Q1 2021 Radian Group Inc Earnings Call
Welcome to the Radians first quarter 2021 earnings call. My name is Ian I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
Please note that this conference is being recorded I went on I'll turn the call over to John Damian Senior Vice President of Investor Relations. Mr. Damian you may begin.
Thank you and welcome to Radians first quarter 2021 conference call on.
Our press release, which contains radians financial results for the quarter was issued yesterday evening and is posted to the investors section of our website at Www Dot Radian Dot Com. This press release includes certain non-GAAP measures, which will be discussed during today's call, including adjusted.
Net pretax operating income adjusted diluted net operating income per share adjusted net operating return on equity and real estate adjusted EBITDA.
A complete description of these measures and the reconciliation to GAAP may be found in press release exhibits F and G and on the investors section of our website. In addition, our related non-GAAP measure real estate adjusted EBITDA margin is calculated by dividing real estate adjusted EBITDA by GAAP.
GAAP total revenue for the real estate segment.
This morning, you'll hear from Rick Thornberry, Radians, Chief Executive Officer, and Frank Hall, Chief Financial Officer also on hand for the Q&A portion of the call is Derek Brummer President of Radian mortgage due to the current environment. All of our speakers are remote I would ask that you. Please excuse any stay on quality.
Our technical issues that may arise during the call before we begin I would like to remind you that comments made during this call will include forward looking statements. These statements are based on current expectations estimates projections and assumptions that are subject to risks and uncertainties, which may cause actual results.
To differ materially for a discussion of these risks. Please review the cautionary statements regarding forward looking statements included in our earnings release and the risk factors included in our 2020 form 10-K, and subsequent reports filed with the SEC. These are also available on our website.
Now I would like to turn the call over to Rick.
Thank you John and good morning. Thank you all for joining us today and for your interest in radio.
The unprecedented pandemic environment continues in 2021, and we are encouraged by the continued signs of improvement in the overall economy as well as the positive momentum in the housing market.
Favorable credit trends within our portfolio.
Frank will discuss the details of our financial position shortly.
Well, let me first share a few highlights and insights from the first quarter.
We reported net income of $125 6 million or <unk> 64 per share.
Adjusted diluted net operating income per share was <unk> 68 cents.
We grew our book value per share by 9% year over year, we achieved this growth even after accounting for the $100 million on dividends that we return to stockholders over the past year.
For our mortgage segment, we remain focused on maximizing the economic value and the future earnings of our mortgage insurance portfolio during.
During the first quarter, we wrote $22 billion of high quality high volume New mortgage insurance business are attractive premium levels and our primary insurance in force was $238 9 billion at March 31.
I wanted to discuss a few important factors related to our mortgage insurance business on the first quarter, specifically the credit performance of our portfolio.
Mortgage insurance pricing landscape the changes in our insurance in force portfolio and the overall housing market.
In terms of the credit performance of our portfolio as we noted last quarter coming into the new year. We remained cautious about the continued economic uncertainty during.
During the first quarter of 2021 and most recently in April we've seen continuing improvement on the credit performance of our portfolio as evidenced by declining number of new defaults, which in April were below pre COVID-19 levels. In fact, the number of new defaults reported to US in April was one of the lowest that we've seen it on a monthly basis and more than.
On a decade.
Cure activity from the pandemic period defaults also continued April secured a new default ratio was 259%, which was the highest we've seen in more than 10 years.
Continued improvement on the credit performance of our portfolio is being driven by the improving economic environment continued strong economic support from the government support of homeowners are continuing forbearance programs on foreclosure moratoriums.
Strong and healthy housing market, which gives us greater confidence in their recovery path forward.
In terms of mortgage insurance pricing across the market. It's important to note that over the past three to six months, we've seen increased pricing volatility. We believe this volatility is likely driven by each of the mortgage insurance companies evolving perspectives related to the economic recovery and competitive.
Barbara.
As can be expected as we emerge from a period of significant economic uncertainty and transition to a more normalized competitive environment.
Arabian we've continue to make adjustments to our pricing to reflect the competitive landscape.
Our improved outlook regarding the economic environment overall.
Overall, we believe the industry is returning to a more consistent and stable pricing environment, and while we expect to see quarter to quarter market share volatility.
We also expect our future new business volume, so approximately a pro rata share of the overall overall market overtime.
With regards to our insurance in force, although the high volume of refinancings over the past 12 months as.
As a result of that a modest decline of our total portfolio year over year. It is important to note that the composition of our portfolio has gone through a favorable transition with our monthly premium insurance in force, which is the primary driver of our earned premiums growing by 9% year over year.
The economic value on the projected future earnings of our portfolio include. The addition of the high quality 'twenty 'twenty 2021 vintages, which represent 47% of our insurance in force as of.
March 31st Britain, as historically low interest rates, which should benefit future persistency. We expect these vintages to contribute significant earnings in future periods as our portfolio continues to generate attractive returns.
Overall, we believe the improving macroeconomic conditions and strong home purchase market fueled by first time homebuyers provides strong tailwind for growth on the value of our in force portfolio over the long term.
In terms of the overall housing market, we saw positive momentum continuing on the first quarter based on the latest data from our own Radian home price index over the first three months of 2021 continued strong housing demand and relatively limited supply in the market led to an annualized 9% increase.
And home prices across the country.
We expect the rate of home price appreciation on the moderate this year and we believe the combination of an improving economy strong housing dynamics in terms of demand and supply home values and mortgage underwriting relatively low mortgage interest rates and income growth are well aligned for a healthy.
Sustainable housing market.
Looking ahead, we expect vaccine progress and government support to sustain continued improvement in the economy and U S housing market and anticipate continued growth in home purchase activity and gradual reductions and refinances.
Current market projections for 2021, now estimate total mortgage originations to be approximately $3 five trillion, while the overall origination market is expected to be smaller as compared to 2020 as a result of that.
Climbing refinance volume there is consensus around the growing purchase market share, which is positive for our industry given the higher likelihood that purchased loans will utilize private mortgage insurance as compared to refinanced loans.
Based on these most recent origination projections, we've revised our estimates upward and now expect the private mortgage insurance market to be approximately 550 to 600 billion.
Which would be slightly lower than the record volume in 2020, but would still represent the second highest volume year in history.
For our real estate segment, despite a challenging pandemic environment total revenues for the first quarter were $25 $8 million, including a 56%.
Year over year increase in revenue for our title business consistent with recent periods. The operating loss in the real estate segment for the first quarter was primarily driven by slowdowns in our evaluation on Oreo businesses, resulting from the pandemic environment as well as our continued strategic investments across our title ended.
<unk> real estate businesses.
In terms of capital strength at.
At March 31, Radian group maintained a strong capital position with $1 3 billion of total holding company liquidity.
In April we continued to execute our aggregate manage and distribute mortgage insurance business, our focus on lowering the risk profile and a through the cycle volatility of the business, we executed our fifth mortgage insurance linked notes reinsurance transaction for $498 million.
Resulting in 78% of our risk in force being subject to some form of risk distribution.
Radian Guaranty's pmiers excess available assets grew to $1 $5 billion and if we include the April island transaction, the pro forma cushal increases to $1 9 billion or 64%.
As we announced we have increased our quarterly dividend of <unk> 14, a 12% increase over our prior quarterly dividend.
Turning to the regulatory and legislative landscape, we continue to see an unprecedented level of federal support and coordination easy economic burden of the pandemic.
Jumpstart a return to normalcy through vaccinations economic stimulus and varied various COVID-19 relief programs.
With respect to housing from the onset of the pandemic.
Administration Congress and various regulatory agencies in partnership with the overall mortgage industry.
Have been unified and helping to ensure a delinquent borrowers are able to remain in their homes and given every possible opportunity to become current on their mortgages. This hall and government support for homeownership throughout the pandemic has been a major factor in softening the impact on homeowners and the housing market.
And based on recent actions such as the one nine trillion dollar American rescue plan the extension of forbearance periods by on the GSE and the Cfpb's heightened focus on smoothing borrower transitions out of forbearance, we expect the support to continue for the foreseeable future. This is good for the economy and for whole low.
On our shipping given our strong alignment with borrower interest for the mortgage insurance industry as well.
We're also encouraged by the current administration's clear focus on addressing the issue of housing supply that has emerged as a primary obstacle to affordability and accessibility, especially for first time homeowners.
This is clearly evident in the President's infrastructure proposal, we believe the housing supply and demand dynamics also likely played into hubs recent decision not to reduce FHA premiums at this product.
It's worth noting that the federal response to housing throughout the pandemic is just another important example of how the housing finance system and our business model has fundamentally evolved and approved the lessons learned from past downturns that are now translating that to unprecedented levels of federal support for homeownership.
Another important factor that we believe will be a fundamental component for ensuring a sustainable housing finance system, where private mortgage insurance plays an important role.
Now I would like to turn the call over to Frank for details of our financial position.
Thank you Rick and good morning, everyone.
To recap our financial results issued last evening, we reported GAAP net income of $125 $6 million or <unk> 64 cents per diluted share for the first quarter of 2021 as compared to net income of 76 cents per diluted share in the fourth quarter of 2020.
And net income of 70 cents per diluted share in the first quarter of 2020.
Adjusted diluted net operating income was <unk> 68 per share in the first quarter of 2021 as compared to adjusted diluted net operating income per share of <unk> 69 in the fourth quarter of 2020 and adjusted diluted net operating income per share of <unk> 80 in the first quarter of 2020.
I'll now turn to the key drivers of our revenue.
As Rick mentioned earlier, our new insurance written was $20 $2 billion during the quarter compared to $29 $8 billion on the fourth quarter of 2020 and 16.
<unk> $16 $7 billion in the first quarter of 2020.
New insurance written for Refinances was 41% of total new insurance written for the first quarter of 2021, which was an increase relative to 35% in the fourth quarter of 2020 and 34% for the same quarter in the prior year.
Direct monthly and other recurring premium policies, where 90% of our new insurance written this quarter relatively flat from 91% for the fourth quarter of 2020, and an increase from the 81% for the first quarter a year ago, which also means that single premium policies were only 10% of our quarter.
New business down significantly from a year ago when single premium policies represented approximately 19% of first quarter 2020, New insurance written.
In total borrower paid policies were 99% of our new business for the first quarter as our intentional shift away from lender paid policies has continued.
Primary insurance in force decreased to 238 $9 billion at the end of the quarter as compared to $246 $1 billion in the fourth quarter of 2020 with a total year over year insurance in force decline of approximately 1%.
Our year over year decrease in primary insurance in force was primarily driven by sustained low persistency as well as servicer reconciliation activity in the second half of 2020, which resulted in the cancellation of single premium policies, representing approximately 2% of our total insurance in force.
It is important to note that monthly premium insurance in force, which drives a majority of our earned premiums has grown almost 9% year over year compared to an approximate 26% decline in single premium insurance in force the.
The decline in single premium insurance in force is positive as prepayments on our single premium business enhance realized returns as the life over which the single premium is recognized is shortened.
Our 12 month persistency rate of 57, 2% decreased from 61, 2% on the prior quarter and 75, 4% in the first quarter of 2020.
Our quarterly annualized persistency rate was 62, 5% this quarter, a slight increase from 64% in the fourth quarter of 2020, and a decrease from 76, 5% in the first quarter of 2020.
The year over year decline in quarterly annualized persistency is primarily driven by the continued high level of refinance activity during the current low mortgage rate environment.
Should this low rate environment continue it is expected that near term persistency will remain below our expected long term trends.
Moving now to our earned premiums.
Net premiums earned were 271 $9 million on the first quarter of 2021 compared to $302 $1 million in the fourth quarter of 2020 and $277 $4 million on the first quarter of 2020.
The decrease of 10% on a linked quarter basis was primarily driven by fourth quarter 2020 changes in accounting estimates, including $11 $3 million related to changes in present value estimates for initial premiums on monthly mortgage insurance policies that are deferred but not collected until cancellation.
And the impact of a line item reclassification related to our title insurance business recorded in the fourth quarter to adjust earlier periods in 2020.
Which increased net premiums earned and decreased services revenue by $7 $8 million. Further details are presented on exhibit E.
Slide 10 shows the mortgage insurance premium yield trend over the past five quarters, excluding the impact of the previously noted 11 $3 million adjustment in the fourth quarter.
Slide 10 has been expanded to show the impact of both our quota share reinsurance and our insurance linked notes on our net portfolio yield.
Our direct in force premium yield was 42 seven basis points this quarter compared to $42 eight basis points last quarter and 46, one basis points in the first quarter of 2020.
As noted in previous quarters, we expect our in force portfolio yield to continue to decline due to the difference in credit mix and associated premium rates of today's new insurance written relative to prior vintages.
Over the past two quarters. This decline in the in force yield was largely offset by the shift in our portfolio mix towards a higher percentage of monthly premium policies.
Timing and magnitude of future portfolio yield changes will continue to depend on several factors, including the volume mix and pricing of new business relative to volume and mix of cancellations and prepayments in our portfolio.
Our level of direct premium yield driven by single premium cancellations was six four basis points compared to $8 seven basis points on the fourth quarter of 2020, and four basis points of yield on the same quarter a year ago.
On a linked quarter basis, the decline in cancellations associated with our ongoing servicer reconciliation process is the primary driver of the decrease as this activity was not material in the first quarter of 2021.
With regard to pricing on new business, we remain focused on maximizing economic value and generating attractive risk adjusted returns, which we target at between 13% to 17% excluding the impact of insurance linked notes.
Real estate segment revenues were $25 $8 million for the first quarter of 2021, representing a 9% increase compared to $23 6 million for the fourth quarter of 2020, and a 3% decrease compared to $26 $5 million from the first quarter of <unk>.
2020.
Our reported real estate adjusted EBITDA for the first quarter of 2021 was a loss of $5 $9 million.
Compared to a loss of $7 million for the fourth quarter of 2020 and positive real estate adjusted EBITDA of $9 million for the first quarter of 2020.
The decrease in real estate adjusted EBITDA in the first quarter of 2021 compared to the first quarter of 2020 was primarily related to the negative impact of the COVID-19 pandemic on the operating environment for certain of our businesses and our continued strategic investment in growing our title in digital real estate.
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We have seen a notable increase in our title revenues year over year due to new customer acquisition.
It is because of our investments in this business that we were prepared to take advantage of increased customer on boarding demands in time to benefit from the recent refinance volume opportunity.
And finally, our investment income this quarter of $38 million was flat from the prior quarter and down 7% from the same quarter prior year due to lower investment yields which were partially offset by additional investment balances from underwriting cash flow and proceeds from our May 2020 senior debt.
Debt offering.
At quarter end the investment portfolio duration was approximately four five years down from $4 seven years in the prior quarter due to both portfolio reallocation and shorter duration on our recently purchased securities.
Moving now to our loss provision and credit quality.
As noted on slide 13, the mortgage provision for losses for the first quarter of 2021 was $45 9 million a decrease compared to $56 $3 million on the fourth quarter of 2020.
And an increase from $35 $2 million in the first quarter of 2020.
As shown on slide 14, we had approximately 12000, new defaults in the first quarter of 2021 compared to approximately 15000 in the fourth quarter of 2020.
And approximately 10000 in the first quarter of 2020.
In addition to the loss provision related to new defaults in the first quarter, we reported modest positive reserve development of $4 $5 million related to default originating prior to 2021.
We decreased the default to claim rate assumption on new defaults to 8.0% for the first quarter of 2021 compared to eight 5% in the fourth quarter of 2020.
For the first quarter of 2020, this assumption was seven 5%.
This reduction.
And the default to claim rate assumption for new defaults reported in the first quarter of 2021 was primarily driven by the continued improvement in recent months and certain economic indicators.
As shown on slide 16, approximately 67% of new defaults in the first quarter and approximately 75% of all defaults were reported to be in a COVID-19 related forbearance program as of March 31, 2021, we.
We have shared additional information on forbearance program mechanics related to these loans on webcast slide 16.
These forbearance programs are positive for our industry and for homeowners as they are intended to keep people in their homes through what is expected to be a temporary economic disruption.
I'll also note debt of our total defaulted loans over 95% of these loans are estimated to have at least 10% homeowners equity and over 75% of our defaulted loans have at least 20% homeowners equity using an index based valuation estimate.
This factor along with improving overall economic indicators, such as home price appreciation lower unemployment governmental support ongoing forbearance programs and having some ended on site for the COVID-19 environment helped make us cautiously optimistic about the ultimate claim levels and contributed to our decision to rich.
The default to claim rate assumptions for new defaults this quarter.
It is important to remember that our reserve estimate is based upon the best available information we have at the time, which includes both external economic metrics and the outcomes of our own proprietary models.
As we noted at the beginning of the pandemic our loss reserve is an estimate of future claim payments, which under normal circumstances will not be realized for several years.
Broad availability of mortgage forbearance options in 2020, and continuing into 2021 may serve to extend the timeline for claim development as such.
Absolute dollar level of reserves on our balance sheet may continue to grow despite any current or potentially ongoing improvements in our quarterly new default to claim rate.
Claim payments, which would reduce the reserve balance when paid.
Have been substantially reduced during the current foreclosure moratorium.
Any potential future assumption changes to prior period default to claim rates. However may cause the reserve balance to increase or decrease depending on the change on the assumption of the ultimate future claims for these older vintages.
As noted previously all reserve assumptions are evaluated each quarter and a robust and thoughtful process incorporating current information.
On slide 14, as noted approximately 70% of new defaults from the second quarter, 2020, and 63% of new defaults from the third quarter 2020 had cured as of the end of the first quarter.
As of April month end, the second quarter, and third quarter 2020, cumulative cure rates for new defaults and further increased to 74% and 68% respectively.
Last night's earnings release included an update for April operating statistics that showed a further decline in our primary default inventory is the number of new defaults in April was down 17% relative to March new defaults, while cure activity continued to exceed new defaults are April carrots, and new day.
Salt ratio was 259%.
Now turning to expenses.
Other operating expenses were $73 million in the first quarter of 2021 compared to $81 6 million in the fourth quarter of 2020 and $69 $1 million in the first quarter of 2020.
The decrease in the other operating expenses in the first quarter of 2021 compared to the fourth quarter of 2020 was primarily related to a $6 $9 million decrease in non operating items as well as a decrease in current quarter share based compensation expense, partially offset by.
A decrease in ceding commissions.
The increase in other operating expenses of 2% compared to prior year is consistent with a typical annual growth, including adjustments made during our annual employee compensation review process and was partially offset by a decrease in travel and entertainment expenses.
Moving now to taxes our.
Our overall effective tax rate for the first quarter of 2021 was 22, 1%.
The increase in our effective tax rate over the statutory rate for the first quarter was primarily due to permanent book to tax adjustments related to share based compensation.
Our annualized effective tax rate for 2021 before discrete items remains generally consistent with the statutory rate of 21%.
Now moving to capital and available liquidity.
As of the end of the first quarter of 2021, Radian Guaranty had P. Myers available assets of approximately $4 9 billion.
The excess available assets over minimum required assets was $1 5 billion, which represents a 42% pmiers cushion.
We have also noted on slide 19, our pmiers excess available resources on a consolidated basis of $2 7 billion, which if fully utilized represents 79% of our minimum required assets as of March 31 2021.
As of March 31, 2021, we have reduced radian guaranty's pmiers minimum required asset requirements by $1 $1 billion by distributing risk through both insurance linked notes reinsurance and other third party reinsurance arrangements as noted on press release exhibit L.
Subsequent to the end of the first quarter and April 2021, Radian Guaranty entered into its fifth fully collateralized mortgage insurance linked note reinsurance transaction in which the company obtained $497 $7 million of credit credit risk protection from <unk>.
<unk> 2021 dash one.
On the issuance of insurance linked notes by Eagle re and an unregistered private offering.
The impact of Radian Guaranty of this most recent I'll add is not reflected in our March 31 2021 results.
After consideration of the April <unk> transaction.
Our radiant guaranty's Pmiers cushion would have been approximately $1 9 billion or 64% above radian guaranty's minimum required assets.
Our reported cushion includes the benefit of the reduction in minimum required assets attributable to the 0.3 multiplier, which reduces the minimum required assets on applicable COVID-19 related delinquencies by 70%.
On a net basis. This benefit was approximately $580 million at March 31 2021.
We expect that the application of this multiplier will continue to materially reduce radian guaranty's minimum required assets for COVID-19, defaulted loans. However, the future impact to Radian Guaranty is expected to continue to diminish over time as the population of loans eligible for the multiplier diminishes.
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As a reminder.
This benefit has thus far peaked in the second quarter of 2020, when we received an approximate $1 billion reduction in minimum required assets.
For Radian group as of March 31, 2021, we maintained $1 billion of available liquidity.
Total liquidity, which includes the company's 267 $5 million credit facility was $1 $3 billion as of March 31 2021.
It is important to note that most of the cash flows of the parent company are funded by long established regulator approved expense interest and tax sharing agreements with its subsidiaries and not through dividends from subsidiaries.
This provides us with an enhanced level of certainty and predictability in parent company cash flows and reduces the impact of recent dividend restrictions placed on mortgage insurers by the GSE.
Radian remains committed to managing excess capital in a responsible manner in light of the economic landscape.
We have a strong history of taking thoughtful prudent and shareholder friendly actions and managing our sources and uses of capital.
We resumed our share repurchase program during March of this year, which had been temporarily suspended beginning in March 2020 in response to the COVID-19 pandemic.
We purchased approximately $8 $6 million or 413000 shares during the quarter at an average share price of $20 91.
Under our new <unk> one plan.
As of the end of the first quarter 2021, we have approximately $190 million of remaining repurchase authorization, which expires on August 31 of this year.
Our current <unk> one program remains in effect today.
We have also continued to pay a dividend to common shareholders throughout the pandemic, including during the first quarter of 2021, as we returned approximately $25 million to shareholders during the quarter.
Additionally, as was announced prior to this call we are increasing our quarterly dividend, 12% to 14 <unk> per share.
As a further sign of our confidence in the financial strength of Radian and our optimism about the path forward.
The combination of dividend payments and share repurchase represent a return of capital of approximately 25% of our after tax operating income for the quarter.
And lastly, both Fitch and standard <unk> Poor's have affirmed our credit ratings and have revised our outlook to stable.
Given our capital strength and financial flexibility, we believe that we are well positioned to support our business objectives and deliver value to our shareholders.
I will now turn the call back over to Rick.
Thank you Frank before we open the call to your questions. Let me highlight for you that we increased book value per share by 9% year over year and maintained a strong capital position with $1 3 billion of total holding company liquidity at Radian Guaranty's Pmiers excess available.
Assets grew to $1 $5 billion, we are seeing signs of continuing improvement in the overall economy and in the credit performance of our portfolio.
Based on this improved outlook in March we resumed our share repurchase program that was suspended temporarily last year on response to the pandemic and we are.
Announced an increase on our quarterly dividend and importantly, our business model continues to demonstrate that through the cycle resiliency. We in the overall mortgage market has been building since the last financial crisis.
Additionally, we look forward to hosting a virtual real estate segment on Investor Day on June <unk>, where we will share more details about our plans for these businesses, including our upcoming launches so high.
Highly innovative digital products and services across our title and real estate platforms.
And most importantly, I want to thank our amazing team, who has shown commitment to our customers our company to each other as we have worked together to successfully navigate this challenging environment I am very proud of the entire team.
Now operator, we would be happy to take questions.
Thank you if you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign are the hash key.
On today's speaker phone you may need to pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then one on your Touchtone phone.
Our first question comes from Mark Devries from Barclays. Please go ahead.
Yes. Thank you.
It looks like market share shifted around a fair amount this quarter and <unk> could you just talk about you know and it looks like you guys lost some share went on on IW down quarter over quarter can you just talk about what might have caused that or are there certain pockets of risk you might have stepped away from or or what.
Are there some chunkier pieces of business from some of the larger non bank originators that you might have missed out on.
And I think Mark this is Derek so look in terms of market share movement, it's not really a mystery. These days in terms on what Brian that's really just a relative pricing in the industry. So when you see on mortgage insurance company picking up share. It's generally driven by the fact that they just lowered pricing relative to peers.
Now we've talked about in the past on constantly adjusting our pricing kind of figuring out the best path to optimize economic value and so you typically see I would say more minor market share movements quarter to quarter now when you see large market share movements on a quarter over quarter basis traditionally that's really been driven.
By a shifting in forward bulk bid volume so yeah, one of my company wins on one quarter lucid another a quarter now that's not the driver for us. So when you look at our movement Q4 on at Q1, we don't have forward bump add volume in our Q4 volume to lose in Q1, what we saw that was a bit different desk.
Warner is we saw a relatively large market share movements actually within the industry. So called black box pricing engines and for us on radar rates and so when you see larger movements within the pricing engine. That's generally not a function of I would say the typical price adjustments, where you have different companies calibrating.
Certainly their segments generally the driver there is you'd have on competitor that would have done more I would say broad price reductions within their engine now that being said what we are seeing now are kind of signs of stabilization from a price perspective, and certainly well, we see battles on rate settling.
Now, we still see very strong returns and great value overall.
The other thing to keep in mind just.
About our strategic approach, we've certainly been in on.
Era of increased price volatility. So you had COVID-19 occur you had EMI companies raised at a price that had been lowering them throughout the year an environment like that it's typical that we would lose some share because strategically we're not going to be a price leader downwards in terms of price, but we are going to be quicker net raised prices when we see.
Our risk off cycle.
That being said, it's important to kind of step back now because while you are going to have that kind of some distribution and market share that'll move quarter to quarter. As you think about the industry in the long term, we expect that would settle out generally to a pro rata distribution and again, you'll kind of be above that allow it in certain quarters. Our focus continues.
Used to be really on long term economic value. So we're constantly trying to calibrate our pricing defined market clearing levels that we think optimize the long term economic value.
That being said kind of where the industry is right now it's important to keep in mind too just the extremely strong economic and housing tailwind and just a very large overall market. So market share will be up and down in certain corridors, but long term big market generally probably everyone's going to get their pro rata share on the long term.
Okay. That's very helpful color and then on a related topic I mean, I think you know.
The insurance in force was down.
Quarter over quarter, and obviously part of that was the share loss on the on IW I think another part of that is is just.
You guys have pulled back.
From from singles relative to what you've done a couple of years ago.
What point would you expect kind of the headwind to insurance in force growth.
From the run off of your singles booked.
Start to fade.
Hi, Mark this is Rick.
And I think first off I. Appreciate the question on insurance in force I think what we've seen occur Reese.
Recently over the last few quarters is really favorable transition, sometimes we think changes in insurance in force of decline might be.
<unk> negative, but as we've gone through this process this past year through a pretty high on the accelerated refinance volume.
We've really seen the construct of our portfolio change dramatically in terms of what's actually happening behind the scenes. So I think as we've highlighted we've seen them. Luckily book of business grew by 9% year over year, We've seen singles group declined by 26% probably more importantly to your point the lenders.
Lender paid singles book is now at 42% year over year.
It's a tremendous transition those are both good trends right because growing on what they book of business. During the 2020 in 2021 vintages at low.
Interest rates high quality.
As I said in my opening remarks, that's a positive trend the singles acceleration actually acts a little bit as a hedge on our business because as refinances accelerated we saw an acceleration of earned revenue, which obviously on those policies improves the return it reduces the extension.
Scope single premium and so as we've said for the last few years, we've kind of.
Pulled back away were lender paid singles, which kind of the greatest extension risk and greatest cost of capital, we've kind of pulled back materially but that portfolio has kind of accelerated that we've earned earn the return is probably higher than anticipated levels. So let down on a positive transition on our portfolio how that plays out going forward.
I think it's still somewhat dependent upon.
The refinance volume in the marketplace.
Think are over the mid term COVID-19.
<unk>, we expect refinances to slow down in persistency to increase what happens.
Next quarter or two I think it's likely to be somewhat volatile.
<unk> will play through it but I think longer term as you see refinances decline, we would expect that persistency to return to kind of the longer term levels is there a highlight on that there are strong tailwind as in the origination in terms of a strong purchase market high quality, sorry on housing market, obviously and I think.
That really positions us well to kind of use as well.
Refinances subtle down and use that strong.
Whole home purchase market to build and grow the value of our insurance in force. So I think we feel very good about the transition that's been made and we are.
We're very bullish.
Bullish on the prospects for related to growing the value of the portfolio.
Okay, great. Thank you.
And there are two questions.
Comes from Doug Harter from Credit Suisse. Please go ahead.
Thanks.
Maybe you could help us on the potential sizing of of the share repurchase you know just a little bit more detail around kind of kind of when you turn the share repurchase program back on.
In March and you know kind of given the moving the stock today I guess, however, you might be thinking about opportunistic purchases.
Sure. This is Frank yes, so as you noted we did.
We did re instituted new can be five one plan in March of this year so late in the quarter.
So the number of shares that you.
Loss repurchase represents only one month of repurchase activity.
Buyback program program similar to the ones previously our value based approach.
And so.
So that is something that we've we remain committed to.
And it's been very successful for us in the past.
We have $190 million remaining in our current authorization that expires on August 31 of this year.
So we'll keep you posted each quarter.
With the repurchase activity that we see in the quarter.
And then also what.
What remains on the authorization on what future planes, maybe around capital returns.
Great and then I know you mentioned in your prepared remarks.
The average price.
Price of shares during during March.
$20 91.
Great. Thank you.
And our next question comes from Mihir Bhatia from Bank of America. Please go ahead.
Hi, Thank you for taking my question, maybe just a first question wanted to ask where do we go back to Mark's questions on and I don't view, it and I guess just from your perspective I wanted to see.
The $20 billion and <unk> was purely on.
A little bit below what a lot of talk at least I was expecting.
Maybe you can just talk about how what was it relative to just your own expectations. How do you view that are you happy with it or does that is that something that you would look at as your peers report and think about changes to either pricing or talking about talking to your sales force or what have you.
Oh, sorry on that this is derrick yeah.
Of that we're certainly happy with the overall volume that goes back to you with a large market and very strong tailwind. So the way we kind of look at it in terms of what others are doing it again, just looking for relative value. So again pricing in terms of the market is going to shake out on that pro rata level and what we're kind of looking for is the mark.
I kind of reaching I would say a stabilization point from a pricing perspective so.
What you would typically expect to see you see a price increase and then.
Everyone's kind of coming back down. The question is kind of where are you stabilize out and thats. What I indicated we're starting to see some signs of stabilization with respect to that its always kind of hard to time that and to that point earlier is it more on kind of in a downward pricing cycle, which is again I think adjusting to it has the improved economic condition, where probably not that it would be low.
Moving that downward will be kind of following and Recalibrating pricing importantly, accordingly, and then as you kind of reach more of an equilibrium point and get back to that pro rata distribution. That's what our strategy really comes into the fold in terms of finding the highest values on kind of within that the equilibrium pricing and so that's kind of I think what are we.
Shifted due in terms of the cycle. So over time again, I would expect that to kind of market share in yen debt, probably stable stabilize out towards more of a pro rata share long term.
Got it no that's.
Helpful. Thank you if I could maybe asked about return than just a couple of quick ones on that the first one is just has the return expectation from the business changed compared relative to your mid teens to a FIFO loss.
Pricing algorithm. If you will is that still the case here.
Yeah, maybe price changes on loading.
Go ahead Sir.
Now we feel good about those kind of target return levels.
So we really haven't seen any shift with respect to that and overall again as I indicated we see strong value on the market. It really is a matter of just a relative value play so as we're putting on our capital to work. We've always said, we're looking kind of for the highest value segment of the market. So we're constantly calibrating pricing some on some down and as were doing that and trying to.
Find those spots and youre going to see some market share moves with respect to that I think again when you are more volatile pricing cycle, which I think we're just coming out of as youre dealing calibrating. Other competitors are doing kind of broader shifts kind of down on pricing that can.
I would say lead to more significant shifts in market share and Thats might've been what we saw this quarter.
Got it thank you.
And then I guess just one last question for me.
Terms of returns Rick you mentioned that.
7% I think on your book was written and the loss in 2020 in 'twenty. One when you generally had higher pricing better prices low interest rates. So if the economy continues to improve as we all expect is it reasonable for us to expect above average returns for like almost half your book.
Given that it was you know the way pricing was done on that.
Book.
Am I overthinking that.
Yes, I think but here. Thanks for the question I think look we I would I would add to derek's earlier comments to say look as we were slower to kind of lead pricing down as we come out of this transition. Obviously the result of that is that our volume is attracting higher premium levels and as we see economic.
Coverage.
Forward it should speak well to the returns on that book of business.
So as we as we look at the transition has gone through on our insurance in force to really be.
Almost half almost half certainly over half I think of our monthly book of business, but almost half of our entire book of business has been originated in the last 12 months at these rates are at these pricing levels I think that does speak well for the future, especially as we see the economy I guess, we're not hearing loss provide kind of a forward outlook.
But I think the assumption.
As we see this economic recovery those books will perform better than originally anticipated it is probably a reasonable assumption.
Okay. Thank you for taking my questions.
And our next question comes from Randy Binner from B Riley. Please go ahead.
Hey, good morning, Thanks, I missed shift away from this this pricing commentary a little bit and I wanted to ask one about persistency.
So on the kind of annualized figure that.
You all communicate.
It looks maybe like persistence is bouncing along the bottom.
So that looks better than I would've expected sort of question. In there is is it is it stabilizing or is it still going to be volatile and down.
Is it possible that.
This kind of persistent fee shift if you will with this housing market could be different than what we've seen in the past and so what I mean by that is.
On your refi activity.
Precision youre kind of offsetting factors in the model, but you just have an incredibly strong housing market right now and so I'm just wondering if there might be anything different in the way persistence is acting.
Time around and if we should plan on to continue to be kind of low and volatile.
Sure Randy this is Frank yeah.
Yeah on persistency, I mean, thats largely going to be driven by refinance activity and and that of course is impacted by the rate environment. So to the extent, we've seen the bottom of rates.
Rates from a from a mortgage rate.
Perspective.
Thank you should expect to see that persistency number would come up to more natural longer term levels than that.
On the high <unk> low <unk>.
Type of level now that's.
Call It a normalized.
Stable on slightly increasing rate environment.
But yes, I would agree with you that as those rates level out and maybe increase a little bit debt is net positive for our persistency.
Yeah.
I guess the difference between this time around and before other cycles like this would be I think.
<unk>, just as a product I mean, I understand it's a function on rates.
But there is a lot more.
There's a lot more entities out there pushing refi.
I think there's just generally kind of more <unk>.
Interest in the housing market from consumer so is there I.
If the answer is you think this will go to a historical trend and shorter.
That's understood, but is it possible that because of all the push out there for refi and a generally hot.
Housing market that you could see persistency to continue to be more volatile perhaps on we've seen a more traditional.
Refi cycles.
Yeah.
It's a great question I think Randy what I've done it on this mortgage industry for over 30 years and I have to tell you quite honestly on the receipt in the mortgage industry, Mr refinance opportunity, whether it's brokers, whether its originators, whether it's large banks. So I don't know that today is the reward any different from the past we may be able to lever.
Richard other technologies, but it still comes down to the consumers ability and willingness to exercise the option, but I think historically, there's always been aggressively push push for refinances when theyre in the money and I think we've seen that through this cycle and again I think.
It's all going to be based upon how interest rates on a relative to the current outstanding mortgage book in the U S.
Obviously rates have come up we've seen.
That will have some impact, but how that plays out over the future I think we will have the greatest determinant on refinances versus whether there is more or less focus from a mortgage industry point of view, there are new and different players.
But having been on this business forever and refinance cycles I think ultimately, it's a capacity issue and we've seen many of the refinance.
Pipelines expand out.
Now well in excess of normal periods for closing so I think we're still seeing some of that come through.
I think its ultimately going to be driven by interest rates and where borrowers are in the money from a option to refinance and that'll obviously be driven by the level of mortgage rates. So hard to predict how it plays out I think it's going to be volatile.
In the near term and.
Over the long term debt.
Upon where rates settle out.
Alright, I appreciate that thanks.
Yeah.
And our next question comes from Bose George from <unk>. Please go ahead.
Yes, good morning.
I don't mean to beat a dead horse here on the price and stuff, but just wanted to go back to that a couple of questions one.
<unk> bid market has that remained fairly stable in terms of the size versus the overall market just wanted to see that impacting the share shifts at all.
And then on the pricing.
To summarize is it fair to say that what's going on is that the industry is giving back a lot of the post COVID-19 increases given credit is normalized you haven't quite gotten there yet.
As you do the pro rata share so it kind of come back to you.
Yeah. So I think on that first question I think it is pretty stable in terms of the size of the forward bulk bid.
Business. So I don't think we've seen on significant shifts in terms of that so I'll, let you see movements between that my company, that's maybe not on a much different volume sometimes the volume can shift just because those lenders that do that might be picking up volume relative to other originators is probably the best way and then in terms of the pricing I think it is.
Generally a fair summation, what you've had in terms of just you know.
Giving back kind of previous increases and as again and that's why I kind of referred to that equilibrium point you kind of.
At certain point, where theres a little more stability I think we were kind of in that day, it's probably going to end debt COVID-19 and I would say you tended to see pretty stable kind of market share numbers in the black box pricing engine used LLC.
At that point the shift in net forward bulk bid volume, but that's what we would expect to kind of see more on a return and hope to see more of a return to that kind of more stabilized pricing environment and then youre right you would see everyone kind of move around more of a pro rata distribution.
Okay, great. Thanks, and then actually just switching over to the capital return.
As noted you've got Atlanta capital at the holding company, which.
Puts you in a good position relative to <unk>, given the FHFA restrictions still on dividend.
Up to the Hong Kong.
I was just curious like is there any sort of balancing out there or could you aggressively buy back shares wildly.
While there is sort of just ongoing restriction.
From the insurance company.
Yeah Bose this is Frank.
Yeah.
The point that we emphasize here is that we have managed our capital and liquidity in such a way that we have all the optionality that we need that is consistent with our strategic plan and our capital Management, Inc.
<unk> so.
The dividend restriction from the operating company to the parent company really doesn't factor into any aspect.
How we're running the business and so I think that puts us in a very fortunate position.
Position.
Certainly enables us to continue with our with our capital plans accordingly.
Okay, great. Thanks.
And our next question comes from Ryan Gilbert from BP <unk>. Please go ahead.
Hi, Thanks, everyone I appreciate your time on.
My first question is around a single premium policies.
You discussed it earlier, but I'm wondering if you have a target for on.
The percentage of your total insurance in force you would like on <unk>.
Premium policies to be and as.
As debt as the percentage of.
Of your insurance in force that single premium shrinks, when youre thinking about future <unk> programs.
Does it make sense to move to a more traditional <unk> versus the single premium kyocera, which you've done in the past.
Yeah. This is Eric so we don't have a target and generally our approach since we're looking at relative value. We're looking at relative returns and those are going to share depending upon our economic projections. So.
Singles on monthly user than they have different sensitivities to things like interest rates on that as an important component, but arguably even more important component you just have to flare the competitive pricing as did the extent that we see relative value moving in singles versus monthly as you would expect to see our relative share there and vice versa. So we're not <unk>.
Taking to a particular percentage of volume.
In terms of risk distribution structures, Yeah, we would we're open to different structures in terms of optimizing kind of on a return on capital and our risk position and so even in our most recent Ireland transaction also running singles production through there as well.
So in the future it could be that we would change our reinsurance as well, but again, what we're going to look at on all of those structures on a kind of the relative efficiency and pricing for the risk distribution structure and those also can vary depending upon whether you are distributing singles on my please so kind of non uneasy.
Answer it sort of depends.
Okay, and just as a follow up has there been any meaningful change in the return profile.
Vs monthly over the last few months.
No overall I don't think there has been change in terms of return profile I think generally with the improving economy and we kind of talked about this earlier as we look at the business and the expectation from the economic outlook.
The returns all things being equal.
Margin improvement I think that's kind of would be across the board.
Okay got it on second question for me on.
On your real estate services business.
I'm wondering how you're thinking about growing that business organically versus using M&A to accelerate.
Your strategic plan there.
Yes, Ryan this is Rick so I appreciate the question.
We are obviously focused on building through organic growth, we always we do keep up.
A watchful eye towards acquisition opportunities.
Frank and John and I and the team we look at acquisitions price.
It's been quite an active pipeline recently.
We don't see a lot of value truthfully, and many things that we look out there either over valued or maybe over appreciated.
So I think from a business strategy point of view, we're focused on the organic growth.
On June 10th.
So my my opening comments, we're going to provide our real estate segment kind of Investor day, and really kind of walked everybody through.
How we see that business.
Kind of on the opportunity we see.
On the interesting technologies and products and services that we have launched and are on launching kind of going forward. So what kind of on pull back the curtain on the business a little bit more because we do think of it as.
On a value kind of a group.
Value driven business.
But I'd say today, the organic growth on our title business is actually.
Accelerating with the addition of several new customers and these are large I'll call on Blue chip type customers, which is starting to grow the revenues on that as Frank said, we've been making the investments to enable the on boarding of those clients. So the organic growth of that business is accelerating.
Our mortgage insurance relationships matter there.
An important element of us expanding our relationships I think we're also very excited about the investments, we're making across our digital title business on arm or real estate digital real estate businesses and our software as a service businesses again, which we'll talk more about on return, but I think as we sit here.
Today, we're going to build a business on an organic it is accumulation of acquisitions already but our focus is really on organic growth that we saw attractive opportunities from an acquisition point of view that were highly accretive.
And we thought strategically valuable to the overall picture, we certainly would consider it but today, it's not it's a focus on growing these businesses organically and we're on.
Actually we can see the development of these businesses.
Moving to come together and we're very excited about it and again.
Look forward to kind of walking through this on June 10th.
Okay, great. Thanks very much.
Thank you.
And our next question comes from Phil Stefano from Deutsche Bank. Please go ahead.
Yeah, Thanks, and good morning.
Just a few quick ones to start.
Frank You had mentioned that the <unk> was put in place in March can you put a finer point on that is that early mid late.
Sure It was early.
Okay fantastic.
I think one of the prepared remarks comments you had mentioned that there was favorable development was from defaults. Prior to 2021 was there any of that from the the COVID-19 defaults of 2020.
No.
Okay.
Other operating expenses had a slight benefit from TNT is there any way you can frame for us.
The extent of that benefit in thinking about how quickly it might come back as the.
The World Reopens.
You know I won't I won't put a fine point on it.
For you, but over the course of a year of normal year, you know it's a.
It's a few million dollars and we'll see how that comes back online I would also.
Say fill that.
And what we've learned in the COVID-19 environment is quite a bit about what it takes to operate the business and so.
We would expect to see some.
Some permanent games inefficiency, perhaps as we evaluate our travel and entertainment.
On a go forward basis, so I wouldn't want to calibrate it back to pre COVID-19 levels, but I also wouldn't want to put a finer point on it for you.
That makes sense I think that's enough to think about it and so on the last one is it.
That I have for you is on the real estate segment.
How should we be thinking about the expenses here it feels like the past couple of quarters expenses have been relatively flat and that's the revenue that has kind of fluctuated.
Is that the right way to think about this as we're building the investments in getting this ready for the next the next wave of the real estate segment lifecycle.
Yes, Phil Thank you.
I would say look the revenue I'll give you both the revenue and the expense side. So the revenue.
Volatility has really been driven by two things one is our title revenues growing more or less offset by a decline in kind of the Oreo business over the past year because of the foreclosure moratoriums out obviously that all REO business.
I'll make some come back in the future as these moratoriums are lifted we've also seen kind of a little bit more of a.
Slowdown in some of the valuation aspects of the business specifically related to us so far been a little bit.
Chunky at times, but I would say overall, that's the trade on the revenue side on the expense side.
So we do continue to carry some of the expenses related to those businesses that have been impact from a revenue point of view. We're also growing our title business to be prepared on board. Some very large clients. So I just gave you.
I think yesterday's volume on our title business was the largest suffered I think.
Turning to new orders point of view, we've seen continued record breaking levels as we onboard new clients.
Existing relationships. So we've been stopped on the hard.
To be in a position to on overdue, we go through the training cycle.
And so forth. So I think we're part of the expense buildup is that staffing ahead of these anticipated client onboarding.
Category is really related to the significant investment, we're making on the digital platforms across both our titles and our real estate.
We are building.
A very new and different type titled platform that we'll talk more about it in June.
That we are well into the summer I think it'll be very elevated to the market. As we said we're not building on the title business from the path to building for the future across our real estate business, we continue to invest in the data.
The analytics around our real estate information and the software as a service platform. So we have around valuation is on transactions. So we're making the investments that you can think of it like on like.
We can say it.
We'll make a startup investments on these businesses, but we are making the investments towards what we see is on.
Future.
We do see the recruiting ahead of earnings and then as I said last quarter, we don't see vs. In the near term moving EPS. We do see value ahead of earnings and I think some of the market comps that we've seen over the last few quarters.
Fintech product.
Titled what businesses are.
Quite popular today.
Thus, we are making towards a digital future. In these businesses is something that is a very value driven and we look forward to.
Talked more about it on June 10th.
Thanks, I'm looking forward to it.
Yeah. Thank you flow.
So you have no further questions at this time I will turn it over to Rick Thornberry for any closing remarks.
Thank you and I want to thank everybody for your interest in Radian and joining us today and your great questions I look forward to either meeting with you virtually or seeing you soon depending upon how all things transition, but again. Thank you for all I want to thank our team at Radian for all they're doing to serve our customers.
And it really worked well as a team across our organization and I look forward for the next time that we have an opportunity to talk about our business and I hope everybody stays well be safe take care.
Thank you ladies and gentlemen that concludes today's conference. Thank you for participating you may now disconnect.
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