Investment income totaled $62 million in the first quarter, flat sequentially and year-over-year, as the book yield on our investment portfolio has been approximately 4% for the last year. During the quarter, reinvestment rates on our fixed income portfolio continued to exceed our book yield, but our capital return activities have limited the growth in the investment portfolio and the resulting investment income. Underwriting and other expenses in the quarter were $48 million, down from $53 million in the first quarter last year, as we remain focused on disciplined expense management. We continue to expect operating expenses for the full year to be in the range of $190 million-$200 million as I shared in February.
In the quarter, we continued to allocate excess capital to share repurchases, which totaled 7.2 million shares for $193 million. We also paid a quarterly common stock dividend of $35 million. Over the prior 4 quarters, share repurchases totaled $750 million, and shareholder dividends totaled $138 million. Combined, they represented a 123% payout of the net income earned over the period. In the 2nd quarter, through April 24th, we repurchased an additional 1.7 million shares of common stock for a total of $47 million. In addition, the board approved a $0.15 per share common stock dividend payable on May 21st. These actions are all consistent with our capital allocation approach. With that, let me turn it back over to Tim.
Thanks, Nathan. A few additional comments before we open it up for questions. Housing affordability remains a challenge for many prospective home buyers. Private mortgage insurance plays a critical role in supporting housing affordability by enabling low down payment borrowers into the market and achieve homeownership sooner. We remain actively engaged in industry discussions and regularly advocate for responsible policy solutions that improve affordability. Last week, FHFA announced advances in credit score modernization and that the GSEs are moving forward with VantageScore 4.0 and FICO Score 10 T with the intent of lowering costs for borrowers. We are fully supportive of these credit score modernization advances and are actively working with the GSEs, lenders, and their technology partners to operationalize these changes. In closing, our first quarter results reflect consistent execution of our business strategies and disciplined capital allocation.
With our strong foundation and deep industry expertise, we remain well-positioned to navigate dynamic environments and create long-term shareholder value. With that, Kelly, let's take questions.
Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Terry Ma of Barclays. Your line is now open.
Hey. Thank you. Good morning.
Morning.
Morning. I want to start with credit. Any color you can provide on kind of the trends you saw this quarter? The default rate was, I think it was up 1 basis point quarter-over-quarter, versus the normal seasonality of down. Just curious, if you can kind of provide any color there.
Yeah, Terry, it's Nathan . Thanks for the question. It is something that we looked into quite a bit this quarter and, you know, while I think broad-based didn't see as much maybe seasonal benefit as we have in recent years in the first quarter. There were a couple unique items that we identified just relative to the timing within the month that certain large servicers provide their delinquency information. You know, as a practical matter, we get delinquency reporting beginning on the 16th of the month for loans that have two missed payments. The earlier in the month that servicers report, the more new notices they're likely to report, just because those borrowers have had, you know, only 16 days in the month to make a payment.
We had two servicers that, you know, gave us reporting earlier in March than they had in prior periods. That may have accelerated, or, you know, may have increased a little bit the amount of new notices and decreased the cures that we have seen. From what we've seen so far in April, those trends look pretty favorable and more in line with what we would have expected. I think time will ultimately tell, but did seem like there were two maybe unique items in the quarter. At the end of the day, long-term cure rates still are very attractive and haven't shown much sign of slowing down, which has led to us, you know, consistently releasing reserves and having favorable development.
You know, all in all, I think the credit picture is still quite favorable.
Got it. That's helpful. I guess as a follow-up, would the servicer reporting issue also kind of impact roll rates? Because as I look at those, between the buckets, those are also a little bit worse on a year-over-year basis. Maybe just taking a step back, any commentary on how you're thinking about just the level of gas and energy prices, how it may kind of impact your borrowers? Thank you.
Yeah, Terry, it's Nathan . I'll take those. I think certainly the same reporting for new delinquencies that I talked about is also the reporting for cure activity on previously reported items. That could definitely have an impact. You know, we are coming off historically good levels, especially for long-term cure rates. You know, we've always expected some normalization. You know, that may be happening to some degree. You know, even post the COVID crisis, we have noticed that earlier period cure rates, 1 month, 3 month, 6 month, you know, are running at lower levels than we saw pre-COVID. That later stage cure rates, 12 months, 18, 24 are much better, which is ultimately leading to a lot of that favorable development that I mentioned.
You know, the servicer reporting timing does impact both new notices and cures. You know, relative to, you know, energy prices and just, you know, general price levels and the impact on, you know, on consumers and on borrowers that we insure. I think any macroeconomic headwind is, you know, something that we're conscious of and something that we think a lot about. To date, I don't think we've seen a lot of direct impact. Certainly, you know, the power of interest rates, we saw that with, you know, refinance activity, you know, more than 20% of our NIW with rates, you know, still not meaningfully below 6%. I do think that rates drive activity and behavior in our space a lot more than, you know, maybe higher prices for certain goods.
It's, it's certainly something that we'll actively monitor. You know, the rate of unemployment is a key factor for us. You know, wage growth has still been strong, and nominal GDP continues to be, you know, running very excuse me, very high. Those are offsetting factors. You know, again, always an uncertain macroeconomic environment and something that, you know, we try to maintain both from a credit policy perspective, underwriting perspective and a, and a balance sheet and capital position that we have, you know, flexibility to react to, you know, whatever the macroeconomic environment is that comes next.
Got it. Thank you for the color.
Thank you.
Thank you. One moment for our next question. Thank you. Our next question comes from the line of Bose George of KBW. Your line is now open.
Hey, guys. Good morning. Just on capital return, you know, last year it was your payout ratio was 124%. Sounds like it's similar in the first quarter. I mean, last year, looking at your capital, you know, the AOCI reversal helped keep the capital fairly flat, and that wasn't the case in the first quarter. You know, the question is, does AOCI play a role in, you know, how you think about the payout ratio, or could it continue at this level even if it pushes up leverage a little bit?
Yeah, Bose, it's Tim. It's a good question. Generally, we don't really think about AOCI as something that really impacts our thought about capital return. You know, it's much more of a GAAP concept. Looking at statutory and PMIERs, obviously stay focused on what might be happening with the investment portfolio. Again, I think those are viewed as sort of temporary and obviously just unrealized that we normally hold those to maturity. It's noise. Obviously impacts sort of book value per share, but from a capital return, it's really not a major consideration in our discussions.
Okay. Just given your comments on the insurance in force being fairly flat, you know, this is kind of a reasonable payout ratio and at least for this year?
Yeah. I think with all the caveats that we put out about, you know, obviously performance, the macroeconomic environment, all of those things being consistent, those are things that we, you know, pay close attention to make sure that we should continue at a pace that we have been. Assuming those things stay, you know, relative to how they've been in the past, that we've been very comfortable at the rate of which we've been returning capital.
Okay, great. Just on the positive development this quarter, it looked like a bigger portion than usual just came from loss severity. Anything to call out there or is that just noise?
I don't think there's anything, you know, specific to call out there. You know, we did see a little bit of a decline in the exposure on new notices, but, you know, some of that has to do with just which loans are curing and the exposure on the inventory. We've kept our, you know, our kind of reserving approach relative to exposure pretty consistent. I think that's more of just the underlying loans, you know, what's curing, what's remaining, than any, you know, active change that we made.
Okay, great. Thanks.
Thanks.
Thank you. One moment for our next question. Thank you. Our next question comes from the line of Mihir Bhatia of Bank of America.
Good morning. Thank you for taking my questions. I wanted to start maybe going back to some of the questions around credit that Terry was talking about. I think you did mention that, you know, you expect normalization of delinquency rates to continue. Maybe, look, the portfolio's changed a little bit over time and with regulations and stuff also. Just maybe help us, where do you expect the delinquency rate to stabilize? Like, what's the path to get there from here?
Yeah. Mihir, it's Nathan. Thanks, thanks for the question. I think there's a couple things that that becomes dependent on. You know, for the last couple years, you know, and there's been some periods where it's not exactly this, but we've been between a 10 and 15 basis point year-over-year increase in the delinquency rate. That feels very consistent with normalizing credit conditions. We also have a unique book historically right now where we have a significant amount of our in-force that is 3, 4, 5, 6 years aged, and those are typically higher, you know, higher delinquency periods. Often they're not a significant portion of the in-force book because so much of those books have run off. That isn't the case today.
If that continues, you know, I think we would expect, you know, gradual upward movement in the delinquency rate if the 2020, 2021, 2022, 2023 books persist as they have. If we do get in a rate environment where we're resetting a lot of the book towards more recent vintages, if rates were to go down and we were to write a lot more new business, you know, that would be a tailwind, I think, for the delinquency rate. Part of the answer to that question, you know, is dependent on what happens to rates and how much new business we write.
I would say the environment where the existing loans persist, even if the delinquency rate continues to tick up modestly, that's a really good environment for us because we get, you know, the renewal premium, you know, on those loans, and that's been, you know, that's been the way that the last couple years have gone for us and, you know, we've had, you know, very good results. I think we can do well in either environment. In one environment there's probably more pressure on the premium rates because we'd be resetting a lot of loans, you know, refinances typically lower LTV.
Mm-hmm
... higher, lower DTI, higher FICO. We'd be resetting a lot of the premium to lower levels. The delinquency rate would be benefited. In an environment that continues to persist, there's probably more upward pressure on the delinquency rate. You know, we continue to get the renewal premium off of those vintages which is, you know, also an attractive environment for us.
Got it. Then just along those lines, towards the end you mentioned, you know, refinances have ticked up. I think it's like up to 21% of NIW. Your premium rate I think is steady. That's the outlook you're calling for. Persistency has stayed elevated. Can you just talk a little bit about that? Like, you know, your, I think your refinance share of NIW has gone from like 6% to 20%, but persistency is basically 84%, 85% still. Just what's driving that dynamic and where would persistency rate stay at around these levels?
Yeah. Mihir, it's Nathan again. There was a slight decline in the persistency rate during the quarter. Again, this is an annual measure. Refinance activity was a little elevated in the fourth quarter, but we've seen that taper off since then. If refinance activity remained at the 20% level of NIW, I do think that, you know, that would work its way into the premium yield that we're seeing and persistency would continue to tick down. I think if you know, if we look at what we would term the persistency run rate which would be just looking at the quarterly activity, it was closer to 80% than 84.
Right
... but, you know, our expectations now with rates where they are today, more in that 6.25-6.5, we are seeing a fall off in refinance activity, and that's more kind of the expectations that we were calling out, in terms of, you know, maybe a slightly larger purchase market but that a lot of the refinance activity for the year may be behind us. If that's, if that's not correct, if rates do go down and there's a lot of refinance activity, then, you know, I think you'd see lower persistency, higher NIW and potentially depending on how much volume it was and which loans we're refi-ing, you know, you could see maybe slight headwinds to the in-force premium yield.
I think our expectations are more for rates in and around the area that they are now and for, you know, moderation and refinance activity in the second quarter and the second half of the year.
Got it. I'll just ask one last question and jump back in queue. In terms of new notice severity, it has increased a little bit sequentially. Just wanted to check, are you seeing any regional or vintage-specific pressures? Maybe also just talk a little bit about early performance of the 2024 through 2026 vintages. Anything you're seeing in there that makes you pause?
Mihir, it's Nathan. I mean, the number one driver of our new notice severity assumption is the exposure, the, you know, the risk associated with the new delinquencies. As we've gotten less new delinquencies on a relative basis, relatively less delinquencies from the 2008 and prior vintages at lower loan amounts and more from the 2023, 2024, you know, starting in 2025 at much higher loan amounts, it's just the average loan size, and thus the average exposure is higher. I think the changing vintage mix just moving closer to today's values is-
Mm-hmm
... you know, far and away the driver of that increase versus anything you'd see maybe regionally or anything that we're seeing or changing from an assumption standpoint.
Got it. Thank you for taking my questions.
Thanks.
Thank you. There are no further questions. I will now turn the call back over to management for closing remarks.
Thanks, Kelly. I want to thank everyone for your interest in MGIC. We'll be participating in the BTIG Housing and Real Estate Conference and the KBW Virtual Real Estate Finance and Technology Conference in May. I look forward to talking to all of you in the near future. Have a great rest of your week.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.