If it worked prior to changing the PHP version, then it would indicate that the imagick extension for that PHP version isn't installed or enabled. Note this is different to "ImageMagick" itself. I'm specifically talking about the PHP extension Imagick here which is the API which interfaces with ImageMagick. The Imagick extension is usually PHP version dependent so it appearing to be disabled when switching PHP versions is not unheard of or unsurprising.
My bad I should have said "Imagick" as I check this yesterday and used the wrong spelling. I also checked info.php after changing PHP versions and it is installed in each case when XFMG watermark setting doesn't work
Just checked this against XFMG 2. In php version 5.4 watermark works fine in both XFMG 1.1.14 and XFMG 2
Updated PHP to higher version including 7 XFMG 1.1.14 watermark doesn't work (shows turned off) but works fine in XFMG 2
So I'm not thinking it is a server issue.
@Chris D@Mike is it possible that this is a XF 1.5 issue? The reason I ask is because I spent 2 hours with tech support thinking it was a PHP 5.6 or PHP 7 issue with no resolution, then tried changing PHP 5.4 to 5.6 and 7 with XF 2. XF 2 showed correct php.config changes but no matter what I did with xf 1.5 the version remained 5.4 using the link Mike provided.
So now I'm thinking something about xf 1.5 isn't allowing the change to PHP 5.6 or up.
There would be nothing on our side that would do this.
It is possible to override the PHP handler in a htaccess file so you could check that, but indeed anything like that would not be put there by XF and any such behaviour would certainly be a server/hosting issue.