Enact Holdings Inc. Q1 2023 Earnings Call
Speaker 2: Hello, and welcome to ENAAC's first quarter earnings call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Daniel Cole, Vice President of Investor Relations. You may begin. Thank you and good morning. Welcome to our first quarter earnings call.
Speaker 3: Joining me today are Rohit Gupta, President and Chief Executive Officer, and Dean Mitchell, Chief Financial Officer and Treasurer.
Speaker 3: Rohit will provide an overview of our business, our performance, and progress against our strategy.
Speaker 3: Dean will then discuss the details of our first quarter results before turning the call back to Rohit for closing remarks and then we will take your questions.
Speaker 3: The earnings materials we issued after market closed yesterday contain our financial results for the first quarter of 2023, along with a comprehensive set of financial and operational metrics.
Speaker 3: These are available on the investor relations section of the company's website at www.ir.enactmi.com.
Speaker 3: Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations, and projections as of today's date and are subject to risks and uncertainties.
Speaker 3: which may cause actual results to be materially different.
Speaker 3: We undertake no obligation to update or revise such statements as a result of the new information.
Speaker 3: For discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release, as well as in our filings with the SCC, which will be available on our website.
Speaker 3: Please keep in mind the earnings materials and management's prepared remarks today include certain non-GAAP measures.
Speaker 3: Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation, and our upcoming SEC filing on our website. With that, I'll turn the call over to Rohit.
Speaker 4: Thank you, Daniel. Good morning, everyone. Thank you for joining us to discuss our first quarter 2023 results.
Speaker 4: The first quarter marked a strong start to 2023 for an act.
Speaker 4: We delivered a 17% return on equity and net income of $176 million or $1.08 per deluted share, which was up 7% year over year.
Speaker 4: In a market that remained dynamic and volatile, we achieved these robust results by executing our strategy, maintaining our commitment to a strong balance sheet and continuing to prudently manage our risk. Insurance in force in the quarter was a record $253 billion, driven by persistency of 85% and a long period.
Speaker 4: and new insurance written of $13 billion as we continue to win new business.
Speaker 4: I have spoken in the past about our commitment to investing to further enhance and differentiate our product offerings.
Speaker 4: And we made additional progress here during the quarter announcing integrations with several pricing and loan origination systems designed to increase connectivity, simplify and enhance the customer experience and support the platform that works best for our customers.
Speaker 4: As higher interest rates have affected mortgage origination volumes and NIW, elevated persistency has continued to act as a counterbalance and support continued insurance and force growth as maintaining older mortgages with lower rates remains economically favorable to refinancing at current rates.
Speaker 4: As of the end of the quarter, 99% of the mortgages in our portfolio had raised at least 50 basis points below the prevailing market rate. And we expect this dynamic to be a tailwind for persistency going forward.
Speaker 4: The pricing environment remained constructive during the quarter, with pricing across the industry trending upwards.
Speaker 4: In response to increased macroeconomic uncertainty, we continue to increase our price on new insurance Republican condescitates.
Speaker 4: We are committed to prudently pursuing high quality business, tries to generate attractive returns on a risk adjusted basis, and remain confident in our ability to do so, and create value for shareholders.
Speaker 4: Overall, underwriting and credit quality remain healthy and our portfolio dynamics are strong and as seen in our investor presentation on slide 8, have significantly improved over time.
Speaker 4: On an if basis, the weighted average FICO score in our portfolio during the quarter was 744, the average loan to value ratio was 93%, and our layered risk was 1.4% of risk and force.
Speaker 4: At 1.9%, our delinquency rate was down slightly from the fourth quarter of 2022 and was consistent with pre-pandemic levels.
Speaker 4: In addition, 86% of our delinquent policies had an estimated 20% or more of market equity. As I stated in the past, this could act as a mitigate to both the frequency and severity of defaults. The loss ratio in the quarter was negative 5%, which reflected a reserve release of $70 million, driven by ever-to-date home price appreciation, our approach to risk management and loss mitigation.
Speaker 4: and the favorable resolution of long-term forbearance plan.
Speaker 4: We will continue to act with prudence with respect to loss reserves, with careful consideration given to the macro environment and various factors which may affect future credit performance. Based on our current views, we believe we are well reserved for the current market environment. I spoke to you last quarter of our focus on and commitment to cost discipline and operational excellence.
Speaker 4: During the quarter, we were able to reduce our operating expenses by 13% sequentially driving a 400 basis point decrease in our expense ratio despite the ongoing impact of inflation on the economy more broadly. Now turning to the macro environment.
Speaker 4: While it generally remains uncertain, we continue to view several positive economic factors and secular trends as supportive for the MI industry.
Speaker 4: Elevated inflation, higher borrowing costs, and the possibility of a recession continue to pose risks. In addition, the excess savings accumulated by households during the pandemic has declined as revolving credit balances have increased.
Speaker 4: Having said that, unemployment, wage growth, and household balance sheets remain generally healthy and despite recent softening in some areas, consumer finances are still better than pre-pandemic levels.
Speaker 4: While the sharp increase in mortgage rates has dampened demand,
Speaker 4: Inventories remain well below the 40-year average, as does the rental vacancy rate, making it difficult to find a housing alternative. In addition, single-family housing starts have largely remained below the long-term average since 2008.
Speaker 4: At the same time, the demographic surrounding first-time homebuyers remain unchanged and a driver of continued long-term demand.
Speaker 4: These factors in addition to low housing supply are supportive to home prices and constructive for the MIA industry as an important tool to help buyers qualify for a mortgage, especially in an environment of lower affordability. Additionally, the legislative regulatory and business changes that have been implemented over the last decade.
Speaker 4: have made our business a lot more resilient.
Speaker 4: So, while the near term economic outlook is less clear, we are confident in the long-term strength of the MI industry.
Speaker 4: In the current environment, our commitment to balance sheet strength and financial flexibility becomes even more important.
Speaker 4: Thiemeier's sufficiency at the end of first quarter remained very strong at 164%, or $2.1 billion of sufficiency, and 90% of our risk in force was covered by credit risk transfers.
Speaker 4: Additionally, we executed an excess of loss reinsurance transaction in the quarter with a panel of reinsurers which provides up to $180 million of reinsurance coverage on our 2023 book here.
Speaker 4: Our performance and enhanced financial strength were again recognized by the market.
Speaker 4: During the quarter, we receive rating upgrades from both SNP and Moody's. With the Moody's upgrade marking the third, we have received from them since our IPO.
Speaker 4: In April , Fitch ratings upgraded EnAct's Insurer Financial Strength rating to A-. In addition, during the quarter, we received confirmation from Fannie Mae and Freddie Mac that the GSE conditions first imposed after the issuance of EnAct's August 2020 Senior Notes have been satisfied.
Speaker 4: and the accompanying restrictions were lifted on March 1st.
Each of these developments support our competitive position and financial flexibility and create more opportunity for customer engagement.
We maintained our focus on discipline, capital allocation during the period focused on our three key pillars. The porting of our policy holders.
investing to enhance and diversify our platform and returning capital to ??????in tantrum money distinction of capital luxury firm.
I've already discussed supporting our policy holders through our strong PMIRA's position and I've highlighted some of our recent initiatives to enhance our product solutions during the quarter.
So let me turn to our third pillar of returning capital to over of shareholders.
On this front, we continue to make meaningful strides. During the quarter, we repurchase an additional $22 million in stock.
Additionally, we repurchased an additional $9 million in April .
On May 1st, we announced the board's approval of an increase in an act's regular quarterly dividend by 2 cents to 16 cents per common share, a 14% increase over the prior quarters dividend amount, and a decision that reflects our belief in the strength and sustainability of our cash flows.
our confidence in the business, and our commitment to shareholder value creation. We believe our performance and financial strength positions us well related to our commitment to return capital to shareholders, and Dean will have more to say about this shortly. Now turning to recent events. fixture
On February 22nd, the Biden administration announced a reduction of 30 basis points on FHA annual mortgage insurance premium rates effective for loans endorsed after March 20th, 2023.
This move, while widely anticipated, came on the heels of the federal housing finance agency's loan level pricing adjustment changes announced on January 19th. These changes became effective May 1st and favored low to moderate income borrowers. We believe the combined impact of these actions is consistent with our prior expectations.
that I know is very important to all of us at EnAct. For the past 40 years, we have enabled people to realize their dreams of home ownership and create a path to building wealth.
This is our purpose as a company and it motivates everything we do.
Good corporate citizenship has always been an important part of our culture. And last month, we took our next significant step forward on this journey, since becoming a public company with the release of our inaugural 2022 ESG report.
The report provides insight into our environmental, social and governance priorities, as well as how we are approaching these priorities in our operations and seeking to expand and improve our performance. It can be found on our investor page of our website and I encourage you to review it.
We are proud of our record of corporate responsibility and look forward to building on our progress as we continue integrating ESG initiatives with our business objectives to help build a more inclusive and sustainable future for our customers, employees, investors and communities. I will now turn it over to Dean.
Thanks, Roe Hit. Good morning, everyone.
We delivered strong results for the first quarter of 2023. As Rohe hit mentioned, GapNet income was $176 million or $1.8 per diluted share as compared to a $1 per diluted share in the same period last year.
an 88 cents per diluted chair in the fourth quarter of 2022.
Return on equity was 16.8%. A jetted operating income increased to $176 million or $1.8 per diluted share as compared to a $1 per diluted share in the same period last year in 90 cents per diluted share in the fourth quarter of 2022.
Adjusted operating return on equity was 16.7%.
Turning the revenue drivers, insurance and force increased in the first quarter to a record, a new record of $253 billion, a $5 billion or 2% sequentially, and up $21 billion or 9% year over year.
New insurance written of 13 billion was down to billion or 13% sequentially and down 6 billion or 30% year over year driven by the lower mortgage originations resulting from continued elevated interest rates.
New insurance written for purchase transactions made up 97% of our total NIW in the quarter, which was flat to last quarter.
Monthly payment policies made up 97% of our quarterly new insurance written, up from 91% last quarter.
The overall credit risk profile of our new insurance written remains strong, with loans that are underwritten to prudent market standards. Rohit discussed the counterbalancing effect of persistency in our business model.
With elevated interest rates, persistency remained high at 85% in the first quarter of 2023.
relatively flat sequentially, and up nine percentage points year-over-year. Given the expectation that interest rates will remain elevated in the short term,
We expect to see continued strength and persistency levels, which is a positive for the future profitability of our insurance, enforce insurance portfolio.
Our base premium rate of 40.5 basis points was down 0.5 basis points sequentially and down 1.8 basis points year over year. As we've noted before, changes to base premium rate are impacted by a variety of factors and can deviate from quarter to quarter.
For 2023, we continue to believe the change in our base premium rate will be less than the decrease seen in 2022 of 2.4 basis points. In addition to the changes in base premium rate, our net earned premium rate also reflected lower single premium cancellations year over year. For the quarter, single premium cancellations were flat sequentially and contributed only two million of net earned premium, limiting its potential for meaningful future dilution. Over the past several quarters, our net earned premium rate has been the highest in the industry.
Driven in part, prior Efficient CRT program.
Revenues for the quarter were 281 million, a 4 million or 1 percent sequentially, and up 11 million or 4 percent year over year.
Net premiums earned were 235 million, up 1% sequentially and relatively flat year over year.
They increase the net premium sequentially was driven by strong IF growth, partially offset by the lapse of older, higher-priced policies as compared to our new insurance rate.
Investment income in the fourth quarter was $45 million, flat sequentially and up 29% year over year.
The recent rise in interest rates and the current rate environment are favorable for our investment portfolio as our new money yields for the quarter were just under 6%.
As of quarter end, unrealized losses in our investment portfolio decreased by 80 million to 407 million. In general, unless we identify opportunities to create longer term value within the portfolio, we do not expect to realize these losses.
as we can hold the securities to maturity where market values trend to par value. Let me take a minute now to share some thoughts on recent concerns related to certain U.S. regional banks and commercial real estate.
In short, we have not seen a direct impact on our business from these issues, and we do not have exposure in our investment portfolio to any of the failed institutions.
Additionally, we have no exposure to CNBS and no significant exposure to US Regional Banks.
Turning the credit losses in the quarter were a benefit of 11Million as compared to a loss of 18Million last quarter. And a benefit of 10Million in the first quarter of 2022.
Our loss ratio for the quarter was negative 5% compared to 8% last quarter and negative 4% in the first quarter of 2022. Losses and loss ratio in the quarter were primarily driven by favorable cure performance from COVID related delinquencies, which were above our prior expectations and resulted in a 70 million reserve release in the quarter.
New to length with a decrease by approximately 700 sequentially to 9600 from 10300.
Our new delinquency rate for the quarter was 1%, consistent with pre-pandemic levels and reflective of the continuation of positive credit trends. We continue to book new delinquencies in an approximate 10% claim rate, reflecting our prudent and measured approach to reserving as a result of heightened economic uncertainty.
Total delinquencies in the first quarter decreased by approximately 1,300 to approximately 18,600 as cures outpace new delinquencies.
The associated delinquency rate decreased to 1.9%, which is stabilizing near pre-pandemic levels. The embedded equity position of our delinquent policies remains substantial, with approximately 86% of our delinquencies at the end of the quarter having an estimated 20% or more marks.
operating expenses in the quarter were 54 million, down 9 million or 13% sequentially, and down 3 million or 5% Euro per year.
The expense ratio for the quarter improved to 23% compared to 27% in the fourth quarter of 2022 and 24% in the first quarter of 2022.
reflecting the ongoing benefit of cost reduction actions taken in 2022.
including our previously announced renegotiated shared services agreement with Genworth and our voluntary separation program executed in the fourth quarter.
We continue to expect costs for the full year to total 225 million, reflecting a 6% year-over-year decline despite the ongoing inflationary environment.
Moving to capital and liquidity, we continue to operate from a position of financial strength and flexibility.
As Rohit referenced, this quarter we executed a reinsurance transaction as part of our credit res transfer program.
The transaction secured excessive loss coverage from a panel of highly rated reinsurers covering our new insurance written throughout 2023 and providing up to $180 million of reinsurance coverage.
We believe this transaction serves as another proof point to the value of diversified capital sources, which allowed us to secure coverage on attractive terms despite volatility in other parts of the market.
Since its inception in 2015, we have executed a total of 4.7 billion of loss protection through our credit risk transfer program through both the traditional reinsurance market and capital markets.
Our PMIR's sufficiency remains strong in the quarter at 164% or 2.1 billion above PMIR's requirement.
compared to 165% or 2.1 billion in the fourth quarter of 2022.
At quarter end, we had 1.5 billion of PMI's capital credit and 1.7 billion of lost coverage provided by our credit risk transfer program. 90% of our risk and force is covered by our credit risk transfer program.
Since our IPO, we have been clear in our commitment to and focus on a strong balance sheet, and I'm pleased that our efforts here have again driven numerous ratings upgrades from all three major rating agencies.
During the quarter, S&P upgraded Amico, the triple B plus, and Moody's upgraded us to A-.
Additionally, in April , Fitch upgraded us to A-minus. With Moody's and Fitch's upgrades, our senior debt rating is now considered investment grade, an important milestone in improving our financial flexibility.
Turning now to capital allocation, we remain committed to our prioritization framework, which balances maintaining a strong balance sheet and supporting our policyholders, prudently investing to strengthen and differentiate our platform, and returning capital to shareholders.
We return to total of 45 million to shareholders during the first quarter, consisting of our 23 million or 14 cent per share quarterly dividend and share repurchases totaling 22 million.
As of April 30, 2023, we have repurchased 32 million in stock and have 43 million remaining on our current 75 million share of repurchase authorization.
The board's approval of a 14% increase to our quarterly dividend to 16 cents per share on May 1st reflects our confidence in our business and we believe strikes the proper balance between our commitments to maintaining a strong and flexible financial position and creating value for our shareholders.
As Rovitt noted, we are well positioned relative to our commitment to return capital to shareholders in 2020 through.
With a strong first quarter behind us, we currently expect this return to be at least on par with the 250 million we delivered in 2022.
The final amount and form of capital return to shareholders will ultimately depend on market conditions, business performance, and regulatory approvals.
In April , Emeco, our primary mortgage insurance operating company, completed a distribution of $158 million that will be used to support our ability to return capital to shareholders and bolster financial flexibility.
In closing, we had a strong quarter and start to 2023. We remain focused on prudently managing our risk, driving cost efficiencies across our business and maintaining a strong balance sheet with the financial and operational flexibility to adapt to market conditions.
with that, I'll turn it back to Revit. Thanks Dean. As you can see, we are off to a great start to 2023 and continue to operate from a position of operational and financial strength.
Our balance sheet focused on true risk management and commitment to operational excellence positions us to operate successfully in the current market environment and create value for our shareholders.
I'd like to thank every member of our team for their ongoing commitment and contributions.
Operator, we are now ready for Q&A. Thank you. At this time, we will conduct the Q&A session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced.
To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
Our first question comes from both George with KBW. Hey, good morning everyone. This is Alex on for both. I appreciate you taking the time to answer our questions. You touched on the investment income a little bit and it looks like the overall yield took down slightly in the quarter.
I'm just wondering if you could talk a little bit more about what drove that decline and also how we should think about Investment income over the remainder of the year
Yeah, Alex, thanks for the question. You know, when you look at investment income sequentially, there are a couple of things that happened in the quarter. That affect the sequential trajectory we did have lower bond calls in the quarter. They were approximately a 1Million dollars that, you know, effect.
quarter or a quarter variation. The other thing that happens in the portfolio, kind of a normal course, we do have, you know, principal and interest roll off from the portfolio that gets reinvested. That's not necessarily uniform throughout the year. You can call that lumpy quarter to quarter. So that certainly has an effect on...
the capacity or the dry powder effectively that gets reinvested in the higher rate environment. The last thing I talked to, we did build a little bit of incremental cash accumulation in advance of the April distribution that I referenced in our prepared remarks. That gets invested at up.
modestly lower rate closer to a 4.5 percent new money rate for cash versus the roughly 6 percent, just under 6 percent that we invest, invested assets in this environment. So I think those things are what's contributing to the maybe more flattish, it's up modestly, I think a half a million dollars.
sequential, but I think those things are the items that drove some downward pressure on that trajectory relative to maybe expectations. I say go forward, we're going to continue to take advantage of the elevated interest rate environment. Like I said, we're investing new monies close to 6% now, and I think that would have an upwards.
impact on the trajectory of investment income go forward. Okay, great. That makes sense. And then also you touched on the trajectory of the premium yield for the remainder of 23. I know you said it should be down a little bit more than or sorry a little bit less than in 22. Just wondering. It's very bad
If you guys have any more color on sort of the cadence of that quarter to quarter, if it should be or if that will kind of jump around slightly over the remainder of the year.
Yeah, a couple things there Alex, you know, I think I just start off with we have the highest base premium rate in the industry. I understand the focus on Quider over Quider change, but I certainly don't want to lose sight of that fact. I think that's important.
But much like we talked about in the past, base premium rate can fluctuate quarter to quarter. It fluctuates as a result of a bunch of different drivers, NIW pricing levels, persistency, credit mix, things along those lines. Coming into the year, much like you referenced, we did expect base premium rates to...
decline inside that 2.4 basis point level from 2022 and feel confident that we can deliver against that expectation. Quarter to quarter, there's going to be some volatility in that. So there's really not, I think what we're comfortable with is giving you guidance on a full-year basis and staying out of the quarter to quarter variance.
Okay, that makes sense. Appreciate that.
Yep, thank you Alex. Our next question comes from Rick Shane with JPM.
Good morning everybody and thanks for taking my question. You spoke a little bit or referenced the ratings upgrades and equally importantly the lifting of the conditions from Fannie and Freddie. Can you talk about the operational and financial implications of the COVID-19 pandemic?
of both. I think in general we get the financial implications of the ratings upgrades, but can you talk specifically about the Fannie Freddy conditions lifting?
Good morning, Rick. So I would just start and then hand it off to Dean. I think from an operational perspective, I'm assuming you're talking about our commercial relationships and kind of what that means. And as I said in my prepared remarks, the three ratings upgrades we have received year-to-date, two during the quarter and then one in April , are all very supportive of the journey we have had post-IPO. Thank you.
of the GSE conditions and restrictions. As we have spoken in the past, we generally saw these conditions as redundant to our capital level from a PMI perspective, but lifting of those conditions is definitely a strong milestone for us because in a normal environment, these restrictions are not problematic, but in a downturn that multiplier effect on delinquent portfolio.
can actually have much bigger impact. So we are really happy to achieve both milestones. Alejandra talked to Dean to talk about the financial implications. Yes, so the financial implications Rick, the GSE conditions and restrictions we talked a little bit about this in the past. They're largely redundant to what we would have considered to be a prudent level of PMR's capital sufficiency. So it really, it doesn't change our kind of view on
On PMIers, what it does give us is additional financial flexibility, especially as road hit reference in times of stress, where the delinquencies create some potential pressure and we're not held to a higher standard, 125 percent would have been the standard under the conditions as they were set.
So, we think it's extra additional or incremental financial flexibility, especially to the downside. I would say kind of similar thing on the rating side, but just a different form. You know, now being an investment grade debt issuer, it has both immediate and future. Impacts to our financial flexibility, if I think about.
the impacts in the immediate term, like we do get a reduction on our commitment fees for the revolver. We don't have any borrowings against that revolver, but we do pay commitment fees and those are reduced as a result of tipping into investment grade. And at the same time.
On our $750 million in denture, we realized the suspension of certain restrictions, restrictions and things like asset sales and additional debt issuances and restricted payments. So it just gives us some additional operational flexibility, financial flexibility.
And then as you think about the ratings impact on a prospective basis, it gives us access as an investment-grade issuer to a broader market with potentially better pricing in terms.
So we think it's a big, we think it's a big milestone for us. It's probably the most important single notch in the rating agency continuing. We're happy and pleased to realize that notch at this point in time. Robert Dean, thank you very much. Very helpful answer.
Thanks Rick. Stand by for our next question.
It will come from the here Batia of Bank of America. Morning. Thank you for taking my question. The first question I had, how do you want to go back to the questions about premium rates? I understand you don't want to give quarterly guidance, but I guess maybe just a small bigger picture just thinking about what the...
premium rate environment, it sounds like it continues to be quite constructive. When do we start seeing that flow all the way through the financials? And what I mean by that is when do you start seeing the base premium rate actually?
take up is this the last year if current friends got the new current friends you know stable is this the last year we see a decline like can you help us we just take you know on the size of the portfolio that's got a higher premium rates that are running off versus the new business you're acquiring
except I'll just run on, understand where premium rates, kind of, base premium rates, kind of settle out.
Yes, Mehr, good morning. This is Rohit. So thank you for your question. And I would start off by just talking about pricing. As I mentioned in my prepared remarks, we believe that the pricing environment in the market is very constructive. We saw pricing go up across the industry during the quarter. We increased our price several times.
using the quarter both across our entire portfolio in terms of new insurance written as well as also in specific geographies and risk branches. So I think from portfolio yield that's coming in on new insurance written.
we continue to find that constructive and still believe we are delivering attractive returns and creating value for shareholders. I think in terms of timing of when that portfolio yield, as well as the lapse, the mix on existing insurance and for start coming to a flattening trend and then starts turning around.
I think in this interest rate environment where we have seen volatility in interest rates, it's tough to call. So we are watching that trend very carefully in our portfolio. But I would say while interest rates are so volatile and that can have an impact on which borrowers from prior books are refinancing, which borrowers are staying, I think as we get closer to that point, we can provide better guidance.
I think the fact that we are seeing compression in the decline of premium rate is a leading indicator to getting to that point. I know that doesn't directly answer your question in terms of timing, but I think as we see more proof points in actual performance, especially with persistency being high on the existing book.
and you ensure ones written still holding up at good scale levels. I think we'll provide better guidance as we get closer to that point. Okay, no, I understand it's difficult to call out something like that and then you know, two quarters from now, we'll be like, wait a minute, what happened?
I understand. In terms of persistency, with interest rates high, and I think you called out, you know, you gave some statistics about how much of your portfolio is, I guess, out of the money from a refinance perspective.
Yet, persistency was basically, call it stable, quarter over quarter. And I was wondering, is this the right persistency rate we should be thinking about in the short term? Is there a little bit more upside to persistency?
Yeah, I'm here. Good question. I think we've gotten that question a couple of different times in different ways. But the, our take on a persistency is it continues obviously to remain elevated. Elevated given the current interest rate environment.
I would say the headline is persistencies down a point. If you look under the hood a little bit more and do a granular assessment, that reduction is really in the round. It's probably closer to 30 basis points than just rounded down from 86 to 85, quarter over quarter. I think as we think about where persistency can go and where it can level out, it is hard to predict.
experience.
So as an indication of where persistence can go, but I think our view is as long as the interest rate environment remains kind of stable in this general range that we would expect persistency to remain elevated as well and really serve as that counterbalance.
to a smaller originations market allowing us to drive ongoing portfolio growth and premium growth. And then just my last question in terms of claims payments. Are we, how far to a normalized level are we? I think you talked about delinquencies getting back to pre-pandemic levels, but it looks like...
on the claim claim inside. There might be some time still. Can you just talk about that a little bit? Thank you.
Yeah, we continue to have dialogue with servicers and trying to get an assessment of when you know, the win-win-see development emerged or it turns into claim development. What's happened so far during those discussions, we continue to push that time period out a couple of quarters. So I probably said, you know, two quarters ago that it was two quarters in the making.
I would say now it's still a couple quarters out. So there's still work to be done on the servicer side to get comfortable. Well, first of all, exhausting all efforts to maintain key borrowers and homes, and then to get comfortable starting the foreclosure process for those delinquencies they deem that they can't effectively resolve.
far through the earnings cycle looks like you have the highest level of new insurance written amongst your peers. Any ideas of what could be driving that I know it's tough to say on a quarter by quarter basis. What's your outlook for potential production for the year?
Yeah, good morning Aaron. So I would just start off by saying that we are happy with the $13 billion of new insurance written we wrote in the first quarter. Profile of that $13 billion from pricing and mixed perspective. We like that a lot. And just as a reminder, we've said this in the past market share is not a strategy for us, but it's an outcome.
of execution of our successful strategy here. So I would say our focus in this environment continues to be on quality and pricing of the new insurance written. And as a reminder, that's referring to kind of two aspects of it, first thing, right price for right risk. And the second aspect is managing stack risk factors. So if you think about the current environment.
In this environment, we continue to monitor leading indicators for economic and housing. And as I said in my prepared remarks, we use that to implement both across the board pricing increases as well as geographic and credit specific pricing increases and be executed on several of those during the quarter. So when it comes to market share, as I said last quarter, I would just say.
Just think about market share across the industry fluctuates quarter to quarter. It's very evident if you look at the industry share over the last eight to ten quarters that that has been the case. So we are not focused on the quarter to quarter variation. We are focused on our long term participation in the market.
And if you look at the trailing 12 months, although our market share is not final yet, because one company still has to report, I would say we kind of see that as being stable at around 17%, which is very comparable to prior periods. So we are more focused on executing our strategy, getting the right business mix, and then I think from a market participation perspective, that will stabilize over a period of time. So that was the answer to your question on share. You also asked about perspective on
full-year outlook. I think I would start off by just saying that we are operating in a dynamic environment when it comes to mortgage rates and impact of mortgage rates on consumer participation in the purchase market because majority of our businesses type to the purchase market. So as we think about the year, we still think that this year, 2023,
closer to where maybe the Fannie Mae forecast is, origination on purchase side being around $1.3 trillion. Obviously V5 market doesn't feed a lot of our MI market size. And that would give us an MI market size somewhere in the neighborhood of $300 billion.
which we believe is still at scale. So while the market would be down from 2022, we think that that's kind of a good scale range from a market perspective. And then if you think about the possibility of mortgage rates maybe coming down is the spread between 10 year treasury and 30 year mortgage rate comes down in later part of the year, then that could have some upside to it.
Thanks. And then as we think about home prices kind of moving lower, you know, how do you view the risk there for your new production in, and, you know, what would the severity, the severity is going to be worse through this?
you know, production vintage, I guess, relative to past years? Yeah, so when it comes to home prices as well as unemployment, as I said in my answer to the previous question on pricing, I think we continue to focus in this environment, making sure that the business that we are writing cannot only...
So we are very focused on applying the right mindset from a pricing and credit perspective and taking on the right business and reducing stack risk factors. And then absolutely to your point, once we get to the point of severity in our models, we do factor in impact of declining home prices by market.
to figure out what would be the impact of severity on our loss ratios both in base and stress case and we make sure that we are taking that into account when we price our product. So I think that's factored in. I'm not sure if I can give you any kind of easy rule of thumb on the impact of home prices on severity.
but I can assure you that that is definitely part of our consideration. Thank you.
assure you that that is definitely part of our consideration. Thank you. Thank you. Stand by for our next question.
Our next question comes from Jeffrey Dunn with Dowling and Partners. I actually want to follow up on the last question more specifically. You formally shifted your claim rate assumption last quarter up to 10 percent, but could you discuss how your home price assumption in both your claim rate and your severe...
to accident year delinquencies from 8% to 10%.
We made this comment previously, but I think it bears repeating that. You know, we did that not because we've seen any deterioration in performance. But simply, we wanted to apply kind of our measured philosophy as it relates to reserving. For the possibility of future deterioration. Given the heightened economic uncertainty.
You know, we continue to measure that and we will continue to measure that through time. Obviously, we haven't seen at this point the economic deterioration and or the deterioration that economics could present in terms of performance. And if we don't see that, we will continue to assess and take those factors.
than our prior assumption. It had a reduction in our view on what would otherwise be presale savings. It's a very small adjustment, about $300 on an average reserve per new. But it's indicative, I think, of what Rohit was talking about. He was maybe more talking in the pricing context.
but we also use home prices, our future home price expectation as an input into our severity assumptions for our existing delinquencies.
And just to add to the answer, I think from a macro perspective, while we are keeping an eye on different markets and have views on which markets might be more vulnerable than other market, I think we do continue to see this balance in housing market. So on one hand, we have seen demand go down because mortgage rates are high. There is broader inflation and consumers are concerned about.
it's difficult to bracket a number, but definitely staying close to that and developing views as things continue to evolve.
Well, and that's kind of why I ask the question, right? Because I think the Fannie Forecast only has, or national prices down a little bit at points this year. The market is still extremely tight and it sounds like every time there's a bit of a rate drop, you know, prices are actually reacting to the upside. So if companies are assuming down five or down 10% on a national basis, it gives us a better idea of, I don't know if conservatism is the right word, but caution or level of caution you're baking in.
And then at the same time, I think we are balancing two different facts. One, as I said in my remarks, 86% of our delinquencies at our MSA level are doing kind of a marked market, have 20% equity in front of them. On the other hand, we could be facing geography specific.
declines in certain areas where inventory might be high or conditions might be different. So I think that's where we are taking a prudent approach on reserves. And just I think we said it several times that when it comes to our reserves we just want to be mindful of the uncertainty in the market we are looking at. And to Dean's point it's not based on any performance deterioration, just more of a mindset in this environment.
There's one follow-up on something you were talking about with respect to loan modifications in the outlook there. Just maybe what's your perspective on the effectiveness of loan modifications and what services are able to offer to borrowers in a higher interest rate environment? How much does that?
Effectiveness or lack thereof potentially drive your thinking around credit and and reserving and the timeline to a loan liquidation.
Yeah, Eric, I'll start and I'll hand it off to Dean. I would say we have confidence, let's start at the macro level. I think every time we as an industry, as mortgage finance, industry goes through a recession, we come out of that recession or at the kind of dislocation including COVID, we come out of that with more resilience and more learning. So...
I think I'll start off with that point that the experience we have had with forbearance and the effectiveness of forbearance in COVID definitely has been a very good lesson for the industry that starts with GSEs, servicers, mortgage insurance companies and all participants. So I think just the fact that
We have seen a tool that was not heavily utilized prior to COVID. So as a percentage of our delinquencies, forbearance used to be less than five percent of total delinquencies in terms of modifications. During COVID, you obviously saw that number actually went higher than 50 percent at certain points and now it's down to about less than 20 percent in our new delinquencies. We have seen a tool that was not heavily utilized prior to COVID. During COVID, we saw that more than 20 percent of the delinquencies were not fully utilized prior to COVID. So as a percentage of our delinquencies, we have seen a tool that was not heavily utilized prior to COVID.
in Q1, 23. So I think our perspective is the fact that GSEs have now created new surveillance programs which have much more consumer friendly terms is an example of we have more to in our two belt when it comes to modification than we did three years ago. I think that is generally good for the system, good for consumers and then from that point on, it just depends on
which can be must go to the link when which tools are available in the work condition. But I would say I'll start off at that and then off being to that color. Yes, I'll just maybe supplement that with the proof point. So we've had about 105,000 for barrens on an ever-to-date basis Eric and about 95% of those have successfully cured. So that that cure includes you know canceled.
modification. So I think that's really just, you know, the quantitative evidence to the qualitative description that Rohit was talking about. I would also very much align with his commentary that the forbearance program has been very successful on an ever-to-date basis.
Okay, great. Thank you guys very much. Thank you, Eric.
We do not. So this concludes our Q&A portion. I would now like to turn it back over to Rohit for closing remarks. Thank you, Stacey, and thank you all. We appreciate your interest in the NAC and I look forward to seeing many of you in New York at the BTLG conference next week. Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.