Q4 2021 Radian Group Inc Earnings Call
Yeah.
Good morning, and welcome to Radians fourth quarter 2021 earnings call My Name's, Brandon and I'll be your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer session during which he lead all star one if you have a question. Please.
Please note. This conference is being recorded I will now turn it over to John Damian you John you may begin.
Thank you and welcome to Radians fourth quarter and year end 2021 conference call. Our press release, which contains radians financial results for the quarter and year end.
Yesterday evening, and it's posted pretty Investor section of our website at Www Dot Radian dotcom.
This press release includes certain non-GAAP measures that will be discussed during today's call, including adjusted pretax operating income.
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 allocating corporate operating expenses and the related.
Junius profit margins.
A complete description of all of our non-GAAP measures maybe found in press release exhibit F and reconciliations of these measures to the most comparable GAAP measures maybe found in press release exhibit E. These exhibits are 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 as all of our speakers are remote today, please excuse any sound quality or technical issues that may arise during the call.
Before we begin I would like to remind you that comments made during this call will include forward looking statements. These statements are based on current expectations estimates projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially for a discussion of these risks. Please review the cautionary.
Statements regarding forward looking statements included in our earnings release and the risk factors included in our 2020 Form 10-K , and subsequent reports filed with the SEC. These are also available on our website now I would like to turn the call over to Rick.
Thank you John and good morning. Thank you all for joining us today and for your interest in regions.
In 2021, we remain focused across our three areas of strategic value creation first growing the economic value and future earnings of our mortgage insurance portfolio. In 2021, we wrote the second highest level of mortgage insurance business and are nearly 45 year history.
Second growing our whole genius business in 2021, we greatly increased from genius revenues consistent with our Investor day guidance.
Third managing our capital resources in 2021, we returned significant capital to our stockholders through a combination of an increased dividend and share repurchases. These results and our continued strong momentum demonstrates the strength and resiliency of our business model I believe we are well positioned to capitalize.
What are the opportunities ahead for our mortgage and home genius businesses combined with the strength of our capital resources.
As we've all developed a renewed appreciation for the meaning of home over the past two years, our mortgage and real estate products and services have become even more valuable to our customers and the homeowners and our mission to ensure affordable sustainable and equitable homeownership.
Some even more critical we are proud to serve such an important role in the housing industry.
I'd like to take a moment to recognize our talented team who continue to support our customers launched new products and create new technologies to make doing business faster and easier.
And to thank our customers business partners investors and board for their support in helping us deliver such excellent results in 2021.
Frank will discuss the details of our financial position shortly but let me first share a few highlights for the quarter and the year.
In our mortgage segment, we wrote $92 billion of <unk> in 2021, which as I. Previously mentioned represents one of our highest years of annual volume in our company's history second only to the all time record we hit in 2020.
And it's worth noting that with the higher mix of purchase business in 2020 , one we actually deployed more capital than we did in 2020 and based on our growing purchase market.
We expect the environment to continue to provide strong opportunities to put our capital to work at attractive returns.
Over the past couple of years, we believe our ability to leverage the strength of our proprietary analytics and radar rates platform and utilize artificial intelligence and machine learning in order to optimize economic value has been and continues to be a differentiator for radian, we assess more than $10 million.
These loan types as we look at all combinations of loan and borrower characteristics as well as geographic housing market trends to identify those loans that will create the most economic value and generate the most attractive returns.
Our primary insurance in force, which is the main driver of future earnings for our company was $246 billion.
And while our portfolio was relatively flat year over year. It is important to note.
<unk> grew at an annualized rate of <unk>.
7% during the second half of 2021. This growth was driven by continued high levels of new mortgage insurance business as well as an increase in persistency.
It's also important to note that our mortgage insurance portfolio is well positioned for rising rate environment. Our monthly premium in force portfolio grew nearly 6% year over year, while our single premium enforce portfolio declined 21%.
Of note during the quarter was a favorable reserve development based on better than expected cure activity. In fact, despite the seasonal increase of new defaults that we typically experienced in the fourth quarter. We saw another positive cure to new default ratio.
We've been pleased with how the credit performance of our portfolio continues to improve in terms of those borrowers in default. We are actively monitoring that communicating with servicers and supporting the efforts by the GSE is to effectively navigate a successful resolution.
For home Genius segment total revenues for the full year were $149 million or.
A 45% increase compared to 2020 and as I mentioned consistent with our 2021 Investor day guidance.
During 2021, we saw strong growth of our title business, which represented 73% increase year over year also in 2021, we saw very strong performance across our real estate services, our asset management and valuation products and services, despite minimal foreclosure and Oreo activity.
As we have discussed during 2021, we invested in the development of our whole G. As software as a service platforms for real estate agents and we are positioned to launch. These innovative platforms. In 2022 first up is genius price, which is an innovative property intelligence technology platform.
<unk> by our Red Bell real estate brokerage and we are attracting a strong sales pipeline of interesting real estate brokers.
We have also invested in and launched our innovative digital purchase toggle platform title genius leveraging patent pending blockchain technologies. This platform is focused on transforming the purchase cycle process for real estate agents homebuyers lenders as we enter 2022, we are focused on growing our penetration of the purchase.
Time to market leveraging this digital platform.
Frank will provide more.
Additional details on our whole genius financial results and expectations for this business.
We are pleased with the progress the traction we're gaining in the market and the new customers, we're attracting with our innovative products and services.
During 2021, we continued to strengthen our capital and liquidity profile, while enhancing financial flexibility and returning value to stockholders. We grew our book value per share by 9% year over year and 2021, we achieved this growth even after accounting for the $104 million.
Dividends paid in 2021, we.
We repurchased $17 8 million shares of Radian group common stock representing 93% of shares outstanding at year end 2020.
At a total cost of $399 million.
Our return on equity for 2021 was 14, 1%.
At December 31st Radian group maintained a strong capital position with $880 million of total holding company liquidity and Radian Guaranty's Pmiers excess available assets grew 19% for the third quarter of 2021 to more than $2 billion during the fourth quarter of 2021.
Earlier this month, we announced plans to continue returning capital to our stockholders by increasing our quarterly dividend by 43%. The second increase in the past year and by authorizing a new $400 million share repurchase program.
We were able to do this based on our strong capital position and financial flexibility.
Moving now to the broader mortgage and real estate market. We continue to see this market performing well with strong purchase volume and continuing home price appreciation.
Based on the similar data from our own Radian home price Index continued strong housing demand relatively limited supply of the market led to a 14, 2% year over year increase in home prices across the country.
We do expect home price appreciation to moderate in 2022.
Looking ahead total mortgage originations for 2022 are estimated to be approximately three trillion dollars.
Reflecting an 8% increase in purchase originations.
58% decrease in refinance activity.
This growth in the purchase market is positive for the mortgage insurance industry. It is expected to result in with other large prior to that my market in 2022 of $500 billion to $550 billion.
We will continue to monitor our operating environment, including the impact from inflation on the rise in interest rates on our business. It is important to note that although affordability declines as rates go up mortgage rates remain relatively low on a historical terms and we believe the strong demand and low supply dynamic in the housing market.
Well palace any decline in affordability.
It's also important to highlight that the expected increase in interest rates in 2022 is likely to result in improved persistency in our mortgage insurance in force portfolio as well as support higher yields in our investment portfolio.
Overall, we believe the macroeconomic conditions and strong home purchase market provide strong tailwind for long term growth and the economic value of projected future earnings of our mortgage insurance portfolio.
Turning to the regulatory and legislative landscape.
Housing policy efforts in Washington.
To focus on equitable access to sustainable homeownership, particularly for underserved markets. We remain committed to working with the FHFA. The GSC is our trade associations and other partners all solutions to support increased access to affordable homeownership for low to low and moderate income.
Borrowers.
We delivered on our core mission in 2021, helping to ensure the borrowers ready, though in a whole could afford to do so during the year. We helped nearly 300000 families buy a home or lower their monthly mortgage payment through refinance.
With subject matter expertise across various areas of housing finance, we believe we are well positioned to play an important role in expanding affordable sustainable and equitable homeownership.
Now I would like to turn the call over to Frank for details of our financial position.
Thank you Rick and good morning, everyone.
To recap our financial results issued last evening, we reported GAAP net income of $193 $4 million.
$1 seven per diluted share for the fourth quarter of 2021 as compared to 67 per diluted share in the third quarter of 2021, and 76 cents per diluted share in the fourth quarter of 2020.
Adjusted diluted net operating income was $1 seven per share in the fourth quarter of 2021 compared to <unk> 67 in the third quarter of 2021, and 69 cents in the fourth quarter of 2020.
I'll now turn to the key drivers of our revenue.
Our new insurance written was $23 $7 billion during the quarter compared to $26 $6 billion in the third quarter of 2021 and $29 $8 billion in the fourth quarter of 2020.
New insurance written for purchase transactions was 21 $6 billion, an increase of 12% year over year.
Purchase volume accounted for 91% of our total new insurance written for the fourth quarter of 2021 compared to 65% in the fourth quarter of 2020.
Our reported quarterly annualized persistency rate increased to 71, 7% this quarter compared to 64% a year ago.
Market expectations of rising interest rates in 2022 are expected to result in continued declines in refinance activity, which we would expect to drive further increases in our portfolio persistency and support insurance in force growth.
Today more than 65% of our insurance in force consists of business written in 2020, and 2021 and is of high quality and at relatively relatively low mortgage rates.
Primary insurance in force increased $4 $4 billion during the quarter to $246 billion.
Our outlook for 2022 insurance in force growth given expected higher persistency and strong and IW volume is approximately 10%.
Total net premiums earned were $261 $4 million in the fourth quarter of 2021 compared to $249 $1 million in the third quarter of 2021 and $302 $1 billion in the fourth quarter of 2020.
The increase on a linked quarter basis is primarily driven by an increase in profit commissions recognized this quarter due to lower seated incurred losses.
In addition.
There were several small items that drove the positive impact of approximately $5 $5 million in mortgage insurance earned premiums this quarter compared to prior quarter.
These items included a reduction in our premium refund estimate due to lower projected claims and an increase in our deferred premium receivable estimate.
The decline in quarterly net premiums earned year over year was due primarily to lower single premium policy cancellations.
Webcast slide 11 shows the mortgage insurance premium yield trend over the past five quarters.
Our direct in force premium yield was 41.0 basis points this quarter compared to 43 basis points last quarter and $42 eight basis points in the fourth quarter of 2020.
It is important to note that the in force premium yield would have declined slightly this quarter to 41 basis points absent the $5 5 million of adjustments noted earlier.
Over the past several years, we have noted our expectations for declines in our in force premium yield due to a number of factors, including the pricing and credit mix of new insurance written compared to the policies canceling within our portfolio.
Based on the mix of more recent vintages in our portfolio coupled with increased persistency. We currently expect enforced premium yield declines in 2022 of approximately two basis points, which is a slower rate of decline than we have seen recently.
Net premium yield is affected by single premium acceleration and the impact of reinsurance, which may continue to fluctuate from period to period.
All in all even if the expected lower yields we are still generating attractive risk adjusted returns.
Our homogeneous segment revenues were $44 7 million for the fourth quarter of 2021.
Compared to $45 1 million for the third quarter and $23 $6 million in the fourth quarter of 2020, which is a 90% increase year over year.
Title premiums of $11 $8 million in the fourth quarter of 2021 were 55% higher than the fourth quarter of 2020.
Our reported homogeneous pretax operating income before allocated corporate operating expenses was $2 7 million for the fourth quarter of 2021 compared to a loss of $600000 for the third quarter of 2021.
Our reported homogeneous adjusted gross profit for the fourth quarter of 2021 was $19 $7 million.
Paired to $17 $9 million for the third quarter of 2021.
A reconciliation to the comparable GAAP measures can be found on press release exhibit G.
Our homogeneous results were in line with our projected targets as communicated earlier in 2021 with revenue of $149 million for the full year.
Our current expectation for 2022 is that we would be within our previously stated target revenue range of $225 million to $275 million, although likely at the lower end of that range.
Moving now to our loss provision and credit quality.
As noted on webcast slide 14, we had a benefit of $46 $5 million and our mortgage provision for losses for the fourth quarter of 2021 compared to losses of $16 $8 million in the third quarter of 2021 and $56 $3 million in the fourth quarter of 2000.
'twenty.
Also as noted on webcast slide 14, the provision for losses for the fourth quarter 2021 includes positive reserve development on prior period defaults of $85 $8 million.
This positive development was primarily driven by more favorable trends in tears than originally estimated.
Aided by favorable outcomes, resulting from forbearance programs implemented in response to the COVID-19 pandemic as well as positive trends in home price appreciation, which resulted in a reduction in ultimate claim assumptions related to prior period defaults.
We maintained our prior quarter assumptions for new defaults reported in 2021, including the default to claim rate assumption on new defaults at 8.0% for the fourth quarter of 2021.
We continue to closely monitor the trends in tears and claims for our default inventory, including the resolution of Covid related forbearance programs.
As of December 31, 2021, 92% of new defaults from the second quarter of 2020, the largest COVID-19 related defaults quarter had cheered.
These favorable trends for defaults reported in 2020 were the primary catalyst for the positive reserve development reported this quarter.
Now turning to expenses.
Other operating expenses were $85 million in the fourth quarter of 2021, a decrease compared to $86 $5 million in the third quarter of 2021 and $81 $6 million in the fourth quarter of 2020.
The decrease in other operating expenses as compared to the prior quarter is primarily related to a decrease in incentive compensation expense, including long term share based incentive compensation.
The decrease compared to prior year is primarily related to a $7 $8 million decrease in non operating items, partially offset by a $5 $6 million decrease in ceding commissions associated with lower single premium acceleration.
To aid in the analysis of our operating expenses, we have provided new segment level expense detail on press release exhibit E.
Now moving to capital and available liquidity.
Radian guaranty's excess P Myers available assets over minimum required assets was $2 $1 billion as of the end of the fourth quarter, which represents a 62% pmiers cushion.
After consideration of our recent $500 million return of capital from Radian Guaranty in the first quarter of this year, our pro forma year end 2021 cushion would have been 47%.
Speak more about the return of capital in a few moments.
As of December 31, 2021, we have reduced radian guaranty's pmiers minimum required asset requirements by $1 $3 billion by distributing risk through both insurance linked notes reinsurance and other third party reinsurance arrangements as noted on press release exhibit L.
As of year end, 2021, Radian guaranty had risk distribution covering approximately 73% of our risk in force.
For Radian group as of December 31, 2021, we maintained $605 million of available liquidity.
And considering our recent $500 million return of capital on a pro forma basis available liquidity would have been approximately $1 1 billion.
Our liquidity in the fourth quarter was impacted by share repurchase activity in the quarter.
Total liquidity, which includes the company's new five year $275 million credit facility that was signed in the fourth quarter was $880 million as of December 31, 2021, and on a pro forma basis after giving consideration to the $500 million capital return would have been approximately.
<unk>, one $4 billion.
During the fourth quarter of 2021, we repurchased six 4 million shares and for the full year 2021, we purchased $17 8 million shares at an average share price of $22 23.
$22 48, respectively.
As previously announced earlier this month, our board approved a new two year $400 million share repurchase authorization that we expect to implement by utilizing our customary value based <unk> one execution.
We have also continued to pay a dividend to common stockholders through the pandemic.
During the fourth quarter of 2021, we returned approximately $26 million to stockholders through dividends.
And as a result of our continued financial strength and flexibility, we have announced a 43% increase to our quarterly dividend in the first quarter of this year, which brings our current quarterly dividend to <unk> 20 per share.
As a reminder, we had most recently increased our quarterly dividend by 12% less than a year ago during the second quarter of 2021.
The combination of dividend payments and share repurchase in 2021 represented a return of capital of approximately 84% of our after tax operating income for the year.
These capital actions are supported by our confidence in the future cash flows of our business and our enhanced further by the $500 million return of capital from Radian Guaranty to Radian group.
Approved by the Pennsylvania Insurance Department earlier this month.
Our state regulatory capital levels have been a constraint on movements of capital from Radian Guaranty to the parent company since the great financial crisis.
This has been due primarily to the negative statutory unassigned funds created during the great financial crisis, and the contingency reserve requirements applicable to mortgage insurers.
The mechanics of the statutory capital flows and the rules applicable to each type of capital are unique to the mortgage insurance industry.
As we explained in detail during our Investor day in 2019, and as presented on webcast Slide 20.
Part of the state regulatory capital framework includes contingency reserves that are intended to protect policyholders against the cyclicality of the mortgage industry credit cycles.
Reason why this is so important to understand is that when contingency reserves are released on their 10 year anniversary on a first in first out basis.
It increases the regulatory capital category of unassigned funds.
When unassigned funds turned positive radian guaranty can begin paying ordinary dividends without prior regulatory approval.
The amount of ordinary dividends available for issuance could be up to the prior year's net income which is paid based on current analyst consensus net income levels would be approximately $500 million annually.
Assuming the continuation of the current positive trends in our mortgage insurance business. We expect this transition from negative to positive unassigned funds to occur in 2024, which coincides with the expected timing of material contingency reserve releases that same year 10 years after we.
Began to rebuild these reserves following the great financial crisis, which is also noted on webcast slide 20.
Suffice it to say that we are approaching an important inflection point with our capital flexibility potentially providing capital releases from the operating company to the parent company on an ordinary basis and without seeking prior regulatory approval.
As such we have calibrated our current capital plans to create a near term bridge in anticipation of these expected events.
Given the capital strength at 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 remind you that.
Our team delivered excellent results in 2021 focus on growing our mortgage and <unk> businesses and managing capital.
We wrote high levels of new mortgage insurance business, while growing homogeneous revenues significantly.
Credit performance of our portfolio continued to improve.
During 2021, we continued our long standing track record of prudently managing capital returning over $500 million to stockholders through dividends and share repurchases.
We increased our quarterly dividend this month, which provides the highest dividend yields in the private industry, and we announced a new $400 million share repurchase authorization.
We are pleased with our business momentum heading into 2022, and we will continue to leverage the strength of our team and utilize data analytics and technology to differentiate ourselves from the competition and help our customer succeed in a fast moving digital market.
Now operator, we would like to take questions.
Thank you and we'll now begin the question and answer session.
I have a question. Please don't star one on your phone keypad, if you'd like to be removed from the queue. Please tell the pilot site or the hash key.
If you're on a speakerphone please pick up your handset first before dialing.
Once again, if you have a question at this time, please dial star one on your phone keypad.
And from Barclays. We have Mark Devries. Please go ahead.
Yeah first question is just to clarify one on.
On Frank's comments around the premium yield Frank is the roughly two bps of additional compression you've kind of guided to for this year is that off of the 41 bps you would've had without that $5 million of adjustments or is that off of the 41 or so you're actually posted this quarter.
Yes, so the adjustments are off of the reported 41.
Okay got it and 1.0, taking it I'm sorry, there's a lot of forties and ones there.
Taking it from 41 down to 41.
Yes. My question is but then I think you've guided correct.
Maybe another two two.
Two basis points of additional pressure is it also a 40.1.
Correct, Okay got it got it and then my second question is trying to get at kind of the impact on the addressable market for M. I have all the home price appreciation we've seen.
If I, if I heard Rick's comments.
Probably I think you indicated HPA was roughly 14, 2%.
For your book and I think the FHFA used 19% to kind of reset the conforming loan limits.
Does that kind of imply that.
Tends to get deeper penetration in markets that have seen less home price appreciation and therefore kind of moving that bar up nationally actually increases the addressable market for you.
Yes. Thank you Mark I think our reference was to our Radian home price index, which was a year over year increase in the FHFA I think was an annualized number.
Remember correctly, so we're really referencing non rmi portfolio, what our view based upon.
Italy millions of observations across the country of transactions around our view of the national home price appreciation year.
Year over year, right. So thats I think maybe a little bit of apples and oranges, but that does not reflect on the <unk> portfolio, specifically, but I would say.
We I think the.
Portfolio has participated in that home price appreciation as we did.
As discussed previously about the percent of <unk>.
Equity in the homes, but I do I would also just add.
That the.
The home price depreciation there's really a lot of it is happening at the lower ends of the market right. Given first time homebuyer demand supply demand dynamics. So I would say overall, it's been a very strong market for EMI kind of borrower Derrick.
Derek if you want to add anything to that.
Nope.
Okay got it thank you.
Thank you Mark.
From Bank of America, we have to hear about your please go ahead.
Okay.
Hi, Thank you for taking my questions. The first one I had maybe just wanted to turn to exhibit H and I had a quick question just on the when we look at the FICO LTV percentages, but clearly there's been a little bit off.
Deterioration is probably too strong a word to use here, but certainly the high FICO, that's come down a little bit in the higher ltvs of increases a little bit there.
And what I wanted to understand is that a function of the market or is that also a function of you know you mentioned youre pricing engine looks at so many different variables.
Caused by you or where you are seeing maybe a little bit better risk reward a little bit better intrinsic value. If you will is that what's happening I imagine you do a little bit deeper analysis than what's presented here. So just trying to understand.
What's <unk>.
Along that.
Hey, Harry it's Derek So it's really a combination of a too much of its just driven by a shift to a purchase market.
So you had to kind of expect that Rick talked about that strength.
A year ago, I think our refi volume was about 35% Q4 now it's down to the most recent quarter under 10%. So a lot of strength in there and then some of it is just risk selection. So when we're trying to find economic value. We're looking at a combination of one where we see those loans performing over a long.
Long term given kind of where the economic environment is in our projections going forward, but also importantly, where you see the market clearing rates so to the extent, we see relative value in certain segments.
Might be a bit overweight underweight in certain areas and we're constantly shifting that and I'd say the other thing we're very mindful of is not becoming over allocated so even if we have pretty strong conviction that there is more economic value in our segment to the extent that we think we are taking to outsized share will also moderate there.
More of a qualitative perspective, so it's really both and short.
Okay. No. That's helpful. Thank you and then just my other question just on homogeneous.
And I'll just ask both of them like pretty related and then jump back in queue. Just the first was they used to be a SaaS line item I think.
The go forward just combine that with the SSR into solid real estate is that the go forward plan and then.
The other question on homogeneous I just had was you mentioned revenue at the low end of the prior guidance. How are you feeling about margins in that segment is the 14% Mark.
<unk> still achievable. Thank you.
Yes, Thank you, Matt here and I think.
Taking both of your questions.
Together.
As we sit here today with homogeneous overall.
We see a few timing differences of our forecast, but we believe we are well positioned in tracking against the strategic plan, we laid out for Investor day last year.
As we mentioned at our Investor Day, we could see a few timing difference related to market changes and also just the timing of rollout of some of these technology products and I think.
So in the fourth quarter, we saw a little bit of a little bit of <unk>.
Slowdown in our refinance business, which kind of affects our title business today at least on the refinance side.
As we kind of come into this year led to clients, but a little faster than we thought but the good news is we're actually expanding our existing relationships based on service and their value proposition.
Got a really strong pipeline of customers that we're signing them.
Onboarding, so I think from from that perspective, we feel good to go to your SaaS question on our on our SaaS business, we actually as we mentioned at our Investor Day, we actually the first.
Guidance that we gave related to SaaS was really 2022 in terms of number of SaaS users and so as we as we prepare to launch those products really commercially into the market with our first one up is genius price, which is a very kind of first of its kind property intelligence platform, we will start to.
<unk> more highlights on that as we go and break that out as appropriate, but I think today as we sit here with our title business with a strong group of customers as we prepare to starting to launch these SaaS products and really strong.
Strong momentum in our other real estate services, which are really primarily driven by our RF supplier relationships and our valuation products, we feel like today, we're in a very strong position.
In the market and continuing to see tremendous opportunities I would just say that as.
As we said the low end of the range a range of $2 25 to $2 75 billion revenues at $2 25, thats year over year growth of 50%.
Again, it will be a very strong step forward for the business.
But I think probably if anything it's a little bit of timing.
With strong participation from title growing opportunity and SaaS as we launch these products and continued strong markets around that so far in valuations. So yes, as we sit here today I think we're very excited about the business and feel good about the momentum a few timing differences arent going to matter to them.
From a long run.
No absolutely sorry, I, just I did want to the one question on that was just the margin I think you had said 14 ish percent margin do you feel good about that.
Are you guys.
Yes, I think we saw we have not changed our view on that from both our initial guidance and I think again a lot of it's there can be some timing differences on that because mix mix differences, but in terms of our overall product profitability that we see in the various products across some genius, we still feel very good about that.
Great. Thank you.
You're welcome thank you.
From credit Suisse, we have Doug Harter. Please go ahead.
Thanks.
Frank Thanks for the detail on the contingency reserve.
Can you just talk about your ability over 'twenty two 'twenty three to continue to get capital out of the subsidiaries until those.
Those contingency reserves release, and how we should be thinking about.
Until until you can get regular way dividends.
Sure Yeah I appreciate the question Doug.
When you think about the the amount of holding company resources that we have currently post the $500 million return of capital.
We're sitting with holding company cash on a pro forma basis off of <unk> of about $1 $1 billion and if you think about the.
The stated intended uses.
Of that capital on a go forward basis, and let's call. It just over the next two years, we have a $400 million share repurchase authorization that's new.
If you look at the new dividend level at 20 a share.
On a go forward basis, and you look at that over the course of the next two years. So it's a $144 million annually $288 million over the course of that two years. So we have roughly $688 million.
That would be expected.
To be used for both share repurchase and dividends. So you compare that to our current resources and that's why I made the statement that I did that that we believe we have a nice bridge.
That will help us achieve our capital management capital return.
Plans.
Till we hit that 2024 timeline. So we think we're very well balanced we think we're well calibrated and we certainly think that we are.
Very well positioned from both a holding company standpoint, and also making sure that we support the organic.
Desires and plans with the operating companies as well so when you look at them in context of <unk>.
P Myers cushion at the operating company is still a very very strong cushion. There. So we think we're well.
Well calibrated overall.
I appreciate the answer Frank.
Yeah.
From <unk>, we have Bose George <unk>. Please go ahead.
Hey, guys. Good morning, and thank you just a follow up on that the question about capital return where dividends up from the insurance company. In 2024 did you mentioned what the cadence is of the ability to return capital, but I think you mentioned that 500 million number at some point, but could you just go over that again.
Sure. So the way that it works Bose is it's calibrated to win the unassigned funds turned positive and if you look at.
Slide 20, and then.
My prepared remarks there.
That unassigned funds balance because of the movements of contingency reserves.
Both whats coming in and what's coming out coupled with earnings that creates a position where unassigned funds turned positive.
And an approximate amount that we would be able to return in capital.
From ordinary dividends.
Roughly $500 million.
Okay, great perfect. Thanks.
And then actually switching to expenses can you just talk about where you think expenses at the mortgage.
The insurance company goes next year.
Absolutely. So we've provided a little more detail on exhibit E pages, six and seven probably are going to be the most helpful to you.
I'll speak to both the total expense level on a quarterly basis and the mortgage.
Segment as well so when you look at.
The the total and this is on page seven of exhibit E.
We're going to guide to roughly $85 million on a total quarterly basis for total expenses and then when you. When you look at the segment itself of mortgage which is on page six of exhibit E.
We're going to guide to roughly $55 million to $60 million or relatively flat on a go forward basis. Therefore for the mortgage segment.
Okay, and the $55 million to $60 million.
That doesn't include the policy acquisition cost so that should be sort of.
The run rate of $7 million of corridors.
That.
I believe Thats correct, yes.
Okay, great. Thanks, and then just one more.
I guess in our press reports about potential M&A involving radian.
Just curious if you can say anything into the extent you can and just any thoughts on just M&A in the industry in general how do you guys think if that's a possibility would be great.
Hi, Bose this is Rick and I appreciate the question, but it's our long standing policy not to comment on market rumors.
I think our business strategy and objectives remain unchanged and as you've just heard we reported excellent financial results.
This past year.
And our plans to continue returning capital to stockholders. We are excited about the momentum of our business and from last year and into this year. So.
I think as you think about consolidation we believe the market has.
Healthy number of players today.
The Gse's have expressed the same and have an interest in expanding their counterparty concentration risk and I think especially given their counterparty risk.
Private advisor largest counterparty risk so from our perspective, it's hard to make the.
The numbers work on consolidate the combination of consolidation within the industry.
I think you have to have enough cost synergy really offshore offset the market share of the client so yes.
Ever asked to comment on consolidation I always look at from within the industry.
I think to be one of the remaining players would be a positive.
If consolidation were to occur given the redistribution of market share so, but it is very hard.
The math is very hard to work given.
The cost synergies versus the market share give up in potential loss in growth. So.
That's what I would say about that but we're.
We're excited about where we sit today in a position of our business where we are.
That's what we're focused on.
Okay, great. Thanks.
From <unk>, we have Ryan Gilbert. Please go ahead.
Hi, Thanks, good morning.
First question is just around persistency it sounded like on the view was maybe a little more positive around persistency in 2021, I think last quarter, we talked about.
Persistency remaining below historical levels. So just any any more details on your thoughts around how persistency trends in 'twenty two would be helpful.
Sure Ryan This is Frank Yeah, our thoughts on persistency is we're certainly entering an environment now with increased rates, where we would expect persistency to continue to increase I think we have said historically that a normalized persistency level somewhere in the low eighties. So I think there's a question.
How long it might take to get back to that but I think the economic backdrop.
The currently so certainly supports a trend line in that direction.
Okay great.
And then in your title business 70, plus percent revenue growth seems like.
Pretty sizable market share gain.
It is.
Is that are you still operating primarily in refinance and maybe you can talk about.
The factors that data or just any details on the factors that drove your growth in 'twenty, one and maybe as we look to expanding.
Your purchase footprint in 2022, just more details on the go to market strategy.
Thank you Ryan.
On the title side from our title business point of view, we are growth was was driven.
Entirely by.
Development of new new customers across our platform.
And the expansion of existing relationships. So today, we have over 120 active title relationships. We signed 34, new customers in 2021 versus 2020 versus 22 in 2020, we have seven of the top 20.
Lenders.
Title customers at our momentum going coming out of 'twenty. One we signed 13 clients in the fourth quarter and we signed an additional floor in our first month of 2022, so a lot of momentum on client growth.
I would tell you too we have four prospects right now active prospects in the top 25. So our growth is coming from obviously there is volatility in refinances, but our growth today is coming from centralized lender relationships today, primarily focus on refinance and is through growth in clients and penetration.
Of existing relationships, which we are winning our team is winning those penetration of an additional share from our customers based on service. Our services are standing and our team is delivering outstanding service and we have a great digital platform and we have a great value proposition for lenders to do business.
So I think we compete very well with the traditional historical players and the new other new entrants. So that's that's really what's wrong with it.
As to the growth last year, and then and how we're positioned for this year on the purchase side.
As I mentioned in my prepared comments.
We rolled out late last year, our title genius platform, which is really our digital platform.
Based on.
Built on top of a blockchain.
Blockchain platform and that platform, we are focused on.
Working with realtors consumers directly and lenders to really kind of drive a better purchase title experience.
<unk> different players and you could see I think at our Investor Day, We mentioned, we had 275000 relationships with Realtors, we obviously have great relationships with lenders both on the title and the Ams side and consumers are finding us through some of our digital marketing. So we look to expand our presence in the title business.
Titled Genius platform, and our digital presence differently than say some of the traditional players.
We will keep you posted on our progress it's early and I think we are.
We're playing in a different way than say, yes, we're going to sign up a bunch of title agents to do purchases as our focus is on.
Really solving for dealing with the consumer real estate lender through a digital platform built on top of a blockchain.
Fabric and really kind of reinventing and redefining how the process should work.
So that's that's our focus coming into 2020 twos continue to grow our penetration.
A very small share of the refinance market. So as we expand clients as we penetrate existing clients. So we had to our purchase business.
Using our title James platform, that's what fuels the growth in our title business.
Got it thanks very much.
Okay.
Thank you Sterling.
From Delta we have Geoffrey Dunn. Please go ahead.
Thanks, Good morning.
Frank I wanted to follow up on the surplus capital management discussion.
And try to better understand what this 500 million dividend move is is this front end loading what you consider your capacity over the next two years, meaning that $2 78 pro forma is kind of the minimum surplus you wanna be at and we grow from here until 'twenty four.
Or is there more capacity you know if you put an additional 100 million of surplus in the next year.
Can you consider pulling that out I'm trying to understand where you think of your minimum here.
<unk>.
With the faction.
Sure Great question, Jeff you know the way that I would describe it because we don't like to speak forward about any capital actions I would suffice it to say that what we've done we believe provides us with a good as I said in my prepared remarks, a good bridge between where we are.
Sit today, and where we expect to be in 2024.
Again as I outlined the amount of holding company resources that we have to support our intended capital return actions that have been approved and announced we think are sufficient so.
Yeah, I would just leave it at that.
Okay. Thank you.
And from B Riley Securities we have color Johnson. Please go ahead.
Hey, good morning, Thanks for taking my question.
Can we talk touched a little bit earlier on 80% is maybe a longer term average for persistency.
But I'm wondering if rates continue to go meaningfully higher could we see persistency upwards of that or should we maybe think of the eighty's is more of an upper bound that we would start to approach over time and a much higher rate environment.
Yeah. This is Frank.
Great question I think.
When we think about low Eighty's. If you think about just the natural turn in the portfolio that occurs with roughly a five six year duration type asset that would imply.
80%.
Persistency or at 20%.
And each year, so that I think when you look at just a very.
Very low refinance activity occurring that's that calibrates to roughly low eighties on our persistency level is there a chance it could go higher.
I'd hate to discount the possibility I, just don't I don't see it as being likely.
Okay. Great. That's helpful. And then are you still kind of generally seeing favorable outcomes from the borrowers that are still exiting forbearance with respect to loss mitigation or just the ability to resume paying or has there been any sort of change there relative to prior quarters.
Yes. This is derrick the trend is pretty consistent so the access we see are favorable for the borrower overtime.
Mean, more shift to a payment deferral or some sort of modification option, but the trend lines continue to be consistent and positive.
Great. That's helpful. Thank you.
Thank you and we'll now turn it back to Rick Thornberry for closing comments.
Thank you and thank you all for.
Your questions and your interest in Radian.
We look forward to talking more about our business in the coming quarter.
I look forward to hopefully seeing many of you in person as we all come back out of this pandemic environment.
Again, thank you.
Be safe out there and we'll look forward to talking soon take care.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.
Yeah.