x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
WISCONSIN | 39-1486475 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
250 E. KILBOURN AVENUE | 53202 | |
MILWAUKEE, WISCONSIN | (Zip Code) | |
(Address of principal executive offices) |
CLASS OF STOCK | PAR VALUE | DATE | NUMBER OF SHARES |
Common stock | $1.00 | 07/31/11 | 201,146,648 |
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
ASSETS
|
(In thousands)
|
|||||||
Investment portfolio (notes 7 and 8):
|
||||||||
Securities, available-for-sale, at fair value:
|
||||||||
Fixed maturities (amortized cost, 2011 - $6,618,208; 2010 - $7,366,808)
|
$ | 6,743,812 | $ | 7,455,238 | ||||
Equity securities
|
2,637 | 3,044 | ||||||
Total investment portfolio
|
6,746,449 | 7,458,282 | ||||||
Cash and cash equivalents
|
1,038,568 | 1,304,154 | ||||||
Accrued investment income
|
67,555 | 70,305 | ||||||
Reinsurance recoverable on loss reserves (note 4)
|
206,170 | 275,290 | ||||||
Reinsurance recoverable on paid losses
|
32,259 | 34,160 | ||||||
Prepaid reinsurance premiums
|
1,962 | 2,637 | ||||||
Premium receivable
|
74,717 | 79,567 | ||||||
Home office and equipment, net
|
28,962 | 28,638 | ||||||
Deferred insurance policy acquisition costs
|
7,970 | 8,282 | ||||||
Other assets
|
65,124 | 72,327 | ||||||
Total assets
|
$ | 8,269,736 | $ | 9,333,642 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||
Liabilities:
|
||||||||
Loss reserves (note 12)
|
$ | 5,082,902 | $ | 5,884,171 | ||||
Premium deficiency reserve (note 13)
|
158,913 | 178,967 | ||||||
Unearned premiums
|
186,985 | 215,157 | ||||||
Senior notes (note 3)
|
321,621 | 376,329 | ||||||
Convertible senior notes (note 3)
|
345,000 | 345,000 | ||||||
Convertible junior debentures (note 3)
|
329,330 | 315,626 | ||||||
Other liabilities
|
332,125 | 349,337 | ||||||
Total liabilities
|
6,756,876 | 7,664,587 | ||||||
Contingencies (note 5)
|
||||||||
Shareholders' equity:
|
||||||||
Common stock ($1 par value, shares authorized 460,000,000; shares issued, 2011 - 205,046,780; 2010 - 205,046,780; shares outstanding, 2011 - 201,146,648; 2010 - 200,449,588)
|
205,047 | 205,047 | ||||||
Paid-in capital
|
1,131,557 | 1,138,942 | ||||||
Treasury stock (shares at cost, 2011 - 3,900,132; 2010 - 4,597,192)
|
(163,586 | ) | (222,632 | ) | ||||
Accumulated other comprehensive income, net of tax (note 9)
|
50,977 | 22,136 | ||||||
Retained earnings
|
288,865 | 525,562 | ||||||
Total shareholders' equity
|
1,512,860 | 1,669,055 | ||||||
Total liabilities and shareholders' equity
|
$ | 8,269,736 | $ | 9,333,642 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenues:
|
(In thousands of dollars, except per share data)
|
|||||||||||||||
Premiums written:
|
||||||||||||||||
Direct
|
$ | 283,471 | $ | 314,310 | $ | 571,188 | $ | 589,444 | ||||||||
Assumed
|
700 | 779 | 1,430 | 1,576 | ||||||||||||
Ceded
|
(13,772 | ) | (19,743 | ) | (27,756 | ) | (39,616 | ) | ||||||||
Net premiums written
|
270,399 | 295,346 | 544,862 | 551,404 | ||||||||||||
Decrease in unearned premiums, net
|
14,055 | 13,828 | 28,138 | 29,722 | ||||||||||||
Net premiums earned
|
284,454 | 309,174 | 573,000 | 581,126 | ||||||||||||
Investment income, net of expenses
|
55,490 | 62,868 | 112,033 | 131,727 | ||||||||||||
Realized investment gains, net
|
21,734 | 31,702 | 27,495 | 64,656 | ||||||||||||
Total other-than-temporary impairment losses
|
- | - | - | (6,052 | ) | |||||||||||
Portion of losses recognized in other comprehensive income, before taxes
|
- | - | - | - | ||||||||||||
Net impairment losses recognized in earnings
|
- | - | - | (6,052 | ) | |||||||||||
Other revenue
|
5,329 | 2,611 | 7,592 | 5,668 | ||||||||||||
Total revenues
|
367,007 | 406,355 | 720,120 | 777,125 | ||||||||||||
Losses and expenses:
|
||||||||||||||||
Losses incurred, net (note 12)
|
459,552 | 320,077 | 769,983 | 774,588 | ||||||||||||
Change in premium deficiency reserve (note 13)
|
(11,035 | ) | (10,619 | ) | (20,053 | ) | (24,185 | ) | ||||||||
Amortization of deferred policy acquisition costs
|
1,723 | 1,770 | 3,448 | 3,493 | ||||||||||||
Other underwriting and operating expenses, net
|
52,320 | 52,280 | 108,145 | 110,502 | ||||||||||||
Interest expense
|
26,326 | 25,099 | 52,368 | 46,117 | ||||||||||||
Total losses and expenses
|
528,886 | 388,607 | 913,891 | 910,515 | ||||||||||||
(Loss) income before tax
|
(161,879 | ) | 17,748 | (193,771 | ) | (133,390 | ) | |||||||||
Benefit from income taxes (note 11)
|
(10,147 | ) | (6,803 | ) | (8,378 | ) | (7,850 | ) | ||||||||
Net (loss) income
|
$ | (151,732 | ) | $ | 24,551 | $ | (185,393 | ) | $ | (125,540 | ) | |||||
(Loss) earnings per share (note 6):
|
||||||||||||||||
Basic
|
$ | (0.75 | ) | $ | 0.14 | $ | (0.92 | ) | $ | (0.82 | ) | |||||
Diluted
|
$ | (0.75 | ) | $ | 0.13 | $ | (0.92 | ) | $ | (0.82 | ) | |||||
Weighted average common shares outstanding - diluted (note 6)
|
201,097 | 182,156 | 200,921 | 152,344 |
Common stock
|
Paid-in capital
|
Treasury stock
|
Accumulated other comprehensive income (loss)
|
Retained earnings
|
Comprehensive loss
|
|||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||
Balance, December 31, 2009
|
$ | 130,163 | $ | 443,294 | $ | (269,738 | ) | $ | 74,155 | $ | 924,707 | |||||||||||||
Net loss
|
- | - | - | - | (363,735 | ) | $ | (363,735 | ) | |||||||||||||||
Change in unrealized investment gains and losses, net
|
- | - | - | (69,074 | ) | - | (69,074 | ) | ||||||||||||||||
Common stock shares issued
|
74,884 | 697,492 | - | - | - | |||||||||||||||||||
Reissuance of treasury stock, net
|
- | (14,425 | ) | 47,106 | - | (35,410 | ) | |||||||||||||||||
Equity compensation
|
- | 12,581 | - | - | - | |||||||||||||||||||
Defined benefit plan adjustments, net
|
- | - | - | 6,390 | - | 6,390 | ||||||||||||||||||
Unrealized foreign currency translation adjustment, net
|
- | - | - | 10,665 | - | 10,665 | ||||||||||||||||||
Comprehensive loss
|
- | - | - | - | - | $ | (415,754 | ) | ||||||||||||||||
Balance, December 31, 2010
|
$ | 205,047 | $ | 1,138,942 | $ | (222,632 | ) | $ | 22,136 | $ | 525,562 | |||||||||||||
Net loss
|
- | - | - | - | (185,393 | ) | $ | (185,393 | ) | |||||||||||||||
Change in unrealized investment gains and losses, net (notes 7 and 8)
|
- | - | - | 24,317 | - | 24,317 | ||||||||||||||||||
Reissuance of treasury stock, net
|
- | (13,534 | ) | 59,046 | - | (51,304 | ) | |||||||||||||||||
Equity compensation
|
- | 6,149 | - | - | - | |||||||||||||||||||
Unrealized foreign currency translation adjustment
|
- | - | - | 4,524 | - | 4,524 | ||||||||||||||||||
Comprehensive loss (note 9)
|
- | - | - | - | - | $ | (156,552 | ) | ||||||||||||||||
Balance, June 30, 2011
|
$ | 205,047 | $ | 1,131,557 | $ | (163,586 | ) | $ | 50,977 | $ | 288,865 |
Six Months Ended
|
||||||||
June 30, | ||||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$ | (185,393 | ) | $ | (125,540 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
39,269 | 27,825 | ||||||
Decrease in deferred insurance policy acquisition costs
|
312 | 816 | ||||||
Decrease in accrued investment income
|
2,750 | 9,341 | ||||||
Decrease (increase) in reinsurance recoverable on loss reserves
|
69,120 | (7,315 | ) | |||||
Decrease (increase) in reinsurance recoverable on paid losses
|
1,901 | (7,685 | ) | |||||
Decrease in prepaid reinsurance premiums
|
675 | 429 | ||||||
Decrease (increase) in premium receivable
|
4,850 | (1,643 | ) | |||||
Decrease in loss reserves
|
(801,269 | ) | (316,061 | ) | ||||
Decrease in premium deficiency reserve
|
(20,053 | ) | (24,185 | ) | ||||
Decrease in unearned premiums
|
(28,172 | ) | (31,300 | ) | ||||
Deferred tax benefit
|
(11,970 | ) | (12,588 | ) | ||||
Increase in income taxes payable (current)
|
585 | 294,095 | ||||||
Realized investment gains, excluding impairment losses
|
(27,495 | ) | (64,656 | ) | ||||
Net investment impairment losses
|
- | 6,052 | ||||||
Other
|
(22,572 | ) | 68,624 | |||||
Net cash used in operating activities
|
(977,462 | ) | (183,791 | ) | ||||
Cash flows from investing activities:
|
||||||||
Purchase of fixed maturities
|
(1,881,026 | ) | (2,593,435 | ) | ||||
Purchase of equity securities
|
(62 | ) | (56 | ) | ||||
Proceeds from sale of equity securities
|
504 | - | ||||||
Proceeds from sale of fixed maturities
|
1,818,354 | 2,483,172 | ||||||
Proceeds from maturity of fixed maturities
|
821,954 | 352,525 | ||||||
Net increase in payable for securities
|
3,921 | 44,664 | ||||||
Net cash provided by investing activities
|
763,645 | 286,870 | ||||||
Cash flows from financing activities:
|
||||||||
Net proceeds from convertible senior notes
|
- | 334,450 | ||||||
Common stock shares issued
|
- | 772,300 | ||||||
Repurchases of long-term debt
|
(51,769 | ) | - | |||||
Net cash (used in) provided by financing activities
|
(51,769 | ) | 1,106,750 | |||||
Net (decrease) increase in cash and cash equivalents
|
(265,586 | ) | 1,209,829 | |||||
Cash and cash equivalents at beginning of period
|
1,304,154 | 1,185,739 | ||||||
Cash and cash equivalents at end of period
|
$ | 1,038,568 | $ | 2,395,568 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands, except per share data)
|
||||||||||||||||
Basic earnings per share:
|
||||||||||||||||
Average common shares outstanding
|
201,097 | 181,267 | 200,921 | 152,344 | ||||||||||||
Net (loss) income
|
$ | (151,732 | ) | $ | 24,551 | $ | (185,393 | ) | $ | (125,540 | ) | |||||
Basic (loss) earnings per share
|
$ | (0.75 | ) | $ | 0.14 | $ | (0.92 | ) | $ | (0.82 | ) | |||||
Diluted earnings per share:
|
||||||||||||||||
Weighted-average shares - Basic
|
201,097 | 181,267 | 200,921 | 152,344 | ||||||||||||
Common stock equivalents
|
- | 889 | - | - | ||||||||||||
Weighted-average shares - Diluted
|
201,097 | 182,156 | 200,921 | 152,344 | ||||||||||||
Net (loss) income
|
$ | (151,732 | ) | $ | 24,551 | $ | (185,393 | ) | $ | (125,540 | ) | |||||
Diluted (loss) earnings per share
|
$ | (0.75 | ) | $ | 0.13 | $ | (0.92 | ) | $ | (0.82 | ) |
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
June 30, 2011
|
Cost
|
Gains
|
Losses (1)
|
Value
|
||||||||||||
(In thousands)
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S.government corporations and agencies
|
$ | 873,069 | $ | 18,039 | $ | (4,736 | ) | $ | 886,372 | |||||||
Obligations of U.S. states and political subdivisions
|
3,020,694 | 97,550 | (33,449 | ) | 3,084,795 | |||||||||||
Corporate debt securities
|
2,348,328 | 48,467 | (6,530 | ) | 2,390,265 | |||||||||||
Commercial mortgage-backed
|
164,428 | 977 | (657 | ) | 164,748 | |||||||||||
Residential mortgage-backed securities
|
64,282 | 2,334 | - | 66,616 | ||||||||||||
Debt securities issued by foreign sovereign governments
|
147,407 | 3,947 | (338 | ) | 151,016 | |||||||||||
Total debt securities
|
$ | 6,618,208 | $ | 171,314 | $ | (45,710 | ) | $ | 6,743,812 | |||||||
Equity securities
|
2,602 | 44 | (9 | ) | 2,637 | |||||||||||
Total investment portfolio
|
$ | 6,620,810 | $ | 171,358 | $ | (45,719 | ) | $ | 6,746,449 |
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
December 31, 2010
|
Cost
|
Gains
|
Losses (1)
|
Value
|
||||||||||||
(In thousands)
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S.government corporations and agencies
|
$ | 1,092,890 | $ | 16,718 | $ | (6,822 | ) | $ | 1,102,786 | |||||||
Obligations of U.S. states and political subdivisions
|
3,549,355 | 85,085 | (54,374 | ) | 3,580,066 | |||||||||||
Corporate debt securities
|
2,521,275 | 54,975 | (11,291 | ) | 2,564,959 | |||||||||||
Residential mortgage-backed securities
|
53,845 | 3,255 | - | 57,100 | ||||||||||||
Debt securities issued by foreign sovereign governments
|
149,443 | 1,915 | (1,031 | ) | 150,327 | |||||||||||
Total debt securities
|
$ | 7,366,808 | $ | 161,948 | $ | (73,518 | ) | $ | 7,455,238 | |||||||
Equity securities
|
3,049 | 40 | (45 | ) | 3,044 | |||||||||||
Total investment portfolio
|
$ | 7,369,857 | $ | 161,988 | $ | (73,563 | ) | $ | 7,458,282 |
Amortized
|
Fair
|
|||||||
June 30, 2011
|
Cost
|
Value
|
||||||
(In thousands)
|
||||||||
Due in one year or less
|
$ | 398,691 | $ | 400,037 | ||||
Due after one year through five years
|
3,111,422 | 3,172,929 | ||||||
Due after five years through ten years
|
1,234,168 | 1,279,285 | ||||||
Due after ten years
|
1,342,969 | 1,373,046 | ||||||
$ | 6,087,250 | $ | 6,225,297 | |||||
Commercial mortgage-backed securities
|
164,428 | 164,748 | ||||||
Residential mortgage-backed securities
|
64,282 | 66,616 | ||||||
Auction rate securities (1)
|
302,248 | 287,151 | ||||||
Total at June 30, 2011
|
$ | 6,618,208 | $ | 6,743,812 |
Less Than 12 Months
|
12 Months or Greater
|
Total
|
||||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
June 30, 2011
|
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$ | 181,707 | $ | 4,736 | $ | - | $ | - | $ | 181,707 | $ | 4,736 | ||||||||||||
Obligations of U.S. states and political subdivisions
|
566,735 | 14,439 | 274,603 | 19,010 | 841,338 | 33,449 | ||||||||||||||||||
Corporate debt securities
|
699,173 | 5,359 | 43,853 | 1,171 | 743,026 | 6,530 | ||||||||||||||||||
Commercial mortgage-backed securities
|
69,560 | 657 | - | - | 69,560 | 657 | ||||||||||||||||||
Residential mortgage-backed securities
|
- | - | - | - | - | - | ||||||||||||||||||
Debt issued by foreign sovereign governments
|
10,152 | 86 | 4,814 | 252 | 14,966 | 338 | ||||||||||||||||||
Equity securities
|
720 | 9 | - | - | 720 | 9 | ||||||||||||||||||
Total investment portfolio
|
$ | 1,528,047 | $ | 25,286 | $ | 323,270 | $ | 20,433 | $ | 1,851,317 | $ | 45,719 | ||||||||||||
Less Than 12 Months
|
12 Months or Greater
|
Total
|
||||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
December 31, 2010
|
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$ | 258,235 | $ | 6,822 | $ | - | $ | - | $ | 258,235 | $ | 6,822 | ||||||||||||
Obligations of U.S. states and political subdivisions
|
1,160,877 | 32,415 | 359,629 | 21,959 | 1,520,506 | 54,374 | ||||||||||||||||||
Corporate debt securities
|
817,471 | 9,921 | 28,630 | 1,370 | 846,101 | 11,291 | ||||||||||||||||||
Residential mortgage-backed securities
|
- | - | - | - | - | - | ||||||||||||||||||
Debt issued by foreign sovereign governments
|
105,724 | 1,031 | - | - | 105,724 | 1,031 | ||||||||||||||||||
Equity securities
|
2,723 | 45 | - | - | 2,723 | 45 | ||||||||||||||||||
Total investment portfolio
|
$ | 2,345,030 | $ | 50,234 | $ | 388,259 | $ | 23,329 | $ | 2,733,289 | $ | 73,563 |
Three Months
|
Six Months
|
|||||||
Ended
|
Ended
|
|||||||
June 30, 2010
|
||||||||
(In thousands)
|
||||||||
Beginning balance
|
$ | 1,021 | $ | 1,021 | ||||
Addition for the amount related to the credit loss for which an OTTI was not previously recognized
|
- | - | ||||||
Additional increases to the amount related to the credit loss for which an OTTI was previously recognized
|
- | - | ||||||
Reductions for securities sold during the period (realized)
|
(1,021 | ) | (1,021 | ) | ||||
Ending balance
|
$ | - | $ | - |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Net realized investment gains (losses) and OTTI on investments:
|
||||||||||||||||
Fixed maturities
|
$ | 21,749 | $ | 31,680 | $ | 27,478 | $ | 58,316 | ||||||||
Equity securities
|
7 | 19 | 39 | 57 | ||||||||||||
Other
|
(22 | ) | 3 | (22 | ) | 231 | ||||||||||
$ | 21,734 | $ | 31,702 | $ | 27,495 | $ | 58,604 | |||||||||
Three Months Ended
|
Six months ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Net realized investment gains (losses) and OTTI on investments:
|
||||||||||||||||
Gains on sales
|
$ | 23,553 | $ | 36,608 | $ | 31,945 | $ | 72,588 | ||||||||
Losses on sales
|
(1,819 | ) | (4,906 | ) | (4,450 | ) | (7,932 | ) | ||||||||
Impairment losses
|
- | - | - | (6,052 | ) | |||||||||||
$ | 21,734 | $ | 31,702 | $ | 27,495 | $ | 58,604 |
·
|
Securities available-for-sale classified in Level 3 are not readily marketable and are valued using internally developed models based on the present value of expected cash flows. Our Level 3 securities primarily consist of auction rate securities as observable inputs or value drivers are unavailable due to events described in Note 7 – “Investments.” Due to limited market information, we utilized a discounted cash flow (“DCF”) model to derive an estimate of fair value of these assets at June 30, 2011 and December 31, 2010. The assumptions used in preparing the DCF model included estimates with respect to the amount and timing of future interest and principal payments, the probability of full repayment of the principal considering the credit quality and
guarantees in place, and the rate of return required by investors to own such securities given the current liquidity risk associated with them. The DCF model is based on the following key assumptions:
|
|
o
|
Nominal credit risk as substantially all of the underlying collateral of these securities is ultimately guaranteed by the United States Department of Education;
|
|
o
|
Liquidity by December 31, 2012 through December 31, 2014;
|
|
o
|
Continued receipt of contractual interest; and
|
|
o
|
Discount rates ranging from 2.19% to 4.19%, which include a spread for liquidity risk.
|
·
|
Real estate acquired through claim settlement is fair valued at the lower of our acquisition cost or a percentage of appraised value. The percentage applied to appraised value is based upon our historical sales experience adjusted for current trends.
|
Fair Value
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
|||||||||||||
(In thousands)
|
||||||||||||||||
June 30, 2011
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$ | 886,372 | $ | 886,372 | $ | - | $ | - | ||||||||
Obligations of U.S. states and political subdivisions
|
3,084,795 | - | 2,861,393 | 223,402 | ||||||||||||
Corporate debt securities
|
2,390,265 | 2,610 | 2,317,616 | 70,039 | ||||||||||||
Commercial mortgage-backed securities
|
164,748 | - | 164,748 | - | ||||||||||||
Residential mortgage-backed securities
|
66,616 | - | 66,616 | - | ||||||||||||
Debt securities issued by foreign sovereign governments
|
151,016 | 136,732 | 14,284 | - | ||||||||||||
Total debt securities
|
6,743,812 | 1,025,714 | 5,424,657 | 293,441 | ||||||||||||
Equity securities
|
2,637 | 2,316 | - | 321 | ||||||||||||
Total investments
|
$ | 6,746,449 | $ | 1,028,030 | $ | 5,424,657 | $ | 293,762 | ||||||||
Real estate acquired (1)
|
$ | 2,828 | $ | - | $ | - | $ | 2,828 | ||||||||
December 31, 2010
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$ | 1,102,786 | $ | 1,102,786 | $ | - | $ | - | ||||||||
Obligations of U.S. states and political subdivisions
|
3,580,066 | - | 3,284,376 | 295,690 | ||||||||||||
Corporate debt securities
|
2,564,959 | 2,563 | 2,492,343 | 70,053 | ||||||||||||
Residential mortgage-backed securities
|
57,100 | - | 57,100 | - | ||||||||||||
Debt securities issued by foreign sovereign governments
|
150,327 | 135,457 | 14,870 | - | ||||||||||||
Total debt securities
|
7,455,238 | 1,240,806 | 5,848,689 | 365,743 | ||||||||||||
Equity securities
|
3,044 | 2,723 | - | 321 | ||||||||||||
Total investments
|
$ | 7,458,282 | $ | 1,243,529 | $ | 5,848,689 | $ | 366,064 | ||||||||
Real estate acquired (1)
|
$ | 6,220 | $ | - | $ | - | $ | 6,220 |
Obligations of U.S. States and Political Subdivisions
|
Corporate Debt Securities
|
Equity Securities
|
Total Investments
|
Real Estate Acquired
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Balance at March 31, 2011
|
$ | 270,731 | $ | 70,273 | $ | 321 | $ | 341,325 | $ | 4,876 | ||||||||||
Total realized/unrealized gains (losses):
|
||||||||||||||||||||
Included in earnings and reported as losses incurred, net
|
- | - | - | - | (103 | ) | ||||||||||||||
Included in other comprehensive income
|
(1,720 | ) | (234 | ) | - | (1,954 | ) | - | ||||||||||||
Purchases
|
- | - | - | - | 1,427 | |||||||||||||||
Sales
|
(45,609 | ) | - | - | (45,609 | ) | (3,372 | ) | ||||||||||||
Transfers into Level 3
|
- | - | - | - | - | |||||||||||||||
Transfers out of Level 3
|
- | - | - | - | - | |||||||||||||||
Balance at June 30, 2011
|
$ | 223,402 | $ | 70,039 | $ | 321 | $ | 293,762 | $ | 2,828 | ||||||||||
Amount of total losses included in earnings for the three months ended June 30, 2011 attributable to the change in unrealized losses on assets still held at June 30, 2011
|
$ | - | $ | - | $ | - | $ | - | $ | - |
Obligations of U.S. States and Political Subdivisions
|
Corporate Debt Securities
|
Equity Securities
|
Total Investments
|
Real Estate Acquired
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Balance at December 31, 2010
|
$ | 295,690 | $ | 70,053 | $ | 321 | $ | 366,064 | $ | 6,220 | ||||||||||
Total realized/unrealized gains (losses):
|
||||||||||||||||||||
Included in earnings and reported as losses incurred, net
|
- | - | - | - | (95 | ) | ||||||||||||||
Included in other comprehensive income
|
(1,187 | ) | (14 | ) | - | (1,201 | ) | - | ||||||||||||
Purchases
|
- | - | - | - | 2,796 | |||||||||||||||
Sales
|
(71,101 | ) | - | - | (71,101 | ) | (6,093 | ) | ||||||||||||
Transfers into Level 3
|
- | - | - | - | - | |||||||||||||||
Transfers out of Level 3
|
- | - | - | - | - | |||||||||||||||
Balance at June 30, 2011
|
$ | 223,402 | $ | 70,039 | $ | 321 | $ | 293,762 | $ | 2,828 | ||||||||||
Amount of total losses included in earnings for the six months ended June 30, 2011 attributable to the change in unrealized losses on assets still held at June 30, 2011
|
$ | - | $ | - | $ | - | $ | - | $ | - |
Obligations of U.S. States and Political Subdivisions
|
Corporate Debt Securities
|
Equity Securities
|
Total Investments
|
Real Estate Acquired
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Balance at March 31, 2010
|
$ | 367,916 | $ | 130,066 | $ | 321 | $ | 498,303 | $ | 4,753 | ||||||||||
Total realized/unrealized gains (losses):
|
||||||||||||||||||||
Included in earnings and reported as realized investment losses, net
|
- | (1,398 | ) | - | (1,398 | ) | - | |||||||||||||
Included in earnings and reported as losses incurred, net
|
- | - | - | - | (557 | ) | ||||||||||||||
Included in other comprehensive income
|
(864 | ) | (402 | ) | - | (1,266 | ) | - | ||||||||||||
Purchases, issuances and settlements
|
(46,002 | ) | (33,702 | ) | - | (79,704 | ) | 1,475 | ||||||||||||
Transfers in and/or out of Level 3
|
- | - | - | - | - | |||||||||||||||
Balance at June 30, 2010
|
$ | 321,050 | $ | 94,564 | $ | 321 | $ | 415,935 | $ | 5,671 | ||||||||||
Amount of total losses included in earnings for the three months ended June 30, 2010 attributable to the change in unrealized losses on assets still held at June 30, 2010
|
$ | - | $ | - | $ | - | $ | - | $ | - |
Obligations of U.S. States and Political Subdivisions
|
Corporate Debt Securities
|
Equity Securities
|
Total Investments
|
Real Estate Acquired
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Balance at December 31, 2009
|
$ | 370,341 | $ | 129,338 | $ | 321 | $ | 500,000 | $ | 3,830 | ||||||||||
Total realized/unrealized gains (losses):
|
||||||||||||||||||||
Included in earnings and reported as realized investment losses, net
|
- | (1,398 | ) | - | (1,398 | ) | - | |||||||||||||
Included in earnings and reported as losses incurred, net
|
- | - | - | - | (933 | ) | ||||||||||||||
Included in other comprehensive income
|
43 | 326 | - | 369 | - | |||||||||||||||
Purchases, issuances and settlements
|
(49,334 | ) | (33,702 | ) | - | (83,036 | ) | 2,774 | ||||||||||||
Transfers in and/or out of Level 3
|
- | - | - | - | - | |||||||||||||||
Balance at June 30, 2010
|
$ | 321,050 | $ | 94,564 | $ | 321 | $ | 415,935 | $ | 5,671 | ||||||||||
Amount of total losses included in earnings for the six months ended June 30, 2010 attributable to the change in unrealized losses on assets still held at June 30, 2010
|
$ | - | $ | - | $ | - | $ | - | $ | - |
Three Months Ended
|
Six months ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Net (loss) income
|
$ | (151,732 | ) | $ | 24,551 | $ | (185,393 | ) | $ | (125,540 | ) | |||||
Other comprehensive income
|
53,528 | 14,384 | 28,841 | 20,174 | ||||||||||||
Total comprehensive (loss) income
|
$ | (98,204 | ) | $ | 38,935 | $ | (156,552 | ) | $ | (105,366 | ) | |||||
Other comprehensive income (net of tax):
|
||||||||||||||||
Change in unrealized gains and losses on investments
|
$ | 49,921 | $ | 21,118 | $ | 24,317 | $ | 27,324 | ||||||||
Unrealized foreign currency translation adjustment
|
3,607 | (6,734 | ) | 4,524 | (7,150 | ) | ||||||||||
Other comprehensive income
|
$ | 53,528 | $ | 14,384 | $ | 28,841 | $ | 20,174 |
Three Months Ended June 30,
|
||||||||||||||||
Pension and Supplemental
|
Other Postretirement
|
|||||||||||||||
Executive Retirement Plans | Benefits | |||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Service cost
|
$ | 2,287 | $ | 2,082 | $ | 291 | $ | 239 | ||||||||
Interest cost
|
3,927 | 3,946 | 321 | 252 | ||||||||||||
Expected return on plan assets
|
(4,493 | ) | (3,654 | ) | (827 | ) | (726 | ) | ||||||||
Recognized net actuarial loss
|
789 | 1,524 | 129 | 126 | ||||||||||||
Amortization of prior service cost
|
169 | 185 | (1,555 | ) | (1,534 | ) | ||||||||||
Net periodic benefit cost
|
$ | 2,679 | $ | 4,083 | $ | (1,641 | ) | $ | (1,643 | ) |
Six Months Ended June 30,
|
||||||||||||||||||
Pension and Supplemental
|
Other Postretirement
|
|||||||||||||||||
Executive Retirement Plans | Benefits | |||||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||||
(In thousands)
|
||||||||||||||||||
Service cost
|
$ | 4,459 | $ | 4,266 | $ | 545 | $ | 563 | ||||||||||
Interest cost
|
8,049 | 7,767 | 675 | 592 | ||||||||||||||
Expected return on plan assets
|
(8,687 | ) | (7,251 | ) | (1,650 | ) | (1,446 | ) | ||||||||||
Recognized net actuarial loss
|
2,006 | 2,962 | 316 | 382 | ||||||||||||||
Amortization of prior service cost
|
331 | 325 | (3,109 | ) | (3,069 | ) | ||||||||||||
Net periodic benefit cost
|
$ | 6,158 | $ | 8,069 | $ | (3,223 | ) | $ | (2,978 | ) |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Benefit from income taxes
|
$ | (63,859 | ) | $ | (3,508 | ) | $ | (83,093 | ) | $ | (64,222 | ) | ||||
Change in valuation allowance
|
53,712 | (3,295 | ) | 74,715 | 56,372 | |||||||||||
Tax benefit
|
$ | (10,147 | ) | $ | (6,803 | ) | $ | (8,378 | ) | $ | (7,850 | ) |
Six Months Ended
|
||||||||
June 30,
|
||||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Reserve at beginning of year
|
$ | 5,884,171 | $ | 6,704,990 | ||||
Less reinsurance recoverable
|
275,290 | 332,227 | ||||||
Net reserve at beginning of year (1)
|
5,608,881 | 6,372,763 | ||||||
Losses incurred:
|
||||||||
Losses and LAE incurred in respect of default notices received in:
|
||||||||
Current year
|
855,253 | 894,282 | ||||||
Prior years (2)
|
(85,270 | ) | (119,694 | ) | ||||
Subtotal (3)
|
769,983 | 774,588 | ||||||
Losses paid:
|
||||||||
Losses and LAE paid in respect of default notices received in:
|
||||||||
Current year
|
8,330 | 2,250 | ||||||
Prior years
|
1,496,727 | 1,095,898 | ||||||
Reinsurance terminations (4)
|
(2,925 | ) | (184 | ) | ||||
Subtotal (5)
|
1,502,132 | 1,097,964 | ||||||
Net reserve at end of period (6)
|
4,876,732 | 6,049,387 | ||||||
Plus reinsurance recoverables
|
206,170 | 339,542 | ||||||
Reserve at end of period
|
$ | 5,082,902 | $ | 6,388,929 |
(1)
|
At December 31, 2010 and 2009, the estimated reduction in loss reserves related to rescissions approximated $1.3 billion and $2.1 billion, respectively.
|
(2)
|
A negative number for prior year losses incurred indicates a redundancy of prior year loss reserves, and a positive number for prior year losses incurred indicates a deficiency of prior year loss reserves.
|
(3)
|
Rescissions did not have a significant impact on incurred losses in the six months ended June 30, 2011. Rescissions mitigated our incurred losses by an estimated $0.6 billion in the six months ended June 30, 2010.
|
(4)
|
In a termination, the reinsurance agreement is cancelled, with no future premium ceded and funds for any incurred but unpaid losses transferred to us. The transferred funds result in an increase in our investment portfolio (including cash and cash equivalents) and a decrease in net losses paid (reduction to losses incurred). In addition, there is an offsetting decrease in the reinsurance recoverable (increase in losses incurred), and thus there is no net impact to losses incurred.
|
(5)
|
Rescissions mitigated our paid losses by an estimated $0.4 billion in each of the six months ended June 30, 2011 and 2010, which excludes amounts that may have been applied to a deductible.
|
(6)
|
At June 30, 2011 and 2010, the estimated reduction in loss reserves related to rescissions approximated $0.9 billion and $2.3 billion, respectively.
|
June 30,
|
December 31,
|
June 30,
|
||||||||||||||||||||||
2011
|
2010
|
2010
|
||||||||||||||||||||||
Consecutive months in default
|
||||||||||||||||||||||||
3 months or less
|
30,107 | 16 | % | 37,640 | 18 | % | 35,838 | 16 | % | |||||||||||||||
4 - 11 months
|
48,148 | 26 | % | 58,701 | 27 | % | 71,089 | 31 | % | |||||||||||||||
12 months or more
|
106,197 | 58 | % | 118,383 | 55 | % | 121,528 | 53 | % | |||||||||||||||
Total primary default inventory
|
184,452 | 100 | % | 214,724 | 100 | % | 228,455 | 100 | % | |||||||||||||||
Primary claims received inventory included in ending default inventory
|
14,504 | 8 | % | 20,898 | 10 | % | 19,724 | 9 | % |
June 30,
|
December 31,
|
June 30,
|
||||||||||||||||||||||
2011
|
2010
|
2010
|
||||||||||||||||||||||
3 payments or less
|
40,968 | 22 | % | 51,003 | 24 | % | 49,308 | 22 | % | |||||||||||||||
4 - 11 payments
|
51,523 | 28 | % | 65,797 | 31 | % | 80,224 | 35 | % | |||||||||||||||
12 payments or more
|
91,961 | 50 | % | 97,924 | 45 | % | 98,923 | 43 | % | |||||||||||||||
Total primary default inventory
|
184,452 | 100 | % | 214,724 | 100 | % | 228,455 | 100 | % |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2011 |
2010
|
2011
|
2010
|
||||||||||||
(In billions)
|
|||||||||||||||
Estimated rescission reduction - beginning reserve
|
$ | 1.1 | $ | 2.4 | $ | 1.3 | $ | 2.1 | |||||||
Estimated rescission reduction - losses incurred
|
- | - | - | 0.6 | |||||||||||
Rescission reduction - paid claims
|
0.2 | 0.2 | 0.4 | 0.6 | |||||||||||
Amounts that may have been applied to a deductible
|
- | (0.1 | ) | - | (0.2 | ) | |||||||||
Net rescission reduction - paid claims
|
0.2 | 0.1 | 0.4 | 0.4 | |||||||||||
Estimated rescission reduction - ending reserve
|
$ | 0.9 | $ | 2.3 | $ | 0.9 | $ | 2.3 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Default inventory at beginning of period
|
195,885 | 241,244 | 214,724 | 250,440 | ||||||||||||
Plus: New Notices
|
39,972 | 48,181 | 83,167 | 101,574 | ||||||||||||
Less: Cures
|
(35,832 | ) | (47,290 | ) | (81,471 | ) | (96,500 | ) | ||||||||
Less: Paids (including those charged to a deductible or captive)
|
(13,553 | ) | (10,653 | ) | (27,019 | ) | (19,847 | ) | ||||||||
Less: Rescissions and denials
|
(2,020 | ) | (3,027 | ) | (4,949 | ) | (7,212 | ) | ||||||||
Default inventory at end of period
|
184,452 | 228,455 | 184,452 | 228,455 |
June 30,
|
December 31,
|
June 30,
|
||||||||||
2011
|
2010
|
2010
|
||||||||||
(In millions)
|
||||||||||||
Present value of expected future paid losses and expenses, net of expected future premium
|
$ | (1,060 | ) | $ | (1,254 | ) | $ | (1,421 | ) | |||
Established loss reserves
|
901 | 1,075 | 1,252 | |||||||||
Net deficiency
|
$ | (159 | ) | $ | (179 | ) | $ | (169 | ) |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30, 2011
|
||||||||||||||||
(In millions)
|
||||||||||||||||
Premium Deficiency Reserve at beginning of period
|
$ | (170 | ) | $ | (179 | ) | ||||||||||
Paid claims and loss adjustment expenses
|
$ | 97 | $ | 172 | ||||||||||||
Decrease in loss reserves
|
(99 | ) | (174 | ) | ||||||||||||
Premium earned
|
(29 | ) | (61 | ) | ||||||||||||
Effects of present valuing on future premiums, losses and expenses
|
2 | (10 | ) | |||||||||||||
Change in premium deficiency reserve to reflect actual premium, losses and expenses recognized
|
(29 | ) | (73 | ) | ||||||||||||
40 | 93 | |||||||||||||||
Change in premium deficiency reserve to reflect change in assumptions relating to future premiums, losses, expenses and discount rate (1)
|
||||||||||||||||
Premium Deficiency Reserve at end of period
|
$ | (159 | ) | $ | (159 | ) |
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
|
·
|
Whether private mortgage insurance will remain a significant credit enhancement alternative for low down payment single family mortgages. A definition of “qualified residential mortgages” (“QRM”) that significantly impacts the volume of low down payment mortgages available to be insured or a possible restructuring or change in the charters of the GSEs could significantly affect our business. This challenge is discussed under “Qualified Residential Mortgages” and “Fannie Mae and Freddie Mac” below.
|
|
·
|
Whether we may continue to write insurance on new residential mortgage loans due to actions our regulators or the GSEs could take due to an actual or projected deterioration in our capital position. This challenge is discussed under “Capital” below.
|
·
|
Whether we will prevail in legal proceedings challenging whether our rescissions were proper. For additional information about this challenge see “Rescissions” below. An adverse outcome in these legal proceedings would negatively impact our capital position. See discussion of this challenge under “Capital” below.
|
Percentage of new risk written
|
||||
YTD
|
Full Year
|
|||
June 30, 2011
|
2010
|
|||
LTV:
|
||||
80% and under
|
0%
|
0%
|
||
80.1% - 85%
|
6%
|
7%
|
||
85.1 - 90%
|
43%
|
48%
|
||
90.1 - 95%
|
49%
|
44%
|
||
95.1 - 97%
|
2%
|
1%
|
||
> 97%
|
0%
|
0%
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In billions)
|
||||||||||||||||
Estimated rescission reduction - beginning reserve
|
$ | 1.1 | $ | 2.4 | $ | 1.3 | $ | 2.1 | ||||||||
Estimated rescission reduction - losses incurred
|
- | - | - | 0.6 | ||||||||||||
Rescission reduction - paid claims
|
0.2 | 0.2 | 0.4 | 0.6 | ||||||||||||
Amounts that may have been applied to a deductible
|
- | (0.1 | ) | - | (0.2 | ) | ||||||||||
Net rescission reduction - paid claims
|
0.2 | 0.1 | 0.4 | 0.4 | ||||||||||||
Estimated rescission reduction - ending reserve
|
$ | 0.9 | $ | 2.3 | $ | 0.9 | $ | 2.3 |
|
·
|
Premiums written and earned
|
|
·
|
New insurance written, which increases insurance in force, and is the aggregate principal amount of the mortgages that are insured during a period. Many factors affect new insurance written, including the volume of low down payment home mortgage originations and competition to provide credit enhancement on those mortgages, including competition from the FHA, other mortgage insurers, GSE programs that may reduce or eliminate the demand for mortgage insurance and other alternatives to mortgage insurance. New insurance written does not include loans previously insured by us which are modified, such as loans modified under the Home Affordable Refinance Program.
|
|
·
|
Cancellations, which reduce insurance in force. 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. Refinancings are also affected by current home values compared to values when the loans in the in force book became insured and the terms on which mortgage credit is available. Cancellations also include rescissions, which require us to return any premiums received related to the rescinded policy, and policies canceled due to claim payment, which require us to return any premium received from the date of default. Finally, cancellations are affected by home price appreciation, which can give homeowners the right to cancel the mortgage insurance on their loans.
|
|
·
|
Premium rates, which are affected by the risk characteristics of the loans insured and the percentage of coverage on the loans.
|
|
·
|
Premiums ceded to reinsurance subsidiaries of certain mortgage lenders (“captives”) and risk sharing arrangements with the GSEs.
|
|
·
|
Investment income
|
|
·
|
Losses incurred
|
|
·
|
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 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.
|
|
·
|
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 incurred losses.
|
|
·
|
Changes in housing values, which affect our ability to mitigate our losses through sales of properties with delinquent mortgages as well as borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance.
|
|
·
|
The rate at which we rescind policies. Our estimated loss reserves reflect mitigation from rescissions of policies and denials of claims. We collectively refer to such rescissions and denials as “rescissions” and variations of this term.
|
|
·
|
The distribution of claims over the life of a book. Historically, the first two years after loans are originated are a period of relatively low claims, with claims increasing substantially for several years subsequent and then declining, although persistency (percentage of insurance remaining in force from one year prior), the condition of the economy, including unemployment and housing prices, and other factors can affect this pattern. For example, a weak economy or housing price 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.
|
|
·
|
Changes in premium deficiency reserve
|
|
·
|
Underwriting and other expenses
|
|
·
|
Interest expense
|
·
|
Net premiums written and earned
|
·
|
Investment income
|
·
|
Realized gains (losses) and other-than-temporary impairments
|
·
|
Losses incurred
|
·
|
Change in premium deficiency reserve
|
·
|
Underwriting and other expenses
|
·
|
Interest expense
|
·
|
Benefit from income taxes
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Total Primary NIW (In billions)
|
$ | 3.1 | $ | 2.7 | $ | 6.1 | $ | 4.5 | ||||||||
Refinance volume as a % of primary NIW
|
16 | % | 13 | % | 26 | % | 18 | % |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In billions)
|
||||||||||||||||
NIW
|
$ | 3.1 | $ | 2.7 | $ | 6.1 | $ | 4.5 | ||||||||
Cancellations
|
(7.6 | ) | (7.4 | ) | (15.0 | ) | (14.3 | ) | ||||||||
Change in primary insurance in force
|
$ | (4.5 | ) | $ | (4.7 | ) | $ | (8.9 | ) | $ | (9.8 | ) | ||||
Direct primary insurance in force as of June 30,
|
$ | 182.4 | $ | 202.4 | ||||||||||||
Direct primary risk in force as of June 30,
|
$ | 46.8 | $ | 51.8 |
June 30,
|
December 31,
|
June 30,
|
||||||||||||||||||||||
2011
|
2010
|
2010
|
||||||||||||||||||||||
Consecutive months in default
|
||||||||||||||||||||||||
3 months or less
|
30,107 | 16 | % | 37,640 | 18 | % | 35,838 | 16 | % | |||||||||||||||
4 - 11 months
|
48,148 | 26 | % | 58,701 | 27 | % | 71,089 | 31 | % | |||||||||||||||
12 months or more
|
106,197 | 58 | % | 118,383 | 55 | % | 121,528 | 53 | % | |||||||||||||||
Total primary default inventory
|
184,452 | 100 | % | 214,724 | 100 | % | 228,455 | 100 | % |
June 30,
|
December 31,
|
June 30,
|
||||||||||||||||||||||
2011
|
2010
|
2010
|
||||||||||||||||||||||
3 payments or less
|
40,968 | 22 | % | 51,003 | 24 | % | 49,308 | 22 | % | |||||||||||||||
4 - 11 payments
|
51,523 | 28 | % | 65,797 | 31 | % | 80,224 | 35 | % | |||||||||||||||
12 payments or more
|
91,961 | 50 | % | 97,924 | 45 | % | 98,923 | 43 | % | |||||||||||||||
Total primary default inventory
|
184,452 | 100 | % | 214,724 | 100 | % | 228,455 | 100 | % |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011 | 2010 | |||||||||||||
(In billions)
|
||||||||||||||||
Estimated rescission reduction - beginning reserve
|
$ | 1.1 | $ | 2.4 | $ | 1.3 | $ | 2.1 | ||||||||
Estimated rescission reduction - losses incurred
|
- | - | - | 0.6 | ||||||||||||
Rescission reduction - paid claims
|
0.2 | 0.2 | 0.4 | 0.6 | ||||||||||||
Amounts that may have been applied to a deductible
|
- | (0.1 | ) | - | (0.2 | ) | ||||||||||
Net rescission reduction - paid claims
|
0.2 | 0.1 | 0.4 | 0.4 | ||||||||||||
Estimated rescission reduction - ending reserve
|
$ | 0.9 | $ | 2.3 | $ | 0.9 | $ | 2.3 |
As of June 30, 2011
|
||||
Ever to Date Rescission Rates on Primary Claims Received
|
||||
(based on count)
|
||||
Quarter in Which the
|
ETD Rescission
|
ETD Claims Resolution
|
||
Claim was Received
|
Rate (1)
|
Percentage (2)
|
||
Q4 2009
|
23.8%
|
100.0%
|
||
Q1 2010
|
21.1%
|
99.8%
|
||
Q2 2010
|
20.1%
|
99.7%
|
||
Q3 2010
|
18.4%
|
98.3%
|
||
Q4 2010
|
15.1%
|
91.4%
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Default inventory at beginning of period
|
195,885 | 241,244 | 214,724 | 250,440 | ||||||||||||
Plus: New Notices
|
39,972 | 48,181 | 83,167 | 101,574 | ||||||||||||
Less: Cures
|
(35,832 | ) | (47,290 | ) | (81,471 | ) | (96,500 | ) | ||||||||
Less: Paids (including those charged to a deductible or captive)
|
(13,553 | ) | (10,653 | ) | (27,019 | ) | (19,847 | ) | ||||||||
Less: Rescissions and denials
|
(2,020 | ) | (3,027 | ) | (4,949 | ) | (7,212 | ) | ||||||||
Default inventory at end of period
|
184,452 | 228,455 | 184,452 | 228,455 |
June 30,
|
December 31,
|
June 30,
|
||||||||||
2011
|
2010
|
2010
|
||||||||||
Total loans delinquent (1)
|
184,452 | 214,724 | 228,455 | |||||||||
Percentage of loans delinquent (default rate)
|
15.80 | % | 17.48 | % | 17.59 | % | ||||||
Prime loans delinquent (2)
|
115,980 | 134,787 | 141,857 | |||||||||
Percentage of prime loans delinquent (default rate)
|
11.80 | % | 13.11 | % | 13.05 | % | ||||||
A-minus loans delinquent (2)
|
26,878 | 31,566 | 32,384 | |||||||||
Percent of A-minus loans delinquent (default rate)
|
33.50 | % | 36.69 | % | 37.10 | % | ||||||
Subprime credit loans delinquent (2)
|
9,725 | 11,132 | 11,782 | |||||||||
Percentage of subprime credit loans delinquent (default rate)
|
42.36 | % | 45.66 | % | 46.19 | % | ||||||
Reduced documentation loans delinquent (3)
|
31,869 | 37,239 | 42,432 | |||||||||
Percentage of reduced documentation loans delinquent (default rate)
|
39.04 | % | 41.66 | % | 43.14 | % |
Gross Reserves
|
June 30,
|
December 31,
|
June 30,
|
|||||||||
2011
|
2010
|
2010
|
||||||||||
Primary:
|
||||||||||||
Direct loss reserves (in millions)
|
$ | 4,504 | $ | 5,146 | $ | 5,699 | ||||||
Ending default inventory
|
184,452 | 214,724 | 228,455 | |||||||||
Average direct reserve per default
|
$ | 24,416 | $ | 23,966 | $ | 24,946 | ||||||
Primary claims received inventory included in ending default inventory
|
14,504 | 20,898 | 19,724 | |||||||||
Pool (1):
|
||||||||||||
Direct loss reserves (in millions):
|
||||||||||||
With aggregate loss limits (2)
|
$ | 535 | $ | 700 | $ | 649 | ||||||
Without aggregate loss limits
|
35 | 30 | 35 | |||||||||
Total pool direct loss reserves
|
$ | 570 | $ | 730 | $ | 684 | ||||||
Ending default inventory:
|
||||||||||||
With aggregate loss limits (2)
|
35,136 | 41,786 | 41,454 | |||||||||
Without aggregate loss limits
|
1,416 | 1,543 | 1,418 | |||||||||
Total pool ending default inventory
|
36,552 | 43,329 | 42,872 | |||||||||
Pool claims received inventory included in ending default inventory
|
1,836 | 2,510 | 2,023 | |||||||||
Other gross reserves (in millions)
|
$ | 9 | $ | 8 | $ | 6 |
Losses by Region
|
||||||||||||
Primary Default Inventory
|
||||||||||||
June 30,
|
December 31,
|
June 30,
|
||||||||||
Region
|
2011
|
2010
|
2010
|
|||||||||
Great Lakes
|
23,020 | 27,663 | 29,387 | |||||||||
Mid-Atlantic
|
8,342 | 9,660 | 10,301 | |||||||||
New England
|
7,047 | 7,702 | 8,139 | |||||||||
North Central
|
21,261 | 24,192 | 25,507 | |||||||||
Northeast
|
17,572 | 19,056 | 19,135 | |||||||||
Pacific
|
21,375 | 25,438 | 28,796 | |||||||||
Plains
|
5,981 | 7,045 | 7,279 | |||||||||
South Central
|
22,934 | 28,984 | 31,062 | |||||||||
Southeast
|
56,920 | 64,984 | 68,849 | |||||||||
Total
|
184,452 | 214,724 | 228,455 | |||||||||
Primary Loss Reserves
|
||||||||||||
(In millions)
|
||||||||||||
June 30,
|
December 31,
|
June 30,
|
||||||||||
Region
|
2011 | 2010 | 2010 | |||||||||
Great Lakes
|
$ | 366 | $ | 426 | $ | 485 | ||||||
Mid-Atlantic
|
204 | 231 | 246 | |||||||||
New England
|
145 | 174 | 199 | |||||||||
North Central
|
422 | 495 | 506 | |||||||||
Northeast
|
334 | 374 | 422 | |||||||||
Pacific
|
813 | 886 | 948 | |||||||||
Plains
|
90 | 107 | 111 | |||||||||
South Central
|
485 | 555 | 588 | |||||||||
Southeast
|
1,265 | 1,395 | 1,585 | |||||||||
Total before IBNR and LAE
|
$ | 4,124 | $ | 4,643 | $ | 5,090 | ||||||
IBNR and LAE
|
380 | 503 | 609 | |||||||||
Total
|
$ | 4,504 | $ | 5,146 | $ | 5,699 |
Regions contain the states as follows:
|
Great Lakes: IN, KY, MI, OH
|
Mid-Atlantic: DC, DE, MD, VA, WV
|
New England: CT, MA, ME, NH, RI, VT
|
North Central: IL, MN, MO, WI
|
Northeast: NJ, NY, PA
|
Pacific: CA, HI, NV, OR, WA
|
Plains: IA, ID, KS, MT, ND, NE, SD, WY
|
South Central: AK, AZ, CO, LA, NM, OK, TX, UT
|
Southeast: AL, AR, FL, GA, MS, NC, SC, TN
|
Primary loss reserves
|
||||||||||||
(In millions)
|
June 30,
|
December 31,
|
June 30,
|
|||||||||
2011
|
2010
|
2010
|
||||||||||
Flow
|
$ | 2,921 | $ | 3,329 | $ | 3,524 | ||||||
Bulk
|
1,203 | 1,314 | 1,566 | |||||||||
Total primary reserves
|
$ | 4,124 | $ | 4,643 | $ | 5,090 |
Primary average claim paid
|
||||||||||||||||
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
California
|
$ | 85,831 | $ | 91,617 | $ | 83,370 | $ | 93,229 | ||||||||
Florida
|
59,970 | 64,365 | 58,662 | 65,308 | ||||||||||||
Arizona
|
54,190 | 58,949 | 54,887 | 61,271 | ||||||||||||
Michigan
|
36,107 | 36,073 | 34,994 | 36,074 | ||||||||||||
Georgia
|
41,449 | 42,282 | 41,240 | 42,807 | ||||||||||||
All other states
|
45,727 | 45,762 | 44,896 | 46,444 | ||||||||||||
All states
|
$ | 49,853 | $ | 50,926 | $ | 48,890 | $ | 51,917 |
Primary average loan size
|
June 30,
|
December 31,
|
June 30,
|
|||||||||
2011
|
2010
|
2010
|
||||||||||
Total insurance in force
|
$ | 156,220 | $ | 155,700 | $ | 155,860 | ||||||
Prime (FICO 620 & >)
|
156,030 | 155,050 | 154,770 | |||||||||
A-Minus (FICO 575-619)
|
129,570 | 130,360 | 129,490 | |||||||||
Subprime (FICO < 575)
|
116,730 | 117,410 | 117,690 | |||||||||
Reduced doc (All FICOs)
|
195,710 | 198,000 | 201,190 |
Primary average loan size
|
June 30,
|
December 31,
|
June 30,
|
|||||||||
2011
|
2010
|
2010
|
||||||||||
California
|
$ | 282,167 | $ | 283,459 | $ | 286,096 | ||||||
Florida
|
173,453 | 174,203 | 176,497 | |||||||||
Arizona
|
183,210 | 184,508 | 186,998 | |||||||||
Michigan
|
121,410 | 121,282 | 121,333 | |||||||||
Georgia
|
148,370 | 148,002 | 148,375 | |||||||||
All other states
|
149,996 | 149,182 | 148,871 |
Net paid claims (In millions)
|
||||||||||||||||
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Prime (FICO 620 & >)
|
$ | 472 | $ | 339 | $ | 923 | $ | 627 | ||||||||
A-Minus (FICO 575-619)
|
77 | 70 | 153 | 132 | ||||||||||||
Subprime (FICO < 575)
|
20 | 20 | 39 | 41 | ||||||||||||
Reduced doc (All FICOs)
|
108 | 110 | 208 | 223 | ||||||||||||
Pool
|
170 | 44 | 242 | 78 | ||||||||||||
Other
|
1 | 1 | 2 | 2 | ||||||||||||
Direct losses paid
|
848 | 584 | 1,567 | 1,103 | ||||||||||||
Reinsurance
|
(44 | ) | (22 | ) | (92 | ) | (39 | ) | ||||||||
Net losses paid
|
804 | 562 | 1,475 | 1,064 | ||||||||||||
LAE
|
14 | 18 | 30 | 35 | ||||||||||||
Net losses and LAE paid before terminations
|
818 | 580 | 1,505 | 1,099 | ||||||||||||
Reinsurance terminations
|
(2 | ) | - | (3 | ) | - | ||||||||||
Net losses and LAE paid
|
$ | 816 | $ | 580 | $ | 1,502 | $ | 1,099 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
California
|
$ | 96 | $ | 72 | $ | 176 | $ | 138 | ||||||||
Florida
|
75 | 72 | 158 | 143 | ||||||||||||
Arizona
|
52 | 38 | 99 | 76 | ||||||||||||
Michigan
|
42 | 35 | 77 | 63 | ||||||||||||
Georgia
|
32 | 23 | 69 | 42 | ||||||||||||
Nevada
|
31 | 19 | 63 | 43 | ||||||||||||
Texas
|
29 | 24 | 61 | 43 | ||||||||||||
Illinois
|
28 | 22 | 54 | 43 | ||||||||||||
Ohio
|
21 | 16 | 43 | 33 | ||||||||||||
Washington
|
19 | 10 | 35 | 20 | ||||||||||||
Virginia
|
17 | 13 | 35 | 29 | ||||||||||||
Minnesota
|
20 | 16 | 33 | 27 | ||||||||||||
Maryland
|
14 | 11 | 31 | 24 | ||||||||||||
Colorado
|
13 | 11 | 27 | 17 | ||||||||||||
North Carolina
|
11 | 10 | 23 | 16 | ||||||||||||
All other states
|
177 | 147 | 339 | 266 | ||||||||||||
$ | 677 | $ | 539 | $ | 1,323 | $ | 1,023 | |||||||||
Other (Pool, LAE, Reinsurance)
|
139 | 41 | 179 | 76 | ||||||||||||
$ | 816 | $ | 580 | $ | 1,502 | $ | 1,099 |
Primary default inventory by state
|
||||||
June 30,
|
December 31,
|
June 30,
|
||||
2011
|
2010
|
2010
|
||||
California
|
11,440
|
14,070
|
16,681
|
|||
Florida
|
29,300
|
32,788
|
35,965
|
|||
Arizona
|
5,098
|
6,781
|
7,587
|
|||
Michigan
|
8,069
|
10,278
|
11,335
|
|||
Georgia
|
7,403
|
9,117
|
10,067
|
|||
Nevada
|
3,853
|
4,729
|
5,397
|
|||
Texas
|
8,985
|
11,602
|
12,131
|
|||
Illinois
|
11,370
|
12,548
|
13,136
|
|||
Ohio
|
8,375
|
9,850
|
10,151
|
|||
Washington
|
3,606
|
3,888
|
3,829
|
|||
Virginia
|
2,924
|
3,627
|
3,911
|
|||
Minnesota
|
3,045
|
3,672
|
4,078
|
|||
Maryland
|
3,830
|
4,264
|
4,572
|
|||
Colorado
|
2,327
|
2,917
|
3,218
|
|||
North Carolina
|
4,885
|
5,641
|
5,883
|
|||
All other states
|
69,942
|
78,952
|
80,514
|
|||
184,452
|
214,724
|
228,455
|
June 30,
|
December 31,
|
June 30,
|
||||||||||
2011
|
2010
|
2010
|
||||||||||
Flow
|
139,032 | 162,621 | 172,057 | |||||||||
Bulk
|
45,420 | 52,103 | 56,398 | |||||||||
184,452 | 214,724 | 228,455 |
June 30,
|
December 31,
|
June 30,
|
||||||||||
Policy year:
|
2011
|
2010
|
2010
|
|||||||||
2002 and prior
|
12,502 | 14,914 | 15,650 | |||||||||
2003
|
7,512 | 9,069 | 9,477 | |||||||||
2004
|
10,239 | 12,077 | 12,683 | |||||||||
2005
|
16,057 | 18,789 | 19,736 | |||||||||
2006
|
24,169 | 28,284 | 30,209 | |||||||||
2007
|
53,547 | 62,855 | 67,870 | |||||||||
2008
|
14,332 | 16,059 | 16,114 | |||||||||
2009
|
603 | 546 | 315 | |||||||||
2010
|
67 | 28 | 3 | |||||||||
2011
|
4 | - | - | |||||||||
139,032 | 162,621 | 172,057 |
June 30,
|
December 31,
|
June 30,
|
||||||||||
2011
|
2010
|
2010
|
||||||||||
(In millions)
|
||||||||||||
Present value of expected future paid losses and expenses, net of expected future premium
|
$ | (1,060 | ) | $ | (1,254 | ) | $ | (1,421 | ) | |||
Established loss reserves
|
901 | 1,075 | 1,252 | |||||||||
Net deficiency
|
$ | (159 | ) | $ | (179 | ) | $ | (169 | ) |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30, 2011
|
||||||||||||||||
(In millions)
|
||||||||||||||||
Premium Deficiency Reserve at beginning of period
|
$ | (170 | ) | $ | (179 | ) | ||||||||||
Paid claims and loss adjustment expenses
|
$ | 97 | $ | 172 | ||||||||||||
Decrease in loss reserves
|
(99 | ) | (174 | ) | ||||||||||||
Premium earned
|
(29 | ) | (61 | ) | ||||||||||||
Effects of present valuing on future premiums, losses and expenses
|
2 | (10 | ) | |||||||||||||
Change in premium deficiency reserve to reflect actual premium, losses and expenses recognized
|
(29 | ) | (73 | ) | ||||||||||||
Change in premium deficiency reserve to reflect change in assumptions relating to future premiums, losses, expenses and discount rate (1)
|
40 | 93 | ||||||||||||||
Premium Deficiency Reserve at end of period
|
$ | (159 | ) | $ | (159 | ) |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Loss ratio
|
161.6 | % | 103.5 | % | 134.4 | % | 133.3 | % | ||||||||
Expense ratio
|
16.5 | % | 15.0 | % | 16.3 | % | 16.6 | % | ||||||||
Combined ratio
|
178.1 | % | 118.5 | % | 150.7 | % | 149.9 | % |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Benefit from income taxes
|
$ | (63,859 | ) | $ | (3,508 | ) | $ | (83,093 | ) | $ | (64,222 | ) | ||||
Change in valuation allowance
|
53,712 | (3,295 | ) | 74,715 | 56,372 | |||||||||||
Tax benefit
|
$ | (10,147 | ) | $ | (6,803 | ) | $ | (8,378 | ) | $ | (7,850 | ) |
At
|
At
|
At
|
||||||||||||
June 30, 2011
|
December 31, 2010
|
June 30, 2010
|
||||||||||||
AAA
|
49 | % | 51 | % | 56 | % | ||||||||
AA
|
24 | % | 25 | % | 23 | % | ||||||||
A | 22 | % | 20 | % | 16 | % | ||||||||
A or better
|
95 | % | 96 | % | 95 | % | ||||||||
BBB and below
|
5 | % | 4 | % | 5 | % | ||||||||
Total
|
100 | % | 100 | % | 100 | % |
June 30, 2011 | |||||||||||||||||||||
(In millions)
|
Guarantor Rating
|
||||||||||||||||||||
AA-
|
BBB
|
NR
|
R |
All
|
|||||||||||||||||
Underlying Rating:
|
|||||||||||||||||||||
AAA
|
$ | - | $ | - | $ | - | $ | 18 | $ | 18 | |||||||||||
AA
|
76 | 215 | - | 117 | 408 | ||||||||||||||||
A | 76 | 178 | - | 127 | 381 | ||||||||||||||||
BBB
|
1 | 21 | 10 | 25 | 57 | ||||||||||||||||
$ | 153 | $ | 414 | $ | 10 | $ | 287 | $ | 864 |
|
·
|
our investment portfolio (which is discussed in “Financial Condition” above), and interest income on the portfolio,
|
|
·
|
net premiums that we will receive from our existing insurance in force as well as policies that we write in the future and
|
|
·
|
amounts that we expect to recover from captives (which is discussed in “Results of Consolidated Operations – Risk sharing arrangements” and “Results of Consolidated Operations – Losses – Losses incurred” above).
|
|
·
|
claim payments under MGIC’s mortgage guaranty insurance policies,
|
|
·
|
$77.4 million of 5.625% Senior Notes due in September 2011,
|
|
·
|
$245 million of 5.375% Senior Notes due in November 2015,
|
|
·
|
$345 million of Convertible Senior Notes due in 2017,
|
|
·
|
$389.5 million of Convertible Junior Debentures due in 2063,
|
|
·
|
interest on the foregoing debt instruments, and
|
|
·
|
the other costs and operating expenses of our business.
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
(In millions, except ratio)
|
||||||||
Risk in force - net (1)
|
$ | 33,201 | $ | 33,817 | ||||
Statutory policyholders' surplus
|
$ | 1,628 | $ | 1,709 | ||||
Statutory contingency reserve
|
- | - | ||||||
Statutory policyholders' position
|
$ | 1,628 | $ | 1,709 | ||||
Risk-to-capital
|
20.4:1
|
19.8:1
|
||||||
(1) Risk in force – net, as shown in the table above, is net of reinsurance and exposure on policies currently in default and for which loss reserves have been established. |
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
(In millions, except ratio)
|
||||||||
Risk in force - net (1)
|
$ | 38,544 | $ | 39,369 | ||||
Statutory policyholders' surplus
|
$ | 1,637 | $ | 1,692 | ||||
Statutory contingency reserve
|
12 | 5 | ||||||
Statutory policyholders' position
|
$ | 1,649 | $ | 1,697 | ||||
Risk-to-capital
|
23.4:1
|
23.2:1
|
||||||
(1) Risk in force – net, as shown in the table above, is net of reinsurance and exposure on policies currently in default ($9.3 billion at June 30, 2011 and $11.0 billion at December 31, 2010) and for which loss reserves have been established. |
Payments due by period
|
||||||||||||||||||||
Contractual Obligations (In millions):
|
Less than
|
More than
|
||||||||||||||||||
Total
|
1 year
|
1-3 years
|
3-5 years
|
5 years
|
||||||||||||||||
Long-term debt obligations
|
$ | 3,045 | $ | 145 | $ | 131 | $ | 369 | $ | 2,400 | ||||||||||
Operating lease obligations
|
6 | 3 | 2 | 1 | - | |||||||||||||||
Tax obligations
|
17 | 17 | - | - | - | |||||||||||||||
Purchase obligations
|
1 | 1 | - | - | - | |||||||||||||||
Pension, SERP and other post-retirement benefit plans
|
169 | 10 | 25 | 32 | 102 | |||||||||||||||
Other long-term liabilities
|
5,083 | 2,338 | 2,287 | 458 | - | |||||||||||||||
Total
|
$ | 8,321 | $ | 2,514 | $ | 2,445 | $ | 860 | $ | 2,502 |
Percentage of new risk written
|
||||||
YTD
|
Full Year
|
|||||
6/30/11
|
2010
|
|||||
LTV:
|
||||||
80% and under
|
0%
|
0%
|
||||
80.1% - 85%
|
6%
|
7%
|
||||
85.1% - 90%
|
43%
|
48%
|
||||
90.1% - 95%
|
49%
|
44%
|
||||
95.1% - 97%
|
2%
|
1%
|
||||
> 97%
|
0%
|
0%
|
|
·
|
lenders using government mortgage insurance programs, including those of the Federal Housing Administration, or FHA, and the Veterans Administration,
|
|
·
|
lenders and other investors holding mortgages in portfolio and self-insuring,
|
|
·
|
investors using credit enhancements other than private mortgage insurance, using other credit enhancements in conjunction with reduced levels of private mortgage insurance coverage, or accepting credit risk without credit enhancement, and
|
|
·
|
lenders originating mortgages using piggyback structures to avoid private mortgage insurance, such as a first mortgage with an 80% loan-to-value ratio and a second mortgage with a 10%, 15% or 20% loan-to-value ratio (referred to as 80-10-10, 80-15-5 or 80-20 loans, respectively) rather than a first mortgage with a 90%, 95% or 100% loan-to-value ratio that has private mortgage insurance.
|
MGIC INVESTMENT CORPORATION | |||
|
By:
|
/s/ J. Michael Lauer | |
J. Michael Lauer | |||
Executive Vice President and | |||
Chief Financial Officer |
|
By:
|
/s/ Timothy J. Mattke | |
Timothy J. Mattke | |||
Vice President, Controller and Chief Accounting Officer
|
Exhibit Number | Description of Exhibit | |
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 1 A of our Annual Report on Form 10-K for the year ended December 31, 2010, as supplemented by Part II, Item 1A of our Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2011, and through updating of various statistical and other information | |
101 | The following financial information from MGIC Investment Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010, (iii) Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2010 and the six months ended June 30, 2011, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010, and (v) the Notes to Consolidated Financial Statements. |
1.
|
I have reviewed this quarterly report on Form 10-Q of MGIC Investment Corporation;
|
2.
|
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
|
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
1.
|
I have reviewed this quarterly report on Form 10-Q of MGIC Investment Corporation;
|
2.
|
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
|
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
(1)
|
the Quarterly Report on Form 10-Q of the Company for the three months ended June 30, 2011 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: August 9, 2011 | |
/s/ Curt S. Culver | |
Curt S. Culver | |
Chief Executive Officer
|
|
/s/ J. Michael Lauer | |
J. Michael Lauer | |
Chief Financial Officer |
Percentage of new risk written
|
||||||
YTD
|
Full Year
|
|||||
6/30/11
|
2010
|
|||||
LTV:
|
||||||
80% and under
|
0%
|
0%
|
||||
80.1% - 85%
|
6%
|
7%
|
||||
85.1% - 90%
|
43%
|
48%
|
||||
90.1% - 95%
|
49%
|
44%
|
||||
95.1% - 97%
|
2%
|
1%
|
||||
> 97%
|
0%
|
0%
|
|
·
|
lenders using government mortgage insurance programs, including those of the Federal Housing Administration, or FHA, and the Veterans Administration,
|
|
·
|
lenders and other investors holding mortgages in portfolio and self-insuring,
|
|
·
|
investors using credit enhancements other than private mortgage insurance, using other credit enhancements in conjunction with reduced levels of private mortgage insurance coverage, or accepting credit risk without credit enhancement, and
|
|
·
|
lenders originating mortgages using piggyback structures to avoid private mortgage insurance, such as a first mortgage with an 80% loan-to-value ratio and a second mortgage with a 10%, 15% or 20% loan-to-value ratio (referred to as 80-10-10, 80-15-5 or 80-20 loans, respectively) rather than a first mortgage with a 90%, 95% or 100% loan-to-value ratio that has private mortgage insurance.
|
|
·
|
the level of private mortgage insurance coverage, subject to the limitations of the GSEs’ charters (which may be changed by federal legislation), when private mortgage insurance is used as the required credit enhancement on low down payment mortgages,
|
|
·
|
the amount of loan level delivery fees (which result in higher costs to borrowers) that the GSEs assess on loans that require mortgage insurance,
|
|
·
|
whether the GSEs influence the mortgage lender’s selection of the mortgage insurer providing coverage and, if so, any transactions that are related to that selection,
|
|
·
|
the underwriting standards that determine what 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, and
|
|
·
|
the extent to which the GSEs intervene in mortgage insurers’ rescission practices or rescission settlement practices with lenders. For additional information, see “— We may not continue to realize benefits from rescissions at the rates we have recently experienced and we may not prevail in proceedings challenging whether our rescissions were proper.”
|
|
·
|
restrictions on mortgage credit due to more stringent underwriting standards, liquidity issues and risk-retention requirements associated with non-QRM loans affecting lenders,
|
|
·
|
the level of home mortgage interest rates and the deductibility of mortgage interest for income tax purposes,
|
|
·
|
the health of the domestic economy as well as conditions in regional and local economies,
|
|
·
|
housing affordability,
|
|
·
|
population trends, including the rate of household formation,
|
|
·
|
the rate of home price appreciation, which in times of heavy refinancing can affect whether refinance loans have loan-to-value ratios that require private mortgage insurance, and
|
|
·
|
government housing policy encouraging loans to first-time homebuyers.
|
|
·
|
PMI Mortgage Insurance Company,
|
|
·
|
Genworth Mortgage Insurance Corporation,
|
|
·
|
United Guaranty Residential Insurance Company,
|
|
·
|
Radian Guaranty Inc.,
|
|
·
|
Republic Mortgage Insurance Company, whose parent, based on information filed with the SEC through August 3, 2011, is our largest shareholder,
|
|
·
|
CMG Mortgage Insurance Company, and
|
|
·
|
Essent Guaranty, Inc.
|
|
·
|
the level of current mortgage interest rates compared to the mortgage coupon rates on the insurance in force, which affects the vulnerability of the insurance in force to refinancings, and
|
|
·
|
mortgage insurance cancellation policies of mortgage investors along with the current value of the homes underlying the mortgages in the insurance in force.
|
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)
In Thousands, except Share data |
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) [Abstract] | ||
Fixed maturities, amortized cost | $ 6,618,208 | $ 7,366,808 |
Common stock, par value (in dollars per share) | $ 1 | $ 1 |
Common stock, shares authorized (in shares) | 460,000,000 | 460,000,000 |
Common stock, shares issued (in shares) | 205,046,780 | 205,046,780 |
Common stock, shares outstanding (in shares) | 201,146,648 | 200,449,588 |
Treasury stock, shares at cost (in shares) | 3,900,132 | 4,597,192 |
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)
In Thousands, except Per Share data |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Premiums written: | ||||
Direct | $ 283,471 | $ 314,310 | $ 571,188 | $ 589,444 |
Assumed | 700 | 779 | 1,430 | 1,576 |
Ceded | (13,772) | (19,743) | (27,756) | (39,616) |
Net premiums written | 270,399 | 295,346 | 544,862 | 551,404 |
Decrease in unearned premiums, net | 14,055 | 13,828 | 28,138 | 29,722 |
Net premiums earned | 284,454 | 309,174 | 573,000 | 581,126 |
Investment income, net of expenses | 55,490 | 62,868 | 112,033 | 131,727 |
Realized investment gains, net | 21,734 | 31,702 | 27,495 | 64,656 |
Total other-than-temporary impairment losses | 0 | 0 | 0 | (6,052) |
Portion of losses recognized in other comprehensive income, before taxes | 0 | 0 | 0 | 0 |
Net impairment losses recognized in earnings | 0 | 0 | 0 | (6,052) |
Other revenue | 5,329 | 2,611 | 7,592 | 5,668 |
Total revenues | 367,007 | 406,355 | 720,120 | 777,125 |
Losses and expenses: | ||||
Losses incurred, net (note 12) | 459,552 | 320,077 | 769,983 | 774,588 |
Change in premium deficiency reserve (note 13) | (11,035) | (10,619) | (20,053) | (24,185) |
Amortization of deferred policy acquisition costs | 1,723 | 1,770 | 3,448 | 3,493 |
Other underwriting and operating expenses, net | 52,320 | 52,280 | 108,145 | 110,502 |
Interest expense | 26,326 | 25,099 | 52,368 | 46,117 |
Total losses and expenses | 528,886 | 388,607 | 913,891 | 910,515 |
(Loss) income before tax | (161,879) | 17,748 | (193,771) | (133,390) |
Benefit from income taxes (note 11) | (10,147) | (6,803) | (8,378) | (7,850) |
Net (loss) income | $ (151,732) | $ 24,551 | $ (185,393) | $ (125,540) |
(Loss) earnings per share (note 6): | ||||
Basic (in dollars per share) | $ (0.75) | $ 0.14 | $ (0.92) | $ (0.82) |
Diluted (in dollars per share) | $ (0.75) | $ 0.13 | $ (0.92) | $ (0.82) |
Weighted average common shares outstanding - diluted (in shares, note 6) | 201,097 | 182,156 | 200,921 | 152,344 |
Earnings (loss) per share (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (loss) per share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Calculation of earnings (loss) per share |
|
Document And Entity Information (USD $)
In Billions, except Share data |
3 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
Jul. 31, 2011
|
Jun. 30, 2010
|
|
Entity Registrant Name | MGIC INVESTMENT CORP | ||
Entity Central Index Key | 0000876437 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | No | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $ 1.4 | ||
Entity Common Stock, Shares Outstanding | 201,146,648 | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | FY | ||
Document Type | 10-Q | ||
Amendment Flag | false | ||
Document Period End Date | Jun. 30, 2011 |
Comprehensive income (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Comprehensive income [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | Our total comprehensive income for the three and six months ended June 30, 2011 and 2010 was as follows:
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Earnings (loss) per share
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Earnings (loss) per share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (loss) per share | Note 6 – Earnings (loss) per share Our basic EPS is based on the weighted average number of common shares outstanding, which excludes participating securities with non-forfeitable rights to dividends of 1.0 million, 1.2 million and 1.8 million for the three months ended June 30, 2011 and the six months ended June 30, 2011 and 2010, respectively, because they were anti-dilutive due to our reported net loss. For the three months ended June 30, 2010 our basic EPS includes participating securities of 1.8 million with non-forfeitable rights to dividends. Typically, diluted EPS is based on the weighted average number of common shares outstanding plus common stock equivalents which include certain stock awards, stock options and the dilutive effect of our convertible debt. In accordance with accounting guidance, if we report a net loss from continuing operations then our diluted EPS is computed in the same manner as the basic EPS. In addition if any common stock equivalents are anti-dilutive they are always excluded from the calculation. The following includes a reconciliation of the weighted average number of shares; however for the three months ended June 30, 2011 and 2010 common stock equivalents of 55.5 million and 53.3 million, respectively, and for the six months ended June 30, 2011 and 2010 common stock equivalents of 55.5 million and 45.8 million, respectively, were not included because they were anti-dilutive.
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Benefit Plans (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Benefit Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of net periodic benefit cost | The following table provides the components of net periodic benefit cost for the pension, supplemental executive retirement and other postretirement benefit plans:
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Comprehensive income (Details) (USD $)
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3 Months Ended | 6 Months Ended | |||
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Jun. 30, 2011
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Jun. 30, 2010
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Jun. 30, 2011
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Jun. 30, 2010
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Dec. 31, 2010
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Comprehensive income [Abstract] | |||||
Net (loss) income | $ (151,732,000) | $ 24,551,000 | $ (185,393,000) | $ (125,540,000) | |
Other comprehensive income | 53,528,000 | 14,384,000 | 28,841,000 | 20,174,000 | |
Total comprehensive (loss) income | (98,204,000) | 38,935,000 | (156,552,000) | (105,366,000) | |
Other comprehensive income (net of tax) [Abstract] | |||||
Change in unrealized gains and losses on investments | 49,921,000 | 21,118,000 | 24,317,000 | 27,324,000 | |
Unrealized foreign currency translation adjustment | 3,607,000 | (6,734,000) | 4,524,000 | (7,150,000) | |
Other comprehensive income | 53,528,000 | 14,384,000 | 28,841,000 | 20,174,000 | |
Tax expense on other comprehensive income | 14,600,000 | 7,500,000 | 15,300,000 | 10,400,000 | |
Accumulated other comprehensive income (loss) [Abstract] | |||||
Accumulated other comprehensive income | 50,977,000 | 50,977,000 | 22,136,000 | ||
Net unrealized gains on investments | 56,800,000 | 56,800,000 | 32,500,000 | ||
Foreign currency translation adjustment | 24,900,000 | 24,900,000 | 20,400,000 | ||
Defined benefit plans | $ 30,800,000 | $ 30,800,000 | $ 30,800,000 |
Fair value measurements (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Fair value measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value measurements for items measured at fair value | Fair value measurements for assets measured at fair value included the following as of June 30, 2011 and December 31, 2010:
(1) Real estate acquired through claim settlement, which is held for sale, is reported in Other Assets on the consolidated balance sheet. |
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Reconciliation of beginning and ending balance for assets measured at fair value with significant unobservable inputs (level 3) | For assets measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the three and six months ended June 30, 2011 and 2010 is as follows:
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Income Taxes
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Income Taxes [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Note 11 – Income Taxes We review the need to adjust the deferred tax asset valuation allowance on a quarterly basis. We analyze several factors, among which are the severity and frequency of operating losses, our capacity for the carryback or carryforward of any losses, the expected occurrence of future income or loss and available tax planning alternatives. Based on our analysis and the level of cumulative operating losses, we have reduced our benefit from income tax by establishing a valuation allowance. For the six months ended June 30, 2011 and 2010, our deferred tax valuation allowance was reduced by the change in the deferred tax liability related to $34.6 million and $35.7 million, respectively of unrealized gains on investments that were recorded in other comprehensive income. In the event of future operating losses, it is likely that the valuation allowance will be adjusted by any taxes recorded to equity for changes in unrealized gains or losses or other items in other comprehensive income.
The decrease in the valuation allowance that was included in other comprehensive income was $9.2 million and $0 million for the three months ended June 30, 2011 and 2010, respectively. There was no change in the valuation allowance included in other comprehensive income for the six months ended June 30, 2011 and 2010. The total valuation allowance as of June 30, 2011 and December 31, 2010 was $485.0 million and $410.3 million, respectively. We have approximately $1,097 million of net operating loss carryforwards on a regular tax basis and $255 million of net operating loss carryforwards for computing the alternative minimum tax as of June 30, 2011. The net operating loss carryforwards decreased in the second quarter of 2011 as the loss from operations was more than offset by a onetime inclusion of taxable income. The taxable income related to the cancellation of indebtedness triggered by the conclusion of bankruptcy proceedings for C-BASS, a joint venture investment. Any unutilized carryforwards are scheduled to expire at the end of tax years 2029 through 2031. The Internal Revenue Service (“IRS”) completed separate examinations of our federal income tax returns for the years 2000 through 2004 and 2005 through 2007 and issued assessments for unpaid taxes, interest and penalties. The primary adjustment in both examinations related to our treatment of the flow-through income and loss from an investment in a portfolio of residual interests of Real Estate Mortgage Investment Conduits (“REMICs”). This portfolio has been managed and maintained during years prior to, during and subsequent to the examination period. The IRS indicated that it did not believe that, for various reasons, we had established sufficient tax basis in the REMIC residual interests to deduct the losses from taxable income. We appealed those adjustments and, in August 2010, we reached a tentative settlement agreement with the IRS. The settlement agreement is subject to review by the Joint Committee on Taxation of Congress because net operating losses incurred in 2009 were carried back to taxable years that were included in the agreement. A final agreement is expected to be entered into when the review is complete, although we do not expect there will be any substantive change in the terms of a final agreement from those in the tentative agreement. We adjusted our tax provision and liabilities for the effects of this agreement in 2010 and believe that they accurately reflect our exposure in regard to this issue. The IRS is currently conducting an examination of our federal income tax returns for the years 2008 and 2009, which is scheduled to be completed in 2011. |
New Accounting Guidance
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6 Months Ended |
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Jun. 30, 2011
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New Accounting Guidance [Abstract] | |
New Accounting Guidance | Note 2 - New Accounting Guidance In June 2011, new guidance was issued requiring entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity is eliminated. The new requirements are generally effective for public entities in fiscal years (including interim periods) beginning after December 15, 2011. Early adoption is permitted. Full retrospective application is required. We are currently evaluating the provisions of this guidance and intend to meet the new requirements beginning in the first quarter of 2012. In May 2011, new guidance was issued regarding fair value measurement. The guidance in the new standard is intended to harmonize the fair value measurement and disclosure requirements for United States and International standards. Many of the changes in the standard represent clarifications to existing guidance, but the standard also includes some new guidance and new required disclosures. The guidance is effective for interim and annual periods beginning after December 15, 2011. We are currently evaluating the provisions of this guidance and the impact on our financial statements and disclosures. In October 2010, new guidance was issued on accounting for costs associated with acquiring or renewing insurance contracts. The new guidance will likely change how insurance companies account for acquisition costs, particularly in determining what costs are deferrable. The new requirements are effective for fiscal years beginning after December 15, 2011, either prospectively or by retrospective adjustment. We are currently evaluating the provisions of this guidance and the impact on our financial statements and disclosures. |
Fair value measurements
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Fair value measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value measurements | Note 8 – Fair value measurements In accordance with fair value guidance, we applied the following fair value hierarchy in order to measure fair value for assets and liabilities: Level 1 – Quoted prices for identical instruments in active markets that we have the ability to access. Financial assets utilizing Level 1 inputs primarily include certain U.S. Treasury securities and obligations of the U.S. government. Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and inputs, other than quoted prices, that are observable in the marketplace for the financial instrument. The observable inputs are used in valuation models to calculate the fair value of the financial instruments. Financial assets utilizing Level 2 inputs primarily include certain municipal and corporate bonds. Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or value drivers are unobservable. Level 3 inputs reflect our own assumptions about the assumptions a market participant would use in pricing an asset or liability. Financial assets utilizing Level 3 inputs include certain state and auction rate (backed by student loans) securities. Non-financial assets which utilize Level 3 inputs include real estate acquired through claim settlement. To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation. Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. Quality controls are performed throughout this process, which include reviewing tolerance reports, trading information and data changes, and directional moves compared to market moves. This model combines all inputs to arrive at a value assigned to each security. In addition, on a quarterly basis, we perform quality controls over values received from the pricing sources which include reviewing tolerance reports, trading information and data changes, and directional moves compared to market moves. We have not made any adjustments to the prices obtained from the independent pricing sources. Assets classified as Level 3 are as follows:
Fair value measurements for assets measured at fair value included the following as of June 30, 2011 and December 31, 2010:
(1) Real estate acquired through claim settlement, which is held for sale, is reported in Other Assets on the consolidated balance sheet. There were no significant transfers of securities between Level 1 and Level 2 during the first six months of 2011 or 2010. For assets measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the three and six months ended June 30, 2011 and 2010 is as follows:
Additional fair value disclosures related to our investment portfolio are included in Note 7. Fair value disclosures related to our debt are included in Note 3. |
Premium Deficiency Reserve
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Premium Deficiency Reserve [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Premium Deficiency Reserve | Note 13 – Premium Deficiency Reserve The components of the premium deficiency reserve at June 30, 2011, December 31, 2010 and June 30, 2010 appear in the table below.
The decrease in the premium deficiency reserve for the three and six months ended June 30, 2011 was $11 million and $20 million, respectively as shown in the table below, which represents the net result of actual premiums, losses and expenses as well as a net change in assumptions for these periods. The net change in assumptions for the second quarter and first six months of 2011 is primarily related to lower estimated ultimate losses and higher estimated ultimate premiums.
(1) A positive number for changes in assumptions relating to premiums, losses, expenses and discount rate indicates a redundancy of prior premium deficiency reserves. |
Comprehensive income
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Jun. 30, 2011
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Comprehensive income [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income | Note 9 - Comprehensive income Our total comprehensive income for the three and six months ended June 30, 2011 and 2010 was as follows:
The tax expense on other comprehensive income was $14.6 million and $7.5 million for the three months ended June 30, 2011 and 2010 respectively. The tax expense on other comprehensive income was $15.3 million and $10.4 million for the six months ended June 30, 2011 and 2010 respectively. At June 30, 2011, accumulated other comprehensive income of $51.0 million included $56.8 million of net unrealized gains on investments and $24.9 million of gains related to foreign currency translation adjustment, offset by a $30.8 million loss relating to defined benefit plans. At December 31, 2010, accumulated other comprehensive income of $22.1 million included $32.5 million of net unrealized gains on investments and $20.4 million of gains related to foreign currency translation adjustment, offset by a $30.8 million loss relating to defined benefit plans. |
Investments
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Jun. 30, 2011
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | Note 7 – Investments The amortized cost, gross unrealized gains and losses and fair value of the investment portfolio at June 30, 2011 and December 31, 2010 are shown below.
(1) At June 30, 2011 and December 31, 2010, there were no other-than-temporary impairment losses recorded in other comprehensive income. The amortized cost and fair values of debt securities at June 30, 2011, by contractual maturity, are shown below. Expected 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 auction rate and mortgage-backed securities provide for periodic payments throughout their lives, they are listed below in separate categories.
(1) At June 30, 2011, approximately 97% of auction rate securities had a contractual maturity greater than 10 years. At June 30, 2011 and December 31, 2010, the investment portfolio had gross unrealized losses of $45.7 million and $73.6 million, respectively. For those securities in an unrealized loss position, the length of time the securities were in such a position, as measured by their month-end fair values, is as follows:
The unrealized losses in all categories of our investments were primarily caused by the difference in interest rates at June 30, 2011 and December 31, 2010, respectively, compared to the interest rates at the time of purchase as well as the discount rate applied in our auction rate securities discounted cash flow model. The securities in an unrealized loss position for 12 months or greater are primarily auction rate securities (“ARS”) backed by student loans. See further discussion of these securities below. We held $287.2 million in ARS backed by student loans at June 30, 2011. ARS are intended to behave like short-term debt instruments because their interest rates are reset periodically through an auction process, most commonly at intervals of 7, 28 and 35 days. The same auction process has historically provided a means by which we may rollover the investment or sell these securities at par in order to provide us with liquidity as needed. The ARS we hold are collateralized by portfolios of student loans, substantially all of which are ultimately 97% guaranteed by the United States Department of Education. At June 30, 2011, approximately 87% of our ARS portfolio was rated AAA/Aaa by one or more of the following major rating agencies: Moody's, Standard & Poor's and Fitch Ratings. In mid-February 2008, auctions began to fail due to insufficient buyers, as the amount of securities submitted for sale in auctions exceeded the aggregate amount of the bids. For each failed auction, the interest rate on the security moves to a maximum rate specified for each security, and generally resets at a level higher than specified short-term interest rate benchmarks. At June 30, 2011, our entire ARS portfolio, consisting of 28 investments, was subject to failed auctions; however, from the period when the auctions began to fail through June 30, 2011, $235.6 million in par value of ARS was either sold or called, with the average amount we received being approximately 99% of par which approximated the aggregate fair value prior to redemption. To date, we have collected all interest due on our ARS. As a result of the persistent failed auctions, and the uncertainty of when these investments could be liquidated at par, the investment principal associated with failed auctions will not be accessible until successful auctions occur, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, or final payments come due according to the contractual maturities of the debt issues. However, we continue to believe we will have liquidity to our ARS portfolio by December 31, 2014. Under the current guidance a debt security impairment is deemed other than temporary if we either intend to sell the security, or it is more likely than not that we will be required to sell the security before recovery or we do not expect to collect cash flows sufficient to recover the amortized cost basis of the security. During the first six months of 2011 there were no other-than-temporary impairments (“OTTI”) recognized compared to $6.1 million during the first six months of 2010. The following table provides a rollforward of the amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2010.
The net realized investment gains (losses) and OTTI on the investment portfolio are as follows:
The net realized gains on investments during the first six months of 2010 and 2011 were a result of the continued restructuring of the portfolio into shorter duration, taxable securities. Such sales were made to reduce the proportion of our investment portfolio held in tax-exempt municipal securities and to increase the proportion held in taxable securities principally since the tax benefits of holding tax exempt municipal securities are no longer available based on our recent net operating losses and to shorten the duration of the portfolio to provide liquidity to meet our anticipated claim payment obligations. |
Debt
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Debt [Abstract] | |
Debt | Note 3 – Debt Senior Notes At June 30, 2011 we had outstanding $77.4 million, 5.625% Senior Notes due in September 2011 and $245 million, 5.375% Senior Notes due in November 2015. In the second quarter of 2011 we repurchased $55 million in par value of our 5.375% Senior Notes due in November 2015. We recognized a gain on the repurchases of approximately $3.2 million, which is included in other revenue on the Consolidated Statements of Operations for the three and six months ended June 30, 2011. At December 31, 2010 we had outstanding $77.4 million, 5.625% Senior Notes due in September 2011 and $300 million, 5.375% Senior Notes due in November 2015. Covenants in the Senior Notes include the requirement that there be no liens on the stock of the designated subsidiaries unless the Senior Notes are equally and ratably secured; that there be no disposition of the stock of designated subsidiaries unless all of the stock is disposed of for consideration equal to the fair market value of the stock; and that we and the designated subsidiaries preserve our corporate existence, rights and franchises unless we or such subsidiary determines that such preservation is no longer necessary in the conduct of its business and that the loss thereof is not disadvantageous to the Senior Notes. A designated subsidiary is any of our consolidated subsidiaries which has shareholders' equity of at least 15% of our consolidated shareholders' equity. We were in compliance with all covenants at June 30, 2011. If we fail to meet any of the covenants of the Senior Notes discussed above; there is a failure to pay when due at maturity, or a default results in the acceleration of maturity of, any of our other debt in an aggregate amount of $40 million or more; or we fail to make a payment of principal of the Senior Notes when due or a payment of interest on the Senior Notes within thirty days after due and we are not successful in obtaining an agreement from holders of a majority of the applicable series of Senior Notes to change (or waive) the applicable requirement or payment default, then the holders of 25% or more of either series of our Senior Notes each would have the right to accelerate the maturity of that series. In addition, the trustee, U.S. Bank National Association, of these two issues of Senior Notes could, independent of any action by holders of Senior Notes, accelerate the maturity of the Senior Notes. At June 30, 2011 and December 31, 2010, the fair value of the amount outstanding under our Senior Notes was $295.7 million and $355.6 million, respectively. The fair value was determined using publicly available trade information. Interest payments on the Senior Notes were $10.3 million in each of the six months ended June 30, 2011 and 2010. Convertible Senior Notes At June 30, 2011 and December 31, 2010 we had outstanding $345 million principal amount of 5% Convertible Senior Notes due in 2017. Interest on the Convertible Senior Notes is payable semi-annually in arrears on May 1 and November 1 of each year. We do not have the right to defer interest payments on the Convertible Senior Notes. The Convertible Senior Notes will mature on May 1, 2017, unless earlier converted by the holders or repurchased by us. Covenants in the Convertible Senior Notes include a requirement to notify holders in advance of certain events and that we and the designated subsidiaries (defined above) preserve our corporate existence, rights and franchises unless we or such subsidiary determines that such preservation is no longer necessary in the conduct of its business and that the loss thereof is not disadvantageous to the Convertible Senior Notes. If we fail to meet any of the covenants of the Convertible Senior Notes; there is a failure to pay when due at maturity, or a default results in the acceleration of maturity of, any of our other debt in an aggregate amount of $40 million or more; a final judgment for the payment of $40 million or more (excluding any amounts covered by insurance) is rendered against us or any of our subsidiaries which judgment is not discharged or stayed within certain time limits; or we fail to make a payment of principal of the Convertible Senior Notes when due or a payment of interest on the Convertible Senior Notes within thirty days after due and we are not successful in obtaining an agreement from holders of a majority of the Convertible Senior Notes to change (or waive) the applicable requirement or payment default, then the holders of 25% or more of the Convertible Senior Notes would have the right to accelerate the maturity of those notes. In addition, the trustee of the Convertible Senior Notes could, independent of any action by holders, accelerate the maturity of the Convertible Senior Notes. The Convertible Senior Notes are convertible, at the holder's option, at an initial conversion rate, which is subject to adjustment, of 74.4186 shares per $1,000 principal amount at any time prior to the maturity date. This represents an initial conversion price of approximately $13.44 per share. These Convertible Senior Notes will be equal in right of payment to our existing Senior Notes, discussed above, and will be senior in right of payment to our existing Convertible Junior Debentures, discussed below. Debt issuance costs are being amortized to interest expense over the contractual life of the Convertible Senior Notes. The provisions of the Convertible Senior Notes are complex. The description above is not intended to be complete in all respects. Moreover, that description is qualified in its entirety by the terms of the notes, which are contained in the Supplemental Indenture, dated as of April 26, 2010, between us and U.S. Bank National Association, as trustee, and the Indenture dated as of October 15, 2000, between us and the trustee. At June 30, 2011 and December 31, 2010, the fair value of the amount outstanding under our Convertible Senior Notes was $306.2 million and $400.5 million, respectively. The fair value was determined using publicly available trade information. Interest payments on the Convertible Senior Notes were $8.6 million in the six months ended June 30, 2011. There were no interest payments on the Convertible Senior Notes in the six months ended June 30, 2010. Convertible Junior Subordinated Debentures At June 30, 2011 and December 31, 2010 we had outstanding $389.5 million principal amount of 9% Convertible Junior Subordinated Debentures due in 2063 (the “debentures”). The debentures have an effective interest rate of 19% that reflects our non-convertible debt borrowing rate at the time of issuance. At June 30, 2011 and December 31, 2010 the amortized value of the principal amount of the debentures is reflected as a liability on our consolidated balance sheet of $329.3 million and $315.6 million, respectively, with the unamortized discount reflected in equity. The debentures rank junior to all of our existing and future senior indebtedness. Interest on the debentures is payable semi-annually in arrears on April 1 and October 1 of each year. As long as no event of default with respect to the debentures has occurred and is continuing, we may defer interest, under an optional deferral provision, for one or more consecutive interest periods up to ten years without giving rise to an event of default. Deferred interest will accrue additional interest at the rate then applicable to the debentures. During an optional deferral period we may not pay or declare dividends on our common stock. Violations of the covenants under the Indenture governing the debentures, including covenants to provide certain documents to the trustee, are not events of default under the Indenture and would not allow the acceleration of amounts that we owe under the debentures. Similarly, events of default under, or acceleration of, any of our other obligations, including those described above, would not allow the acceleration of amounts that we owe under the debentures. However, violations of the events of default under the Indenture, including a failure to pay principal when due under the debentures and certain events of bankruptcy, insolvency or receivership involving our holding company would allow acceleration of amounts that we owe under the debentures. Interest on the debentures that would have been payable on the scheduled interest payment dates of April 1, 2009, October 1, 2009 and April 1, 2010 had been deferred past the scheduled payment date. During this deferral period the deferred interest continued to accrue and compound semi-annually at an annual rate of 9%. On October 1, 2010 we paid each of those deferred interest payments, including the compound interest on each. The interest payments, totaling approximately $57.5 million, were made from the net proceeds of our April 2010 common stock offering. We have remained current on these interest payments since October 1, 2010. We continue to have the right to defer interest that is payable on subsequent scheduled interest payment dates if we give the required 15 day notice. Any deferral of such interest would be on terms equivalent to those described above. When interest on the debentures is deferred, we are required, not later than a specified time, to use reasonable commercial efforts to begin selling qualifying securities to persons who are not our affiliates. The specified time is one business day after we pay interest on the debentures that was not deferred, or if earlier, the fifth anniversary of the scheduled interest payment date on which the deferral started. Qualifying securities are common stock, certain warrants and certain non-cumulative perpetual preferred stock. The requirement to use such efforts to sell such securities is called the Alternative Payment Mechanism. The net proceeds of Alternative Payment Mechanism sales are to be applied to the payment of deferred interest, including the compound portion. We cannot pay deferred interest other than from the net proceeds of Alternative Payment Mechanism sales, except at the final maturity of the debentures or at the tenth anniversary of the start of the interest deferral. The Alternative Payment Mechanism does not require us to sell common stock or warrants before the fifth anniversary of the interest payment date on which that deferral started if the net proceeds (counting any net proceeds of those securities previously sold under the Alternative Payment Mechanism) would exceed the 2% cap. The 2% cap is 2% of the average closing price of our common stock times the number of our outstanding shares of common stock. The average price is determined over a specified period ending before the issuance of the common stock or warrants being sold, and the number of outstanding shares is determined as of the date of our most recent publicly released financial statements. We are not required to issue under the Alternative Payment Mechanism a total of more than 10 million shares of common stock, including shares underlying qualifying warrants. In addition, we may not issue under the Alternative Payment Mechanism qualifying preferred stock if the total net proceeds of all issuances would exceed 25% of the aggregate principal amount of the debentures. The Alternative Payment Mechanism does not apply during any period between scheduled interest payment dates if there is a “market disruption event” that occurs over a specified portion of such period. Market disruption events include any material adverse change in domestic or international economic or financial conditions. The provisions of the Alternative Payment Mechanism are complex. The description above is not intended to be complete in all respects. Moreover, that description is qualified in its entirety by the terms of the debentures, which are contained in the Indenture, dated as of March 28, 2008, between us and U.S. Bank National Association, as trustee. We may redeem the debentures prior to April 6, 2013, in whole but not in part, only in the event of a specified tax or rating agency event, as defined in the Indenture. In any such event, the redemption price will be equal to the greater of (1) 100% of the principal amount of the debentures being redeemed and (2) the applicable make-whole amount, as defined in the Indenture, in each case plus any accrued but unpaid interest. On or after April 6, 2013, we may redeem the debentures in whole or in part from time to time, at our option, at a redemption price equal to 100% of the principal amount of the debentures being redeemed, plus any accrued and unpaid interest, if the closing sale price of our common stock exceeds 130% of the then prevailing conversion price of the debentures for at least 20 of the 30 trading days preceding notice of the redemption. We will not be able to redeem the debentures, other than in the event of a specified tax event or rating agency event, during an optional deferral period. The debentures are currently convertible, at the holder's option, at an initial conversion rate, which is subject to adjustment, of 74.0741 common shares per $1,000 principal amount of debentures at any time prior to the maturity date. This represents an initial conversion price of approximately $13.50 per share. If a holder elects to convert their debentures, deferred interest owed on the debentures being converted is also converted into shares of our common stock. The conversion rate for any deferred interest is based on the average price that our shares traded at during a 5-day period immediately prior to the election to convert. In lieu of issuing shares of common stock upon conversion of the debentures occurring after April 6, 2013, we may, at our option, make a cash payment to converting holders equal to the value of all or some of the shares of our common stock otherwise issuable upon conversion. The fair value of the debentures was approximately $311.6 million and $432.4 million, respectively, at June 30, 2011 and December 31, 2010, as determined using available pricing for these debentures or similar instruments. Interest payments on the debentures were $17.5 million in the six months ended June 30, 2011. There were no interest payments on the debentures in the six months ended June 30, 2010, as we were in a deferral period that ended on October 1, 2010 as discussed above. |
Benefit Plans (Details) (USD $)
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3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2011
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Jun. 30, 2010
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Jun. 30, 2011
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Jun. 30, 2010
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Pension and Supplemental Executive Retirement Plans [Member]
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Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | ||||
Service cost | $ 2,287,000 | $ 2,082,000 | $ 4,459,000 | $ 4,266,000 |
Interest cost | 3,927,000 | 3,946,000 | 8,049,000 | 7,767,000 |
Expected return on plan assets | (4,493,000) | (3,654,000) | (8,687,000) | (7,251,000) |
Recognized net actuarial loss | 789,000 | 1,524,000 | 2,006,000 | 2,962,000 |
Amortization of prior service cost | 169,000 | 185,000 | 331,000 | 325,000 |
Net periodic benefit cost | 2,679,000 | 4,083,000 | 6,158,000 | 8,069,000 |
Other Postretirement Benefits [Member]
|
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Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | ||||
Service cost | 291,000 | 239,000 | 545,000 | 563,000 |
Interest cost | 321,000 | 252,000 | 675,000 | 592,000 |
Expected return on plan assets | (827,000) | (726,000) | (1,650,000) | (1,446,000) |
Recognized net actuarial loss | 129,000 | 126,000 | 316,000 | 382,000 |
Amortization of prior service cost | (1,555,000) | (1,534,000) | (3,109,000) | (3,069,000) |
Net periodic benefit cost | (1,641,000) | (1,643,000) | (3,223,000) | (2,978,000) |
Pension Plan [Member]
|
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Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | ||||
Employer contributions during the period | $ 10,000,000 |
Reinsurance
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6 Months Ended |
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Jun. 30, 2011
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Reinsurance [Abstract] | |
Reinsurance | Note 4 – Reinsurance The reinsurance recoverable on loss reserves as of June 30, 2011 and December 31, 2010 was approximately $206 million and $275 million, respectively. Within those amounts, the reinsurance recoverable on loss reserves related to captive agreements was approximately $186 million at June 30, 2011 and $248 million at December 31, 2010. The total fair value of the trust fund assets under our captive agreements at June 30, 2011 was $451 million, compared to $510 million at December 31, 2010. Trust fund assets of $3 million were transferred to us as a result of captive terminations during the first six months of 2011. |
Premium Deficiency Reserve (Details) (USD $)
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3 Months Ended | 6 Months Ended | |||||||
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Jun. 30, 2011
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Jun. 30, 2010
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Jun. 30, 2011
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Jun. 30, 2010
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Dec. 31, 2010
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Premium Deficiency Reserve [Abstract] | |||||||||
Present value of expected future paid losses and expenses, net of expected future premium | $ (1,060,000,000) | $ (1,421,000,000) | $ (1,060,000,000) | $ (1,421,000,000) | $ (1,254,000,000) | ||||
Established loss reserves | 901,000,000 | 1,252,000,000 | 901,000,000 | 1,252,000,000 | 1,075,000,000 | ||||
Net deficiency | (158,913,000) | (169,000,000) | (158,913,000) | (169,000,000) | |||||
Change in premium deficiency reserve | (11,035,000) | (10,619,000) | (20,053,000) | (24,185,000) | |||||
Premium Deficiency Reserve [Roll Forward] | |||||||||
Premium Deficiency Reserve at beginning of period | (170,000,000) | (178,967,000) | |||||||
Paid claims and loss adjustment expenses | 97,000,000 | 172,000,000 | |||||||
Decrease in loss reserves | (99,000,000) | (174,000,000) | |||||||
Premium earned | (29,000,000) | (61,000,000) | |||||||
Effects of present valuing on future premiums, losses and expenses | 2,000,000 | (10,000,000) | |||||||
Change in premium deficiency reserve to reflect actual premium, losses and expenses recognized | (29,000,000) | (73,000,000) | |||||||
Change in premium deficiency reserve to reflect change in assumptions relating to future premiums, losses, expenses and discount rate | 40,000,000 | [1] | 93,000,000 | [1] | |||||
Premium Deficiency Reserve at end of period | $ (158,913,000) | $ (169,000,000) | $ (158,913,000) | $ (169,000,000) | |||||
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Income Taxes (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Income Taxes [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax provision (benefit) | In the event of future operating losses, it is likely that the valuation allowance will be adjusted by any taxes recorded to equity for changes in unrealized gains or losses or other items in other comprehensive income.
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Reinsurance (Details) (USD $)
|
6 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2011
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Dec. 31, 2010
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Jun. 30, 2010
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Dec. 31, 2009
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Reinsurance [Abstract] | ||||
Reinsurance recoverable on loss reserves | $ 206,170,000 | $ 275,290,000 | $ 339,542,000 | $ 332,227,000 |
Reinsurance recoverable on loss reserves related to captive agreements | 186,000,000 | 248,000,000 | ||
Total fair value of the trust fund assets under our captive agreements | 451,000,000 | 510,000,000 | ||
Trust fund assets transferred to us as a result of captive terminations | $ 3,000,000 |
Loss Reserves (Details) (USD $)
|
3 Months Ended | 6 Months Ended | 12 Months Ended | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
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Jun. 30, 2010
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Jun. 30, 2011
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Jun. 30, 2010
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Dec. 31, 2010
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Dec. 31, 2009
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Loss Reserve [Roll Forward] | ||||||||||||||||||||||||
Reserve at beginning of period | $ 5,884,171,000 | $ 6,704,990,000 | $ 6,704,990,000 | |||||||||||||||||||||
Less reinsurance recoverables | 275,290,000 | 332,227,000 | 332,227,000 | |||||||||||||||||||||
Net reserve at beginning of year | 5,608,881,000 | [1] | 6,372,763,000 | [1] | 6,372,763,000 | [1] | ||||||||||||||||||
Losses and LAE incurred in respect of default notices received in [Abstract] | ||||||||||||||||||||||||
Current year | 855,253,000 | 894,282,000 | ||||||||||||||||||||||
Prior years | (85,270,000) | [2] | (119,694,000) | [2] | ||||||||||||||||||||
Subtotal | 769,983,000 | [3] | 774,588,000 | [3] | ||||||||||||||||||||
Losses and LAE paid in respect of default notices received in [Abstract] | ||||||||||||||||||||||||
Current year | 8,330,000 | 2,250,000 | ||||||||||||||||||||||
Prior years | 1,496,727,000 | 1,095,898,000 | ||||||||||||||||||||||
Reinsurance terminations | (2,925,000) | [4] | (184,000) | [4] | ||||||||||||||||||||
Subtotal | 1,502,132,000 | [5] | 1,097,964,000 | [5] | ||||||||||||||||||||
Net reserve at end of period | 4,876,732,000 | [6] | 6,049,387,000 | [6] | 4,876,732,000 | [6] | 6,049,387,000 | [6] | 5,608,881,000 | [1] | 6,372,763,000 | [1] | ||||||||||||
Plus reinsurance recoverables | 206,170,000 | 339,542,000 | 206,170,000 | 339,542,000 | 275,290,000 | 332,227,000 | ||||||||||||||||||
Reserve at end of period | 5,082,902,000 | 6,388,929,000 | 5,082,902,000 | 6,388,929,000 | 5,884,171,000 | 6,704,990,000 | ||||||||||||||||||
Losses incurred [Abstract] | ||||||||||||||||||||||||
Number of new default notices received, net of cures | 1,696 | 5,074 | ||||||||||||||||||||||
Change in loss reserves | 85,000,000 | 120,000,000 | ||||||||||||||||||||||
Losses paid [Abstract] | ||||||||||||||||||||||||
Historical average period for an uncured default to develop into a paid claim (in months) | 12 | |||||||||||||||||||||||
Premium refund liability, expected claim payments | 112,000,000 | 112,000,000 | 113,000,000 | |||||||||||||||||||||
Premium refund liability, expected future rescissions | 75,000,000 | 75,000,000 | 101,000,000 | |||||||||||||||||||||
Pool insurance notice inventory [Abstract] | ||||||||||||||||||||||||
Pool insurance notice inventory (in number of loans) | 36,552 | 42,872 | 36,552 | 42,872 | 43,329 | |||||||||||||||||||
Aging of the Primary Default Inventory [Abstract] | ||||||||||||||||||||||||
3 months or less | 30,107 | 35,838 | 30,107 | 35,838 | 37,640 | |||||||||||||||||||
3 months or less (in hundredths) | 16.00% | 16.00% | 16.00% | 16.00% | 18.00% | |||||||||||||||||||
4 - 11 months | 48,148 | 71,089 | 48,148 | 71,089 | 58,701 | |||||||||||||||||||
4 - 11 months (in hundredths) | 26.00% | 31.00% | 26.00% | 31.00% | 27.00% | |||||||||||||||||||
12 months or more | 106,197 | 121,528 | 106,197 | 121,528 | 118,383 | |||||||||||||||||||
12 months or more (in hundredths) | 58.00% | 53.00% | 58.00% | 53.00% | 55.00% | |||||||||||||||||||
Total primary default inventory | 184,452 | 228,455 | 184,452 | 228,455 | 214,724 | 250,440 | ||||||||||||||||||
Total primary default inventory (in hundredths) | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | |||||||||||||||||||
Loans in our default inventory in our claims received inventory | 14,504 | 19,724 | 14,504 | 19,724 | 20,898 | |||||||||||||||||||
Loans in our default inventory in our claims received inventory (in hundredths) | 8.00% | 9.00% | 8.00% | 9.00% | 10.00% | |||||||||||||||||||
Number of payments delinquent [Abstract] | ||||||||||||||||||||||||
3 payments or less | 40,968 | 49,308 | 40,968 | 49,308 | 51,003 | |||||||||||||||||||
3 payments or less (in hundredths) | 22.00% | 22.00% | 22.00% | 22.00% | 24.00% | |||||||||||||||||||
4 - 11 payments | 51,523 | 80,224 | 51,523 | 80,224 | 65,797 | |||||||||||||||||||
4 - 11 payments (in hundredths) | 28.00% | 35.00% | 28.00% | 35.00% | 31.00% | |||||||||||||||||||
12 payments or more | 91,961 | 98,923 | 91,961 | 98,923 | 97,924 | |||||||||||||||||||
12 payments or more (in hundredths) | 50.00% | 43.00% | 50.00% | 43.00% | 45.00% | |||||||||||||||||||
Total primary default inventory | 184,452 | 228,455 | 184,452 | 228,455 | 214,724 | 250,440 | ||||||||||||||||||
Total primary default inventory (in hundredths) | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | |||||||||||||||||||
Estimated Rescission Reduction - Loss Reserve [Roll Forward] | ||||||||||||||||||||||||
Estimated rescission reduction - beginning reserve | 1,100,000,000 | 2,400,000,000 | 1,300,000,000 | 2,100,000,000 | 2,100,000,000 | |||||||||||||||||||
Estimated rescission reduction - losses incurred | 0 | 0 | 0 | 600,000,000 | ||||||||||||||||||||
Rescission reduction - paid claims | 200,000,000 | 200,000,000 | 400,000,000 | 600,000,000 | ||||||||||||||||||||
Amounts that may have been applied to a deductible | 0 | (100,000,000) | 0 | (200,000,000) | ||||||||||||||||||||
Net rescission reduction - paid claims | 200,000,000 | 100,000,000 | 400,000,000 | 400,000,000 | 1,200,000,000 | 1,200,000,000 | ||||||||||||||||||
Estimated rescission reduction - ending reserve | 900,000,000 | 2,300,000,000 | 900,000,000 | 2,300,000,000 | 1,300,000,000 | 2,100,000,000 | ||||||||||||||||||
Primary Default Inventory [Roll Forward] | ||||||||||||||||||||||||
Default inventory at beginning of period | 195,885 | 241,244 | 214,724 | 250,440 | 250,440 | |||||||||||||||||||
Plus: New Notices | 39,972 | 48,181 | 83,167 | 101,574 | ||||||||||||||||||||
Less: Cures | (35,832) | (47,290) | (81,471) | (96,500) | ||||||||||||||||||||
Less: Paids (including those charged to a deductible or captive) | (13,553) | (10,653) | (27,019) | (19,847) | ||||||||||||||||||||
Less: Rescissions and denials | (2,020) | (3,027) | (4,949) | (7,212) | ||||||||||||||||||||
Default inventory at end of period | 184,452 | 228,455 | 184,452 | 228,455 | 214,724 | 250,440 | ||||||||||||||||||
Decrease in Estimated Loss Adjustment Expenses [Member]
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Losses incurred [Abstract] | ||||||||||||||||||||||||
Change in loss reserves | 80,000,000 | |||||||||||||||||||||||
Increase (Decrease) in Severity, Primary Defaults [Member]
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Losses incurred [Abstract] | ||||||||||||||||||||||||
Change in loss reserves | (80,000,000) | 150,000,000 | ||||||||||||||||||||||
Percentage of prior year default inventory resolved (in hundredths) | 37.00% | |||||||||||||||||||||||
Increase (Decrease) in Expected Claim Rate [Member]
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Losses incurred [Abstract] | ||||||||||||||||||||||||
Change in loss reserves | 65,000,000 | (330,000,000) | ||||||||||||||||||||||
Percentage of prior year default inventory resolved (in hundredths) | 34.00% | |||||||||||||||||||||||
Increase Related to Pool Reserves and Reinsurance [Member]
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Losses incurred [Abstract] | ||||||||||||||||||||||||
Change in loss reserves | 10,000,000 | |||||||||||||||||||||||
Increase (Decrease) in Severity, Pool Defaults [Member]
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Losses incurred [Abstract] | ||||||||||||||||||||||||
Change in loss reserves | 50,000,000 | |||||||||||||||||||||||
Decrease Related to LAE Reserves and Reinsurance [Member]
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Losses incurred [Abstract] | ||||||||||||||||||||||||
Change in loss reserves | $ 10,000,000 | |||||||||||||||||||||||
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Premium Deficiency Reserve (Tables)
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Jun. 30, 2011
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Premium Deficiency Reserve [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of the premium deficiency reserve | The components of the premium deficiency reserve at June 30, 2011, December 31, 2010 and June 30, 2010 appear in the table below.
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Reconciliation of beginning and ending balances in the premium deficiency reserve | The net change in assumptions for the second quarter and first six months of 2011 is primarily related to lower estimated ultimate losses and higher estimated ultimate premiums.
(1) A positive number for changes in assumptions relating to premiums, losses, expenses and discount rate indicates a redundancy of prior premium deficiency reserves. |
Loss Reserves
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Jun. 30, 2011
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Loss Reserves [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss Reserves | Note 12 – Loss Reserves We establish reserves to recognize the estimated liability for losses and loss adjustment expenses (“LAE”) related to defaults on insured mortgage loans. Loss reserves are established by estimating the number of loans in our inventory of delinquent loans 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. Estimation of losses that we will pay in the future 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. Current conditions in the housing and mortgage industries make these assumptions more volatile than they would otherwise be. 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 further deterioration of regional or national economic conditions, including unemployment, leading to a reduction in borrowers' income and thus their ability to make mortgage payments, and a further drop in housing values, which expose us to greater losses on resale of properties obtained through the claim settlement process and may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. Changes to our estimates could result in a material impact to our results of operations, even in a stable economic environment. The following table provides a reconciliation of beginning and ending loss reserves for the six months ended June 30, 2011 and 2010:
The “Losses incurred” section of the table above shows losses incurred on defaults that occurred in the current year and in prior years, respectively. The amount of losses incurred relating to defaults that occurred in the current year represents the estimated amount to be ultimately paid on such defaults. The amount of losses incurred relating to defaults that occurred in prior years represents the actual claim rate and severity associated with those defaults resolved in the current year differing from the estimated liability at the prior year-end, as well as a re-estimation of amounts to be ultimately paid on defaults remaining in inventory from the end of the prior year. This re-estimation of the estimated claim rate and estimated severity is the result of our review of current trends in default inventory, such as percentages of defaults that have resulted in a claim, the amount of the claims, changes in the relative level of defaults by geography and changes in average loan exposure. Current year losses incurred decreased slightly in the first half of 2011 compared to the same period in 2010 primarily due to a decrease in the number of new default notices received, net of cures, from 5,074 in the first half of 2010 to 1,696 in the first half of 2011. The development of the reserves in the first half of 2011 and 2010 is reflected in the “Prior years” line in the table above. The $85 million decrease in losses incurred in the first half of 2011 was related to defaults that occurred in prior periods. This decrease in losses incurred primarily related to a decrease in estimated loss adjustment expenses which approximated $80 million as well as a decrease in severity on primary defaults which approximated $80 million. These decreases in losses incurred were offset by an increase in the estimated claim rate which approximated $65 million. The decrease in estimated loss adjustment expense was based on recent historical trends in the costs associated with resolving a claim. The decrease in the severity was based on the resolution of approximately 37% of the prior year default inventory. The increase in the claim rate was also based on this resolution, as well as a re-estimation of amounts to be ultimately paid on defaults remaining in inventory from the end of the prior year and estimated incurred but not reported items from the end of the prior year. The additional offsetting increase in losses incurred related to prior years of approximately $10 million related to pool reserves and reinsurance. The $120 million decrease in losses incurred in the first half of 2010 was related to defaults that occurred in prior periods. This decrease in losses incurred primarily related to a decrease in the claim rate on primary defaults which approximated $330 million. The decrease in the claim rate was based on the resolution of approximately 34% of the prior year default inventory. The decrease in the claim rate was due to greater cures experienced during the first half of 2010, a portion of which resulted from loan modifications. The decrease in the claim rate on prior year defaults was offset by an increase in primary severity which approximated $150 million and pool defaults which approximated $50 million. The increase in severity was based on the re-estimation of amounts to be ultimately paid on defaults remaining in inventory from the end of the prior year. The additional offsetting increase in losses incurred related to prior years of approximately $10 million related to LAE reserves and reinsurance. The “Losses paid” section of the table above shows the breakdown between claims paid on default notices received in the current year and default notices received in prior years. It has historically taken, on average, approximately twelve months for a default which is not cured to develop into a paid claim, therefore, most losses paid relate to default notices received in prior years. Due to a combination of reasons that have slowed the rate at which claims are received and paid, including foreclosure moratoriums and suspensions, servicing delays, court delays, loan modifications, our fraud investigations and our claim rescissions and denials for misrepresentation, it is difficult to estimate how long it may take for current and future defaults that do not cure to develop into paid claims. The liability associated with our estimate of premiums to be refunded on expected claim payments is accrued for separately at June 30, 2011 and December 31, 2010 and approximated $112 million and $113 million, respectively. Separate components of this liability are included in “Other liabilities” and “Premium deficiency reserve” on our consolidated balance sheet. Changes in the liability affect premiums written and earned and change in premium deficiency reserve. The decrease in the primary default inventory experienced during the first half of 2011 was generally across all markets and all book years. However the number of consecutive months a loan remains in the primary default inventory (the age of the item in default) has continued to increase, as shown in the table below. Historically as a default ages it becomes more likely to result in a claim. Aging of the Primary Default Inventory
The length of time a loan is in the default inventory 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 table below. Number of Payments Delinquent
Before paying a claim, we can review the loan file to determine whether we are required, under the applicable insurance policy, to pay the claim or whether we are entitled to reduce the amount of the claim. For example, all of our insurance policies provide that we can reduce or deny a claim if the servicer did not comply with its obligation to mitigate our loss by performing reasonable loss mitigation efforts or diligently pursuing a foreclosure or bankruptcy relief in a timely manner. We also do not cover losses resulting from property damage that has not been repaired. We are currently reviewing the loan files for the majority of the claims submitted to us. In addition, subject to rescission caps in certain of our Wall Street bulk transactions, all of our insurance policies allow us to rescind coverage under certain circumstances. Because we can review the loan origination documents and information as part of our normal processing when a claim is submitted to us, rescissions occur on a loan by loan basis most often after we have received a claim. Historically, claim rescissions and denials, which we collectively refer to as rescissions, were not a material portion of our claims resolved during a year. However, beginning in 2008 our rescissions of policies have materially mitigated our paid and incurred losses. While we have a substantial pipeline of claims investigations that we expect will eventually result in future rescissions, we expect that rescissions will not continue to mitigate paid and incurred losses at the same level we have recently experienced. In each of 2009 and 2010, rescissions mitigated our paid losses by approximately $1.2 billion, and in the first half of 2011, rescissions mitigated our paid losses by approximately $0.4 billion. These figures include amounts that would have resulted in either a claim payment or been charged to a deductible or aggregate loss limit under a bulk or pool policy, and may have been charged to a captive reinsurer. The amounts that would have been applied to a deductible do not take into account previous rescissions that may have been applied to a deductible. Our loss reserving methodology incorporates the effect that rescission activity is expected to have on the losses we will pay on our delinquent inventory. We do not utilize an explicit rescission rate in our reserving methodology, but rather our reserving methodology incorporates the effects rescission activity has had on our historical claim rate and claim severities. A variance between ultimate actual rescission rates and these estimates could materially affect our losses incurred. Our estimation process does not include a direct correlation between claim rates and severities to projected rescission activity or other economic conditions such as changes in unemployment rates, interest rates or housing values. Our experience is that analysis of that nature would not produce reliable results, as the change in one condition cannot be isolated to determine its sole effect on our ultimate paid losses as our ultimate paid losses are also influenced at the same time by other economic conditions. The estimation of the impact of rescissions on incurred losses, as shown in the table below, must be considered together with the various other factors impacting incurred losses and not in isolation. The table below represents our estimate of the impact rescissions have had on reducing our loss reserves, paid losses and losses incurred.
The decrease in the estimated rescission reduction to losses incurred in the first half of 2011 compared to the same period in 2010 is due to a decline in the expected rescission rate for loans in our default inventory, compared to an increasing expected rescission rate in the first half of 2010. At June 30, 2011, our loss reserves continued to be significantly impacted by expected rescission activity. We expect that the reduction of our loss reserves due to rescissions will continue to decline because our recent experience indicates new notices in our default inventory have a lower likelihood of being rescinded than those already in the inventory. The liability associated with our estimate of premiums to be refunded on expected future rescissions is accrued for separately. At June 30, 2011 and December 31, 2010 the estimate of this liability totaled $75 million and $101 million, respectively. Separate components of this liability are included in “Other liabilities” and “Premium deficiency reserve” on our consolidated balance sheet. Changes in the liability affect premiums written and earned and change in premium deficiency reserve. If the insured disputes our right to rescind coverage, the outcome of the dispute ultimately would be determined by legal proceedings. Legal proceedings disputing our right to rescind coverage may be brought up to three years after the lender has obtained title to the property (typically through a foreclosure) or the property was sold in a sale that we approved, whichever is applicable, although in a few jurisdictions there is a longer time to bring such an action. For nearly all of our rescissions that are not subject to a settlement agreement, the period in which a dispute may be brought has not ended. We consider a rescission resolved for reporting purposes even though legal proceedings have been initiated and are ongoing. Although it is reasonably possible that, when the proceedings are completed, there will be a determination that we were not entitled to rescind in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability. Under Accounting Standards Codification (“ASC”) 450-20, an estimated loss from such proceedings is accrued for only if we determine that the loss is probable and can be reasonably estimated. Therefore, when establishing our loss reserves, we do not include additional loss reserves that would reflect an adverse outcome from ongoing legal proceedings, including those with Countrywide. Countrywide has filed a lawsuit against MGIC alleging that MGIC has denied, and continues to deny, valid mortgage insurance claims. MGIC has filed an arbitration case against Countrywide regarding rescissions and Countrywide has responded seeking damages, including exemplary damages. For more information about this lawsuit and arbitration case, see Note 5 – “Litigation and contingencies.” We continue to discuss with other lenders their objections to material rescissions. In 2010, we entered into a settlement agreement with a lender-customer regarding our rescission practices and we may, subject to GSE approval, enter into additional settlement agreements with other lenders in the future. In April 2011, Freddie Mac advised its servicers that they must obtain its prior approval for rescission settlements and Fannie Mae advised its servicers that they are prohibited from entering into such settlements. In addition, in April 2011, Fannie Mae notified us that we must obtain its prior approval to enter into certain settlements. There can be no assurances that the GSEs will approve any future settlement agreements. In addition to the proceedings involving Countrywide, we are involved in legal proceedings with respect to rescissions that we do not consider to be collectively material in amount. Although it is reasonably possible that, when these discussions or proceedings are completed, there will be a conclusion or determination that we were not entitled to rescind in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability. A rollforward of our primary default inventory for the three and six months ended June 30, 2011 and 2010 appears in the table below. The information concerning new default 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 and by transfers of servicing between loan servicers.
Pool insurance notice inventory decreased from 43,329 at December 31, 2010 to 36,552 at June 30, 2011. The pool insurance notice inventory was 42,872 at June 30, 2010. |
Litigation and contingencies
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6 Months Ended |
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Jun. 30, 2011
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Litigation and contingencies [Abstract] | |
Litigation and contingencies | Note 5 – Litigation and contingencies In addition to the matters described below, we are involved in 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. Consumers are bringing a growing number of lawsuits against home mortgage lenders and settlement service providers. Mortgage insurers, including MGIC, have been involved in litigation alleging violations of the anti-referral fee provisions of the Real Estate Settlement Procedures Act, which is commonly known as RESPA, and the notice provisions of the Fair Credit Reporting Act, which is commonly known as FCRA. MGIC settled class action litigation against it under RESPA in October 2003. MGIC settled the named plaintiffs' claims in litigation against it under FCRA in December 2004 following denial of class certification in June 2004. Since December 2006, class action litigation has been brought against a number of large lenders alleging that their captive mortgage reinsurance arrangements violated RESPA. On November 29, 2010, six mortgage insurers (including MGIC) and a large mortgage lender (which was the named plaintiffs' lender) were named as defendants in a complaint, alleged to be a class action, filed in Federal District Court for the District of Columbia. The complaint alleged various causes of action related to the captive mortgage reinsurance arrangements of this mortgage lender, including that the defendants violated RESPA by paying the lender's captive reinsurer excessive premiums in relation to the risk assumed by that captive. In March 2011, the complaint was voluntarily dismissed by the plaintiffs as to MGIC and all of the other mortgage insurers. There can be no assurance that we will not be subject to future litigation under RESPA (or FCRA) or that the outcome of any such litigation would not have a material adverse effect on us. In June 2005, in response to a letter from the New York Insurance Department, we provided information regarding captive mortgage reinsurance arrangements and other types of arrangements in which lenders receive compensation. In February 2006, the New York Insurance Department requested MGIC to review its premium rates in New York and to file adjusted rates based on recent years' experience or to explain why such experience would not alter rates. In March 2006, MGIC advised the New York Insurance Department that it believes its premium rates are reasonable and that, given the nature of mortgage insurance risk, premium rates should not be determined only by the experience of recent years. In February 2006, in response to an administrative subpoena from the Minnesota Department of Commerce (the “MN Department”), which regulates insurance, we provided the MN Department with information about captive mortgage reinsurance and certain other matters. We subsequently provided additional information to the MN Department, and beginning in March 2008 the MN Department has sought additional information as well as answers to questions regarding captive mortgage reinsurance on several occasions, including as recently as May 2011. In addition, beginning in June 2008, we have received subpoenas from the Department of Housing and Urban Development, commonly referred to as HUD, seeking information about captive mortgage reinsurance similar to that requested by the MN Department, but not limited in scope to the state of Minnesota. Other insurance departments or other officials, including attorneys general, may also seek information about or investigate captive mortgage reinsurance. The anti-referral fee provisions of RESPA provide that HUD as well as the insurance commissioner or attorney general of any state may bring an action to enjoin violations of these provisions of RESPA. The insurance law provisions of many states prohibit paying for the referral of insurance business and provide various mechanisms to enforce this prohibition. While we believe our captive reinsurance arrangements are in conformity with applicable laws and regulations, it is not possible to predict the outcome of any such reviews or investigations nor is it possible to predict their effect on us or the mortgage insurance industry. In September 2010, a housing discrimination complaint was filed against MGIC with the U.S. Department of Housing and Urban Development alleging that MGIC violated the Fair Housing Act and discriminated against the complainant on the basis of her sex and familial status when MGIC underwrote her loan for mortgage insurance. In May 2011, HUD commenced an administrative action against MGIC and two of its employees, seeking, among other relief, aggregate fines of $48,000. The HUD complainant elected to have charges in the administrative action proceed in federal court and on July 5, 2011, the U.S. Department of Justice (“DOJ”) filed a civil complaint in the U.S. District Court for the Western District of Pennsylvania against MGIC and these employees on behalf of the complainant. The complaint seeks redress for the alleged housing discrimination, including compensatory and punitive damages for the alleged victims and a civil penalty payable to the United States. MGIC denies that any unlawful discrimination occurred and disputes many of the allegations in the complaint. In October 2010, a separate purported class action lawsuit was filed against MGIC by the HUD complainant in the same District Court in which the DOJ action is pending alleging that MGIC discriminated against her on the basis of her sex and familial status when MGIC underwrote her loan for mortgage insurance. In May 2011, the District Court granted MGIC's motion to dismiss with respect to all claims except certain Fair Housing Act claims. MGIC intends to vigorously defend itself against the allegations in both the class action lawsuit and the DOJ lawsuit. Based on the facts known at this time, we do not foresee the ultimate resolution of these legal proceedings having a material adverse effect on us. Five previously-filed purported class action complaints filed against us and several of our executive officers were consolidated in March 2009 in the United States District Court for the Eastern District of Wisconsin and Fulton County Employees' Retirement System was appointed as the lead plaintiff. The lead plaintiff filed a Consolidated Class Action Complaint (the “Complaint”) on June 22, 2009. Due in part to its length and structure, it is difficult to summarize briefly the allegations in the Complaint but it appears the allegations are that we and our officers named in the Complaint violated the federal securities laws by misrepresenting or failing to disclose material information about (i) loss development in our insurance in force, and (ii) C-BASS, including its liquidity. Our motion to dismiss the Complaint was granted on February 18, 2010. On March 18, 2010, plaintiffs filed a motion for leave to file an amended complaint. Attached to this motion was a proposed Amended Complaint (the “Amended Complaint”). The Amended Complaint alleged that we and two of our officers named in the Amended Complaint violated the federal securities laws by misrepresenting or failing to disclose material information about C-BASS, including its liquidity, and by failing to properly account for our investment in C-BASS. The Amended Complaint also named two officers of C-BASS with respect to the Amended Complaint's allegations regarding C-BASS. The purported class period covered by the Amended Complaint began on February 6, 2007 and ended on August 13, 2007. The Amended Complaint sought damages based on purchases of our stock during this time period at prices that were allegedly inflated as a result of the purported violations of federal securities laws. On December 8, 2010, the plaintiffs' motion to file an amended complaint was denied and the Complaint was dismissed with prejudice. On January 6, 2011, the plaintiffs appealed the February 18, 2010 and December 8, 2010 decisions to the United States Court of Appeals for the Seventh Circuit. On June 6, 2011, the plaintiffs filed a motion with the District Court for relief from that court's judgment of dismissal on the grounds that the transcripts it obtained of testimony taken by the Securities and Exchange Commission in its now-terminated investigation regarding C-BASS are newly discovered evidence showing that amending its complaint would not be futile. On August 1, 2011, we filed a response to the plaintiffs' motion seeking its dismissal. We are unable to predict the outcome of these consolidated cases or estimate our associated expenses or possible losses. Other lawsuits alleging violations of the securities laws could be brought against us. Several law firms have issued press releases to the effect that they are investigating us, including whether the fiduciaries of our 401(k) plan breached their fiduciary duties regarding the plan's investment in or holding of our common stock or whether we breached other legal or fiduciary obligations to our shareholders. We intend to defend vigorously any proceedings that may result from these investigations. With limited exceptions, our bylaws provide that our officers and 401(k) plan fiduciaries are entitled to indemnification from us for claims against them. On December 17, 2009, Countrywide filed a complaint for declaratory relief in the Superior Court of the State of California in San Francisco (the “California State Court”) against MGIC. This complaint alleges that MGIC has denied, and continues to deny, valid mortgage insurance claims submitted by Countrywide and says it seeks declaratory relief regarding the proper interpretation of the insurance policies at issue. On January 19, 2010, we removed this case to the United States District Court for the Northern District of California (the “District Court”). On March 30, 2010, the District Court ordered the case remanded to the California State Court. We appealed this decision to the United States Court of Appeals for the Ninth Circuit (the “Court of Appeals”) and asked the Court of Appeals to vacate the remand and stay proceedings in the District Court pending arbitration between the parties, discussed below. On May 17, 2010, the Court of Appeals denied a stay of the District Court's remand order. On May 28, 2010, Countrywide filed an amended complaint substantially similar to the original complaint in the California State Court. On July 2, 2010, we filed a petition in the California State Court to compel arbitration and stay the litigation in that court. On August 26, 2010, Countrywide filed an opposition to our petition. Countrywide's opposition states that there are thousands of loans for which it disputes MGIC's interpretation of the flow insurance policies at issue. On September 16, 2010, we filed a reply to Countrywide's opposition. On October 1, 2010, the California State Court stayed the litigation in that court pending a final ruling on our appeal. On June 15, 2011, the Court of Appeals reversed the District Court, holding that the District Court should not have remanded the case to the California State Court without ruling on MGIC's stay motion. In connection with the Countrywide dispute discussed above, on February 24, 2010, we commenced an arbitration action against Countrywide seeking a determination that MGIC was entitled to deny and/or rescind coverage on the loans involved in the arbitration action, which were insured through the flow channel and numbered more than 1,400 loans as of the filing of the action. On March 16, 2010, Countrywide filed a response to our arbitration action objecting to the arbitrator's jurisdiction in view of the case initiated by Countrywide in the California State Court and asserting various defenses to the relief sought by MGIC in the arbitration. On December 20, 2010, we filed an amended demand in the arbitration proceeding. This amended demand increased the number of loans for which we denied and/or rescinded coverage and which were insured through the flow channel to more than 3,300. We continue to rescind insurance coverage on additional Countrywide loans. On December 20, 2010, Countrywide filed an amended response. In the amended response, Countrywide is seeking relief for rescissions on loans insured by MGIC through the flow channel and more than 30 bulk insurance policies. In April 2011, Countrywide indicated that it believes MGIC has improperly rescinded coverage on more than 5,000 loans. The amended response also seeks damages as a result of purported breaches of insurance policies issued by MGIC and additional damages, including exemplary damages, on account of MGIC's purported breach of an implied covenant of good faith and fair dealing. The amended response states that Countrywide seeks damages “well-exceeding” $150 million; the original response sought damages of at least $150 million. On January 17, 2011, Countrywide filed an answer to MGIC's amended demand and MGIC filed an answer to Countrywide's amended response. Countrywide and MGIC have each selected 12 loans for which a three-member arbitration panel will determine coverage. While the panel's determination will not be binding on the other loans at issue, the panel will identify the issues for these 24 “bellwether” loans and strive to set forth findings of fact and conclusions of law in such a way as to aid the parties to apply them to the other loans at issue. The hearing before the panel on the bellwether loans that had previously been scheduled to begin in October 2011 has been postponed to May 2012. From January 1, 2008 through June 30, 2011, rescissions of Countrywide-related loans mitigated our paid losses on the order of $375 million. This is the amount we estimate we would have paid had the loans not been rescinded. On a per loan basis, the average amount that we would have paid had the loans not been rescinded was approximately $71,400. At June 30, 2011, 40,219 loans in our primary delinquency inventory were Countrywide-related loans (approximately 22% of our primary delinquency inventory). Of these 40,219 loans, some will cure their delinquency and the remainder will either become paid claims or will be rescinded. From January 1, 2008 through June 30, 2011, of the claims on Countrywide-related loans that were resolved (a claim is resolved when it is paid or rescinded; claims that are submitted but which are under review are not resolved until one of these two outcomes occurs), approximately 75% were paid and the remaining 25% were rescinded. We do not believe that the settlement agreement announced in June 2011 between Bank of America and certain investors in certain Countrywide residential mortgage backed securities will have a material impact on our Countrywide rescissions, if it becomes effective. The flow policies at issue with Countrywide are in the same form as the flow policies that we use with all of our customers, and the bulk policies at issue vary from one another, but are generally similar to those used in the majority of our Wall Street bulk transactions. Because our rescission practices with Countrywide do not differ from our practices with other servicers with which we have not entered into settlement agreements, an adverse result in the Countrywide proceeding may adversely affect the ultimate result of rescissions involving other servicers and lenders. From January 1, 2008 through June 30, 2011, we estimate that total rescissions mitigated our incurred losses by approximately $3.1 billion, which included approximately $2.4 billion of mitigation on paid losses, excluding amounts that would have been applied to a deductible. At June 30, 2011, we estimate that our total loss reserves were benefited from rescissions by approximately $0.9 billion. We intend to defend MGIC against Countrywide's complaint and arbitration response, and to pursue MGIC's claims in the arbitration, vigorously. However, we are unable to predict the outcome of these proceedings or their effect on us. Also, although it is reasonably possible that, when the proceedings are completed, there will be a determination that we were not entitled to rescind in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability. Under ASC 450-20, an estimated loss is accrued for only if we determine that the loss is probable and can be reasonably estimated. Therefore, we have not accrued any reserves that would reflect an adverse outcome in this proceeding. An accrual for an adverse outcome in this (or any other) proceeding would be a reduction to our capital. In addition to the rescissions at issue with Countrywide, we have a substantial pipeline of claims investigations (including investigations involving loans related to Countrywide) that we expect will eventually result in future rescissions. We continue to discuss with other lenders their objections to material rescissions. In addition to the proceedings involving Countrywide, we are involved in legal proceedings with respect to rescissions that we do not consider to be collectively material in amount. Freddie Mac, one of our pool insurance insureds, is computing the aggregate loss limit under a pool insurance policy at a higher level than we are computing this limit because we believe the original aggregate limit decreases over time while they believe the limit remains constant. At June 30, 2011, the difference was approximately $535 million. Beginning in the second quarter of 2011, this difference has had an effect on our results of operations because the aggregate paid losses plus the portion of our loss reserves attributable to this policy have exceeded our interpretation of the loss limit by $52 million. Had we not limited our losses in a manner consistent with our interpretation of the policy, our losses incurred would have been $52 million higher in the second quarter of 2011, and our capital and risk-to-capital ratio would have been negatively impacted. Absent a change in our interpretation of the policy or that of Freddie Mac, we expect the aggregate impact on losses incurred will grow in future quarters. MGIC and Freddie Mac have each advised the other of the basis for its interpretation of the policy. It is reasonably possible that any eventual resolution of this matter could have a material adverse effect on us. Our mortgage insurance business utilizes its underwriting skills to provide an outsourced underwriting service to our customers known as contract underwriting. As part of our contract underwriting activities, we are responsible for the quality of our underwriting decisions in accordance with the terms of the contract underwriting agreements with customers. We may be required to provide certain remedies to our customers if certain standards relating to the quality of our underwriting work are not met, and we have an established reserve for such obligations. Through June 30, 2011, the cost of remedies provided by us to customers for failing to meet the standards of the contracts has not been material. However, a generally positive economic environment for residential real estate that continued until approximately 2007 may have mitigated the effect of some of these costs, and claims for remedies may be made a number of years after the underwriting work was performed. A material portion of our new insurance written through the flow channel in recent years, including for 2006 and 2007, has involved loans for which we provided contract underwriting services. We believe the rescission of mortgage insurance coverage on loans for which we provided contract underwriting services may make a claim for a contract underwriting remedy more likely to occur. Beginning in the second half of 2009, we experienced an increase in claims for contract underwriting remedies, which continued into the first half of 2011. Hence, there can be no assurance that contract underwriting remedies will not be material in the future. See Note 11 – “Income taxes” for a description of federal income tax contingencies. |
Income Taxes (Policies)
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6 Months Ended |
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Jun. 30, 2011
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Income Taxes [Abstract] | |
Income Taxes | We review the need to establish a deferred tax asset valuation allowance on a quarterly basis. We analyze several factors, among which are the severity and frequency of operating losses, our capacity for the carryback or carryforward of any losses, the expected occurrence of future income or loss and available tax planning alternatives. Based on our analysis and the level of cumulative operating losses, we have reduced our benefit from income tax by establishing a valuation allowance. |
Income Taxes (Details) (USD $)
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3 Months Ended | 6 Months Ended | |||
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Jun. 30, 2011
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Jun. 30, 2010
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Jun. 30, 2011
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Jun. 30, 2010
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Dec. 31, 2010
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Income Taxes [Abstract] | |||||
Increase (decrease) in unrealized gains (losses) on investments recorded in other comprehensive income | $ 34,600,000 | $ 35,700,000 | |||
Benefit from income taxes | (63,859,000) | (3,508,000) | (83,093,000) | (64,222,000) | |
Change in valuation allowance | 53,712,000 | (3,295,000) | 74,715,000 | 56,372,000 | |
Tax benefit | (10,147,000) | (6,803,000) | (8,378,000) | (7,850,000) | |
Increase (decrease) in deferred tax valuation allowance, included in other comprehensive income, due to change in deferred tax liability related to unrealized gains/losses on investments | 9,200,000 | 0 | |||
Total valuation allowance | 485,000,000 | 485,000,000 | 410,300,000 | ||
Net operating loss carryforwards on a regular tax basis | 1,097,000,000 | 1,097,000,000 | |||
Net operating loss carryforwards for computing the alternative minimum tax | $ 255,000,000 | $ 255,000,000 |
Loss Reserves (Tables)
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Jun. 30, 2011
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Loss Reserves [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of beginning and ending loss reserves | The following table provides a reconciliation of beginning and ending loss reserves for the six months ended June 30, 2011 and 2010:
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Aging of the primary default inventory | Aging of the Primary Default Inventory
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Number of payments delinquent | Number of Payments Delinquent
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Estimate of impact of rescissions on loss reserves, paid and incurred losses | The table below represents our estimate of the impact rescissions have had on reducing our loss reserves, paid losses and losses incurred.
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Rollforward of primary default inventory | 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 and by transfers of servicing between loan servicers.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited) (USD $)
In Thousands |
Total
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Common stock [Member]
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Paid-in capital [Member]
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Treasury stock [Member]
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Accumulated other comprehensive income (loss) [Member]
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Retained earnings [Member]
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Comprehensive income (loss) [Member]
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Balance at Dec. 31, 2009 | $ 130,163 | $ 443,294 | $ (269,738) | $ 74,155 | $ 924,707 | ||
Net loss | 0 | 0 | 0 | 0 | (363,735) | (363,735) | |
Change in unrealized investment gains and losses, net (notes 7 and 8) | 0 | 0 | 0 | (69,074) | 0 | (69,074) | |
Common stock shares issued | 74,884 | 697,492 | 0 | 0 | 0 | ||
Reissuance of treasury stock, net | 0 | (14,425) | 47,106 | 0 | (35,410) | ||
Equity compensation | 0 | 12,581 | 0 | 0 | 0 | ||
Defined benefit plan adjustments, net | 0 | 0 | 0 | 6,390 | 0 | 6,390 | |
Unrealized foreign currency translation adjustment | 0 | 0 | 0 | 10,665 | 0 | 10,665 | |
Comprehensive loss (note 9) | 0 | 0 | 0 | 0 | 0 | (415,754) | |
Balance at Dec. 31, 2010 | 1,669,055 | 205,047 | 1,138,942 | (222,632) | 22,136 | 525,562 | |
Net loss | (185,393) | 0 | 0 | 0 | 0 | (185,393) | (185,393) |
Change in unrealized investment gains and losses, net (notes 7 and 8) | 24,317 | 0 | 0 | 0 | 24,317 | 0 | 24,317 |
Reissuance of treasury stock, net | 0 | (13,534) | 59,046 | 0 | (51,304) | ||
Equity compensation | 0 | 6,149 | 0 | 0 | 0 | ||
Unrealized foreign currency translation adjustment | 4,524 | 0 | 0 | 0 | 4,524 | 0 | 4,524 |
Comprehensive loss (note 9) | 28,841 | 0 | 0 | 0 | 0 | 0 | (156,552) |
Balance at Jun. 30, 2011 | $ 1,512,860 | $ 205,047 | $ 1,131,557 | $ (163,586) | $ 50,977 | $ 288,865 |
Loss Reserves (Policies)
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6 Months Ended |
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Jun. 30, 2011
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Loss Reserves [Abstract] | |
Loss Reserves | The development of the reserves in the first half of 2011 and 2010 is reflected in the “Prior years” line in the table above. The $85 million decrease in losses incurred in the first half of 2011 was related to defaults that occurred in prior periods. This decrease in losses incurred primarily related to a decrease in estimated loss adjustment expenses which approximated $80 million as well as a decrease in severity on primary defaults which approximated $80 million. These decreases in losses incurred were offset by an increase in the estimated claim rate which approximated $65 million. The decrease in estimated loss adjustment expense was based on recent historical trends in the costs associated with resolving a claim. The decrease in the severity was based on the resolution of approximately 37% of the prior year default inventory. The increase in the claim rate was also based on this resolution, as well as a re-estimation of amounts to be ultimately paid on defaults remaining in inventory from the end of the prior year and estimated incurred but not reported items from the end of the prior year. The additional offsetting increase in losses incurred related to prior years of approximately $10 million related to pool reserves and reinsurance. The $120 million decrease in losses incurred in the first half of 2010 was related to defaults that occurred in prior periods. This decrease in losses incurred primarily related to a decrease in the claim rate on primary defaults which approximated $330 million. The decrease in the claim rate was based on the resolution of approximately 34% of the prior year default inventory. The decrease in the claim rate was due to greater cures experienced during the first half of 2010, a portion of which resulted from loan modifications. The decrease in the claim rate on prior year defaults was offset by an increase in primary severity which approximated $150 million and pool defaults which approximated $50 million. The increase in severity was based on the re-estimation of amounts to be ultimately paid on defaults remaining in inventory from the end of the prior year. The additional offsetting increase in losses incurred related to prior years of approximately $10 million related to LAE reserves and reinsurance. The “Losses paid” section of the table above shows the breakdown between claims paid on default notices received in the current year and default notices received in prior years. It has historically taken, on average, approximately twelve months for a default which is not cured to develop into a paid claim, therefore, most losses paid relate to default notices received in prior years. Due to a combination of reasons that have slowed the rate at which claims are received and paid, including foreclosure moratoriums and suspensions, servicing delays, court delays, loan modifications, our fraud investigations and our claim rescissions and denials for misrepresentation, it is difficult to estimate how long it may take for current and future defaults that do not cure to develop into paid claims. The liability associated with our estimate of premiums to be refunded on expected claim payments is accrued for separately at June 30, 2011 and December 31, 2010 and approximated $112 million and $113 million, respectively. Separate components of this liability are included in “Other liabilities” and “Premium deficiency reserve” on our consolidated balance sheet. Changes in the liability affect premiums written and earned and change in premium deficiency reserve. |
Investments (Tables)
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Jun. 30, 2011
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortized cost , gross unrealized gains and losses and fair value of investments | The amortized cost, gross unrealized gains and losses and fair value of the investment portfolio at June 30, 2011 and December 31, 2010 are shown below.
(1) At June 30, 2011 and December 31, 2010, there were no other-than-temporary impairment losses recorded in other comprehensive income. |
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Amortized cost and fair values of debt securities by contractual maturity | The amortized cost and fair values of debt securities at June 30, 2011, by contractual maturity, are shown below. Expected 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 auction rate and mortgage-backed securities provide for periodic payments throughout their lives, they are listed below in separate categories.
(1) At June 30, 2011, approximately 97% of auction rate securities had a contractual maturity greater than 10 years. |
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Aging of the fair values of securities in an unrealized loss position | At June 30, 2011 and December 31, 2010, the investment portfolio had gross unrealized losses of $45.7 million and $73.6 million, respectively. For those securities in an unrealized loss position, the length of time the securities were in such a position, as measured by their month-end fair values, is as follows:
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Rollforward of the amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income (loss) | The following table provides a rollforward of the amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2010.
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Net realized investment gains (losses) and OTTI on the investment portfolio, investment type | The net realized investment gains (losses) and OTTI on the investment portfolio are as follows:
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Net realized investment gains (losses) and OTTI on the investment portfolio, sales/impairments |
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Basis of presentation
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6 Months Ended |
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Jun. 30, 2011
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Basis of presentation (Details) [Abstract] | |
Basis of presentation | Note 1 - Basis of presentation MGIC Investment Corporation is a holding company which, through Mortgage Guaranty Insurance Corporation ("MGIC") and several other subsidiaries, is principally engaged in the mortgage insurance business. We provide mortgage insurance to lenders throughout the United States and to government sponsored entities (“GSEs”) to protect against loss from defaults on low down payment residential mortgage loans. 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. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2010 included in our 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 financial position and results of operations for the periods indicated. The results of operations for the interim period may not be indicative of the results that may be expected for the year ending December 31, 2011. Capital The insurance laws or regulations of 16 jurisdictions, including Wisconsin, require a mortgage insurer to maintain a minimum amount of statutory capital relative to the risk in force (or a similar measure) in order for the mortgage insurer to continue to write new business. We refer to these requirements as the risk-to-capital requirement. While formulations of minimum capital may vary in certain jurisdictions, the most common measure applied allows for a maximum permitted risk-to-capital ratio of 25 to 1. At June 30, 2011, MGIC's risk-to-capital ratio was 20.4 to 1. Our risk-to-capital ratio will increase if the percentage decrease in capital exceeds the percentage decrease in insured risk. Therefore, as capital decreases, the same dollar decrease in capital will cause a greater percentage decrease in capital and a greater increase in the risk-to-capital ratio. Based upon internal company estimates, MGIC's risk-to-capital ratio over the next few years, after giving effect to any contribution to MGIC of the proceeds from our April 2010 common stock and convertible notes offerings beyond the contribution already made, could reach 40 to 1 or even higher under a stress loss scenario. Also, at June 30, 2011, MGIC's policyholders position (policyholders position is the insurer's net worth or surplus, contingency reserve and a portion of the reserves for unearned premiums) exceeded the required regulatory minimum of our domiciliary state by approximately $183 million, and on a combined statutory basis we exceeded the minimum by approximately $260 million. At June 30, 2011, the risk-to-capital ratio of our combined insurance operations (which includes reinsurance affiliates) was 23.4 to 1. A higher risk-to-capital ratio on a combined basis may indicate that, in order for MGIC to continue to utilize reinsurance arrangements with its subsidiaries or subsidiaries of our holding company, additional capital contributions to the reinsurance affiliates could be needed. These reinsurance arrangements permit MGIC to write insurance with a higher coverage percentage than it could on its own under certain state-specific requirements. In December 2009, the Office of the Commissioner of Insurance for Wisconsin (“OCI”) issued an order waiving, until December 31, 2011, its risk-to-capital requirement. MGIC has also applied for waivers in all other jurisdictions that have risk-to-capital requirements. MGIC has received waivers from some of these jurisdictions which expire at various times. One waiver expired on December 31, 2010 and was not immediately renewed because the need for a waiver was not considered imminent. MGIC may reapply for the waiver. Some jurisdictions have denied the request and others may deny the request. The OCI and insurance departments of other jurisdictions, in their sole discretion, may modify, terminate or extend their waivers. If the OCI or another insurance department modifies or terminates its waiver, or if it fails to renew its waiver after expiration, depending on the circumstances, MGIC could be prevented from writing new business anywhere, in the case of the waiver from the OCI, or in the particular jurisdiction, in the case of the other waivers, if MGIC's risk-to-capital ratio exceeds 25 to 1 unless MGIC obtained additional capital to enable it to comply with the risk-to-capital requirement. New insurance written in the jurisdictions that have risk-to-capital requirements represented approximately 50% of new insurance written in 2010 and approximately 47% in the first two quarters of 2011. If we were prevented from writing new business in all jurisdictions, our insurance operations in MGIC would be in run-off (meaning no new loans would be insured but loans previously insured would continue to be covered, with premiums continuing to be received and losses continuing to be paid on those loans) until MGIC either met the applicable risk-to-capital requirement or obtained a necessary waiver to allow it to once again write new business. We cannot assure you that the OCI or any other jurisdiction that has granted a waiver of its risk-to-capital requirements will not modify or revoke the waiver, that it will renew the waiver when it expires or that MGIC could obtain the additional capital necessary to comply with the risk-to-capital requirement. Depending on the circumstances, the amount of additional capital we might need could be substantial. We have implemented a plan to write new mortgage insurance in MGIC Indemnity Corporation (“MIC”), a direct subsidiary of MGIC, in selected jurisdictions in order to address the likelihood that in the future MGIC will not meet the minimum regulatory capital requirements discussed above and may not be able to obtain appropriate waivers of these requirements in all jurisdictions in which minimum requirements are present. MIC has received the necessary approvals, including from the OCI, to write business in all of the jurisdictions in which MGIC would be prohibited from continuing to write new business in the event of MGIC's failure to meet applicable regulatory capital requirements and obtain waivers of those requirements. In October 2009, we, MGIC and MIC entered into an agreement with Fannie Mae (the “Fannie Mae Agreement”) under which MGIC agreed to contribute $200 million to MIC (which MGIC has done) and Fannie Mae approved MIC as an eligible mortgage insurer through December 31, 2011 subject to the terms of the Fannie Mae Agreement. Under the Fannie Mae Agreement, MIC will be eligible to write mortgage insurance only in those jurisdictions (other than Wisconsin) in which MGIC cannot write new insurance due to MGIC's failure to meet regulatory capital requirements and if MGIC fails to obtain relief from those requirements or a specific waiver of them. On February 11, 2010, Freddie Mac notified MGIC that it may utilize MIC to write new business in jurisdictions in which MGIC does not meet minimum regulatory capital requirements to write new business and does not obtain appropriate waivers of those requirements. This conditional approval to use MIC as a “Limited Insurer” (the “Freddie Mac Notification”) will expire December 31, 2012. This conditional approval includes terms substantially similar to those in the Fannie Mae Agreement. Under the Fannie Mae Agreement, Fannie Mae approved MIC as an eligible mortgage insurer only through December 31, 2011. We expect to engage in discussions with Fannie Mae in the third quarter of 2011 regarding an extension of the Fannie Mae Agreement. Freddie Mac has approved MIC as a “Limited Insurer” only through December 31, 2012. Unless Fannie Mae and Freddie Mac extend or modify the terms of their approvals of MIC, whether MIC will continue as an eligible mortgage insurer after these dates will be determined by the applicable GSE's mortgage insurer eligibility requirements then in effect. Further, under the Fannie Mae Agreement and the Freddie Mac Notification, MGIC cannot capitalize MIC with more than the $200 million contribution already made without prior approval from each GSE, which, in future years, may limit the amount of business MIC would otherwise write. Depending on the level of losses that MGIC experiences in the future, however, it is possible that regulatory action by one or more jurisdictions, including those that do not have specific regulatory capital requirements applicable to mortgage insurers, may prevent MGIC from continuing to write new insurance in some or all of the jurisdictions in which MIC is not an eligible mortgage insurer. In late July 2011, a competitor announced that the waiver of risk-to-capital requirements that its flagship mortgage insurer received from its domiciliary state expires August 31, 2011 and that it has not yet received approval from its domiciliary state or the GSEs to write new business in a separately capitalized subsidiary that we understand is a sister entity, and not a subsidiary, of the flagship mortgage insurer. In early August, the competitor announced that while it continued to pursue such approvals, it would discontinue writing new insurance commitments after August 31, 2011. Both Fannie Mae and Freddie Mac suspended the flagship mortgage insurer and the separately capitalized subsidiary as approved mortgage insurers. We are uncertain how such events, including the actions taken by the GSEs, will impact the status of MGIC's waivers and approvals to utilize MGIC's direct subsidiary, MIC. Because it is wholly owned by MGIC, the operating results from business written by MIC would positively (in the case of profitable business) or negatively (in the case of unprofitable business) impact MGIC. A failure to meet the specific minimum regulatory capital requirements to insure new business does not necessarily mean that MGIC does not have sufficient resources to pay claims on its insurance liabilities. While we believe that MGIC has sufficient claims paying resources to meet its claim obligations on its insurance in force, even in scenarios in which it fails to meet regulatory capital requirements, we cannot assure you that the events that led to MGIC failing to meet regulatory capital requirements would not also result in it not having sufficient claims paying resources. Furthermore, our estimates of MGIC's claims paying resources and claim obligations are based on various assumptions. These assumptions include our anticipated rescission activity, future housing values and future unemployment rates. These assumptions are subject to inherent uncertainty and require judgment by management. Current conditions in the domestic economy make the assumptions about housing values and unemployment rates highly volatile in the sense that there is a wide range of reasonably possible outcomes. Our anticipated rescission activity is also subject to inherent uncertainty due to the difficulty of predicting the amount of claims that will be rescinded and the outcome of any legal proceedings related to rescissions that we make, including those with Countrywide (for more information about the Countrywide legal proceedings, see Note 5 – “Litigation and contingencies”). Historically, rescissions of policies for which claims have been submitted to us were not a material portion of our claims resolved during a year. However, beginning in 2008, our rescissions of policies have materially mitigated our paid losses. In each of 2009 and 2010, rescissions mitigated our paid losses by approximately $1.2 billion and in the first two quarters of 2011, rescissions mitigated our paid losses by approximately $0.4 billion (in each case, the figure includes amounts that would have either resulted in a claim payment or been charged to a deductible under a bulk or pool policy, and may have been charged to a captive reinsurer). While we have a substantial pipeline of claims investigations that we expect will eventually result in future rescissions, we expect that rescissions will not continue at the same rates (as a percentage of claims received) we have previously experienced. In addition, our loss reserving methodology incorporates the effects we expect rescission activity to have on the losses we will pay on our delinquent inventory. A variance between ultimate actual rescission rates and these estimates, as a result of the outcome of claims investigations, litigation, settlements or other factors, could materially affect our losses. We estimate rescissions mitigated our incurred losses by approximately $2.5 billion in 2009 and $0.2 billion in 2010. For the first two quarters of 2011, we estimate that rescissions had no significant impact on our losses incurred. All of these figures include the benefit of claims not paid in the period as well as the impact of changes in our estimated expected rescission activity on our loss reserves in the period. In recent quarters, between 18% and 24% of claims received in a quarter have been resolved by rescissions. At June 30, 2011, we had 184,452 loans in our primary delinquency inventory; the resolution of a significant portion of these loans will not involve paid claims. If the insured disputes our right to rescind coverage, the outcome of the dispute ultimately would be determined by legal proceedings. Legal proceedings disputing our right to rescind coverage may be brought up to three years after the lender has obtained title to the property (typically through a foreclosure) or the property was sold in a sale that we approved, whichever is applicable, although in a few jurisdictions there is a longer time to bring such an action. For nearly all of our rescissions that are not subject to a settlement agreement, the period in which a dispute may be brought has not ended. We consider a rescission resolved for reporting purposes even though legal proceedings have been initiated and are ongoing. Although it is reasonably possible that, when the proceedings are completed, there will be a determination that we were not entitled to rescind in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability. Under Accounting Standards Codification (“ASC”) 450-20, an estimated loss from such proceedings is accrued for only if we determine that the loss is probable and can be reasonably estimated. Therefore, when establishing our loss reserves, we do not include additional loss reserves that would reflect an adverse outcome from ongoing legal proceedings, including those with Countrywide. Countrywide has filed a lawsuit against MGIC alleging that MGIC has denied, and continues to deny, valid mortgage insurance claims. MGIC has filed an arbitration case against Countrywide regarding rescissions and Countrywide has responded seeking damages, including exemplary damages. For more information about this lawsuit and arbitration case, see Note 5 – “Litigation and contingencies.” We continue to discuss with other lenders their objections to material rescissions. In 2010, we entered into a settlement agreement with a lender-customer regarding our rescission practices and we may, subject to GSE approval, enter into additional settlement agreements with other lenders in the future. In April 2011, Freddie Mac advised its servicers that they must obtain its prior approval for rescission settlements and Fannie Mae advised its servicers that they are prohibited from entering into such settlements. In addition, in April 2011, Fannie Mae notified us that we must obtain its prior approval to enter into certain settlements. There can be no assurances that the GSEs will approve any future settlement agreements. In addition to the proceedings involving Countrywide, we are involved in legal proceedings with respect to rescissions that we do not consider to be collectively material in amount. Although it is reasonably possible that, when these discussions or proceedings are completed, there will be a conclusion or determination that we were not entitled to rescind in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability. Reclassifications Certain reclassifications have been made in the accompanying financial statements to 2010 amounts to conform to 2011 presentation. Subsequent events We have considered subsequent events through the date of this filing. |
Benefit Plans
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Jun. 30, 2011
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Benefit Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit Plans | Note 10 - Benefit Plans The following table provides the components of net periodic benefit cost for the pension, supplemental executive retirement and other postretirement benefit plans:
In April 2011 we contributed approximately $10.0 million to our pension plan. We currently do not intend to make any further contributions to the plan during 2011. |
Fair value measurements (Policies)
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Fair value measurements [Abstract] | |||||||||||||||||
Fair value measurements, policy | To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation. Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. Quality controls are performed throughout this process, which include reviewing tolerance reports, trading information and data changes, and directional moves compared to market moves. This model combines all inputs to arrive at a value assigned to each security. In addition, on a quarterly basis, we perform quality controls over values received from the pricing sources which include reviewing tolerance reports, trading information and data changes, and directional moves compared to market moves. We have not made any adjustments to the prices obtained from the independent pricing sources. Assets classified as Level 3 are as follows:
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