MGIC Investment 8-K 2012
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
The Company issued a press release on January 24, 2012, announcing its results of operations for the year ended December 31, 2011 and certain other information. The press release is furnished as Exhibit 99.1.
In October 2011, MGIC Investment Corporation (“Investment”) outlined its plan to seek to continue the strategy it had previously implemented to enable it to write new business on a nationwide basis in the event the capital of its principal insurance subsidiary, Mortgage Guaranty Insurance Corporation (“MGIC”), did not meet regulatory requirements. In connection with this plan, in December 2011, Investment contributed $200 million to increase the statutory capital of MGIC.
There are 16 jurisdictions (including Wisconsin) that have specific capital requirements applicable to mortgage insurers, while the remaining jurisdictions in which MGIC does business do not have such requirements. Under the strategy, which has been in place for about two years, MGIC’s subsidiary, MGIC Indemnity Corporation (“MIC”), would write new business in those jurisdictions in which MGIC’s capital did not meet regulatory requirements (a “Capital Deficiency”) after giving effect to any waivers of such requirements and MGIC would continue to write new business in the remaining jurisdictions.
The strategy includes a waiver from the Office of the Commissioner of Insurance for the State of Wisconsin (“OCI”) of specific capital requirements for MGIC. A waiver that was included in an OCI Order issued in 2009 (the “Prior Order”) expired on December 31, 2011, and on January 23, 2012, the OCI issued an Order that includes a new waiver through December 31, 2013 (the “New Order,” described below) and requires a $200 million capital contribution from MGIC to MIC by January 31, 2012.
The strategy also includes separate approvals by Fannie Mae and Freddie Mac of MIC as an eligible insurer for each GSE in specified jurisdictions if MGIC has a Capital Deficiency after giving effect to any waiver. On January 23, 2012, Fannie Mae agreed to extend through December 31, 2013 (the “Fannie Mae Extension,” described below), the approval it had given in late 2009 (which did not permit any further contribution to MIC beyond the initial $200 million that was contributed in 2009) and to allow the additional $200 million contribution from MGIC to MIC that is provided for in the New Order. Freddie Mac’s approval, given in early 2010 and scheduled to expire December 31, 2012, also precluded any contribution to MIC beyond the initial $200 million. On January 23, 2012, Freddie Mac modified its approval, among other things, to allow the additional $200 million contribution from MGIC to MIC (the “Freddie Mac Approval,” described below).
Giving effect to the $200 million contribution that Investment made to increase the statutory capital of MGIC in December 2011, MGIC did not have a Capital Deficiency at December 31, 2011 and we have not needed to use MIC to write new business in any jurisdiction. (MGIC’s capital will remain unchanged by the proposed contribution of $200 million by MGIC to MIC.) In addition, loans insured by MGIC continue to be eligible to be sold to Fannie Mae and Freddie Mac. However, we expect MGIC to have a Capital Deficiency in the second half of this year.
Waiver Issued by the OCI
On January 23, 2012, the OCI issued the New Order, superseding the Prior Order. The New Order waives, until December 31, 2013, the requirement that MGIC maintain a specific level of minimum regulatory capital to write new business (this portion of the New Order is referred to as the “Capital Provision”). The Capital Provision provides, as did the Prior Order, that MGIC can write new business as long as it maintains regulatory capital that the OCI determines is reasonably in excess of a level that would constitute a financially hazardous condition. Under the New Order, MGIC is to contribute $200 million to MIC on or before January 31, 2012.
The New Order requires Investment, beginning January 1, 2012 and continuing through the earlier of December 31, 2013 and the termination of the New Order (the “Covered Period”), to make equity contributions to MGIC as may be necessary so that “Liquid Assets” are at least $1 billion (this portion of the New Order is referred to as the “Keepwell Provision”). “Liquid Assets” are the sum of (i) the aggregate cash and cash equivalents, (ii) fair market value of investments and (iii) assets held in trusts supporting the obligations of captive mortgage reinsurers to MGIC as well as those held by certain other subsidiaries of Investment, excluding MIC and subsidiaries of MIC. As of December 31, 2011, “Liquid Assets” were approximately $6.4 billion. Although we do not expect that MGIC’s Liquid Assets will fall below $1 billion during the Covered Period, we do expect the amount of Liquid Assets to continue to decline materially after December 31, 2011 and through the end of the Covered Period (and thereafter) as MGIC’s claim payments and other uses of cash continue to exceed cash generated from operations.
The OCI, in its sole discretion, may terminate, extend or modify the New Order, including the Capital Provision at any time. Any modification or extension of the Keepwell Provision requires the written consent of Investment. If the OCI modifies or terminates the Capital Provision, depending on the circumstances, MGIC could be prevented from writing new business in all jurisdictions. If MGIC were prevented from writing new business in all jurisdictions, its insurance operations would be in run-off until MGIC either met the minimum regulatory capital requirements or the OCI again allowed it to write new business.
Extension of Fannie Mae Approval of MIC
On January 23, 2012, Investment, MGIC and MIC entered into the Fannie Mae Extension, whereby Fannie Mae agreed to extend, through December 31, 2013, its approval of MIC as an eligible mortgage insurer for loans sold to Fannie Mae. The Fannie Mae Extension includes the following terms and conditions:
In addition, except as specifically noted in the Fannie Mae Extension, the Fannie Mae Extension is in addition to, and does not replace Fannie Mae’s other rules and regulations applicable to mortgage insurers.
Modification of Freddie Mac Approval of MIC
On January 23, 2012, MGIC and MIC received the Freddie Mac Approval, whereby Freddie Mac agreed to modify its approval of MIC as an eligible mortgage insurer for loans sold to Freddie Mac. The approval, which expires on December 31, 2012, allows the $200 million contribution from MGIC to MIC that is provided for in the New Order and the Fannie Mae Extension. The Freddie Mac Approval also includes the following terms and conditions:
The foregoing descriptions of the New Order, the Fannie Mae Extension and the Freddie Mac Approval are intended only as summaries and each is qualified completely by the text of the actual instruments, which are filed as Exhibits 99.2, 99.3 and 99.4, respectively. Investment does not believe that any of these instruments is a material agreement within the meaning of Item 1.01 of Form 8-K (a “1.01 Agreement”) or an Amendment of a Material Agreement within the meaning of Item 1.02 of Form 8-K (a “1.02 Agreement”). In the event it is determined, however, that any of such instruments is a 1.01 Agreement and/or a 1.02 Agreement, the text of this Item 8.01 describing the particular instrument and Exhibit hereto filing the same are deemed filed under Item 1.01 and/or 1.02 of this Form 8-K, as applicable.
Safe Harbor Statement:
This Current Report on Form 8-K contains forward looking statements. Forward looking statements consist of statements which relate to matters other than historical fact, including matters that inherently refer to future events. Among others, statements that include words such as we “believe,” “anticipate” or “expect,” words such as we or another party “will” or words of similar import, are forward looking statements. Actual results may differ materially from the results contemplated by forward looking statements. We are not undertaking any obligation to update any forward looking statements or other statements in this Current Report on Form 8-K even though these statements may be affected by events or circumstances occurring after these statements were made. No investor should rely on such statements being current at any time other than the time at which this Form 8-K was filed with the Securities and Exchange Commission. Factors that could cause actual results to differ materially include those attached hereto as Exhibit 99.5. Those risk factors should be reviewed in connection with the press release attached hereto as Exhibit 99.1 and our periodic reports to the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.