Q2 2021 Radian Group Inc Earnings Call
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Thank you for holding your conference will begin momentarily in a few minutes. Thank you for your patience.
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Good morning, and welcome to the Radian second quarter 2021 earnings call. My name is the narrow and I'll be the 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 1 on your Touchtone phone.
Please note this conference is being recorded on.
Now I'll turn the call over to Mr. John Damian Senior Vice President of Investor Relations and corporate development, John you may begin.
Okay.
Thank you.
Welcome to Radian second quarter 2021 conference call. 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 dotcom.
This press release includes certain non-GAAP measures that will be discussed during today's call, including adjusted pretax operating income adjusted diluted net operating income per share and adjusted net operating return on equity.
In addition, specifically for our homogeneous segment other non-GAAP measures that will be discussed today include adjusted gross profit adjusted pre tax operating income or loss before allocated corporate operating expenses and the related homogeneous profit margins.
A complete description of our non-GAAP measures may be found in press release exhibit F and reconciliations to GAAP may be found in press release exhibit G. These exhibits are also available on the investors section of our website. This.
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 sound quality or technical issue.
Use that may arise during the call the.
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 of 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.
You all for joining us today and for your interest in radio.
As a company that offers products and services across the mortgage and real estate spectrum. We are encouraged by the continued positive momentum in the housing market as well as the favorable credit trends within our insured portfolio of that increasingly reflect a return to a more certain operating environment. We continue to closely monitor the pandemic.
And the economic environment and navigating our business accordingly.
Frank will discuss the details of our financial position shortly but let me share a few highlights of insights from the second quarter.
We reported net income of $155 million for AAV cents per share for the quarter and the Joe.
The diluted net operating income per share was <unk> 75, as such we grew our book value per share by 11% year over year. We achieved this growth even after accounting for the $100 million of 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 the quarter. We wrote $21.7 billion of high quality high value of new mortgage insurance business and our primary insurance in force was 237.3 billion.
At June 30.
It is important to note the despite a modest decline of our total mortgage insurance portfolio of year over year. The composition of the portfolio has gone through of favorable transition with our monthly premium insurance in force growing by 8%, which is the primary driver of our earned premiums we.
We are seeing continued improvement on the credit performance of our portfolio with a 42% year over year of acquired and our total number of defaulted loans.
Strong pure activity continues with cures outpacing new default each looks for this June 2020.
In addition, more than 70% of our defaulted loans are in forbearance and approximately 80% of defaults from our peak default months of May and June last year of some secure.
The primary driver of the decrease on our loss provision this quarter was the better than expected cure activity. We are observing in prior periods of defaults and the declining number of new defaults in fact, new notices of default in the second quarter were at or below pre COVID-19 do default levels.
At June 30th Radian, Guaranty's, Pmiers excess available assets grew to $1.9 billion or cushion of 58%.
Now I'd like to provide some perspective on the mortgage insurance pricing and our focus on building economic value.
As I mentioned in May we have seen increased pricing competition over the last few quarters as the economic environment of showed solid improvement following the pandemic related downturn a year ago. During the second quarter. We are seeing signs of the mortgage insurance industry is transitioning to a more normal as competitive.
But.
It is important to highlight of the rating we have remained disciplined on how we're navigating this environment continuing to focus on generating long term economic value of maximizing that value for our company and shareholders. We continue to write new business. Other attractive return. So we believe will add economic value to our portfolio.
While we expect some quarter to quarter market share of volatility across the mortgage insurance industry. We believe our recent business volume is trending back towards our pro rata share of the overall market.
The terms of the overall housing market, we saw a positive momentum continuing in the second quarter overall, the home purchase market remained strong illustrated by the composition of our new mortgage insurance business, which represented 77% purchase volume in the second quarter versus only 56% of <unk>.
Year ago based on the latest data from our 1 radian home price index over the second quarter of 2021 continued strong housing demand and relatively limited supply of the market led to an annualized 12% increase the whole prices across the country.
We continue to expect the rate of home price appreciation of the moderate share and we believe the combination of an improving economy strong.
Strong housing dynamics in terms of the demand supply home values of mortgage underwriting relatively low mortgage interest rates and income growth are well aligned for a healthy of sustainable house housing market.
Recent market projections for 2021 of our estimate of total mortgage originations to be approximately 3.9 trillion while.
While the overall origination market is expected to be less than 2020, due the lower refinance volume the purchase market continues to grow which is positive for the mortgage insurance industry, given the higher likelihood the purchase loans will utilize private mortgage insurance as compared to refinanced flow.
Based on these most recent industry origination projections, we continue to expect the private mortgage insurance market to be approximately 550% of $600 billion, which should be slightly lower than the record volume in 2020, but would still represent the second highest volume of year in history.
Overall, we believe the improving macroeconomic conditions and strong home purchase market.
Fueled by first time homebuyers provided strong tailwind for long term growth in the <unk>.
Economic value of projected future earnings of our mortgage insurance portfolio.
Turning to our whole genius segment, formerly known as real estate total revenues for the second quarter were $33.5 million, representing a 30% increase for the first quarter of 2021 and of 48% increase year over year. This was primarily driven by an increase of our title revenue, which grew 74% year.
Over year as well as growth on our valuation business.
As we discussed during the real estate segment of Investor Day in June our products and services are a natural extension of our core mortgage insurance business and support our mission of ensuring affordable sustainable homeownership.
We believe home genius has the potential for significant value creation and financial contribution going forward and Frank will discuss our progress against the financial projections that we introduced 2 months ago.
In terms of capital strength at June 30th Radian Group maintained the strong capital position with $1.2 billion of total holding company liquidity.
In terms of share buyback activity, we repurchased 3.9 million shares of Radian group common stock.
During the second quarter for $90 million and on an additional $2.8 million shares for $61.4 million on July approximately $39 million remains under our current authorization that expires at the end of the smile.
And as we mentioned last quarter in May we increased our quarterly dividend of <unk> 14 subs of 12% of increase over our prior quarterly dividend.
Turning to the regulatory and legislative landscape, we were happy to see the appointment of the Sandra Thompson as acting director of FHFA acting director Thomson has been the long serving member of the FHFA team across multiple administrations and we believe she'll bring a balanced view the promoting the access affordability.
While continuing to ensure the safety and soundness of the Gse's Importantly, she has served as the FHFA during the evolution of reform of the mortgage insurance business model, including the implementation of the Pmiers and therefore is intimately familiar with the strength of our business model and our resilient performance during the most recent COVID-19.
Pandemic period, we look forward to working with acting director Thompson owner team.
As to the regulatory environment, we appear to have entered a new phase focused on balancing the lifestyle of the regulatory relief programs in various restrictions. The gse's recently lifted there 50 basis points adverse markets. The refinance loans net of also instituted changes in their temporary P. Myers guidelines, so a lot of dividends for us.
Mortgage mortgage insurers that meet certain available asset thresholds, which are phased out on throughout the remainder of the year. The CFPB has also instituted new rules to help ensure that the significant number of borrowers scheduled to come off a COVID-19 relief program. This quarter are given every opportunity to remainder of their homes.
At the same time, the unprecedented level of federal support of coordination of the ease the economic burden burden of the pandemic continues with ongoing foreclosure related eviction moratorium and legislative proposals that are intended to benefit homeownership in particular for first time homebuyers, we expect this care.
For balance between the phased return to normality and further federal of support to continue for the foreseeable future, which is good for the economy of for homeownership and given our strong alignment with borrower interest for the mortgage insurance industry as well.
Now I would like to turn the call over to Frank for details of our financial position.
Okay.
Thank you Rick and good morning, everyone.
To recap of our financial results issued last evening, we reported GAAP net income of $155.2 million.
Or <unk> 80 per diluted share for the second quarter of 2021 as compared to net income of 64 cents per diluted share in the first quarter of 2021, and the net loss of <unk> 15 per diluted share in the second quarter of 2020.
Adjusted diluted net operating income was <unk> 75 per share in the second quarter of 2021 as compared to adjusted diluted net operating income per share of <unk> 68.
In the first quarter of 2021, and adjusted diluted net operating loss per share of <unk> 36 in the second quarter of 2020.
I'll now turn to the key drivers of our revenue.
As Rick mentioned earlier, our new insurance written was $21.7 billion during the quarter compared to $20.2 billion in the first quarter of 2021 and $25.5 billion in the second quarter of 2020.
New insurance written for purchase transactions was $16.7 billion and the increase of 16% year over year, and 40% compared to the first quarter of 2021.
Purchase volume accounted for 77% of our total new insurance written for the second quarter, an increase from 59% of volume in the prior quarter and 56% in the second quarter of 2020.
Direct monthly on the other recurring premium policies were 93% of our new insurance written this quarter, an increase from 90% for the first quarter of 2021, and 85% for the second quarter of year ago.
Lender paid policies accounted for less than 1% of our new insurance written.
Primary insurance in force decreased to $237.3 billion at the end of the quarter as compared to $238.9 billion of the first quarter of 2021 with a total year over year insurance in force decline of approximately 2%.
Our year over year decrease in primary insurance in force was primarily driven by sustained low persistency.
It is important to note however that monthly premium insurance in force, which drives the majority of our earned premiums has grown 8% year over year compared to an approximate 28% decline in single premium insurance in force the.
The decline in single premium insurance in force as a positive outcome for us 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, 7% increased slightly from 57, 2% in the prior quarter and decreased from the 72% in the second quarter of 2020.
Our quarterly annualized persistency rate was 66, 3% this quarter and the increase from 62, 5% in the first quarter of 2021 and 63, 8% in the second quarter of 2020.
The year over year increase in quarterly annualized persistency is primarily driven by lower refinance activity on the second quarter of 2021 as compared to the same quarter last year.
While persistency is expected to improve during the second half of 2021, we also expect persistency to remain below our expected long term levels given the current pace of refinance activity.
Moving now to our earned premiums.
Net premiums earned were $254.8 million in the second quarter of 2021 compared to $271.9 million of the first quarter of 2021, and $249.3 million in the second quarter of 2020.
The decrease of 6% on a linked quarter basis is primarily due to a continued decline in our in force premium yield.
The 2% increase compared to the same quarter prior year is primarily due.
To the adjustment in the second quarter of 2020 to the accrued profit commission due to increased loss provision in that quarter.
And for the increase of net premiums earned in our title business.
Slide 10 shows the mortgage insurance premium yield trend over the past 5 quarters.
Our direct in force premium yield was 41, 1 basis points of this quarter compared to 42.7 basis points last quarter and $44.3 basis points in the second 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 profile and associated premium rates of today's new insurance written relative to prior vintages the.
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 direct premiums yields driven by single premium cancellations was 5.3 basis points compared to $6.4 basis points in the first quarter of 2021.
And $8.2 basis points of yield in the same quarter a year ago.
The impact of our insurance linked notes on our net premium yield was a reduction of $2.6 basis points. This quarter, an increase from 2 basis points from the prior quarter and 1.3 basis points a year ago.
The increase this quarter was due to our most recent insurance linked note transaction, which was executed in April 2021.
With regard to pricing on new business, we remain focused on maximizing economic value and generating attractive risk adjusted returns.
Homogeneous segment revenues were $33.5 million for the second quarter of 2021, representing a 30% increase compared to $25.8 million for the first quarter of 2021 of 48% increase compared to $22.5 million from the.
The second quarter of 2020.
Our reported homogeneous pre tax operating loss before allocated corporate operating expenses was $4.5 million for the second quarter of 2021 compared to the loss of $6.5 million for the first quarter of 2021, and a loss of $1.1 million for the second quarter.
Of 2020.
Our reported home genius adjusted gross profit for the second quarter of 2021 was $11.7 million compared to $8.5 million for the first quarter of 2021.
The $9.4 billion for the second quarter of 2020.
A reconciliation of these items can be found on exhibit G.
The increase in homogeneous revenue in the second quarter of 2021 compared to the second quarter of 2020 was primarily driven by growth within our title business, which saw a 74% increase in total revenue year over year.
Closed orders in our title business, which are a key driver of revenue increased approximately 68% year over year to approximately 12000 for the second quarter of 2021.
As noted on slide 22, and as discussed in our recent real estate Investor Day, We expect to see continued growth in closed the title orders as well as our total home genius segment revenue.
We will continue to offer guidance and our progress toward these targets and thus far we are pleased with our progress.
Our investment income this quarter of $36 million was down 5% from the prior quarter and 6% from the same quarter prior year due to lower investment yields which were partially offset by additional investment balances from underwriting cash flow.
At quarter end the investment portfolio duration was approximately 4.5 years unchanged from the prior quarter.
Moving now to our loss provision and credit quality.
As noted on slide 13, the mortgage provision for losses for the second quarter of 2021 was $3.3 million of decrease compared to $45.9 million on the first quarter of 2021 and $304 million in the second quarter of 2020.
As shown on slide 14, we had approximately 8000, new defaults in the second quarter of 2021 compared to approximately 12000 in the first quarter of 2021 and approximately 63000 in the second quarter of 2020.
Also as noted on slide 13, the provision for losses for the second quarter 2021 includes the positive development on prior defaults of $31 million.
This positive development was driven by a 50 basis point reduction in default to claim rate assumptions on our defaults from April 2020 to December 2020, primarily as a result of more favorable trends in tears than originally estimated.
We also maintained the default the claim rate assumption on new defaults at 8.0% for the second quarter of 2021.
As shown on slide 16, approximately 58% of new defaults in the second quarter and approximately 71% of all defaults.
Were reported to be in of Covid related forbearance program as of June 32021.
We have continued to share 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 that over 95% of our defaulted loans are estimated to have at least 10% homeowners equity and over 65% have at least 20% homeowners equity using an index based valuation estimate.
This factor along with improving overall economic indicators, such as favorable tier trends home price appreciation lower unemployment governmental support and ongoing forbearance programs helped make us cautiously optimistic about the ultimate claim levels and contributed to our.
<unk> to reduce the default to claim rate assumptions on certain prior period defaults first reported in 2020.
As well as to maintain the default to claim rate at 8% for our new defaults.
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.
The broad availability of mortgage forbearance options in 2020, and continuing into 2021 may serve to extend the timeline for claim development.
As such the 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.
Approximately 79% of new defaults from the second quarter, 2020, and 75% of new defaults from the third quarter 2020 had cured as of the end of the second quarter of this year as noted on slide 14.
As of July month end, the second quarter, and third quarter 2020 cumulative cure rates for new defaults had further increased to approximately 82% and 77% respectively.
Last nights earnings release included an update for July operating statistics that showed a further decline in our primary default inventory.
Cure activity continued to exceed new defaults, which resulted in the cure to new default ratio of 172% in July.
Now turning to expenses.
Other operating expenses were $86.5 million in the second quarter of 2000.
Compared to $73 million in the first quarter of 2021 and $66 million in the second quarter of 2020.
The increase in the other operating expenses in the second quarter of 2021 compared to the first quarter of 2021 was primarily related to an increase in incentive compensation expense, including share based incentive compensation expense.
And of $3.9 million increase in non operating items, primarily due to lease related impairments.
The increase in the other operating expenses as compared to the prior year is primarily related to the increase in incentive compensation expense and other non operating items.
As well as the decrease in ceding commissions.
Moving now the taxes.
Our overall effective tax rate for the second quarter of 2021 was 26%.
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.
Radian guaranty's excess available assets over minimum required assets was $1.9 billion as of the end of the second quarter, which represents a 58% pmiers cushion.
As of June 32021, we have reduced radian guaranty's pmiers minimum required asset requirements by $1.3 billion by.
<unk> risk through both insurance linked notes reinsurance and other third party reinsurance arrangements has noted on press release exhibit L.
Our reported P. Myers cushion includes the benefit of the reduction in minimum required assets attributable to the 3 multiplier, which reduces the minimum required assets on applicable COVID-19 related delinquencies by 70%.
On the net basis. This benefit was approximately $435 million at June 32021.
We expect that the application of this multiplier will continue to reduce radian guaranty's minimum required assets for COVID-19, defaulted loans. However, the future impact of Radian Guaranty is expected to continue to diminish over time as the population of loans eligible for the multiplier diminishes.
As a reminder, this benefit has thus far peaked in the second quarter of 2020, when the resulted in an approximate $1 billion reduction in minimum required assets.
For Radian group as of June 32021, we maintained at $923 million of available liquidity.
Total liquidity, which includes the company's $267.5 million credit facility was $1.2 billion as of June 30 of 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 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 any dividend restrictions placed on mortgage insurers by the GSE.
As previously noted we resumed our $475 million share repurchase program during the March of this year.
Which had been temporarily suspended beginning of March 2020 in response to the COVID-19 pandemic.
As of the end of July we purchased a total of approximately 23 million shares of $436 million under this repurchase authorization, which began in August of 2019 at an average share price of $21.45.
During the second quarter of 2021, we repurchased 3.9 million shares and year to date through July 2021, we have purchased 7.1 million shares.
As of July 30th.
We have approximately $39 million of remaining repurchase authorization, which expires on August 31 of this year.
Our current <unk> 1 program remains in effect today.
We have also continued to pay a dividend to common shareholders throughout the pandemic, including during the second quarter of 2021, as we returned approximately $28 million to shareholders through dividends during the quarter.
As a reminder, and as previously announced we increased our quarterly dividend by 12% to 14 <unk> per share during the second quarter of this year.
The combination of dividend payments and share repurchases represent a return of capital of approximately 76% of our after tax operating net income for the quarter.
Given the capital strength that radian guaranty and the financial flexibility provided by our available liquidity at Radian group. We believe that we are well positioned to support our businesses and deliver value to our shareholders I.
I will now turn the call back over to Rick.
Thank you for it before we open the call to your questions. Let me highlight for you. The we increased book value per share by 11% year over year and maintain the strong capital position with $1.2 billion.
Of total holding company liquidity.
And radian Guaranty's pmiers excess available assets grew to $1.9 billion.
We have seen continued improvement in the credit performance of our portfolio and are also seeing signs of improvement in the overall economy.
We wrote $21.7 billion of high quality high value of new mortgage insurance business and increase homogeneous revenue by 48% year over year, we repurchased 3.9 million shares during the second quarter and then the additional $2.8 million shares in July.
Our team continues to demonstrate outstanding resilience and dedication.
We work together to support our customers and help ensure our continued success.
Now operator, we'd be happy to take questions.
Absolutely. Thank you we will now begin the question answer session. If you have a question. Please press Star then 1 on your Touchtone phone if youre using a speakerphone you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question. Please press Star then 1 on your Touchtone phone.
Leading on standby for any question.
And our first question comes from Doug Harter from Credit Suisse. Please go ahead. Your line is open.
Thanks, I was hoping you could give us.
A little more insight as to how youre thinking about the sizing.
The the buyback.
On both on the second quarter and into the third quarter, given your liquidity and capital position.
Sure Doug This is Frank.
When we think about our buybacks.
You'll recall we've been very.
Very prudent about the way that we manage our capital.
Has been very good about returning capital to shareholders. So we've actually had.
The 6 repurchase programs since 2015, all of them with different sizes and the <unk>.
<unk> had different levels of repurchased during those.
So we are we have roughly 36 or excuse me $39 million remaining as of the end of July on our current repurchase authorization.
It's something that the will generally report on after the fact, but I think it's I think it's fair to say that we.
I believe the repurchase programs are a good way to return capital to our shareholders.
And again since 2015, the authorizations of rays have ranged in size anywhere from $100 million to our largest most recently on $475 million.
But but we will.
We will continue to provide information as it occurs related to repurchase programs.
I guess just to follow up on that if you could just talk about this on.
The clearly stepped up the pace in the second quarter of.
The activity kind of on that.
The continued into July just kind of thoughts around that and kind of how of that pacing might continue.
Sure. So the the the pace is actually and I think we've described our repurchase program before the value based program.
Where it's not repurchase at any price it's repurchase within a within the price range that were comfortable and believe reflects Val.
Value.
And so.
So that is typically what guides us and so it's a combination of where we set those targets <unk>.
Relative to where the market pricing is.
And so the the average share price for instance, in the second quarter, we repurchased $23.14.
And over the program life, we're at $21.45 is the average repurchase price.
Great. Thank you.
Thank you. Our next question comes from Cullen Johnson from B Riley. Please go ahead. Your line is open.
Hey, good morning, Thanks for taking the questions.
I think you noted that as defaulted loans age while they're in forbearance, taking carry with them higher reserve assumptions would there also be some sort of offsetting dynamic maybe that the likelihood of the cure is higher if the <unk>.
Borrower has more time to catch up on payments.
Yeah.
Sure Collin this is Frank the.
I think.
For your.
The question is a good 1 and I think what we try to incorporate when we set our reserve levels as all of those factors.
And it's difficult to do in the current landscape because of the forbearance programs are unique to the COVID-19 landscape and how the borrower behavior.
Plays out is something that's.
We certainly can speculate on but we'll wait to see how that develops but but we've incorporated all of those assumptions thus far into our.
The reserve estimates.
For.
Okay, great. Thank you and then kind of looking at claims paid in the release there is the.
July data looked a little bit higher.
So just the impact of some of the forbearance plans beginning to expire or is that dynamic not yet showing up in the data.
Yes, the the cure activity in July and I'm glad you asked the question is really related to 1 particular event and its a commutation that we had so it was elevated by about 101.
Because of that particular compensation.
And I think for <unk>.
The claims sources cures.
Thank you points.
The claims were elevated because of 1 kind of mutation.
Okay, Great and then just my last 1 on just kind of looking at the homogeneous segment on the it looks like good revenue growth. There. This quarter I think you mentioned much of that being driven by title is that mainly just kind of higher user adoption. There and then maybe broadly what kind of message.
Message the have in place too.
Get the platform in front of the new potential users.
Yes, great question and yes, we're happy with the progress that we're seeing across on genius and we're happy to talk about the business back in.
In early June I think when we did our Investor day, but we are we are seeing growth in our title business specifically for <unk>.
It provides us some of the the.
Kind of quarter over quarter numbers.
But growing off of smaller numbers, but the growth is related to really 2 factors 1 is adding new clients, which we are I.
I think thats part of the strength of our franchises.
The strength of our relationships across our lender customers all of our EMR business of other other products, but we're also winning those service and I would like to give credit to our total team because we're expanding the deepening relationships. So once we get our relationship as we have blue chip clients.
Clients across the board.
Winning greater share of their business.
As we.
And of that relationship so I've been very pleased with the progress of 2 collyn. Its a combination of both new customers and so our pipeline of new customers has been evolving and growing very quickly. So we're happy about the.
But it's also of greater penetration of existing customers. Once we get all of our board and provide really superior service levels to.
The consumer to the ultimate borrower through.
Through the transaction. So yes, we feel very good about where we're at the.
The growth that we see in the July orders.
From a title point of view I'm happy to report we're <unk>.
Grew over June orders, so we're continuing to see kind of the acceleration of that business.
Great. That's helpful is 1 of my questions. Thank you.
Thank you.
Thank you. Our next question comes from Mark Devries from Barclays. Please go ahead. Your line is open.
Yes. Thanks.
I believe this is the second consecutive quarter of declining of insurance in force.
I was hoping of your thoughts on when you expect to see an inflection of return to growth there and in addressing that maybe <unk>.
Elaborating on Rick's comment that you are.
I think you you feel like Youre getting close to return into kind of of pro rata share of of the market.
And if so kind of where have you been under index thing. If you look at the risk of that's been coming on and what if any kind of actions of you've been taking to get back to more of a pro rata share.
Okay. Thank you Mark Derek and I will tag team on this 1 together I'll take the insurance in force question, Derek will come back to the kind of market share of our approach and strategy of that.
But clearly.
Insurance of course is driven by.
It has been largely driven through persistency being higher over the past few quarters.
But we've also go through a very positive transition as I noted on my comments, which I think is important to remember that our monthly book of business has grown by 8%.
Year over year, which is really the primary contributor of the future earnings. So we feel like that transition in our portfolio, even though it's relatively flat as a very positive thing. The other positive news is that our singles book about has declined by about 28%.
And you know when we think about that it's also that product, specifically lender paid which declined by 43% year over year as the greatest extension risk and so I think we've.
As we've seen the monthly book grow and as we've seen.
Singles payoff, we can't we came into this whole cycle probably.
At the higher level of singles, which is actually worked for our benefit as we've kind of transitioned our portfolio.
2 of greater share of monthly and accelerated the premium recognition on our singles book.
All of it all a good trend going forward, so obviously, you're going to be driven by how refinances.
Continue and we've seen a little spark and refinances recently, but as you can tell by our new insurance written.
Over 70% of it was purchase which is a good trend.
So I think as we go through the remainder of the share we would expect persistency to increase of all.
The it not to the levels that we would expect kind of historic norms of normal levels, but certainly refinances are expected to decline materially going forward.
Over the next year I think as you look at the industry forecast.
As part of that we see our growth in our portfolio being fueled by declining refinances, increasing persistency and continued strength of the purchase market, where it is more likely to participate as per.
Part of the offering so we'd like to long term dynamics of growth.
And value.
And I think as Derrick talks.
Our focus is all about creating value of our portfolio of I would just remind all of kind of everyone. In this world today.
Out of all insurance in force is created equal so we're being very disciplined and deliberate about how we grow our book of business and how we constructed in the we'd like the transition that we're going through with this recent book of business from 2020 won't be very high quality.
The very low mortgage interest rate and Luckily great. So I think the construct of our portfolio is well positioned for growth in volume in the future. Let me just turn it over to Derek to talk about market share.
Sure. So in terms of market share I would say probably Q2 overall would be under our pro rata share, but what we found throughout Q2 is an increased each month in terms of our estimate in terms of radian IW market share. So when you get kind of June and July we think we're roughly back that's the kind of pro rata portion now in terms of wherever it lean.
Again, the short answer is always going to be the same for us. We're leaning in what are we seeing the highest relative value right looking at long term the economic value in terms of what's out there on the market now this quarter, where we leaned in it certainly been I think in terms of segments, where we found more value now offered opportunities to deploy more capital. So if you.
Look at and IW quarter over quarter, we were up about 7%. If you look at it from a risk written perspective, I think we're up about 15%, 16% and if you look at the increase in capital deployed and it's about 25% and as you think about value of any of my business and future value, it's really been much more.
By capital deployment, so as we think about expected future premiums that we were writing in Q2 relative to Q1, we would see an increase of about 25%. So thats kind of telling you where we saw the value and also I think it's important as you think about companies. Historically, you could look at and IW market share that wasn't debt approximation of VAT.
Whenever it might have the same pricing when a risk mix as were very similar risk transparency in pricing kind of in the current environment, probably a better of proxy, it's kind of be capital deployment and if you wanted to get a sense of kind of future earnings and value.
Got it thank you.
Thank you. Thank you. Our next question comes from Bose George from K B W. Please go ahead. Your line is open.
Hey, good morning, actually first just on the operating expense expectation.
After those unusual items should we expect that number to be back kind of in the mid fifties for the back half of the year.
Yeah Bose this is Frank.
We'd look at.
And actually the guidance that we've given previously is call it roughly $70 million of quarter.
For operating expenses on what do we call it a normalized basis, which exclude sort of the comp related.
Seasonal adjustments that Youll see I think between 70 and 72.
Quarter is still.
Just again, excluding those items our reasonable expectation.
To have it could be elevated depending on where our compensation accruals.
For the balance of the year, but.
70 to 72 as a good.
General range for us on normalized basis, Okay, and so the 70 to 72, you mean on the for the combined for the combined cuts correct, Yes, that's correct okay.
Okay, great. Thanks, and then the.
The.
Just on the going back to the buyback and capital return discussion.
Is there a debt to capital range that you keep in mind as well just when we think about sort of the cadence of potential capital return.
Sure that's of Great question Bose.
There is but I would tell you that we haven't been restricted.
In any way by the the debt to capital.
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Say as you look at our most recent debt issuance that we did.
Last year for defensive purposes that that elevated us really to the high point that we hadn't seen in a few years and so the business naturally de levers over time, but I would tell you. The we also probably carry a bit.
Extra leverage just.
Just as a result of the defense of issuance that we had so we're mindful of it.
Don't feel restricted by our current levels whatsoever, but we would expect to see.
We would expect to see that number come down over time.
Okay, great. Thanks, a lot.
Thank you.
Thank you. Our next question is from Mihir Bhatia from BLA. Please go ahead. Your line is open.
Hi, good morning, and thank you for taking my questions.
I guess the first question I just had was I just wanted to check.
Eviction moratorium, which was extended yesterday does that have any impact on you.
Yes that would have an impact in terms of for instance, the G.
The <unk> have any property debt held in Oreo.
There are many of those out they've extended their more of that kind of I think Ted on September 30, yet, but generally it's kind of be kind of of forbearance and not the eviction moratorium that's going to have any material impact on us.
Right and because there's such a low percentage of I guess in the.
Correct homes in the portfolio Okay.
That's exactly right okay.
And then just I wanted to go back to the market share question, I guess, a little bit I understand you don't like you are not managing the market share of defining.
That's the way you see value, but maybe just help us understand where are you seeing the volatility in the market is it across the board is it in certain segments, where the customer's specific maybe specific FICO LTV buckets, how should we be thinking about that like weighted the volatility in the market coming from.
Yes, that's a good question I don't think I would identify particular volatility in the market in terms of what we're seeing in terms of pricing. So.
As Rick indicated we are seeing signs that the semi industry in transitioning to what they call. The more normalized competitive environment right that that is modeling meaningful pricing reduction that we saw on the somehow the black box segment of the market and we talked a lot about that last quarter right in terms of the market share of movements, while the end market share move away from us since our strand.
It not to be a price leader now as we think of amount of more normalized environment in the kind of kind of think about.
Pre COVID-19 as a normalized environment, we were in a position where we could continually adjust our pricing up and down and you had fair stability I would say overall in terms of the pricing you saw on the market and that's an environment.
When you think that plays very much of our analytical strength in terms of finding relative value in the market and capturing that and so when we see signs of that return to the normalized environment. There has been variability in terms of pricing adjustments across the risk dimension. So you've seen some adjustments I wouldn't call. It a lot of volatility and I wouldn't call. It a stream of cash.
The credit curve the 1.
1 thing we would note that as we kind of see aggregate pricing levels in the market now.
At least in the industry Black box segment, we see them as being currently below the levels, we observed in the market pre COVID-19.
And when we get to that estimate that's based upon our estimate of market clearing levels across the entire industry production and so.
As I say market clearing levels, what we mean there is the lowest price of the market across all of my company and not 1 particular company in the market. So that's an important part of where we find value is identifying those market clearing prices the.
Do that on over 10 million unique loan types. So we're looking at all combinations of loan ror characteristics on geographies and find out where is that market clearing level that we can capture of the most value. So you've kind of gone through that.
You see that kind of normalized environment, when we kind of see it settling out and that's an important point on the overall pricing perspective, we continue to see very strong economic value really across all of the business being written in the market and there is plenty of opportunity. It's very much of a relative value play. So you kind of see value everywhere, but where is the highest relative value in that.
Why we are deploying our capital the other thing to keep in mind is we still have a very strong housing market and positive kind of demographics momentum and that's kind of pushing the market as well.
The overall I'd say for well positioned I think we're back to pro rata share.
Finding attractive returns across the credit spectrum.
Got it got it thank you for that.
Net.
I guess, just 1 last 1 on maybe on the capital just wanted to make sure on the.
Would you be the English in total.
Just how much excess capital you have maybe accounting for Buffaloes you wanted to keep in place even on the miles and stuff is there.
Number 2 I would think about as we just think about sizing the next buyback because it seems like the current Guan will expire on relatively soon.
Sure Mihir. This is Frank we do not establish.
Established in sort of the clear definition of quantification of what the excess at the holding company, but if you look forward at some of the debt maturities that we have if you look.
At.
What remains on our current share repurchase authorization.
I think you can you can definitely see that we have excess we don't quantify it only because.
Included in sort of the intended or potential use for holding company resources are.
The support for our businesses either for the company, which actually sits with the very healthy Pmiers cushion right now. So so that's not that's not a near term expectation there but.
Just other businesses are homogeneous segment, which again don't expect it to be material, but all of those things factor into how would recalibrate.
How much how.
How much of cash that we hold.
At the holding company.
But we did not quantified on excess number so to speak.
Okay. Thank you thanks for.
Thank you.
Okay.
Thank you. Our next question comes from Ryan Gilbert from BTG. Please go ahead. Your line is open.
Hi, Thanks, everyone just.
Just a couple of follow ups for me on.
The first on insurance in force and just thinking about the sequential drop.
Driven by its single premium cancellations.
It seems like.
Yes.
Looking through the supplement on.
The single premiums are still around 19% of your risk in force. So do you think that we're through the bulk of single premium cancellations and we can see insurance in force start to inflect higher or do you think that there is.
Still room to run on to shift the book further towards monthly business.
Well. Thank you Ryan for the question. This is Rick I think.
In the next quarter or 2 kind of while we're in this refinance wave I think we're going to see volatility around kind of how persistency.
It kind of runs relative to those refinances and so I wouldn't say that we've seen the end of any single premium kind of cancellation of acceleration.
But I would say that what we do see kind of fundamentally is that we are growing our monthly book of business and we're growing it with very high quality very low mortgage interest rate books of business that I think bode well for the future sort of the transition we have gone through has really been very.
The positive from the acceleration of earned premiums on the single business that would have otherwise have extension risk.
In a rising rate environment. So we've kind of cleared through much of that which I think is good.
The second thing we've done is we've freed up capital and the more from products that are more capital intensive the lower return.
So and we've transitioned to this lovely book of business based on early 2020, 1 vintages, representing a significant share of the book. So we feel like as we come out of the Suez refinances of persistency start to settle down a bit in persistency starts to increase the.
The fundamentals for the mortgage mortgage insurance business in terms of continuing to grow the value of the portfolio by adding high quality.
Luckily books of business other other.
The policies that we see value are really strong pillars of shrug, because we have a strong purchase market. We've got the strong underwriting environment and it's fueled by first time homebuyers, which are more likely the use mortgage insurance. So we like where we sit today I can't say the volatility is completely out of.
Out of the market until we kind of get through the refinance.
Wave if you will but I do think the long term dynamics are good for.
Growing the value of the portfolio, which we feel like this transition is actually position us very well for future for the future in terms of value on earnings.
Okay, Great I appreciate that on.
And then second question is another 1 on on the buyback and.
And I asked because it seems like there is a real disconnect between where the stock is trading below book value and the the fundamental trends in your business credits, improving really strong housing market.
And it seems like those that disconnect doesn't doesn't occur very frequently so, especially with over a $1 billion of liquidity at the holding company.
So I was hoping you could discuss maybe broadly about how youre thinking about share repurchases as of capital allocation or capital deployment strategy on.
On relative just relative to just return to shareholders in the context of where the stock is trading relative to.
The fundamentals of Youre seeing in your business.
Yes, Ryan.
Brian This is Frank.
That's a great question and I apologize if theres assignment in the background here.
Hopefully you can hear me, but the.
The decision around capital deployment and the decision of Brown of returning capital to shareholders either through repurchase of our dividend is something that the we actively discuss on our capital planning exercise.
And I would agree your observation is right I think it's reflected in the repurchase activity that we've had.
Here in the most recent quarters relative to where our stock has been trading in the the amount of activity. We research that we've seen on the repurchase program. So.
Yes, I would agree with your observation and.
And that is certainly something that we contemplate.
When we go through our capital planning.
Yes.
I would just kind of add on the Frank's comments of Sue.
When you look at the fundamental value of.
This business here the intrinsic value of this business in terms of the.
The performance of the mortgage insurance business the strength of the capital structure of cross sell mortgage insurance business the value of the portfolio that we have in our building.
Again going back to the whole Luckily shifts are homogeneous gives us and the way its position going forward and I do think there's strong value on our business today and we feel very good about.
Kind of how the business is performing again I'm on is performing on a very high level I think our team has been extremely disciplined in this kind of competitive environment in terms of really focus on extracting value right and not just not just being not just decreasing price for the sake of grabbing market share and we've been very folk.
On the economic value of the very disciplined.
Managing capital I think we have a very good track record of being good stewards of capital management, whether it's been buybacks dividends deployment of capital.
I'm excited about the progress of our home genius businesses, making of the play the plan that we laid out a couple of months ago. So when you put that all together I think going back to your comment Ryan.
This is a I.
I feel I feel like there is great value on this business.
As we sit today so.
We're excited about it and we're going to continue to be very good stewards of capital as we go forward.
Okay. Thank you I appreciate it.
Thank you.
Thank you we have no further questions at this time I would like to turn the call over to Mr. Rick Thornberry for final remarks.
Thank you and thank you all for your questions and your continued interest in radian.
Enjoy hearing from you in addressing the questions look forward to talking to all of you as we go forward here and continuing to kind of bring you up to speed on the progress that we see of Radian also 1 of the thank our team our entire team across radian for.
The continued.
The dedication and commitment they are demonstrating through.
The challenging environment, whether it's COVID-19 pandemic environment remote work environment. The team has performed on a very high level. So I think of.
Our board for their support and look forward to talking to all of you soon take care of the well.
We will talk soon.
Thank you and thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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