Total investments $ 6,682,911 $ 5,758,320 $ 5,159,019 $ 4,990,561 $ 4,692,350
Loss ratio 35.7 % 11.5 % 3.7 % 5.7 % 26.0 %
Our IIF increased 10.9% in 2020, and we expect our IIF to grow in 2021. Our book of IIF is an important driver of our future revenues, and its growth is driven by our ability to generate NIW and retain existing policies in force, as measured by our persistency. Interest rates influence both our NIW and persistency. In a rising rate environment, total mortgage originations may decline; however, we would also expect policy cancellation rates to decline, and in turn increase persistency, although the impact generally lags the change in interest rates. The Federal Reserve has indicated that they expect interest rates to remain low.
In the first quarter of 2020 and in the full year of 2019, MGIC paid a cash and/or investment security dividend of $390 million and $280 million, respectively, to our holding company. In the third quarter of 2020 MGIC distributed to the holding company, as a dividend, its ownership in $133 million of the holding company’s 9% Debentures. Future dividend payments from MGIC to the holding company will continue to be determined on a quarterly basis in consultation with the board, and after considering any updated estimates about the length and severity of the economic impacts of the COVID-19 pandemic on our business. We ask the Wisconsin OCI not to object before MGIC pays dividends to the holding company, and under the PMIERs guidance, any dividend paid by MGIC to our holding company, through June 30, 2021, requires GSE approval.
In 2020, MGIC paid quarterly dividends of $0.06 per common share to its shareholders totaling $83 million. On January 26, 2021, our Board of Directors declared a quarterly cash dividend of $0.06 per common share to shareholders of record on February 17, 2021, payable on March 3, 2021.
Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile and/or reduce potential dilution from our outstanding convertible debt. Extinguishing our outstanding debt obligations early through these discretionary activities may result in losses primarily driven by the payment of consideration in excess of our carrying value , and the write off of unamortized debt issuance costs on the extinguished portion of the debt.
PMI's market share is impacted by competition from government mortgage insurance programs and the GSEs' CRT transactions. In consideration of the expected decrease in mortgage originations and these factors, our 2021 NIW is expected to decrease from 2020.
Greater amounts of accelerated earned premium from cancellation of single premium policies prior to their estimated policy life, primarily due to increased refinancing activity.
è We receive the benefit of a ceding commission through a reduction in underwriting expenses equal to 20% of premiums ceded (before the effect of the profit commission).
Our estimates are also affected by any agreements we enter into regarding our claims paying practices such as the settlement agreements discussed in Note 17 - “Litigation and Contingencies” to our consolidated financial statements. Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment.
The quarterly trend in claims severity for each of the three years in the period ended December 31, 2020 is shown in the following table.
The foreclosure moratoriums and forbearance plans in place under GSE initiatives have and may continue to delay the receipt of claims. Claims that were resolved after the first quarter of 2020 experienced an increase in loss mitigation activities, primarily third party acquisitions (sometimes referred to as “short sales”), resulting in a decrease in the average claim paid and the average claim paid as a percentage of exposure. As foreclosure moratoriums and forbearance plans end, we expect to see an increase in claims received and claims paid at exposure levels above those experienced prior to the second quarter of 2020. The magnitude and timing of the increases are uncertain.
A strong capital position is essential to our business strategy and is important to maintain a competitive position in our industry. Our capital strategy focuses on long-term stability, which enables us to build and invest in our business, even in a stressed environment.
Over the next twelve months the principal demand on holding company resources will be interest payments on our 5.75% Notes, 5.25% Notes, and 9% Debentures approximating $67 million. We believe our holding company has sufficient sources
Scheduled debt maturities beyond the next twelve months include $242.3 million of our 5.75% Notes in 2023, $650 of our 5.25% Notes in 2028, and $208.8 million of our 9% Debentures in 2063. The principal amount of the 9% Debentures is currently convertible, at the holder’s option, at an initial conversion rate, which is subject to adjustment, of 75.5932 common shares per $1,000 principal amount of debentures. This represents an initial conversion price of approximately $13.23 per share. We may redeem the 9% Debentures in whole or in part from time to time,
We expect the GSEs and servicers will provide us with information about the forbearance status for nearly all of the loans in our delinquency inventory, and we believe substantially
IBNR reserves are established for delinquencies estimated to have occurred prior to the close of an accounting period, but not yet reported to us. Consistent with reserves for reported delinquencies, IBNR reserves are established using estimated claim rates and claim severities for the estimated number of delinquencies not reported. As of December 31, 2020 and 2019, we had IBNR reserves of approximately $28 million and $23 million, respectively.
Consolidated statements of cash flows for each of the three years in the period ended December 31, 2020
Net increase in cash and cash equivalents and restricted cash and cash equivalents 127,624 14,018 55,187
Certain reclassifications to 2019 and 2018 amounts have been made in the accompanying consolidated financial statements to conform to the 2020 presentation.
LAE reserves are established for the estimated costs of settling claims, including legal and other expenses, and general expenses of administering the claims settlement process.
Quarterly, we assess the credit risk associated with our reinsurance recoverable. Effective January 1, 2020 if an estimated credit loss is expected to occur over the remaining life of reinsurance recoverable, it is immediately recorded to income. In assessing whether a credit allowance should be established, we consider several factors including, but not limited to the credit ratings of individual reinsurers, investor reports for our Home Re Transactions, collateral held in trust accounts in which MGIC is the sole beneficiary, and aging of outstanding reinsurance recoverable balances.
In August 2018, the FASB issued amendments to modify the disclosure requirements for defined benefit plans. The updated guidance removed the requirements to identify amounts that are expected to be reclassified out of accumulated other comprehensive income and recognized as components of net periodic benefit cost in the coming year and the effects of a one-percentage-point change in assumed health care cost trend rates on service and interest cost and on the postretirement benefit obligation. The updated guidance added disclosures for the weighted-average interest crediting rates for cash balance plans and other plans with interest crediting rates and explanations for significant gains and losses related to changes in the benefit obligation for the period. Early adoption is permitted. An entity should apply the amendments on a retrospective basis to all periods presented. The adoption of this guidance did not have a material impact to our consolidated financial statement disclosures.
In October 2020, the FASB issued amendments to the codification that clarifies the accounting guidance for Accounting Standards Update No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. FASB standard 2017-08 shortened the amortization period for certain purchased callable debt securities held at a premium by requiring that entities amortize the premium associated with those callable debt securities within the scope of paragraph 310-20-25-33 to the earliest call date and clarified the FASB’s intent that an entity should reevaluate whether a callable debt security that has multiple call dates is within the scope of paragraph 310-20-35-33 for each reporting period. This guidance clarifies the issuer of a callable debt security should utilize the next call date versus the earliest call date in amortizing premium. The updated guidance is effective for annual periods beginning after December 15, 2020, including interim periods within those annual periods. We have evaluated the impacts the adoption of this guidance will have on our consolidated financial statements, and determined it will not have a material impact.
For the years ended December 31, 2019, and 2018, we recorded $0.1 million and $1.8 million of OTTI losses in earnings, respectively.
Proceeds from the sale of equity securities were $25.7 million and $1.7 million during the years ended December 31, 2020 and 2019, respectively. Gross gains of $1.8 million and $1.6 million were realized on those sales during the year ended December 31, 2020 and 2019, respectively. Gross losses of $0.4 million and zero were realized on those sales during the year ended December 31, 2020 and 2019, respectively. For the year ended December 31, 2020 and December 31, 2019, we recognized $0.6 million and $0.2 million of net gains on equity securities still held as of December 31, 2020 and December 31, 2019, respectively, which are reported in Net realized investment (losses) gains on our consolidated statements of operations.
Unrealized loss aging for securities by type and length of time as of December 31, 2020
The unrealized losses in all categories of our investments as of December 31, 2019 were primarily caused by changes in interest rates between the time of purchase and the respective year end. There were 109 and 217 securities in an unrealized loss position as of December 31, 2020 and 2019, respectively. As of December 31, 2020, the fair value as a percent of amortized cost of the securities in an unrealized loss position was 99% and approximately 27% of the securities in an unrealized loss position were backed by the U.S. Government.
Collateralized loan obligations ("CLO") are valued by evaluating manager rating, seniority in the capital structure, assumptions about prepayment, default and recovery and their impact on cash flow generation. Loan level net asset values are determined and aggregated for tranches and as a final step prices are checked against available recent trade activity.
grace period. In addition, in the case of an event of default arising from certain events of bankruptcy, insolvency or reorganization relating to the Company or any of its significant subsidiaries, the 5.25% Notes will become due and payable immediately. This description is not intended to be complete in all respects and is qualified in its entirety by the terms of the 5.25% Notes, including their covenants and events of default. We were in compliance with all covenants as of December 31, 2020.
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.
This description is not intended to be complete in all respects and is qualified in its entirety by the terms of the 9% Debentures, including their covenants and events of default. We were in compliance with all covenants at December 31, 2020. The 9% Debentures rank junior to all of our existing and future senior indebtedness.
IBNR reserves are established for estimated losses from delinquencies we estimate have occurred prior to the close of an accounting period, but have not yet been reported to us. IBNR reserves are also established using estimated claim rates and claim severities
Change in estimates related to pool reserves, LAE reserves, reinsurance and other 8,605 41,276 16,844
•2018 - 1,578 notices removed from delinquent inventory with an amount paid of $50 million.
1. Company Service Cost $ 7,342 $ 8,345 $ 10,530 $ 1,263 $ 1,345 $ 1,160
Tables 11.5 and 11.6 shows the changes in the fair value of the net assets available for plan benefits, and changes in other comprehensive income (loss) during 2020 and 2019.
Pension plan assets at fair value as of December 31, 2020
The statutory net income loss, policyholders' surplus and contingency reserve liability of the insurance subsidiaries of our holding company are shown in table 14.1 below. The surplus amounts included in the following table are the combined policyholders' surplus of our insurance operations as utilized in our risk-to-capital calculations.
discussions and/or proceedings with respect to our claims paying practices. Although it is reasonably possible that, when all of these matters are resolved, we will not prevail on all matters, we are unable to make a reasonable estimate or range of estimates of the potential liability. We estimate the maximum exposure where a loss is reasonably possible to be approximately $40 million. This estimate of maximum exposure is based upon currently available information; is subject to significant judgment, numerous assumptions and known and unknown uncertainties; will include an amount for matters for which we have recorded a probable loss until such matters are concluded; will include different matters from time to time; and does not include interest or consequential or exemplary damages.