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Investment Memorandum · Preview

For informational purposes only. Not investment advice.

MGIC Investment Corporation

MTG

FAVORABLE

May 30, 2026

Research Conclusion

At $26.07, MTG offers a long opportunity grounded in the cleanest variant arbitrage in PMI: the market is implicitly pricing a through-cycle ROE of ~10%, while the modeled base case yields 13.0–13.8% consistent with the FY2019–FY2025 historical average. The combination of a $5.8B AA-rated investment portfolio rolling to higher new-money yields, a PMIERs cushion of ~$3.1B that funds a $450–600M annual buyback through FY2030, and a roughly 13.7% BVPS CAGR creates a 5-year per-share value-creation engine. Triangulated fair value range $26–37 (midpoint $31); probability-weighted FY2028-anchored fair value $36.50. Risk/reward ~3:1.

Company Overview & Moat Assessment

MGIC Investment Corporation is the holding company for Mortgage Guaranty Insurance Corporation, the #1 US private mortgage insurer by NIW share (~19%) with $303B of insurance in force. The single-segment business writes credit insurance on low-down-payment (>80% LTV) conventional mortgages purchased by Fannie Mae and Freddie Mac. Revenue is ~80% net premiums earned on the IIF book and ~19% investment income on a $5.8B AA-rated fixed-income portfolio. Founded 1957, headquartered in Milwaukee, ~1,400 employees, CEO Tim Mattke since 2020 (CFO 2015–2020).

▲ Bull Case

  • ◆Rate-relief NIW recovery + buyback acceleration: 30-yr mortgage rates ease to 5.5–6.0% by FY2027, NIW recovers to $75–80B/yr, IIF grows to $325B+, buybacks accelerate to $700M/yr, FY2028E EPS reaches $5.60 with 150M shares; rerating to 1.5x BVPS = $57–68/share (2.2–2.6x upside).
  • ◆Loss ratio stays at the low end of historical (10–12%) under soft landing: Post-2012 underwriting + 750 average FICO + $80B HPA cushion means today's book defies historical normalization to 20%+ assumption; through-cycle ROE compounds at 15%+.
  • ◆GSE reform resolution becomes a tailwind: Privatization with PMI mandate preserved benefits the largest/best-capitalized carrier (MTG's $3.1B PMIERs cushion is the industry's largest); market reprices PMI sector premium for clarity.

▼ Bear Case

  • ◆Mild recession (unemployment 6%, HPA -1%, FY2027–FY2028): Loss ratio normalizes to 32%, EPS drops to ~$3.00, buybacks throttled to $200M/yr, multiple stays at ~9x = $26–32 stock (no margin of safety from current price).
  • ◆Sustained high rates suppress NIW (7%+ through FY2027): IIF stagnates near $295–305B, NPE growth dies, EPS growth depends 100% on buyback while PMIERs cushion is consumed; investment income tailwind partially offsets but is a slowly fading bet.
  • ◆FHA MIP cuts + GSE reform overhang persist: PMI market shrinks ~5–10% at the FICO <680 borderline, multiple discount widens, GSE policy uncertainty caps re-rating; range-bound at $22–27.
Primary Debate on Wall Street

“Consensus characterization: Cyclical insurance stock deserving 8–10x P/E due to recession sensitivity; median consensus FY2026 EPS $3.06, FY2027 EPS $3.35; 1-yr PT $27.50–$28.25 with Hold rating from 3 of 3 analysts. Active debate centers on buyback math + IIF stability + NII tailwind (bull view) vs. Q1 2026 loss-ratio inflection + GSE reform tail risk + stuck NIW growth (bear view). The variant opportunity lies in market pricing ~10% implied ROE vs. historical 13–15%.”

Top Catalysts
  • ◆30-yr mortgage rate decline to 6.0% — restores NIW $60–70B and IIF growth trajectory
  • ◆Buyback execution at $500–600M/yr — mechanical EPS accretion independent of business growth
  • ◆Investment income rollup to $280–300M FY2027 — structural portfolio yield migration from 4.0% to 5.0–5.5%
  • ◆GSE reform clarity from Trump administration — resolution of multi-year policy overhang
  • ◆Loss ratio staying below 18% — confirms soft-landing thesis and 13%+ ROE durability
  • ◆Q2/Q3 2026 earnings delinquency prints — validates or rejects Q1 2026 inflection narrative
Top Risks
  • ◆Mild recession with loss ratio 30–50% (35% 5-yr probability) — moderate-high impact; PMIERs cushion provides buffer
  • ◆Severe recession (2008-style, 5–10% probability) — existential risk; MTG survived 2008 but with worse underwriting book
  • ◆GSE reform eliminates PMI mandate (5–10% probability) — existential policy risk with no operational hedge
  • ◆FHA MIP cuts erode PMI market share (30–35% probability) — low-to-moderate impact; PMI still cheaper for FICO 680+
  • ◆Sustained high rates >7% depress NIW (25–30% probability) — moderate impact; investment income provides offset
  • ◆Reinsurance market hardening (<10% probability) — low impact; alternative ILN structures available

Full Memo Continues

5 more sections, locked

  • ●
    Valuation Range & DCF
    Base/bull/bear fair-value range, WACC, terminal growth, sensitivity to revenue + margin assumptions.
  • ●
    Risk/Reward Assessment
    Position-sizing framework with explicit upside/downside skew and entry conditions.
  • ●
    Management & Capital Allocation
    Multi-year capital-allocation track record, incentive alignment, and management readout.
  • ●
    Monitoring Framework
    What to watch each quarter — leading indicators and inflection signals tracked by the analyst.
  • ●
    Unresolved Questions
    Open analyst questions and follow-up research items — the depth signal.

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Margin of Insight

For informational purposes only. Not investment advice.