MGIC Investment Corp (MTG) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MGIC third quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's presentation, Mr. Mike Zimmerman. Sir, you may begin.

Thanks, Howard.

Good morning, and thank you for joining us this morning and for your interest in MGIC Investment Corporation. Joining me on the call today to discuss the results for the third quarter of 2011 are Chairman and CEO Curt Culver, Executive Vice President and CFO Mike Lauer, and Executive Vice President of Risk Management Larry Pierzchalski.

I want to remind all participants that our earnings release of this morning, which may be accessed on MGIC's website, which is located at MTG -- MGIC.com under Investor Information, includes additional information about the Company's quarterly results that we will refer to during the call and includes certain non-GAAP financial measures.

As we have indicated in this morning's press release, we have posted on our website the supplemental information containing characteristics of our primary risk in force, flow new insurance written, as well as other information that we think you will find valuable.

During the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about those factors that could cause actual results to differ materially from those discussed on the call are contained in the quarterly earnings release.

If the company makes any forward-looking statements, we are not undertaking obligation to update those statements in the future, in light of subsequent developments. Further, no interested party 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 the press release.

With that, let me turn the call over to Curt.

Thanks, Mike. Good morning.

In the third quarter we reported a net loss of $165.2 million, or $0.82 a share. The loss reflects the typical seasonal patterns regarding new notices and cures, as well as the continued impact of the weak housing market and high unemployment. The net loss for the first 9 months of 2011 was $350.6 million, compared with a loss of $177.1 million last year.

New insurance written in the third quarter was $3.9 billion, compared to $3.1 billion last quarter and $3.5 billion in the third quarter of 2010. An additional $645.7 million of HARP refinance transactions was also completed during the quarter. The private mortgage insurance industry's market share continues to slowly improve and is now approximately 6% of the low down payment market.

During the quarter, 2 competitors stopped writing business, and based on public disclosures, these firms approximated a little more than 20% of the private mortgage insurance industry volume in the first half of 2011. This business is being actively pursued by MGIC and the 4 other companies that are writing.

Unfortunately, given the fact that not all companies publicly report their business writings, it is difficult to give you an accurate market share estimate. So, within that environment, we expect the new insurance written for the fourth quarter of 2011, which is traditionally a slow period of originations, to be within a range of $2.5 billion to $3.5 billion, which would leave the full year writings for MGIC at approximately $12.5 billion to $13.5 billion.

Persistency in the quarter was 83.7%, which was effectively flat to last quarter. And total primary insurance in force declined to $179 billion, from $182 billion last quarter and down from $197 billion 1 year ago. Losses incurred in the second quarter were $462.7 million versus $384.6 million last year and basically flat for the second quarter.

During the quarter, a combination of weak economic conditions and seasonality caused new delinquent notices to exceed cures, excluding recisions and denials, by 10,007 loans. The level of losses incurred in the quarter were primarily a result of the number of net new delinquencies and a slight increase in the claim rate.

Primary loss reserves now total $4.4 billion, or an average of $24,342 per delinquent primary loan, which is effectively unchanged from last quarter. The average reserve per delinquent loan reflects the current mix of delinquency categories and recent cure rate trends.

During the quarter, 7,009 loans, or 20% of the primary cures, were reported as modifications, versus 6,922 modifications in the second quarter, or 19% of the cures. This total was comprised of 5,396 HAMP modifications and 1,613 of nonHAMP modifications.

As of September 30, 13,900, or 8% of the primary delinquent inventory, were reported to us as being active in the HAMP trial process. The re-default rate of the recent modifications continues to perform better than our historical experience, which we believe is due primarily to the fact that borrowers monthly payments are being lowered by 30% to 40%.

Paid claims in the quarter declined $67 million and totaled $751 million, versus $818 million last quarter. The decrease was primarily due to $91 million of lower primary and full paids, which was offset by $24 million less in re-insurance benefits. The average claim payment ticked up marginally to $50,900 due to the mix of claims processed during the quarter.

Within the primary delinquent inventory at the end of the quarter, there were 13,799 claims that have been received but not yet paid, which is down from 21,306 loans 1 year ago. Likewise within the pool of delinquent inventory, there were 1,345 claims that have been received but not yet paid, which is down from 2,196 claims 1 year ago.

As I stated last quarter, assuming normal foreclosure patterns and given the lower level of unpaid claim inventory, we believe that claim payments have peaked and that the overall level of total claim payments will continue to decline.

As expected, the total estimated primary and pool loss mitigation savings continued to decline and totaled $381 million, with $138 million of that in recisions and denials, compared to last quarter's savings of $428 million, where we had $170 million in recisions and denials.

The average premium yield was 60.9 basis points, down marginally from 61.6 basis points last quarter. Underwriting and other expenses were $52 million, which is down 9% from the same period last year.

Cash and investments totaled $7.3 billion as of September 30, reflecting the elevated level of claim payments, the declining premiums from the smaller in force book, and the repayment of the $78 million senior note that matured in September. At September 30, the combined insurance company risk to capital ratio was below the 25-to-1 threshold at 24-to-1, and MGIC remains an ineligible insurer with both Fannie Mae and Freddie Mac.

As we have said in the past, we believe MGIC has sufficient claim paying resources to meet all of its policy obligations, and even under stressed loss scenarios, there is an excess. Additionally, as MGIC approaches the regulatory capital thresholds required to write new business, I wanted to remind you that we have positioned ourselves to continue to write new business nationwide.

We have disclosed the details of this plan in our public disclosures for some time, and it's also in our first risk factor in this morning's earnings release. So I won't get into the details, other than to say that the waiver issue to MGIC by the Wisconsin OCI and Fannie Mae's approval of MIC both expire at the end at the end of this year, while Freddie Mac's approval of MIC runs through the end of 2012.

We have recently begun discussions with both the OCI and the GSE's about the extension of the waiver and MIC approval, and regarding our plan to contribute an additional $200 million from the holding company to our insurance operations to support the business at MGIC and MIC write going forward.

So to summarize where we are, while the economy continues to challenge the Company's financial results and capital results, we are encouraged by the increased level and quality of new business, and look forward to the opportunity to written even more, given fewer competitors and the potential to take share from the FHA. In addition, the delinquent inventory continues to decline and, as I mentioned earlier, we believe paid claims have peaked.

Before we take questions, let me make some comments about the state of affairs regarding the housing finance reform. As most of you are aware, our Company submitted a very detailed response to the proposed rules for QRM. We understand that nearly 12,000 comments were received by the regulators, and they are in the process of reviewing them.

In fact, later this month, we'll be meeting with the Federal Reserve and the FDIC to discuss our response. That being said, I do not expect to see much movement on this topic over the next several months. 1 of the reasons I do not believe that we'll see much action on the QRM front is that it seems that the administration's and FHFA's focus is now more centered on helping current borrowers refinance their loans, whether through the current TARP program or an expanded program.

Both MGIC and MIC have had several meetings with the FHFA and the GSEs to discuss how these programs could be modified to allow more responsible borrowers to refinance into a lower rate. How the HARP program will be expanded remains to be seen, but allowing borrowers to lower their monthly payments would be beneficial for the economy, housing and our industry.

While a number of bills have been introduced in the House regarding GSE reform debate, we continue to expect that it will be quite some time, in fact that it may not be until after the 2012 election, before there's any meaningful clarity provided on this topic. Meanwhile, the GSEs continue to be the primary outlet for loans originated with private mortgage insurance.

It's our belief that the QRM definition and GSE reform need to be linked together and should be addressed in a coordinated manner along with further FHA changes, if the Administration's and Congress' goal of reducing the government's footprint in housing is to be realized. Unfortunately, this lack of clarity surrounding housing finance will continue for some time, as there is much to play out in Washington. However, we remain encouraged by the central theme of shifting lending activity back to the private sector.

With that, Howard, let's take questions.

(Operator Instructions) Our first question or comment comes from the line of Mr. Mike Grasher from Piper Jaffray. Your line is open.

Thank you. Good morning, everyone.

Curt, I think in your disclosures this morning there was a bit about the NAIC decision to, I guess, stop giving credit for the deferred tax asset. Can you talk about that a little bit?

Mike can.

Yes. Mike Lauer.

It looks like it's going to be signed. And in effect if it is, in our particular case, MGIC, the statutory company was profitable into last year and in closing on a quarterly basis. We can look at the possibility of being profitable in that writing company and calculate, if you will, a net deferred tax asset. We'll do that calculation on a quarterly basis. But it's not an opt in or opt out, it has to be booked.

The impact of the regulation is kind of a catch-22. If, in fact, you do have a net deferred tax asset admitted and that particular calculation helps you reach the risk to capital threshold, then it will be disallowed. There's a formula that goes through it. But I guess to step back from it, basically if the amount of the net deferred tax asset would benefit you in such a way to just reach the risk to capital ratio, then there's a calculation to remove that. So we gave the pro formas, if you will, that in the event that we would be at that ratio, it would be approximately about a 2 point move, maybe 1.5 point to 2 point move.

Okay. And then under that --

It doesn't affect us now, for example. And if, in fact, as Curt mentioned, we plan to contribute $200 million down this quarter, it wouldn't affect us at any rate. But we were highlighting the fact that given the test for risk to capital in this industry, that, that particular pronouncement, if it goes into effect, could have a bearing farther down the line.

Okay. Then with the movement of capital then it sounds like you likely are -- you've not begun the process in terms of reaching out to various states in trying to receive waivers?

Mike, this is Mike Zimmerman.

We have waivers that are in place. Some -- most expire at the end of this year. So we're in process -- obviously, you start with your state of domicile and work your way forward, but that's in process.

Sure. With -- and then with the GSE's as well, but okay.

And then, Curt, is there any reason to believe that seasonality trends from previous years won't hold up in 2012 for delinquencies? Particularly if employment trends remain sort of status quo?

Mike, I don't know of any reason why they wouldn't hold up. If you looked at a decade's time, maybe a couple times within a decade, something is off base. But generally those trends hold up year in and year out.

Okay. Then I just wanted to ask Mike about the new delinquencies coming in the door in terms of the mix.

Yes. I think I mentioned last quarter the trend has been down, but for the most part it's been across all of the books and the geography. When we file the Q, you'll see that there's been a regular reduction in delinquencies in all the major states. Nothing significant changing there.

The only thing I would comment on is that as we look at the predominance of new delinquencies, obviously a large percentage, or about 30%, comes out of the '07 book. But interestingly enough, if you think about the economy, about 30%, another 30% come out of the '04 and earlier books. So it really is saying that that's how weak the economy is, and here are people that have been in homes for quite a while, and all of those books combined, that going back 10 years from '04 still generating notice.

So the good news is, as Curt pointed out, the trend has been down. The disappointing part, I think, is the fact that cures relative to notices the last couple of quarters have been slower. But that would be typical of the third and fourth quarter, historically.

Okay. Thanks.

Thanks, Mike.

Our next question or comment comes from the line of Mr. Chris Gamaitoni from Compass Port. Your line is open.

Guys, thanks for taking my call.

Just on following up on the last question. Could you give us a bit more color what you think the likelihood of receiving waiver extensions, and what your view of would be for regulators to change their mind, or Fannie and Freddie to change their mind, about not getting those extensions?

I don't see an issue with getting those waivers. And again you have -- from the practical standpoint of Fannie Mae and Freddie Mac we have a huge book of business with both. We're probably the largest counter party with both. It is in their interest to have MGIC writing business. We generate a lot. The quality of the business is very, very good and generates surplus for us, which goes to help support those legacy books.

So it's very much in their self-interest to work with all the companies in our industry, particularly MGIC.

And I would add that the state has loss analysis done by an outside party, as well as Freddie Mac in particular. That work has been recently done, and indicate that we have sufficient capital payer claims.

Yes. As I mentioned in my comments, even under stress loss scenario, we would have excess.

Sounds good. And just how much, sorry, how much cash is left at the hold co, after the $200 million?

$560 million, after the $200 million.

Okay. And have you seen any indication of clients shifting more market share towards MTG, given kind of the disruption, from PMI and Republic and more than just proportional market share, are they moving up markets, as far as what is viewed quality, or is it more proportional on the market share you think you're gaining?

Again, we're writing more business. And I don't know if that's an increase in market share or reflective of the market in general. We had 2 companies go away, and so you think you might be writing some share, but we've also had some other companies being more aggressive within our space. So unfortunately again, as I mentioned earlier, because 2 companies don't publicly report their numbers, we can't tell where we are on the share basis, other than to say our volume's increased -- our new insurance written has increased.

Okay. Thank you very much.

You bet.

Our next question or comment comes from the line of Mr. Mark Devries from Barclays Capital. Your line is open.

Yes. Thanks.

Could you give us a sense of where the risk to capital ratio would go, from the $200 million dividend?

Yes. I think we're at, on a consolidated basis, we're at 24-to-1. It would go to about 23.3 on a consolidated basis, on a pro forma basis. 21.3, excuse me.

21.3.

I missed the dot.

I guess you indicated you still have $560 million of cash at the hold co. How much additional flexibility would you have to make additional dividends down in the future if it was needed?

Well, that would be dependent upon if -- how much would be needed, et cetera. We do have debt payments coming up in '15, but about $240 million coming up, and we're running interest right now about [$60 million], [$65 million] a year. So you can kind of do the math.

Okay. Got it.

You're still getting a relatively high number of cures from the bucket of borrowers who have been past due for 12 payments or more. What are you seeing there? Is that a lot of modifications, or what's causing those borrowers to cure?

That's always been the case. It's just, hard to nail it down. Some people may just be trying to gain the system and try to get a modification. And push comes to shove, they just decide to come current. Sometimes it's, a work situation. It's just taking them a long time to resolve itself. And so on and so forth. It's just hard to exactly determine what the cause is, but it's always kind of been there. It is surprising that somebody that delinquent would cure in those numbers, but it's typically happened.

Okay. And what kind of trends are you seeing on re-default of previously modified loans?

As I mentioned in my comments, and I don't know the exact number, but they're I think significantly lower than what we've had in the past. Again because, particularly on the HAMP, they've lowered their payment by 30% to 40%. Whereas mods that we've done traditionally in the past, you usually had where you increased the payment actually on many of those. So that drop in payment certainly would lead to borrowers defaulting at a lower rate.

Mark, this is Mike Zimmerman.

It's pretty much in line with what you see with the Treasury reports that get published. You've got to give loans enough seasoning. You're seeing early on in the 20%s and working their way up to 30%, but somewhere in the mid 30%s with enough seasoning on those.

Yes, where in the past I think on the many years that we've been doing them, probably was about 50% re-default rate. So, significant improvement this far into it.

Okay. That's helpful. Thanks.

You bet.

Our next question or comment comes from the line of Mr. Jack Micenko from SIG. Your line is open.

Hello. Thanks for taking the questions.

I know you'd said timing is uncertain around any kind of HARP developments. In your view, is that measured in weeks, months, quarters? I'm trying to figure out -- because every week we get a sign of hope that a new HARP program is going to come through. You talk to folks in Washington, thing seem more delayed, but there's a headline yesterday that Bernanke is going to the Hill next week to talk about housing. Is that related? What is your -- can you pin down sort of what sort of time series we're looking on a re-vamp of HARP?

Well, I can't give you a definitive time. There's been a flurry of activity and news on that subject matter. So I, think from the standpoint of the Administration, sooner rather than later is the goal, but relative to a time frame, we would be just be a participant an part of it. So I can't give you a time frame.

It would be helpful, as I've said in my comments, on many fronts, that it gets accomplished.

Okay.

Jack, this is Mike. I think it's more important to think that -- to getting it right and making sure it's not a false start is more important than the actual timing of it. So I think you just want to keep that -- and kind of you're orchestrating a lot of participants within the industry. And that takes a lot of -- that takes time.

Right.

And then, noticed that the Countrywide decision was pushed out a few months. Anything -- any reason there?

It's really just the way things develop in the legal system, so it's -- the dispute's moved to a formal proceeding that they developed. It's delays for lots of reasons.

Okay.

So it's just the way the system works.

The legal system in action.

Okay. But nothing you guys are doing short of saying, let's delay or anything along those lines?

No.

Okay.

And then one last question on, on the yields coming down, I guess I would have thought yields would have held up perhaps with 2 competitors leaving the business. Is that a mix issue, is that an aging issue?

You mean our premium or --

Yes, premiums.

I think it's a mix issue. Again that's a weighted average calculation, so on the beginning and ending inventory -- or in force. So you can see it move around, tens of basis points like that, it wouldn't be unusual.

Okay. All right. Thank you.

Thank you.

Our next question or comment comes from the line of Mr. Steve Stelmach from FBR Capital. Your line is open.

Hello. Good morning.

Good morning.

If I heard you correctly, you mentioned elevated average paid claim was due to mix shift. Is that correct?

Yes.

Okay. What's the likelihood of that mix improving in fourth quarter 2012? Is there any way that you kind of have a forward look based on your currently delinquency inventory to see if that's going to improve or get worse?

Well, I think -- this is Mike again.

If you noticed what happened in the quarter specifically, the amount of bulk went up and the primary went down. That wasn't really a function of any trends, other than work capacity and claims that were ready to be paid. So the allocation shifted, if you will, during the quarter, and we paid more bulk than primary quarter-to-quarter. And that really was claims that were available to be paid and processed. So that can change, and that's where the little bit of the mix came in.

Yes, and there's one other element playing through. The bulk mix was higher because of the -- what was available to pay, but the rescission rates, as we indicated, are slowly declining. Rescission rates on the bulk business were higher than flow. And as those rescission rates come down, and in particular in the third quarter here, ito came down a bit more for bulk than flow, because of the rescission rate's coming down impacting bulk more so than flow that led to a bit more paids relative to flow, on top of the things Mike mentioned.

Okay. So if you look at your current delinquency pipeline, is it your suspicion that the average paid trends lower or is that going higher?

I think it's going to be relatively stable, give or take a few $50, $100, give or take each quarter.

Got it. Okay.

And then Curt, you mentioned it's in the best interest of the GSE's to sort of work with all MI companies. That doesn't seem to be the case necessarily with the 1 or even 2 guys that are no longer writing business. What's the exception when it comes to MTG? Is it just a matter of capacity, at this point? You mentioned size, but is there a view that perhaps because of that, there's a different view taken with MTG?

Well, one we are the largest counter party, I think with both. And two, on a capacity and willingness to write business and dedicate capital to the business, MGIC is in a good position. So I think for those reasons -- as I said, each book of business that we write is very profitable, and that goes to support the old books also. So, in our case, we're willing to put capital down and move forward under the structures that we've talked to them about, it makes very good sense for them to continue to work with us.

Okay.

And then when you think about the extending of the waivers, when that announcements comes, do we wait for fourth quarter earnings or will you announce it as you get them?

I don't think we'll announce. I don't look at that as a significant deal on getting state waivers, because we have companies to write business in those states. So we'll just talk about it I think at the next earnings call.

Okay. All right.

And then just real quickly on the debt. The 2015, what's still left there to pay off?

$249 million, I believe.

Okay. So if we think about $560 million, net the $249 million, is that how we should think about that difference being what could potentially be incremental to the op co?

That's the most immediate contingency right. The $215 million net, plus the interest payments.

But you won't go below the $249 million, in terms of hold co --

This is Mike Zimmerman -- we were just saying, there's $560 million at the holding company. We have obligations of $245 million plus debt service until then. Those all have to be considered when you're talking about what the options are.

I guess, in terms of the order of priority, you're not -- you're always go to have that dry powder to service to debt and pay the 2015. Is that a fair assumption?

Correct. That's correct.

You won't go below that threshold. Okay.

Right.

All right. Thank you very much

Our next question or comment comes from the line of Mr. Douglas Harter from Credit Suisse. Your line is open.

Thanks. I was wondering if you could talk about, kind of the cure rate. There was a lot of volatility sort of from month to month, is that normal sort of, what do you see as kind of the right measure, or the right rate going forward?

Well, I'd start --

We'll have Larry answer that.

I'd start by saying that on new notices coming in the door, the cure rate has improved steadily since bottoming out sometime in early first half of 2009. So the new notices coming in the door, the cure rate on those new noticed has improved steadily since the new notice activity in 2009. Now what you see is the aggregated results, all the delinquencies from all the various time periods and the cures. And in that cure number I believe is the rescission activity. So as that rescission activity winds down, that's also playing through

The cure activity is also impacted by HAMP, not HARP. HAMP, we've got a pretty good push from HAMP 1 plus years ago. We're still getting about 1,000 or so new trials coming in the door. And the timing of those has shifted a bit because if you remember, the early HAMP program they did some paperwork upfront before the trial, but they did most of it after and then the fall out that occurred. Then I think sometime last year, or was it earlier this year, Mike? March/April they changed the homework at the upfront instead of the back. So by and large, there's a number of things impacting cures aside from the seasonality, so I guess. But the bottom line to me is the cure activity on the new notices has improved steadily since '09, absent HAMP.

Great. Thanks.

And then another question. If you could help us think about how much of the, of the losses are occurring outside of the main mortgage insurance subsidiary? Just to think about the capital levels for that subsidiary going forward?

Doug, this is Mike Zimmerman. You're talking about what gets allocated out to the affiliated re-insurance, the internal re-insurance companies and such?

Yes, just to think about, when thinking about the capital for the main sub versus the combined capital.

That's why we give you the combined capital.

That's a consolidated number.

It's a consolidated. When we give, we give you 2 risk to capital numbers. The MGIC, the stand alone company, and then the consolidated, which takes in effect the capital from all the other re-insurance companies.

Right. But I guess the relevant one for new business writing, is it MGIC or is it consolidated?

You really have to think about them in totality, because those re-insurance affiliates are needed if you write coverage above 25%. So you're right, on a stand alone basis, there's a calculation for MGIC only. But there also --it's needed to have those re-insurance operations. So you've got to think about it in totality. And that's why we give you that combined one.

So that is the number that you would need waivers, if you went above?

You would need waiver, anytime you see the 25-to-1 or don't maintain the MPP, each entity has a calculation for it. So you could be above in one and not in another. That doesn't necessarily mean you would or would not need to get a waiver. It depends on which entity. Some entities may need a waiver in that instance. For example, if the re-insurance company was over 25-to-1, they would need a waiver, but MGIC may not. But they're linked together is my point, so when you get a waiver, you get it for everything.

Great. Thank you.

Yes.

The regulators would look at it on a consolidated basis when you get to testing risk to capital. To answer your question, in our case. So if your point would be that if we were under 25-to-1 in MGIC but seriously over in a re-insurance subsidiary, they take that into effect and look at the consolidated risk to capital as well as the MPP.

Great. Thank you.

You bet

Our next question or comment comes from the line of Mr. John Evans. Your line is open, sir.

Can you talk just a little bit about, I guess, because of the issue that you guys are dividend down this quarter. Last quarter you bought back bonds. Can you talk a little bit about that? Just to try to reduce your interest expense, gives you a better capital ratios or --?

No, it doesn't help at all on capital ratios. The $200 million that we said we were going to contribute down in this quarter, that improves the capital ratios, yes.

Okay.

And we did re-purchase some debt. We had some debt that came due in September. We paid that off. And we also repurchased, if you recall in the second quarter, $50 million some of the 2015 debt at a discount. I'm not sure I understand -- if that answers your question or --

Well no, I guess you purchased, re-purchased that debt at $0.94 on the dollar, basically, I think last quarter.

Right.

Your debt obviously has come under a lot of -- it's a lot cheaper now. So I guess if you liked it at $0.94 on the dollar, do you not like it at $0.70, or wherever it is? I have no idea.

Yes. Exactly. It's an opportunity for us, we understand that. And we look at that every quart quarter.

Can you also help me understand your thought process for your ability or thought to raise more capital. Because eventually you'll have to raise more capital it looks like, so how do you think about the timing of that, et cetera?

Well, that would all be a combination of things, and that is whether or not we would have to raise capital, whether or not there's some other vehicles for us to bolster risk to capital, i.e. re-insurance. So it's a number of factors. Obviously the results would --

Capital, in your particular case would mean the need to raise capital to write business. As we said, first of all, we do have a strategy whereby if we had a problem with risk to capital, we do have this strategy of using MIC with waivers, et cetera. So we have that strategy. Now what we're trying to do is upgrade that if you will, because it's expiring with the OCI and Fannie in particular. And then re- as Curt mentioned that. So that is a strategy to continue writing business if there's a disruption and risk to capital.

Another point that you made is, you have to raise capital and I think there you're saying you have to raise capital sometimes to meet debt payments possibly but that's farther down the line than I think we more, we've got more than enough cash to meet certain debt payments and interest payments. And farther down the line I would hope that the markets would be available to us if you get that far out thinking about business.

Yes.

I think it's a combination of things. I think with respect to capital to write business, we have some strategies. If we get caught short and don't have the capital, we need to renew those with Freddie and Fannie and the OCI, and we think we have a good story there. And we have some additional capital. But longer term, I would believe that for the longer term debt issues that we've got time enough and business performance enough to solve those later.

Great. Can I ask you a couple more questions?

So obviously your writings have been going up, because your competitors have, some of them have gone out of business, not been able to write, but you're still writing significantly kind of below your infrastructure. One of your competitors cut expenses there. Do you believe that you have the ability or should we think about you potentially next year starting to reduce expenses?

We are always very expense conscious and we understand the lower levels of writings and continue to move the organization in line with our writing ability.

Okay.

And then another question relative to the statutory deferred, if that does go into place, can you talk just a little bit about, do you have any insights on the industry from other players not being able to write? Do you think -- so, in other words, you could even pick up more market share or do you have any insight into that?

John, this is Mike Zimmerman.

It's not our place to comment on other companies' financial circumstances with it, but I think that's readily apparent. It's a lot of analysis others have done, though.

Okay. Great. Thank you for your time.

Yes. Thank you.

Our next question or comment comes from the line of Mr. Shawn Faurot from Deutsche Bank. Your line is open.

Hello, guys. Thanks for taking the question.

Sure.

Just want to talk a little bit -- I know you mentioned that cure rate on new defaults have been steadily improving. When should we expect new defaults to start to tail off in a more meaningful way, thinking further out, whether it's 2012, 2013? And what kind of declines do you guys expect with the older vintages starting to burn out or that have been burning out for an extended period of time now?

I guess that's a function of the economy and the housing markets, and jobs and all that. So, as Mike indicated, the notices are coming down on the older books of business at a very slow rate. You would think, with all the seasoning there, they would be at a lower level. Most of the improvement is coming from the '06, '07 vintages. But certainly all would benefit from the HARP program and help with the economy.

Got you. But as far as new defaults, understanding the economy. Are you guys seeing most of those new defaults coming from re-defaults on mod's, or are they just coming from just general economic downturn and people just defaulting just generally from that impact?

I think, as of late, 70% or so of our new delinquents have been here before. 30% are first timers. The persistency is pretty high, so the book's not running off. And that also contributes to delinquencies hanging, because the business is hanging.

Okay. That's helpful. So you guys would expect, obviously on that 70%, given that they've cured before, that they might cure again? Is that the thought process?

That's how they get to be repeats.

Okay. That's helpful. Thanks.

Thank you.

Our next question or comment comes from the line of Mr. Brian Gonick from Senvest. Your line is open.

Hello. Good morning. I'm wondering if you could comment on the cure rate trend in the quarter, which July looked like it was about 68%, and you exited the quarter at 84%. Is that a typical seasonal pattern, or is it a little better than what you'd see seasonally, and how do you see that trending in the current quarter?

Brian, this is Mike Zimmerman.

You're referring to, I'll say the MICA cure default ratio concept?

No, I'm talking about -- yes, just for MGIC.

That definition. And those are, if you look back over the 10 year history of MICA's statistics, I think you'll see them right in line with those numbers. Fourth quarter, you typically see right around high 70%s to 80% type of ratio, when you notices over cures. Again, there's deviations around that, but that's probably the 10-year average.

Okay. Great.

Second, if we look at the mix of delinquencies, the bucket that's 12 payments or more, looks like it peaked last quarter at 49.9%. And this quarter it ticked down a little bit. Do you believe that we've seen the inflection here in that bucket as a relative mix of the total?

Well, yes, you're right it's about 50% of the notices here the last 2 quarters. I would think it has. We're surprised it's hung up as long as it has and would have anticipated by now that it would be turning. So it's kind of flat the last 2 quarters, and not sure what will happen in December, the fourth quarter. Because remember, fourth quarter is usually another seasonally adjusted upward. So we may not see much change there, but I would hope that as we go into next year, we start to see that decline. So it --

Right.

It's been one of the biggest issues we've had, is the amount of more than 12 months notices. It's down, quarter to quarter, but as a percentage still about flat to about 50% of the total delinquencies.

And I think the major drivers if you think about it, if we have fewer new notices coming in times 0, that's going to cause that back end to look higher on a percentage basis. And then it's also a function of the foreclosure process, which has certainly slowed from a few years ago. Maybe it's gotten to a steady state here, but you never know what's going to change there.

If we get this settlement, which has been talked about forever now, with the attorneys general and the servicers, do you think that will break the log jam?

I don't think much is going to change in terms of speeding things along per se. I think everybody's motivated to give borrowers as much as time and opportunity to solve the issue. So, I don't think it's going to change much.

Okay. Thank you.

Our next question or comment comes from the line of Mr. Joe [Termaner] from Height Analytics. Your line is open.

Hello, guys. Thanks for taking the question.

Based on our conversations with the FHFA regarding making HARP more successful for under water borrowers, it seems that the state insurance regulators need to weigh in more on the process. Can you kind of discuss why that might be the case?

Joe, this is Mike Zimmerman.

I don't know if that's an accurate representation. The insurance departments already have weighed in with the original HARP program, where we treat them as modification. So that's not an issue, and hasn't been since the inception of the program.

Well, okay. Thanks.

And then also, maybe from a wider vantage point can you discuss why from your perspective why you think that the HARP program hasn't been more of a success for under water borrowers?

Well, I think if you talk to lenders, it's the rep and warrant issue relative to the new and old loans.

And I think, probably the loan level fees charged by the GSE's.

As far as prices.

As well as maybe some LTB limitations regarding that also. I think those are all the things that FHFA is thinking about, relative to an expanded program.

Do you guys see any issues surrounding the refi process and paperwork flow through the system?

Not from the MI perspective.

No, I think they have a streamlined program that as they deal with borrowers with high quality, that they'll streamline you through very quickly. So I don't think that's an issue.

All right. Thanks for taking my questions.

Yes.

Our next question or comment is a follow-up from Mr. Mike Grasher from Piper Jaffray. Your line is open.

Yes, just wanted to address the pool paid. They declined in the quarter, as you had forecasted from last quarter. Can we anticipate more I guess of a decline going forward in future quarters?

Yes. The pace should decline quarter to quarter. As Curt indicated, we thought they peaked second quarter. We think they're going to continue to decline and a lot of that decline should come from the pool case.

Okay. So specific to pool then we're looking to get back to, I don't want to call it a normal run rate, but something in $50 million range?

For quarter?

Yes.

Maybe a little higher than that. But trending down to that number.

Okay. Thanks.

Our next question or comment comes from the line of Mr. Patrick Donnelly from Blackrock. Your line is open, sir.

Hello, guys. In terms of new capital perhaps entering the market on the re-insurance side, do you see any new participants being attracted to the space because of the quality of the new business and the high ROE's that can be achieved?

Are you talking about primary writers or reinsures?

Re-insurers.

I think in discussions that we've had, there are people that are interested for those reasons that you've just said, that one, the quality of the business is very good, and two, I think there may be excess capacity in that, or in the re-insurance market that could look to be utilized in this space. Because of the quality.

Right. And that lessens your capital needs, so it, in a sense it's almost like a backdoor capital --

Yes.

-- rate, if you will.

If we were going to do something, that capital would be a big consideration of doing it.

Okay. And at this time, so what are your thoughts on that in the near term, do you see any inkling of that, or?

It's an alternative that we're looking at and talking to. And as I said, I think you get a clearer picture maybe at year-end as reinsurers make commitments across the globe on business they're going to pursue, what kind of capacity might be available.

Okay. All right. Thank you.

You bet.

Our next question or comment is a follow-up from Mr. John Evans from Aetna's Zweig Partners. Your line is open.

I neglected to ask you, you have the ability in your converts, the 9%s, to turn them off and go into arrears because you're putting capital down there, can you talk about that? Is that something you're planning to do? I think it will save you something like $35 million --

You're right, that particular security has a feature that we could defer payment. We did that in one period of time and then caught up and repaid it and we're current on it now. So it does have that capability, but we have no plans to do that at this time.

Okay. Thank you so much.

Our next question or comment comes from the line of Mr. Randy Raisman from Chatham. Your line is open.

I just want to understand a little more on the deferred tax asset. I think what you're saying is, if including it in your assets and then I guess in your capital would allow you to just make the 25 times test, then it gets removed but if --

That's correct.

But if not, if not it stays in. So if you're -- it really comes down to what happens, right. So if you're running scenarios where the company's getting just close to -- just kind of extrapolating out from where the results have been just close to that 25 times, then it would be logical for us in the investment community to just take $133 million dollar hit to your capital right. If you're models looks like you're going to be right on, like the company's going to come outright at 25 times.

Yes.

Okay.

Correct.

That's it. I just wanted to clarify. Thank you very much.

Sure

Our next question or comment comes from the line of Mr. Ethan Auerbach from BlueMountain. Your line open.

Hello. How much cash do you guys have remaining in your captives?

Captives? A $200 million. Hang on a second. It's in the release here. $392 million.

$392 million.

Do you have an expectation as to when that will be exhausted?

Well, no. Not all of that, that's a cumulative of all the individual captive trust accounts.

Sure.

So not all captives will be utilized with it. It's in decreasing amounts, as you can see in the results.

Thanks.

(Operator Instructions)

Our next question or comment comes from the line of Mr. John Helmers. Your line is open, sir.

Hello, guys. Thanks for take my question.

I just wanted to confirm like you guys did at the last quarterly call that the cash flow that you laid out in April of 2010 still holds. And regarding that too, there was an earlier caller who suggested that you would definitely need to raise more capital in order to write the amount of business that you'd like to. I assume, to write the amount of business you'd like to write in a normalized environment,. And I'd like you to explain if that is necessarily true or if you can see a way to get to the promise land, if you will, without raising any new capital.

Well, I don't know where you heard that answer, but I'll let Mike --

No, no, no. It was in the question.

And I guess my point is, without using re-insurance, could you make it to a more normalized environment and write really good business without raising any new capital?

Well, remember what I said, first of all, we're currently below 25-to-1. How you get beyond 25-to-1 is -- reaches a number of factors. Obviously, operating performance as well as the amount of business written. We currently have a plan in place that would say, and it's been approved by the OCI and the GSE's, and we're working to update that again, that is that in the event that we exceed that, we would get waivers. And in those states where we couldn't get waivers, we would write business in MIC, which is a wholly owned subsidiary of MGIC that we have $240 million of capital in that we haven't written any business in. So remember, that goes back a couple years to our plan of being able to write business on an undisrupted basis if we exceeded 25-to-1 and go down that line. So that's our first comment.

The second comment I made, with respect to additional capital is that, obviously there's other ways of fixing a risk to capital issue. We could use some re-insurance. We also recently planned the dividend down $200 million. That's another solution. It's a combination, if you will, operating performance, updating if you will our agreement and waivers with the GSE's and the OCI, and the ability to write business in MIC. So all of those things are the front end of that issue. At the back end would be ultimately would be to raise capital. And we don't see the need for that at this time.

Thanks for that.

And Curt, I guess the point being is there's a lot of focus on, given where the stock price is in particular, that you would have to potentially raise capital. And I guess one thing that would be helpful from your perspective if you can is just how you think about more broadly the intrinsic value that you see, that the stock price represents. Because there was a time, in let's say '05 and '06 where you were making on an operating basis well over $400 million per year, and now you have a market cap that's just over $400 million. And can you just speak to how you think about the intrinsic value? I know it's complicated and there are assumptions involved, but if you can address that at all, it would be very helpful.

Well, the quality of the new business is very, very good. And if you go out through the capital plan as, as Mike highlighted and it gets you to the promise land, there is great value in these businesses. And it's getting there. And so the issues in getting there continue to be the economy and the impact relative to the old book of business that we have, because the new book is very, very profitable -- or business written since mid 2008. So, to the extent that our capital plan works as we have put it together, and the economy cooperates somewhat, and we get the regulatory -- that the plan relative to the regulatory changes regarding the Fannie Mae and Freddie Mac and where QRM turns out and also changes to FHA, there's tremendous value within our industry, But there's a lot of moving parts. So we're dealing with those moving parts and, so longer term I think there's -- longer term I think there's tremendous value in our Company.

And that goes back just to my first question, and totally understood on the moving parts. Absolutely makes sense. But the capital plan you put forward and the cash flow analysis like I said, in April 2010, nothing become the weakening economy would -- has taken you off that flight path so far, would you agree with that?

Yes. In fact, I think if you looked at the bottom line relative to that excess that we talked about in April 2010, we're basically right on top of that. Now, there's been a lot of moving parts within that, that, in and out regarding getting to that bottom line, as you looked at maybe lower rescission levels and then we got a tax refund. But we also -- so a lot of things that offset each other, but when you get to the bottom line it's basically the same, relative to the excess capital in the company.

Understood. Thank you.

Yes.

I'm showing no additional audio questions at this time.

With that then, let's wrap it up and I thank you all again, as always, for your interest in our company. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.