Q4 2021 Tiptree Inc Earnings Call
Reading welcome to the tent tree Inc's fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the final presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
Now I'll turn the conference over to your host Sandra Bell Chief Financial Officer. Thank you you may begin.
Good morning, and welcome to our fourth quarter 2021 earnings call.
We are joined today by our executive Chairman, Michael Barnes and CEO , Jonathan Alani.
You can find the slides that accompany this review on our.
That's your relations website.
Please note that some of our comments today will contain forward looking statements based on our current view of our business and actual future results may differ materially. Please.
Please see our most recent SEC filings, which identify the principal risks and uncertainties that could affect future performance.
In addition, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's presentation reconciliation of non-GAAP financial measures and other associated disclosures are contained in our SEC filings the appendix to our presentation.
And posted on our website.
With that I will turn the call over to Michael.
Good morning, everyone and welcome to our fourth quarter earnings call.
2021 proved to be one of the best years for Tiptree since its founding in June 2007.
Tiptree share price appreciation plus dividends for the year produced a total return for shareholders of 179%.
Revenues for the year increased to $1 2 billion up 48% from the prior year.
Adjusted net income increased to $64 million up 24%.
A record year for both metrics.
All of Tiptree cornerstone businesses were profitable in 2021.
Under the guidance of CEO , Rick Cowboy and his team are specialty insurance business there for Tegra group.
Continued to build upon its exceptional multiyear track record producing a record adjusted return on equity of 22%.
While growing top line premiums at 32% for the year.
2021 marks the seventh year, which for Tegra has been part of the chip tree family of companies in that time.
Top line premium equivalents have grown from just over $860 million to $2 2 billion, representing a 17% growth rate.
The combined ratio has been extremely consistent at an averaged 91%.
Which improved modestly in 2021.
And lastly, adjusted net income has improved to 67 million as of 2021 growing 23% per annum sensor acquisition.
We are quite proud of these achievements and anticipate seeing for Tegra continue this growth.
In October we announced the 200 million investments and for Tegra from Warburg Pincus, which upon closing will result in an approximate 24% ownership of the business on an as converted basis.
We believe warburg's investment validates for Tigris growth story, and evidences for Tegra is intrinsic value.
As we progress through the regulatory approval process, which we anticipate will be completed in the second quarter of this year.
We are looking forward to working closely with warburg's team of seasoned professionals and welcome their partnership and guiding for <unk> continued growth.
Investments held at Tiptree capital also performed well in 2021 with return on average equity of 22% or.
Our ownership of reliance which originates in services residential mortgages as well as Tiptree Marine which holds our various shipping interests reported excellent results for the year benefiting from favorable market conditions as global economies continue the recovery from the depth of the COVID-19 pandemic.
We are constantly evaluating the best use of shareholder capital.
Comparing the long term return of potential investments in our businesses versus the gain from share repurchases.
Over the past several years and periods when our shares have traded at a clear discount.
We have been very active in buying back Tiptree stock in fact from 2014 through 2021, we repurchased a total of 15 million shares or 36% of the shares outstanding at year end 2014.
These were purchased at an average of a 45% discount to book.
In summary.
We were very pleased with <unk> results for 2021 and believe there is a clear path to continued growth in the coming years with that I'll pass it to Sandra who will take you through the financial results in more detail.
Thank you Michael.
On page three of the presentation, we highlight tiptree key financial metrics for the fourth quarter 2021 compared to the prior year period.
We incurred a net loss of 400000 in the quarter driven by unrealized losses on investments and increased stock based compensation expense given the improvement in temporary stock price.
This was offset by continued growth in the insurance business and positive performance in our mortgage and shipping operations.
Excluding investment gains and losses.
Revenues were up 31% for the quarter driven by organic growth in insurance operations and increases in dry bulk charter rate.
Adjusted net income for the quarter was $16 9 million, representing a 16, 8% annualized adjusted return on average equity.
For the total year 2021 .
Net income was $63 9 million up 24% versus the prior year.
These strong operating results were driven by the growth in revenues as well as the modest improvement in the combined ratio for Tegra.
The value per share of $11.22 increased by four 4% versus the prior year.
Compared to the third quarter of 2021.
Book value per share declined by 15 cents.
Primarily driven by unrealized losses on the bonds held in <unk> investment portfolio that stemmed from the rise in interest rates during the quarter.
Turning to page four we highlight tiptree some of the parts value, reflecting the impact of Warburg 200 million investment and for Tegra.
Based on the transaction multiple of 2021 adjusted net income.
Places in Warburg's investment Temporaries retained ownership of where tegra represents approximately $717 million or $19.57 per diluted tiptree sure.
$140 million of the proceeds will go to Tiptree holding company to fully repay outstanding debt.
The remaining $60 million to be deployed as growth capital within for Tegra.
When you include the book value of Tiptree capital and holding company assets.
After the transaction closes we believe tiptree sum of the parts to be at least $25.85 per diluted share.
On the next page, we highlight <unk> results for the quarter.
As Michael mentioned, we continue to see strong momentum and for Tigris performance.
For the fourth quarter 2021 premiums that equivalents increased 17% year over year, driven by growth in all lines of business, including admitted excess and surplus and warranty line.
Deferred revenue and unearned premiums, which represent future earnings potential stood at $1 7 billion up 32% year over year.
For the quarter underwriting and fee margin increased to 67 million up $17 million or 34%.
The combined ratio improved by 60 basis points year over year to 89, 4% for the fourth quarter of 2021.
At the operating and technology efficiencies contributed to an improved expense ratio and the underwriting ratio improved given the changing business mix.
Where tegra continues to experience hard market conditions and specialty commercial lines.
It has yet to observe any material impact from inflation on warranty line.
The team manages the profitability of the underwriting operation carefully using the variable rate commission structures and traditional reinsurance as well as targeting underserved markets with limited aggregation and catastrophic exposures.
On page seven you can see the insurance company financial trends.
We've been very pleased therefore tankers ability to deliver for agents and customers over the past three years.
The resiliency of the business model has been demonstrated as the team navigated through the pandemic with minimal if any disruption.
Gross written premiums and equivalents have increased 30% over this period with a 21% organic growth rate.
Specialty commercial lines have grown 38% to the addition of new agents and programs and the expansion of E&S offering.
Personal lines have increased 12% and benefited from the bounce back in consumer spending in 2021.
And warranty lines had double through increased market penetration by providing a vertically integrated product offering to agents dealers and retailers as well as significant expansion in Europe .
Importantly, the combined ratios not only stable, but has shown consistent improvement over time.
Moving from 92, 4% in 2019, 296% in 2021.
Adjusted net income increased to $66 8 million in 2021, representing a 43% growth rate over the past two years.
Adjusted return on equity has improved from 12%.
222% over the respective periods.
The driver of the expanded ROE is a combination of two factors.
One an improved combined ratio.
And to the buildup of unearned premiums and deferred revenue have begun to flow through the income statement and provided the lift to earnings we expected.
Turning to the insurance investment portfolio on page eight.
Total investments and cash and cash equivalents ended the quarter at $910 million.
Up 28% year over year in line with the underlying premium growth.
84% of the portfolio is invested in high credit quality and liquid securities with an average rating of double a plus.
Well, we're all contributions from the investment portfolio remain consistent year over year.
<unk> increased net investment income was partially offset by unrealized marks on fixed income securities.
The fixed income portfolio has a relatively short duration well.
Well unrealized mark have impacted book value <unk>.
Generally we have the ability to hold these securities to maturity and view the potential for rising rates is a positive one jaggers investment portfolio.
For <unk> capital and liquidity position remains strong.
$300 million of shareholders' equity.
That capacity of nearly 200 million and an ability to draw of $60 million of capital upon the transaction closing all of which put the business in a solid position for future growth.
On page 10, we present the results of Tiptree capital.
Which consists of our mortgage and shipping operations.
As well as our invest shares.
2021, adjusted net income was $28 2 million, representing a 16, 2% adjusted return on equity for the year.
Our mortgage business has benefited from several tailwind over 'twenty, 2020 and 'twenty one.
Including higher refinance volume.
Imported by those low rates and rising home prices as well as the growing servicing book.
As of December 31, 2021.
Fair value of the MSR asset was $30 million.
We believe the MSR and higher home values will offset some of the impact on originations as mortgage rates.
<unk>.
For the year, our shipping business contributed.
$10 7 million of adjusted net income as supply and demand imbalances in global trade have driven drybulk shipping rates to cyclical highs.
Now I will turn the call back to Michael to conclude our prepared remarks.
Thanks Sandra.
2021 was an exceptional year with all of our major businesses performing well.
Although we certainly had the benefit of a favorable market environment.
Our performance is also directly attributed to the hard work and expertise of tip trees team of professionals and those of our related companies.
We could not be more excited for <unk> future and we are confident in the long term outlook of the company.
With that we'll open the line for questions.
Thank you at this time, we'll be conducting a question and answer session. We would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
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One moment, please while we poll for questions.
Our first question is from Chris Colvin, our breach inlet capital. Please proceed with your question.
Thanks for taking my questions I have three of them first as <unk> continues to exceed expectations and the deal was looking more and more attractive from Warburg perspective, So I'm sure they want to get it closed as much as we do it's my understanding that the small delay is primarily just due to kind of getting some regulatory.
[noise] approvals.
Chris that's exactly correct. If this is just normal course of business.
Everything is on track and I'll say that through this period, while we're going through the regulatory approval process. We have been working closely with our with Warburg as we anticipate them, becoming our partners that have conducted a number of meetings to look at for Tegra strategy going forward to ways to optimize it so everything for US is looking on track and we're feeling feeling very optimistic.
Domestic about bringing them in as partners.
Great to hear.
So despite announcing that Warburg transaction the stock hasn't moved much.
And continues to trade at or over 50% discount to what I think is a conservative estimate of fair value. So it seems like more drastic actions might need to be taken by the board.
You agree the non for Tegra assets have been somewhat over earning in our cyclical. So now it could be a good time to divest those so why not sell the non for Tegra assets to a third party or your team even at book value and then convert tiptree to a pure play for Tegra.
I think in that scenario you could see the stock immediately double and no one benefits more than you and your team given the lucrative comp package that was awarded last year. So if the board is looking out for the best interest of all shareholders. This seems like the obvious choice, but want to hear your perspective and any thoughts you can share.
The board's perspective on that plan.
Yes.
I think Chris as we've said in the past and I think it's an excellent question you ask it certainly our objective and remains our highest priority to bridge that gap between where our shares trade to what we believe is fair intrinsic value and you are correct I think we ourselves sort of scratch our head as to why your shares trade where the arm part of it is that were not closed yet we certainly can.
Average that until we get this closed I think there'll always be a hesitancy for people to fully accept that that's a done deal, but we see it as continuing as I said before on path as expected with regard to the other assets held in Tiptree capital. We're always looking to optimize returns. If we think there is a better buyer and holder and willing to.
Pay a price that we think is fair or above market. We will consider selling we've always conducted our business that way some of our assets, which have been performing extremely well. These last few years for example, our mortgage origination and servicing business. We think is better cap and has been producing and kicking off tremendous cash flow relative to its.
The capital investment relative to its book value and we're going to continue to.
Enjoy those returns for some time, so with regard to other assets, we will always consider divesting when do we think it makes sense, but our objective for shareholders is to allocate capital, where we see best risk adjusted returns that we can achieve in the marketplace with regard to <unk> I agree they're not just hitting the numbers exceeding their numbers.
We think thats, great and I think when you look at Warburg investing they they didn't invest based upon the beliefs that that was the end value. They clearly saw this business growing and have a greater value down the road and we agree I think even on conservative metrics youre going to see for Tegra down the road if priced in the public markets and if.
We ever consider as we said in the past, we likely would another IPO, we think that that value will be significantly higher so even the 25 Bucks that we show in our Investor report, we think is conservative with regard.
But counter to that we will just continue to allocate capital.
As we see best return, we will nurture our investments to we see an exit that makes sense. We certainly don't want to just sell our winners and keep our losers, we'd rather do the opposite and so we're going to manage your money that way, we will always consider share buybacks and in fact, Chris I'll say based upon some conversations we've had.
We wanted to note that we've purchased back 15 million shares of almost 36% of the shares outstanding at the end of 2014.
So that is always in our mind, but with the precious capital we have and with the objective of working with our partners at Warburg down the road to look for further acquisitions look for growth capital, we want to certainly keep our capital appropriately, but we will consider buying back shares when appropriate but for now its steady as she goes where how.
With our businesses they are all performing well.
But we will consider moving assets are moving capital when appropriate I.
I hope that answers your question.
Yes, My third question you partially answered.
To me that like I said, I think the breakup and I think most shareholders on this call I'd be willing to bet over 90% of them agree with what I said in the first comment and I think.
The discount right now given in your non for Tegra assets, it's basically getting a negative value if for tegra is anywhere close to.
Getting fair value. So it just it just seems like an it and every holding company structure I guess.
Just another comment on my second question is I can't think of a holding company that doesn't trade at a big discount and often those holding companies are less disparate assets and I would argue.
Yeah, there is more kind of synergies and reasons for those assets to be together and you typically don't have one such dominant asset the only holding company I can think of that they're monetizing that large asset as we speak but.
If not the breakup scenario as you just <unk>.
You mentioned buybacks, which yes, you've done a lot historically, but I don't think any has been done since the for Tegra IPO was canceled and the stock trades at a massive discount to what we both agree is a very conservative estimate of fair value, So why or why not.
Repurchase shares more aggressively or at all in the fourth quarter and then why not consider.
A massive share tender once you get the capital from Warburg understanding you need some piece to grow but this generating cash and youre going to have a net cash balance sheet. If I understand correctly. So that seems like a great return, where you can buy $1.50 dollars.
Dollars growing 20% a year.
Certainly you will always be a consideration and as I've said, we always consider share buybacks I think appropriate, but we do have to balance that with the on.
On the other side of the equation, which is where do we want to be allocating to our businesses for long term growth.
And in certain businesses and certainly in Tiptree capital.
With that I mean, there are certain businesses that throw off a lot of cash flow have a tremendous return on book value and the capital we have invested in businesses that we can continue to draw out of those businesses reallocate other businesses or do share buyback. So.
Nothing is off the table, but that being said.
We're just we first want to make sure we get the Warburg deal done we'll consider options as we go forward, but I want to make sure we preserve capital to grow our businesses and Chris I'll say, we take a long term view, we think that producing outsized returns to other investment opportunities that investors have.
Well to them over the long term and to consider all options of allocating capital buying back shares et cetera, and you get out there and tell our story, we think those will ultimately bridge the gap between where we trade and where and where intrinsic value is but we got to take one step at a time and we don't want to just throw babies out with the bathwater, we want to make.
Sure that we're making.
Telegent commercial decisions, when we allocate or dispose of assets.
Thanks for your.
Sponsors.
Thank you Chris.
Our next question is from Joe Salerno shareholder. Please proceed with your question.
Thank you and thanks for the time.
Michael can.
Can you give us a little bit of detail.
<unk>.
Did you see delays in the Warburg deal like is it a state by state approval process.
If theres 20 states. So you through 15 or whatever just any sort of detail on the inside baseball on that yeah.
Yes.
Thank you John by the way Thanks for the question John Good to hear from you.
We operate in eight states.
And it's a complex process going through regulatory approval and each state is different. This is normal course process theres apps for US everything we feel is a is on track and so I would I would say with great confidence that everything is going as expected.
Okay, great. Thanks.
And I'm, sorry to harp on the.
Some of the parts bridging that gap and all but.
Let me ask the question this way.
As a shareholder I appreciate that.
Your quote on the front page of the press release, saying that.
Highest priority to bridge that gap and just.
Again, we'll have to detail. Your quote was we believe significant progress toward that end will be made in this coming year.
I know youre not putting a line in the sand.
It has to happen this year or else.
That alone suggests to me that you might have some ideas about how.
The significant progress toward that goal will be achieved.
You said October when the stock was 14, and you announced the Warburg sale that this is a high priority.
Here, we are five months really just soup.
Can you give us.
And you sort of.
What's on your plate as to what you think could achieved a significant progress this significant bridging the gap.
Right.
Getting warburg close nurturing for tegra throughout the year, considering our add on acquisitions, if appropriate and continuing to nurture what their largest asset that's one of the highest priorities and we see warburg is giving evidence to the value.
For Tegra and again using any market.
<unk> made.
Matrices in terms of.
Where specialty insurers are priced in the public markets.
One can get to and even materially higher valuation for <unk> than even where we're showing and a breakup value that aside for other assets certainly considering the balance between the return on capital that we're enjoying in certain assets right now and Tiptree capital along with those that may have appreciated value, where we may see a.
Better value of reallocating those assets.
That capital into something else like for Tegra down the road. So just looking for ways to create.
Our continuing cash flowing and scalable capital allocations is our objective and as we see businesses that are not meeting that or.
Or that we think don't achieve that we're going to consider whether we should be reallocating that capital to businesses and opportunities to do and then as has already been discussed and always considering share buybacks when appropriate.
And I would say also we took an initiative last year to try to also do better at getting out there and communicating our story both at the <unk> level as well as the Tiptree level. So we are in fact really set out.
And objective this year to try to get out, particularly post pandemic as pandemic concerning relief is starting to occur and to get out and tell our story to a broader audience. Those are the things we're trying to do.
Could an IPO considered.
Sometime in 2022 words or is there anything.
Standing in the way.
Not an option.
I think the comment I would say that's too soon I would say that's too soon I would say that first getting warburg close getting the capital.
Into into for Tegra Theres still additional capital that can be drawn from the Warburg investment down the road.
But I would say it is certainly both warburg and our objective to maximize for Tegra as value down the road.
Absent Warburg I would've said, we would've started consider maybe re IPO ing for Tegra earlier sometime probably in 2023 is what I think I said in the past I think that's pushed out a bit given the capital that came in from Warburg, which I think.
Will will help us grow for Tegra and help us have a more successful IPO a larger business a larger IPO and we think that's going to be a much greater value to shareholders. So I would push that date out.
So probably some time.
18 to 24 months out from that.
Okay.
Not necessarily the answer I wanted to hear I think most of the rest was wondering here but.
Okay. Thanks.
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One moment, please while we poll for additional questions.
Our next question is from Amit Bureau of shell.
Please proceed with your question.
Thanks, so much guys.
I apologize for being with Washington.
I was hopping on you here on top of everyone's but for what it is.
I think that part of the issue here.
And what we would I think in all of the shareholders would asking you guys to consider.
When you look at the export Tegra businesses.
I think there are great businesses, but if you say the return on capital of that business is 15%, making up a number and a return on capital of four Tegra is 13% I understand the inclination to hold onto the better return on capital business, but the reality is is that.
Removing those assets are consolidated that capital into for Tegra expands the multiple so much.
That's the only way you're going to close the valuation gap, but I think we believe that we.
We could not agree more and I will tell you. We are keenly aware of that we see the multiple at which especially insurers trade, we think helping to grow for tegra is by far the greatest value to our shareholders.
And I apologize for interrupting.
Wanted to tell you I agree with you on that and we do evaluate at this point that not every business gets a great multiple although it may be a great cash flowing business I'll use the mortgage business as an example.
2020, and produced almost 100% return on invested capital 2021, and continue to have just outstanding performance, that's a cash business very little.
Risks and where we can pull cash out and reallocate youre not going to get a great bid in the market for that business and it doesn't trade at a great multiple but it is a great business, great management scalable and a great cash flowing business I'm I'm not wanting to throw out businesses that are producing those type of returns. That's what we're looking for and so there is a balance.
Believe me I will tell you I am very keenly focused on creating sustainable scalable higher multiple businesses that will increase our share price and for Tegra is that no question about it.
Alright, and I think that the other issue candidly.
I the way I definitely commend you guys on getting out there and telling the story I do think that the way you tell the story you guys need to do a better job in providing more transparency into the nonqualified assets.
Because I think right now one of the concerns that shareholders are potential shareholder has is it looks a little bit like this is Andy I'll take this is a long way. This is basically for Tegra, Michael Barnes <unk> on the side.
And I don't know I don't know.
Well it must be a great investment.
Great Investor, but institutional investors right are not excited to do that.
That's not what they were right.
Oh yeah.
I hear Ya look I am the largest shareholder and when you look at it.
Just to be sure that's why I'm excited to be a shareholder.
And are you guys as shareholders this would be a different story.
Yeah, and I will tell you it is.
Certainly not a P a.
When we formed tiptree with outside investors.
The objective was to allocate capital based on our expertise and our expertise resided in financial services. It also resided at credit. It also would have resided in hard assets.
And asset finance like aircrafts like ships like real estate.
And Thats, where we focus and we've been involved in a variety of assets over the years and more than one insurance company over the years in particular is not her first so as we see these businesses.
Well, we're going to consider every way to grow them and then ultimately.
Monetize them, if appropriate but as long as they are winners and making money, we're going to nurture them and try to keep them as long as possible, but some businesses like for Tegra and I Willi knowledge may have a better <unk>.
Pricing of capital raising in terms of equity and credit on their own via an IPO.
Or other.
Sale down the road than it would if it was continuing as part of Tiptree. So we're we're we're conscious of that but our job is to look to allocate capital where.
Where we see best risk return and that's what we've been doing for last 15, almost 15 years and we're just going to keep doing it.
Alright, Yeah look.
I think.
I understand why would you think that makes sense, but the issue isn't that more tigers tucked away somewhere it's the other stuff with a problem in terms of what <unk> want.
I think that like.
And it sounds like that this is a great businesses right.
No disputing that.
It's just.
At some point the definition of insanity is doing the same thing over and over and expecting a different result than what the market is clearly told you if they don't care. They don't want these assets right right like.
I think they're supposed to solve them.
Take the proceeds pushing into for Tegra and I think this thing is a $25 35 dollar stock easily.
We are we are considering oh.
All options.
I appreciate you asking bridging that gap.
We hear you and bridging that gap, it's our objective to and I'll I'll just mentioned look in 2021, our board and this goes back to the question. Joe asked I think our board wanted to align management's incentives with share price and the new incentive plan was put in place to achieve ever increasing share prices for incentive that is our incentive.
And to reduce.
In the aggregate for the for the senior executive officers.
The aggregate of compensation based on EBITDA and that was something we'd heard from shareholders and the board acted I think that's the right incentives. So you should know we are very aligned not just as the largest shareholders, but with our incentives in place to achieve ever increasing share price over the year. So there is very much a focus on how do we bridge that gap, how do we get our share.
Price to reflect fair value.
And I'll say it again I think 25 is the low end of the range in my opinion I'm speaking my own view, but I think you look at any common multiple as to where specialty insurers of price the market and it will take time to get Forte grow.
A further grown bigger to the point that we do want to consider possible options.
For for having it stand on its own but I think when it does you'll see evaluation, that's materially higher than where warburg put their money and that's why they did it.
Yes.
Okay I appreciate it thank you.
Great.
Our.
Next question is from Andrew Cowen of spring.
Proceed with your question.
Hey, everyone.
Andrew.
Hi.
So given the float at for Tegra and rising rates.
Is there a like a sensitivity on some move it somewhere.
Ever point in the curve.
The rate curve.
Two.
Is this a 1% move equal.
Whatever potential increase in earnings and.
Can you also go over the.
It's been pretty pretty.
A volatile and the.
The credit markets past, three three or four months.
Can you just discuss.
With a return profile was for the credit book in fourth quarter and.
Is there anything to worry about for this quarter.
Alright excellent questions Andrew Thank you for that.
The first the answer first question, so so inflation with respect to the float.
Investors are paying in premiums on behalf of <unk> as we state on page I think.
Page eight of our of our Investor report.
You'll see that we keep about 80, 84% of it and very high quality short duration fixed income assets. There is going to be some impact on the price those assets, but it's an and.
It's an unrealized mark to market based on a short term spike in rates that we saw in the fourth quarter and because of its short duration, it's not going to have a material impact more recently since what's taking place in Ukraine, you saw rates slightly come down a little bit. So we see a little bit of offset there, but theres no material concern we have there.
With regard to rates long term longer term as our positions roll off and we're able to reinvest them in a higher rate. It ultimately may produce bell.
Returns are.
We're taking a point is yeah, yeah that was my point.
Assume that.
Mark to market losses de Minimis, right, I mean, who cares, it's two and a half year the rest of world.
Is there I mean can we assume that.
Hey.
The 50 basis point move in the.
Two to three year.
Tenure.
U S treasury or whatever.
Our GSE.
Right.
<unk> two <unk>.
X dollars something like that.
You can look to financial firms out there that.
I was going to say I say, we do not put that out because we are always modifying the float.
Terms of any type of expected change based on rates, but I think I think one can do any fixed income trader can do the math as to what has changed in sort of the two year three year type range is going to do to the unrealized mark to market change these assets I'll be honest.
As I said as if rates spike up and spike up significantly.
Well positioned to be able to take advantage of that higher rates.
Assets roll off and are reinvested, we will get the benefit of that as opposed to if we invest in our longer dated assets. So I like how we're positioned we have even taken steps to make sure we've moved.
We've modified our positions as it relates to agency mortgages in anticipation of fed action as it relates to what they had previously been doing with regard to purchasing mortgages, possibly stop.
Well publicly stopping those purchases and possibly selling down their books. So we are active trying to consider what a rising rate environment is going to do and we think we're very well positioned on that part of the book and that's 84% of our book. The second part of your question was credit and I'll tell you. If there is an area that we know well and can certainly.
I'd say, we know probably as well as anyone as credit and a more volatile.
Our credit market is opportunity.
And we do allocate.
Is it harder to that definitely yeah, and so certainly in the fourth quarter.
Some widening of spreads there is some impact on certain positions, but unrealized I'll say again and I look at how we're performing now where the opportunity is going forward I couldn't be more pleased about both the team we have in place to take advantage of that and this is the type of market, where we prosper when spreads are crunching tighter.
And tight it's hard to make money when there's volatility and theres opportunity there is more opportunity to make money. So we like this market, we see that improving the flow prospects and so far I'll say knock on wood, we're doing pretty well I'm comfortable with where we are and our overall credit book look given that it's a minority of the overall flow.
It's not going to have a huge impact.
But that being said, it's a better market for us now to improve the float returns than it certainly has been over the last few years.
Okay, great. Thank you.
Thanks, Andrew.
We have reached the end of the question and answers.
I will now turn the call back over to Sandra Bell for closing remarks.
Thank you Hillary and thanks, everyone for joining us today.
As always if you have any questions. Please feel free to reach out to me directly. This concludes our fourth quarter 2021 conference call.
Yeah.
This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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