Q3 2019 Earnings Call
This time all participants are in listen only mode. After the speakers presentation. There will be a question answer session to ask question. During his section you will need to press star one on your telephone. Please be advised that today's conference is being recorded if your require any further systems. Please press star zero I would now like to find the conference over here.
Speaker today, Mr., Mike Zimmerman Senior Vice President of Investor Relations. Thank you. Please go ahead.
Thanks, Mike Good morning, Thank you for joining up this morning, and bear interest at I've seen investment Corporation.
Joining me on the call today to discuss the results for the third quarter of 2019, our Chief Executive Officer, Tim Mattke, <unk>, Chief Financial Officer, Nathan culture. They didn't know welcome to the call.
I want to remind all participants in our earnings release.
Which may be accessed.
Site, which is located that MTG dot FDIC dot com under newsroom.
Includes additional information about the company's quarterly results that we will refer to during the call and include certain non-GAAP financial measures.
We have posted on our website a presentation that contains information pertaining to our private or risk in force and new insurance written and other information, we think you'll find valuable.
I also want to remind listeners that from time to time, we may post information about our underwriting guidelines and other presentations our corrections the past presentations on our website that investors and other interested parties may find valuable as well.
During the course of this call we may make comments about our expectations on the future actual results could differ materially from those contained in these forward looking statements.
Additional information about those factors that could cause actual results to differ materially from those discounts on the call are contained in the form 8-K that was filed earlier this morning.
If the company makes any forward looking statements. We are not undertake no obligation to update those statements in the future in light of subsequent developments further no interested parties can rely on the fact that such guidance are forward looking statements.
On today's time other than the time in this call or the issuance of the form 8-K.
At this time like turn call over to Tim.
Thanks, Mike Good morning, I'm pleased to report we continue to succeed in executing on our business strategies and our third quarter financial results reflect that in a few minutes Nathan will cover the detailed in the financial results, but before he does its let me take a few preliminary comments.
As a result of strong credit characteristics on our insurance in force in the favorable housing and economic environment, we're generating meaningful or earnings and gap return on equity or balance sheet continues to get stronger as evidenced by the increase in book value per share compared to the into 2018.
Our insurance in force grew by 6% over the last 12 months ending the quarter at $218.1 billion.
Reflecting the continued strength of our purchase mortgage origination market and increased refinance volume new insurance written was up approximately 32% third quarter compared to last year.
Besides the total mortgage origination market has a meaningful impact on the volume of business. We have one sure I would characterize the overall mortgage origination market is healthy.
We are confident remains strong and mortgage rates remain attractive.
So on the supply of homes available for sale still tight there is strong demand for homes and refinances.
6% growth rate insurance in force year over year reflects a modest slowdown in the growth rate of her insurance in force impart due to the increased refinance activity.
However, let me explain why the slowdown is not as pronounced it isn't than in other refinanced cycle.
We already have policies that are most exposed to refinancing written in 2018 in early 2019.
Given the relatively short period these policies that on the books.
I think homes have likely experienced only a modest level price appreciation. Therefore, many the loans being refinanced need mortgage insurance.
I remain optimistic about our ability to prudently grow our insurance in force because we have a compelling business proposition for our customers consumers continue to feel confident about the future economic prospects I feel very confident on our ability to serve our customers given our capital strength and positioned in the market.
Turning to credit quality, our inventory of delinquency notices continues to be low and the strong credit performance of existing insurance in force continues to be a tailwind for our financial results.
In addition, the new insurance, we're writing a strong credit characteristics and is expected to generate meaningful returns for shareholders.
Now I'll share some thoughts on our business objectives.
We are focused on a long term success the company by offering competitive products and services, while maintaining a sharp focus on risk adjusted returns on capital and expenses.
We recognize that are customers operating that dynamic marketplace. So we will continue to work with our customers to deliver competitive options to meet our return thresholds.
End of that works best for all involved.
I think focused on these things will allow us to prudently grow insurance in force generate long term premium flows and create value for our shareholders.
With that let me turn it over to Nathan.
Thanks, Tim.
Before turning to the financial results for the quarter I wanted to take a minute to think Tim and the board the opportunity to serve EMS you guys see as a CFO I'm really excited to lead such a talented finance team and be a bigger part of such a great management team.
Now onto the numbers in the third quarter, we earned $176.9 million of net income for 49 cents per diluted share, which is the same diluted earnings per share as the third quarter of last year.
This quarter, we recognize 27 million a positive loss reserve development compared to 59 million in the third quarter of 2018.
The accelerated premiums from single policy cancellations increased 12 million compared to the same period last year.
For the quarter on an annualized basis, we generated 17.5% return on beginning shareholders' equity.
Net premiums earned increased 7% compared to the same period last year, primarily due to higher insurance in force in the increase in accelerated premiums from single premium policy cancellations, partially offset by lower premium rates on insurance in force.
Losses incurred consist of reserves established on new delinquency notices plus changes to previously established loss reserves.
Net losses incurred were 34 million compared to a negative 1.5 million in the same period last year.
The increase in net losses incurred primarily reflects the level of positive loss reserve development I just mentioned.
As we do each quarter, we reviewed the performance of the delinquency inventory to determine what if any changes should be made to the estimated claim rate and severity factors associated with previously received notices.
The positive loss reserve development is primarily driven by higher than expected cure rates and delinquencies.
18 months or greater.
We attribute this primarily to the continuation of the favorable credit cycle, we are experiencing.
During the quarter, we received approximately 3% more new delinquency notices than we did in the same period last year.
In our view this year over year increase is not an indication of deteriorating credit rather reflects that our larger more recently written books of business well, having very low levels of new delinquency notice activity are coming into their peak last years.
While continuing to diminish in number we expect that the pre 2009 books will continue to be the majority of new notice activity in the coming quarters.
The percentage of the insured loans that recurrent at the beginning of the third quarter, but subsequently reported as delinquent during the quarter continues to remain below 1.5% level achieved in the first quarter of 2018.
This further supports our view regarding credit quality.
The post 2008 book accounts for just 39% of the new delinquency notices and 27% of the delinquent inventory.
But account for approximately 87% of the risk in force as of September Thirtyth 2019.
The estimated claim rate on new notices received in the third quarter of 2019 was 8%, which is consistent with the first and second quarters in 2019.
This estimate reflects the current economic environment and anticipated cures and was lower than the 9% claim rate in the third quarter of 2018.
Net paid claims in the third quarter over 55 million, while the number of claims received in the quarter declined by 29% from the same period last year.
This activity reflects the continued decline in the delinquency inventory.
The effective average premium yield for the third quarter of 2019 was 49.6 basis points up from 46.5 in the second quarter and 49.3 basis points in the third quarter of 2018.
As a reminder, last quarter, we incurred a nonrecurring fee of $6.8 million associated with the restructuring of our 2015 quota share reinsurance transaction, which was recorded as additional premium ceded.
The change in effective yield also reflects changes in premium rates changes and accelerated premium.
From single premium policy cancellations changes in premium refunds accruals and the level of premium ceded to our various reinsurance transactions and the associated profit Commission.
Well there could be some volatility we expect that the effective premium yield on the insurance in force will trend lower in future periods. This decline is expected mainly because the holder books of business written that higher premium rates continue to run off and replaced with new books of business written at lower premium rates.
Of course. These newer books are also expected to generate low levels of losses and meaningful shareholder returns given their credit characteristics and the presence of the reinsurance coverage has been placed on these books.
Net underwriting and other expenses were 48.3 million in the third quarter of 2019 compared to 46.8 million in the same period last year.
Increase is primarily attributable to lower ceding commissions, resulting from the restructuring of since 2015 quota share agreement.
During the quarter EMS, you guys see paid to $70 million dividends to the holding company, we expect them J C to be able to continue to pay dividends at an annual rate of at least 280 million for the foreseeable future.
The dividend payments demonstrate strong capital position, we are and as well as the level of capital, we anticipate being able to generate from our insurance in force.
As a reminder, any dividend payments are subject to approval of our board we notified the OCI to ensure it does not object to any dividend payments from J.C.
Finally, I wanted to spend a few minutes discussing our capital position and our capital management activities.
We continue to analyze and discuss with the board the best options for deploying capital. Our first priority is to use capital support new business and prudently grow our insurance in force, but if you're not able to find appropriate opportunities. Then we will evaluate other options to maximize long term shareholder value such as share repurchases and common stock dividends.
We have been participating in the GRC risk transfer transactions and expect to remain active provided the returns meter thresholds.
We also periodic options to adjust the level of quota share reinsurance, we utilize like we did with the 2015 quota share transaction.
And we will evaluate those options as they present themselves.
At quarter end, our consolidated cash and investments totaled 5.8 billion, including 308 million of cash and investments at the holding company.
Segment income increased year over year, primarily as a result of the larger investment portfolio.
The consolidated investment portfolio had a mix of 81% taxable and 19% tax exempt securities and a pretax yield of 3.12% and duration of four years.
At the end of the third quarter, our debt to total capital ratio was approximately 17%.
She is available assets for P. Myers purposes totaled approximately 4.5 billion, resulting in a 1.2 billion excess over the minimum required assets.
As we have previously discussed on these calls it is difficult to actively manage our excess available assets to a specific target given the regulatory requirements for paying dividends.
Some level of excess provides a nice buffer against adverse economic scenarios as well as the potential for increases in capital requirements from the GRC should they occur in the future.
An excess of available assets on the P. Myers also positions us to take advantage of new business opportunities as they occur and provide some support for our ability to continue to pay dividends from njc to the holding company.
During the quarter utilized approximately $70 million.
Under our 2019 share repurchase program and repurchased 5.5 million shares we have an additional 130 million authorization remaining under that program.
Which runs through the end of 2020.
I would expect us to continue to be opportunistic and using the remaining authorization.
When deciding when to repurchase shares we consider a number of factors, including our intrinsic valuation using discounted cash flows as well as market based metrics like price to book and price earnings ratios, but also recognize that historically our share price has been volatile.
As we announced in July we initiated a common stock dividend of six cents per share.
After considering the payment of that dividends or share repurchases. The total amount of capital return to shareholders in the third quarter was approximately $91 million.
With that let me turn it back to Tim Thanks Nathan.
Before moving to questions. Let me give a quick update on the regulatory and political fronts regarding housing finance reform, we remain encouraged about future all that our company in industry can play, but it continues to be difficult to gauge what actions may be taken in the timing of any such actions.
As directed by President Trump US Treasury Department issued a plan that applies administrative and legislative reforms for the housing finance system.
The reforms are aimed at reducing taxpayer risk expanding the private sector is rolling housing finance modernizing the government housing programs and achieving sustainable homeownership.
The plan did not contain many detailed directives so the impact of the plan on our company and industry is still uncertain.
The plan did indicate that FHLB and how to develop and implement a specific understanding as to the appropriate roles and overlap between the gses any FHLB.
Additionally, the Treasury plan calls for the FHLB and see if TV to continue to coordinate their efforts to avoid market disruptions.
But also released its housing reform plan, which calls for the FHLB to refocus on its mission of providing housing finance support that cannot be fulfilled through traditional underwriting.
This reinforces our belief that the FHLB unlikely to expand its presence in the mortgage market.
While the FHLB has begun to review various pilots and programs to the Gses are involved in and even eliminated. Some there have been no updates regarding the imagine any pmnine programs.
However, as we've previously reported these programs have not gained significant traction with lenders to date.
FHLB has also begun to turn their attention to the creation of a plant for the eventual end of the GST conservatorship.
This includes finalizing the capital model for the Gses and allowing them to retain more capital.
The FHLB has issued a request for proposal from financial advisors to assist in developing this plan.
We believe in the pathway to end conservatorship, it's complicated and will take time to develop and implement.
Finally, the CFPB has requested comments about the definition of qualified mortgage for Q.
This requests relate to their intent to let the so called GFC patch expire in January 2021.
The GRC patch expands the definition UQM to include mortgages eligible to be purchased by the Gses, even if the mortgages do not meet the DTA ratio limit of 43%.
In the request the asked for comments about the patch and how best to judge the credit worthiness of borrowers and how to job.
Bright line Safe Harbor for lenders.
The commentary closed into September and the CFPB is reviewing these comments, including our own and the comment of our trade group Usnine.
Although the initial market reaction to the CFPB requests for comments was negative for mortgage originators and insurers considering the other initiatives to make homeownership affordable unavailable. We believe we intend to the CFPB to eliminate temporary provisions create a permanent definition of qualified mortgage and help increase the role of private capital in the mortgage Maher.
Good.
We do not believe that the intensive the CFPB as to restrict access to credit for deserving homeowners or make homeownership more expensive or unattainable.
We continue to be actively engaged on the topic in Washington, and remain opportunistic and what changes do occur what could use a private capital including private EMI.
Last week, recognizing our industry's improved credit profile and evolving business model over the past several years, while pointing to stronger net income.
Capital adequacy and the use of excess of loss reinsurance through insurance linked notes issued to investors as well as traditional reinsurance coverage moodys upgraded our and other monocline mortgage insurers financial strength ratings.
They mentioned that could lead to further upgrades. We believe are all very achievable. This supports our view that as more private capital sought to transfer risk away from the tax payers that our customers company and industry will be able to play a role.
Our company industry offer many solutions and a great value proposition for lenders and consumers to overcome the number one barrier to homeownership the down payment.
I believe that accompanies well position to acquire manage and distribute mortgage credit risks in a variety of for support supported by a robust capital structure that includes our strong balance sheet, and where appropriate reinsurance treaties and the capital markets.
Our business is performing well and we're generating meaningful returns.
In the quarter, we grew our insurance in force and investment income credit losses remained very low expenses were held in check and we returned $91 million to shareholders.
We are writing high quality, new business and what is expected to be a loss environment that new businesses being added to an existing book of business is performing exceptionally well regenerating significant shareholder value.
Given the economic and labor market conditions, we expect that to continue.
I'm very excited and confident about the future of Angie I see.
Before we open up aligned to questions I want to take few minutes to say, how honored and humbled by MTBC all the company with a reputation of EMG and wanted us in serving the mortgage market since 1957 through many economic cycles.
I feel very fortunate to have a team of coworkers at Mt. I see that everyday demonstrates the commitment and dedication to our customers and company I.
I know that if it was not for these coworkers and a co workers that preceded them over the past 60 plus years, our company will not be in a position that it is today.
I'm going to focus my energy not only maintaining that legacy of dedication and serviced and housing market at home ownership, but I'm doing all that I can to ensure the co workers to come after me can experience. The same success that I've been able to enjoy.
Finally, I want to see a few words about passing recently stepped down from his role as CEO .
As someone who I've looked as a great success story. This organization you.
We spent his entire career them J.C. diff responding to an AD in the newspaper proposition of a staff accountant and worked its way up to lead this organization and did so while gaining the respective as team and the industry.
Well many thought the industry would not survive and our entire company worked tirelessly to get the company through a difficult period in 2007 to 2014.
What Pat assumed the role as CEO pending with question in the relevancy of our company and industry.
That spend much of his time CEO in Washington, with customers and coworkers, having them understand and appreciate how the company in industry and learn from the financial crisis at emerged stronger and their critical role am I can continue to play in the mortgage finance industry.
He led the charge to restore the financial strength of our balance sheet and health and still the discipline to maintain that in the future.
You, let empty I see as the industry evolved from a buy and hold concept to managing risk to one that now acquires manages and distributes risk.
Pat led the team that is further advance impurities ability to provide access to affordable and sustainable homeownership to consumers.
What rewarding environment for myself and my fellow coworkers and positioned the company provide meaningful returns to shareholders.
Pat Im sure Youre listening, but hopefully not into call Q on behalf of myself and the rest of the company and our shareholders. Thank you for the 41 years of service.
With that operator, let's take questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again that Istar isn't the number one on your telephone keypad.
Cost for just a moment compiled acuity roster.
Your first question comes from the line of Air in Mckenzie. Your line is open.
Thanks, Good morning, and congrats on the strong quarter.
First question just around pricing and the.
The premium that we've seen on the new businesses continue to come down clearly that the risk of businesses also shifted can you just talk about was there anything specifically going on during the quarter any adjustments within Q that we're also driving that shift and when should we expect to see the average premiums starting to stabilize.
Okay. This is Tim.
I think because we look at the the premium in the quarter. There is some from a mix shift you can see less 97.
We have the ability to make tweaks within Eni Q.
On a regular basis, although trying to do too too often.
I think from our perspective want to make sure that were competitive in the marketplace. It's really difficult to know when that might level off obviously, it's a competitive marketplace, but feel very good about sort of the risk return that we're getting on new business at this point.
Great and Tim would you say that the competitive environment is stable right now or how would you characterize just any any changes during the quarter tell what you're saying what that Mike you and the other pricing engines being at the market for another quarter now.
Yes, I would just be true, it's always competitive marketplace.
And so I view, it as that and from that standpoint, like I said I haven't noticed anything that was exceptional about the quarter from a competition standpoint, but it's a competitive marketplace with a lot of good quality business.
Great and then just last one can you quantify the amount of single premium cancellations during the quarter.
Yes, I think it was.
18 than the half million dollars in the quarter. So it was up 12 million from the prior quarter of the year ago quarter.
Great. Thank you.
Thanks.
Your next question comes from the line of Douglas Harter.
Credit Suisse. Your line is open.
Thanks, Thanks, just following up.
Tim you said that the returns are still.
Very attractive on the business are writing if you could just quantify whether there was any kind of.
Change and returns of fewer to kind of look at the business. He wrote this quarter versus last quarter or kind of over the past year how that.
Kind of expected return has changed given given credit quality mix and the pricing changes.
Yes, it's Tim I mean, I'd say, it's been relatively consistent.
From a return standpoint again as we as we write a little bit higher quality, which we thought might happen as Mike you came on board little bit less capital held against it.
And so we view even as the premium comes down we're getting very comparable returns to what we had that getting.
Great and then if you could just talk about kind of now that you've had my Q for a while I'll kind of how you see that different pockets of opportunity.
Within the market and kind of where kind of where you see the best risk adjusted returns kind of within.
Within the marketplace and.
Now they can more granularly price.
Yes, I mean, I guess from from my perspective, I wouldn't say, there's anyone pocket that we are targeting I think we're trying to get a good cross section of of what's available out there I think returns are pretty comparable across that spectrum still.
I would say that theres not one area that were particularly targeting.
From that standpoint, but rather trying to get a good cross section of the market for for good returns across that.
Alright, Thank you Tim.
Sure.
Your next question comes from the line of Randy binary with B. Riley FBR. Your line is open.
Hey, good morning, Thanks, I wanted to ask if you could provide more color on the commentary that.
Revise our now less likely to have individuals' moving out of mortgage insurance is there is there a regional aspect to that is there a certain home value skewed to that dynamic just just would be interested to hear more about that development and I presume that was it doesnt incremental drive.
Over to the anti w. growth in the quarter.
Yeah. Randy This is Mike, yes, you're right that knows that incremental drive revise or up pretty substantially year over year and even sequentially. So clearly that's helped on the NSW front.
So there from a.
The 2018 early 19 book started runs right that are really prepaying. The most given the coupons that they were originated at versus the prior years and.
So its nationally right home prices have been relatively that's a call three 4%. There's certainly some markets that have accelerated more than that and some that have that less than that.
So, but I wouldn't say, there's any large geographic skew to that keep in mind, our average loan that we're ensuring its we can call. It a 90 ish in 93 94 type LTV 240 $250000.
Loan them out so you're talking purchase prices under $300000 nationally.
Clearly theres regions that are going to be higher than that.
So thats front from a geographic perspective, no not at lot of skewing, but you can look into specific coal markets, probably and see some markets that have gone up certainly more than the national average, but generally speaking about that more generally across the board as to what's been the driver to it is that they haven't had the time.
As a whole to get that price appreciation to re Fi out of mortgage insurance, which is if you go back the past refinanced cycle when yet coupons driving from 14 down the Tanner from 85 before you had a lot more build it took longer time and the more buildup in the in the equity.
That's helpful. Then follow up I guess is it do you do you have any sense of how how much of those out of the cohorts you mentioned how.
How much has been revised is there is there any sense you have kind of how develop that processes.
I know Thats tough question.
Yes, thats right completely follow a bit as far as the coal I mean, if you're talking about like month by month or by coupon or.
That that group, who has been in their mortgage for a relatively short amount of time, so they didn't get DH PA.
Moving to re Fi give any sense of how how much of those scores has moved to refile versus who may still.
I guess not not with a great specificity to do you mean, you can look at the quarter to quarter decline of the insurance in force by the 2018 book here.
So theres it was pretty rapid prepayments on those particular book years.
But as far as how much is left to be refinery I think it's kind of difficult to get a real accurate sense of that okay fair enough. Thanks.
Your next question comes from the line of Mark Devries with Barclays. Your line is open.
Yes.
Thanks for all the comments on.
Youre seeing on Washington, but was hoping to get a little bit more color on the QM patch and kind of what you're hearing is the most likely outcome there.
Markets Tammy I guess, it's tough to really.
Put on what the most likely outcome is obviously theres a lot of discussion about a par as well as compensating factors.
I can tell you.
From the conversations I've been part of I haven't heard.
One clear direction of where it's going to go I can hear.
Basically the positives and negatives associated with a pay for as well as compensating factors.
I think what I've heard from a lot of constituents as they want to be something that durable that doesn't change regularly.
They can doesn't change necessarily just as the administration changes.
So I think there is I think theres a good amount of work that probably still needs to be done to figure out how to sort of thread that needle.
I guess I'd, it's tough candy cap exactly what's going to fall out now other than saying I think we're pretty convinced that the goal isn't to shrink and make housing less affordable, it's really to get rid of the temporary patch and make something that's more permanent and structure.
Okay, that's helpful and just to clarify.
Hey, poor, whether it's a poor one of the other solutions. Your sense is that it's it's not necessarily going to kick out any kind of meaningful portion of the market is currently getting stands today, it's just to create a more consistent definition of QM it applies to Bose.
Forming a non conforming mortgages is that fair.
Yes, Thats very fair.
Okay, Great and then next question I know, it's not an easy question since since you guys are the first semi.
To report, but based on what you saw in terms of like customer activity. During the quarter do you have a sense for whether you may have.
Regained some of the share that you lost over the last couple quarters as you were rolling out that makes you.
Yes. It is tough to know until everybody report I mean, our sense is that we probably gain some share, but it's really tough to to quantify how much.
Okay fair enough. Thank you.
Sure.
Your next question comes from the line of those George with KBW. Your line is open.
Yes, good morning.
Yes.
Hi, VTI volume the percentage was down continues to decline.
I think.
Thats something specific do you think industry volume, there's also a declining.
Yes, both as Mike, Yes, no I think its industries number of.
Well this quarter or two ago that.
But at the Gses have made some changes.
To their engines relative to what they were accepting of that level of started to go up. So I think you're just seeing in more of a broad based approach don't I think it's necessarily anything specific to our organization.
Okay. Thanks, and then actually just one on capital manages given the level of capital either $280 million you guys Thats coming back to the holding company.
Is there a way to think about how much of that you're targeting to distribute to shareholders.
Yes, I would say.
The way that we've talked about it in the past I think is still pretty consistent today of that to 80.
60 of it is interest carry for the debt at the holding company and then the remaining 220 million is kind of returnable.
To the extent that we don't have other options for that money and today as we've evaluated other things have felt like dividends and share repurchases are the best use for for those funds.
Implementing the common stock dividends does provide a use for about 85 million of that remaining 220. So the current 280 million dividend run rate.
After after paying interest and after paying the common stock dividend at the current level you are left for something in the 140 ish range of.
Kind of funds that are available to to think about things like share repurchases and other.
Okay, Great Thats helpful. Thanks, and then actually just one on back to the premium can you give me the number the number for the benefit to the profit Commission from the positive reserve development.
The right.
I think its despite both I don't have that one right specific but that Brigham refund accrual adjustment there is.
Fairly I think it's pretty consistent because we've had small for US 30 million. So my positive, though in last quarter I don't have a specific number up.
Right in front of US here again pretty pretty immaterial and yes, there is something higher than I would say one of the things when we when we restructured the 2015 quota share the absolute level of profit Commission as lower as it has been in the past as well.
Most of the loans that are in the delinquent inventory that have been there for for a long time that we're driving some of that reserve development. Just weren't included in some of those transactions. So like Mike mentioned I wouldn't look at the reserve development as being a big driver the profit commission in the quarter.
Okay, great. Thanks.
Okay.
Your next question comes from the line of Jack Micenko with.
Your line is open.
Hi, good morning.
Tim looking at the buyback looking at the dividend up and.
Thinking through this being your first quarter as CEO I mean, how much of all this is a coincidence.
How much of this is maybe a change in mentality.
You about small in one Q2 Q the environment a lot different.
Price valuation wise from where we were on your Fourq you buyback just how do we.
How do we sort of.
Well the dots on that.
I guess, Jack I, probably if you're going to ask me between coincidence or a change in philosophy I think it's more of a coincidence.
If you look at where the stock was trading this quarter, we felt like we could be more activity like at the cash we at the holding company that had built up sell those things all combined as well as sort of having clarity is what we're going to do from ordinary dividend to shareholders.
I have created a quarter, where we thought it was a good opportunity to deploy what we what we did.
As opposed to any change in sort of philosophy as what I would say.
Okay and then.
Following remarks question.
And just maybe.
Suggestion that maybe you took a little bit of share back this quarter.
How much of that.
What's sort of plan I mean, how important is market is regaining some market share to you and your and your new rule.
I guess from my perspective, I still don't view market share as the end all metric by any means it's really return on capital.
Making sure that were competitive in the marketplace and I guess thats. The one thing that we've talked about a lot here is is making sure we're competitive in the marketplace.
So I think generally feeling that is our share it slipped a little bit maybe weren't as competitive in the marketplace.
Mainly from pricing standpoint, we think we had great value across a number of other options and that all things equal on price. We should we should do very well from a market share but return on capital has to take sort of the main priority, but we want to make sure we're winning our fair share of the the good quality business that's out there.
Alright, thank you.
Thanks.
Your next question comes from the line of Chris Gamaitoni.
With Compass point research your line is open.
Good morning, everyone. Most my questions have been answered.
Following on the market share question was there any types of clients that you saw increases in volume above what market expectations would have been.
I wouldn't say there is any type of clients again, we rolled out at my Q at the beginning this year. So you think about the volume is falling into the W. now thats getting our feet under its little bit marvelous, how that sort of operating in the marketplace and how it's competitive obviously plays into it a little bit, but I wouldn't say from any one type of.
Customer.
Really was.
The focus or what made made a difference if we did pick up anything from market share standpoint.
All right.
And then.
Can you give us any outlook for persistency, maybe in the near term as you look at the more details of your vintage data versus where we have.
This is Mike correct, I mean, I mean, I think given whatever the tenures at and where mortgage Reits are at and refi activity still quite I think there's still going to be near term sell some headwinds to that.
Spec lower prints on an annual basis going forward. The precise level don't know obviously, we even though you have the rate environment the are getting into.
Typically traditionally slower part of the year from activity perspective so.
But I would expect it to continue to trend lower here in the near term bi specific level don't know, but I don't think it's enough said, we were getting overly concerned about a long term drift down in persistency like we've seen in past refinanced cycles.
Okay.
And I was wondering if theres any additional commentary you have on thoughts of how Youre will approach.
Your subsidy your excess capital tour in your conversations with regulators at the end of year.
Yes. This is Nathan.
I think the conversation is really no starts with what do we think an appropriate level of capital is how do we think we handle stress scenarios.
And what are the regulators views on that and then one thing that we've we've started to talk a little bit more about as.
If we feel like the absolute level of dividends should be higher than the 280. The current kind of annual run rate, what's the best strategy to achieve that and is that in the form of kind of annual type dividends or in the form of quarterly dividends or a combination thereof.
So I think all of those options are around the table as we.
Think about having that conversation, which I expect will happen sometime either in the fourth quarter or in early January .
Of next year, but I think it starts with.
Looking at our overall capital position, our position relative to Pmires stress testing results and making sure that everyone's comfortable that we have enough enough capital in the business to handle a wide range of potential future.
Economic scenarios.
Thank you so much.
Your next question comes from the line of Mark Palmer with the B T. G. Your line is open.
Yes. Thank you a lot of my questions have been answered, but very quickly I wanted to get your sense of.
What's the timing may be in terms of additional.
Hi, Alan issuance and reinsurance transactions going forward.
I guess so this is Dave I'll take the reinsurance question first we've done over the past several years Weve got programmatically issued one year forward commitment quota share.
Agreements.
I expect that we will we will have something similar for Recommitment quarter share agreement. Our plan has always been to be programmatic about that.
The 30% quarter share level for a while continuing to evaluate whether thats the right level.
So I think thats been working really well for us on the island side.
For us it was really about we've we've covered up till the end of the first quarter of 2019 production so through March.
By our 2019 one islands. So then it was there is a warehousing period for us as we build enough risks to do another transaction I can tell you given the volumes that we've written in the second and third quarters relative to what we would've forecast and the level of refinance activity, we're getting there a little faster than we would've thought so our intent was always to program.
Radically issue into the island markets as well so when we have sufficient massive risk in force there I would expect us to continue to execute on that strategy as well.
Thank you.
Your next question comes from the line of Geoffrey Dunn with Dowling and partners. Your line is open.
Thanks, Good morning, I wanted to follow up on Chris' question about talking to regular about special dividends.
You say the conversation can start in Q4 19, and it seems like the conversation show started a while ago.
The shift in the model the treatment of risk the.
Distribution of risk et cetera is spend around for a while is this more the regulator taking time to get used to this change and understand it better or is it more that the company hasn't been in a position where it felt like if we needed to more aggressively go after the excess capital at the subsidiary.
Yes, Jeff touched on I mean, I guess I'd say the conversations will start in relation to sort of 2020 dividend level and so I think that sort of Lenape has referring to I think I think it's an evolution I would tell you that you know from our standpoint, we have a very good relationship with the regulator.
And I think from our standpoint, we want to make sure they feel comfortable with specific level of targets and those are things that they feel are sustainable over time, and that's really where we started with the quarterly dividends, making sure. We cover the interest carry and stepping that up overtime as Nathan said I think because we've had conversation with them even over the last year, we've talked to them about.
Other forms other than quarterly dividends that might make them more comfortable to have larger potential specific targets of dividends that that we'd be able to get out.
And we've had those conversations, but I think there'll be more meaningful conversations in the fourth quarter and first quarter here I would tell you that we always try to try to I guess total line of making sure that our regulator understands where we're coming from understands the demands of the marketplace.
But making sure that we pushed them appropriately where as to where we feel comfortable they feel comfortable with aside the dividends will be coming out.
Okay.
On pricing has the impact of Iowa hands on the cost of capital effect is your approach to what you consider acceptable return levels or are you seeing that may be competitors at all.
I think it's really tough to know how others are exactly viewing it I can tell you that as things have become real programmatic I guess, we take it to back to step back and look and say, we assume that others are pricing that end from our standpoint, we've always thought that things are along with reinsurance whether traditional reinsurance or islands that the.
Anything on that can change overtime, and so have been very leery to put that into our pricing methodology.
I would tell you that as you can see the programmatic nature, if something's happening it wouldn't surprise me if others are viewing that as part of the capital structure and part of how they view sort of the pricing strategy as it takes out some of the volatility of the risk takes us some of the volatility of the earnings.
So I think thats natural for others to potentially view it that way.
Our view is always then let's look at things on direct basis.
Let's be aware of what they would be if we consider our traditional reinsurance that's on a forward commitment basis.
Right the business and also to consider what it looks like with the island's added on.
Did you really have a good appreciation for how the marketplace might look at it.
Okay, but today you haven't changed to what you consider how you think about acceptable returns.
No I think when we when we when we talk about pricing and when we actually go through our materials were focused on what the direct return is on it.
I would tell you we're always cognizant of what the.
Of the capital leverage that gets from reinsurance standpoint.
But we haven't really changed the philosophy of power pricing that Okay and last question is what is your when is your next option to consider a quota share reduction on one of your past trimmed past deals.
The end of 2021, we have options on both our 17 and 18 quota share agreements and Thats to go from 30 to 15.
That would be to early terminate at that time.
Okay alright, thank you.
No I was just going to say the 2015 that the option at that point was to terminate.
Use that as a launching point for a renegotiation discussion. So yes, I would say contractually on the 17 and 18, we have the right to terminate at that time.
But obviously if have restructured agreement works for all parties that certainly an option to.
Okay. Thanks.
Your next question comes from the line Appeals to partner with Deutsche Bank. Your line is open.
Yes, Thanks, I wanted to go back to.
Nathan walked us through kind of the cadence of the dividend up and then having 140 million for repurchases another.
That's going to call. It was mentioned earlier, you still want to be opportunistic.
The definition of opportunistic changed over the past couple of years or has.
Ill ends or anything else kind of helped to change how you think about being opportunistic.
I would say that weve used a consistent methodology now for several years in terms of how we evaluate.
Intrinsic value and what we think opportunistic means but obviously the performance of the business the growth and book value. The earnings generated the absolute level of what we feel is kind of.
Attractive price to transact that has evolved over time.
You are seeing some of that this quarter as well that.
We felt like the price was very attractive in the third quarter and wants to be and get a little more active than we had been in previous quarters.
So sort of the question is <unk>.
Ill and help change how you see intrinsic value because.
Most of the tail has been separate off and maybe you feel comfortable buying.
For example, instead of three years forward book value four years or something along those lines I mean as a.
Has the calculus for intrinsic value been updated.
I would say the the way that I would think about Iowa, and potentially impacting kind of intrinsic value in that way as maybe less about.
The tail scenarios are feeling like that that we need to hold extra for those till scenarios and more about what does the ability to potentially get money out of the writing company given that profile now at the writing company levels that doing these islands and mitigating that tell us just means that we need less capital at the operating company level.
Equal and does that ultimately help drive some of the discussions around increasing dividends to the holding company, which I think that would.
The way that we think about value in the way that we think of our cash flow that would be.
Those things are whereas I think the island could be a big benefit.
Got it okay.
Deal is pretty sound so that was it from land thanks guys.
Thanks.
Your last question comes from the line of Mihir Bhatia with Bank of America. Your line is open.
Hi, Thanks for taking my questions. Firstly, let me congratulate them and it's an on your new roads.
And.
When we start with I had a question on just up.
Claims and pre crisis vintages does obviously continue to drive a significant portion of your new notices but I was wondering is there a couple of questions on that one is there a point at which you. This stops to fall off you know, we're getting 14 years I think from 2005, and then already Boston Neal Mark I think on like into the two.
The need vintages, so just to understand with top in some of that there's been some renewals but.
Let's start dropping off the top line, where they get figure another 78% or auto is not subject to that 78% requirement has it already so just going to be a gradual process both each each of them just getting.
You have here. This is my question, we've been asking ourselves for a number of years.
Blended whether those go away.
So part of it some of the legacy business Thats left right was written.
Without that cancellation for through the bulk channel.
Subject to homeowners pretending that you mentioned some of the other things about harp.
Others. So.
And then also Theres theres, some credit performance that needs to take place for lot of those borrowers underneath.
Okay. So I.
Actually this is going to continue to be a gradual process into the short answer to your question, Yes. They said we.
It is pretty extended on a number of those book years.
Seven booked and we'll talk in 12 years out.
But is.
It is a small population but as goals.
Lions share of the of the delinquencies.
Right.
But what I'm sorry, what about on severity does there was like less severe just given the time all no not really.
Well, there's good relative improvement.
Hi, this veritiv because they've had some HP a recovery, but theres still markets that are still under water from the 2007 loan taken out in.
Some central Florida markets as just as an example is still out quite a bit of negative equity on those so.
It's gotten relatively better.
But it's still there still are still pretty much fan out full claims on the majority of that business.
Got it.
And then just a question I guess I'm just capital structure. It really I guess small who seek out stay away from I think we've talked about buybacks and gave its a bit on this call. So maybe just just talking generally in terms of you're managing your capital structure few years ago. When this was I think little bit mall.
It was bought in focus we talk about a 20 percentish debt to capital ratio given the changes in the business model, you know with the risk being laid off and taking out some of the tail risk. If you will are there any is that's still the target you all know looking I guess the region, you're thinking off maybe not dog, it's not there.
Right word but.
Is that so the 20% or any thoughts to changing that maybe business gets a lot more debt.
Hi, This is Tim I guess I would say from a 20% I think we always viewed that as a as a key mark for at least one of the rating agencies to be under that otherwise get into double leverage ratio issues.
I'd say from a target we want to make sure. We're under it obviously, we as we've continued to have earnings we continue to fall under Ed I think we like the ability to have some dry powder.
If we if we thought we needed any additional leverage in the capital stack, but I would tell you with where we said right now I don't think we'd look to lever back up to 20% just to let her back up I think we get a lot of good leverage from a return standpoint with the reinsurance which is in the insurance company.
And don't need just sort of get that same type of leverage from from at the holding company, especially when over their methodology of holding back.
Two to three times interest even.
Even with even interest rates for there right now we get some leverage from an hourly standpoint, but it's not a significant amount even by having at a 20% for example, and so I like being below and right now.
And it gives us if we if we add something we needed for.
We can we can use it at that point and hopefully not get penalized by the reading too much but I guess I'd say in charter to you I wouldn't expect us to lever back up to 20.
Target as more of it was to make sure. We got below 20 to make sure. It wasn't an issue for the rating agencies standpoint.
Got it. Thank you just one thing I would add to what Tim said, so moodys put out there revised.
Press release on ratings up late last week and in the factors that could lead to an upgrade.
They introduce another leverage target at 15% debt to total cap as as a threshold that might be considered for maybe necessary for an upgrade. So we haven't had extended discussions on whether thats a bright line or we're very close to that 17 currently right.
If it if we feel like the rating.
Is important from the business perspective, and 15% as a line annuities in may of it may now the rating agencies may have created a new threshold, whereas we thought it might.
Maybe 15 in the future.
Okay got it no I appreciate that thanks, and then just from a business perspective can you help us.
What are the business imperatives, if you will up in the current environment you have higher Moody's S&P is ratings.
I think from a from a current business standpoint as far as the flow business that we write everyday is that.
Not meaningful I would tell you that when you start to talk about us being involved in the GRC laying off risk on CRT. The ratings can matter and I think in a broader dialogue about.
Housing finance reform.
The allies being higher rated can be beneficial as well.
Our view is always bend that it's something that if the rating agencies make it available that it's really want to be in a position. We can take advantage of if we think it's meaningful for the business model and so again from a flow business standpoint, right now I'd say, it's not a differentiator when you start talking about being able to the active in GST CRT and we talk about how.
Now ill people look at us from mortgage fine.
I think it's something we have take into consideration.
Got it and then just my last question just.
As we get to the end up to you and we got the feature.
My report there's been some stock this year in terms of just due to moving but moving to risk based pricing FHC adjusting prices have been called West there was a bushel couple of months ago. The FHLB loan Affordability Act up just what are you hearing from regulators are from you know the FHLB on just that fits a mortgage insurance bees any concerns that.
What would be like the implications of moving to risk based pricing, but any concerns that they would lower prices. This year living lost it was telegraphed pretty early on that they weren't going to right. So I was just curious about this iOS any thoughts this year.
So on the here it's Mike.
Yes, and more about the GSV capital model of the applications that they would have internally and thats something that is really underway right. Now we don't have great insight as to where the land. They certainly had some comments out there. The question that I think is waiting to be answered as well they the epic.
Hey.
Ill take the comments that had been already fed and then issue a final rule or will they re propose something that's more in line with though what director Calabria is thinking about the long term solution for capital at risk based capital I mean, I think it's safe to say that they will move to some type of risk based capital within there is structure.
And how that rolls into my.
Given the presence of P. Myers that already exist Thats risk phase, it's we have little insight there they have.
Really aseptic that.
Phase level, so we'll have to wait and see how they come out.
When they do there.
Reveal if you will whether it's a re proposal or issuance of a final rule, which we think will be yet this year.
But that's something that we'll see so the implications can't tell you.
We don't know what direction that would take.
Okay.
Hi, Thank you.
Well I appreciate everybodys.
Interest in the company and.
Have a good day.
This concludes today's conference call you may now disconnect.