Q4 2023 MGIC Investment Corporation Earnings Call
Okay.
Ladies and gentlemen, and thank you for standing by.
Speaker Change: Welcome to the M. G I see investment Corporation fourth quarter 2023 earnings call at this time all parts at all lines have been placed on mute to prevent any background noise at the end of todays presentation. We will have a question and answer session.
Speaker Change: I'll ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again I will now turn the conference over to Diana Higgins head of Investor Relations.
Diana Higgins: Please go ahead.
Diana Higgins: Yeah.
Diana Higgins: Good morning, welcome everyone. Thank you for joining us today and for your interest in MGIC joining me on the call to discuss our results for the fourth quarter, our Tim Mattke, Chief Executive Officer, and Nathan Colson, Chief Financial Officer, Our press release, which contains M D.
Diana Higgins: I see fourth quarter financial results was issued yesterday and is available on our website at M. T. G Dot MGIC dot com under newsroom includes additional information about our quarterly results that we will refer to during the call. Today. It also includes a reconciliation.
Diana Higgins: <unk> of non-GAAP financial measures to their most comparable GAAP measures.
Diana Higgins: In addition, we posted on our website our quarterly supplement that contains information pertaining to our primary risk in force and other information you may find valuable as a reminder from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations.
Diana Higgins: Web site.
Diana Higgins: Before getting started it today I want to remind everybody that during the course of this call. We may make comments about our expectations of the future.
Diana Higgins: Actual results could differ materially from those contained in these forward looking statements additional information about the factors that could cause actual results to differ materially from those discussed on the call.
Diana Higgins: Are contained in our 8-K that was also filed yesterday.
Diana Higgins: If we make any forward looking statements we are not undertaking an obligation to update those statements in the future in light of subsequent developments.
No one should rely on the fact that such guidance or forward looking statements are current at any time other than the time of this call or the issuance of our 8-K, so with that let's get started now have the pleasure to turn the call over to Tim Thanks, Diana and good morning, everyone.
Timothy J. Mattke: I'm happy to report, we again delivered a solid quarter capping another year of excellent financial results, while returning meaningful capital to our shareholders.
Timothy J. Mattke: Our performance is a testament to the dedication and hard work of each member of our team the ability to adapt to market dynamics has been instrumental in our success.
Timothy J. Mattke: During the year, we continued to benefit from favorable credit trends prudent risk management strategies.
Timothy J. Mattke: <unk> approach to the market and our focus on through the cycle performance.
Timothy J. Mattke: <unk> committed to delivering long term value for our shareholders as we begin the new year.
Timothy J. Mattke: Turning to a few highlights in the fourth quarter, we earned $185 million of net income.
Timothy J. Mattke: And produced an annualized 15, 2% return on equity for.
Timothy J. Mattke: For the full year, we earned $713 million.
Timothy J. Mattke: At the end of the quarter insurance in force the main driver of future revenue stood strong at $294 billion.
Timothy J. Mattke: The overall credit quality of our insurance portfolio remains solid with an average FICO origination of 746 <unk>.
Timothy J. Mattke: The average original LTV of 93%.
Timothy J. Mattke: We wrote $11 billion of anything out of you in the fourth quarter and $46 billion of NSW for the full year.
Timothy J. Mattke: Level, then IW on the year is primarily a reflection of a smaller origination market.
Timothy J. Mattke: Underwriting standards remain strong and Randy GW continues to have strong credit characteristics.
Timothy J. Mattke: We continued to experience the headwind to smaller origination market driven by current interest rates and affordability challenges.
Timothy J. Mattke: Five homes for sale remains limited due to the lock in effect for homeowners with mortgages that have interest rates well below the current market rate.
Timothy J. Mattke: Same borrowers were also significantly out of the money to refinance which has led to historically low refinance volumes across the mortgage origination industry, including the M&A market.
Timothy J. Mattke: Those headwinds are offset by the tailwind that higher interest rates have on persistency on our insurance in force.
Timothy J. Mattke: Andy Your persistency you ended the fourth quarter at 86% up from 82% a year ago and 66% at the end of 2021.
Timothy J. Mattke: The net result of lower NSW and increased persistency is that our insurance in force has remained relatively flat during the year consistent with what we expected at the start of the year.
Timothy J. Mattke: Home prices continue to be resilient, despite affordability challenges and high interest rates.
Timothy J. Mattke: Though the current supply demand dynamic creates challenges for first time homebuyers. This dynamic continues to support home prices that helps mitigate the downside risk of home prices.
Timothy J. Mattke: The economic forecast indicate home prices being relatively flat in 2024, which we believe will be a long term positive for our industry.
Timothy J. Mattke: While there is still some uncertainty the housing market remains resilient and the outlook for it and the economy is generally positive.
Timothy J. Mattke: Although the pie of homes available for sale as well there is pent up demand and demographic trends suggest meaningful long term opportunities as the millennial and Gen Z population.
Timothy J. Mattke: We have demonstrated a strong desire for homeownership.
Given the cross currents I just discussed we expect the market to be roughly the same size in 2024 as it was in 2023.
Timothy J. Mattke: Taking a look at the credit performance of our insurance portfolio linked.
A link with the inventory and rates continue to be at historic lows to date, we have not seen a material change in the credit performance of our portfolio overall and early payment defaults remained at very low levels, which we believe is a good indicator of near term credit performance.
As a result of the strength and flexibility of our capital position during the year, we paid $600 million in dividends from MGIC to the holding company, including our previously announced $300 million dividend in the fourth quarter.
Timothy J. Mattke: We also returned approximately $460 million of capital to our shareholders through a combination of repurchasing common stock and paying a quarterly common stock dividend, which was increased by 15% in the third quarter.
Timothy J. Mattke: Okay.
Timothy J. Mattke: As I mentioned on our last call with our debt to capital ratio and our target range and whether debentures being fully retired we have completed our planned de levering activities and we expect our capital return payout to increase from a low level.
Timothy J. Mattke: That was the case in the fourth quarter as we repurchased 7 million shares of common stock for $123 million and paid a quarterly 11, five cents per share dividend to our shareholders for a total of $32 million.
Timothy J. Mattke: We continue to expect share repurchases will remain a primary means of returning capital to shareholders.
Timothy J. Mattke: In 2024 through January 26, where you purchased an additional one 8 million shares of common stock for a total of $34 million or.
Timothy J. Mattke: Our recent share repurchase activity reflects the capital strength and financial results previously highlighted and share price levels that we believe are attractive to generate long term value for remaining shareholders.
Timothy J. Mattke: As of January 26, we had $240 million remaining on our current share repurchase authorization. The board authorize authorized 11 five cents per common stock dividend to be paid on March 5th.
Timothy J. Mattke: We are very active across our reinsurance program during the fourth quarter and Nathan will share details on our reinsurance activities.
Speaker Change: Before turning over to Nathan I'd like to share a few more comments.
Nathaniel H. Colson: Im happy to report that in January S&P upgraded Mgic's financial strength and credit ratings to a minus and upgraded our credit rating of the holding company to Triple B minus and our holding company and he is now fully investment grade.
Nathaniel H. Colson: Outlook for the ratings are stable.
Nathaniel H. Colson: S&P's rationale for the upgrades include an improved yield mgic's capital adequacy, resulting from the implementation of S&P's <unk> highest capital adequacy methodology Mgic's risk management disciplined.
Nathaniel H. Colson: Disciplined approach to underwriting, resulting in strong portfolio quality and prudent use of reinsurance.
Nathaniel H. Colson: Lastly, as many of you know Steve Thompson, our chief risk officer will be embarking on a well earned retirement in March after serving our company for more than 25 years.
Nathaniel H. Colson: I am proud to have Steve service first CRM <unk> and my tenure as CEO.
Speaker Change: Thank you Steve for your passion and the dedication and leadership that you've demonstrated every day.
Speaker Change: Nathan will assume the responsibility for overseeing the risk management Department. In addition to the finance Department upon Steve's retirement.
Speaker Change: With that let me turn it over to Nathan.
Nathaniel H. Colson: Thanks, Tim and good morning.
Nathaniel H. Colson: Before getting into the details on the financial results I also wanted to thank Tom for the opportunity and thank Steve for his dedication and leadership.
Nathaniel H. Colson: Steve is one of the first people I met when I joined them GIC and the risk management Department in almost 10 years ago and he has been a friend and mentor for me.
Nathaniel H. Colson: We will miss his wisdom and experience his personality and wet.
Nathaniel H. Colson: Most of those we will Miss Steve because he is a great guy that people wanted to be around I.
Nathaniel H. Colson: I feel very fortunate for the opportunity to oversee the risk team that Steve has developed I am excited to lead such a talented group.
Nathaniel H. Colson: Okay.
Nathaniel H. Colson: Turning back to the financial results.
As Tim mentioned, we had another quarter of solid financial results.
Nathaniel H. Colson: We earned net income of 66 per diluted share compared to <unk> 64 during the fourth quarter last year.
Nathaniel H. Colson: For the full year, we earned net income of $2 49 per diluted share compared to $2 79 per diluted share last year.
Nathaniel H. Colson: The results for the fourth quarter were reflective of continued exceptional credit performance, we have been experiencing.
Nathaniel H. Colson: This is again led to favorable loss reserve development and resulted in a negative 4% loss ratio this quarter.
Nathaniel H. Colson: Our review and re estimation of ultimate losses on prior delinquencies resulted in $60 million of favorable loss reserve development in the quarter.
Nathaniel H. Colson: The favorable development. This quarter, primarily came from delinquency notices received in the second half of 2021 and in 2022.
Nathaniel H. Colson: In the quarter, our delinquency inventory increased by 4% to 25700 loans, which continues to be low by historical standards.
Nathaniel H. Colson: In the quarter, we received 12700, new delinquency notices compared to 12300 last quarter and 11900 in the fourth quarter last year.
While new notices were higher year over year.
There were 7% below the pre pandemic levels seen in the fourth quarter of 2019.
Nathaniel H. Colson: We continue to expect that the level of new delinquency notices may increase due to the large 2020 and 2021 book years being in what are historically higher loss emergence shares.
Nathaniel H. Colson: Okay.
Nathaniel H. Colson: Yes.
Nathaniel H. Colson: During the quarter total revenues were $284 million.
Nathaniel H. Colson: Compared to $292 million in the fourth quarter last year.
Nathaniel H. Colson: Net premiums earned were $226 million in the quarter compared to $244 million last year.
Nathaniel H. Colson: The decrease in net premiums earned was primarily due to an increase in ceded premium in the quarter, resulting from previously announced transactions that included canceling the quarter share agreements covering our 2020 and IW and a tender offer for certain tranches of the home re insurance linked notes.
Nathaniel H. Colson: Combined these transactions resulted in an additional $13 million in ceded premium in the fourth quarter.
Nathaniel H. Colson: The enforced premium yield was 38 six basis points in the quarter flat quarter over quarter consistent with our expectations.
Nathaniel H. Colson: Given our expectations for another year with higher persistency in a smaller market.
Nathaniel H. Colson: We expect the enforced premium yields remained relatively flat in 2024 as well.
Nathaniel H. Colson: Okay.
Nathaniel H. Colson: Book value per share at the end of the fourth quarter was $18 61 up.
Nathaniel H. Colson: Up 17% compared to a year ago.
Nathaniel H. Colson: The increase in book value per share was due to our strong results and accretive share repurchases.
Nathaniel H. Colson: Offset somewhat by our quarterly shareholder dividend.
Nathaniel H. Colson: Okay.
Nathaniel H. Colson: While higher interest rates continue to be a hesitant when for book value per share higher interest rates are a positive for the earnings potential of the investment portfolio and that continues to come through in our results.
Nathaniel H. Colson: The book yield on the investment portfolio ended the quarter at three 7% of.
Nathaniel H. Colson: 20 basis points in the fourth quarter and up 70 basis points from a year ago.
Nathaniel H. Colson: Net investment income was $58 million in the quarter.
Nathaniel H. Colson: Up $3 million sequentially and up $12 million from the fourth quarter last year.
Nathaniel H. Colson: Sure.
Nathaniel H. Colson: During the fourth quarter, our reinvestment rates were above the book yield and assuming a similar interest rate environment. We expect the book yield to continue to increase but at a slower rate as the increase in book yield in the last year has narrowed the difference between our book yield and reinvestment rates.
Operator: and others. Thank you for watching. I hope you enjoyed this video. If you did, please leave a like and subscribe.
Nathaniel H. Colson: Operating expenses in the quarter were $55 million down from $74 million in the fourth quarter last year.
Operator: I'll see you in the next video. Ladies and gentlemen, and thank you for standing by. Welcome to the MGIC Investment Corporation fourth quarter 2023 earnings call. At this time, all lines have been placed on mute to prevent any background noise.
For the full year expenses were $237 million.
Nathaniel H. Colson: Down $12 million from 2022 and towards the lower end of the $235 million to $245 million range, we provided a year ago and reiterated throughout the year.
Operator: At the end of today's presentation, we will have a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised.
Nathaniel H. Colson: For 2024, we expect operating expenses will be lower again to a range of $215 million to $225 million.
Diana Higgins: To withdraw your question, please press star 11 again. I will now turn the conference over to Diana Higgins, Head of Investor Relations. Please go ahead.
Nathaniel H. Colson: <unk> of $20 million from the range, we provided last year.
Nathaniel H. Colson: Our reinsurance program, which includes the use of forward commitment quota share reinsurance agreements in excess of loss reinsurance agreements executed in either the traditional or Ireland market.
Diana Higgins: Good morning. Welcome, everyone. Thank you for joining us today and for your interest in MGIC. Joining me on the call to discuss our results for the fourth quarter are Tim Mackey, Chief Executive Officer, and Nathan Colson, Chief Financial Officer. Our press release, which contains MGIC's fourth-quarter financial results, was issued yesterday and is available on our website at mtg.mgic.com under the newsroom section. It includes additional information about our quarterly results that we will refer to during the call today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures.
Nathaniel H. Colson: As an important component of our risk management and capital management strategies.
Nathaniel H. Colson: These agreements reduced the volatility of losses, and adverse macroeconomic environments and provide diversification and flexibility to our sources of capital.
Nathaniel H. Colson: Our overall strategy is to focus on and prioritize the most recent book your vintages or future <unk> view and to recapture seasoned book your vintages, if the reinsurance no longer offer significant loss protection and stress scenarios.
Nathaniel H. Colson: As Tim mentioned, we were very active across our reinsurance program in the fourth quarter.
Nathaniel H. Colson: As previously announced in the fourth quarter, we completed our seventh Ireland transaction, which provides $330 million of loss protection and covers nearly all of our policies written from June 2022 through August of 2023.
Tim Mackey: In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk and force, and other information you may find valuable. As a reminder, from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website. Before getting started today, I want to remind everybody that during the course of this call, we may make comments about our expectations of the future, but actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results to differ materially from those discussed on the call is contained in our 8K that was also filed yesterday. Furthermore, if we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. No one should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of our 8K. So with that, let's get started. I now have the pleasure to turn the call over to Tim. Thanks, Diana, and good morning, everyone.
Nathaniel H. Colson: Executed a 30% quota share agreement with the panel of the diverse and highly rated reinsurers that will cover most of our policies written in 2024.
Nathaniel H. Colson: We also elected to cancel the quota share treaties covering our 2020 and IW and conducted a tender offer for certain tranches of seasoned Ireland deals.
Nathaniel H. Colson: These actions are all consistent with our strategy to concentrate our reinsurance program and coverage are most recent procures, our future and IW.
Nathaniel H. Colson: Our reinsurance strategy is well established and we have been consistent buyers in both the traditional and Ireland markets.
Nathaniel H. Colson: We have consistently place quota share reinsurance covering our future in <unk> since 2013.
Nathaniel H. Colson: And have had at least one home re Ireland transaction in each of the last six years.
Nathaniel H. Colson: This approach has served us well and we appreciate and value the relationships and trusted partnerships. We have developed over the years and look forward to continuing to build our relationships and the reinsurance markets in 2024 and beyond.
With that let me turn it back over to Tim.
Tim Mackey: I'm happy to report we again delivered a solid quarter, capping another year of excellent finance results while returning meaningful capital to our shareholders. Our performance is a testament to the dedication and hard work of each member of our team. Their ability to adapt to market dynamics has been instrumental in our success. During the year, we continue to benefit from favorable credit trends, prudent risk management strategies, a disciplined approach to the market, and a focus on through-the-cycle performance. We remain committed to delivering long-term value for our shareholders as we begin the new year. Turning to a few highlights, in the fourth quarter, we earned $185 million of net income and produced an annualized 15.2% return on equity. For the full year, we earned $713 million.
Timothy J. Mattke: Thanks, Nathan as we celebrate another successful year I'd like to acknowledge the collective efforts of our talented and passionate team. Each team member played a role in making 2023, a success and express my appreciation and gratitude for their hard work dedication and commitment to excellence.
Timothy J. Mattke: As we begin the new year, we continue to be encouraged by the resiliency of the housing market and optimistic about the opportunities that lie before us.
Timothy J. Mattke: Would foundation talented team financial strength and capital flexibility, we are well positioned to continue to execute on our business strategies to achieve success for all of our stakeholders.
Speaker Change: With that operator, let's take questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Tim Mackey: At the end of the quarter, insurance and force, the main driver of future revenue, stood strong at $294 billion. The overall credit quality of our insurance portfolio remains solid, with an average FICO at origination of $746,000 and an average original LTV of 93%. We wrote $11 billion of NAW in the fourth quarter and $46 billion of NAW for the full year. The level of NAW in the year is primarily a reflection of the smaller MI origination market. Underwriting standards remain strong, and our NAW continues to have strong credit characteristics. However, we continue to experience the headwinds of the small origination market driven by current interest rates and affordability challenges. Supply of homes for sale remains limited due to the lock and effect effect on homeowners with mortgages that have interest rates well below the current market rate.
Speaker Change: Please standby, while we compile the Q&A roster.
Our first question comes from the line of Bose George from K B W.
Bose George: Hey, guys. Good morning, maybe first on the expenses, obviously, that's very good guidance on the reduction.
Just curious like this in 2023, you guys had the pension expense.
Bose George: Apart from that can you just talk about other drivers of the reduction and then this is kind of suggests the expense ratio and that can be like in the 23% range down from kind of the mid twenties.
Bose George: Bose as Nathan Thanks for the question, Yes, I think from an expense ratio standpoint, I think youre kind of in the range that we're thinking for 2024 as well.
Tim Mackey: The same borrowers are also significantly out of the money to refinance, which has led to historically low refinance volumes across the mortgage origination industry, including the M.I. market. Those headwinds are offset by the tailwinds that higher interest rates have on persistency on our insurance and forex business. Annual persistency ended the fourth quarter at 86%, up from 82% a year ago and 66% at the end of 2021. The net result of lower NIW and increased persistency is that our insurance and force has remained relatively flat during the year, consistent with what we expected at the start of the year. Meanwhile, home prices continue to be resilient despite affordability challenges and high interest rates. Although the current supply-demand dynamic creates challenges for first-time homebuyers, this dynamic continues to support home prices and helps mitigate the downside risk of home prices.
In terms of reductions I mean, we did have some unique items in the fourth quarter of <unk> 22 in the first quarter of 'twenty three.
Nathaniel H. Colson: But really the range that we're providing for next year is consistent with the run rate that you've seen over the last couple of quarters really just kind of the full year of that run rate.
Nathaniel H. Colson: We have kind of an app for the third and fourth quarters of this year.
Speaker Change: Okay, great. Thanks, and then actually in terms of share buybacks.
Speaker Change: Supplement you show that there's going to be a sharp increase in the contingency reserve starting in 2025 will that have an impact on capital return or I mean is it. Obviously you guys are returning it at a pretty robust level already so just curious if that changes anything.
Tim Mackey: Many economic forecasts indicate home prices being relatively flat in 2024, which we believe would be a long-term positive for our industry. While there is still some uncertainty, the housing market remains resilient, and the outlook for it and the economy is generally positive. Although the supply of homes available for sale is low, there is pent-up demand, and demographic trends suggest meaningful long-term MI opportunities as the millennial and Gen Z populations increase and continue to demonstrate a strong desire for home ownership.
Speaker Change: Okay.
Speaker Change: Well this is Nathan I don't know that it changes things necessarily but it certainly.
Nathaniel H. Colson: It helps alleviate something that could have been a constraint. If you look at that supplement page, we've been kind of drawing down statutory surplus over time.
Nathaniel H. Colson: This year ever in 2024, we are going to get some 10 year releases on contingency reserves, but really in 'twenty five we start to get those full years with 500 million plus of contingency reserve releases. So.
Tim Mackey: Given the cross currents I just discussed, we expect the MI market to be roughly the same size in 2024 as it was in 2023. Taking a look at the credit performance of our insurance portfolio, our delinquency inventory and rates continue to be at historic lows. To date, we have not seen a material change in the credit performance of our portfolio overall, and early payment defaults remain at very low levels, which we believe is a good indicator of near-term credit performance. As a result of the strength and flexibility of our capital position during the year, we paid $600 million in dividends from MGIC to the holding company, including a previously announced $300 million dividend in the fourth quarter. We also returned approximately $460 million of capital to our shareholders through a combination of repurchasing common stock and paying a quarterly common stock dividend, which was increased by 15% in the third quarter.
That would allow us flexibility to continue to pay dividends without kind of running out of without surplus getting too low because I think that could could have become.
Nathaniel H. Colson: But with contingency reserves now they're kind of approaching release I think thats something that may not be a practical constraint for us.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Terry MA from Barclays.
Mackenzie Aron: Alright. Thanks. Good morning, I think you mentioned you expect the in force premium yield to be flat in 2024. So how should we think about the net yields kind of just track the Q4 levels.
Tim Mackey: As I mentioned in our last call, with our debt-to-capital ratio in our target range and with the ventures being fully retired, we have completed our plan to leverage activities, and we expect our capital return payout to increase from a level in order. That was the case in the fourth quarter as we repurchased 7 million shares of common stock for $123 million and paid a quarterly 11.5 cents per share dividend to our shareholders for a total of $32 million. We continue to expect share repurchases will remain a primary means of returning capital to shareholders.
Mackenzie Aron: Okay.
Speaker Change: Terrace Nathan.
Nathaniel H. Colson: I think it's a lot easier for us to feel confident providing some guidance on the in force yield I think the net yield.
Nathaniel H. Colson: Particularly with the profit commission on our quota share agreements becomes somewhat loss sensitive. So it is harder to provide I think harder for us to provide.
Confident level of what the net yields will be in any one quarter, but I would say we did have some unique items in the fourth quarter about one nine basis point impact due to the Iowa tenders in the quarter share cancellation that quota share cancellation will reduce the amount of ceded premium that we have.
Tim Mackey: In 2024, through January 26, we will purchase an additional 1.8 million shares of common stock for a total of $34 million. Our recent share repurchase activity reflects the capital strength and financial results previously highlighted at share price levels that we believe are attractive to generate long-term value for remaining shareholders. As of January 26th, we had $240 million remaining on our current share repurchase authorization. The board authorized 11.5 cents per common stock dividend to be paid on March 5th.
Nathaniel H. Colson: We would have had in 2024 and beyond.
Nathaniel H. Colson: But I think if you look over time with our our program pretty consistent over time, we've been in that kind of maybe five 5% to six five basis point range in terms of ceded premium and then the accelerated earnings on single premiums which is another.
Tim Mackey: We were very active across our reinsurance program during the fourth quarter, and Nathan will share details on our reinsurance activities. But before turning it over to Nathan, I'd like to share a few more comments. I'm happy to report that in January, S&P upgraded MJC's financial strength and credit ratings to A- and upgraded the credit rating of the holding company to BBB-, and the holding company is now fully investment grade. Yeah, I'll look for the ratings to stay.
Nathaniel H. Colson: <unk> component really hasnt been that way in the last couple of years because rates have been high there hasnt been a lot of refinance or cancellation activity.
Nathaniel H. Colson: I think there are some sources of variability there in the net yield but I think we feel we feel good about the enforce yield I think remaining flat again for 2024 as we said.
Speaker Change: Got it thanks, that's helpful and then.
Speaker Change: Any color you can provide on IW for the quarter was quite a bit lower Q over Q and year over year was there any I guess underwriting changes and pricing actions.
Tim Mackey: S&P's rationale for the upgrades included an improved view of MGIC's capital adequacy, resulting from the implementation of S&P's revised capital adequacy methodology, MGIC's risk management, a disciplined approach to underwriting, resulting in strong portfolio quality, and prudent use of reinsurance. Lastly, as many of you know, Steve Thompson, our Chief Risk Officer, will be embarking I am proud to have Steve serve as my first CRO in my tenure as CEO. Thank you, Steve, for your passion and the dedication and leadership that you demonstrated every day. Nathan will assume the responsibility for overseeing the risk management department in addition to the finance department upon Steve's retirement. With that, I will turn it over to Nathan.
No nothing really there this is Tim.
Timothy J. Mattke: I think it's somewhat representative the size of the market.
Timothy J. Mattke: Where the FERC Shreveport, I think quite a lots of little bit of share, but I don't think much and I think we're really happy with the quality of the book that we wrote but nothing from us as far as the approach to the market or anything like that.
Timothy J. Mattke: Really happy with the quality of the $11 billion that we wrote.
Speaker Change: Okay, great. Thank you.
Speaker Change: Sure.
Speaker Change: Thank you.
One moment for our next question.
Nathaniel H. Colson: Thanks, Tim, and good morning. Before getting into the details on the financial results, I also wanted to thank Tim for the opportunity and thank Steve for his dedication and leadership. Steve was one of the first people I met when I joined MGIC in the risk management department almost 10 years ago, and he has been a friend and mentor to me. We will miss Steve's wisdom and experience, his personality and wit, but mostly, we will miss him because he was a great guy that people wanted to be around.
Speaker Change: Our next question comes from the line of Geoffrey Dunn from Dowling and partners.
Geoffrey Murray Dunn: Thanks, Good morning, guys.
Geoffrey Murray Dunn: Our next question as you look at future underwriter dividends, how do you and the regulator think about minimum surplus levels.
Geoffrey Murray Dunn: I'd say, that's not a conversation we've had directly partly because I don't think we have approached that level yet.
Nathaniel H. Colson: I feel very fortunate for the opportunity to oversee the RISC team that Steve has developed. I'm excited to lead such a talented group. Turning back to the financial results. As Tim mentioned, we had another quarter of solid financial results. We earned a net income of $0.66 per diluted share compared to $0.64 during the fourth quarter last year.
Speaker Change: We've noted.
Geoffrey Murray Dunn: Wisconsin domicile companies that have much less than the $600 million in surplus that MGIC had at the end of the.
Geoffrey Murray Dunn: At the end of 2023, so I think we still have some flexibility to continue to pay dividends.
Geoffrey Murray Dunn: Our capital levels are above our target level as they have been for some time and so.
Nathaniel H. Colson: For the full year, we earned net income of $2.49 per diluted share compared to $2.79 per diluted share last year. The results for the fourth quarter were reflective of continued exceptional credit performance we have been experiencing. This has again led to favorable loss reserve development and resulted in a negative 4% loss ratio this quarter. Our review and re-estimation of ultimate losses on prior delinquencies resulted in $60 million of favorable loss reserve development during the quarter. The favorable development this quarter primarily came from delinquency notices received in the second half of 2021 and in 2022. In the quarter, our delinquency inventory increased by 4% to 25,700 loans, which continues to be low by historical standards. In the quarter, we received 12,700 new delinquency notices compared to 12,300 last quarter and 11,900 in the fourth quarter last year. All new notices were higher year over year.
Geoffrey Murray Dunn: With the contingency reserve releases coming in as well starting in 'twenty four and then in 'twenty five.
Geoffrey Murray Dunn: We may not get to the point, where we're talking about how little surplus we may have to continue to support dividends at the level that we had in 2023.
Geoffrey Murray Dunn: Are you able to give some guidance with respect to your expectations on dividends are inflicting similar to 'twenty three going forward.
Speaker Change: Yes, I mean, I think if you look at.
Speaker Change: What we did in 2022 and 2023 you saw dividend levels that were somewhat in line with the income that we earned as a company.
Speaker Change: So yes, I think if we continue to generate.
Speaker Change: The financial results that we have continue to have the capital position that we have that will continue to support dividends that have been fairly larger over the last couple of years, but for us. The starting point is always making sure that we have sufficient capital above our target levels are at our target levels at the operating company.
Nathaniel H. Colson: They were 7% below the pre-pandemic level seen in the fourth quarter of 2019. We continue to expect that the level of new delinquency notices may increase due to the large 2020 and 2021 book years being in what are historically higher loss emergence years. During the quarter, total revenues were $284 million compared to $292 million in the fourth quarter of last year.
Speaker Change: Once that satisfied then I think we can start the dividend discussion but.
Speaker Change: With credit performance the way that it's been over the last two years supported I think at one point.
Speaker Change: That 1.4.
Speaker Change: $4 billion over the last two years and dividends from the Opco plus another $200 million in the intercompany tax settlement. So there's a lot of cash going to the holding company over the last two years.
Speaker Change: Alright.
Nathaniel H. Colson: Net premiums earned were $226 million in the quarter compared to $244 million last year. The decrease in net premiums earned was primarily due to an increase in seeded premium in the quarter, resulting from previously announced transactions that included canceling the quarterly share agreements covering our 2020 NIW and a tender offer for certain tranches of the Home Re Insurance Link notes. These transactions resulted in an additional $13 million in seeded premium in the fourth quarter. The enforced premium yield was 38.6 basis points in the quarter, flat quarter over quarter, consistent with our expectations. Given our expectations for another year with higher persistency and a smaller MI market, we expect the enforced premium yields to remain relatively flat in 2024 as well. Book value per share at the end of the fourth quarter was $18.61, up 17% compared to a year ago.
Speaker Change: And then my other question is when.
Speaker Change: When you look at the reserve development, we continue to see I think you noted it was second half 'twenty one 'twenty two.
Speaker Change: Can you maybe parse that out a little bit more as the majority of the development. We saw this quarter from 21.
Speaker Change: Because I'm, assuming as you get into 'twenty two.
Speaker Change: The equity benefits on claim rates experienced probably gets a lot cleaner.
Speaker Change: You had any more color there.
Speaker Change: Yes, no happy to I think it's actually more from 2022.
Speaker Change: And I think it's less about the kind.
Speaker Change: Kind of our estimates of say embedded equity on those items and again. These are these are notices received in that period not necessarily loans from that book your vintage.
But really it's the strength of the cure activity that we've seen.
Speaker Change: Our initial ultimate loss expectations have been around seven 5% ultimate claim rate for some time, but actual experience on kind of closer to fully developed by notice quarters from 21 in early 'twenty two.
Nathaniel H. Colson: The increase in book value per share was due to our strong results in accretive share repurchases, offset somewhat by our quarterly shareholder dividend. While higher interest rates continue to be a headwind for book value per share, higher interest rates are a positive for the earnings potential of the investment portfolio, and that continues to come through in our results. The book yield on the investment portfolio ended the quarter at 3.7 percent, up 20 basis points in the fourth quarter and up 70 basis points from a year ago. Net investment income was $58 million in the quarter, up $3 million sequentially and up $12 million from the fourth quarter of last year. During the fourth quarter, our reinvestment rates were above the book yield, and assuming a similar interest rate environment, we expect the book yield to continue to increase, but at a slower rate, as the increase in book yield in the last year has narrowed the difference between our book yield and reinvestment rates. Operating expenses in the quarter were $55 million, down from $74 million in the fourth quarter of last year.
Speaker Change: Much less than that and really it's that cure activity.
Speaker Change: That is driving the reserve development in those periods versus I think our view of home price appreciation or other factors like that.
Speaker Change: Okay. So just to clarify these are loans that have been in portfolio them for.
Speaker Change: 912, plus months not 22 vintage that you.
Speaker Change: Referring to exactly when we say the reserve development came from it's really new notices received in 2022 not from the 2022 vintage I mean, there is relatively few notices that we have from 'twenty to 'twenty three vintages at this point.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Eric Hagen from <unk>.
Nathaniel H. Colson: For the full year, expenses were $237 million, down $12 million from 2022 and toward the lower end of the $235 million to $245 million range we provided a year ago and reiterated throughout the year. For 2024, we expect operating expenses to be lower again to a range of $215 million to $225 million, a reduction of $20 million from the range we provided last year. Our reinsurance program, which includes the use of forward commitment quarter share reinsurance agreements and excess of loss reinsurance agreements executed in either the traditional or ILM market, is an important component of our risk management and capital management strategy. These agreements reduce the volatility of losses in adverse macroeconomic environments and provide diversification and flexibility to our sources of capital.
Eric Hagen: Hey, Thanks, Good morning, I actually wanted to follow up on that last point, you were just making about the cure rate for the portfolio and what you feel like has actually kept that so stable.
Eric Hagen: Our borrowers actually receiving modifications and what's the nature of that modification of the cure and what do you feel like what catalyzed the cure rates maybe changed from here.
Nathaniel H. Colson: Hi, Eric it's Nathan.
Eric Hagen: It's a really good question I think it's a tough one to know with with any specificity just because there is there is a whole host of reasons.
Nathaniel H. Colson: They all I think have been have been pulling in the direction of more favorable credit performance over the last several years.
Nathaniel H. Colson: The kind of forbearance and modification programs that are in the market and it certainly helps.
Nathaniel H. Colson: The employment rates, staying very very high unemployment being very low helps the.
Nathaniel H. Colson: The value of kind of homeownership in the utility of our house.
Nathaniel H. Colson: Kind of work remote or hybrids kind of world I think has gone up.
Nathaniel H. Colson: Our overall strategy is to focus on and prioritize the most recent book year vintages, or future NIW, and to recapture seasonal book year vintages if the reinsurance no longer offers significant loss protection in stress scenarios. As Tim mentioned, we were very active across our reinsurance program in the fourth quarter. As previously announced, in the fourth quarter, we completed our seventh ILN transaction, which provides $330 million of loss protection and covers nearly all of our policies written from June 2022 through August of 2023. Additionally, we executed a 30% quarterly share agreement with a panel of diverse and highly rated re-insurers that will cover most of our policies written in 2024. We also elected to cancel the quarter share treaties covering our 2020 NIW and conducted a tender offer for certain tranches of seasoned ILM deals. These actions are all consistent with our strategy to concentrate our reinsurance program and coverage on our most recent book years or future NIW. Our reinsurance strategy is well-established, and we have been consistent buyers in both the traditional and ILM markets.
Nathaniel H. Colson: And home price appreciation, even in our part of the market, which is more like the FHFA purchase only index than maybe the case Shiller 20 City Index has continued to rise in 'twenty two 'twenty three as well so that I think that combination of factors is really all pulling towards.
Nathaniel H. Colson: Kind of good outcomes for borrowers and ultimately we're going to better than expected credit performance for us.
Speaker Change: Yes, yes, that's definitely helpful.
Speaker Change: On the policy towards stock buybacks and capital return in General I mean, how sensitive would you say it is toward nationwide unemployment rates and other economic conditions or is it really just sensitive to the unemployment rate.
Speaker Change: Conditions in your own portfolio.
Speaker Change: Eric I may need you to clarify.
Speaker Change: Trying to draw a link between our share repurchase appetite and the unemployment rate.
Eric Hagen: Pretty much yeah, and weather, whether you see that being sensitive to nationwide unemployment rates or does it really just need to appear and start appearing in your own portfolio before you maybe change that policy.
Eric Hagen: Yeah, I'd, probably just reiterate.
Nathaniel H. Colson: We have consistently placed quota share reinsurance covering our future NIW since 2013, and I've had at least one HOMRI ILN transaction in each of the last six years. This approach has served us well, and we appreciate and value the relationships and trusted partnerships we have developed over the years and look forward to continuing to build our relationships in the reinsurance markets in 2024 and beyond. With that, I will turn it back over to Doug.
Eric Hagen: Ultimately our ability to return capital to shareholders via dividends and share repurchases is about getting the money to the holding company where those activities happen.
Eric Hagen: Do you have at the end of the year, we had about.
Eric Hagen: $900 million at the holding company. So we have a lot of flexibility even today, but over time, it will be about getting dividends out of the underwriting company.
Eric Hagen: And again Thats about capital levels being above our target levels and our targets are built on a number of things, but one of them is whats our expectation of future performance and do we need that capital to support increased risk either in the loans that we're insuring or increased risk in the market that we're operating in so.
Tim Mackey: Thanks, Nathan. As we celebrate another successful year, I'd like to acknowledge the collective efforts of our talented and passionate team. Each team member played a role in making 2023 a success, and I want to express my appreciation and gratitude for their hard work, dedication, and commitment to excellence.
Operator: As we begin the new year, we continue to be encouraged by the resiliency of the housing market and optimistic about the opportunities that lie ahead of us. With our solid foundation, talented team, financial strength, and capital flexibility, we are well positioned to continue to execute on our business strategies to achieve success for all of our stakeholders. With that, operator, let's take some questions. Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Eric Hagen: We've had periods.
Eric Hagen: Covid, where we didn't pay dividends for.
Eric Hagen: About a year and a half from <unk> to the holding company because it felt like the right thing to do was to retain that capital at MGIC.
Eric Hagen: Of the increased uncertainty in the environment there so as long as we still feel like we have capital above our target levels at MGIC.
Eric Hagen: We'll we'll file on dividends to the Holdco and as Tim said.
Eric Hagen: With our debt to capital at our target range right now the primary purpose of the holding company money above our target levels, there for liquidity and kind of risk purposes as it relates to return.
Bose George: Please stand by while we compile the Q&A roster. Our first question comes from Bose George from KBW. Hey guys, good morning.
Speaker Change: Yeah, that's all really helpful. Thank you guys.
Speaker Change: Thank you.
Nathaniel H. Colson: Actually, first on the expenses, obviously, that's very good guidance on the reduction. You know, just curious, like this in 2023, you guys had the pension expense. Apart from that, can you just talk about other drivers of the reduction? And then does this kind of suggest the expense ratio now can be like in that 23% range, you know, down from kind of the mid 20s? Boses, Nathan, thanks for the question.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Mihir Bhatia from Bank of America.
Mihir Bhatia: Hey, good morning. Thank you for taking my questions. The first question I had was just on the <unk> outlook.
Mihir Bhatia: You mentioned, a similar size and IW market in 2024 23.
Nathaniel H. Colson: Yeah, I think from an expense ratio standpoint, I think you're kind of in the range that we're thinking for 2024 as well in terms of reductions. I mean, we did have some unique items in the fourth quarter of twenty two and in the first quarter of twenty twenty three, but really, the range that we're providing for next year is consistent with the run rate that you've seen over the last couple quarters. Really just kind of the full year of that run rate that we've kind of brought up in the third and fourth quarters of this year. Okay, great. Thanks.
Mihir Bhatia: Is that for MTGE, but in particular.
Speaker Change: Industry booked.
Mihir Bhatia: So I think we're talking mostly about sort of NII originations overall.
Mihir Bhatia: I think I think.
Mihir Bhatia: We would expect that the size of the overall rate for Canadian market totally and then you think about penetration of.
Mihir Bhatia: Of.
Those that are insured and then private mortgage insurance.
Mihir Bhatia: That's probably pretty similar.
Nathaniel H. Colson: And then actually, in terms of share buybacks, in the supplement, you show that there's going to be a sharp increase in the contingency reserve starting in 2025. You know, will that have an impact on capital return? Or, I mean, obviously, you guys are returning it at a pretty robust level already. So just curious if that changes anything.
This coming year in 'twenty four to what it was in 'twenty three.
Mihir Bhatia: So I guess, what im a little curious about that as we look at industry forecast that generally have originations up including purchase originations up a little bit year over year.
Mihir Bhatia: But you also have some refi coming back in.
Mihir Bhatia: I guess I'm curious as to why you think like why would it be in AWP and particularly if we get rate cuts as everyone seems to expect now.
Nathaniel H. Colson: Nathan, you know, I don't know that it changes things necessarily, but, you know, it certainly helps alleviate something that could have been a constraint. You know, if you look at that supplement page, we've been kind of drawing down the statutory surplus over time. This year, we're in twenty-two, and we are going to get some ten-year releases on contingency reserves, but really, in twenty-five, we start to get those full years with five hundred million plus of contingency reserve releases. So, you know, that would allow us the flexibility to continue to pay dividends without, you know, kind of running out of, you know, without the surplus getting too low, because I think that could have But with contingency reserves now kind of approaching release, I think that's something that may not be a practical constraint for us. Okay, great.
Mihir Bhatia: The.
Mihir Bhatia: Will the penetration go down is there something about the market, that's making you feel like penetration going down without if I would be going up given affordability challenges, but you tell me.
Speaker Change: Yes, obviously, when you think about mix and purchase and refi.
Speaker Change: A little bit more refi the back half of the year, we don't expect that's really going to help.
Speaker Change: It's probably going to hurt the penetration rate right there'll be more overall originations, but I think ultimately it hurts the penetration for us.
Speaker Change: I don't think there is a lot of pickup from <unk>.
Speaker Change: Origination of refi the back half of this year, just what would be available to refi and what would ultimately refi.
Speaker Change: Again.
Speaker Change: Wouldn't paint is a has a.
Speaker Change: Negative view of this year I think we just think the 'twenty four is shaping up to look pretty similar to 'twenty three overall.
Terry MA: Thank you. Thank you. One moment for our next question. Our next question comes from Terry Ma from Barclays. Hi, thanks. Good morning.
Speaker Change: Hopefully there's upside to that but.
Speaker Change: But I think overall.
Speaker Change: I think thats sort of our view from our perspective, you know, we're a little bit lower on share on average during the course of 'twenty three that we have been historically, so I think we might pick up a little bit there rich.
Nathaniel H. Colson: I think you mentioned you expect the enforced premium yield to be flat in 2024. How should we think about the net yield to kind of just track the Q4 levels? Terrius, Nathan, you know, I think it's a lot easier for us to feel confident providing some guidance on the in-force field. I think the net yield, particularly with the profit commission on our quarter share agreements, becomes somewhat loss sensitive, so it's harder to provide, I think harder for us to provide a confident level of what the net yield will be in any one quarter. But I would say that we did have some unique items in the fourth quarter, about 1.9 basis points impact due to the ILN tenders and the quarter share cancellation.
Speaker Change: The returns are appropriate.
Speaker Change: But from an overall NII origination standpoint.
Speaker Change: We think it's relatively flat.
Speaker Change: Got it. Thank you and then just switching gears a little bit maybe to the returns point great.
Speaker Change: We had a 15% ROE this quarter are pretty similar.
Speaker Change: Quarter, two and I was wondering is this as good as it gets I mean, you're guiding to losses going up.
Speaker Change: Not losses, but delinquency notices going up which will obviously have an effect on provisions and presumably you don't assume reserve releases in the future that.
Speaker Change: That would suggest ROE would go down prospectively.
Speaker Change: I was curious I just wanted to get your thoughts on that is like the semi business low double digit.
Speaker Change: ROE business from here.
Nathaniel H. Colson: You know, that quarterly share cancellation will reduce the amount of seeded premium that we have, you know, that we would have had in 2024 and beyond, but I think if you look over time with our program, pretty consistent over time, we've been in that kind of, you know, maybe five and a half to six and a half basis point range in terms of seeded premium. And then, you know, the accelerated earnings on single premium There hasn't been a lot of refinance or cancellation activity, so I think there are some sources of variability in the net yield, but I think we feel good about the in-force yield, I think, remaining flat again for 2024, as we said. I got it.
Speaker Change: The kind of your view or do you have any comments.
Speaker Change: Yes, I think it's.
Speaker Change: It's a really valid question right because we benefited from exceptional credit quality, both in terms of low new notices.
Speaker Change: As well as a good amount of reserve releases as Nathan talk in detail about some of those and I think we've been saying for actually a number of years that credit is as good as it can get to a large extent right and so if you think about normalized through the cycle and how we price the business and think about it we.
Speaker Change: Assuming that losses are higher than what we've been experiencing and that is going to continue to be our view on it.
Speaker Change: So I think theres been tremendous amount of tailwind from a credit standpoint.
Tim Mackey: Thanks. That's helpful. And then any color you can provide on NIW for the quarter was quite a bit lower, Q over Q and year over year. Was there any, I guess, underwriting changes or pricing action? No, nothing really there. This is Tim.
Speaker Change: We've continued to be wrong as far as that credit could get a little bit worse than when we say get a little bit worse, we still view it as likely better than what people would think sort of historical averages are.
Speaker Change: So still feel really good about the credit box, but again I think we just we want to be cautious about how good it spend from a credit standpoint versus what we would view is still a really good credit quality market that would show some losses right. It's not it's not usual to have negative incurred loss is quite frankly.
Tim Mackey: You know, I think it's somewhat representative of the size of the market. You know, we're the first report. I think I lost a little bit of share, but I don't think much. And I think we're really happy with the quality of the book that we wrote.
Tim Mackey: But nothing from us as far as approach to the market, anything like that. I'm really happy with the quality of the 11 billion that we wrote. Okay, great. Thank you.
Speaker Change: With that I think again, we talked a little bit at the beginning as far as originations.
Speaker Change: We think from a premium standpoint, we said relatively flat as far as the average premium this year.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Geoffrey Dunn from Dowling and Partners. Thanks. Good morning, guys.
Speaker Change: So I think there is a little challenged from an ROE. This next year. If you don't have the same level of reserve releases, which is quite frankly difficult. When you have less raw material the loss reserves, but we think that's still really good return business high quality exceptional.
Speaker Change: <unk>.
Geoffrey Murray Dunn: First question: as you look at future underwriter dividends, how do you and the regulator think about minimum surplus levels? You know, I'd say that's not a conversation we've had directly, partly because I don't think we've approached that level yet. You know, I think we've noted other Wisconsin domicile companies that have, you know, much less than the six hundred million dollars surplus that MGIC had at the end of twenty twenty three. So, I think we still have some flexibility to continue to pay dividends if our capital levels are above our target level, as they have been for some time. So, you know, with the contingency reserve releases coming in as well, starting in twenty four and then in twenty five, we may not get to the point where we're talking about, you know, how little surplus we may have to continue to support dividends at the level that we had in twenty twenty three. Are you able to give some guidance with respect to your expectations for dividends? I mean, something similar to 23 going forward.
Speaker Change: Appropriate returns for the risk that were ultimately taking.
Speaker Change: Right No Thats fair.
Speaker Change: Thank you for taking my question.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Geoffrey Dunn from Dowling and partners.
Geoffrey Murray Dunn: Thanks, Good morning, sorry, just a quick follow up.
Geoffrey Murray Dunn: Can you just review the specifics of your targeted minimum holding company liquidity.
Nathaniel H. Colson: Jeff It's Nathan.
Geoffrey Murray Dunn: We've talked about is holding back a couple of years for the dividend to protect that for periods, where we're not able to pay or don't want to pay dividends from MGIC to the holding company.
Jeff: And then also a few years for interest on outstanding debt and as that comes closer to being do some amount of principal there but.
Jeff: With the debt not coming due now for about I think it's four or five years August 28.
Jeff: Not really something that we're thinking much about right now.
Nathaniel H. Colson: I mean, I think if you look at what we did in 2022 and 2023, you saw dividend levels that were somewhat in line with the income that we earned as a company. So I think if we continue to generate the financial results that we have, continue to have the capital position that we have, that will continue to support dividends that have been fairly large over the last couple of years. But for us, the starting point is always making sure that we have sufficient capital above our target levels or at our target levels in the operating company.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: At this time there are no further questions I will now turn the call back over to management for closing remarks.
Speaker Change: Thank you TJ I wanted to thank everyone for your interest in MGIC and remind you that we'll be participating in the Bofa and UBS financial services conferences later this month.
Speaker Change: A great rest of your week everyone. Thanks.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Nathaniel H. Colson: You know, once that's satisfied, then I think we can start the dividend discussion. But with credit performance the way that it has been over the last two years, it's supported, I think, at one point, that $1.4 billion in dividends from OPCO over the last two years, plus another $200 million in an intercompany tax settlement. So there's been a lot of cash going to the holding company over the last two years. Okay, and then my other question is, when you look at the reserve development, we continue to see, I think you noted it was second half 21-22. Can you maybe parse that out a little bit more?
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Nathaniel H. Colson: Is the majority of the development we saw this quarter from 21? Because I'm assuming as you get into 22, the equity benefits on claim rates experience probably get a lot thinner. Do you have any more color there?
Nathaniel H. Colson: Yeah, no, happy to do it. I think it's actually more from 2022. And I think it's less about the, You know, kind of our estimates of, say, embedded equity on those items. And again, these are notices received in that period, not necessarily loans, you know, from that book your vintage. But really, it's the strength of the cure activity that we've seen, you know, our, our initial ultimate loss expectations have been around seven and a half percent ultimate claim rate for some time, but actual experience on, you know, kind of closer to fully developed notice quarters from twenty one and early twenty two is just much less than that.
Nathaniel H. Colson: And really, it's that cure activity that is driving the reserve development in those periods versus, you know, I think a view of home price appreciation or other factors like that. Okay, all right. So just to clarify, these are loans that have been in portfolio then for, you know, nine, 12 plus months, not the 22 vintage that you're, Exactly. When we say that the reserve development came from, it's really new notices received in 2022, not from the 2022 vintage. I mean, there are relatively few notices that we have from 22 or 23 vintages at this point.
Nathaniel H. Colson: Thank you. One moment for our next question. Our next question comes from the line of Eric Hagen from BTIG. Hey, thanks. Good morning.
Eric Hagen: I actually wanted to follow up on that last point you were just making about the cure rate for the portfolio and what you feel has actually kept that so stable. You know, are borrowers actually receiving modifications, and what's the nature of that modification or the cure, and what do you feel would catalyze the cure rate to maybe change from here? Eric, it's Nathan.
Nathaniel H. Colson: I mean, that's a, it's a really good question. I think it's a tough one to know with any specificity, just because, you know, there's a whole host of reasons. They all, I think, have been pulling in the direction of more favorable credit performance over the last several years. You know, the kind of forbearance and modification programs that are in the market certainly help. The employment rate staying very, very high, you know, unemployment being very low helps the value of kind of home ownership and the utility of a house in a kind of a work-remote or, or hybrid kind of world. I think it has gone up, and home price appreciation, you know, even in our part of the market, which is more like the FHFA purchase-only index than maybe the Case-Shiller 20-City index, has Twenty three as well.
Eric Hagen: So that, I think that combination of factors is really all pulling towards, you know, kind of good outcomes for borrowers, and ultimately, we're going to get better than expected credit performance for us. Yeah, yeah, that's definitely helpful. Hey, on the policy toward stock buybacks and capital return in general, I mean, how sensitive would you say it is toward, you know, nationwide unemployment rates and other economic conditions? Or is it really just sensitive to the unemployment rate or, you know, conditions in your own portfolio? Eric, I may need you to clarify. Were you trying to draw a link between our share repurchase appetite and the unemployment rate? Pretty much, yeah.
Nathaniel H. Colson: And whether you see that being sensitive to, you know, nationwide unemployment rates, or does it really just need to appear and start appearing in your own portfolio before you maybe change that policy? Yeah, I probably just reiterate that, ultimately, our ability to return capital to shareholders via dividends and share repurchases is about getting the money to the holding company where those activities happen. We already have, at the end of the year, we had about $900 million in the holding company.
Nathaniel H. Colson: So we have a lot of flexibility even today, but over time, it will be about getting dividends out of the underwriting company. And again, that's about capital levels being above our target levels. And our targets are built on a number of things.
Nathaniel H. Colson: But one of them is, what's our expectation of future performance? And do we need that capital to support increased risk, either in the loans that we're insuring or increased risk in the market that we're operating in? So we've had periods post-COVID where we didn't pay dividends for about a year and a half from MGIC to the holding company because it felt like the right thing to do was to retain that capital at MGIC because of... the increased uncertainty in the environment there. So, you know, as long as we still feel like we have capital above our target levels at MGIC, that will fund dividends to the holding company. And as Tim said, with our debt to capital at our target range right now, the primary purpose of the holding company money above our target levels there for liquidity and kind of risk purposes is really to return. Yep, that's all really helpful, thank you guys.
Mihir Bhatia: Thank you. One moment for our next question. Our next question comes from the line of Mihir Bhatia from Bank of America. Hey, good morning.
Nathaniel H. Colson: Thank you for taking my questions. The first question I had was just on the NIW outlook. I think you mentioned a similar-sized NIW market in 2024 and 2023. And like, is that for MTG in particular, or was that industry, or both?
Nathaniel H. Colson: So I think we're talking mostly about sort of MI originations overall. You know, I think, you know, we'd expect that, you know, the size of the overall origination market totally and then you think about penetration of, you know, those that are insured, and then private mortgage insurance, that that's probably pretty similar this coming year in 24 to what it was in 23. So, I guess I am a little curious about that, like, you know, we look at industry forecasts, they generally have originations up, including purchase originations up a little bit year over year, but, you know, you also have some refi coming back, and, like, I guess I'm curious as to why you think, like, why wouldn't the NIW, and particularly if you get rate cuts, as everyone seems to expect Because I would have thought it'd be going up given the affordability challenges. But, UW.
Tim Mackey: Yeah, obviously, you know, when you think about mix and purchase and refi, you know, if we get a little bit more refi in the back half of the year, we don't expect that's really going to help. It's probably going to hurt the penetration, right, right, there'll be more overall origination. But I think ultimately, it hurts the penetration for us.
Tim Mackey: So I don't think there's a lot of pickup from MI origination of refi in the back half of this year of just what would be available to refi and what would ultimately refi. Again, I wouldn't paint it as a negative view of this year. I think we just think 24 is shaping up to look pretty similar to 23 overall.
Tim Mackey: Hopefully, there's upside to that. But I think overall, you know, that's sort of our view from our perspective. We were a little bit lower on share on average during the course of 23 than we have been historically. So I think we might pick up a little bit there if the returns are appropriate. But from an overall MI origination standpoint, you know, we think it's relatively flat.
Mihir Bhatia: Got it. Thank you. And then, just switching gears a little bit, maybe to the returns point, right? You had a 15% ROE this quarter, pretty similar, you know, last quarter too. And I was wondering, is this as good as it gets?
Tim Mackey: I mean, you're guiding to losses going up, sorry, not losses, but delinquency notices going up, which will obviously have an effect on provisions. And presumably, you don't assume reserve releases in the future. That would suggest ROE would go down, And I was curious; I wanted to get your thoughts on that. Is the MI business a low double-digit ROE business? from here. Is that like a kind of your view, or do you have any comments?
Tim Mackey: Yeah, I think it's a really valid question, right? Because we've benefited from exceptional credit quality, both in terms of low new notices, as well as a good amount of reserve releases, as Nathan talked in detail about some of those. And I think we've been saying for a number of years that credit is as good as it can get, to a large extent, right? And so if you think about normalized losses through the cycle and how we price the business and think about it, we priced it assuming that losses are higher than what we've been experiencing.
Tim Mackey: And that's going to continue to be our view on it. So I think that there's been a tremendous amount of tailwinds from a credit standpoint. We've continued to be wrong, as far as that credit could get a little bit worse. And we say it could get a little bit worse, we still view it as likely better than what people think sort of historical averages are.
Tim Mackey: So still feel really good about the credit box. But again, I think we just want to be cautious about how good it's been from a credit standpoint versus what we would view as still a really good credit quality market, which would show you know, some losses in it, right? It's not it's not usual to have negative incurred losses, quite frankly. With that, you know, I think, again, we talked a little bit at the beginning, as far as originations are concerned, we think from a premium standpoint, we said relatively flat as far as the average premium this year. So I think there is little challenge from an ROE this next year if you don't have the same level of reserve releases, which is, quite frankly, difficult when you have less raw material and loss reserves.
Mihir Bhatia: But we think that's still really good return business, high quality, exceptional, and I think appropriate returns for the risk that we're ultimately taking. Right. No, that's fair.
Nathaniel H. Colson: Okay. Thank you for taking my question. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Geoffrey Dunn from Dowling and Partners. Thanks. Good morning. Sorry, just a quick follow up. Can you just review the specifics of your targeted minimum holding company liquidity? Geoff, it's Nathan.
Nathaniel H. Colson: I mean, what we've talked about is, you know, holding back a couple of years for the dividend to protect that for, you know, periods where we're not able to pay or don't want to pay dividends from MGI Seed to the holding company. And then also, you know, a few years for interest on outstanding debt. And as that debt comes closer to being due, you know, some amount of principle there. But, you know, with the debt not coming due now for, you know, about, I think it's four and a half years, August of 28, that's not really something that we're thinking much about right now.
Operator: Thank you. Thank you. At this time, there are no further questions. I will now turn the call back over to management for closing remarks. Thank you, Gigi. I want to thank everyone for your interest in MGIC and remind you that we'll be participating in the BofA and UBS Financial Services Conferences later this month. Have a great rest of your week, everyone. Thanks. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Thanks for watching!