Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the M.D. I see investment Corporation fourth quarter 2018 earnings call.
At this time all participants are in other thing only melody.
After the speaker presentation, there will be a question and answer session. You asked a question. During this session you will need to press Star then the number one and your telephone keypad.
If you require any for de assistance you Me press the Star zero.
With that I would now like they had a conference over to your speaker today Mr., Mike Zimmerman. Thank you. Please go ahead Sir.
Thank you good morning, and thank you for joining us this morning, and free or interested FDIC investment Corporation.
Joining me on the call today to discuss results for the fourth quarter of 2019, our Chief Executive Officer, Tim Mattke, <unk>, Chief Financial Officer, Nathan culture.
I want to remind all participants at our earnings release of this morning, which may be accessed on our website, which is located at MTG does have J.C. dot com under newsroom includes additional information about the company quarterly results that will you will refer to during the call include certain non-GAAP financial measures we've posted on our.
Website, a presentation that contains information pertaining to our primary risk in force new insurance written and other information, which 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 are corrections the past presentations on our website that investors and interested parties may find valuable.
During the course of this call we may make comments about our expectations of 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 discussed on the call are contained in the form 8-K that was filed earlier today.
If the company makes any forward looking statements we are not undertaking an obligation to update those statements in the future it might have subsequent development.
There are no interested party should rely on the fact that such guidance are forward looking statements.
Current at any time, rather than try to this call or the issuance of the cat.
With that let me turn the call over to our CEO, Tim Mac. Thanks, Mike Good morning.
Police report to the solid financial results for the fourth quarter kept a strong 2019 as we continue to execute our on our strategies I kept our focus on the long term success of our company.
A few minutes Nathan will cover the details of the financial results, but before he does tell you make a few comments.
First our GAAP net income of $674 million was an all time high and we're very proud of this accomplishment.
Our insurance in force increased approximately 6% year over year. Despite the increase in mortgage refinancing that lowered our old <unk> our annual persistency.
Reflecting the size of the origination market.
Market presence and our increased share of refinancing transaction, we brought 26% more new insurance that we did in 2018.
In addition, the new insurance, we really has strong credit characteristics is expected to generate meaningful returns for shareholders.
Overall current credit conditions are favorable the number of new delinquency notices received continues to be low and cure rates remain strong both of which should be good news for losses incurred in 2020.
We increased the amount of capital we are able to upstream from our insurance subsidiary MGMT to our holding company from $220 million in 2000 $18 million to $280 million in 2019.
There was more news on that front for 2020 and I'll address in a minute.
We used a portion of the increase holding company liquidity to return capital to our shareholders repurchasing shares of our common stock and reestablishing our common stock dividend.
These actions supported our strategy to manage into play capital to maximize our long term value.
Over the last year. So we've been asked about this capital management strategy, Let me take a moment to address that issue.
First let me say that capital strategy cannot be static it must be dynamic. This is particularly printed today because our business model has transitioned to one where are we still acquire managed mortgage risk, but we now more actively seek to reduce the volatility of losses and diversify our capital base, the reinsurance and capital market transactions.
We have used quota share transactions to since 2013 in abuse insurance like no transactions executed in the capital markets I'm portions of the 2016 through 2019 books.
We have been able to execute these transactions at attractive cost of capital tend to continue use these capital sources when it makes long term economic sense.
In addition to diversifying our sources of capital these transactions enhance our returns and reduce losses and weaker economic environments.
With their business model there'll be times, where we generate more capital than we can prudently deploy in acquiring residential mortgage risk that meets our risk adjusted return targets.
Those times, we assess our next best alternatives for our capital included returning it to shareholders.
I would prefer to deploy capital by acquiring residential mortgage risk as a primary mortgage insurer.
We certainly will look to other ways to use our capital and expertise such as by participating in GNC credit risk transfer transaction.
The increased use a quota share reinsurance like notes decreases our reliance on traditional debt and equity sources of capital.
Impacts how we consider the allocation of our capital in the future.
So as we retreat routinely considered the level of capital that we retained for future deployment versus return to shareholders. The levels will vary based upon the business environment, we are or expect to be Ed.
Our balance sheet is currently strong from both a statutory and P. Myers perspective, reflecting our balance sheet strength and our outlook over the next 12 to 24 months I'm pleased to tell you that in January of this year empty I see received the necessary approvals to pay a $320 million special dividend at a 70 million dollar quarterly dividend to our holding company.
Our board also out authorized an additional 300 million dollar share repurchase program.
This is an addition to the $111 million remaining under the 2019 authorization.
Circling back to the core business I would characterize the total mortgage origination market as healthy.
Consumer confidence remains strong and mortgage remains rates remain attractive.
While it's five homes available for sale is still tight there's strong demand for home ownership.
Our current expectation is that the 2020 total mortgage origination market will be approximately two trillion dollars, which is down modestly from 2019, primarily due to fewer refinancing transactions and of course keep in mind that the amount of refinancing transaction is clearly the most difficult item to forecast. So there could be some variability in this outlook.
As we look ahead to 2020 I remain optimistic about our ability to prudently grow our insurance in force given the healthy mortgage origination market, our capital strength and our position in the market.
We estimate that our primary insurance in force will grow in the mid single digit range. In 2020. This rate of growth assumes annual persistency improves over the course of the year from its current level and that we write new insurance in the $55 billion to $60 billion range.
We are focused on the long term success. The company, we do that by offering competitive products and services to customers, while maintaining a sharp focus on expected risk adjusted returns on capital and expenses.
We think this is a winning strategy for all stakeholders with that let me turn it over to Nathan.
Thanks.
In the fourth quarter, we earned 177.1 million of net income for 49 cents per diluted share, which compares to 43 cents per diluted share from the same period last year.
The quarter regenerated, an annualized 17% return on beginning shareholders' equity.
Net premiums earned increased 8% compared to the same period last year, which was primarily driven by two factors.
First insurance in force was higher although this was partially offset by lower average premium rates on that insurance in force, which I will discuss later.
Second accelerated premiums from single premium policy cancellations increased $5 million in the fourth quarter increased from $5 million in the fourth quarter of 2018, nearly $20 million in the fourth quarter of 2019, reflecting the strong refinancing market.
Net losses incurred were 24 million compared to 28 million for the same period last year.
Losses incurred consist of reserves established on new delinquencies plus changes to previously established loss reserves.
The decrease in net losses incurred primarily reflects lower number of new delinquency notices received and lower claim rate on those notices.
During the quarter, we received approximately 3% fewer new delinquency notices than we did in the same period last year.
Positive loss reserve development on previously received delinquency notices was modestly higher year over year as well.
In the quarter, 60% of the new delinquency notices were from the legacy books of 2008 in prior.
While continuing to diminish and number we expected the majority of the new noticed activity in the coming quarters, we'll continue to be from the pre 2009 Bucks.
As of December 31, 2019, 88% of our risk in force is from the 2009 and later.
The portfolio supplement we publish we published gives you some insight into the strong credit trends of these books.
The estimated claim rate on new notices received in the fourth quarter of 2019 was approximately 8%.
This is consistent with prior quarters in 2019.
This estimate reflects the current favorable credit conditions and was lower than the 9% claim rate in the fourth quarter of 2018.
The number of loans that are delinquency inventory remains near 20 year lows the percentage of insured loans that were currently beginning of the fourth quarter. Former subsequently reported as delinquent during the quarter continues to remain below 1.5%.
Reflecting the lower level of delinquency inventory and improved cure rates. The number of claims received in the quarter declined by 34% from the same period last year.
Primary paid claims declined by 32% from $62 million to 42 million.
The net premium yield for the fourth quarter of 2019 was 48.4 basis points down from 49.6 basis points in the third quarter of 2019, but up from 47.3 basis points in Q4 2018.
Net premium yield has several components the largest component is what we call our in force portfolio yield which reflects the premium rates in effect on our insurance in force.
Premium rates on new business have been trending lower over the past several years as a result, we expect our in force portfolio yield will continue to trend lower as older books of business written at higher premium rates continue to run off in a replaced with new books of business written that lower premium rates.
The other components of the quarterly net premium yield include accelerated premiums from single premium policy cancellations.
Changes in premium refunds and the levels of premium ceded to our various reinsurance transactions and the associated profit Commission.
While the newer books have lower premium rates associated with them. They are also expected to generate low levels of losses and meaningful risk adjusted lifetime returns.
In addition, our reinsurance coverage on these books is expected to increase the risk adjusted returns we otherwise would have earned on direct basis.
This is a good points to mention the information we plan to report on a going forward basis.
We have been previously reporting quarterly statistics.
Pardon me, we have been reporting quarterly statistics about our premium rates on new insurance written from monthly premium policies and single premium policies.
It also been reporting monthly statistics about delinquency notices and insurance in force.
As we previously announced we will no longer published the monthly data about delinquencies, but as we have again this quarter. We will continue to publish the same detailed quarterly statistics about delinquency notices and activity that we currently do.
We think thats, a detailed quarterly information along with the data in the supplement provides insights to how credit is performing on the policies reinsurer.
In the beginning of the first quarter of 2020 annual transition away from providing direct premium rates on quarterly and W.
To providing information about the quarterly premium yield on our insurance in force, including a reconciliation of the direct yield to the net premium yield.
This quarter, we have included both sets of information.
We will continue to report information about new insurance written and insurance in force both in the press release and the supplement we post story website.
We believe that our disclosure of direct premium rates on new insurance written has increasingly become sensitive competitive information and overemphasize is one element of estimated risk adjusted returns on new business, which are also impacted by among other things expected losses, the amount of required capital and the cost of capital in it.
Additions of disclosure was not an immediate indicator of near term revenues because it takes a number of years before the premium yield would converge to the premium rates on new business.
We believe that our new disclosure of the trends and the components of the net premium yield.
On the insurance in force can provide meaningful insights into the trend of our near term revenue and value.
Continuing on with the discussion in the quarter.
Net underwriting and other expenses before ceding Commission were 63 million in the fourth quarter of 2019, which is flat to the same period last year.
For 2020, we expect those expenses will increase modestly higher than inflation as we continue to make investments in our franchise.
During the fourth quarter, and J.C. pay to $70 million dividends at the holding company and we utilized approximately 20 million under our 2019 share repurchase authorization and repurchased 1.4 million shares.
We have approximately $111 million of authorization remaining under that program.
Which runs through the end of 2020.
After considering the payment of the common stock dividend and our share repurchases. The total amount of capital returned to shareholders in the fourth quarter was approximately $42 million and for all of 2019 was $156 million.
As Tim mentioned because of our strong capital and earnings position in January of this year, we received approval from both our board and our regulator for EMG IC to pay the $70 million quarterly dividend and an additional $320 million special dividends at the holding company.
We expect them to you guys seem to be able to continue to pay the quarterly dividend at this level going forward.
The board also declared a common stock dividend of six cents per share payable on February 28.
As a reminder, any future dividend payments to our holding company are subject to approval of our board and we notified yochai to insurance is not subject to any dividend payments from Jesse.
Associated with the approval of the $320 million special dividend from EMG through our holding company. Our board approved an additional 300 million dollar share repurchase authorization that runs through the end of 2021.
The timing and volume of share repurchases in any given period may vary for a variety of reasons, but as we have with prior authorizations I expect us to execute both the remaining $111 million on the 2019 authorization as well as the 300 million that was just authorized.
Given the strong balance sheet, we currently have and the expected outlook for capital generation and needs of the writing company, we feel that the additional share repurchase authorization represents a good use of a portion of our capital and importantly does not limit the company's strategic options.
At the end of the fourth quarter, our debt to total capital ratio was approximately 17% and mgcs available assets for P. Myers purposes totaled 10.6 billion, resulting in a $1.2 billion access over the minimum required assets.
It's difficult to precisely manage our excess available assets over some level of access not only preserves strategic optionality, but it provides an offset against adverse economic scenarios reliance on third party capital and the potential for increases in capital requirements from the Jesse should they occur in the future.
At quarter end, our consolidated cash and investments totaled 5.9 billion.
Included $325 million of cash and investments at the holding company.
Investment income increased year over year, primarily as a result of a larger investment portfolio.
The consolidated investment portfolio had a mix of 81% taxable and 19% tax exempt securities a pre tax yield of 3.1% and a duration of 3.9 years.
So to wrap up I would say that 2019 was a great here and we're off to a great start in 2020.
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 front.
Regarding housing finance reform, we remain encouraged about the future role that our company industry can play in housing finance that continues to be difficult to gauge what actions may be taken in the timing of any such actions.
As we discussed last quarter, the U.S Treasury Department issued a plan that outlines administrative and legislative reforms for the housing finance system.
Three forms are aimed at reducing taxpayer risk extending 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.
Treasury plan calls for the fate and CPB to continue to coordinate their efforts to avoid market disruption.
To that end the FHLB is focused on developing their plan for the eventual end of GST conservatorship.
This includes finalized the capital rules for the Gses.
We expect another proposed catheter role to be released early this year.
The FHLB has selected an advisor to assist in developing their plan.
The pathway to the energy Conservatorship is complicated and will take time to develop and implement.
The FHLB continues its process to reviewing various pilots in programs at the Geo Cesar involved and but there have been no updates regarding the imagine EMI programs.
Our discussions with lenders continue to support the notion that these programs have not gained significant traction to date.
Regarding the CFPB weaned other mortgage market participants are awaiting the CFPB update to the definition of qualified mortgage or QM and specifically any update that relate to the so called GST patch, which is set to expire in January 2021.
The GRC patch expands the definition of QM to include mortgages eligible to be purchased by the Gses, even if the mortgages do not meet the debt to income ratio limit up 43%.
The CFPB has recently indicated that expects to issue for comment no later than May 2020, a proposed new ability to repay rule that would replace the use of DTR ratio in the definition of QM, what an alternative measure such as pricing threshold.
The CPB also as you indicated that it would extend the expiration of these GC patch until that earlier of the effective day, the proposed alternative or until one of the Gses exits conservatorship.
At this point, it's hard to predict an effective date for the proposed alternative.
As yet to be published and once it is published it will take several months to request and review public comments before the final rule could be determined.
We did not believe that the intend to the CFPB is to restrict access to credit for deserving homeowners.
Make homeownership materially more expensive or on tangible.
We continue to be actively engaged and all these topics and we continue to advocate bar and remain optimistic that what changes do occur will include the use of private capital, including private online.
Our company industry offer many solutions and a great value proposition for lenders and consumers to overcome the number one buried homeownership the down payment.
I believe their company is well positioned to acquire manage and distribute mortgage credit risk and variety of farms supported by a robust capital structure at that includes our strong balance sheet, and where appropriate reinsurance treaties and the capital markets.
Our business is performing well financially and we are generating meaningful returns.
We're writing high quality new business in what is expected to be a low loss environment.
New business is being added to an existing book of business is performing exceptionally well and we're generating significant shareholder value and given our outlook for economic and labor market conditions, we expect that to continue.
I'm very excited and confident about the future frenzy IC.
With that operator, let's take questions.
Thank you Sam and we'd like to take any question can we cancers today and as a reminder to ask a question you will need your press Star then the number one on your telephone keypad.
Jerry question, you made sense to Pandora asking.
We'll pause for a moment to compile beginning roster.
And you have a first question comes from delighted Bose George from KBW. Your line is open. Please go ahead.
Yes, good morning.
Your first wanted to ask about insurance in force growth the guidance that you gave for the mid single digits.
Do you think Youre insurance in force growth.
Stays in line with the industry. So the modest decline that you're talking about is really something you expect for the industry as a whole.
Bose This is Mike.
You know still getting a handle on that right I mean, obviously market share within individual companies can influence that.
But the re five it's really reflecting as we sit here today and expectation of lower refinance volume and then as to what how much volume than we would get off the market opportunity. So it would seem like the overall market is small EMI Morgan smaller but exactly that.
Straight pro rata share unaudited roads, maybe seen.
Okay, but it's not suggesting anything on share shift, it's really just let me know size and your expectations et cetera.
That's correct right right.
Okay that makes sense and then.
Yes, your comments about the at the repurchase authorization.
You mentioned you expect to completed.
The in terms of timing can you just say are you expecting to completed by the.
With the goal will be to completed by the 2021.
Timelines for the authorization.
Yeah. This is Tim I think yes, when we put out the date, our expectation would be that we completed by the timeline that the authorization is in place for.
Okay, great. Thank you.
Sure.
Our next question comes from the lighter Randy Binner from variety FBR. Your line is open. Please go ahead.
Hey, Thanks, just following up on Boses last question. So the it would be ratable the use of the buyback through the end of the authorization just trying to understand how might come through the forecast.
So it's coming I guess from ratable I guess, when I think about that I almost think about it being sort of even amount across all the period I wouldn't think about it necessarily that way I think you can think about us being fairly programmatic, if we intend to utilize at all but we might not.
Utilized the same amount of the authorization in every quarter as an example.
Okay, and then the other I guess, the kind of a follow up and it it has to do with EMI Q and.
Just thinking about how the markets reception of that pricing tool.
You know has has stabilized or is that still changing.
In trying to understand where you might.
End up on market share. This year I think last year, you gave some share up as you.
Transition to the new tool and and I think my perception is the market is stabilizing there but would be interested in your perspective on that.
Yes, Tim again, I think when we look at our customers.
And their adoption of EMI Q. I think your reflection that it seems stable at this point I would tell you I don't.
We talked with our sales group I don't feel like we have customers that.
We're trying to push out Mike you onto that will not accepted by any means our view all along is that we want to provide the pricing through mechanism that the customers wide I think as we roll through 2019. Once we got a third early fourth quarter, we felt like we probably hit a fairly stable level I'd like you from a penetration standpoint.
And now we just continue to execute on on that and sort of customer relationships and feel really good about that moving forward.
I'll leave it there thank you.
Sure.
Our next question comes from delighted Douglas Harter from Credit Suisse. Your line is open. Please go ahead.
Thanks.
Take advantage of this question some puts the last quarter, you're providing it but can you just talked about the decline in the.
In the premium yield on the M&A W. It does look like the mix shift continues to kind of move towards lower risk does that count for for kind of all of the sequential decline or is there anything else on sort of competitive.
Nature of the market that that's driving that decline as well.
This is Nathan I would say one of the key parts of of returns and our premium rates is the capital required and we've seen really throughout 2019, a decline in the required capital.
Under Pmiers as as a threshold, but even under.
You know that obviously doesn't include Guy and we've seen guys improved throughout the year as well so because we think about the capital necessary for the business, we have really seen a pretty big decline throughout the year and continuing through the fourth quarter.
So that requires that because that required capital is that factoring in you know kind of the the iowans or is there something else that or is that just in the mix shift.
Of the better credit quality that you're writing that that's lowering that capital requirements.
I think it's certainly true I guess, what we would call on a direct spaces, so before considering reinsurance or insurance like notes, but it's it's true net of those as well. So those continue to be kind of attractive tools and the in the capital structure as well.
Great. Thank you.
Our next question comes from the light as Mackenzie Aron from Zelman and Associates. Please go ahead. Your line is open.
Thanks, Good morning.
First question on the timing of the special dividend rate you with the regulator can you just talk a little bit about the rationale and in there.
There are thinking there and then going forward is that expected to be an annual conversation.
This is Dave and I would say that the timing was we really started to have conversations in the second half of last year relative to our capital position.
The risk distribution mechanisms available in the market, how we were utilizing them and also the credit quality of the business being written on a direct basis those.
Precisions continued into January and then when we formally requested the other $320 million dividend we received the approval.
Terms are going forward I think the way I would think about it as we feel like this is the appropriate thing for us to do at this time in the future, we're kind of continuing to reevaluate the capital structure and what we want to do.
Part of this is a function on the business being written today, a function of the reinsurance and island markets continuing to be really attractive.
If those things persists, then we could be on a position where we have.
Total capital, but there's other situations that could exist where.
Where this might not become something that we do every year. So I wouldn't want to leave the impression that the special dividends as an annual special dividends.
A reflection of the strong position that we're currently on.
Okay. That's helpful. And then maybe can you just quantify the amount of single premium amortization during the quarter.
It was 20 million.
Okay. Thank you.
Thanks.
Our next question comes from glide of Joffrey tiny from Belgium Partners. Your line is open. Please go ahead.
Good morning.
One follow up on the question about the pricing and Tim ask you maybe a different way.
Well I guess specify what you said about the capital charge coming down over the last year or years can you give us night of the amplitude of the average Pmiers capital charge change over the last year.
Jeff This is Nathan I had mentioned that before but it's the right way to think about it as from the from like the fourth quarter of 2018. So the fourth quarter of 2019, we've seen on a p. Myers basis and have a move from the low 7% of risk in force to the low sixs, So I think pretty meaningful change.
And I think Jeff just to that point.
As Nathan mentioned that doesn't take into account all the things that we price on for example, DTA and so on P. Myers cut Cdti 50, plus VTI and so when you consider the amount of above 45, VTI now that changed from 2018 2019, I'd argue that it's probably even more pronounced than that.
Okay, and then when you look at your pricing and I'd be curious on your thoughts on your where you're seeing competitively as well.
Do you think are ours is magic sticking to.
Its normalized loss expectations and longer term cost of capital.
Estimates or or have those estimates change given credit performance and given the recurring nature of the reinsurance in Iowa and executions.
Jeff I know that it's a really good question, it's tough to obviously to others look at it I can tell you that we look at it through a number of different lenses were very focused on making sure. We think about things through the cycle whatever that cycle might look like and obviously, we've had a nice extension for a period of time here, but when we consider pricing we think about different stretch.
Environments that we can be and what the book would look like I can tell you with the with the credit quality being where it is I think there's less volatility around those scenarios and I think that can be reflected in the pricing I think the access to the capital markets and the reinsurers as something that you can't ignore although I would tell you that we look at returns both on a direct base.
As a nation would say without that being in place as well as consider how it looks like with those structures in place, but again part of that processes. While we think we have very good relationships with our reinsurers. We think we can sell to the capital markets. We know that those markets can change overtime. So we don't want to become dependent upon those versus take advantage.
Those.
Outlets when they're available under the priced attractively. So all that is really way thing I think we really look at it both on a direct basis and that's what we really compare most of our information on but we're not.
We don't turn a blind eye to what some of the leverage on returns can happen from the islands and the quota share reinsurance.
But do we need also be focused on through the cycle, but with a higher credit quality.
That does reduce some of the variability in volatility around the losses I would say.
All right. So I guess it sounds like some adjustments going on but not getting overly aggressive.
Yes, I think that that's a very nice strides to think play to put a job.
And that's I think.
I think thats, what you'd expect from us okay. Thanks.
Sure.
Our next question comes from the line and Jack Micenko. Your line is open. Please go ahead.
Hi, good morning.
I wanted to come back to the dividend question a little bit.
If I look at the run rate, so you're you're running like a 280 number.
Up to the Holdco and then you've got the 321 timer so put that at 700 and then.
At the buyback plus what's not.
Drawn down plus two years dividend I get close to like high six hundreds number I guess question.
Do we or is it safe to assume you're going to be.
Out of the special dividend conversation now through the into 2021, when you sort of look at all the sources and uses as you've laid them out today.
This is Nathan I mean, I would say like the way I answered. The similar question previously I wouldn't want to say that we will or won't do anything over the next kind of two year period I will continue to reassess the capital structure at the availability of alternative capital our other needs.
That money at the operating company level, and I think could be in a position, where we would go back and asked for beyond the $70 million run rate at some point in the future. We're not we obviously just got done with with this conversation, but I don't think that precludes us from from having a conversation about that over the next two years either.
Yes, I think Jack when you think about you know we've got questions before can we get larger dividends out of energy IC and and you know with island activity being out there. The one thing we've I guess always been a little bit cautious about a tying dividends out with anyone transaction versus viewing sort of the capital and energy I see sort of on a more ongoing basis and so I think it's a natural stock for.
Sort of annually to go to the OCI and add a conversation about where we're at I think we feel really good about the quarterly dividends being sustainable through all different sorts of cycles and so I think the conversation on the special dividend was really about where we are at this time and I think we'll have the opportunity to add those conversations in the future with that as well.
Okay. Thanks.
And then.
Jim in the prepared comments.
You suggested that delinquencies would come down in 2020 versus 29 team.
The notice has picked up a little bit and 19 versus 18.
So I'm guessing.
Well a lot we thinking notices now sort of re trade lower or or you know do you expect better cure activity.
Bring that net delinquency number down next year.
Yeah. Jack This is Mike I mean, you're right at the comments on there, but I mean, we're at a pretty low level right now.
So as I think 3% year over year decline and new notice activity.
I'll tell you it's going to be in that range, we're running like 1.31, 0.4% of the portfolio Rowley delinquent each quarter thing and so those are kind of the metrics.
Well be looking for any dramatic changes to those numbers. Okay. So it's more the same.
Yes, right okay. Thanks.
Thanks.
Our next question comes from the line as Chris Gamaitoni from Compass point. Your line is open. Please go ahead.
Good morning, everyone.
Morning.
Well I wanted to follow up on the same questions everyone else's asking.
So I do my math I get there is will be roughly 200 million more coming in from.
The sub over the next two years based off the quarterly dividends in the now special versus kind of usage, perhaps what what's the plan for that what's what are the opportunities out there for that additional 200 million. Given you have 325, right now have to holdcos, 16% debt to cap doesn't seem like you know, there's an awful lot of.
De leveraging or additional capital you need for de leveraging at this point.
Hey, Chris its Nathan can you just I'm I'm not following on the 200 above the can you just walk me through the math that you're.
Sure so.
It's a 280 million a regular dividends each year its 560 million.
320, its vessel eat 80.
Annual dividends I believe are 165 million debt expense of 110 millions to 75 to get you to 600, so there's eating coming in 600 going out about 200, <unk> you know 200 million.
Delta.
Yeah, So you're looking out through 2021, Yeah 2021, two year period, just good authorizations for two years for the 300 SCADA.
Yeah, I mean, I think at this point I will continue to evaluate the uses for that money.
We obviously have the quarterly dividends are the share repurchase authorization as weve as we've kind of demonstrated here, we've been able to get increase acquisitions overtime weve been able to get them even for the other authorizations have expired. So I think.
Overtime, we will have options for that money, but nothing to kind of highlight today. Okay. Yeah. I was wondering if there's any other non buyback opportunities you're thinking about or anything we should put in our mind that might become interesting.
It's certainly something that we continue to evaluate but nothing to highlight at this point and nothing.
Nothing that I would think in the near term, we we'd be communicating in that front.
Okay.
Oh, that's a that's all I have thank you so much.
Thanks, Chris.
Our next question comes from glide have Mckay, but yeah from Bank of America. Your line is open. Please go ahead.
Hi, Thanks for taking my question up sort of go back real quick to the.
Premium yields and maybe you know since we're going to talk about enforce premiums going forward, maybe I'll talk about that just wondering is that something special that we should be.
Just one in Q4, maybe like it was refinanced something where though it seems like the enforce the decline in inflows premium you you accelerated pretty materially in Q4.
What would drive that.
I mean here. This is Mike I mean, I think you have a number of things right that are going into that you have the cumulative effect of all the the pricing that has been going on in the new business as we coming on for the last several quarters accented by a little bit faster prepays in the fourth quarter, So you're going with the a little bit higher certainly okay.
Again, we look at annual Persistency, you look at quarterly persistency would see at much lower so you had a little bit more churning going on the of the.
Existing enforce and being replaced on what the newer business coming off so I think you've got to some of that dynamic that's taking place right is that a good I guess a good run rate in terms of just you know how much you expect that enforced used to decline just you know given how things have been trending but you would be willing to show.
This is Nathan I mean, I would say, it's a it's a difficult thing to kind of project over over a longer period of time, because I do think it's a function of refinance activity, it's a function of.
The future credit quality that writing in the premium rates on that business. So I think theres a number of factors I would look to the larger change in the fourth quarter as.
Yes, we wrote a lot of business in the fourth quarter at.
Much better risk profiles that are enforce books. So a lot of that is just reflecting the improved credit profile. The in force book as a result of the refinance activity in the fourth quarter.
Got it up maybe maybe just turning quickly to credit you had you know some pretty nice step up in on the kill was particularly you know the cumulative default ratio. It's been steadily climbing is that just have been by the economy better credit quality you'd been writing anything else that well and anything that you would comment on that any more color and where do you have.
Aspect that rate to stabilize I think it's up to like 40% now.
Hey, it's Mike I mean the.
Credit quality siblings is yes, I mean, it's economically driven right, we've got a solid economy and the new book.
The such a small piece of the legacy books, it's contributing and move into new business is so strong so strong.
There, where the cure rates kind of.
We're testing kind of all time lows.
Claim rates, if you will still the right on the cure rates I mean.
Because they go lower I think thats, just sort of see why we've been focusing last few calls about that kind of that roll rate from clean to delinquent hovering in that kind of 1314 range or so as being a good indicator of where things right. So that's been pretty stable. So you might see a little bit of variance in the other numbers, but nothing material.
And then just last question how are you thinking about reinsurance and Ireland plans for the rest of this yeah. I think you have an option to reduce the amount do you see it on your 2019 QSR in July.
I'm remembering correctly and then just thoughts on island, it's been a I think almost six seven months now since you did the last month.
Yeah. This is Nathan I would say for the for the quarter share.
Forward looking we have agreed to terms with our panel for our 2020 quota share transactions. So that will again be at 30% quota share with generally similar terms to what we've had in the past so really nothing to highlight there.
One interesting thing that we were able to accomplish with a with some of the panel was we got coverage extended to the 2021 vintage.
So that's not for the full 30% quarter share but for 17.5%.
We have coverage on the 2020 and and kind of a little bit reduce coverage on the 2021 book already in place.
Relative to kind of optionality on previous steels.
Our main optionality points are still out in 2021 on a couple of our of our older quota share agreements.
But you're right we do have some of these.
Kind of reduce reduce session options, but frankly, the quota share continues to be think really attractive for us we like the structure of it we like the benefits that it provides we like the loan level coverage. So its certainly it's nice to have the option, but I wouldn't I wouldn't view any.
Either either kind of keeping it or executing on that option as being something we've already decided.
And I think on the island as Tim, adding yet I think you'd expect us to continue to be active there and I think as Nathan said in a quota share think the way that we're able to structure the quota share and the island's it doesn't have any quota share than plate doesn't preclude us from usually utilizing the island's to the extent that we think a are valuable to us. So I think you should expect as stated to be active and.
That space as well.
Great. Thank you for taking my questions.
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At this time I would like to remind everyone. If you wish to ask a question you will need to press Star then to number one and your thoughts so.
Our next question comes from the line of fell on the final from Deutsche Bank. Your line is open. Please go ahead.
Yeah. Thanks, So just wanted to go back to the question about the.
The outlook for decline in new notices and these it felt like mid 2019 that there was an inflection.
And I think the messaging other time was around.
The new notice or the the recently written vintages were just coming into their peak last years and that was helping to drive up the new notices year over year has there been a change since mid 19, and what you're seeing that the do it feels like new notices should should be coming down.
Let me again I I appreciate that it's not material, it's kind of more the same but it it feels like we had an inflection midnight team and it feels like in some ways, we're backing off of that.
I would just I would say, it's probably more nuanced I think the you know the one thing that persisted that we talked about little about here and again I don't think this moves the numbers dramatically, but obviously the quality of the book that we were on 2019 and those credit characteristics I think help us feel really good about it compared to the booking we wrote in 18, and so I think you add all those factors as far as some of those low.
Larger books coming into sort of the peak last year as that's true I think.
Similarly, you talk about how you project, where premium like go in the future, it's sometimes difficult to predict exactly especially at the low level. We are right now on losses, where exactly the bottom as and a lot of that has to do with again, where what vintages are coming into the sort of their peak last years, but also the credit quality of those vintages. So.
As Mike said earlier I think.
We don't view it as anything material really that we're talking about there, but they are settled changes obviously as we try to project things out based upon the quality of the books and what years they originated.
Okay. Yeah topic is yours uses of excess capital.
Maybe to ask this one a little differently how is debt reduction involved in the conversation.
This is de leveraging that or something that's being contemplated and I think 15% was a a line that one of the other rating agencies are giving you maybe they'd look much more favorable on your rating to the extent you've got below that 15% is debt reduction and mechanism you're contemplating be get there or is it just.
<unk> equity growth through earnings is going to get you naturally get you there over the coming years.
This is Nathan I would say, it's certainly something that we continue to talk about we do have as part of the consolidated debt we do have a.
Drawn the federal home loan bank, which if we felt like getting under that 15% threshold was important that that's really pre payable at any time for us.
So we haven't mechanisms a pretty quickly get under that 15 debt to cap threshold, but frankly haven't view that as a it's kind of a bright line that we need to get over but it's an active conversation with rating agencies and frankly, if we ever view. It does that then we will take action to do that relative to the other.
Debt outstanding.
No strong desire to reduce the overall that level at this time and part of that is driven by the market prices of that that you know that to 2060 threes trade and 130 upwards of 140 range. So you know well, it's something that we continue to evaluate I'd say that's more if there was a good opportunity for us.
I do that we would think about it versus something we feel like we need to do.
Got it thank you.
Thank you.
Our next question comes from the light of Arthur Winston from pilot Advisors. Your line is open. Please go ahead.
Good morning, following up on the last question. It is there any way to forced conversion of those 9% Junior <unk> conversant that are trading 131 40.
There is it involves the share price needs to be above a certain threshold that threshold is.
17.
17, 42nd missing or 40, Oh, yes. It varies now that we're paying the cash dividend on a quarterly basis.
Be forced conversion price will continue to adjust overtime.
But right now I mean, I think you think of mid Seventeens is the level at which we can force convert.
Thank you.
And there are no questions at this time please continue.
We appreciate everyone's interest in the company and look forward to a great 2020, thanks, everyone.
Ladies and gentlemen. This concludes today's conference call. Thank you all for participating you may now disconnect have a great. Thanks.
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