Q2 2023 MGIC Investment Corporation Earnings Call

<unk> in the quarter, obviously, you saw a nice uptick.

A little bit more than some of the others.

This quarter like you know where do you think you picked up share what what changed this quarter versus last quarter.

Any any relative comments.

I'd be curious about that thank you.

Sure Tim I mean, I would say that there is there's no one specific area.

Areas that I would call out you know if you look at our additional information that May include you can see some minor changes.

You know above four at the 95 L. T. V's. An example in and about 45 D. T. I think it's fair to say that we we said tolerance it from a risk standpoint, or how much what I write in certain characteristics.

But I I think I would view as sort of where are we you know one some additional volume is fairly broad based and nothing that I would call out specifically about certain loan characteristics or anything like that.

Okay.

And then just maybe turning to credit for a second.

Really reasonably favorable backdrop right for credit, but as you said.

And look at the old resolved all done at any point tools that you are looking out at anything in particular, you all worried about I guess I'm trying to understand just from a credit perspective, what are some of the metrics or some of the potential issues that are upcoming that you, maybe I'm being a little bit more attention to that could cause.

Credit hiccups.

Yeah, I mean, it's you know when we have negative loss incurred for a period I think we view that is not sustainable you know.

I think we've been in a phenomenal credit environment. So you know the things we watch them what a lot of people watch right unemployment what's happening there. We do think that the values of housing is an important characteristic of whether it will have losses or not and so we've been very very happy with how resilient the home prices have been over the last nine to 12.

So I think we're watching that obviously watch for any deterioration you can see in other credit lines as well, but you know a lot of times you don't don't don't don't correlate exactly to what we see in mortgage credit, especially if home prices are solid and the reality is he the underwriting and the credit box.

For mortgage and especially the areas that we operate in it's been phenomenal for over a decade now and so while we'll be careful to say that it's tough to see that how how well. It's performed will continue because it's it's just been phenomenal. It is it is something that feels inherently different than it would have 15 years ago.

Or is it a comparison, so feel really optimistic about that.

Okay and on that last one and this is my last question I'll hop back in queue up too, but like in terms of the.

Underwriting environment, given the high mortgage rates have been.

It's almost a year now that originators have been working with it are you seeing any move but what would you need those any appetite to expand the credit box, maybe giving pushing you on hey, maybe we want to do some non agency.

Oh, you know lower credits their non agency I mean like not jumbo.

Anything you are seeing any pressure or anything from originators as anyone in the ecosystem looking to expand the credit box. Thank you.

Yeah I know, it's it's it's that's a that's a good question I think from a from a how broad that might be no. I mean, I think you always look for lenders who are looking to do things that are the right answer.

They if they can find other other borrowers things they could make eligible that they wanted to do that they still have strong credit profile and we have those conversations every day with their customer, but I think what you were hinting at it from a broader sort of view of let's expand the box, let's figure out ways to get more alone.

It's really a supply issue as much as it is a demand issue at this point to qualifying more borrowers I don't think really helps I think theres plenty of qualified borrowers at this point, although we can always help those around the margins for sure, but it's really a supply issue out there and I think the interest rate lock in effect is Israel, although I think that will dissipate over time.

As people get more comfortable and earn their house longer and and look to move up to their second home as opposed to their starter home.

Okay. Thank you so much.

Sure.

Yeah.

Thank you.

Please standby for our next question.

The next question comes from the line of Geoffrey Dunn of Dowling and partners. Your line is now open.

Thank you good morning, guys.

Or.

With respect to new provisioning and particularly the severity assumption.

Is it fair to assume that there's kind of pressure on that number for the foreseeable future as the 'twenty one through 'twenty three book season or is there something in your approach that could soften that.

Yeah, Jeff It's Nathan I mean, I do think that given the the average loan amounts from the more recent vintages compared to the average loan amount that that came in certainly in the.

Kind of financial crisis years are much higher so he ever since the average exposures on those are a lot higher we have had a pretty consistent.

Severity exposure ratio that were you know putting on new notices.

We've been running better than that.

Actual realized severities have been you know in the 16th and 17th for the last several years you know I think we think that's really an artifact of things that are not long term sustainable, but you know at some point if that became what we thought the true new normal go forward was I mean that could have an impact in a consideration that we would have but I do.

Think that we are likely to see a gradual uptick in that just as the average exposure on new notices goes up as more and more of those new notices come from our more recent vintages at higher loan amounts.

Okay, and then just a quick number you said you're at seven 5% claim rate assumption did you dropped to seven and a half in the first quarter or was that incremental this quarter.

So the seven and a half has been our our new notice claim rate assumption for several quarters.

Okay I thought I thought you were at 8% in the fourth quarter, that's why I just wanted to clarify.

Okay, No I think a seven and a half for the for the last several quarters.

And then last question I think Tim I was in your commentary about some of the competitive advantages beyond pricing for for new business.

How do you think the market has shaped up but it seems to me everyday that goes by mortgage insurance is almost kind of becoming more like auto insurance, where people are shopping at the best rate on the engines out there.

Where do you think we are in terms of mix of you know purely price shopping customers versus those that still value you know broader relationships and services in and how does that today compare to maybe three years ago.

I think there is there is definitely more price shoppers. If you wanted to find that way now than there were three years ago I think what we like to call out is there's a there's a fairly good percentage of our customers that arent price shoppers now, they're not agnostic to price by any means but they value.

Some of the things that we can deliver and then we have delivered for over 65 years to them and those relationships that they that they arent they arent as focused on price and some others are and again, that's that's up to the customer decide what they want to do we tried to reflect in what we do to understand what our customers expect from us.

We have a we have a core group of customers and we have a broad based group of customers all of them are phenomenal.

We definitely have have a good cross section that arent as focused on on prices as others are.

And does that fall into like a typically like a regional or local type of customer versus the nationals.

I think we've always felt like we do really really strong and community banks regional banks credit unions those types of institutions, but it's I think it's fair to say that.

It's probably a pretty strong correlation.

Okay, great. Thank you.

Sure.

Thank you.

Please standby for our next question.

Our next question comes from the line of Eric Hagen of <unk>. Your line is now open.

Hey, Thanks, Good morning, I think I've got a couple of follow ups first.

First on risk risk based pricing I mean would you say risk based pricing is more effective when mortgage rates are high relatively volatile or or what would you say is kind of the ideal environment to leverage some of the inputs that go into risk based pricing and then second question I mean, how are we thinking about.

Any further rotation of mortgage origination and servicing from banks to the nonbank community does that drive your thoughts around any capital ratios.

How you think about the longer term growth rate in the business more generally just given where the capital is being sourced and where that's coming from thank you.

Sure I'll I'll start off for risk based pricing you know I think we think about it across a number of different dimensions.

Haven't thought about it too much of with interest rates being higher if that makes it more conducive I think there is a sensitivity I always to cost and and US the advantage of risk based pricing is being able to ultimately reflect the risk that we think exists with alone are based upon the current conditions and interest rates one of those but it.

Yeah rotation of our origination and servicing from banks to non bank thoughts around capital ratios longer term growth rate.

Just given where that capital is coming from thank you.

Yeah, I think you know, it's there's always some some ebbs and flows as far as where things go to I think the non banks have obviously taken a larger and larger percentage recently you know I think we feel really great about those customers as well and I think it's one of those things where when the market sees a little bit of disruption.

Can you sort of look for what will the shake out and I think theres still some some more to go there ultimately and it will it will stay close to the good thing is we have a broad base of customers and do well across all those segments and so feel really good about however, however that organizes on the origination and servicing side that we're well positioned to be able to.

Well thanks for the comments I appreciate it sure.

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