Q4 2022 MGIC Investment Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the MGIC Investment Corporation fourth quarter 2022 earnings call. At this time all lines have been placed on mute to prevent any background noise.
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I'll now turn the conference over to Diana Higgins head of Investor Relations. Please go ahead.
Thank you Justin good morning, and welcome everyone. Thank you for your interest in MGIC Investment Corporation.
Joining me on the call today to discuss our results for the fourth quarter, our churn Mackey, Chief Executive Officer, and Nathan Colson, Chief Financial Officer, Our press release, which contains MGIC is fourth quarter financial results was issued yesterday and is available on our website at M. P.
G Dot M.
M G I C dot com under newsroom includes additional information about our quarterly results that we will refer to during the call. Today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measure.
In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk in force and other information you may find valuable.
As a reminder from time to time, we May post information about our underwriting guidelines and other presentations or corrections to past presentations on our website.
Before we get started today I want to remind everyone that during the course of this call. We may make comments about our expectations of the future actual results could differ materially from those contained in these forward looking statements additional.
Information about the factors that could cause actual results to differ materially from those discussed on the call. Today are contained in our 8-K that was also filed yesterday.
If we make any forward looking statements we are not undertaking an obligation to update those statements in the future in light of subsequent developments.
No one should rely on the fact that such guidance or forward looking statements are current at any.
Any time other than the time of this call our issuance of our 8-K with that I now have the pleasure to turn the call over to Tim. Thanks Diana.
Everyone.
I am pleased to report that we had another great quarter for that matter, we delivered exceptional financial results for the entire year, while providing meaningful capital returns to our shareholders.
Simply put we have the best financial results in our 65 year history.
We will get into details of the financial results throughout this call, but we can demonstrate the strength and flexibility of our capital position in the quarter and produced an annualized 16, 9% return on equity.
In the quarter, we earned $191 million of net income an increase of 10% compared to the same period last year.
For the full year net income increased 36% to $865 million, an all time high compared to $635 million in 2021.
Insurance in force at the end of the quarter stood at more than $295 billion.
Seven 6% increase from a year ago.
The growth in insurance in force during the year reflects an increased persistency rate.
Offset by lower volumes of new insurance written.
Persistency increased to 80% at the end of the quarter up from 63% a year ago.
In the quarter, we wrote $13 billion of any W. And we finished the year with $76 billion of Niwa.
Although the volume of NSW is lower than the record volumes in the prior two years 2022 was another great year, the third largest youre in a 65 year history.
We expect the reduction or at IW volume for the fourth quarter is a reflection of the smaller rmi market, but also reflective of our market position as we continue to take actions based upon the increased risk in the current environment with a focus on the continued long term success of our company.
Turning to the performance of our insurance in force portfolio, approximately 80% of our insurance in force is from the 2020 later book years in the credit quality of those books remained strong.
To date, we have not seen a material change in credit performance in our portfolio overall.
Encouraged by the continued favorable employment trends and the positive credit trends, we continue to experience.
The low level of early payment defaults, which we believe is a good indicator of near term credit performance.
I also want to highlight that the rapid home price appreciation experienced in the past couple of years, a lot homeowners to build up significant equity.
This equity combined with the strong credit quality of our insured portfolio should help reduce the incidence of claims on their related mortgages are much of our risk in force, even with the modest declines in home prices in recent months.
Our comprehensive reinsurance program will also help mitigate potential losses.
As a result of the strength and flexibility of our capital position during the year, we not only deploy capital to support new business and grow our insurance in force.
<unk> also paid $800 million in dividends from MGIC to the holding company we.
We used our strong capital position to repurchase most of the remaining convertible junior debentures due in 2063.
Mgic's Federal home loan Bank advance.
And redeem our senior notes due in 2023, reducing our leverage ratio to approximately 12% and annual interest expense by $25 million.
We also returned approximately $500 million of capital to our shareholders through a combination of repurchasing common stock and paying common stock dividends, including a 25% increase in our quarterly dividend beginning in the third quarter.
As I mentioned during last quarter's call retiring retiring debt and Delevering has been a significant use of holding company cash in 2022.
Our debt to capital ratio at our target range.
Certainties and potential challenges in the economic environment in the near term, we continue to expect to retain higher levels of liquidity at the holding company.
Our approach to capital management is dynamic so that we may continue to achieve our objectives and changing our stressed economic environment.
We continually assess and evaluate the level of capital at both the operating company and holding company, including the level of capital to retain for future deployment versus return to shareholders.
As part of our assessment, we consider the operating environment, we are expect to be at.
We strive to be prudent and thoughtful in our capital allocation decision, making.
At the operating company and the holding company are positioned to achieve success and bearing environments.
Our balanced approach to capital management includes the use of forward commitment quota share reinsurance agreements in excess of loss reinsurance agreements. These agreements.
<unk> reduced the volatility of losses in weaker economic environments, and provide diversification and flexibility of sources of capital.
Approximately 85% of our risk in force was covered at some extent by reinsurance transactions at the end of the fourth quarter.
Drilling down further approximately 97% of the risk in force relating to the 2020. In later books was covered to some extent by reinsurance transaction at the end of the fourth quarter.
We agreed to terms on a quota share agreement that will cover most of the policies written in 2023. This.
This is in addition to the 15% quota share reinsurance agreement, we already had in place to cover the 2023 and IW, bringing the total quota share that will cover most of the policies written in 2023% to 25%.
In light of the current economic environment and near term uncertainties, Let me take a few minutes to provide some detail on our approach to credit risk.
We employ a comprehensive risk management framework that includes our proprietary risk based pricing engine for the majority of our customers IQ.
And Mike you allows for frequent and granular pricing changes, including those to address our view of emerging and evolving market conditions and risks.
We take actions intended to manage for the mix of our portfolio, including expected returns.
The golar positioning ourselves for continued success and changing environment.
The timing between taking actions and the resulting in IW is not immediate as pricing leads and IW by a month or two on average. So what are you seeing into Q4 NSW is primarily a reflection of our views of risk return from last fall.
While we won't comment on current market position and given competitive consideration our internal analytics indicates there are lower Q4 at ITW was likely impacted by both the smaller and mid market and market share that was down a couple percentage points in the fourth quarter.
Our market position continue to be defensive in recent months, which we expect will lead to further declines in our market share in the first quarter of 2023 and may be larger than the expected decline in the fourth quarter. We are comfortable with our actions and the result, because it's reflective of our views of risk return, while maintaining focus on our customer relationships and their continued long term success of our company.
With that let me turn it over to Nathan.
Thanks, Tim and good morning.
As Tim mentioned, we had another strong quarter, we earned $191 million of net income or <unk> 64 per diluted share compared to 52 per diluted share during the fourth quarter last year.
For the full year over year, and $865 million and net income compared to $635 million last year.
On an adjusted net operating income basis, we earned $2 91 per diluted share of <unk>, 52% increase from the $1 91 last year.
A detailed reconciliation of GAAP net income to adjusted net operating income can be found in our earnings release, but the primary differences in the past two years have been losses on debt extinguishment from our debt reduction actions.
The results for the fourth quarter and the full year were reflective of continued strong credit performance, which has led to favorable loss reserve development and resulted in losses incurred being negative each quarter in 2022.
Net losses incurred were negative $31 million in the fourth quarter compared to negative $25 million in the fourth quarter last year for.
For the full year losses incurred were negative $255 million compared to $65 million last year.
Our review and re estimation of ultimate losses on prior delinquencies resulted in $76 million of favorable loss reserve development compared to $141 million of favorable loss reserve development last quarter and $56 million of favorable loss reserve development in the fourth quarter of last year.
The favorable development in the quarter was primarily related to new delinquencies from 2020 in 2021.
I was curious on those delinquencies continued to exceed our expectations. We've continued to adjust our ultimate loss expectations.
In the quarter, the delinquency inventory increased by 2% to 26400 loans.
In the quarter, we received 11900, new delinquency notices compared to 11000 last quarter and 13700 in the fourth quarter of 2019 before the start of the COVID-19 pandemic.
We continue to expect that the level of new delinquency notices may increase due to the seasoning of the large 2020 in 2021 vintages into what are historically the peak loss emergence hears.
During the quarter total revenues were $292 million compared to $294 million for the same period last year.
For the full year total revenue was $1 2 billion flat with last year.
Net premiums earned were $244 million in the quarter compared to $253 million last year.
The decrease in net premium earned was primarily due to a decrease in accelerated single premium cancellation.
Increase in ceded premiums and a decrease in our premium yield offset somewhat by growth in our insurance in force.
The in force premium yield was $38 nine basis points in the quarter down 110th of a basis point from last quarter. The.
The in force portfolio yield reflects the premium rates in effect on our insurance in force and has been declining for some time, but the pace of decline has been slowing in recent quarters.
With the smaller origination market higher persistency and continued high credit quality for <unk> that we expect in 2023.
We expect the enforced premium yields remained relatively flat during 2023.
Book value per share increased four 4% during the quarter to $15 82.
From $15 16 last quarter and $15 18 at the end of 2021.
Unrealized losses in the investment portfolio due to higher interest rates continue to be a headwind for book value per share reducing book value per share by $1 39.
At year end, while unrealized gains on the investment portfolio added <unk> 47 per share last year.
While higher interest rates are a headwind for book value per share in the short term higher interest rates are a long term positive for the earnings potential of the investment portfolio and that is starting to come through the results.
The book yield on the investment portfolio ended the year at 3% up 20 basis points in the fourth quarter and 50 basis points from the end of last year.
Sequentially investment income was up approximately $4 million in the quarter and up $7 million in the fourth quarter of last year.
Assuming a similar interest rate environment, we expect the book yield on the investment portfolio will continue to increase during the year and approached three 5% by the end of 2023 as reinvestment rates remains significantly higher than the current book yield.
Operating expenses in the quarter were $74 million up from $62 million last quarter and $46 million in the fourth quarter last year.
For the full year expenses were $249 million compared to $211 million last year.
The increase in expenses during the fourth quarter compared to recent quarters was primarily due to higher pension settlement costs in the fourth quarter.
Other factors impacting the full year expenses included higher performance based compensation expense due to our exceptional financial results in 2022, as well as continued technology investments, particularly in our data and analytics infrastructures.
We expect full year operating expenses will be down modestly in 2023 in the range of 235 million to $245 million.
Turning to our capital management activities.
Our priorities have been consistent and include maintaining the financial strength and flexibility of the holding company and deploying capital for growth at the writing company.
For the holding company this means maintaining a target level of liquidity in excess of near term needs at the operating company. It means maintaining a robust level of P. Myers excess that we expect will enable growth and changing operating environments.
During the fourth quarter, the capital levels at MGIC and liquidity levels at the holding company were above our targets and we paid a $400 million dividend from MGIC to the holding company.
Insistent with our capital strategy, we repurchased $6 1 million outstanding shares of common stock for a total cost of $80 million and we paid a <unk> 10 per share dividend to our shareholders for a total of $30 million.
The holding company ended the year with cash and investments of $647 million.
In January of this year, we repurchased an additional $2 1 million shares for $28 million and our board authorized a 10 per share common stock dividend payable on March 2nd.
At the end of January we had $87 million remaining on our current share repurchase authorization, which we expect to exhaust in the first half of 2023.
Any additional share repurchase authorization will be determined in consultation with the board.
At the end of 2020 to MGIC had $2 3 billion of available assets in excess of the pmiers minimum requirements compared with a $2 2 billion excess at the end of 2021.
Throughout 2022, Mgic's capital level was above our target.
Insistent with our capital strategy, we received OCI approval and paid $800 million in dividends from MGIC to the holding company.
Future dividends from MGIC to the holding company will also require OCI approval.
As we mentioned last quarter in the near term, we expect to retain higher levels of liquidity at the holding company.
Part of the reason for maintaining higher levels of liquidity at the holding company as the outlook for future dividends from the operating company is more uncertain than in the past 18 months.
We will evaluate future dividends to the holding company using a consistent framework, but if we experienced a more challenged economic environment for mortgage credit that will impact our target capital levels, which could extend the time between dividends or reduce the amount of future dividends.
Our strong capital position entering 2022 combined with the exceptional financial results during the year positioned us to reduce our debt outstanding by approximately $500 million in.
We increased our quarterly shareholder dividend by 25%.
Reduced diluted shares by more than 10%.
And end the year with a stronger excess capital position relative to P. Myers than we started the year.
With that let me turn it back over to Tim.
Thanks Nathan.
A few additional comments before we open it up for questions.
In January under the direction of FHFA, the Gse's announced certain pricing changes effective may one of this year.
Overall, we think the actions taken since October of 2022 have been directionally positive for low down payment borrowers.
At this point, we are uncertain what impact these changes will have on our overall business.
We are supportive of efforts to facilitate access to low downpayment lending for first time low to moderate income homebuyers, we look forward to continuing to work with FHFA, the GSE and other industry key stakeholders to responsibly expand access to homeownership.
As we look ahead into 2023, we do expect downward pressure on home prices to continue and further expect the overall market opportunity for new private mortgage insurance to be smaller compared to 2022.
Even so we remain encouraged by favorable demographics that suggest meaningful long term ni opportunities.
As we close out another record year, we have confidence in our transformed business model and believe that our strength and flexibility position us to continue to execute and deliver on our business strategies in 2023 and beyond to create value for all of our stakeholders.
Lastly, we're often asked what differentiates us.
First and foremost, it's our people where people have been the cornerstone of our accomplishments.
Additionally, there is a 65 years of industry thought leadership that we bring to the table, we listen build partnerships provide a superior customer experience and deliver quality offerings and solutions to our customers. So that together, we can help borrowers overcome the largest obstacle to homeownership the down payment.
Our commitment and ability to help borrowers achieve their dream of affordable and sustainable homeownership has never been stronger with that operator, let's take questions.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star. One again, we ask that you limit yourself to one question and one follow up again that is one question and one follow up and one moment for our first question.
And our first question comes from Mark Devries from Barclays. Please proceed.
Yes. Thanks.
I had a question about how you're thinking about the alternative uses of your excess capital.
One of your competitors announced an interesting acquisition. This morning, just I'm wondering what's your latest thoughts are on using some of that capital to potentially diversify the business in ways that may either kind of dampen some of the cyclicality of your earnings <unk>.
And be accretive to returns or the multiple.
Mark It's Tim I appreciate the question.
It's something that we think about from an overall strategic standpoint, it's safe to say that on a routine basis, we consider alternatives deployment of capital on whether it's diversification other line.
Quite frankly haven't seen opportunities that we think move the needle in that we think would be a benefit to it.
The franchise entire shareholders.
That could change in the future, but to date they have not really seen that.
Okay got it and then just one question Nathan I heard your comment that guidance for the in force portfolio yield to be relatively flat in 2023 whats the outlook for the net premium yield should that kind of track that or is there still more pressure there.
Yes, Mark I think the net premium yield Theres a couple of factors that are that are hard to forecast, whether thats accelerated single premiums or or.
Or things like that the one thing I would point you to is.
The ceded premium number was benefited in the year from our negative losses incurred which drove profit commissions to be very high on those quota share deals.
As loss levels return to more normal levels certainly.
Positive numbers versus negative numbers that will have an impact on the profit Commission, which was I would say unusually large in 2022.
So I think that ceded premium number all else equal is likely to increase a little bit which would with a constant enforced premium yield number that would lead the net premium yield to come down a little bit.
But we would also see the benefit then come through from the quota share on the last line.
Got it alright, thank you.
Thank you.
And thank you.
And one moment our next question.
And our next question comes from Bose George from <unk>. Your line is now open.
Hey, guys. Good morning, So your commentary on market share suggested.
Just curious in terms of that commentary is the decline that you're anticipating driven by tighter underwriting or prices or combination of both or just a little more color on that would be great.
No I appreciate the question Paul is and again its not exact science to be able to predict exactly where we are but we feel like we have a pretty good handle on that it's not just market size is down that we were probably down some share and wanted to call out that would probably even more so as we look to report out Q1.
I think it's safe to say that as I mentioned Q allows us the ability to more granularly price express our views on risk into the marketplace through through price as well as I mentioned as far as the risk factors, but.
It's a combination of those but I think the thing that by most likely think about in terms of the risk return is what do you do to reflect the premium you need to get in return for the risk that you think that you are taking.
Okay that makes sense. Thanks, and then you noted that.
You've maintained higher liquidity at the holding company.
Is it a way for us to kind of size that.
What does that mean, just so we can kind of triangulate to potential capital return.
Yes. This is Nathan I think what we were trying to call out there is throughout 2022, when we were getting the large dividends up we were using that money very quickly weather and a lot of debt reduction activities in particular and that without that.
As a need for cash right now at the holding company because our liquidity.
Leverage ratios are near our targets right now.
We continued to repurchase shares in the fourth quarter and through January as we've said, we expect that we will exhaust our repurchase authorization.
But beyond that.
Our repurchase activity and the dividend are things that we continually discuss with the board and I think in April or in Q1 and in our earnings.
Have a better update for you on what that looks like both from a dividends from the opco up to the Holdco with three more months of kind of performance and macroeconomic updates as well as what the go forward plan is on repurchases.
Okay, great. Thanks.
And thank you.
And one moment our next question.
And our next question comes from Mihir Bhatia from Bank of America. Your line is now open.
Hi, Thank you for taking my question.
Wanted to ask about just delinquencies I will get back to like just the normal.
Cadence of delinquencies now.
Just from regular way business.
No nothing unusual going on there in terms of both yards or.
Yes, Neal this is coming in and does that mean the delinquency rate.
A little higher from here.
As we enter those Ceos of losses that you mentioned just trying to understand your expectations around delinquency rate. Thank you.
Yes, let me here, it's Nathan I appreciate the question I think.
Mentioned in the opening remarks, the level of new notices is still down quite a bit from pre COVID-19 levels. So I think we're still really pleased with the level of credit performance, but I don't think we're seeing a lot of kind of direct COVID-19 or unusual circumstance.
Noticed is I do think that this is becoming more just kind of regular way.
Delinquencies that we've seen throughout time in terms of where it trends I think theres a couple of things. We do think that we'll likely to see increased delinquencies out of the 2020 in 2021 books over time.
Entering their third and fourth years now of seasoning and Thats typically when we've seen the increase in.
Delinquencies I think in terms of the impact on the delinquent inventory some of the reason that it's remained as elevated as it is is that the pace of paid claims is still very very slow and if the pace of paid claims starts to pick up a foreclosure activity starts to pick up we might see resolution from some of these long <unk>.
<unk> notices that we do expect we will ultimately go to claim at a pretty high rate.
And that could impact the size of the inventory too so.
I think the other thing that we would've seen pre COVID-19 is more seasonality I think a lot of that got really muted, but historically the months of February March April are pretty strong seasonal months for credit.
So I don't know if its if its kind of monotonically increasing from this point.
But we might see I think we do think it's relatively flat.
With with maybe a slight increase as we've ensured a lot more loans than we had pre COVID-19.
<unk>.
These books these large books get into their peak peak.
Notice years.
In 2023 and 2024 here.
Okay. Thank you and then maybe just turning to expenses for a second.
For many many years MGIC was the market leader in terms of like just having the lowest expense ratio in the industry 2023 on the other hand 2022, sorry on the other hand was quite different.
Was there a little bit of a catch up in 2022 and I guess the question is like.
I know you gave numbers for 2023, but I'm just to talk to you, but just more generally.
Our expense philosophy, a little difference going forward.
How are you thinking about that expense ratio.
Is that all get expense ratio you work towards just trying to understand like your philosophy around expenses, because there does seem to be a little bit of a change. Thank you.
Yes, no I appreciate the question Tahira I'll start and Nathan can chime in if he wants to I think it's safe to say that over the last couple of years, we felt it important to invest in the platform over the long run.
Part of that is to make sure we invest on the actual technology platforms that are our legacy, but a big part of it is investing in our data and analytical capabilities that we think are critical.
As the industry continues to evolve as.
Nathan called out that the biggest headwind in Q4 as it was really related to pension.
Expense and really thats coming from the discount rate moving up there as much as anything so.
I think you should think about it as continuing to be very focused and disciplined on expenses.
I think Nathan talks about where we think we'll be in 'twenty three it's a reflection of us wanting to exercise discipline around expenses, because we do believe that over the long run within this industry being good stewards of how you spend dollars is very important although you have to do it you have to invest in the platform to make sure that you can continue to progress and grow.
Over the long run so I wouldn't say change in philosophy as much as a recognition that we have to invest to grow over the long run to be as competitive as we kind of the marketplace.
But we wanted to do that in a very thoughtful manner.
Got it. Thank you and then just my last question just.
We're seeing more and more mortgage companies offering higher interest rate buy downs or things like that.
Do you underwrite those differently, how do you think that some of those kind of I guess.
<unk> will impact the credit performance longer term. Thanks.
It's a good question tahira and its innovations or it said it but I think the considerably as a return to what we've seen before I think the good news is buy downs I think we will get a lot of press.
Think rightfully so it's sweet it's hopefully people have long memories. The good news is for anything that we underwrite, thereby downs normally those are qualifying assuming that there is no buy down so qualifying that at sort of the full rate.
So that makes us give a certain comfort level over that there is there is not undue risk being put into that loan I always have some concern about payment shock example, but if they are underwritten with.
The thought that there is not that the buy down in there that goes a long way towards making sure that you have a borrower who cannot only get into hall that can sustain that at a level. So feel generally comfortable about what's happening in that aspect of the market right now.
Thank you.
Sure. Thank you.
And one moment our next question.
And our next question comes from Doug Harter from Credit Suisse. Your line is now open.
Thanks, just one more for me.
Market share outlook, so I'm just wondering.
Or is there anything thats kind of changed in your view.
Leading to that whether kind of your outlook on credit quality or your outlook on kind of the competitive dynamics that kind of led to this happening kind of <unk> and into 'twenty three.
Yes, I think Doug it's really it's a matter of.
Our views that home prices are actually falling right now I think we're all hopeful that unemployment doesn't doesn't spike up but we are in a in a more stressful environment, we think our premium rates should reflect that.
And we're okay. If we if we lose some share.
Because of that ultimately we want to make sure we're getting the right return and our views of what we need to have to cover that risk.
<unk> gives us a great ability to do that and do that in a real time basis.
And so we feel very comfortable with and again, it's for a company that has a lot of strong customer relationships.
We want to win as much business as we can.
But we also want to be very disciplined about making sure that we're getting the appropriate return for deploying that capital.
I appreciate it.
Thanks.
Thank you.
And one moment our next question.
And our next question comes from Geoffrey Dunn from Dowling You line is now open.
Thanks, Good morning.
A couple of questions first.
With respect to your guidance on the core premium rate being stable for 'twenty three if we look at your disclosure on the MRA charge undue risk it was climbing over the four quarters coming up to Q4.
So I would guess that there was a mix shift benefit to your premium rate, that's helping that stabilization but.
This quarter it dropped down as you it looks like maybe became.
Tighter on your credit.
If that rate stays low below 7% is that something where.
As it builds throughout the year, we would expect the core premium rates and then decline again in 'twenty four.
How does that mix shift and MRA charge.
Does a bit.
A bit of a guidance for that core rate Micah.
Yes, Jeff it's Nathan I think youre, calling out a really important factor there that the mix does matter a lot four four.
For the overall in force premium yield.
One factor that may cause it not to have as big of an impact next year is just that we don't expect that the market will be as large as we won't be writing as much volume but.
I think I would think about that guidance is as kind of index to maybe the back half of 2022 business. So maybe somewhere in between the mix of business that we wrote in the third and fourth quarter, so something around that 7% level. So if we were writing business that was well below that are well above that but I think even.
The third and fourth quarters.
10, 2030 basis points on either side of that 7% I think that's still kind of within the range that.
We'd be comfortable with that flat guidance.
Okay.
And then.
I was wondering if it were possible to help simplify.
The impact on credit from the equity buildup in the portfolio.
Obviously.
Number of people, including myself think we're heading into some sort of recession type of scenario.
Which you would normally see notices go up.
And its assumptions go up claim severity assumptions go up.
Jeff I think I'll start and Tim.
I have to think a little bit more and probably won't be able to answer it as precisely as the question. Its obviously its something we think about I mean from an overall.
Standpoint, it's obvious it's fair to say that the mark to market Ltvs of continuing to improve and are probably sub.
Sub 70% at the end of the year.
The way, we think about it though is that there is a good home price appreciation for.
A good chunk of our book, especially before interest rates started to rise.
Back half of 'twenty, two is probably somewhere around 10% of our enforced so that feels like it's Scott doesn't have the same embedded home price depreciation in it.
And so it really feels like Youre looking at two different sort of groupings of allowance to a certain extent.
That could respond a little bit differently, depending upon home price path unemployment, but all of it underlying is again, we're in a business where and when home prices if they decline and if there is unemployment challenges though.
It's good for losses.
I think to your point Bill.
Built in equity helps mitigate that.
And so we feel really good about having built in equity and a lot of our book of business.
Because that goes a long ways towards not only reducing severity on anything that would come in but also quite frankly, reducing incidents.
Does it will it will never turn into claim because theres other ways to resolve.
Homeowners are not being able to pay their mortgage.
Okay.
And then just last question.
Nathan was the incident rate unchanged at 8% this quarter and can you also provide your average new money yield.
Yes, there was no change in the new notice claim rate.
And then I'm sorry, just the second part of the question are you referring to the investment portfolio, Yes, Im sorry, a new money yield on investments.
Yes, so in the in kind of the noncash portion of the portfolio and the core investment portfolio. It was more like five 5%.
Okay, great. Thank you.
Okay.
Thank you.
And one moment our next question.
And our next question comes from Eric Hagen from <unk>. Your line is now open.
Hey, Thanks, Good morning, I'm curious if you would say there is any meaningful catalysts away from lower mortgage rates, which could lead to lower persistency in call. It the near term and then that near term do you think we could get a nice pop in housing demand, especially from first time buyers this mortgage rates fall.
Or even just a little bit.
Yes, I think from a from a persistency standpoint.
We're at 80% now.
Now I think run rates higher than that it could get into the low to mid 80% versus what we would say.
From a from a refi if rates go down Theres, just not a lot of loans that have been done that would be sort of in a range that would be one and willingness to refi.
I think there could be challenges to that persistency, but not I don't see a lot in the especially in the very short term here, because you're really talking about our portfolio in the back half of the year, which I said was.
It's probably 10% of our overall and for us that might have some <unk>.
The ability if rates dropped down closer to five as an example, but not a lot of built up equity at that point, either so I think thats something something that we feel good about the persistency of the book.
Running forward and Eric remind me of the second half of your question.
For for housing, especially from first time buyers.
On the back of lower mortgage rates, yes, I think.
As I said in the opening comments demographics delivery still remained strong over the long run and we still think there's a lot of pent up demand for first time homebuyers I think when rates rose as quick as they did that has people standby the sidelines, especially when you consider how much home prices have went up sell portability get stretched.
I think once you get past the sticker shock of the higher interest rate and you look back and say, okay do I feel comfortable in my job.
I have a life event and that is at the right time to purchase a home that shock of the higher interest rates, which just get closer to longer term sort of historical norms.
Becomes less of an issue.
And to the extent the home prices have come down a little bit in certain markets makes it more affordable that combination. So again I think over the long run really attractive.
For first time, homebuyers, and ultimately Thats, a big chunk of our market I think there is just a little bit of sticker.
Sticker shock with the affordability with both the double whammy of home price appreciation and rates, but I think that moderates over time quite frankly.
Yeah, Yeah. That's helpful. And then following up on the G fee changes can you talk about how much demand you've typically seen for the cohorts, where they where they cut the fees. The most and then kind of to that same point like can you talk about how much risk wearing you guys have typically done in the 90, the 90 plus LTV bucket.
Yes, we.
We tried to look at.
All of the fee changes really combined looking with the Gse's dead from October .
And so it's safe to say that a good chunk of our book gets affected by it I think you put it all together I don't think we feel like there is a very material change.
What ultimately might flow of <unk> versus.
Versus other.
Sort of execution.
Some changes within the different categories, but it doesn't feel like it dramatically expanded or narrow the box of what would come to private EMI.
Yes.
And that 90, plus LTV bucket, how much risk bearing have you guys typically done.
Thank you.
Yeah, Eric it's Nathan.
Most of our business is done.
90, LTV and above so I think when we think about risk flaring, we think about it as combinations of.
We have the highest ltvs, so say 97, LTV with higher DTI or lower FICO or things like that.
On.
On some of those dimensions, if you look at above 45, DTI for instance, and.
97, LTV and below 680, FICO the amount of business that we do that has say two of those factors is in the low single digits I don't have it exactly in front of me, but maybe three or 4% of our of our new business is in that category. So.
Not a lot of business, but.
If you include kind of 90, Ltvs and up that's most of what we do just given the space that we operate in.
Yes. That's helpful. Thank you guys very much.
Thank you.
And thank you.
And I am showing no further questions I would now like to turn the call back over to Tim for closing remarks.
Thanks, Jeff and I, thank everyone for their interest and attention MGIC. Thank all of our coworkers for another phenomenal year.
And being Groundhogs day helps that Pakistani fill is correct with only six more weeks of winter. Thanks, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.
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