Q3 2019 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the essence Group Limited third quarter 2019 earnings Conference call.

This time, all participants are in listen only mode.

After the speakers presentation, there will be a question answer session.

Lastly question during the session you want me to press Star one on your telephone.

Please be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your house today, Chris Curran Senior Vice President of Investor Relations. Please go ahead Chris.

Thank you enjoy good morning, everyone and welcome to our call joining me today, our mark to sell chairman and CEO and Larry Mcalee Chief Financial Officer.

Our press release, which contains essence financial results for the third quarter 2019 was issued earlier today and is available on our web site at Essent group Dotcom in the Investor section.

Got are subject to risks and uncertainties, which may cause actual results to differ materially.

For a discussion of these risks and uncertainties. Please review the cautionary language regarding forward looking statements in today's press release their risk factors, including our Form 10-K filed with the FCC on February 19 2019.

And any other reports and registration statements filed with the FCC, which are also available on our website.

Now, let me turn the call over to Mark.

Thanks, Chris Good morning, everyone and thank you for joining us earlier today as it reported another strong quarter or financial result at the operating environment remains favorable and credit continues to perform well.

For the quarter, we grew net income 25% year over year to $145 million or $1.47 cents per diluted share. Our results continued to be driven by insurance in force, which grew 23% to $161 billion. In addition, our annualized return on average equity for the quarter was 21%.

On the business front, our outlook remains positive secular housing trends and demographics are providing strong underpinnings for homeownership.

Affordable mortgage rates low unemployment and the millennials buying homes continue to drive mortgage demand and industry and I W.

On the risk origination side of our business. We continue to enhance asked an edge, which provides the capability to be more selective in pricing and shaping our portfolio.

We believe that credit selection will be key differentiator in our industry as the use of these engines evolve also given a pricing engines are being integrated into lenders best execution technologies. That's an edge gives us the flexibility to officially changed price during times of stress.

On the risk distribution side, we continue to strengthen our reinsurance strategy by entering into a third party quota share program with a panel of reinsurers. This quota share as capacity to our existing use of aylwin, an extra well reinsurance, which in the aggregate reduces earnings volatility and protect capital in stress environments. We believe.

But the use of reinsurance is a long term positive for policyholders shareholders and employees.

On the capital front, our balance sheet remains strong with $3.7 billion in assets and $2.9 billion of GAAP capital at the ended the third quarter, we had 65% of our book Reinsured and access to $1.8 billion of reinsurance.

When combined with our GAAP capital, we have 4.7 billion dollar supporting $41 billion of risk.

Based on our strong capital position and our confidence in the sustainability of our cash flows. Our board has declared a quarterly dividend of 15 cents per share to be paid on December 16th 2019.

We believe that a dividend as a tangible demonstration of the benefits of our by managing distribute operating model.

Also a dividend of this sides affords us the opportunity to continue investing in the business and take advantage of other potential growth opportunities.

Finally on the Washington front, we are encouraged by the recent actions of that's HFSA and Treasury and the progress that they are making and trying to strengthen the future of housing finance well. The end result is not clear we remain confident that aesynt and our industry will continue playing an integral role in a well functioning and a robust housing finance.

System now, let me turn the call over to Larry.

Thanks, Mark and good morning, everyone I will now discuss our results for the quarter in more detail.

Net earned premium for the third quarter was $203 million, an increase of 8% over the second quarter of $188 million and an increase of 22% from $167 million in the third quarter 2018.

The increased unearned premium over the second quarter was due primarily to 6% increase in average insurance in force as well as an increase in single premium policy cancellation income to $14.6 million from $8.8 million in the second quarter.

Persistency declined during the quarter to 82.1%.

From 84.8% at June Thirtyth 2019.

The average in their premium rate for the U.S. mortgage insurance business in the third quarter was 49 basis points.

Which was consistent with the second quarter of 2019.

Note that this range excludes premiums earned by Essent re on our GRC risk share transactions.

The favorable impact of singles cancellation income on the net premium rate for the third quarter was partially offset by an increase in premium ceded to $10.3 million from $8.4 million in the second quarter 2019.

[noise] investment income excluding realized gains was $21.1 million in the third quarter 2019, compared to $20.6 million in the second quarter and $16.6 million in the third quarter a year ago.

The increase investment income over the second quarter of 2019 is due to a modest increase in the balance of our investments.

Realized gains on the sale of investments were $1.2 million in the third quarter 2019.

We recorded a loss of $760000 in the third quarter compared to a gain of $1.2 million in the second quarter for the change in fair value of embedded derivatives associated with the insurance linked no transactions.

This loss is included in other income and our consolidated statements of comprehensive income.

Our provision for losses and loss adjustment expenses was $10 million in the third quarter.

Compared to $5 million in the second quarter of 2019.

And $5 million in the third quarter a year ago.

The default rate on the entire portfolio increased nine basis points from June Thirtyth 2019 to 75 basis points as of September Thirtyth.

Other underwriting in operating expenses were $41.6 million for the third quarter 2019, compared to $41.5 million in the second quarter.

And $36.9 million in the third quarter a year ago.

Our expense ratio declined to 20.4% in the quarter compared to 22% in the second quarter and 22.1% in the third quarter a year ago.

The consolidated balance of cash and investments at September Thirtyth 2019 was $3.4 billion.

The cash investment balance at the holding company was $98 million.

In August Essent re paid a $40 million dividend to our holding company Essent group limited, which paid its inaugural cash dividend of $14.7 million to shareholders in September .

As of September Thirtyth 2019, the combined U.S. mortgage insurance business statutory capital was $2.2 billion with the risk to capital ratio with 13.4 to one.

The risk to capital ratio reflects a reduction in risk in force of $1.8 billion for reinsurance coverage in place.

Also aesynt guarantees available assets exceeded its minimum required assets, that's computed on their p. Myers by $818 million.

Finally at the end of the third quarter Essent re had GAAP equity of $908 million supporting $10 billion of net risk in force.

Now, let me turn the call back over to Mark Thanks, Larry in closing Essent had another strong quarter as the operating in credit environments were favorable and we remain pleased with the progress in transitioning our operating model. The combination of that's an edge on the front end and reinsurance in the back end is a key enhancement and continuing to build and manage a profitable mortgage insurance.

Portfolio looking forward Essent is well positioned and we remain positive about our business and prospects now let's get to your questions operator.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key.

Please standby, while we compile the Q and a roster.

Our first question comes from Mihir Bhatia with Bank of America Merrill Lynch. Please go ahead. Your line is open.

Hi, Thanks for taking my questions a good morning.

Just stopped with.

I know you don't managed to market share, but clearly there was some share.

So maybe you could just help us maybe just give us a little bit of context here what their pockets, but you chose to pullback was it just the normal ebb and flow aftermarket the neo view.

And then also just I guess related Lee overall at this stage is your growth being driven by adding customers all growing wallet share with existing customers are just small housing market dependent when we think about you know.

Market share and just growth prospectively, yeah, Yeah, I mean, I would take a step back I do think a lot of the growth in the industry is being driven by housing right. We follow the fortunate housing.

And we said for a while the demographics really have provided a nice tailwind so high tide lifts all boats.

So to speak and I think that's important for investors understands that we are in.

I would say a secular uptrend and I think with us and really the story I mean here is a secular growth story without a lot of a cyclicality that we've had in the past. So in terms of growth, it's really driven by insurance in force right. We said that from the beginning I think $18 billion van Ajdabiya we grew.

Insurance in force 23%.

Kind of year over year net income up 25%.

So I think in terms of our market presence of always said look we're going to be kind of in that mid teens and it ebbs and flows quarter to quarter. There's a bunch of different things that can drive that that I don't think it's worth getting into because I think you missed a big picture with as you know from taking a step back.

In terms of where how quickly the insurance in force continues to grow and again Thats really a function of just how big the market is and when the market gets to be this big.

There doesn't share is never we've said, it's never been a huge metric and I think it becomes less so when the markets big it's really going to be around unit economics, and making sure we understand price.

So theres a chance really to keep that premium level high and you don't have to go chase and I w. So to speak so all in all I think we couldn't be more pleased with the situation in terms of customers. I mean, we've added a lot weve I think we still at it.

You know.

50, 60 this year, so we continue to Adam but they're on the smaller siding most of the bigger guys were in west So I would say the gross.

Longer term at Aspen is really going to be driven by the industry growth.

Fair enough and then switching maybe little bit on like just.

The Moodys upgraded let's just wondering does it mean have any new implications that we should think about in terms of that clearly obviously a positive overall, but just trying to understand if there's any near term implications of and if you can remind us if you have any specific targets in terms of just manage yes.

Yeah in terms of tangible I think it helps on our.

Helps on our line a little bit lowers the cost a little bit I think it helps us.

Qualitatively with.

The Gses and clearly some of the larger lenders if we were ever to issue. We don't have an issuer rating yet at the Holdco, but my guess now with this rating we'd be investment grade at the Holdco, which is significant.

So forever on the market to issue senior debt that Theres, probably 25 to 50 basis point.

Decreasing rates because of that so I think thats a good thing to have taken a step back though I think the significance of the Moody's is really the validation here at the model that we're transitioning to and again I'm going to sound like a broken record by the industry was always boom and bust and we are before year highs over the last few years.

We're transitioning into a real insurance company, almost a specialty insurance company.

In terms, just because of the specialty being the mortgage expertise, we have and I believe investors will consume rating agencies. It I said it I think a year ago that the rating agencies would start to recognize it and they did.

We're also AA rated am best and I think investors over time, we'll learn to appreciate just the cash flow generation of these enterprises.

And the fact that we're able to mitigate a lot of this risk.

Part of the Moody's.

Ratings process and this is interesting as we went through a C car scenario Moody's Davis to see car assumptions, which is it's a five year projection of the PNNT balance sheet.

Shareholders' equity, it's the down 25 H.P.A. over the first couple of years Theres no access to reinsurance on a go forward basis, I think and identity was cut in half.

The claim rates are relatively high, especially on a 2019 book because it's a newer book.

Not to the extent, where they were in the great recession, just because the credit quality is better.

But the key output here was we earn money through the whole five years.

So we had trough or are we probably in the mid single digits, but we continue to add to book value and I think thats a pretty strong.

Output.

And I think in the past in a in the past recession, the semis depleted book value at a very large rate.

And whenever you typically book value, it's tough to have a floor on market value and again I think this exercise really proved to us and and I think it will.

Obviously, it's a moody's too.

There's a lot of strengthen this model a lot of strength in terms of the reinsurance. So I think thats. It was reflected in the Athree rating.

But I think thats, a pretty strong it's a pretty strong validation.

No. So certainly and I think we appreciate your comments on especially to see Carson Argo type.

Modeling and what the business would look like I guess, just one last question.

In terms of just your investment income the fed shifting towards.

Rate cuts again, just what's your outlook for investment income is the growth in the portfolio going to offset a lot of that.

You know rate pressure, if you will and then related Leo I will.

Yeah, the portfolio will continue.

The investment portfolio continue to grow just because of the cash we're generating the yields should stay kind of in that mid twos range, so, but just because of that growth in the portfolio you should see the investment income.

Growth continue to grow maybe not at a level if rates were higher but still still still growing at a nice piece, yes, midyear due to Ireland help beyond that yes, sorry, just to be sorry.

The iowans do not help us on a I mean, we can get lower rate like into this strategy I was thinking mall.

And now it doesn't really doesn't come into play I think we manage okay. We're managing the investment portfolio. We continue to manage it pretty conservatively and I think thats. The point of an insurance company right. I mean highly rated right very liquid to be able to pay your claims.

You could argue that we could take more risking investment portfolios were reinsuring.

The insurance portfolio, but given where the yields are I really don't think thats. The place to do what we have done and I'll point to this it's on the balance sheet. We have about 75, approximately 75 million of other invested assets and what we've done there as we strategically invested that and I want to say eight to 10 different funds somewhere.

Technology funds that are and some are.

Private equity funds, all pretty much related to housing and real estate.

Small dollars relative to opt to our overall investment portfolio, but the idea is to gain access into inside so is there a technology within these funds are one of the smaller companies in the funds that can help us price risk better can and help us underwrite more efficiently.

Is one of the funds that we invest in has access to single family rental which we believe is it's really the replacement for non QM and the market.

Really.

Ladies and a lower FICO and we do and again, we believe and demographics and this is a way another way to play the growth obviously on the rental side, but we're we're big fans of that industry. So again just gives you a taste of how we think of the investment portfolio. It's a way for us to continue to look for growth opportunities right I mentioned in the script.

That we're trying to continue to reinvest.

In ways to find growth. These are small bets that allow us to potentially take a larger but down the road, but it's a nice I would think process and organized way too to look at growth opportunities.

Thank you for taking my questions.

Well.

Our next question comes from Sam Choe with Credit Suisse. Please go ahead. Your line is open.

Hi, guys I'm on for Doug today.

So the increase this quarter was quite substantial and I know that's partly due to the seasoning of the recent vintages, but since I have you guys online.

I was wondering if there was a particular bucket in the portfolio that contributed to this or it's just generally spread out.

Now, it's still I mean, some of its just general seasoning.

Of the portfolio Anders now no geography, or particular, like LTV or DTR announced pretty.

It's it's pretty straight across the one thing I would add is and this is important post crisis, we've seen asset most of our claims are still do due to job loss.

Def divorce all than normal.

Default.

Parameters that you would expect and that an EMI has to pay and that's what we're here to do how we're not seeing any of the thing that you saw back in the past. So some of this yet and Thats why when we point to losses, clearly default rate at 75 basis points is an extraordinarily low rate.

If the economy starts to soften.

Adam unemployment goes up you would start to see that rate rise and I think thats pretty normal and I think we would expect that I think when we've been public now for six years, we've been fortunate in that.

That we've we've participated in our growing economy, but I don't think we ever thought or promised that we would run it reflects recession freight so again thats part of overtime, if unemployment rises losses could particularly we always said, 2% to 3% claim rate and we've been well below that so I don't expect that.

To revert to the norm over time. It's also another another reason why we have the reinsurance because we're we're fine with that two to three normal rate is when it gets involved the volatility above that is with really impacts capital.

Great and one more from me.

I mean, the progress on the expense ratio front has been good and I just want to go back to life, how what you guys been doing operationally on that front and where do you see that trending in the immediate term.

I think the ratio it really is just a mathematical output right I mean, it's really run really focus on nominal expenses.

I think the ratios come down a little bit more because of just the gross in the portfolio in the premiums.

But really focus on the nominal and we spent a lot of time on it to be honest I think thats. We've always said the on the best risk companies are the best cost managers, I think where I think we've done a good job you can always do better and I. If I look at it we look at our nominal expenses relative to our competition.

And I would urge everyone to do the same I think we do pretty well and we constantly we constantly look at expenses I still sign checks over a certain amount Larry and I still work together on that.

And that's.

Thats a culture that came from a group of individuals that started the company and road checks into the business.

Again thats different from other others in the industry.

Inherited or came on as as leaders of the organization. We started it's not good or bad. It's just that's how our culture is and I think expenses.

Is that when you get into a market of this size and the commodity like products like am I don't be fold as to someone has better customer relationships or better products and services. It's all about managing your capital managing your expenses, making sure you protect the tail. The this it's all about blocking and tackling.

And the growth as me here is in response to the here's question earlier is really going to be come from how come from housing.

And the growth in that market, which we obviously think is is better than is better than expected, but we're pleased with it.

Okay. That's it for me thank you.

Our next question comes from Phil Stefano with Deutsche Bank. Please go ahead. Your line is open.

Yeah, Thanks, and good morning.

Probably more so than market share we've been focused on risk adjusted returns and I was wondering if the view of risk adjusted returns has changed at all.

Now that you have some more time with us an edge under your belt, how has that helped to form your idea of what the returns feel like in the business.

And then you'll talk to mark about the ability to increase pricing and the downturn.

Has there been any tweaks to pricing as the lessons about returns will come through.

Really good good questions, Phil I would say, we continue to test SNH around the pricing elasticity.

And we have anywhere six to seven different pricing kind of tests in the market and we switch them on and off I would say price, it's very sensitive to price changes based on what we can tell.

So yes, there are certain pockets, where we think you can either get more premium relative to what's in the market and other places, where we don't think you're particularly getting paid for it.

But I would say in in we've had been asked before around price competition and stability or not seen a lot of change even with these pricing models as you'll see the outlet theyre aggregating right around kind of the mean I mean, let's face. It is a 745 FICO 90, LTV, you're not going theres not shouldn't be that much pricing volatility I think in as the year.

Irrs go on the next few years still I think the answer is going to be can you get more data to better understand an estimate default thats something were working on and I wouldn't be surprised if all the mice are investing in ways to become more sophisticated around pricing.

I've said before I do believe the industry will go more towards kind of the geico and progressive model, where there is going to be risks and pricing in pockets or geographies that certain.

Amies like and some down again very consistent with my specialty insurance team Thats, what insurance companies do what mortgage companies tend to do is more volume and thats. Okay for a mortgage company to think that way because a lot of the times are selling off the risk and if you're selling off the risk more is better when you're holding their risk on your balance sheet and you have to manage it for us.

Long time, most not necessarily better and you have to make sure it's priced but to your answer really just about unit economic returns at the beginning to predict are pretty stable I mean, we're not we're not seeing and when we look at unit economic returns, we kind of do it full tax rate without the benefit of reinsurance we're trying to exist and then obviously the.

The reinsurance to Bermuda and some of the Iowans provides a little bit of a left but I don't think you want to rely on that I think it's more around the unit economics kind of on the core business straight up and we're still pretty pleased with them and we haven't seen a lot of change.

Just in premium rates are estimated losses really over the past kind of 15 to 18 months.

Got it okay.

Maybe to take this in a little different direction.

The industry the mines are becoming.

Smarter and there's more of an emphasis on data and analysis.

The times that you have into the originators as is probably tighter than it was under risk based pricing model than than a rate card are the are the systems to the industry and I guess you yourself in particular have sophisticated enough to deal with us.

The last.

Yes, good question.

Yeah, I would say right now I would say the answer is probably no in the industry I think maybe some investment because you're going to half.

And I think the technologies out there that allows you to because you really have to right now we said as before kind of price on 12 to 15 factor so when when and now our loan officer is sitting in and putting in those 10 factors into optimal blue or Ellie Mae or they are important in and they come to Aston and get a price.

They're going to rely on other factors, you're going to have to be able to do that and then get it back to the point of sale on a relatively fast fashion. So there's really two components noticed a modeling in the analytics to be able to.

Estimate default better or separate.

Separate different ficos and more granular and other types of things, but it's still kind of get it back to the customer.

In the second so I mean, I think theres investments and Im not sure Theres great. As you think they were 10 years ago might have been might cost a fortune with older Cobalt based systems now the systems are very modular a lot of things you can move onto the cloud.

And do it much quicker than the tools are much better will enable lost I think and I think I would say the same thing for the rest of the industry to to build these type of tools I think with the results going to be is going to you're going to see a pretty well discipline industry. Because remember we talked about this before the engine as a risk management tool.

So it gives you the ability to change price.

And we've tested some increase in pricing.

It's never going to work that well in a market where credit. So good I mean is really just one way pricing is going to go when credits. This good you're going to need a little bit of scare. The other thing you've got to keep in mind with pricing Phil is capital and right now where Pmires 2.0 don't be surprised right team, our 3.0 could count we're still waiting on.

You have to be finalized so I think even when you think about unit economic returns you really have to think through potentially different capital requirements and we said from the beginning Pmires is a great disciplined strong capital standards are great pricing discipline for the industry.

But the other thing at the thing about as just in terms of how you manage capital and making sure you have enough because you're always looking at different scenarios right. It's easy to say right now.

Economies growing credits good housings going, let's let's get more share or let's let's buy back shares because we have excess capital I think you have to look at multiple potential outputs.

And for someone like means is live through a few cycles I think we look for potential pass where.

Things could go one way or the other I think our view is corporately and with support of the board is if there is going to be a time of stress ongoing in and of and I am going in with strength I'm not going in with with weakness and I've lived that life before and I think with Essen given we're all shareholders were going to be very.

Very cautious and conservative how we manage our capital.

Got it thanks, guys and I hopefully Bennett shoulder holds up for you.

Thanks.

Okay.

Our next question comes from Bose George with KBW. Please go ahead. Your line is open.

Hey, guys. Good morning, I wanted to ask about the physician to use quota share reinsurance the drivers there and just how you balance that with use of islands.

Yes sure Bose.

I think we've been very pleased with the islands.

With the capital markets extremely pleased we have lot of breadth and depth with the investors, it's a smart investor base.

Really kind of a good second set of eyes with us in terms of the credit we've been pleased with the X. so well.

We've done with the Reinsures. This is really just another another tool assigning quota share is something we havent utilized in the past and we'd like it one.

At year end, you're in a little deeper with the reinsurance partners. So it allows us to leverage bigger balance sheets, which we like.

And we get the go forward part of.

The equation, which we haven't really been able to do yet and again as we think through.

Looking forward the ability to to reinsure going forward, we thought with with really strong partners. We're really pleased with the panel.

We thought that was a good addition to our reinsurance kind of portfolio sort of speak.

Okay, and then actually to and from a return standpoint, if you look at it that way sort of.

What's is are they sort of equally nutrition in terms of the returns you generate.

Using that kind of reinsurance.

Yeah, I mean is the cost I mean, there is obviously the parts the moving parts there, but I would say, we're still kind of in that four to five basis point range. When you think the cost the premium cost of all these transactions.

And again I think thats, that's important for people to understand where we are as we continue to hedge out the portfolio and a grows it's a significant investment on our standpoint. So if we got to lets use example, 200 billion of insurance in force.

Four to five basis points, you know were shaving a $100 million off the top line, we think that investment that return on investment actually is very high.

But I think thats something for I think thats, an important point for investors to understand that we're not trying to grow as fast as we can if we were we wouldn't obviously spend the money on that were really about risk adjusted returns sustainability of cash flows everything that kind of real insurance companies do.

And not that kind of boom and bust, which was really the m. eyes at a pass because we didn't have access to the tools.

So I think you're seeing asset I think I think where we've been very aggressive and as you saw them because we believe in this model and I believe the others in industry have been pretty good uses of it. So I really do think its changes how how investors will begin to look at the industry over the next few years.

Okay makes sense actually and what other small question just on the other income line item is that.

I just have GCB sharing and.

Here's why there was down this quarter versus the last couple.

Yes Bose this is Larry no in other income the GRC risk share premiums are in earned premium and we made that comment in the script just to clarify. So earned premium includes our primary earned premiums on the us business as well as TSC premiums within other income are some service fees on some underwriting fees and what's true impacted that.

During the quarter is that we took a loss of $760000 associated with the embedded derivatives in our al I'll end transaction. So.

That contributes to the decline in.

In other income quarter over quarter the gain in the second quarter was about $1.2 million.

Okay, great. Thanks.

Our next question comes from Mackenzie Aron with Zelman <unk> Associates. Please go ahead. Your line is open.

Thanks. Good morning, just a quick question on the premium yield can you quantify with a single premium benefit was this quarter and then how we should we thinking about the yield heading into next year with the QSR in place.

Yeah, the premium the premium impact was pretty it was probably the largest we've ever had it it was over three basis points. So it was a big number.

On the who will just disclose that number I think it was 14 14 14 mix has it was a pretty big number going forward Mckenzie I do think the premium rate will continue to decline I think it's important as you model. This stuff out to understand that is in its really driving it.

Is the reinsurance more so than the premium compression and to premium compression. It's there right I mean, we to we had a big drop in premiums with a new rate cards earlier last year, that's working its way through.

It's not as significant as maybe as people may believe but I do think the ceded premium as a big number and that's why I highlighted.

Intentionally it could be up too.

Much larger amount as the portfolio gross I think that's important for you guys to kind of model out.

So it's 49 this quarter it will definitely trend lower over the next.

Yes.

Year to couple two or two or three years I mean, it will be not quarterly basis not is on a cliff. It's just it's a slow steady drop.

And it's just it's important for investors to understand that.

Great. Thank you.

Next question comes from Jack Ms. Banco with C.G. Please go ahead. Your line is open.

Hey, good morning, guys.

First question wondering about your appetite for the GRC risk share business going forward I mean.

The floor business has been so strongly the size of the market has been surprisingly strong.

This is your appetite change there given the strength in the core as we think about risk adjusted returns and that sort of thing.

No not really I mean, there managed separately and I, it's a different risks there and we're very I think when you just take a step back with Bermuda and.

And the whole it's been it's been pretty successful it's another platform to invest in their risk we're up to close to 850 million.

Risk in force, we have a pretty steady share with that amongst other reinsurers. So.

We like the returns are still have actually given the performance as performed better than we would've even estimated at the time of origination what I like about a Jack is there some optionality there.

Again, if there is as you know theres always perception of risk in real risk I think given our position in Bermuda. If there was a headline scare I think the reinsurance some of the reinsurance maybe more prone to headline scarce.

Than others, and if Theres a.

A little reduction and capacity and we still like the risk as were a lot closer to it there is some optionality for us to take some outsized.

Share in a quarter or so very similar to how we look at in the us business.

No its little different right I mean, it's very efficient there. So no I don't I think we like the business there and if we could do more at certain returns. We certainly would it depends really where you're playing in the structure too I mean, there's there's there's lower infrastructure, which is a little riskier go higher up in the structure.

The returns are a little bit less but.

A lot less volatility so.

I think were again pleased with it and I, we wouldnt necessarily given our capital position need to kind of allocate capital from one to the other.

Okay and then.

Taking things to more of a higher level a couple of weeks ago.

A large title ensure talked about.

Looking at acquisitions in the insurance area and housing it really was looking to maybe diversify away from the transactional side of the business to something.

More I think steady and obviously that got us thinking about EMI, you've talked about M&A in the past just curious what your thoughts are around.

So the combination of maybe a title anonymized together.

Are there obvious pros or cons do you could think goes or strategic reasons, why that would or wouldn't make sense.

Now I don't think presenting strategic reason at all to be honest I mean, they're different call points at the customers different decision makers.

The businesses are pretty correlated in terms of originations. So I think you have to be I've, we've always looked to tight on and on past 20 years I've looked at its a very good business and I think it's pretty similar to m. on I wouldn't necessarily look at that from an EPS in perspective as as something that we would be on.

Finally, a part of I think we would look longer term to either be a consolidator on the my side should the opportunity arise or longer term, we're probably a better fit within a larger PNC organization of a large multi line not nada.

Title by title industry. The players that are very some of the bigger guys are really strong I just I don't see quite to fit got just because of the car.

Okay appreciate the thoughts.

Next question comes from Chris Gamaitoni with Compass point. Please go ahead. Your line is open.

Good morning, everyone. Most my questions have been answered.

Just wanted to start from a high level as you go into the kind of the ended the year Board planning just what are your corporate corporate priorities heading into next year.

It's it's a good question, Chris I think it's more of the same I think we've had corporate goals really to get more sophisticated around risk origination which is really.

The engine and then continue to build out the breadth and depth of our reinsurance program. So I think it's going to be there is going to be a big focus on both of those I.

I think we're going to continue to look at ways to be more efficient. So we're going to continue to look at that as the business changes what are the implications both on the front end in the back end and continue to look at that but I would say to their risk origination side around the engine and trying to incorporate more uses pieces of data and so forth and and get it to the point of.

Sale will be a big kind of corporate goal for the team.

In addition to continuing to kind of build out the reinsurance.

Perfect. Thanks, so much overlap.

Next question comes from Rick Shane with JP Morgan. Please go ahead. Your line is open.

Hey, guys. Thanks for taking my questions. This morning.

There was an uptick in delinquencies I'm curious if that is geographically concentrated anyway.

Just portfolio seasoning and then we did notice that the reserve rate on delinquencies went down a little bit. So the second quarter in a row is that a function of underline home price appreciation and received less risk.

No no no it's not I mean, I think on the first question is really just general seasoning and its abroad section of the portfolio now discerning kind of indicator ground LTV or DTA.

And in terms of the reserves. It still just it's really lot of it is just where it sits in the bucket and and again. These are associated with its different if there is the larger concentration and.

Earlier bucket versus a later bucket that will cause that are really caused a swing.

Great. Thanks, guys.

Sure.

There are no further questions at this time I will turn the call back over to the presenters.

Great. Thank you operator before joining our call we'd just like to thank everyone for your participation. We very much appreciate our analysts and our investors and have a great weekend.

Ladies and gentlemen, this does conclude today's conference call. Thank you for participating and you may now disconnect.

A former first Lady is tried to energize vote.