MGIC INVESTMENT CORP (MTG) stock intrinsic value fair value estimate & owner earnings analysis

MGIC Investment sells private mortgage insurance: when a US homebuyer puts down less than 20%, the lender buys a policy from MGIC that covers part of its loss if the borrower defaults. Fannie Mae and Freddie Mac require this cover by charter, and only a handful of approved insurers compete for it. At the end of 2025 MGIC insured $303 billion of mortgages and carried $81 billion of risk. Premiums have been flat near $950-1,000 million a year since 2021 because higher rates slowed new lending while longer policy lives offset lower premium rates. Cash earnings. We measure earnings from operating cash flow, removing the timing swings in reserves and taxes and charging stock compensation. On that basis owners earned $747 million in 2021, $963 million in 2022, $762 million in 2023, $793 million in 2024 and $763 million in 2025 ($3.25 per diluted share). Those figures flatter the business: every year since 2021 included the release of reserves set aside for pandemic-era delinquencies that cured, worth roughly $47, $319, $165, $168 and $123 million after tax. Strip them out and underlying earnings have been about $600-700 million, median near $640 million. Even that is earned in the most benign credit period in decades, with current-year claim costs only about 20% of premiums. We therefore value the business on about $630 million a year from 2027, after roughly $700 million in 2026, where the first half (net income $347 million, losses incurred already rising to $44 million) points. Earnings fell about 4% in 2025, and the base path starts lower still, with no growth credited: insurance in force is flat and nothing in the filings secures volume growth. Per-share gains from buybacks are not counted as growth; we value today's 211 million diluted shares. As an insurer, MGIC's investment portfolio and reserves are the raw material of the business, so no debt is subtracted from these values. The only borrowing is $646 million of 5.25% senior notes due August 2028 at the holding company, which held about $1.1 billion of cash and investments at end-2025, so repayment or refinancing is covered. The insurance subsidiary held $5.7 billion of qualifying assets, $2.5 billion above the minimum Fannie and Freddie require. Base case, about $47 per share: claim costs drift back toward a normal level, premiums ease slightly as older, higher-priced policies run off, and earnings settle around $630 million, slipping about 1% a year and continuing on the same footing after year ten, because the statutory insurance requirement and MGIC's approved-insurer status are durable and long-evidenced. Bull case, about $55: credit stays benign, claims stay near today's low level, and earnings hold near $690 million. Bear case, about $32: a housing credit cycle of the 2008-2011 kind. We charge $3.2 billion of extra pre-tax claims over 2028-2031 (about 4% of today's risk in force, on a book underwritten to much tighter standards than in 2006-2007 and partly reinsured), plus a 10% cut in premiums. Owners' earnings would total about negative $490 million across those four years, absorbed by the $2.5 billion capital cushion without a forced share issue, then recover only to about $520 million and fade. The bear value sits above book value of about $24 per share because even after that cycle the business still earns about $500 million a year from a licensed, scarce position that a downturn does not destroy. What could make this wrong: a downturn deeper than the one modelled, as in 2008-2013, when MGIC needed to raise capital and existing owners were heavily diluted; a change by Fannie Mae, Freddie Mac or Congress that reduces the need for private mortgage insurance or raises capital rules; or reinsurance becoming unavailable or expensive. Margin of safety price: $24. We are reasonably sure of the earnings level, because five years of filings show underlying earnings of $600-700 million once reserve releases are removed, but less sure of how long the benign credit period lasts. The worst plausible outcome, a 2008-style collapse in home prices, is survivable on today's capital and reinsurance but would freeze returns to owners for several years. If we are wrong both about claim costs (say 30% of premiums permanently, earnings near $520 million) and about a cycle, the shares would be worth something in the low $30s. At $24, normalized earnings would equal about 12-13% a year of that price, with roughly 3% paid in dividends and much of the rest used for buybacks. On that basis the value would reach the base value in about four years, or the bear value within about eighteen months, which the cases imply is enough for a 20% annual return without needing the good outcome. Our earlier figures were built on a different basis and are not comparable; the business itself is little changed, except that credit losses have begun to rise from their unusually low 2024 level.