Q2 2021 Essent Group Ltd Earnings Call
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Good day and thank you for standing by welcome to day Essent Group Ltd second quarter earnings call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone.
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I would like to hand, the conference over to your first speaker today, Chris Curran Senior Vice President of Investor Relations you may begin Sir.
Thank you Brian Good morning, everyone and welcome to our call. Joining me today are mark to sell chairman and CEO and Larry Mckelvey, Chief Financial Officer.
Our press release, which contains essence financial results for the second quarter 2021 was issued earlier today and is available on our website at Essent group Dot com.
Prior to getting started I would like to remind participants that today's discussions are being.
Courted and will include the use of 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 and uncertainties. Please review the cautionary language regarding forward looking statements in today's press release the risk factors included in our form 10-K filed with the SEC on February 26, 2021, and any other reports and registration statements filed with the SEC, which are also available on our web.
Now, let me turn the call over to Mark.
Thanks, Chris and good morning, everyone. Today, we are pleased to report our second quarter earnings, which exhibited strong performance and capital generation our results for the quarter reflect a favorable operating environment as credit continues to normalize and housing demand remains elevated the economic engine of our business remains firmly in place as our high quality earnings.
<unk> cash flow for the quarter demonstrate the strengths of our buy manage and distribute operating model.
Our outlook on our business remains positive as the underlying fundamentals of housing are strong and we continue to make solid progress on the next generation of our Essent edge technology.
On the housing front strong millennial demand and historically low rates continued to provide positive underpinnings.
As for Essent edge, we continued to enhance its utility by combining increased amounts of data with the use of artificial intelligence based models. We believe this capability will be a long term advantage in pricing and managing credit risk.
Now, let me touch on our results for the second quarter, We reported net reported net income of $160 million as compared to $136 million last quarter on.
On a diluted per share basis, we earned $1.42 for the second quarter compared to $1.21 last quarter and our annualized return on average equity for the second quarter was 16%.
At June 30th our insurance in force was $204 billion, a 17% increase compared to $175 billion as of the second quarter a year ago. The.
The credit quality of our second quarter Niwa was strong with a weighted average FICO of 744, and our loan to value ratio of 92%.
Also we continue to be pleased with credit performance as our default rate at June 30 was 296% compared to 3.7% last quarter and $5.1 9% at the end of the second quarter a year ago.
On the business front, we continue to focus on optimizing our unit economics.
The more tangible aspects of this include using islands to minimize loss volatility and ceding more business to Essent re we also continue to invest in technology related initiatives a platform like ours is technologically intensive as we need to seamlessly deliver pricing and services to thousands of customers low located throughout the us.
Yes.
For example, we are nearing completion of migrating our platform to the cloud, which provides more data storage processing and computing power. This enables us to deliver our edge technology more efficiently given the need to quickly analyze large amounts of data from a variety of sources and combined with machine learning techniques. We believe that this will benefit.
Unit economics over time, and optimizing premium levels and credit cost.
In fact, we also believe that customer efficiencies of using edge will deliver our best price to borrowers and challenge the industry practice of using the cash negotiated rate cards.
At June 30, our balance sheet and capital are strong with over $4 billion in GAAP equity access to $2.4 billion in excess of loss reinsurance and over $800 million of available liquidity at the holding company. We are well positioned our most recent <unk> transaction was our largest to date where we.
We obtained $558 million of reinsurance through the capital markets.
Also essent guaranty remains the highest rated mono line in our industry at single a by a M best and Ace III and Triple B, plus by Moodys and S&P, respectively.
We remain pleased with our base business, which is in earnings and cash flow engine during positive economic environments for.
For example for the first half of the year, our operating margin was 73% and we generated $340 million in operating cash flow.
Given the use of reinsurance, which enhances the sustainability of our business. There is more certainty in the earnings power and capital generation of our franchise.
While our practice has been to retain cash and invest the strength of our business model enables a measured deployment of excess capital amongst the business strategic investments and shareholders. We will continue to be thoughtful in deploying excess capital in doing what we believe is in the best long term interest of the Essent franchise and our shareholders.
Finally, given our financial performance during the second quarter I am pleased to announce that our board has approved a <unk> <unk> per share increase in our dividend to <unk> 18.
Also in connection with our $250 million repurchase plan, we have bought back approximately 400000 shares for a total of $18 million as of June 30th.
Similar to dividends repurchasing repurchasing shares is a tangible demonstration of the benefits of our model and generating capital. It also provides further balance and deploying excess capital between the businesses and redistribution to shareholders now let me turn the call over to Larry.
Thanks, Mark and good morning, everyone I will now discuss our results for the quarter in more detail for.
For the second quarter, we earned $1.42 per diluted share compared to $1 and 21 last quarter and 15 in the second quarter a year ago.
Our updated estimate of the annualized effective tax rate for the full year 2021 and 16% for.
For consideration of discrete tax items.
As a result, the tax rate for the second quarter was 16, 1%.
We ended the quarter with insurance in force of $204 billion.
A 3% increase compared to 197 billion at March 31.
And a 17% increase compared to 175 billion.
At June 32020.
Net earned premiums for the second quarter of 2021 was $217 million and includes $13.3 million of premiums earned by Essent re on our third party business the.
The average net premium rate for just the U S mortgage insurance business in the second quarter was 41 basis points down from 42 basis points in the first quarter.
Persistency increased during the quarter to 58, 3% at June 32021.
From 56, 1% at March 31, 2021.
The provision for losses and loss adjustment expenses in the second quarter was $10 million compared to $32 million last quarter.
The provision for losses in the second quarter benefited from a decline in new notices of default in higher cure activity.
During the second quarter, we received for 930 for new default notices which is down 34% compared to 7422 defaults reported in the first quarter.
At June 30th our default rate decreased to 296% from 3.7% at March 31.
Consistent with the fourth quarter of 2020 in the first quarter of 2021, we have reserve for new defaults reported in the second quarter of 2021, using our pre COVID-19 reserve methodology.
As a reminder, for new defaults reported in the second and third quarters of 2020, we provided reserves using a 7% claim rate assumption.
This assumption was based on the expectation that programs such as the federal stimulus for closure moratoriums and mortgage forbearance may extend traditional default to claim timelines and resulting claim rates lower than our historical experience.
We have not adjusted these reserves previously recorded in the second and third quarters of 2020, which totaled $244 million as they continue to represent our best estimate of the ultimate losses associated with these defaults.
Other underwriting and operating expenses in the second quarter for $41 million compared to $42 million from the first quarter.
We continue to estimate that other underwriting and operating expenses will be in the range of $170 million to $175 million for the full year 2021.
Essent Group Ltd paid a quarterly cash dividend totaling $19.1 million to shareholders in June and repurchased $18.4 million of stock <unk>.
Additionally, during the second quarter, Essent Guaranty paid a $100 million dividend Essent U S holdings.
On June 23rd we closed the Radnor re insurance linked note transaction, which provides $558 million of reinsurance protection on approximately $14 billion of risk in force.
This transaction pertains to risk.
On our new insurance written from August 2020 through March 2021, including the portion of risk written from August 2020 through December 2020, which was not covered previously by our quota share reinsurance agreement.
From a <unk> perspective after applying the <unk> 3 factor for COVID-19, defaults Essent Guaranty's Pmiers sufficiency ratio was strong at 174% with $1.3 billion in excess available assets.
Excluding the <unk> 3 factor our Pmiers sufficiency ratio remained strong at 163% with $1.2 billion in excess available assets now let me turn the call back over to Mark Thanks, Larry and closing we were pleased with our performance for the second quarter as we produced strong earnings and generated excess capital are.
Buy manage and distribute model is operating on all cylinders and confidence in our economic engine as high combined with a strong housing environment our outlook on our business has positive. Finally, we are excited about the progress that we're making with the next generation of Essent edge and its potential to be a game changer in evaluating and pricing credit risk. We continue to believe the combined.
AI with large quantities of data is where the financial services industry is moving and we want essent to be at the forefront of US now, let's get to your questions operator.
As a reminder, ladies and gentlemen, if you wish to ask a question you may do so by pressing star followed by the number 1 on your telephone keypad again Thats star 1 to ask a question.
First question, we have Mark Devries with Barclays.
Thanks.
Mark where are you seeing the most attractive places to deploy your excess capital today and what do you need to see don't want to get more aggressive repurchasing the stock.
Hey, Mark I think.
It's a number of things taken a step back I think as we talked about last quarter.
And then again in the transcript I think it's a measured approach around let's call it capital allocation.
We are still investing.
Capital into the business, we grew 17% year over year, which requires capital we're making some strategic investments in the ventures are part of the funds that we talked about albeit a small amount and we've increased the dividend, which is 1 way to return capital to shareholders and we announced.
The buyback, we just announced it last may.
Numbers were through June I think in his transcript and as the other day, we looked at it we've repurchased $50 million. So we're well on our way there. So I don't think it's anything particular that we're looking at Mark I think it's continue these businesses don't get.
We come in front of you guys every 90 days, but we have a much longer term perspective in terms of in terms of how we allocate the capital. So again I think we're going to keep on this approach and continue to look for opportunities again, both within the business outside of the business and obviously continuing to return cash.
Total to shareholders, it's a little bit of the best of both world. So we're pretty excited about the optionality that we have around around capital at this point.
Okay.
For.
And next question what percentage of the business is still coming.
From the rate card and for those lenders that haven't moved to the pricing engines, what's what's behind that is it still like a technology systems issue compliance or.
And then kind of where do you see that going longer term do you expect them to go to.
Moving to the engine.
Pretty good question I would say right now is for island for US at 70 ish percent is coming through the engine I think for some and I mentioned this in the script I do think some lenders enjoy the pricing power that they have with negotiated cards over the <unk>, but we are in discussions now.
With 2 relatively large lenders around building API into into their systems and what that's going to allow us to do is compete with the negotiated card. So when they go to look for it in my price, it's going to be our engine.
Again keep in mind Mark our engine is now 400 factor. So what does that means it means when our lender goes for a price we're combining all the raw credit Bureau information with all the mortgage information that we get and then obviously analyzing it via machine learning, which allows us just to run many iterations and.
Obviously learns over time, and we're delivering that price back to the lender in 3 seconds. We're competing we will be competing with a static rate card. So we love our chances with that so I think the technology is moving faster.
And most people, saying, we think we are at the forefront of it and if we can get into those situations, where we're competing against a static card I think we're going to come out very favorable so again, we're super.
Again motivated to keep investing and looking and improving the engine because again, that's where credit score and we said this before the MRI industry is all going to be about credit selection and it wasn't before all the pricing was the same and you've seen it in other industries you see it in the credit card industry you see it in.
Auto with progressive and Geico and I think we're kind of applying those techniques to mortgage insurance. So again, it's early we just rolled it out at the beginning of this year, but again, if you sit in my seat and have more of a 3.510 year horizon investing in that type of.
And as I mentioned in the script moving the platform to the cloud which increases your computing power.
This really set us up for future success down the road.
Okay, great. Thank you.
Thank you next we have Rick Shane with Jpmorgan.
Thanks, guys for taking my question.
Mark you pointed out that the persistency is trending higher quarter over quarter.
And that's obviously a favorable.
Inflection.
Reality is that Cpr's are still elevated and burn out seems to be taking a little bit longer than folks anticipated.
When we think about PMI it actually increases the incentive for borrowers to refinance versus a borrower who doesn't have PMI.
On 1 hand that would suggest that burnout would take longer but I'm actually wondering if that PMI refi incentive actually has pulled forward refinance in your book and we should see burnout emerge more quickly than the overall market.
I hope you're right Rick.
I'm not sure about that.
I think it's a good thesis but.
But I would be cautious on that again, given where the 10 year I mean, it bounce back a little bit this morning, but given how low it is I do think the refinancings will remain elevated but to take it.
Take a step back and look at it in context for it from from our standpoint, the purchase market remains strong and we think the underpinnings of the purchase market will remain strong right. I mean, when you think about the demand around millennials.
Pete I think.
The highest age group is still a cohort is like right around 28 or 29.
The first time Homebuyer average is like $31.32, so we're kind of getting into that sweet spot and I think it's something like 5.
Close to $5 million, new potential homeowners come into the market over the next few years.
Rates will impact some of that book.
<unk> remain low even if they go up and I know Theres al talks about affordability and Thats important I think the demand is going to really be there. So over time and as rates go up refinancings will start to disappear.
Dissipate and I think the book will stick longer. It's just it's I wouldn't expect it to happen quarter over quarter. So we think it's dropped maybe it gets into.
The mid <unk> by the end of the year, but I think longer term and Thats. What we said the positive underpinnings of housing are relatively strong and I do think that will help continue to allow us to grow the insurance in force.
That makes sense, yes look.
Totally does and it's interesting because when I originally frame the question I thought of it the opposite way in terms of it might extend burnt out for you. So it's interesting to get your perspective look the reality is that the fundamentals that are driving high prepayments are favorable for credit and when you think about the 3 outcomes for our policy.
Going to maturity refinancing or a credit issue.
The middle outcome is certainly a better outcome than credit problems.
I agree I agree and remember and we've talked about this before is we are Wynn niwa's elevated you have to expect that persistency is going to be low there is no free lunch. So we're talking about industry volumes at historic levels. The last 2 years, it's not surprising that persistency is as such.
A low level. So I think we're always a little bit more levered to higher rates, Rick I'd, rather see the book I'd, rather see lower niwa in the book grow persistency, a little bit higher and Thats just better from.
From a cost basis for us.
Slow and steady kind of wins the race, but this is this is the environment, we're in and I think we're adapting well.
Great. Thank you very much guys.
Sure.
Thank you next we have Mihir Bhatia with bank of America.
Hi.
Thank you for taking my questions, maybe I'll just start with just a follow up on that last comment you made.
How much will flow.
I guess as book.
This didn't see increases.
Back to your normalized levels, how much of a deal with non <unk> expense ratio is that is that are we talking like 1% or are we talking like 3.4%.
Again, it's hard to measure it in the expense ratio and we hear because thats just a calculation based on the insurance I think in terms of nominal cost, particularly it's really.
The underwriting cost right. So.
As a percentage of us of our originations as a non delegated so if youre doing for.
<unk> billion, a year versus a $100 billion here, there's pretty good savings and it's just it's the friction cost of doing all of those things. So you have turn time issues and all those things with customer because there. This time last summer you Couldnt find an underwriter industry. I mean, there was such a shortage just because the volume was so high and Thats.
That's hard on your employees, that's hard on your customers' employees.
It's not a sustainable.
Environment, So I think having and again when I say Levered I do think the economics are better again, if we're lower niwa.
We could be significantly lower niwa and still end up growing the insurance in force because persistency is high and I think thats a little underappreciated.
Part of our model.
Understood. Thank you.
And then just maybe broadening the discussion a little bit.
You've talked a couple of items on previous calls about things Youre looking at outside for IMI and as you think about the business longer term, maybe give us an update on that and maybe just talk about what you're spending your time looking at outside of current mine are there particular segments or types of businesses that are most interesting.
I would say first a lot of the funds that were invested in we spend most of our time tying that back to the core business. So think about.
<unk> edge I mean, some other and I mentioned this on 1 of the previous calls 1 of the portfolio company has really helped US 1 of the 1 of the companies helped us think through.
For the machine learning technology, and all other things in terms of multiple uses of data and merchant credit Bureau with other information.
That was learned through 1 of the portfolio company. So a lot of this is just how do we how do we tie it back to improve the core business right technology initiatives around moving the business to the cloud in terms of new initiatives. That's also in terms of newer as investments outside the business. That's kind of a nice to have that is not necessarily a driver of it.
But we clearly think.
That some of the skills that we have around capital management by managing distributed understanding consumer credit they are applicable outside of mortgage insurance and remember mortgage insurance is it's only so big and so if you think about the industry. It's right around a trillion dollars 3 trillion $3.50.
At the end of this quarter were approximately 15% of that.
Trees don't grow to the Sky.
And I think you run the risk of if you have a lot of capital.
Just started kind of keeping in the core business clearly there's the return aspect to shareholders. We have the ability to do both and I think our ability to kind of apply capital to grow and grow outside of MRI. I think I think is real why we're still maintaining our.
A redistribution to the shareholders. So again, we're not we're not in a hurry to do a per se, but we do think these skills are applicable and I think longer term and remember I have a 3.510 year horizon, I think essent will be more valuable to shareholders in the long term by growing.
And by just returning all the capital to all other capital to shareholders I think that looks good analytically I think it puts shareholders and long term danger I really do.
Because you've kind of shrink the company and you shrink the equity base and remember what we've always said.
Credit kills these businesses so.
<unk>.
Is better.
And capital Begets opportunities. So again, we have a process around this on the investment side, we're very disciplined and remember we built this business from scratch, we built essent re from scratch. So we understand as we look at other businesses outside of kind of some other the fundamental things it takes to bill.
Businesses. So again. These are this is a long term perspective here and I wanted to kind of get that out there as people talk about capital distribution and bringing capital back to the shareholders, which by the way is extremely important interest.
Our messages, we have the ability to have a measured approach around capital allocation.
Alright.
No I appreciate that and look you asked.
After you made all of those comments you instituted the buyback when you thought it was appropriate so I think shareholders get it okay I will leave it there. Thank you so much youre welcome.
Sure.
Thank you next question, we have bus George with <unk>.
Good morning.
Actually I didn't know if you said this in your prepared remarks, so what was the default to claim rate this quarter.
Bose This is Larry the default rate at the end of the quarter is that from a number.
No the default to claim rate that you used for new notices this quarter.
Okay. There was no change both from what we assume prior quarter. The initial default to claim rates still in around that 9% level that we've historically experienced.
Okay, great. Thanks, and then can you just talk about the cadence for the margin over the next few quarters.
Just in terms of that the base average premium number is that kind of the 1 basis point decline quarter level.
Yes, Bose I think where same store at the end of the year kind of a net 40 ish range for the year could exit a little bit lower.
But we are starting to see.
A little bit of a flattening out remember theres a lot of moving parts, there and I know everyone.
Thanks for singles cancellation is 1 additive to it but the reinsurance cost is obviously a big cost.
To that and that has started to level out as most of the book is reinsured. So again 40 ish to the end of the year, probably could exit a little bit lower but I think the premium levels are relatively stable at this point.
Okay. Thanks actually 1 more just on the on the regulatory side with the changes at the FHFA the risk sharing market do you think that that could get more traction.
Im sorry risk sharing in terms of the day just.
Just for sharing.
No just the the other business that you guys do the Acis and <unk>.
You know where you invest in India.
Okay.
<unk> been pretty active.
Freddie Mac has been active the whole time and.
In the market. So we actually wrote the most business last year than we've ever fitness, that's a pretty good start this year too so mostly Friday, so a fannie enters the market certainly.
That could expand it.
That remains to be seen I haven't heard much about that from from Fannie Mae at this point.
Okay, great. Thanks Youre welcome.
Thank you.
Next question, we have Doug Harter with credit Suisse.
I know, it's relatively early still but any early read on kind of how essent edge.
Is performing in terms of.
Sticking.
Credit quality and kind of.
Delivering that.
Better credit quality as you would expect yes.
Don't think of in terms of better credit quality, Doug think about in terms of optimizing premium levels. So.
Again. The example could be the 700 FICO that our score for score them higher than 700, so it will give them slightly.
Lower premium, but we would expect kind of a better credit losses. So the unit economics of that loan.
Would be better so I think longer term I think the impact on our portfolio.
Again, it's on it's on the margin so it's all relative to where the industry is pricing.
And in our view as we've talked about it before longer term 1.
6 our share is kind of in that 15 to 16, so how do we optimize that premium over.
Over the long run it's a game of inches. So if our average premium is 40 now and we can get to a 42 ish or higher with the slightly lower losses, and thats going to roll down to the ROE. So again I think it also allows us just to select the credits we won and I still think thats hard for the industry to grab.
So as we see we see certain we've heard certain lenders talk to our competitors, where our competitors are still pushing the rate cards over the engines that.
That tells me they don't have the technology to compete.
It really does so if you are still looking and saying you'd rather price off of 2 or 4 factors versus 400 plus.
That doesn't seem like you're moving.
In the right direction. So again I think for us and more is always better than the mortgage industry and it's just not the truth again 106.
There's a certain price level for this industry that as you move below it then youll gain share, but then youll be quickly matched.
There is a quick competitor response, so again, our view is let's take our 15% or 16% that we can get optimize it and move on.
And I guess as you're thinking about.
Optimizing unit economics for.
Or are you looking to kind of optimize the persist.
Persistency for Essent edge as well, how do you think about that.
That component, yes, absolutely. There is there is a prepayment component to that so we certainly will.
Extending the life is the big thing so yes, I think so a few things on just technology in terms of unit economics, right. So we've talked a little bit about edge, which helped us optimize.
Kind of a premium and clearly around the credit losses.
There is the potential to expand that right. So <unk> when youre ingesting that much credit Bureau information along with the mortgage information. So essentially an underwriting engine at that point, so I wouldn't be surprised for us to continue to develop that to help automate some of the.
Regular underwriting that we do today, which again is going to help costs down the road.
We have a number of initiatives underway to help our customers have a much more of a self service experience, which again it makes it more efficient easier to use for the client.
And again I think down the road that helps from an expense standpoint, and we've talked about kind of the affiliate reinsurance.
Around the tax rate. So I think when we think about how we run the business day to day, we think in terms of unit economics. So what steps can we take to improve premiums credit losses, clearly re insuring. The book has helped a lot around credit losses. So we kind of have like a little plan around each 1 of them and then day in and day out Thats, how we go about China.
Execute that.
Great. Thank you Mark.
Thank you.
And our last question will be from Ryan Gilbert.
<unk>.
Hi, Thanks, good morning.
First question, Mark just going back to your comments around overall industry market share.
Looking through that and IW data and comparing it to some of the estimates out there around 2021 total originations it looks like there was.
Maybe a pickup in share for the overall industry.
For <unk>. So PMI is taking a bigger piece of the overall pie on the 1 hand, it's within the realm of normal quarterly fluctuations, but.
On the other hand, given really strong home price appreciation, maybe more first time homebuyers you might expect the PMI percentage of total originations.
The increase in the quarters and years ahead. So I'd just love your thoughts on what Youre seeing on the market and if you think that 15% of the total pie Ken.
Increase going forward.
Yeah. It's a good question Ron I think you have to break it out between purchase and refi. So the penetration on refinances is always much lower on semi versus purchase and our purchase share went from like 62% in the first quarter to 82% in the second and then spend 90 I think last month. It was <unk> 90.
Percent purchase so yes.
Which is obviously is a higher penetration so.
From that standpoint, you can see the overall.
Certainly can see the overall penetration go up and it gets back to our earlier 1 of my earlier comments in response to 1 of their questions and that that does that just has to help persistency rate at noon. So as it gets to be more purchase unless refinance our overall volume actually could be lower per se, but the bulk of the book, we'd end up growing a little bit because the books a little bit stick.
So it ends up growing a little bit more than in kind of a heavy refi environment.
Okay got it.
And on premium rate just going back to your response to a prior question it sounds like.
With.
Potentially premiums.
Latin out over the course of 2021 do you think we could be hitting the last year of premium rate compression or should we anticipate.
Lower premiums for the foreseeable future.
Again, it's some of it is just working it's just math working its way through the book so.
The premium levels on new business are lower than they were for years ago, So clearly and thats kind of the pre tax rate change. So thats clearly working its way through the book So I actually think you'll you'll continue to see premiums decrease but not at this I think it's at a much slower rate and they are clearly getting.
2 trough period I don't know if its right now.
But I do think it'll it'll.
It will start to trough at some point.
But I do think again don't forget that part of this is because of the reinsurance that we are spending as the whole industry has.
I don't see material.
Material reinsurance cost embedded in that net premium rate, which have really increased the whole industry really only started re insuring back in like 2018. So it is kind of working its way through premium rates now Ryan and so the premium compression actually looks a lot worse than it is when you think about it so I don't I don't we don't get too.
Caught up in that and again look at the Big picture. Ryan. This is a business that had operating margins of 73% for the first 6 months of the year and we generated cash flow of $340 million you don't measure that in premium basis points. So I understand where people are coming from.
But at some point you got to take the.
And that's what's allowed us to have this excess capital position and put us in such kind of the catbird seat in terms of our ability to allocate capital around potential new businesses returned capital to shareholders with dividends and share repurchases. So again 40.
139.
At a market like this we will continue to enjoy these margins.
Yes, all good points.
Just 1 housekeeping question for for Larry did I hear you correctly, saying that you did not change your reserve assumptions for or you did not change your reserve levels for for 2020.
That's correct.
Just a record to remind everybody we assumed a 7% claim rate assumption on the new default notices we received in the second and third quarters of 2020.
And recorded reserves of $244 million for those 2 quarters. So we continue to hold those result reserves and made no adjustments adjustments to them in the second quarter.
Okay and it looks like there was a $15 million favorable development in the second quarter was that related to pre 2020 reserves.
It was related to free.
It was related to the pre Covid period, which would be Q1 of 2020 and prior and then also in the fourth quarter of 2021, we would move back to our historical methodologies. So it's really the fourth quarter of 2021, and the first quarter 'twenty 1 in prior periods.
Okay. Thank you for that Brian It's Mark <unk> been like 3 cohorts right you had the pre COVID-19.
On our reserve model you had the second and third quarter kind of special reserve, where we froze it and then remember for the fourth quarter of last year, we went back.
To our normal reserve model. So a lot of the changes are in kind of that.
First and third part of that where the second we've kept it constant really for the reason is that we just we havent seen we continue to see progress spotting 80, only 80% of the second quarter 'twenty cohort has secured and we have 93% in the model. So.
And part of that is forbearance is still around the foreclosure moratoriums getting extended so we actually said back last may when we when we when we first did our August when we when we booked it we said it would be 12 months to 18 months before we'd start to really see.
Kind of clarity and it's kind of playing out that way.
Okay, great. Thank you appreciate all the details sure.
And there are no further questions.
The call back over to the speakers.
Thanks, Brian and thanks, everyone for joining I know Friday in August.
Exciting times to talk about MRI, but thanks for your participation and I hope everyone has a great weekend.
Thank you everyone, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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