Q2 2022 Radian Group Inc Earnings Call
Good day, and thank you for standing by and welcome to the second quarter 2020 to Radian Group earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer.
Session to ask a question during that session you will need to press star one one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to John Damian Senior Vice President corporate development and Investor Relations. Please go ahead.
Yeah.
Thank you and welcome to <unk> second quarter 2022 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 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 a homogeneous segment other non-GAAP measures that will be.
Just today include adjusted gross profit adjusted pretax operating income or loss before allocating corporate operating expenses and the related homogeneous profit margins at <unk>.
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 may be found in press release exhibit G. These exhibits are on the investors section of our website.
This morning, you'll hear from Rick Thornberry, Radians, Chief Executive Officer, and Frank Hall, Chief Financial Officer also on hand for the Q&A portion of the call is Derek Brummer President of Radian mortgage before we begin I would like to remind you that comments made during this call will include forward looking statements. These statements.
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 2010.
<unk> Form 10-K, and subsequent reports filed with the SEC. These are also available on our website.
Now I'd like to turn the call over to Rick.
Thank you Jonathan and good morning. Thank you all for joining us today and for your interest in radio.
Our team remains focused across our three areas of strategic value creation growing the economic value in the future earnings of our mortgage insurance portfolio growing our own genius business.
Managing our capital resources.
Pleased to report another excellent quarter for radio Frank will discuss the details of our financial position shortly but let me first share a few highlights we reported net income of $201 million or $1.15 per diluted share.
Diluted net operating income was $1 36 per diluted share.
Turn on equity was 19, 9% for.
Our mortgage segment, we wrote $18 9 billion.
<unk> on the second quarter for the new business. We're writing today, we continue to see an overall strong credit risk profile supported by high quality underwriting standards.
Our second quarter <unk> has a very high mix of purchase business approximately 97%.
As I've said before we typically deploy more capital at a purchase driven market we expect.
The environment in 2022 to continue to provide opportunities to put our capital to work at attractive risk adjusted returns.
Our proprietary analytics and radar rates platform, which utilizes artificial intelligence and machine learning allows us to carefully select the risk we're taking based on sound analytical data, including the granular after abuse of each loan and its relative value of the market. We believe this is an important differentiator.
Theater for Radian in terms of optimizing economic value across the competitive marketplace.
Our primary insurance in force, which is the main driver of future earnings for our company grew 7% year over year to more than 254 billion.
At June 32022.
Our monthly premium in force portfolio grew more than 12% year over year, while our single premium in force portfolio declined 15%.
This large and valuable portfolio consists primarily of well underwritten high quality business from recent years with strong embedded home price appreciation.
It is also worth noting that the increase in mortgage interest rates is driving higher persistency in our existing enforced portfolio, which we expect to fuel continued portfolio growth.
And as a further note the increase in interest rates has also resulted in higher yields in our $5 9 billion dollar industrial portfolio in.
In the second quarter, we continued to experience favorable prior period reserve development, which was largely driven by better than expected cure activity.
New notices of default in the quarter were the lowest we've seen in more than 20 years.
We were excited to announce in July with the launch of our new mortgage conduit radiant mortgage capital or RMC, which was formed to provide residential mortgage lenders with additional secondary market option for high quality loans and to provide mortgage investors with a trusted high quality sponsor. We believe RMC is a natural.
Extension of our strategy products that leverages, our deep mortgage expertise helping.
Helping to broaden our market reaches of aggregator manager a distributor of residential mortgage credit risk.
For our whole junior segment total revenues for the quarter were $32 3 million, although lower than the second quarter of 2021 homogeneous revenues year to date for 2022% or 12% higher than the same period last year.
First we will provide further details on our home genius financial results.
Wanted to take a moment to share a few home genius business updates in.
In the second quarter, we continued to see increased revenue and strong performance from our real estate services, specifically, our single family rental business and our evaluation of products and services as expected our centralized lender refinance silo revenues compared to the first quarter of this year and the prior year were down due to do too.
The rapid decline in industry wide refinance volumes.
Although we continue to add new customers based on our excellent service and strong value proposition, we expect the overall market refinance volumes to remain low.
Despite the slowdown in our refinance title volumes, we are seeing growing interest in our home equity title products and services from some of the largest financial institutions as they ramp up their home equity lending business. We are also attracting new interest across our purchase title programs that leverage our award.
Many of the patent pending title genius technology platform, although our purchased title volumes remains small we are encouraged by the traction we are gaining with homebuyers real estate agents lenders and investors specifically, we are attracting strategic interest from lenders that are unique centralized purchase title platform to better control.
The home purchase closing process.
In terms of our real estate technology products. We are pleased with the customer response to our software as a service products for real estate agents, specifically genius price our innovative property intelligence technology platform offered by our Red Bell real estate brokerage over the last several months, we have signed genius price contracts with real.
Este brokers as well as marketing partnerships with large real estate franchise companies, including Berkshire Hathaway, leading real estate companies of the World and most recently remarks. These relationships provide us with sponsored access to market and deliver our genius price SaaS solution to over $200 in real estate.
Agents across the country.
Turning now to our capital and liquidity at June 30, Radian group maintained a strong capital position with $1 billion of total holding company liquidity at Radian guaranty's available assets under Pmiers totaled approximately $5 2 billion <unk>.
Resulting in a cushion of one $4 billion or 38%.
A recent and important external validation of our financial and capital strength as the recent upgrade of Radian group and Radian Guaranty by Moody's investors service.
The upgrade reflects our improved capital adequacy through risk distribution are proving profitability metrics, our strong market position and our financial flexibility with strong liquidity.
Frank will provide the details of our capital management actions, including our share repurchase program.
Turning to today's environment and housing market clearly the macroeconomic environment has gone through a rapid change over the past two quarters with increased mortgage rates, a 40 year high rate of inflation and an economic slowdown despite a strong job market and record low unemployment rates across the country.
As you've heard me say before our company is built to withstand economic cycles. This was most recently demonstrated as we effectively navigated a very challenging economic environment during the COVID-19 pandemic.
Since the great financial crisis, our capital structure has been significantly strengthened through the implementation of the P. Myers capital framework and the programmatic distribution of risk into the capital and reinsurance markets.
Perhaps most important.
But the quality of the mortgage industry is low manufacturing servicing processes.
Is as strong as ever.
We also employ dynamic risk based pricing focus on driving economic value, which enables us to calibrate our pricing to address the risks that we see in the macro environment. We have modestly increased our pricing to reflect today's environment and have recently seen some evidence of price increases among our mortgage insurance peers as well.
Importantly, we believe our strong capital and financial flexibility positions us well for the current economic environment.
In terms of the overall housing market over the last couple of years during the COVID-19 pandemic the real estate market experienced increased housing demand driving a 40% gain in home prices more recently home affordability has been challenged as a result of higher home prices combined with a rapid increase in mortgage rates of high inflation.
Levels, although we are beginning to see indications of a cooling housing market from the boom over the last few years. We believe this is a healthy shift and that the foundation for the overall market remains strong. This is due to the positive dynamics in terms of high credit quality borrowers low housing supply and continue.
<unk> demand coming from first time homebuyers.
Although we expect the rate of home price appreciation over the next few years to moderate we believe the slowdown in HPA.
He will lead to a more healthy and stable national housing market, which will continue to support purchase market growth in the years ahead.
Just on the most recent origination projections for 2022, we now expect the private mortgage insurance market to be approximately $400 billion to $450 billion.
Which would represent a market that is smaller than originally expected, but still represents the third largest semi volume year in history.
Finally, while we are extremely proud of the success over the years and ensuring the American dream of homeownership.
No.
<unk> unique positioned to do even more.
Why are we launched an affordable homeownership initiative within radian to further address access to affordable sustainable and equitable homeownership with a particular focus on closing the homeownership gap for underserved communities by leveraging our expertise and local partnerships to help address homeownership barriers for people and communities of color.
Given this focus we worked closely with the NBA to help identify radians hometown Philadelphia.
The next site for the Mbas convergence initiative, which is designed to help narrow the ratio of homeownership gap.
We're one of three cornerstone partners and are looking forward to partnering with the MBA on this important initiative to make a real difference in the Philadelphia community.
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 $201 2 million or $1 15 per diluted share for the second quarter of 2022 as compared to $1 one per diluted share in the first quarter of 2022, and <unk> 80 per dilute.
Could share in the second quarter of 2021.
Adjusted diluted net operating income was $1 36 per share in the second quarter of 2022 compared to $1 17 in the first quarter of 2022, and <unk> 75 per share in the second quarter of 2021.
I'll now turn to the key drivers of our revenue.
Our new insurance written was $18 $9 billion during the quarter compared to $18 7 billion in the first quarter of 2022 and $21 7 billion in the second quarter of 2021.
New insurance written for purchase transactions was $18 4 billion.
An increase of 10% year over year.
Purchase volume accounted for 97% of our total new insurance written for the second quarter of 2022 compared to 77% in the second quarter of 2021.
Our reported quarterly annualized persistency rate increased to 79, 8% this quarter compared to 66, 3% a year ago.
Primary insurance in force increased $254 2 billion this quarter showing growth of 7% year over year.
We expect total insurance in force growth to end at approximately 7% for the full year of 2022 as well given the expected persistency and recent origination forecasts for the remainder of 2022.
This is a slight reduction in our expected full year annual growth for the in force portfolio down from 10%.
Monthly premium insurance in force has grown 13% year over year and now represents 85% of our total portfolio as shown on webcast slide 10.
Total net premiums earned were $253 9 million in the second quarter of 2022 down slightly compared to $254 $2 million in the first quarter of 2022, and $254 8 million in the second quarter of 2021.
Webcast slide 11 shows the trend in mortgage insurance in force portfolio premium yields over the past five quarters.
Our direct in force premium yield was 40 basis points this quarter compared to 39 six basis points last quarter and 41, one basis points in the second quarter of 2021.
This experience is consistent with our expectations of an approximate two basis point decline in normalized direct enforce yield during the full year 2022, and our expectation remains unchanged.
Investment income increased 22, 9% on a linked quarter basis, and 29, 4% compared to the same quarter prior year.
The rising interest rate environment contributed to an increase in investment income in the second quarter of 2022 and is expected to continue to be positive for the reinvestment rate of future cash flows. However, as in the prior quarter. This quarter rising rates had a negative impact on period end market values.
And increased unrealized losses on the investment portfolio, which negatively impacted our book value. Since these unrealized losses are primarily recorded directly to our stockholders equity through accumulated other comprehensive income.
We do not expect to realize these losses as we have the ability and are likely to hold our investments to maturity and the unrealized losses are expected to diminish as security values are expected to trend to par value the closer they get to maturity.
Our ability to hold securities to maturity is another benefit of our strong operating cash flow and financial strength.
Our homogeneous segment revenues were $32 3 million for the second quarter of 2022 compared to $33 9 million for the first quarter of 2022 and $33 $5 million in the second quarter of 2021.
Our reported homogeneous pre tax operating loss before allocated corporate operating expenses with $12 million for the second quarter of 2022 compared to $8 2 million for the first quarter of 2022 and $4 $5 million for the second quarter of 2020.
Once.
Our reported home genius adjusted gross profit for the second quarter of 2022 was $11 $2 million.
Compared to $12 1 million for the first quarter of 2022, and $11 7 million for the second quarter of 2021.
A reconciliation of our homogeneous non-GAAP measures to the comparable GAAP measures can be found on exhibit G.
Moving now to our loss provision and credit quality.
As noted on webcast slide 14, we had a benefit of $114 $2 million.
Our mortgage provision for losses for the second quarter of 2022 compared to a benefit of $84 2 million in the first quarter of 2022, and a loss of $3 $3 million in the second quarter of 2021.
Also as noted on webcast slide 14, the provision for losses for the second quarter of 2022 includes positive reserve development on prior defaults.
$148 1 million.
This positive development was primarily driven by more favorable trends in cures and previously estimated aided by forbearance programs as well as positive trends in home price appreciation, which resulted in a change to the assumptions related to prior period defaults.
While the strong home price appreciation experienced in recent years is also expected to benefit our current period, new defaults, we maintained our prior quarter assumptions for those defaults for the second quarter of 2022, including the default to claim rate assumption on new defaults at 8% as we continue to closely.
Monitor the trends in tears and claims for our new default inventory all within the context of the current economic landscape.
As of June 32020 to 96, 8% of new defaults from the second quarter of 2020, the largest COVID-19 related default quarter have cured.
These favorable trends for defaults were reported in 2020.
Were the primary catalyst for the positive reserve development reported this quarter.
For additional context based on the continued strong cure volume.
We've reduced the default to claim rate assumption for the large population of defaults first reported in the second quarter of 2022 and ultimate rate of approximately two 5% this quarter compared to 4% last quarter and down.
Our original assumption of eight 5% set in the second quarter of 2020.
Now turning to expenses.
Other operating expenses were $95 million in the second quarter of 2022.
An increase compared to $89 $5 million in the first quarter of 2022 and $86 $5 million in the second quarter of 2021.
The increase in other operating expenses as compared to the prior quarter and the same quarter. Prior year is primarily related to an increase in homogeneous expenses as we continue to scale that business as well as a decrease in ceding commissions.
The decrease in ceding commissions is primarily associated with lower single premium acceleration.
To aid in the analysis of our operating expenses, we have provided additional segment level 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 $1 $4 billion as of the end of the second quarter, which represents a 38% pmiers cushion.
As of June 32022, we have reduced radian guaranty's pmiers minimum required asset requirements by $1 1 billion by.
<unk> risk through both insurance linked notes reinsurance.
And other third party reinsurance arrangements as noted on press release exhibit K.
Consistent with our use of risk distribution strategies to effectively manage capital and proactively mitigate risk in July 2020 to Radian Guaranty agreed to terms on a quota share reinsurance arrangement with a panel of highly rated third party reinsurance providers.
Under this new agreement, we expect to cede 20% of the exposure on the policies issued between January one 2022 and June 32023.
Subject to certain conditions effective starting July one 2022.
On a pro forma basis, assuming the pending <unk> had been in place as of June 32022, our Pmiers cushion would have been approximately 43% and radian guaranty would have risked distribution covering approximately 76% of our risk in force.
For Radian group as of June 32022 will be maintained at $773 million of available liquidity.
Total liquidity, which includes the company's five year $275 million credit facility was just over $1 billion as of June 32022.
During the second quarter of 2022, we repurchased nine 1 million shares at an average share price of $20 25.
Furthermore, in the month of July we purchased an additional $4 8 million shares at an average price of $20 47.
Year to date, we have purchased $14 8 million shares at an average share price of $20 49.
Which represents eight 4% of our 2022 beginning share count.
We have also continued to pay a dividend to common stockholders throughout the pandemic during the second quarter of 2022, we returned approximately $36 million to shareholders through dividends.
And year to date through July we have returned over $373 million to shareholders through both share repurchase activity and dividends.
And July Radian, Guaranty, and Radian group each received ratings upgrades from Moody's to <unk>, three and <unk>, three respectively, which now places radian group's unsecured debt rating and the investment grade category and is a significant milestone for the company.
Given the capital strength at Radian, Guaranty, and the financial flexibility provided by Radian group.
We believe that we remain 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 I wanted to highlight that we are pleased with our results remained focused across our three areas of strategic value creation growing the economic value and future earnings of our mortgage insurance portfolio.
Growing our homogeneous business and managing our capital resources, we believe our mortgage insurance team is well positioned to navigate the macroeconomic environment and continue to build the economic value of our insurance portfolio. We are pleased with how the credit performance of our portfolio continues to improve as we emerge from the pandemic environment.
We are excited about the launch of Radian mortgage capital as a natural extension of our strategy of products that leverage our deep mortgage expertise, helping to broaden our market reach as an aggregator manager a distributor a residential mortgage credit risk. We remain excited about the future of homogeneous based on the market.
So our innovative products and services and look forward to reporting on our progress in the coming quarters, we continue to strategically manage capital by maintaining strong holding company liquidity and Pmiers cushion opportunistically repurchasing shares and paying the highest yielding dividend in the industry to stockholders.
And I want to thank our team for the great work. They are doing each day, clearly supporting our customers, creating new innovative products and managing our existing risk now operator, we would be happy to take questions.
Thank you Ian asked a reminder to ask a question simply press Star one one on your telephone.
One moment, while we compile the Q&A roster.
Our first question comes from Mark debris with Barclays. Please proceed.
Yes. Thanks.
You're obviously in a pretty unique environment here with a lot of different cross currents kind of impact the risk of the new insurance Youre, writing can you just talk a little bit more qualitatively about how youre thinking about that.
The net impact of all of those risks it sounds like youre, starting to price a little bit more for it and seeing it from competitors, but also discuss how you kind of manage the risk of if youre too conservative and too far out in front.
And how you kind of price for that risk that you could lose meaningful share.
I think mark. Thank you for the question, Eric and I will tag team. This but let me just step back and take a kind of a view of the macroeconomic.
Environment that we're in a and Derek can add specific pricing comments, but I think.
I think the good thing about where the business is today as I do think we're built differently than we were in the past you've heard me say that before and I think having just navigated the COVID-19 pandemic environment I think is a good indicator of the strength of the <unk>.
We all know since the great financial crisis, the business model has changed dramatically related to the P Myers capital framework risk.
Risk based pricing, where it gives us the ability to be very disciplined and selective about the risks that we underwrite and also the district court programmatic distribution of risk.
Through the capital reinsurance markets.
I'd say that we also have to look today at the quality of underwriting and servicing is being realized.
Very strong across the originator market. So clearly this is.
A new and different environment, where we've seen a rapid increase in rates, we see 40 year high inflation, we see an economic slowdown, but we see combined.
We see an overall good labor.
Market.
Low unemployment strong.
Strong job market so.
In terms of the rising interest rates for us and is kind of important put things in perspective because.
Interest rates still are relatively low levels, specifically for mortgage rates. When you look out over the history last 30 40 years, we are still at very low levels.
The whole market's kind of adjusting to right, which is probably ultimately a healthy thing, but as you look at our business. There are some pluses and minuses. The pluses are obviously higher interest rates are driving improved persistency, which is a strong driver of future earnings and obviously an increase in rates.
<unk> will stay invested at higher rates on our investment portfolio, which is also a plus so negative as we are watching for kind of how the recession, we inflation and the potential impacts that has on future defaults and claim rates, but I think as we underwrite risk in the current period today.
<unk> full of that and I just wanted to share a couple of comments on the housing market too because we've seen this housing market could go through enormous change 40% gain in the last few years during the pandemic, but we're starting to see that home aboard ability to challenge.
Through higher home prices combined with these higher rates.
So there is some balancing occurring although.
There's a lot of talk about cooling housing market and we can definitely see it and we definitely see that.
Actually a good thing because we believe it's a healthy shift kind of in the foundation for kind of the future market.
It's being driven by some really positive I would call a positive tailwind from the market that are high credit quality borrowers low housing supply and continuing demand. So as we see kind of a reset occur in the housing market.
A healthy shift to kind of moderate HPA kind of going forward and create a better.
Purchase market for us so as we kind of step back and we think about it we are managing through this environment by.
Kind of get to your question by leveraging our proprietary analytics on our radar rates platform to employ.
The dynamic risk based pricing.
That we've been using for the last several years, it's actually.
I think probably more relevant today than it's ever been.
And it enables us to calibrate our pricing and to address risks can Derek and his team.
Because of all the unique attributes whether those are low down attributes geography attributes just many different factors that go into that pricing decision and we've been able to modestly increase our pricing recently, we've seen others do the same.
From an overall macro market environment.
We are well positioned to manage through it kind of leverage our tools leverage the strength of our capital structure and just be might we have to be mindful that this is the.
This is a different environment than even the great financial crisis or the Covid environment is a lot of different features stood in terms of recession potential for recession inflation higher interest rates, but I think where we're positioned today puts us again, well positioned to navigate through the cycle there.
I don't know if you want to comment specifically about purchased the pricing.
No I think you hit on the key points are one thing I would add is just as we kind of think about pricing or positioning ourselves in the market.
While the market is trailing a bit you have to kind of keeping in perspective, it was coming off as a market where.
Home price appreciation.
Rapid clip, we werent pricing with the expectation prices going up at 20% a year or so and you see it on a call back down it should be kind of more I'd say in line with our long term expectation expectations in terms of we're actually pricing the risk. The second thing in terms of how we position ourselves and we've talked about this in past calls as we think about our pricing.
What we do is we do essentially reverse engineering.
Competitors pricing and so what we're looking at as market clearing levels. So anytime we make a pricing change and we do that it's on a very granular level, we build out demand curves at loan by loan basis. So we have a good estimate when we change pricing and if we increase it exactly how much market share we would expect to lose on a segment by segment basis.
Yeah.
Great and just one follow up on that last comment from Derrick does it feeling what youre seeing and what Youre reverse engineering from competitors is kind of commensurate with the increase in risk that you perceive here or does it still feel like they are lagging.
I think what we've seen pretty stable pricing in Q2, I think we're seeing some evidence of price increases on a selective basis by competitors.
Yes, moderately increase our pricing kind of at the end of Q2 early Q3 certain segments certain geos up more than others, but aggregate just a modest increase I would say, it's tough to say if we've seen that across the board to date, but I think we are seeing evidence that others are factoring in kind of a cooling housing market.
Okay, and then sorry, just one last on this topic is risk.
Certainly increases in your pricing do you price for marginally higher expected returns to compensate for that kind of perceived increase in risk.
Well the way we look at it its really baked in the expectation so as you see and our economic projections, we do stochastic simulation may dump pricing deterministic path, but when we look at that we look at it being moderately more negative than it would've been six to nine months ago as it resolved to get back to our targeted returns we have to charge.
A bit more to do that so it really kind of get to the same place in a different way.
All things being equal if we didn't change our pricing our returns will be down, but we don't increase our returns to kind of solve it the other way.
Okay got it very helpful. Thank you.
One moment for our next question please.
Our next question comes from Doug Harter with Credit Suisse. Your line is open.
Thanks.
You mentioned that you have $1 billion up at the holding company.
Can you talk about.
Plans for additional capital return.
What is the right level.
Our capital at the holding.
Sure Doug This is Frank.
We are very fortunate position to have the excess.
Our significant capital at the holding company and our historic capital actions I think.
Constrains, our willingness to return capital to shareholders in a very I.
I think prudence.
<unk> and.
<unk> away.
Just to expect.
And would guide you to the fact that we will do that in the future as well so we make our capital decisions based upon.
What we see in a forward view as far as capital and cash flows and also make sure that we have sufficient capital to support the organic business make sure that we've got adequate risk buffers, where we need them.
We want to make sure that we have sufficient capital or resources for capital to support.
Any potential inorganic growth opportunities and then we evaluate whats the right method to return capital to shareholders and so historically you've seen us be.
Strong proponents and users share repurchase programs.
And this quarter certainly we have very high level.
Share repurchase activity.
Going on in year to date, we have repurchased $302 million worth of our shares.
Really a tremendous price.
Certainly relative to our book value of our average price.
To date, it's been about 87% of the book value.
So that's one method our common dividend that we paid and have continued to increase over time as another method to do that.
As things normalize over time, what Youll typically see from mature financial services companies is managing to some sort of a payout ratio and we haven't given any guidance on what that payout ratio might look like in the future.
But if you look at really the unique position that radian is in especially as it relates to statutory capital, which we talked a little bit about last quarter and the expectation for <unk>.
Elevated levels of potential cash flow coming from the operating company to the parent company.
I think we'll be in a position to.
To be able to evaluate those.
And that current context.
And we'll just continue to.
To leverage the methods that we've used historically primarily.
Alright.
I'll move to the next question one moment please.
Our next question comes from Mihir Bhatia with Bank of America. Please go ahead.
Good morning, Thank you for taking my questions.
I just wanted to ask about the market overall, we are seeing in your view I think the 95 plus percent LTV loans that increased now I think it's for the past three four quarters.
I was just wondering is that.
Is that some of the risk selection you were talking about Derek is that just how the market's evolving given affordability challenges.
Yes.
Predominantly it just a shift in the market towards one driven by purchase as opposed to refi. Some of it is affordability issues right. The non op and home price appreciation has been added in the market and then some of it although its tough to say panel exactly by the market is going to be in Q2 some of that.
Colombia, driven by lever seeing relative value in the market, but it kind of ebbs and flow I think even in June I think the portion of our niwa concentrated rate of about 95 with absolutely down say youll see month to month, but no kind of big secular shifts from a rent collection perspective.
Thank you.
On the reinsurance side.
Can you just talk maybe a little bit about the demand and pricing back up that youre seeing.
Just a follow up.
Mortgage insurance on mortgage credit.
Yes, so what we've seen is still.
Solid demand.
And I think overall favorable pricing and I think if you look at.
Reinsurance industry side, I still think a lot of the themes that Rick touched upon they certainly see certainly is even though you see the market cooling a bit you have to factor in that really kind of drove that rapid home price appreciation has been driven by excess demand relative to supply and if you step back and look at the long term fundamentals.
The market is still significantly under supplied and you have very strong demographic tailwind and so and you don't have any.
Stretching in terms of a credit or manufacturing. So when you look at it from a reinsurance perspective, and you think about it on the macro basis, it's certainly a very solid business to be in solid return solid underwriting and really.
Without limited tail risk and so I think that sell through through in pretty strong demand and a very constructed reinsurance market.
Yes.
Okay.
Understood. Thank you and just my last question just on Radian mortgage capital into the new business you launched that sit within homogeneous will that be separate maybe just talk to us a little bit more about what drove the decision to launch this business. In this backdrop was that like is the idea of better cross sell like what.
What exactly is like I guess, the strategic plan behind that business. Thank you.
Here. This is Rick thanks for the question I think.
Yes.
First off today the expenses associated with.
Radian mortgage capital sit within our other segment. It is part of our mortgage business.
Which.
Reports that Derek today, and it is a critical component and an extension of our strategy.
Think about it so just to kind of take your question.
When you think about in this environment today, we have a long term view of the opportunity around this business. So we're not we're not looking at it as an opportunistic situation through this cycle, we look at it from a long term lenses.
An extension of our strategy to aggregate manage and distribute U S mortgage credit risk. So we went we formed it really to do provided an additional secondary market offer to our customers and really position.
As a player to be a trusted counterparty and sponsor to mortgage investors securities investors and we're focused on high quality loans. So the thought is that it is just simply an extension of our strategy.
Based upon what we've heard from our customers who are looking for additional sources of liquidity and if you think about our business model today.
Across CMI business, we've built great capabilities from a credit risk Spanish for perspective from a pricing.
Political perspective understanding the markets, we're very well equipped to distribute risk is theyre just talked about not only in the reinsurance markets, but on the capital markets, we have great lender relationships across our MRO business and we really just see this as an extension of our products and services to that same market.
Both the on the lender side and the Investor side. So we see it as part of our long term strategy, we see it as an opportunity to expand our presence in the mortgage market in terms of aggregating and managing and distributing mortgage credit risk. So we're excited about it.
We're just at the very beginning as you know, we just launched it in July .
Putting.
Some work and effort into.
Previously and so we're in the market and we're going to remain very disciplined.
It's safe to assume that as you think about this business think about how we run our <unk> business will focus on the economic value, we're focused on creating value for our shareholders and we're going to bring that same discipline in the pricing and managing where else that we've done across the robot business into the conduit and really look for opportunities, where we see value.
Not only for us, but for our customers, where we can create that differential value in the marketplace. So we're excited about it it's early.
And Youll hear more about it as we go.
Thank you.
Thank you.
One moment for our next question please.
Our next question comes from Bose George with <unk>. Please go ahead.
Hey, guys. Good morning, Thanks, I wanted to go back to the discussion on capital return.
As we model a share buybacks going forward, how should we think about the level of your debt to capital now that 26, 4%.
Bose this is Frank.
That's a good question. So just as a reminder, we have 97.
About $97 million remaining on our current share repurchase authorization, which expires in the first quarter of 2024.
Historically, we've operated.
But this is probably a higher level than we've been historically part of that has to do with the activity around the share repurchase.
But also keep in mind that we were recently upgraded by Moody's So that said I think somewhere in the low twenties.
Practically a reasonable place for us to operate.
And.
We will evaluate each of our debt maturities.
The closer we get to them, we're always evaluating opportunities to optimize our our senior debt structure and our capital structure overall.
But I would say that somewhere in the low to mid twenties.
As a comfortable.
<unk> levels.
A hard number by any stretch but.
It's certainly an area, where we think we can.
Operate effectively.
Okay, no that makes sense. So I guess the recent increase is.
Is that kind of reflects the opportunistic.
Repurchases this quarter is that fair.
Yes that is.
Great. Thanks, and then just on the switching to the mortgage conduit.
Is that going to be a non agency conduit yes.
Just curious how that's structured.
Hi, Bose this is Rick yes.
We're focused on non agency opportunities.
We're focused on high quality loans. So we're not going to go down the subprime path I know, we've got asked that question. So I want to make sure that we.
We address.
You can see us focused on non agency kind of prime jumbo and some of the other kind of agency eligible but.
Products that are kind of going into the pls market around.
<unk>.
The high balance loans second homes investor loans General category, so, but youre going to see us stay in the high quality mode and it will be with a focus on kind of the non <unk> loans that are flowing into the non agency market.
Okay, great. Thanks, Thanks, Amy.
One more in there.
The mortgage technology space, obviously has had a pretty big seller is there anything to do there on the acquisition front that can complement homogeneous.
Yes.
So great question so.
John Damian and his team.
Kind of a very broad lens of things that we see across the market both somewhere I think through all of the runoff that we saw in Fintech and prop Tech we were.
We remain very disciplined around kind of the valuation levels. We saw in our willingness to kind of transact. There is no shortage of opportunities across mortgage fintech product.
Today, So I think we're always looking our business is not dependent upon making a particular acquisition or not but we're always interested in things that Kim that are accretive that can accelerate in a particular area. So I would say, we're watching and we explore things where they make sense. We're also very quick to kill.
As you pointed out.
The market may provide some opportunities that are interesting, but again our model is not dependent upon it where we're focused on kind of the organic growth of it.
I do think Thats a possibility.
Okay, great. Thanks, a lot.
Thank you Bob.
One moment for our next question please.
Okay.
All right. Our last question comes from Geoffrey Dunn with Dowling. Please go ahead.
Thanks, Good morning.
Frank My memory is a little hazy here, but I think one of your peers indicated last quarter that at least one rating agency was encouraging MRI to operate below 15% leverage.
Am I remembering that right and does that.
Is that low twenties more of a mid term target with plans to go lower over time or am I not recalling that correctly.
Well.
Whether or not one of our competitors said I'd have to rely on your memory. There I know, we did not say it but I.
I would tell you, Jeff and you know this very well.
This business naturally de levers fairly quickly over time.
So yes, your observation about sort of <unk> and <unk>.
Interim target.
I wouldn't necessarily call it a target, but you have seen us operate.
Below 20%.
Historically, and I would say that.
It's certainly a possibility just as you look at the.
Organic possibilities in the balance sheet and what the earnings trend looks like over time also keep in mind too that we had a debt issuance and their senior debt issuance that was a response to COVID-19.
So that was that was purely defensive capital. So there's certainly an opportunity to reevaluate.
In that context that maturity, but.
I think Jeff as we consider the potential for capital return.
You put all these pieces together.
At this point would you agree that it seems maybe more likely that you would retire 24 debt versus refinance I know, you'll evaluate it at that point, but does that.
Fair assumption at this point for us.
Yes, so your earlier observation, but we'll evaluate it at the time I would tell you. This that we don't feel that the debt to cap is any type of a restriction.
As it relates to any of our expected future capital plans.
<unk>.
And again the last senior debt issuance was primarily defensive in nature. So I think I think we're in a good position to have a lot of optionality at that time and.
And we'll certainly take advantage.
We will evaluate at that time and also again just see what the market holds as.
As far as other potentially lower cost of capital.
Potential future share repurchases dividends et cetera. So they are all evaluated.
And sort of a comprehensive review.
Okay.
With respect to the new <unk> can you share the ceding Commission and profit Commission thresholds.
Yes, so the ceding commission will receive a 20%.
We will receive the 20% ceding commission on ceded premiums earns.
We will also receive an annual profit Commission.
Based on the performance of the loans subject to the agreement provided the loss ratio on the subject loans is below 59% 59, okay.
And then my last question when.
When <unk> came out and I think it was a upon their review a couple of years after that too.
There were points made that it was the gse's where doing so based on their current economic assumptions in the marketplace.
So I'm not sure frankly, the CEO of Derek or both but.
How do you consider or think about the risk that as the economy potentially turns down the GSE has decided to revise their economic position in the marketplace and trickle that into <unk>. How do you does that naturally manage for in the cushion that you maintain or is that something that you have to incrementally consider.
Derek do you want that.
I'll start on that so the cushion helps in terms of any changes to that <unk> I wouldn't look at the P Myers as kind of a.
Spot capital requirements, and so far as the P. Myers are calibrated to the financial crisis. So it is really a kind of a repeat of the financial crisis and when you look at the changes in terms of underwriting quality manufacturing quality kind of government support in terms of the market when borrowers.
Into trouble from delinquency perspective.
All of those things point towards kind of even in a similar path of macro path down better performance than what you would've seen in the financial crisis. So as a result, I wouldn't see them changing and making it more punitive I think it's a significant stress scenario.
Kind of adequate at this point.
Okay. Thank you.
Thank you and with that we end our Q&A session for today I will turn the call back to Rick Thornberry for final remarks.
Thank you.
I appreciate look I appreciate everyone's interest in radian and the thoughtful questions today, and we look forward to.
Talking to as many of you as we can.
Youre interested over the coming weeks and months to address any further questions. Thank you again and I want to thank our team for all the great work, they're doing that through another kind of challenging environment.
Kind of across the economy. So thank you to you all and thank you to our team look forward to talking to you soon take care.
And with that ladies and gentlemen, we conclude our conference call. Thank you for your participation and you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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