Q2 2023 Essent Group Ltd Earnings Call

Good morning, My name is Rob and I'll be your conference operator today at this time I would like to welcome everyone to the Essent Group second quarter 2023 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session if you'd like to ask a question.

During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press. The star one. Thank you Phil Stefano Vice President of Investor Relations you May begin your conference.

Thank you Robin and good morning, everyone and welcome to our call. Joining me today are Mark <unk>, Chairman and CEO and David Weinstock, Chief Financial Officer also on hand for the Q&A portion of the call is Chris Karen precedent, that's a guarantee.

Our press release, which contains <unk> financial results for the second quarter of 2023 was issued earlier today and is available on our website as a group dot com.

Prior to getting started I would like to remind participants that today's discussions are being recorded and will include the use of forward looking statements. These statements are based on current expectations estimates projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially.

Discussion of these risks and uncertainties. Please review the cautionary language regarding forward looking statements in today's press release the risk factors included in our Form 10-K with the SEC filed on February 17, 2023, and any other reports and registration statements filed with the SEC, which are also available on our website now let me.

Turn the call over to Mark.

Thanks, Bill and good morning, everyone earlier today, we released our second quarter 2023 financial results, which continue to benefit from our high quality insurance portfolio and favorable credit performance also rising interest rates continue to drive higher investment income and elevated persistency, which supports the growth of our in force portfolio. Despite.

Pressure on new business volumes, our long term outlook on housing remains constructive as we believe that demographic driven demand and low inventory should provide foundational support to home prices. While there is still uncertainty surrounding the U S economy, we remain confident in our robust capital position and the strength of our buy manage and distribute opera.

Rating model and now for our results for the second quarter of 2023, we reported net income of $172 million compared to $232 million a year ago.

As a reminder, our results last year were favorably impacted by the release of certain reserves associated with Covid related defaults on a diluted per share basis. We earned $1 61 for the second quarter compared to $2 16, a year ago and our annualized return on average equity was 15%.

As of June 30th our insurance in force was $236 billion at.

A 9% increase compared to a year ago, our 12 month persistency on June 30th was 86% and approximately 75% of our enforced portfolio has a note rate of 5% or lower.

We expect that the current level of rates should support elevated persistency through the back half of this year.

The credit quality of our insurance in force remained strong with a weighted average FICO of 746 and a weighted average original LTV of 92% embedded HPA continues to benefit our business as the mark to market on the in force portfolio mitigates the risk of claims, especially in light of the supply constraints in housing.

Thats right.

On the business front, our industry remains competitive while the pricing environment remains constructive we continue to focus on optimizing our unit economics, and leveraging our proprietary scoring engine S. An edge in selecting and pricing long tail mortgage credit risk overall, we remain pleased with the business, we are writing and the related expected returns.

We continue to execute upon our diversified and programmatic reinsurance strategy, while focusing on optimizing our cost of reinsurance.

During the quarter, we successfully executed a tender or two season dial and deals, which retired $637 million of bonds that did not provide any regulatory or economic capital credits.

Also last week, we priced our ninth Radnor re Ireland transactions selling $281 million of bonds covering production from August of last year through the first half of 2023.

Our belief remains that access to multiple sources of capital is a key element of our operating model and we are pleased with the execution of both the tender and the latest style and deal.

As of June 30th Essent Res third party annual rate run revenues are approximately $80 million, while our third party risk in force of approximately $2 billion.

During the quarter Essent re continued to capitalize on the current environment to optimize returns and contribute to the profitability of our franchise.

Cash and investments as of June 30 were $5 4 billion and the annualized investment yield for the second quarter was three 5% up from two 5% a year ago, our new money yield in the second quarter approximated, 5%, providing continued tailwind for our investment portfolio as <unk>.

A reminder, for every one point increase in the investment yield there is a roughly one point increase in ROE.

We continue to operate from a position of strength with $4 $7 billion in GAAP equity access to $1 $4 billion in excess of loss reinsurance and over $1 billion of available holding company liquidity.

With a trailing 12 month underwriting margin of 78% and operating cash flow of $697 million, our franchise remains well positioned from an earnings cash flow and balance sheet perspective.

Our strong financial performance affords us the ability to take a balanced approach between capital deployment and distribution. This includes the approximately $93 million associated with the title acquisition, we completed at the start of the third quarter.

Similar to one <unk> restarted we viewed title as a long term and attractive call option for the future growth that the Essent franchise.

Year to date through July 31, we repurchased approximately one 1 million shares for $46 million further I am pleased to announce that our board has approved a common dividend of <unk> 25.

We continue to see our dividend as a meaningful demonstration of the confidence we have in the stability of our cash flows and strengthen our capital position now let me turn the call over to Dave.

Thanks, Mark and good morning, everyone. Let me review our results for the quarter and a little more detail.

For the second quarter, we earned $1 61 per diluted share compared to $1 59 last quarter and $2 16 in the second quarter a year ago.

As Mark previously mentioned, our second quarter 2022 results benefited from the release of approximately $63 million of reserves associated with the Covid related defaults from 2012.

Net premium earned for the second quarter of 2023 was $213 million and included $17 $7 million of premiums earned by Essent re on our third party business.

The average base premium rates with U S mortgage insurance business in the second quarter was 40 basis points consistent with last quarter.

The net average premium rate was 33 basis points in the second quarter.

Of 2023 down one basis point from last quarter due primarily to the net impact of the successful tender Mark discussed.

Ceded premium increased to $39 5 million in the second quarter compared to $33 $6 million in the first quarter largely due to the tender.

Net investment income increased $2 million or 5% in the second quarter of 2023 compared to last quarter due primarily to higher yields on new investments and floating rate securities resetting the higher rates.

Other income in the second quarter was $8 1 million, which.

Which includes a $2 $7 million gain associated with the fair value of embedded derivatives and certain of our third party reinsurance agreements.

This gain was largely due to a decrease in our derivative liability a decrease in our derivative liability, resulting from the reduction in outstanding insurance linked notes from the completed tender offer.

This compares to a $368000 decrease in the fair value of these embedded derivatives in the first quarter of 2023.

The provision for loss and loss adjustment expense was $1 3 million in the second quarter of 2023 compared to a benefit of $180000 in the first quarter of 2023, and a benefit of $76 2 million in the second quarter a year ago.

At June 30th the default rate was 152% down five basis points from 157% at March 31 2023.

Other underwriting and operating expenses in the second quarter were $42 2 million a decrease of $6 million from the first quarter.

The first quarter included higher transaction costs associated with our title acquisition and higher payroll taxes associated with divesting of shares and incentive payments, which historically occur in the first quarter.

The operating expense ratio was 20% this quarter a decrease from 23% for the first quarter.

We continue to estimate that other underwriting and operating expenses will be approximately $175 million for the full year 2023, excluding expenses associated with the <unk> acquisition and related transaction costs.

Income tax expense in the second quarter of 2023 included $5 3 million of net discrete tax expense associated with prior year tax pretax.

For the balance of 2023, we currently estimate income tax expense will be a 15, 2% annualized effective tax rate.

During the second quarter, Essent group paid a cash dividend totaling $26 $5 million to shareholders, and we repurchased $29 $5 million of shares under the authorization approved by our board in May 2022.

As Mark noted our holding company liquidity remains strong and includes $400 million of Undrawn revolver capacity under our committed credit facility.

At June 30, we had $425 million of term loan outstanding with a weighted average interest rate of 687% up from $6 five 2% at March 31.

At June 32023, our debt to capital ratio was 8%.

During the second quarter, Essent guaranty paid a dividend of $90 million to its U S holding company.

Based on unassigned surplus at June 30th the U S mortgage insurance companies can pay additional ordinary dividends of $278 million in 2023.

At quarter end, the combined U S mortgage insurance business statutory capital was $3 2 billion.

With a risk to capital ratio of 10, 5% to one.

But that statutory capital includes $2 2 billion of contingency reserves at June 30th.

Over the last 12 months the U S mortgage insurance business has grown statutory capital by $181 million.

While at the same time paying $300 million of dividends to our U S holding company.

As Mark noted effective July one 2023, asking U S Holdings acquired all the outstanding shares at the capital stock of agents National title and all of the membership interest of Boston National title.

For $19 $6 million in cash.

The acquisition was funded using existing cash and short term investments and the purchase price is subject to customary post closing adjustments now let me turn the call back over to Mark.

Thanks, Dave and closing our capital position liquidity in underlying results remained strong the high quality of our portfolio and strong employment are driving credit performance, while higher interest rates are benefiting the persistency of our in force book and investment income. This strong operational performance continues to generate excess capital, which we.

We will deploy using a measured approach between investment in growing our franchise and distribution, we remain confident in our buy manage and distribute operating model and believe our measured approach to our capital is in the best long term interest of Essent and our stakeholders now let's get to your questions operator.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad Andrew.

And your first question comes from the line of Mihir Bhatia from Bank of America. Your line is open.

Hi, good morning, and thank you for taking my questions.

Wanted to start by asking about the reinsurance transaction.

Avi.

Most of these that goes that you've done that they have an impact on premiums in the quarter I think one of your competitors talked about Scott a little bit having done them for the first time. This quarter. Just wondering if you could maybe give us some color on that just the economics of the transaction and how you expect it to impact future quarters' ceded premiums or premium rate. Thank you.

Sure.

<unk> here nice to hear your voice.

A couple of things.

On the tender think about I think around $8 million of it was additional ceded premium.

For this quarter, that's why you saw the jump.

But longer term, we should see approximately $40 million of savings so all im kind of Thirtyish sure.

Youll see a reduction in the ceded premium in future years and Thats really.

Those are the two deals that really didn't give us a lot of either P. Myers capital our capital economic capital credits. So we don't see us.

Wondering any other deals at this time.

Again.

As a unique circumstance because those deals got locked out with the COVID-19 default. So they really didn't pay downs. So it's a good opportunity we've talked about in past quarters optimizing.

Of that reinsurance costs. So this is a good example of us able to do that.

Got it no. Thank you that is quite helpful.

And then just switching gears up to the title business, maybe now that the transaction is closed maybe talk a little bit about what your initial focus is going to be how fast do you think the integration can go to the extent they as much integration to do.

And just what.

What should we be expecting in the near term from that business. Even if it's just a really high level from a revenue standpoint or something.

Yes, I mean again, we just closed it.

Just a little over a month ago. So we're really just getting started on the integration.

Here, it's two different companies will run them as kind of.

Two divisions within Essent title. So the integration process has really gotten underway and it's probably it's quite extensive I would look at this I said this back in February .

This acquisition was more akin to us buying the triad platform back in 2009 with that we've got an operating platform. We've got some really good people.

But it was we were essentially a startup in the title business that we acquired is not quite a start up but it's more start up like so we're going to approach it that way.

We're going to build out the infrastructure improvements to be made around the system, there's going to be investments and we're going to take a long term approach. So like I said again in the script I think of it as a call option for for the investors is 2% of our GAAP equity. This is a three 510 year.

Our program. This is a chance for us to build another.

Significant operating business, but they don't happen overnight I mean, when we started <unk>.

We wrote our we started building it a nine.

We did our first one in 10, we can breakeven at 12. So this this isn't.

This is not going to be very material at all from a financial perspective, So I wouldn't model much at all for the next I think it's going to take US realistically 12 months to 18 months just to stand it up to get it to where we can.

Forest City kind of future growth both on the agency side and our lender services side. These are again these are smaller companies.

That's really what we want it we want it this startup type platform to allow us to kind of build out but again near term financially from a modeling perspective, mihir I wouldn't put much him.

Okay understood. Thank you.

Including.

And your next question comes from the line of Rick Shane from Jpmorgan. Your line is open.

Hey, guys. Thanks for taking my questions. This morning.

Look you guys hit Dean consistently innovative both from an operational.

Perspective, but also in terms of your use of technology.

We are arguably on the cusp of maybe the next really significant.

Technology evolution in terms of machine learning and AI.

I am curious as a deed.

Heavy company, but also a mid sized business.

With midsized resources, how you will.

Take advantage of this and how you are pursuing this and particularly anything youre seeing through your venture portfolio that's intriguing.

Yeah, Rick I've taken a step back I just on the <unk> side, and we try to break it into pieces right on the Ami side.

We're pretty we're pretty far in terms of the use of artificial intelligence and machine learning around the engine.

And we have been for quite a while it's all hosted in the cloud and most of our operating platform now is in the cloud so we've kind of shifted that into the cloud which they.

A big protection from a cyber perspective, we believe a lot of computing power alpha in the cloud, but there's a cost to it too. So you put out a good point we are not.

We don't have analyst resources, So youre really just like I talked about on the reinsurance side you have to optimize kind of the cost I would say we're in a really good spot on the Ams side theres going to be some improvement that we're going to make we're able to leverage the engine now around underwriting so kind of like an automated underwriting system that will.

Help us on the non delegated piece again from an efficiency standpoint, and we've continued to use over the years technology totaled less than those costs are less underwriter input more underwriter analysis. So we constantly look at that and we'll have I would say continued improvements on the Ams side, but.

It's a little bit of a law of diminishing returns right. We only have 400 400 folks on the semi side. So there's not there's not a ton of efficiencies continued to be made other than youll make the model better on the title side Thats a different story right. That's when you think about our business on the semi side. The three main risks are.

Credit, where regulatory and operational kind of in that order.

On the title side operational risk is probably number one regulatory is number two probably not as severe as on the Ams side per se and third as credit. They don't really have a lot of credit risk because they do the work so well were going to Q2 due to title search well and are cured of work well you shouldn't have a lot of <unk>.

James So there's a misnomer in the title business that I don't know if theres not a lot of claims or claims because they do a good job at number one risk on the operational side, it's very people intensive. So that there is can we use some of the learnings on the Ams side to be more efficient on the title side. It remains to be seen it's a tech.

<unk>, it's definitely a way to lessen the amount of input and people that you need on that side of the business, but it's not that simple it's going to take a while.

The technology on that side is pretty.

We're pretty early in a process that we're going to have to make investments on the title side around technology to two big things on the title side and.

In order to scale longer term are you going to need to have more control over your operating platform and more control over the data and I think thats smaller companies. They just use off the shelf software they used a larger company's data and longer term for SM longer term, meaning 510 years Rick.

You have to take control of that I mean, we own that on the army side, we could have never built out our.

Our pricing engine, if we had to rely on competitors for data or for access to the system and some other stuff.

It wouldn't have been done so you kind of have to have that same look on the title side in terms of ventures, yes, we actually were looking where we are.

Looking at some funds that are dedicated to artificial intelligence and we're close on a couple and they're they don't really do anything in financial services. So they are the key is what can you learn what are they investing in thats applicable to the financial services side. So it's a little bit of a jump all we're seeing some and some of the portfolio companies, but I don't think.

I think we're just scratching the surface. So again, that's part of when we talk about debentures, it's really outsource corporate development, we're looking for companies and funds, where we can learn things that can now improved our core business with tight on now we have two core businesses potentially to improve so actually the impact.

Our venture should be it should be a little bit wider going forward.

Got it thanks, Mark Thank you for the answer.

And your next question comes from the line of Bose George from <unk>. Your line is open.

Hey, guys good morning.

I wanted to ask just about the Ireland transaction you did how would you compare the execution in the Ireland market.

What youre seeing in the <unk>, just the traditional reinsurance market.

Yes, both and we had pretty good execution on the island side I think in a significantly better than we had last year and probably closer to the 2021 levels I think the more important.

And you've heard me say this before the more important aspect of reinsurance isn't so much the quarter to quarter pricing, yes, we did a nice job this quarter.

There wasn't a lot of supply in the market we hit the market at the right time, good for us, but thats not really.

That's not really the importance of the importance of it is really the sustainability and the duration of the reinsurance market and because it's buy manage and distribute operating model. Because this is the distribution part of it. So you are really looking for the continued availability and financial services 101 is really multiple sources of capital.

So we're feeling better I would say quarter by quarter as to the ultimate sustainability of the reinsurance market has been tested twice.

Was tested during 2020 when.

Clearly the market shut down for a little bit, but did open up in the fourth quarter and there was transactions and I thought last year to be honest, who is the biggest test and youre talking about volatility and upward movement in rates during the year, which caught everyone by really whip solved.

At all time levels media media crying that HPA is going to be up it's going to crash.

And I was going to be hard for the Ams to do well and yet we did an ex ol Nio and anacortes here. So the markets were open, albeit at higher prices and now as we get into a year 12 months to 12 months ago, all the environment is completely different inflation.

Has really subsided.

EBITDA has flattened out has grown a little bit in certain sectors. So theres a credit is still remains strong.

And I think investors realize that so I think again good good good I wouldn't be surprised if we see other other other entrance into the <unk> market, because I think thats. It looks like it's a good time to be tapping that side of the market.

Okay, Great. That's helpful. Thank you and a couple of little modeling question.

The other income line item was up what was driving that.

Yes.

Yes, so the safe livestock.

Other income and Theres, a handful of things in there, but I would say probably the principal item of moving that up a little bit. So that you had a couple of things I think I mentioned that the derivatives in there. So that was really the big thing that we had the derivative gain.

This quarter and last quarter, we had a small unfavorable valuation. So that's really that's going to bounce around associated with the derivatives.

Okay, Great and then actually just the share count was down a little bit as well. So just curious what drove that.

Yes, we've repurchased I think we've done.

$1 1 million shares repurchased through this year, we started in March.

Those given a lot of that uncertainty with the cave index. So we felt like again purchasing shares in that 90%, 95% book value really.

Really creating is pretty accretive to book value per share growth that was really the that's really them over.

Okay, great. Thank you.

Sure.

Your next question comes from the line of Doug Harter from Credit Suisse. Your line is open.

Thanks, Mark can you talk about the pricing dynamics you saw in the second quarter and.

Kind of whether that change kind of over the course of the quarter.

I think prices continue to move up.

Our average premium on new insurance written.

It was probably up equally boes in the first and second quarters I would say in the second quarter, probably a little bit more pricing around the tails.

Less base increases.

I think we're at a good.

We said it in the script I mean, it's a pretty competitive its always a competitive market.

I think the pricing from a normalized standpoint, right and we say normalize that 2% to 3% claim rate and I think the pricing is the unit economics of the pricing or kind of within that 12.

The 15% range I think given the uncertainty though.

Right I mean, we still think things will.

The recession should enhance the long awaited recession.

We're still believing it's in the 'twenty four time period as the impact of higher rates kind of work their way through.

Especially smaller businesses. The consumer has a lot of cash now and is still employed but a smaller business to start to lay offs in it. So you could start seeing that impact in 'twenty four or so we're still there's still has more price increases to be had.

Again from a market standpoint, we're always shooting to be in that mid teen share.

Yes.

Between share market share.

And to the extent that we can optimize pricing around that I think will continue to do that and I see that.

And the industry, we said this from the.

From the get go is here number one in share it's because you have the lowest price.

So almost all best execution across both the engine and card. So there's really no hiding that so I think the game is is how to optimize your premium and maintain that share and I think the whole industry has done a good job with it I mean, it's been it's been nice to see occurred for years that the industry.

He is.

It's it's.

It's not disciplines and I think that's the furthest thing from the truth I think the key though is really the advent of the pricing engines rate of the industry has changed under three primary methods from the last 10 years one.

Which.

People don't talk too much about not enough about is just the credit quality of the book and Thats really a result of though the gse's the improvements around.

Yes.

Their engines, the qualified mortgage which kind of keeps keeps a lot of that.

I would say poor quality business outside of the GSC. So the gse's have really been a great guardrail second has been reinsurance, which we talked about our ability to offload that at risk and the third is the pricing engines itself just.

Just the base engine forget our ability to optimize score the essence score that.

That's great that's a little bit different when I'm talking about the engine itself and the ability to make changes on it.

It really changed the industry. So we're able that we were able to react during COVID-19 the industry raised pricing in.

In the face of this uncertainty and then this past year the ability to raise pricing in across different msas different tales, whatever whatever appetite the semi industry any participant had they were able to impact that change, which again 510 years ago, you Couldnt do it you Couldnt Institute.

A price increase every quarter with our rate card or would have been virtually impossible with all of the lenders out there having to change their system in regulatory approval. So this ability around the engine to make these I would say more micro changes.

It's created pricing power for the mortgage insurance industry and more so than people really realize and I think.

I think thats the ability we have always had the discipline. We just didn't have the ability to affect that kind of pragmatically put that to some of the work day to day because of how the how how the mechanism worked with the rate cards and I think the engine has been a real breakthrough for the industry and gives us a lot more of that flexibility.

<unk> that other industries in jewelry in terms of pricing pricing credit risk.

Okay I appreciate the answer Mark Thank you.

Sure.

And again, if you would like to ask a question Press Star then the number one on your telephone keypad. Your next question comes from the line of Eric Hagen from <unk>. Your line is open.

Hey, Thanks, good morning.

Maybe kind of a bigger picture question here I mean, if loss rates across the industry to stay this low into early 2020 for mid 'twenty four how do you see that potentially change in the competitive dynamics in the industry itself as we look into next year like the fact that everyone seems to be generating excess returns.

With loss rates been this level I mean, how do you see that affecting pricing competition.

Maybe even your own policy towards capital return as we look to next year. Thank you guys.

Yes, it's a good question I would say I wouldn't think it would impact pricing.

Eric because remember we're pricing for that normalized 2% to 3%.

Credit and part of how it part of the results are impacted by the economy of which we have no control over right. So if losses are better that will just generate more excess capital and then there's choices right again theres there are choices to return that to shareholders via dividends or repurchases or to invest.

Outside of the core business and I think that'll be the real result, I would be surprised if again just given the dynamics as losses are lower again, none of US really these are actuarial based model. So we don't price quarter to quarter, and say, hey losses or lower let's go lower the pricing on new production and again just given the.

Competitive dynamics around pricing, if you're right. If you lower priced again, bringing more business. It's easily matched right. So there is there is there is no. There is a great that's where when we talk about kind of the.

Pushes and pulls around pricing and then just given the information that we all have everyone can kind of see where the market is going.

So it would be a short lived gain and you really it would just be you would really just be giving away economics as opposed to saying Hey, we're going to price for a normalized unit economics, 12% to 15% returns. The result of a lower provision as excess cash how do we how do we deploy that and I think taking a step.

Back again quarter to quarter or even next year, Eric My view is the winners and losers in MRI and not in that and it's not a binary and we could all be winners is really how different companies deploy that excess capital right and you can't judge that quarter by quarter. It's.

Really going to be over the next three to five years and I think so.

That choose to return at all and shrink will have less choices others were in the other camp right, where and I can't speak to other strategy everyone has all the strategies seem to be pretty sound.

And it's in the eye of a holder for US we have a re invest cash and grow mentality. We just happen to believe that longer term growing book value per share and we've grown at 19% per annum. Since we've gone public it'll be harder as we get bigger, but that's the challenge it's going to force you to put capital to work.

Yes.

To continue to grow that book value per share and I think that's what we're focused on and I think again, a lower result on the provision would give us more cash to pursue that goal.

Alright, Thank you guys very much.

Sure.

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

Okay.

Thanks, Good morning.

I fell off for a minute so not sure if I missed this but can you provide the dollar impact of the tender offers on ceded premium this quarter.

8 million I think was additional ceded premium Jeff.

Got it and then I wanted to follow up on pricing. So I understand your pricing for the longer term kind of normalized credit.

How do the mechanics of investment yield.

And higher interest rates affecting cost of capital factor into that honestly, we're thinking forward to when let's say, it's a soft landing and the economic expectations et cetera.

Trying to understand.

Kind of the puts and takes that might help sustaining pricing at these improved levels versus what might be given back as economic expectations hopefully improve.

Yes. Good question again, I think on the yield.

That's another factor where are yields historically have been kind of in that 2% to 3% range and are putting new money to work that side, that's a pretty significant increase.

Both in nominal dollars right.

Onto the bottom line and certainly improve the unit economics, but however, we when pricing we use probably a more normalized investment yield kind of closer to like a three ish percent. So we don't we don't incorporate that into our pricing is really kind of the short answer it's really driven around credit and we look at pricing on an unlevered basis. So we are.

Don't really look at the cost of that we don't have a lot of that any way for to make meaningful I think again, Jeff this year looking.

If the economy brightens I'm not sure that lowers pricing I would find it hard to believe in fact, I think it's nothing but surprisingly.

But again when you're pricing for a normalize just due to simple in that 2% to 3% claim.

Claim rate the capital that we hold either economic or P. Myers that normal ish expenses and investment income.

And I W should have a four handle on it and if it does you're probably going to have good economics, we start driving it down to where it was at the end of 'twenty one 'twenty two.

I was just on good economics.

And I don't we were pretty outspoken about even and Thats one of the reasons to the earlier questions.

Eric we're going to continue to look for other places to allocate capital because you don't want to be in that situation, where you have to follow the market down and I think that's that's where you have to be careful of one of our one of the six <unk>.

As part of a much larger insurance company and they do a fantastic job of allocating capital. So they can move in the market and out of the market and.

That's when you look at.

Companies that you want to emulate I think thats, one we can emulate their strategy because we don't have their experience on the P&C side, but.

Creating choices around allocating capital allows us to do that also afford you the ability to stay more discipline.

Okay, and then obviously the risk to your statement is different views of what normalized credit actually as you know is it 2% to 3% QM or is it.

Wanted to ask you too.

Is your general sense or confidence that the industry is aligned with your assessment Thats normalized credit.

I don't know if I can.

Can't really speak to them I don't.

Think about the big picture, two or three loans out of 100 going bad doesn't sound like Super aggressive.

Seems pretty normalized so I think when youre, saying one ish.

I think thats, where you're probably moving a little bit.

Only need a small bump before that number is way off so I think that's.

Again, when the pricing drove down to that level. That's an almost you had to believe that it was probably less than one. So it was really hard to make the math work in my view.

Sure.

So I can't really comment on what other spinnaker, just I think our I think our view, which has been there for a while and it's given the credit.

Criteria of the book, which is a good book, but it's still a high LTV book. So I think again I think thats, a pretty I think it's a pretty pragmatic assumption on our part.

Okay. Thank you.

Awesome.

And there are no further questions at this time I will now turn the call back over to management for some final closing remarks.

Thank you operator, and thanks, everyone for participating today and have a great weekend.

This concludes today's conference call. Thank you for your participation you may now disconnect.

Please wait the conference will begin shortly.

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