Q3 2021 Radian Group Inc Earnings Call

Welcome to the Radians third quarter 2021 earnings call. My name is Jenny and 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.

Note that this conference is being recorded I will now turn the call over to senior Vice President Investor Relations and corporate development, John Damian Mr. Damian you may begin.

Thank you and welcome to Radians third 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 dot.

Tom.

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 a 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 to relate it homogeneous profit margins a complete description of all of our non-GAAP measures may be found in press release exhibit F and reconciliations that'd be.

These measures to GAAP may be found in press release exhibit G and booth exhibits or on the investors section of our website.

This morning, you will 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 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.

<unk> 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 Radian I am pleased to say that we continue to see strong growth in the housing and real estate markets driven by historically low interest rates of robust demand and while we continue to closely monitor the pandemic and the economic environment.

But we are encouraged by the favorable credit trends within our insured portfolio that increasingly reflect a return to a more certain operating environment.

Frank will discuss the details of our financial position shortly but let me first share a few highlights and insights from the third quarter. We reported net income of $126 million or <unk> 67 cents per share for the third quarter and adjusted diluted net operating income per share was also 67.

We grew our book value per share by 9% year over year, we achieved this growth even after accounting for more than $100 billion of dividends that we returned to stockholders over the past year.

For our mortgage segment, we remain focused on writing new business at attractive returns that we believe will generate long term economic value and future earnings for radian and its stockholders.

During the third quarter, we wrote $26 $6 billion of high quality, new mortgage insurance business and our primary insurance in force grew by $4 $3 billion from the second quarter to $241 6 billion at September 30th.

As we noted last quarter, we believe the industry has transitioned to a more stable competitive environment, where we would expect to maintain our pro rata share of the market over the long term with some expected quarter to quarter market share shifts across the industry.

We are seeing continued improvement in the credit performance of our portfolio with a 46% year over year decline as our total number of defaulted loans.

We saw a 60% decline year over year in the number of new notices of default received in the quarter. In fact, the number of new notices of default during the second and third quarters.

At or below pre COVID-19 levels.

Strong cure activity has continued with curious outpacing new defaults for each month since June 2020, the cure of the new default ratio in the third quarter of 2021 was the 178%.

As I had mentioned since the onset of the pandemic the outstanding support by the government GSE as an industry in the form of forbearance programs for homeowners struggling to meet their mortgage payments has proven to be very beneficial to all stakeholders. As these forbearance programs begin to expire September 30 of <unk>.

We are working closely with Servicers and the GSE is as they seek to successfully migrate.

Borrowers to a current status.

Moving through the use of payment deferral programs or the appropriate workout solution. We expect that we will have greater visibility over the next few quarters. So to the ultimate resolution of the loans exiting forbearance programs in <unk>.

The overall housing market, we saw positive trends continuing into third quarter.

Based on September data from our one Radian home price Index continued strong housing demand and relatively limited supply in the market led to an annualized 17, 6% increase in home prices across the country.

We continue to expect the rate of home price appreciation to moderate over time, but we believe the combination of an improving economy.

Housing dynamics in terms of demand supply home values of mortgage underwriting.

Relatively low mortgage interest rates as well as strong income growth our worldwide for healthy and sustainable housing market.

Our new mortgage insurance business was 90% purchase volume in the third quarter versus only 71% a year ago.

Based on updated market projections for 2021 mortgage originations, we now expect the private mortgage insurance market to be approximately 575 to 600 billion.

Which would be slightly lower than the record volume in 2020, but still represent the second highest volume year in history.

Looking ahead total mortgage originations for 2022 are estimated to be approximately three trillion dollars.

Reflecting the 10% increase in purchase originations and a 55% decrease in refinance activity.

While the overall market is projected to be smaller in 2022 and 2021 the growth in the purchase market is positive for the mortgage insurance industry and is expected to fuel or the other strong market for private, thereby giving them a higher likelihood that purchase loans will utilize private mortgage insurance as compare.

To refinance loans is expected to be among the largest private thereby markets in history.

It is also important to highlight that the expected decline in refinance originations in 2022 is likely to result in improved persistency in our mortgage insurance in force portfolio.

Overall, we believe the improving macroeconomic conditions and strong home purchase market fueled by first time homebuyers provides strong tailwind for long term growth and the economic value of projected future earnings of our mortgage insurance portfolio.

Turning to our home genius segment total revenues for the third quarter were $45 1 billion, representing a 35% increase from the second quarter of 2021 and after.

51% increase year over year.

This was primarily driven by an increase in our title revenue, which grew 106% year over year as well as growth of our valuation business.

As we discussed at our <unk> Investor Day in June we believe <unk> has the potential for significant value creation and financial contribution going forward to Frank who will discuss our progress against our financial projections.

In terms of capital strength, but September 30th Radian group maintained a strong capital position with $1 billion of total holding company liquidity. Additionally, at September 30th Radian, Guaranty's Pmiers excess available assets was $1 7 billion.

Or cushion of 49%.

Mike will provide additional details on our capital actions and positioned at the moment.

Turning to the regulatory and legislative landscape since assuming the role of acting director of FHFA in June So Andrew Thompson has taken meaningful steps to prioritize access of affordability of mortgage credit.

I believe the recent lifting of the preferred stock purchase agreement caps layered risks the newly proposed amendment to the enterprise capital framework to reduce GSC required capital levels in the various direct market actions such as eliminating the 50 basis point adverse market fee for refinance loans and expanding.

Eligibility for the refi and refi possible programs represent a notable shift in focus.

We expect the Fhfa's efforts to expand access to homeownership to continue.

It is the only source of private capital currently dedicated the first loss mortgage credit protection, we look forward to working with the FHFA and the GSE is to identify pursue thoughtful and meaningful opportunities to increase sustainable homeownership, among low and moderate income borrowers. Ultimately this is good for <unk>.

The economy and for homeownership and given our strong alignment with first time homebuyers for the mortgage insurance industry as well at radian, It aligns perfectly with our values and overall mission to ensure the American dream of homeownership.

Now I'd 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 $164 1 million or <unk> 67 per diluted share for the third quarter of 2021 as compared to <unk> 80 per diluted share in the second quarter of 2021, and <unk> 70 per diluted share in the third.

Third quarter of 2020.

Adjusted diluted net operating income was 67 per share in the third quarter of 2021 compared to 75 cents in the second quarter of 2021 and 59 in the third quarter of 2020.

I'll now turn to the key drivers of our revenue.

As Rick mentioned earlier, our new insurance written was $26 $6 billion during the quarter compared to $21 $7 billion in the second quarter of 2021, and $33 $3 billion into third quarter of 2020.

New insurance written for purchase transactions was $23 9 billion, an increase of 2% year over year, and 43% compared to the second quarter of 2021.

Purchase volume accounted for 90% of our total new insurance written for the third quarter, an increase from 77% of volume in the prior quarter and 75% in the third quarter of 2020.

Primary insurance in force increased $4 $3 billion during the quarter to $241 $6 billion.

On a year over year basis primary insurance in force has declined approximately 2% primarily driven by sustained low persistency, resulting from policy cancellations during a low interest rate high refinance period it.

It is important to note however, the mix shift of our in force portfolio. During this past year.

Monthly premium insurance in force, which drives the majority of our earned premiums has grown 6% year over year compared to a 25% decline in single premium insurance in force it.

It should also be noted that prepayments in single premium insurance in force enhances our realized returns as the life over which the single premium is recognized is shortened.

Our quarterly annualized persistency rate was 67, 5% this quarter an increase from 66, 3% in the second quarter of 2021.

And 60% in the third quarter of 2020.

The year over year increase in quarterly annualized persistency is primarily driven by lower refinance activity in the third quarter of 2021 as compared to the same quarter last year.

While persistency is expected to improve during the remainder of 2021. We also expect persistency to remain below our historic long term levels for the foreseeable future given the current pace of refinance activity.

Moving now to our earned premiums and other revenues.

Total net premiums earned were $249 $1 million in the third quarter of 2021 compared to $254 $8 million in the second quarter of 2021 and $286 $5 million in the third quarter of 2020.

The decrease on both a linked quarter and year over year basis are primarily driven by lower accelerated premium recognition due to single premium policy cancellations.

As well as a continued decline in our in force premium yield.

Title premiums increased to $12 $3 million in the third quarter of 2021 compared to $7 $7 million in the second quarter of 2021.

Slide 10 shows the mortgage insurance premium yield trend over the past five quarters.

Our direct in force premium yield was 43 basis points this quarter compared to 41, one basis points last quarter and $43 two basis points in the third quarter of 2020.

With regard to pricing on new business, we remain focused on maximizing projected economic value and generating attractive risk adjusted returns and while we expect to generate a pro rata volume overall, we target the volume with the highest economic value.

Our homogeneous segment revenues were $45 1 million for the third quarter of 2021, representing a 35% increase compared to the second.

Quarter of 2021, and a 51% increase compared to the third quarter of 2020.

Our reported homogeneous pre tax operating loss before allocated corporate operating expenses were $600000 for the third quarter of 2021 compared to a loss of $4 $5 million for the second quarter of 2021.

Our reported home genius adjusted gross profit for the third quarter of 2021 was $17 9 million compared to $11 $7 million for the second quarter of 2021.

A reconciliation of these items can be found on exhibit G.

As noted on slide 22, we continue to make progress against our targets as communicated earlier this year with homogeneous revenues still tracking towards our goal of $150 million for 2021.

Our target for pre tax operating income before allocations was updated primarily to reflect adjustments made this quarter to recognize the impact of companywide incentive expense accruals.

Our investment income this quarter of $36 million was relatively flat compared to the prior quarter and 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 five 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 third quarter of 2021 was $16 $8 million, an increase compared to $3 $3 million in the second quarter of 2021, and a decrease compared to $87 $8 million in the third quarter of 2020.

As shown on slide 14, we had approximately 8100, new defaults in both the third and second quarters of 2021 compared to approximately 21000 in the third quarter of 2020.

Also as noted on slide 13, the provision for losses for the third quarter 2021 includes a positive development on prior defaults of $16 $5 million. This positive development was primarily driven by more favorable trends in tears than originally estimated which resulted in a <unk>.

Reduction in certain default to claim rate assumptions related to defaults first reported prior to the onset of the COVID-19 pandemic.

We maintained our prior quarter assumptions for defaults reported since the start of the pandemic, including the default to claim rate assumption on new defaults at 8% for the third quarter of 2021.

We continue to closely monitor the trends in tears and claims for that portion of our default inventory, including the resolution of COVID-19 related forbearance programs.

As shown on slide 16, 67% of all defaults were reported to be in a forbearance program as of September 32021.

Based on information provided by Servicers. We currently expect that substantially all defaults as of September 32021 under a forbearance plan will reach the scheduled expiration of their forbearance term by the end of the third quarter 2022.

And that approximately half of this population will reach that exploration before year end 2021.

These estimates are based on the date each loan was reported as entering forbearance and the maximum forbearance term available to the borrowers at that time.

As a reminder, forbearance programs are positive for our industry and for home owners as they are intended to keep people in their homes through what is expected to be a temporary economic disruption.

It should also be noted that approximately 89% of new defaults from the second quarter of 2020, and 85% of new defaults from the third quarter 2020 have cured as of the end of October.

Now turning to expenses.

Other operating expenses were $86 $5 million into the third quarter of 2021 flat to the second quarter of 2021 and increased compared to $69 $4 million in the third quarter of 2020.

The increase in other operating expenses as compared to the prior year is primarily related to an increase in incentive compensation expense, including long term share based incentive compensation as well as a $6 $7 million decrease in ceding commissions associated with lower single.

Premium acceleration.

It should also be noted that as homogeneous revenues and earnings continue to grow our total expenses will grow as well.

Over the next year, we expect consolidated normalized quarterly operating expenses to grow from approximately $72 million to approximately $85 million, which will depend largely on the timing and the execution of our home genius segment revenue growth strategy.

Our mortgage segment, however should have relatively flat quarterly expenses at just under $60 million.

Moving now to taxes.

Our overall effective tax rate for the third quarter of 2021 was 21, 8%.

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 $7 billion as of the end of the third quarter, which represents a 49% pmiers cushion.

As of September 32021, we have reduced radian guaranty's pmiers minimum required asset requirements by $1 billion by distributing risk through both insurance linked notes reinsurance and other third party reinsurance arrangements as noted on press release exhibit L.

And subsequent to our third quarter, and Radian announced the pricing of a $484 $1 million aggregate principal amount of mortgage insurance linked notes issued by Eagle re 2021 Dash too limited.

In connection with this transaction Radian guaranty will receive $484 $1 million.

Fully collateralized aggregate excess of loss reinsurance coverage from Eagle re at closing.

Excess of loss reinsurance will cover mortgage insurance losses on new defaults on an existing portfolio of eligible policies with risk in force of $10 $8 billion.

There were issued predominantly between January one 2021 and July 31 2021.

For Radian group as of September 32021, we maintained $768 million of available liquidity compared to $923 million as of June 32021.

The primary driver of this decline with share repurchase activity, which I will discuss in more detail in a moment.

Along with our recurring shareholder dividend payments, partially offset by a $36 million ordinary dividend paid by our radian reinsurance subsidiary.

Total liquidity, which includes the company's 267 $5 million credit facility was $1 billion as of September 32021.

It is important to reiterate 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.

During the third quarter of 2021, we repurchased seven 1 million shares and year to date through October 31st we have purchased 13 3 million shares or approximately 7% of our outstanding shares at an average share price of $22.78.

Or an approximate 3% discount to our current book value.

As of October 31, we have approximately $95 million of remaining repurchase authorization, which expires on August 31 of next year.

We have also continued to pay a dividend to common shareholders throughout the pandemic, including during the third quarter of 2021, as we returned approximately $27 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 82% of our after tax operating income for this year.

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 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, maintaining the strong capital position with $1 billion of total holding company liquidity. We've seen continued improvement in the credit performance of our portfolio.

Reflects a return to a more certain operating environment.

$26 $6 billion of high quality, new mortgage insurance business, which helped grow our primary mortgage insurance in force to 241 $6 billion homogeneous revenues increased by 51% year over year.

Finally, I wanted to mention how proud I am of our team's continued dedication to our customers our communities and each other during the quarter. We were recognized as a champion of board diversity by the forum of executive women and raised a total of $165000 for the NBA opens.

Stores Foundation, an organization that shares our mission of enabling that protecting homeownership.

Many of you are familiar with our annual fundraiser for the foundation, which helps families with critically ill or injured children to remain in their homes, while their children are in treatment.

Wanted to take a moment to thank all who helped to make our campaign a huge success for an outstanding cost now.

Now operator, we would be happy to take questions.

Thank you have a question. Please press Star then one on your Touchtone phone.

I wish to be removed from the queue. Please press the pound sign are the hash key if you're 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 one on your Touchtone phone.

And our first question comes from Doug harder from Credit Suisse. Please go ahead.

Thanks.

Hoping you could just talk a little bit about.

The competitive dynamics are that that happened on the MRI space during the quarter and just if any particular areas where.

Where are you.

Thinking we're more effective at winning winning business this particular quarter.

Yeah.

Yes. This is derrick so in terms of the competitive dynamics and Rick alluded to this in his opening remarks. So what we kind of saw I would say kind of that second half of the second quarter. We saw increased kind of stabilization in the competitive environment.

We saw some price decreasing in the first half, but that really stabilized and that allowed us an effective opportunity as we've indicated long term, we would expect our market share to be in kind of that pro rata range to give up market share and kind of phases, where you've seen price volatility so with that stability, we found better opportunities.

Distribute capital across the credit spectrum. We also saw was an opportunity this quarter to lean into certain credit segment. So while our in IW is up our capital deployment was up even more this quarter. So we saw pretty good value and that also plays to our strength when we have that stability.

What we're looking for as Frank referenced is that portion of the market with the highest economic value and so a lot of our analytics are focused on that really moving in and out of positions based upon where we see that relative value and I would characterize overall kind of where we see value when pricing, we see good value kind of across the spectrum.

The different pricing schemes most of our pickup was really in the black box segment in our radar rates is where are we kind of picked up I would say the most market share this quarter.

Great. Thank you Derrick.

And our next question comes from Nick Cullen Johnson from B Riley Security. Please go ahead.

Hey, good morning, Thanks for taking my questions.

Looking at the homogeneous segment.

20 lowest quarter for revenue was the fourth quarter is there any sort of seasonality to the top line there that might make that the case again in 'twenty, one or do you think that this morning.

Isolated data point there.

Yes, Colin that's a great question. This is Rick I think.

Today, we.

We remain committed to our guidance that we provided in terms of total revenue I think you know there is seasonality in the mortgage business and real estate business generally right. So we would we would look at home genius today as being kind of in that in that market space today, where you could see seasonality I think different factors play them.

In the last year than what we would see this year.

I think we've given guidance around 2021 and 2022 in terms of revenue and we continue to remain confident about that I would I would say that.

R R.

It couldnt be more proud of the team that's executing our home genius plan and really the progress being made and when you look at kind of from our from our side, we're continuing to see our customer pipelines build but just as importantly, not only are we adding new clients, we're penetrating existing clients. So.

We're happy about the business that we're doing but we're.

We're in this room.

In the mortgage real estate cycles, if you will.

Managed to navigate goes through and feel comfortable with the guidance that we've provided.

Got it that's helpful. And then just sticking with that with the homogeneous segment.

The presentation that the SaaS contribution to revenue has been.

Lower than the low end of the target. So I was just curious what might cause that to ramp up and get closer to that target here kind of an intermediate term.

Yes, I think as we as we went through and thank you for that question as we went through at Investor Day really are focused on kind of the growth in SaaS. It really comes starting in 2022. So anything that you see happening. This year is kind of on the early side.

Say is from a homogeneous perspective.

Title business as we as we said in.

And kind of forecasts that are title would would lead the growth kind of early on here with kind of our SaaS business. Following in our other real estate services provided in a very.

Study and valuable contribution along the way so we have in our SaaS business.

We're early in the rollout I would say from a customer point of view the feedback on our smart workflow system in our property intelligence platforms have been very.

Very very positive and very encouraging and so I think as we roll to 2022, we would expect to see.

Contribution start to develop from a SaaS business. So I think what we did is we focus.

Focused on Investor day, more about the number of users that we grow over a period of time and so we would look to start to discuss and provide that information as we get into 2022.

Okay, Great. That's helpful I'll leave it there thank you.

Thank you Colin.

And our next question comes from Mark Devries from Barclays. Please go ahead.

Yeah. Thanks.

No I understand.

The net yield is tough to model given some of the drivers there.

But for the enforced portfolio of premium yield.

How close do you think we are from seeing that bottom just given the risk youre writing today.

Yeah, Mark this is Frank.

It's a good question and one that.

Think we've been answering it for for many quarters now.

As we've said before it really is a matter of the mathematics associated with bringing in new business with particular risk mix in a particular premium level.

Relative to what stays in the portfolio what runs off and looking at all of those attributes. There generally speaking we have guided that we expect to see that that premium yield decline over time actually for several years now in fact.

In force portfolio yield has declined about.

Just under seven basis points over the previous seven quarters, So you're seeing about a basis point per quarter coming out of there and I would say our decline here isn't that much different that's not to suggest that that's a that's a run rate to bake in.

But it really is.

Difficult to predict in that regard, but I do think.

So directionally.

We would expect to see that continue for a for a bit longer.

Okay.

Understood and then sorry, if I missed this did you discuss kind.

What caused the year over year increase in the underwriting expenses.

Yes, so year over year. It was a it was incentive comp expense.

Okay got it would you expect that to remain elevated in the fourth quarter.

I know, it's generally seasonal.

As we look to true up accruals and things like that for year end.

The the magnitude of change generally in the fourth quarter is it.

As needed.

Okay got it thank you.

And our next question comes from Mihir Bhatia from Bank of America. Please go ahead.

Hi, Thank you for taking my question questions and let me apologize upfront for maybe beating a dead horse, but I did want to follow up on marks question about premium rates and where they stabilize maybe talk about your yield on and IW, how that has been trending or where that is.

The in force yield or at least some puts and takes.

Rami you on the premium yield I guess, we're struggling a little bit with as you know last year, you raised rates a little bit and then this year you.

I guess rates are back to pre pandemic levels and we're seeing.

Premium.

Paul its premium yields decline and the question I guess is will there be declining at a faster pace a little bit here.

This yours policies come on at a lower and IW comes on at a lower yield than even last year.

Anything you can help us more on that on just in terms of the outlook for premium rates would be great.

Sure sure thing to hear I'll I'll start this is Frank I'll start and then maybe turn it over to Derek for some additional color on market dynamics.

I would suggest to you again and I and I know, it's frustrating to try to predict us but.

We look.

At where value is across the risk spectrum.

We want to maintain our nimbleness and make sure that we are able to write the business, where we see the greatest values that doesn't always mean that it's the same risk dimension and so because of that it also means because the premium rates can vary and so that's what really makes this particular metric a difficult one.

To predict.

Directionally is probably the best that we can do for you and then keep in mind also.

And Derek can touch on this a bit more the rate dynamic that we saw before COVID-19 during COVID-19 and post Covid I would say it was unusual volatility.

Just for a very specific event there so.

Again, the best I can do for you Directionally is just to say that the trend is likely to continue it.

It is a competitive pricing.

Dynamic overall, and that's not unusual we've been saying that for years.

But again, what we're focused on is finding value and and that can create some some differences in what's actually.

Produce on an <unk> basis from a from a risk perspective, so it Derrick I don't know if you'd add anything else. There yeah. I think you hit upon it Frank in terms of the risk mix is very important right. So what we're doing is we're deploying capital.

Looking to maximize the economic value and the return on that capital and so with respect to that and I'm going to do this as well we will move in and out of different credit segments and correspondingly the premium rates will kind of shift as we move in and out. So you can have situations and I would argue we've kind of seen that bit here, where you had seen.

Overall in the industry a premium rate decline in the first half you've seen stabilization I would say our premium rate has stayed relatively stable, but that that we've moved the rest mix now we're not looking to maximize necessarily that premium rate that is an important component, but that's kind of an output in terms of our decision.

Which is to focus on economic value and maximizing that so it's very hard to say the other thing you have it and it's just a shift between refi and purchase mix. So have you seen that purchase volume increase you'd seen that move around as well you also have to factor in what you think the duration is on the policy and so as a result, and then finally I would say whatever.

We seek to do we live in a competitive environment. So ultimately when we're trying to project the portfolio yield it's dependent upon.

What the competitive environment looks as it looks like as well I think that's why it does make it difficult to give a projection here's where it will be in this period of time.

And here this is Frank again.

Just close it out with one other observation, which I know you know is you know as you look at persistency and increasing persistency.

That's actually going to decrease the rate of change you're likely to see in the portfolio yield overall.

Lower persistency is going to cause a faster turn.

The portfolio, but.

We're starting to see some modest upticks there.

And persistency, so I think that bodes well for us.

Okay No I appreciate that.

Totally I think we appreciate that your pricing to maximizing premiums.

Premiums, it's just little challenging from the outside I can only on in the process to see that maybe just switching gears a little bit on homogeneous continues to be a JV off investment and obviously you've talked about it at.

Genius Investor Day, a few.

Months ago, but maybe just talk a little bit about where the growth is coming from who are you competing against in those businesses, particularly on the I guess on the title side, it's kind of straightforward, but outside the title side, who are you competing from are you winning business.

There's new business from competitors or is it just people choosing to outsource like talk about some of the dynamics since almost a non title businesses within that please. Thank you yeah, yeah, but here. Thank you for the question I think I think first off I don't want to I don't want to exclude the title business because I think what's interesting about the title business as we are a new entrant.

And you could consider as a new entrant.

And leveraging our relationships.

With lenders through our MRO business and other businesses, we've been able to gain relationships on the title side.

With some of those key relationships. So we're growing new relationships on the title side.

At the same time through service and just the.

The execution by our teams from a service delivery perspective, we're penetrating those clients, which is very very important kind of as we see.

Market shifts.

On the mortgage side, so I think yes.

As we said in Investor day, we'd start with kind of lead the growth and then it's done that and we feel good about our business and we look forward to growing that on the.

On the real estate services side say valuation and asset management. So far we've actually seen were very strong and.

Market, leading player across across the asset management side, and even though Oreo has been pretty much shut down because of the foreclosure moratorium, we see that kind of lifting going into 2022, and we've seen great strength in the us so far business. So.

A leading player in that business, it's small but it's.

It's a it's a very nice contribution to our business and then on the SaaS business. It is early.

We are competing the competition there is.

You know generally.

Other technology players with I would say niche solutions kind of narrow solutions and I think what we're doing is we're bringing the kind of people have described it as kind of a new category in terms of smart workflows systems for Realtors and property intelligence.

Platforms realtor, so not to say, we don't have competition because we do.

We define kind of a better way of doing business for real estate agents I think you know we're competing with.

As seen in legacy players there too.

Take market share away from them right, so, but with new and different and better model. So it's early but again the feedback has been very positive from the customers and kind of the discussions that we've been having as we've been.

Starting on Bell.

Our different capabilities and so that's what gives us.

It gives us confidence in the future. So hopefully that helps you, but I would say look where everything we do is in a competitive market and we try to determine.

Are we able to do it better than the competition cheaper better value propositions and I think in all cases today, we feel confident about the value proposition, we offer across our whole genius business to be highly competitive kind of what's next and an opportunity to be more of a disruptor in kind of a traditional.

A C player.

Understood. Thank you.

Ask one last question and then I have one on one of the more supplies.

Applies the call.

Just on the regulatory you mentioned the FHA offerings looking to expand can you just talk about some of the puts and takes from that have you heard any rumblings of doing away with life of loan coverage or a sliding scale.

Adopting sliding scales for premium rates changes to the army program, whether or even like rate cuts just your views on some of that thank you.

Well you know.

There could add to this because he is chairman of somebody also has great visibility into this but I would say look we saw FHA right in terms of what I think you're referring to FHA.

Take take.

Take a very considered view early this year when there was discussions about premium cuts. So I think as an industry certainly is ready and we all felt like what we'd heard being discussed would not have a material impact on our business. So I think we still feel that way.

Obviously any any changes from that point of view could also be could there could also be changes from the GSE perspective, too in terms of loan level pricing adjustments. So I think today.

Obviously theres a theres the actuarial report on the on the strength of.

The fund FHA coming out soon and we'll see where that is but I think they're still there.

There's been great discipline around kind of considerations about changes to FHA pricing I think it's a balance between public policy, maybe politics, if you will compared with what is.

Business practices. So we will have to see I recently I've not heard much chatter I don't know Derek if you want to add anything to that.

No I think you hit the key points I don't think they have an important thing to keep in mind is it's just.

Less of a significant risk for us than what it had been historically because there's just less about credit overlap in terms of where we're generally writing business and I think when we looked at in the past I think if we thought about like a 25 basis point reduction FHA premium I think back when this was kind of a hot topic I think we estimated that was probably going to move a lot.

And 5% of the volume seems way, but as Rick alluded to the GSA is are also looking at and the FHFA I think focused on.

Things like loan level price adjustments in G fees as well. So you can have a shift there also where that markets expanding in size. So it's tough to see where it all shakes out.

Yes, I think I think it's important to think that nothing happens with isolation and the other issue. That's just a primary consideration out there, which we've talked about before is anything you do to reduce price only further.

The issue of supply and demand right. So your increase.

Demand by pre.

Providing more attractive pricing and the supply side of things is extremely limited. So you could actually cause issues with affordability just by reducing price thinking you're helping borrowers right. Because you know increasing demand against a finite supply. We all learned that economics 101, So I think the good news.

Theres been very thoughtful consideration that as we've gone through and we will continue to work we're working very closely with.

FHFA and the GSE is there can team around opportunities for us to really work together to address the.

Low to moderate income affordability and access to financing.

Constructive sustainable way.

I'm very optimistic.

Going to be some very positive outcomes to those efforts as we work together as an industry to really kind of what's the for all trying to solve some of those issues and I think it's time to do it.

Understood. Thank you.

Thank you.

And as a reminder, if you have a question. Please press Star then one on your Touchtone phone. Our next question comes from Bob George from K B W. Please go ahead.

Hey, good afternoon, I just wanted to go back to the discussion on expenses.

The $60 million that you guys guided to.

Is that just for the operating expense number and then we should add whatever mid single digits or the policy acquisition costs.

Yeah that is for that as for the other operating expenses.

Correct.

Okay, and then like if I look at that number say 65 ish million a quarter and it seems to work out the kind of a.

Close to 30% expense ratio.

I mean is it like when you target your mid teens.

Ro.

And what kind of expense ratio do you kind of build into that.

Yes, so we look at really just our historic and we do a periodic updates on the expense.

Assignment that we give for our return calculation and so we look at our historical.

Costs associated with that there are some.

Allocations that we put in there so it's a combination of <unk>.

Direct and some indirect costs, but it's an estimate that we.

Put forward.

And and estimating that.

Okay, Yeah, I'm, just curious I mean, your I guess.

Peers with similar insurance enforced so kind of in the low 20. So do you think theres room to kind of get the expense ratio down a little lower.

Yeah, I mean, we're always and those are if you followed us long enough to know this we're always looking for ways to be more efficient to leverage technology.

Two to create positive operating leverage in the business.

Say it is to the point, where we wouldn't want to suggest that there are big gaps that we're managing to but more just refinements that we'll see over time.

Yeah.

Okay, great. Thanks, a lot.

And our next question comes from Ryan Gilbert from <unk>. Please go ahead.

Hi, Thanks. Good morning, guys. On first question is on insurance in force I really nice to see the sequential pick up in the third quarter.

And just thinking through.

Your prepared remarks around persistency in the total market in 2022 being smaller than 'twenty. One do you do you believe or do you think that you can continue to grow insurance in force or do we think that.

Improvement in persistency that we expect isn't it isn't going to be enough to offset declining then IW.

Yes. This is Frank and I. Appreciate the question I think one is especially given the size of our in force portfolio, which is among the largest in the industry.

And our market share expectations.

I think the factors that would influence growth.

Are things like just the size of the overall market et cetera relative to higher persistency.

Wouldn't want to suggest that.

There would be a.

It kept growth there, but I think the growth factors are certainly.

Possible in the coming years, just given some of the variables that you mentioned, but.

It is similar to our portfolio yield.

It's a bit challenging to predict just given what the landscape for refinance activity might be like and.

And what the what the niwa might be like but but but I would certainly suggest.

Suggest that.

Some modest growth could could be there.

Yeah.

By now the Frank's comments too right I mean, when you look at the macro factors as I shared in my prepared remarks, when you think about.

The refinance market projected to decline by 55% next year.

That has.

Assuming that plays out that that should have a positive impact on persistency and we also talk about in the context of.

The purchase market continues to have strong tailwind. So we see growth in purchase market, where <unk> is likely to participate. So we do still see one of the one of the larger markets, albeit may be smaller than 2021 and 2020 for the <unk> business. So when you look at the macro factors are cut all potentially pointed.

In the right direction to kind of increase persistency and also.

Continue to see strong mortgage insurance participation across them.

Purchase mortgage market, but again in terms of forward forecast, we look at more of the macro trends in and participated in go go full force.

<unk> comments, and it's sometimes hard to predict because of timing of some of these factors.

Okay got it really helpful. On my second question is on homogeneous I'm wondering if zillow is exit from that business has changed your view on home geniuses total addressable market.

No not at all.

You don't want to comment on Zillow I read I read the stories in.

I give them credit for trying something.

Turning something bold.

But you know why why they made the decision to get in and get out.

Leave that to them, but for us our focus and conviction on the whole genius and the size and scale in the addressable market of.

Genius across mortgage and real estate markets remains very large.

And no part of it really related to <unk>.

Actually do business with our buyers.

Our investors.

I think what should the high by our focus was kind of addressing some of these so far investors' needs, but I think they're actually it doesn't really impact our business.

For us we continue to see the same opportunities we've seen for the last year or two around the space and why we're so focused on it.

Okay, great. Thanks, very much I appreciate it.

Thank you.

We have no further questions at this time I will now turn it over to CEO Rick Thornberry.

Thank you and thank you everybody for participating on our call today and we appreciate your questions.

Hopefully, we'll have an opportunity to talk to many of you in the coming days or weeks, but.

As always stay safe be safe, but hope the holiday season goes well for everybody over the coming months and we look forward to seeing you in person at some point again. Thank you for your participation today and also thank you to our team who's doing a fantastic job and I couldnt be more proud across our mortgage and home <unk>.

This is how the dedication and commitment that they've demonstrated every day really helps us drive this business for it. So thank you have a great day.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

Okay.

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Yeah.

Okay.

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[music].

Welcome to the Radians third quarter 2021 earnings call. My name is Jenny and 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'll now turn the call over to senior Vice President Investor Relations and corporate development, John Damian Mr. Damian you may begin.

Thank you and welcome to Radians third 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 radiant Dot com.

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 own genius 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 their related homogeneous profit margins a complete description of all of our non-GAAP measures maybe found in press release exhibit F and reconciliations that'd be.

These measures to GAAP may be found in press release exhibit G and birth exhibits or on the investors section of our website.

This morning, you will 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 before we begin I would like to remind you that comments made during this call will include forward looking statements.

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.

<unk> 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 Radian.

Pleased to say that we continue to see strong growth in the housing and real estate markets driven by historically low interest rates and robust demand and while we continue to closely monitor the pandemic and the economic environment. We are encouraged by the favorable credit trends within our insured portfolio that increasingly reflect the rich.

Turn to a more certain operating environment.

Frank will discuss the details of our financial position shortly but let me first share a few highlights and insights from the third quarter. We reported net income of $126 million or <unk> 67 per share for the third quarter and adjusted diluted net operating income per share was also 67.

We grew our book value per share by 9% year over year, we achieved this growth even after accounting for more than $100 billion of dividends that we returned to stockholders over the past year.

For our mortgage segment, we remain focused on writing new business at attractive returns that we believe will generate long term economic value and future earnings for radian and its stockholders.

During the third quarter, we wrote $26 $6 billion of high quality, new mortgage insurance business and our primary insurance in force grew by $4 $3 billion from the second quarter to $241 6 billion at September 30th.

As we noted last quarter, we believe the industry has transitioned to a more stable competitive environment, where we would expect to maintain our pro rata share of the market over the long term with some expected quarter to quarter market share shifts across the industry.

We are seeing continued improvement in the credit performance of our portfolio with the 46% year over year decline as our total number of defaulted loans.

We saw a 60% decline year over year in the number of new notices of default received in the quarter. In fact, the number of new notices of default during the second and third quarters, we're at or below pre COVID-19 levels.

Strong cure activity has continued with curious outpacing new defaults for each month since June 2020, the cure of the new default ratio in the third quarter of 2021 was 178%.

As I have mentioned since the onset of the pandemic the outstanding support by the government GSE as an industry in the form of forbearance programs for homeowners struggling to meet their mortgage payments has proven to be very beneficial to all stakeholders. As these forbearance programs began to expire September 30 that'd be.

We are working closely with Servicers and the Gse's as they seek to successfully migrate.

Borrowers to a current status, including through the use of payment deferral programs or the appropriate workout solution. We expect that we will have greater visibility over the next few quarters and so the ultimate resolution of the loans exiting forbearance programs.

In terms of the overall housing market, we saw positive trends continuing in the third quarter.

Based on September data from our one Radian home price Index continued strong housing demand and relatively limited supply in the market led to an annualized 17, 6% increase in home prices across the country.

We continue to expect the rate of home price appreciation to moderate over time, but we believe the combination of an improving economy.

Strong housing dynamics in terms of demand supply home values of mortgage underwriting.

Relatively low mortgage interest rates as well as strong income growth are well aligned for a healthy and sustainable housing market.

Our new mortgage insurance business was 90% purchase volume in the third quarter versus only 71% a year ago.

Based on updated market projections for 2021 mortgage originations, we now expect the private mortgage insurance market to be approximately $575 billion to $600 billion.

Which will be slightly lower than the record volume in 2020, but still represent the second highest volume year in history.

Looking ahead total mortgage originations for 2022 are estimated to be approximately three trillion dollars, reflecting a 10% increase in purchase originations and a 55% decrease in refinance activity. While the overall market is projected to be smaller in 2022, then 2000.

'twenty one the growth in the purchase market is positive for the mortgage insurance industry and is expected to fuel or the other strong market for private them by giving them a higher likelihood that purchase loans will utilize private mortgage insurance as compared to refinance loans. It is expected to be among the largest private that biomarker.

That's in history.

It is also important to highlight that the expected decline in refinance originations in 2022 is likely to result in improved persistency in our mortgage insurance in force portfolio.

Overall, we believe the improving macroeconomic conditions and strong home purchase market fueled by first time homebuyers provides strong tailwind for long term growth and the economic value and projected future earnings of our mortgage insurance portfolio.

Turning to our home genius segment total revenues for the third quarter were $45 1 million, representing a 35% increase from the second quarter of 2021, and a 51% increase year over year.

This was primarily driven by an increase in our title revenue, which grew 106% year over year as well as growth of our valuation business.

Okay.

As we discussed during our whole juice Investor day in June we believe <unk> has the potential for significant value creation and financial contribution going forward and it's Frank who will discuss our progress against our financial projections.

In terms of capital strength September 30th Radian group maintained a strong capital position with $1 billion of total holding company liquidity. Additionally, at September 30th Radian, Guaranty's, Pmiers excess available assets was $1 $7 billion or cushion of 49%.

Frank will provide additional details on our capital actions in position at the moment.

Turning to the regulatory and legislative landscape.

Since assuming the role of acting director of FHFA and June Sandra Thompson, Who's taking meaningful steps to prioritize access of affordability of mortgage credit.

Notably the recent lifting of the preferred stock purchase agreement caps on layered risk the newly proposed amendment to the enterprise capital framework to reduce GSC required capital levels in the various direct market actions such as eliminating the 50 basis point al Gore Sparklet feed for refinance loans and.

The eligibility for the refi now in refi possible programs represent a notable shift in focus.

We expect the Fhfa's efforts to expand access to homeownership to continue.

It is the only source of private capital currently dedicated the first loss mortgage credit protection, we look forward to working with the FHFA and the GSE is to identify and pursue thoughtful and meaningful opportunities to increase sustainable homeownership, among low and moderate income borrowers. Ultimately this is good.

For the economy and for homeownership and given our strong alignment with first time homebuyers for the mortgage insurance industry as well at radian, It aligns perfectly with our values and overall mission to ensure the American dream of homeownership.

Now I'd 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 $164 $1 million or 67 per diluted share for the third quarter of 2021 as compared to 80 per diluted share in the second quarter of 2021, and <unk> 70 per diluted share in the third.

Third quarter of 2020.

Adjusted diluted net operating income was 67 per share in the third quarter of 2021 compared to 75 cents in the second quarter of 2021, and 59 cents in the third quarter of 2020.

I'll now turn to the key drivers of our revenue.

As Rick mentioned earlier, our new insurance written was $26 $6 billion during the quarter compared to $21 $7 billion in the second quarter of 2021 and $33 $3 billion in the third quarter of 2020.

New insurance written for purchase transactions was $23 9 billion, an increase of 2% year over year, and 43% compared to the second quarter of 2021.

Purchase volume accounted for 90% of our total new insurance written for the third quarter, an increase from 77% of volume in the prior quarter and 75% in the third quarter of 2020.

Primary insurance in force increased $4 $3 billion during the quarter to $241 $6 billion.

On a year over year basis primary insurance in force has declined approximately 2% primarily driven by sustained low persistency, resulting from policy cancellations during a low interest rate high refinance period it.

It is important to note however, the mix shift of our in force portfolio. During this past year.

Monthly premium insurance in force, which drives the majority of our earned premiums has grown 6% year over year compared to a 25% decline in single premium insurance in force.

It should also be noted that prepayments in single premium insurance in force enhances our realized returns as the life over which the single premium is recognized is shortened.

Our quarterly annualized persistency rate was 67, 5% this quarter and increased from 66, 3% in the second quarter of 2021 and 60% in the third quarter of 2020.

The year over year increase in quarterly annualized persistency is primarily driven by lower refinance activity in the third quarter of 2021 as compared to the same quarter last year.

While persistency is expected to improve during the remainder of 2021. We also expect persistency to remain below our historic long term levels for the foreseeable future given the current pace of refinance activity.

Moving now to our earned premiums and other revenues.

Total net premiums earned were $249 $1 million in the third quarter of 2021 compared to $254 $8 million in the second quarter of 2021 and $286 $5 million in the third quarter of 2020.

The decrease on both a linked quarter and year over year basis are primarily driven by lower accelerated premium recognition due to single premium policy cancellations as well as a continued decline in our in force premium yield.

Title premiums increased to $12 $3 million in the third quarter of 2021 compared to $7 $7 million in the second quarter of 2021.

Slide 10 shows the mortgage insurance premium yield trend over the past five quarters.

Our direct in force premium yield was 43 basis points this quarter compared to 41, one basis points last quarter and 43.2 basis points in the third quarter of 2020.

With regard to pricing on new business, we remain focused on maximizing projected economic value and generating attractive risk adjusted returns and while we expect to generate a pro rata volume overall, we target the volume with the highest economic value.

Our homogeneous segment revenues were $45 $1 million for the third quarter of 2021, representing a 35% increase compared to the second quarter of 2021, and a 51% increase compared to the third quarter of 2020.

Our reported homogeneous pretax operating loss before allocated corporate operating expenses were $600000 for the third quarter of 2021 compared to a loss of $4 $5 million for the second quarter of 2021.

Our reported homogeneous adjusted gross profit for the third quarter of 2021 was $17 9 million compared to $11 $7 million for the second quarter of 2021.

A reconciliation of these items can be found on exhibit G.

As noted on slide 22, we continue to make progress against our targets as communicated earlier this year with homogeneous revenues still tracking towards our goal of $150 million for 2021.

Our target for pre tax operating income before allocations was updated primarily to reflect adjustments made this quarter to recognize the impact of company wide incentive expense accruals.

Our investment income this quarter of $36 million was relatively flat compared to the prior quarter and 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 five 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 third quarter of 2021 was $16 $8 million, an increase compared to $3 $3 million in the second quarter of 2021, and a decrease compared to $87 8 million in the third quarter of 2020.

As shown on slide 14, we had approximately 8100, new defaults in both the third and second quarters of 2021 compared to approximately 21000 in the third quarter of 2020.

Also as noted on slide 13, the provision for losses for the third quarter 2021 includes a positive development on prior defaults of $16 $5 million. This positive development was primarily driven by more favorable trends in tears than originally estimated which resulted in a <unk>.

Reduction in certain default to claim rate assumptions related to defaults first reported prior to the onset of the COVID-19 pandemic.

We maintained our prior quarter assumptions for defaults reported since the start of the pandemic, including the default to claim rate assumption on new defaults at 8% for the third quarter of 2021.

We continue to closely monitor the trends in tears and claims for that portion of our default inventory, including the resolution of COVID-19 related forbearance programs.

As shown on slide 16, 67% of all defaults were reported to be in a forbearance program as of September 32021.

Based on information provided by Servicers. We currently expect that substantially all defaults as of September 32021 under a forbearance plan will reach the scheduled expiration of their forbearance term by the end of the third quarter 2022.

And that approximately half of this population will reach that exploration before year end 2021.

These estimates are based on the date each loan was reported as entering forbearance and the maximum forbearance term available to the borrowers at that time.

As a reminder, 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.

It should also be noted that approximately 89% of new defaults from the second quarter of 2020, and 85% of new defaults from the third quarter 2020 have cured as of the end of October.

Now turning to expenses.

Other operating expenses were $86 $5 million in the third quarter of 2021 flat to the second quarter of 2021 and increased compared to $69 $4 million in the third quarter of 2020.

The increase in other operating expenses as compared to the prior year is primarily related to an increase in incentive compensation expense, including long term share based incentive compensation as well as a $6 $7 million decrease in ceding commissions associated with lower single.

Premium acceleration.

It should also be noted that as homogeneous revenues and earnings continue to grow our total expenses will grow as well.

Over the next year, we expect consolidated normalized quarterly operating expenses to grow from approximately $72 million to approximately $85 million, which will depend largely on the timing and the execution of our home genius segment revenue growth strategy.

Our mortgage segment, however should have relatively flat quarterly expenses at just under $60 million.

Moving now to taxes.

Our overall effective tax rate for the third quarter of 2021 was 21, 8%.

Our annualized effective tax rates 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 $7 billion as of the end of the third quarter, which represents a 49% pmiers cushion.

As of September 32021, we have reduced radian guaranty's pmiers minimum required asset requirements by $1 billion by distributing risk through both insurance linked notes reinsurance and other third party reinsurance arrangements as noted on press release exhibit L.

And subsequent to our third quarter, and Radian announced the pricing of a $484 $1 million aggregate principal amount of mortgage insurance linked notes issued by Eagle re 2021 Dash two limited.

In connection with this transaction Radian guaranty will receive $484 $1 million of fully collateralized aggregate excess of loss reinsurance coverage from Eagle re at closing.

Excess of loss reinsurance will cover mortgage insurance losses on new defaults on an existing portfolio of eligible policies with risk in force of $10 $8 billion that were issued predominantly between January one 2021 and July 31 2021.

For Radian group as of September 32021, we maintained $768 million of available liquidity compared to $923 million as of June 32021.

The primary driver of this decline with share repurchase activity, which I will discuss in more detail in a moment.

Along with our recurring shareholder dividend payments, partially offset by a $36 million ordinary dividend paid by our radian reinsurance subsidiary.

Total liquidity, which includes the company's 267 $5 million credit facility was $1 billion as of September 32021.

It is important to reiterate 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.

During the third quarter of 2021, we repurchased seven 1 million shares and year to date through October 31, we have purchased 13 3 million shares or approximately 7% of our outstanding shares at an average share price of $22.78.

Or an approximate 3% discount to our current book value.

As of October 31st we have approximately $95 million of remaining repurchase authorization, which expires on August 31st of next year.

We have also continued to pay a dividend to common shareholders throughout the pandemic, including during the third quarter of 2021, as we returned approximately $27 million to shareholders through dividends during the quarter.

As a reminder, and as previously announced we increased our quarterly dividend by 12% to 14 cents per share during the second quarter of this year.

The combination of dividend payments and share repurchase represent a return of capital of approximately 82% of our after tax operating income for this year.

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 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 billion of total holding company liquidity. We've seen continued improvement in the credit performance of our portfolio there.

Reflects a return to a more certain operating.

The environment, we wrote 26 $6 billion of high quality, new mortgage insurance business, which helped grow our primary mortgage insurance in force to $241 $6 billion homogeneous revenues increased by 51% year over year. Finally, I wanted to mention how proud.

I am of our team's continued dedication to our customers our communities and each other during the quarter. We were recognized as a champion of board diversity by the forum of executive women and raised a total of $165000 for the NBA opened stores Foundation and.

<unk> shares our mission of enabling that protecting the homeownership I know many of you are familiar with our annual fundraiser for the foundation, which helps families with critically ill or injured children to remain in their homes, while their children are in treatment.

I wanted to take a moment to thank all who helped to make our campaign a huge success for an outstanding cause.

Now operator, we would be happy to take questions.

Thank 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 if you're 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 one on your Touchtone phone.

And our first question comes from Doug harder from Credit Suisse. Please go ahead.

Thanks, I was hoping you could just talk a little bit about the competitive dynamics are that that happened on the MRI space during the quarter and you know just if any particular areas where you.

Where are you thinking we're more effective at winning winning business this particular quarter.

Yeah. This is Derek so in terms of the competitive dynamics and Rick alluded to this in his opening remarks. So what we kind of saw I would say kind of that second half of the second quarter. We saw increased kind of stabilization in the competitive environment. We.

We saw some price decreasing in the first half, but that really stabilized and that allowed us an effective opportunity as we've indicated long term, we would expect our market share to be in kind of that pro rata range to give up market share and kind of phases, where you've seen price volatility so with that stability, we found better opportunities.

Can distribute capital across the credit spectrum. We also saw was an opportunity this quarter to lean into certain credit segment. So while our in IW was up our capital deployment was up even more this quarter. So we saw pretty good value and that also plays to our strength when we have that stability.

Really what we're looking for as Frank referenced is that portion of the market with the highest economic value and so a lot of our analytics are focused on that really moving in and out of positions based upon where we see that relative value and I would characterize overall kind of where we see value when pricing, we see good value kind of across the spectrum.

The different pricing schemes most of our pickup was really in the black box segment in our radar rates is where we kind of picked up I would say the most market share this quarter.

Great. Thank you Derrick.

And our next question comes from Colin Johnson from B Riley Securities. Please go ahead.

Hey, good morning, Thanks for taking my questions.

Looking at the homogeneous segment.

20 lowest quarter for revenue was the fourth quarter is there any sort of seasonality to the top line there that might make that the case again in 'twenty, one or do you think those morning isolated data point there.

Yes, Colin that's a great question. This is Rick I think.

Today, we.

We remain committed to our guidance that we provided in terms of total revenue I think you know there is seasonality in the mortgage business and real estate business generally right. So we would we would look at home genius today as being kind of in that in that market space today, where you could see seasonality I think different factors play there.

In the last year than what we would see this year and.

I think we've given guidance around 2021 and 2022 in terms of revenue and we continue to remain confident on that I would I would say that.

Yeah, I couldnt be more proud of the team.

Executing our home genius plan and really the progress being made and when you look at kind of from our from our side.

We're continuing to see our customer pipelines build but just as important not only are we adding new clients, we're penetrating existing clients. So.

We're happy about the business that we're doing but you know we're.

We're in those were in and the mortgage real estate cycles, if you will.

Manage and navigate it goes through and feel comfortable with the guidance that we've provided.

Got it that's helpful. And then just sticking with the homogeneous segment.

And in the presentation the SaaS contribution to revenue has been.

Lower than the low end of the target. So I'm, just curious what might cause that to ramp up and get closer to that target here kind of thing.

The intermediate term.

Yes, I think as we as we went through again. Thank you for the question as we went through at Investor Day really our focus on kind of the growth in SaaS. It really comes starting in 2022, so anything that you see happening. This year is kind of on the early side.

I would say is from a homogeneous perspective, you know our title business as we as we said in.

And kind of forecasts that are title would would lead the growth kind of early on here with kind of our SaaS business following and our other real estate services provided in a very.

Studying valuable contribution along the way so we have in our SaaS business.

We're early in the rollout I would say from a customer point of view the feedback on our smart workflow system in our property intelligence platforms had been.

Very very positive and very encouraging and so I think as we roll to 2022, we would expect to see.

The contribution start to develop from a SaaS business I think what we did is we focused.

Focused on Investor day, more about the number of users that we grow over a period of time and so we would look to start to discuss and provide that information as we get into 2022.

Okay, Great. That's helpful I'll leave it there thank you.

Thank you Colin.

And our next question comes from Mark Devries from Barclays. Please go ahead.

Yeah. Thanks.

No I understand.

The net yield is tough to model given some of the drivers there.

But for the enforced portfolio of premium yield.

How close do you think we are from seeing that bottom just given the risk youre writing today.

Yeah, Mark this is Frank.

It's a good question and one that.

Think we've been answering it for for many quarters now you know I think as we've said before it really is a matter of the mathematics associated with bringing in new business with particular risk mix in a particular premium level.

Relative to what stays in the portfolio what runs off and looking at all of those attributes. There generally speaking we have guided that we expect to see that.

That premium yield decline over time actually for several years now are in fact are.

In force portfolio yield has declined about me.

Just under seven basis points over the previous seven quarters, So you're seeing about a basis point per quarter coming out of there and I would say a decline here isn't that much different that's not to suggest that that's a.

That's a run rate to bake in.

But it really is.

Difficult to predict in that regard, but I do think.

Directionally.

Would expect to see that continue for a for a bit longer.

Okay understood.

Understood and then sorry, if I missed this did you discuss kind.

Kind of what caused the year over year increase in the am I underwriting expenses.

Yes.

Year over year. It was a it was incentive comp expense.

Okay got it it would you expect that to remain elevated in the fourth quarter.

I know, it's generally seasonal.

We look to true up accruals and things like that for year end.

The the magnitude of change generally in the fourth quarter is.

As needed.

Okay got it thank you.

Yeah.

And our next question comes from Mihir Bhatia from Bank of America. Please go ahead.

Hi, Thank you for taking my question.

Questions and let me apologize upfront for maybe beating a dead horse, but I did want to follow up on marks question about premium rates and where they stabilize maybe talk about your yield on and IW, how that has been trending or where that is relative to the in force yield or at least some puts and takes.

From you on the premium yield I guess like you know the pod was struggling a little bit with is you know last year, you raised rates a little bit and then this year you.

Yes rates are back to pre pandemic levels and we're seeing.

Premium.

In force premium yield decline and the question I guess is will there be declining at a faster pace a little bit here as this shows policies come on at a lower and IW comes on at a lower yield than even last year.

Anything you can help us more on that on just in terms of the outlook for premium rates would be great.

Sure sure thing to hear I'll I'll start this is Frank I'll start and then maybe turn it over to Derek for some additional color on the market dynamics, but you know what I would suggest to you again and I and I know, it's frustrating to try to predict this but you know us.

We look.

At where value is across the risk spectrum.

We want to maintain our nimbleness and make sure that we are able to write the business, where we see the greatest values that doesn't always mean that it's the same risk dimension and so because of that it also means because the premium rates can vary and so that's what really makes this particular metric a difficult one.

To predict.

Directionally is probably the best that we can do for you and then keep in mind also.

And Derek can touch on this a bit more the rate dynamic that we saw before COVID-19 during COVID-19 and post Covid I would say it was was unusual volatility.

Just for a very specific event there so.

Again, the best I can do for you Directionally is just to say that the trend is likely to continue.

It is a competitive pricing.

Dynamic overall, and that's not unusual we've been saying that for years.

But again, what we're focused on is finding value.

And that can create some some differences in what's actually.

Produce on an <unk> basis from a from a risk perspective, so it Derrick I don't know if you'd add anything else. There yeah. I think you hit upon a Frank in terms of the risk mix is very important right. So what we're doing is we're deploying capital.

Looking to maximize the economic value and the return on that capital and so with respect to that and I'm going to do this as well we will move in and out of different credit segments and correspondingly the premium rates will kind of shift as we move in and out. So you can have situations and I would argue we've kind of seen that bit here, where you had seen.

Overall in the industry a premium rate decline in the first half you've seen stabilization I would say our premium rate has stayed relatively stable, but that's out and we've moved the rest mix now we're not looking to maximize necessarily that premium rate that is an important component, but that's kind of an output in terms of our decision.

Which is to focus on the economic value and maximizing that so it's very hard to say the other thing you have it and it's just a shift between refi and purchase mix. So have you seen that purchase volume increase you'd seen that move around as well you also have to factor in what you think the duration is on the policy. So as a result, and then finally I would say whatever.

We seek to do we live in a competitive environment. So ultimately when we're trying to project the portfolio yield it's dependent upon.

What the competitive environment looks as it looks like as well I think that's why it does make it difficult to give a projection here's where it will be in this period of time.

And here this is Frank again.

Just close it out with one other observation, which I know you know is you know as you look at persistency and increasing persistency.

That's actually going to decrease the rate of change you're likely to see in the portfolio yield overall.

Lower persistency is going to cause a faster turn.

The portfolio, but.

We're starting to see some modest upticks there.

And persistency, so I think that bodes well for us.

Okay, No I appreciate that and I totally I think we appreciate that your pricing to maximizing where dawn's premiums. It's just.

Hello challenging from the outside I can only on in the process to see that maybe just switching gears a bit on homogeneous there continues to be our area of investment and obviously you talked about it at home.

Genius Investor Day, a few.

<unk> months ago, but maybe just talk a little bit about where the growth is coming from who are you competing against in those businesses, particularly on the I guess on the title side, it's kind of straightforward, but outside the title side, who are you competing from a you're winning bids.

There's new business from competitors or is it just people choosing to outsource like talk about some of the dynamics since almost a non title businesses within that please. Thank you yeah, yeah, but here. Thank you for the question I think I think first off I don't want to I don't want to exclude the title business because I think what's interesting about the title business as we are a new entrant.

And you could consider as a new entrant.

And leveraging our relationships with.

With lenders through our EMR business and other businesses, we've been able to gain relationships on the title side.

With some of those key relationships. So we're growing new relationships on the title side and at the same time through service and.

The execution by our teams from a service delivery perspective.

Penetrating those clients, which is very very important kind of eventually see.

Market shifts.

On the mortgage side, so I think yes.

Title as we said in Investor day, we'd start with kind of lead the growth.

We feel good about our business and we look forward to growing that.

On the.

On the real estate services side, I'd say valuation and asset management, so far we've actually seen.

We're very strong and.

Market, leading player across across the asset management side, and even though Oreo has been pretty much shut down because of the foreclosure moratorium, we see that kind of lifting going into 2022, and we've seen great strength in the us so far business. So we're we're a leading player in that business. It's small.

It's a it's a very nice contribution to our business and then on the SaaS business. It is early.

We are competing.

Competition, there as you know.

Generally other technology players with I would say niche solutions kind of narrow solutions.

What we're doing those we're bringing the kind of people have described it as kind of a new category in terms of smart workflows systems for Realtors and property intelligence.

Platforms for Realtors, so not to say, we don't have competition because we do.

As we define kind of a better way of doing business for real estate agents. I think you know, we're competing with existing and legacy players there to.

Take market share away from them, right, but with new and different and better model. So it's early.

But again the feedback has been very positive from the customers and kind of the discussions that we've been having as we've been.

Starting on Bell.

Our different capabilities and so that's what gives us.

It gives us confidence in the future. So hopefully that helps you, but I would say look where everything we do is in a competitive market and we try to determine.

Are we able to do it other than the competition cheaper better value proposition and I think in all cases today, we feel confident about the value proposition, we offer across our whole genius business to be highly competitive kind of what's next and an opportunity to be more of a disruptor the kind of traditional.

I guess he players.

Understood. Thank you I'll just ask one last question and then I have one on one.

It applies the call just on the regulatory you mentioned the FHA offerings looking to expand can you just talk about some of the puts and takes from that have you heard any rumblings of doing away with life of loan coverage or a sliding scale.

Adopting sliding scales for premium rates changes to the Ami program, whether or even like rate cuts just your views on some of that thank you.

Well you know.

There can add to this disease.

As chairman somebody also has great visibility into this but I would say look.

We saw FHA right in terms of I think you're referring to FHA.

Take.

Take a very considered view early this year when there was discussions about premium cuts. So I think as an industry certainly has rabies and we all felt like what we've heard being discussed would not have a material impact on our business. So I think we still feel that way.

Obviously any any changes from that point of view could also be because there could also be changes from the GSE perspective, too in terms of our loan level pricing adjustments. So I think today.

Obviously theres a theres the actuarial report on the on the strength of.

The fund FHA coming out soon and we'll see where that is but I think there is still there.

There's been great discipline around kind of considerations about changes to FHA pricing I think it's a balance between public policy and maybe politics, if you will compared with women's.

So business practices. So we will have to see I recently I've not heard much chatter I don't know Derek if you want to add anything to that.

No I think the key point I don't think that the important thing to keep in mind is it's just a less of a significant risk for us than what it had been historically because there's just less about credit overlap in terms of where we're generally writing business and I think when we looked at in the past I think if we thought about like a 25 basis point reduction FHA premium.

I think you know.

And that's what I was kind of a hot topic I think we estimated that was probably going to move less than 5% of the volume DAA. So he's way, but as Rick alluded to the GSA is are also looking at and the FHFA I think focused on things.

Things like loan level price adjustments in G fees as well. So you can have a shift there also where that markets expanding in size. So it's tough to see where it all shakes out.

Yeah, I think I think it's important to think that nothing happens in isolation and the other issue. That's just a primary consideration out there, which we've talked about before is anything that you do to reduce price only further.

<unk> is the issue of supply and demand right. So your increase.

Demand by.

Providing more attractive pricing and the supply side of things is extremely limited so you could actually.

Cause issues with affordability, just by reducing price thinking you're helping borrowers right because you know increasing demand against a finite supply.

I'll learn that economics 101, so I think the good news is theres been very thoughtful consideration that as we've gone through and we will continue to work, we're working very closely with FHA.

HSA in the GSE is there can team around opportunities for us to really work together to address the.

Low to moderate income affordability and access to financing.

Constructive sustainable way.

Wei and I'm very optimistic that there's going to be some very positive outcomes to those efforts as we work together as an industry to really kind of what's the true all trying to solve some of those issues and I think it's time to do it.

Understood. Thank you.

Thank you.

And as a reminder, if you have a question. Please press Star then one on your Touchtone phone. Our next question comes from Bob George from K B W. Please go ahead.

Hey, good afternoon.

I just wanted to go back to the discussion on expenses.

The $60 million that you guys guided to.

Is that just for the operating expense number and then we should add but at mid single digits for the policy acquisition costs.

Yeah that is for that as for the other operating expenses. That's that's correct.

Okay, and then like if I look at that number say 65 ish million a quarter and it seems to work out the kind of.

Close to a 30% expense ratio.

Like when do you target your mid teen this Roe.

And what kind of expense ratio do you kind of build into that.

Yes, so we look at really just our historic and we do a periodic updates on the expense assignment that we give for our return calculation and so we look at our historical.

Costs associated with that there are some allocations.

Allocations that we put in there so it's a combination of.

Direct and some indirect costs, but it's an estimate.

Put forward.

And and estimating that.

Okay. Yeah, I'm, just curious I mean, your I guess peers with similar insurance enforced so kind of in the low 20. So do you think theres room to kind of get your expense ratio down a little lower.

Yeah, I mean, we're always and those are if you followed us long enough to know this we're always looking for ways to be more efficient to leverage technology.

Two to create positive operating leverage in the business.

You know I would say it is to the point, where we wouldn't want to suggest that there are big gaps.

But we're managing to but more just refinements that we'll see over time.

Okay, great. Thanks, a lot.

Yeah.

And our next question comes from Ryan Gilbert from BTG. Please go ahead.

Hi, Thanks. Good morning, guys. First question is on insurance in force I really nice to see the sequential pick up in the third quarter.

And then just thinking through.

Your prepared remarks around persistency in the total market in 2022 being smaller than 'twenty. One do you do you believe or do you think that you can continue to grow insurance in force or do we think that.

The improvement in persistency that we expect isn't isn't going to be enough to offset declining then IW.

Yeah. This is Frank and I. Appreciate the question you know I think one is especially given the size of our in force portfolio, which is among the largest in the industry.

And our market share expectations.

The factors that would influence growth.

Are things like just the size and the overall market et cetera relative to a higher persistency.

I wouldn't want to suggest that.

You know there would be a significant growth there, but I think the growth factors are certainly.

Possible in the coming years, just given some of the variables that you mentioned, but you know.

It is similar to our portfolio yield.

It's a bit challenging to predict just given what the landscape for refinance activity might be like and what the what the niwa might be like but but but I would certainly suggest that.

Some modest growth could could be there.

Yeah.

I might add to Frank's comments too right I mean, when you look at the macro factors as I shared in my prepared remarks, when you think about.

The refinance market projected to decline by 55% next year.

That has.

Assuming that plays out that that should have a positive impact on persistency and we also talk about in the context of.

The purchase market continues to have strong tailwind. So we see growth in purchase market, where <unk> is likely to participate. So we do still see one of the one of the larger markets, albeit may be smaller than 2021, and 'twenty 'twenty four the alloy business. So when you look at the comment on the macro factors are cut all potentially pointed.

In the right direction to kind of increase persistency and also.

Continue to see strong mortgage insurance participation across them.

Purchase mortgage market, but again in terms of forward forecast, we look at more of the macro trends and participated in go go full force on it and I would agree with Frank's comments and it's sometimes hard to predict because of timing of some of these factors.

Okay got it really helpful. On my second question is on homogeneous I'm wondering if zillow is exit from the eye by your business has changed your view on home Geniuses total addressable market.

Okay.

Thank you no not at all.

You know I don't want to comment on Zillow I read I read the stories in.

I.

It gives them credit for trying something.

Turning something bold.

But you know.

Why is it why they made the decision to get in and get out I'll leave that to them, but for us our focus at conviction on the whole genius and the size and scale in the addressable market.

<unk>.

Oh genius across mortgage and real estate markets remains very large.

And no part of it really related to yeah. So we actually do business with our buyers and so far our investors.

I think what should I buy our focus was kind of addressing some of the FSFR investors' needs, but I think they're actually it doesn't really impact our business and for US. We continue to see the same opportunities we've seen for the last year or two around the space and why we're so focused on it.

Yeah.

Okay, great. Thanks, very much I appreciate it.

Thank you.

We have no further questions at this time I will now turn it over to CEO Rick Thornberry.

Thank you and thank you everybody for participating on our call today and we appreciate your questions and.

Hopefully, we'll have an opportunity to talk to many of you in the coming days or weeks, but.

As always stay safe be safe, but hope the holiday season goes well for everybody over the coming months and we look forward to senior person at some point again. Thank you for your participation today and also thank you to our team who's doing a fantastic job and I couldnt be more proud across our mortgage and home jeans business.

How the dedication and commitment that they demonstrate everyday really helps us drive this business for it. So thank you have a great day.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.