MGIC Investment Corporation has announced that it will be transferring $100 million to its subsidiary Mortgage Guaranty Insurance Corporation (MGIC) and that all other conditions required by Freddie Mac to continue Freddie Mac's approval of MGIC's subsidiary, MGIC Indemnity Corporation (MIC), as a limited mortgage insurer through Dec. 31, 2013 have been satisfied. MIC is also an approved mortgage insurer for Fannie Mae.
"I am very pleased that the implementation of our plan, designed over three years ago, to write new business through a combination of MGIC and MIC, can continue to be implemented," said Curt Culver, chairman and CEO of MGIC Investment Corporation and MGIC. "I want to express my thanks to our business partners at Freddie Mac and Fannie Mae, to the FHFA, and to MGIC's principal regulator, the Wisconsin OCI, for its efforts in concluding this matter. I appreciate the trust that our customers continue to place in MGIC for their mortgage insurance solutions and want to thank them for their business."
MGIC, Freddie Mac and the Federal Housing Finance Agency (FHFA), Freddie Mac's conservator, are entering into the previously announced agreement to settle the pool insurance dispute between MGIC and Freddie Mac/FHFA. Under that agreement, MGIC is to pay Freddie Mac a total of $267.5 million in satisfaction of all obligations under the policies at issue. Of the total, $100 million will be paid by December 11, 2012 and the remaining $167.5 million will be paid in 48 equal installments beginning on January 2, 2013. In the fourth quarter MGIC is recording a charge of $267.5 million to reflect the settlement agreement. Partially offsetting this negative effect on statutory capital is the $100 million transfer to MGIC and any realized gains on the sale of investments during the quarter.
On Nov. 29, 2012, the Office of the Commissioner of Insurance of the State of Wisconsin (OCI) issued an order establishing a procedure for MIC to pay a dividend to MGIC if either of the following two events occurs:
►An OCI exam determines MGIC is reasonably likely to be unable to honor its claim obligations during the five years after the exam, or
►MGIC fails to honor its claim obligations for claims that it in good faith believes are valid. If one of these events occurs, the OCI is to conduct a review (to be completed within 60 days after the triggering event) to determine the maximum single dividend MIC could prudently pay to MGIC for the benefit of MGIC's policyholders. Upon completion of the review, the OCI will authorize MIC to pay such a dividend within 30 days.
On Nov. 30, 2012, Freddie Mac gave conditional approval to MIC to write new business in any jurisdiction in which MGIC is unable to write new business because MGIC does not meet any specific regulatory capital requirements for mortgage insurers, after considering any waiver that may be granted, or for jurisdictions without such requirements, because of that jurisdiction's view of MGIC's financial condition. However, under the applicable Freddie Mac conditions, MIC is not eligible to write business in Wisconsin, and if MGIC cannot write business in Wisconsin, MIC is not eligible to write business in any jurisdiction.
In January 2012, Fannie Mae approved MIC through Dec. 31, 2013 to write new business in 16 specified jurisdictions that have specific regulatory capital requirements when MGIC is unable to write new business because MGIC does not meet those capital requirements, after considering any waiver that may be granted. On Nov. 30, 2012, Fannie Mae also conditionally approved MIC to write business in each jurisdiction without specific regulatory capital requirements if MGIC becomes unable to do so because of that jurisdiction's view of MGIC's financial condition. This approval is for 60 days from the date MGIC is prohibited from writing in the jurisdiction while Fannie Mae evaluates approving MIC in such jurisdiction for a longer period but not beyond December 31, 2013. However, under the applicable Fannie Mae conditions, MIC is not eligible to write business in Wisconsin, and if MGIC cannot write business in Wisconsin, MIC is not eligible to write business in any jurisdiction.
MIC is currently writing business in eight jurisdictions: Florida, Idaho, Missouri New Jersey, New York, North Carolina, Ohio and Puerto Rico. As with its past MIC approvals, Freddie Mac's approval for MIC may be withdrawn by Freddie Mac at any time. Fannie Mae's approval of MIC is subject to various conditions described in MGIC Investment Corporation's Current Report on Form 8-K, dated Jan. 24, 2012; the January 2012 approval agreement is filed as Exhibit 99.3 to such Report.
The OCI order, Freddie Mac's Nov. 30, 2012 letter regarding MIC eligibility, and the Fannie Mae Nov. 30, 2012 letter agreement expanding the scope of Fannie Mae's approval of MIC are filed as Exhibits 99.1, 99.2 and 99.3, respectively, to MGIC Investment Corporation's Current Report on Form 8-K, dated Nov. 30, 2012. The above descriptions of these instruments are only summaries and are qualified by the actual terms of the instruments. The confidentiality provisions of the settlement agreement with Freddie Mac and the FHFA preclude that agreement from being filed earlier than as an exhibit to the Annual Report on Form 10-K of MGIC Investment Corporation for the year ended Dec. 31, 2012, which is expected to be filed with the SEC on March 1, 2013. A more complete description of the settlement agreement is contained in the Current Report on Form 8-K, dated Nov. 30, 2012, referred to above.