Q1 2024 NMI Holdings Inc Earnings Call
Operator: Good day, and welcome to the NMI Holdings first quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need any assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. John Swenson. Please go ahead.
Good day and welcome to the Amy on My Holdings first quarter two entry for earnings Conference call.
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I would now like to turn the conference hasn't changed John Swenson. Please go ahead.
John M. Swenson: Thank you. Good afternoon, and welcome to the 2024 first quarter conference call for National MI. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Shuster, Executive Chairman; Adam Pollitzer, President and Chief Executive Officer; and Ravi Mallela, Chief Financial Officer.
John M. Swenson: Thank you good afternoon, and welcome to the 2024 first quarter conference call for National demand.
John M. Swenson: I'm, John Swenson, Vice President of Investor Relations and Treasury.
John M. Swenson: Joining us on the call today are Brad Shuster executive Chairman.
John M. Swenson: Paul It's our President and Chief Executive Officer, Robert <unk>, Chief Financial Officer.
John M. Swenson: Andrew Greenberg, our Senior Vice President of Finance, and Nick Rionito, our Controller, Financial results for the quarter were released after the close today. The press release may be accessed on NMI's website, located at nationalmine.com under the Investors' Services tab. During the course of this call, we may make comments on their expectations for the future. However, actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our regulatory filings with the, if and to the extent that the company makes forward-looking statements.
John M. Swenson: Andrea Greenberg, our senior Vice President of Finance and Nick <unk> our controller.
John M. Swenson: Financial results for the quarter were released after the close today.
John M. Swenson: The press release May be accessed Anatomize web site located at National <unk> Dot com under the investors tab.
John M. Swenson: During the course of this call we may make comments about our expectations for the future.
John M. Swenson: Actual results could differ materially from those contained in these forward looking statements.
Additional information about the factors that could cause actual results or trends could differ materially from those discussed on the call can be found on our website.
John M. Swenson: Or through our regulatory filings with the SEC.
John M. Swenson: If and to the extent the company makes forward looking statements.
John M. Swenson: We do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no one should rely on the fact that the guidance in such statements is current at any time other than the time of this call. Also note that on this call, we may refer to certain non-GAAP measures. In today's press release and on our website, we've provided a reconciliation of these measures to the most comparable measures under GAAP. Now, I'll turn the call over to Brett.
John M. Swenson: Undertake any obligation to update those statements in the future in light of subsequent developments.
John M. Swenson: Further no one should rely on the fact that the guidance of such.
John M. Swenson: Statements is current.
John M. Swenson: Anytime I'll just at the time of this call.
John M. Swenson: Also note that on this call we may refer to certain non-GAAP measures in today's press release and on our website.
John M. Swenson: We've provided a reconciliation of these measures to the most comparable measures under GAAP.
John M. Swenson: Now I will turn the call over to Brad.
Bradley Mize Shuster: Thank you, John, and good afternoon, everyone. As we talk today, I'm greatly encouraged, both by the continued resilience that we see in the broader macro environment and housing market and by the significant and consistent success we're achieving across our business. In the first quarter, National MI again delivered standout operating performance, with continued growth in our insured portfolio and record financial results. Our lenders and their borrowers continue to turn to us for critical down payment support, and in the first quarter, we generated $9.4 billion in NIW volume.
Bradley Mize Shuster: Thank you John and good afternoon, everyone.
As we talk today I'm greatly encouraged.
Bradley Mize Shuster: Both by the continued resilience that we see in the broader macro environment and housing market.
Bradley Mize Shuster: And by the significant and consistent success, we're achieving across our business.
Bradley Mize Shuster: In the first quarter National MRI again delivered standout operating performance.
Bradley Mize Shuster: Growth in our insured portfolio and record financial results.
Bradley Mize Shuster: Our lenders and their borrowers continued to turn to us for critical Downpayments support and.
Bradley Mize Shuster: In the first quarter, we generated $9 4 billion of Niwa volume.
Bradley Mize Shuster: Ending the period with a record $199.4 billion of high-quality, high-performing primary insurance enforced. In Washington, our conversations remain active and constructive. Policymakers, regulators, the FHFA, and the GSEs remain keenly focused on promoting broader access and affordability to the housing market for all borrowers. And we believe there is broad recognition of the unique and valuable role that the private mortgage insurance industry plays in this regard. At National MI, we recognize the need to provide borrowers with a fair and equitable opportunity to access the housing market.
Bradley Mize Shuster: Ending the period with a record.
Bradley Mize Shuster: <unk> hundred $99 4 billion of high quality high performing primary insurance in force.
Bradley Mize Shuster: In Washington, our conversations remain active and constructive.
Bradley Mize Shuster: Policymakers regulators, the FHFA and the Gse's remain keenly focused on promoting broader access and affordability to the housing market for all borrowers.
And we believe there is broad recognition of the unique and valuable role that the private mortgage insurance industry plays in this regard.
Bradley Mize Shuster: Yeah.
Bradley Mize Shuster: At National MRI, we recognize the need to provide borrowers with a fair and equitable opportunity.
Bradley Mize Shuster: To access the housing market.
Bradley Mize Shuster: Establish a community identity and build long-term wealth through homeownership. We are actively engaged and committed to equally supporting borrowers from all communities, and are proud to have helped nearly 1.8 million borrowers to date realize their home ownership goals. Overall, we had a terrific first quarter and are well positioned to continue to lead with impact and drive value for our people, our customers, the borrowers, and our shareholders going forward. With that, I will turn it over to Adam. Thank you.
Established a community identity.
Bradley Mize Shuster: And build long term wealth through homeownership.
Bradley Mize Shuster: We are actively engaged and committed to equally supporting borrowers from all communities.
Bradley Mize Shuster: And are proud to have helped nearly 1.8 million borrowers to date realized their homeownership goals.
Bradley Mize Shuster: Overall, we had a terrific first quarter and are well positioned to continue to lead with impact and drive value for our people.
Bradley Mize Shuster: Our customers and their borrowers.
Bradley Mize Shuster: Our shareholders going forward with that let me turn it over to Adam.
Adam S. Pollitzer: Thank you, Brad, and good afternoon, everyone. National MI continued to outperform in the first quarter, delivering significant new business production, consistent growth in our insured portfolio, and record financial results. We generated $9.4 billion of NIW volume and ended the period with a record $199.4 billion of high-quality, high-performing primary insurance in force. Total revenue in the first quarter was a record $156.3 million, and we delivered record gap net income of $89 million.
Adam: Thank you Brad and good afternoon, everyone.
Adam: National <unk> continued to outperform in the first quarter delivering significant new business production consistent growth in our insured portfolio and record financial results.
Adam: We generated $9 4 billion of Ni W volume and ended the period with a record $199 4 billion of high quality high performing primary insurance in force.
Adam: Total revenue in the first quarter was a record $156 3 million and we delivered record GAAP net income of $89 million.
Adam S. Pollitzer: EPS was a record $1.08 per diluted share, up 8% compared to the fourth quarter and 24% compared to the first quarter of 2023, and we generated an 18.2% return on equity. Overall, we had an exceptionally strong quarter and are confident as we look ahead. The macro environment and housing market, in particular, have remained resilient in the face of elevated interest rates.
Adam: EPS was a record $1 eight per diluted share up 8% compared to the fourth quarter and 24% compared to the first quarter of 2023.
Adam: And we generated an 18, 2% return on equity.
Adam: Overall, we had an exceptionally strong quarter and are confident as we look ahead.
Adam: The macro environment and housing market in particular have remained resilient in the face of elevated interest rates.
Adam S. Pollitzer: Our lender customers and their borrowers continue to rely on us for critical down payment support, and we see an attractive and sustained new business opportunity fueled by long-term secular trends. We have an exceptionally high-quality insured portfolio, and our credit performance continues to stand out. Our persistency remains well above historical trend and, when paired with our current NIW volume, has helped to drive consistent growth and embedded value gains in our insured book.
Adam: Our lender customers and their borrowers continue to rely on us in size for critical Downpayments support and we see an attractive and sustained new business opportunity fueled by long term secular trends.
Adam: We have an exceptionally high quality and short portfolio and our credit performance continues to stand ahead.
Adam: Our persistency remains well above historical trend and when paired with our current and IW volume has helped to drive consistent growth and embedded value gains in our insured book.
Adam S. Pollitzer: And we continue to manage our expenses and capital position with discipline and efficiency, building a robust balance sheet that is supported by the significant earnings power of our platform. Notwithstanding these strong positives, however, macro risks do remain, and we've maintained a proactive stance with respect to our pricing, risk selection, and reinsurance decisioning. It's an approach that has served us well and continues to be the prudent and appropriate course.
Adam: And we continue to manage our expenses and capital position with discipline and efficiency.
Adam: Building a robust balance sheet that is supported by the significant earnings power of our platform.
Adam: Notwithstanding these strong positives however, macro risks do remain and we've maintained.
Adam: And a proactive stance with respect to our pricing risk selection and reinsurance decisioning.
Adam: An approach that has served us well and continues to be the prudent and appropriate course.
Adam S. Pollitzer: More broadly, we've been encouraged by the continued discipline that we've seen across the private MI market. Underwriting standards remain rigorous, and the pricing environment remains balanced and constructive. Overall, we had a terrific quarter, delivering strong operating performance, continued growth in our insured portfolio, and record financial results. We've started the year with significant momentum, and looking ahead, we are well positioned to continue to serve our customers and their borrowers, invest in our employees and their success, drive growth in our high-quality insured portfolio, and deliver through the cycle growth, returns, and value for our shareholders. With that, I'll turn it over to Ravi.
Adam: More broadly we've been encouraged by the continued discipline that we've seen across the private market.
Adam: Underwriting standards remain rigorous and the pricing environment remains balanced and constructive.
Adam: Overall, we had a terrific quarter delivering strong operating performance.
Adam: <unk> growth in our insured portfolio and record financial results.
Adam: We started the year with significant momentum and looking ahead, we are well positioned to continue to serve our customers and their borrowers invest in our employees and their success.
Adam: Drive growth in our high quality insured portfolio and deliver through the cycle growth returns and value for our shareholders with that I'll turn it over to Ravi.
Ravi Mallela: Thank you, Adam. We delivered record financial results in the first quarter with significant new business production and consistent growth in our high quality insured portfolio. Record top-line performance, favorable credit experience, continued expense efficiency, and Record Net Income and Earnings Per Share. Total revenue in the first quarter was a record $156.3 million. Gap net income was a record $89 million, EPS was a record $1.08 per diluted share, and our return on equity was 18.2%. We've generated $9.4 billion in NIW.
Ravi: Thank you Adam we delivered record financial results in the first quarter with significant new business production consistent growth in our high quality insured portfolio.
Ravi: Record top line performance favorable credit experience continued expense efficiency and record net income and earnings per share.
Ravi: Total revenue in the first quarter was a record $156 3 million.
Ravi: GAAP net income was a record $89 million.
Ravi: EPS was a record $1 eight per diluted share and our return on equity was 18, 2%.
Ravi: We generated $9 4 billion of Ni and.
Ravi Mallela: And our primary insurance in force grew to $199.4 billion, up 1.2% from the end of the fourth quarter and 6.8% compared to the first quarter of 2020. Twelve-month persistency was 85.8% in the first quarter, compared to 86.1% in the fourth quarter. Persistency remains well above historical trend and continues to serve as an important driver of the growth and embedded value of our insured portfolio. Net premiums earned in the first quarter were a record $136.7 million compared to $132.9 million in the fourth quarter.
Ravi: And our primary insurance in force grew to $199 4 billion.
Ravi: Up one 2% from the end of the fourth quarter and six 8% compared to the first quarter of 2023.
Ravi: 12 month Persistency was 85, 8% in the first quarter compared to 86, 1% in the fourth quarter.
Ravi: Persistency remains well above historical trend and continues to serve as an important driver of the growth in embedded value of our insured portfolio.
Ravi: Net premiums earned in the first quarter were a record $136 7 million compared to $132 9 million in the fourth quarter.
Ravi Mallela: We earned $586,000 from the cancellation of single premium policies in the first quarter, compared to 983,000 in the fourth. Net yield for the quarter was 27.6 basis points, up from 27.1 basis points in the fourth quarter. Core Yield, which excludes the cost of our reinsurance coverage and the contributions from cancellation earnings, was $34.1B, up from 33.8 basis points in the fourth quarter.
Ravi: We earned 586000 from the cancellation of single premium policies in the first quarter compared to 983000 in the fourth quarter.
Ravi: Net yield for the quarter was 27 six basis points up from 27, one basis points in the fourth quarter.
Ravi: Core yields which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings was $34 one basis points up from 33 eight basis points in the fourth quarter.
Ravi Mallela: Investment income was $19.4 million in the first quarter, compared to $18.2 million in the fourth quarter. We saw continued growth in investment income during the quarter as we deployed new cash flows and reinvested rolling maturities at favorable new money rates. Total revenue was a record $156.3 million in the first quarter, up 3.2% compared to the fourth quarter and 14.2% compared to the first quarter of 2023. Underwriting and operating expenses were $29.8 million in the first quarter, compared to $29.7 million in the fourth quarter.
Ravi: Investment income was $19 4 million in the first quarter compared to $18 2 million in the fourth quarter.
Ravi: We saw continued growth in investment income during the quarter as we deployed new cash flows and reinvested rolling maturities at favorable new money rates.
Ravi: Total revenue was a record $156 3 million in the first quarter.
Ravi: Up three 2% compared to the fourth quarter, and 14, 2% compared to the first quarter of 2023.
Ravi: Underwriting and operating expenses were $29 8 million in the first quarter compared to $29 7 million in the fourth quarter.
Ravi Mallela: Our expense ratio is 21.8% compared to 22.4% in the fourth quarter. We had 5,109 defaults at March 31st compared to 5,099 at December 31st, and our default rate declined to 80 basis points at quarter end. Claims expense in the first quarter was $3.7 million, compared to $8.2 million in the fourth quarter. We have a uniquely high-quality insured portfolio, and our claims experience continues to benefit from the discipline with which we've shaped our book and the strong position of our existing borrowers, as well as the broad resiliency we've seen in the housing market. Interest expense for the quarter was $8 million.
Ravi: Our expense ratio was 21, 8% compared to 22, 4% in the fourth quarter.
Ravi: We had 5109 defaults at March 31.
Ravi: <unk> 5099 at December 31, and our default rate declined to 80 basis points at quarter end.
Ravi: Claims expense in the first quarter was $3 7 million compared to $8 2 million in the fourth quarter.
Ravi: We have a uniquely high quality insured portfolio and our claims experience continues to benefit from the discipline with which we have shaped our book and the strong position of our existing borrowers as well as the broad resiliency, we've seen in the housing market.
Ravi: Interest expense in the quarter was $8 million.
Ravi Mallela: Net income was a record $89 million, up 6.8% compared to the fourth quarter and 19.6% compared to the first quarter of 2020. Diluted EPS was a record $1.08 per share, up 7.5% compared to the fourth quarter and 23.5% compared to the first quarter of 2023. Total cash and investments was $2.5 billion at quarter end, including $92 million of cash and investments at the holding company. Shareholders' equity as of March 31st was $2 billion, and book value per share was $24.56. The book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio, was $26.42.
Ravi: Net income was a record $89 million up six 8% compared to the fourth quarter and 19, 6% compared to the first quarter of 2023.
Ravi: Diluted EPS was a record $1 <unk> per share up.
Ravi: Up seven 5% compared to the fourth quarter, and 23, 5% compared to the first quarter of 2023.
Ravi: Total cash and investments were $2 5 billion at quarter end, including $92 million of cash and investments at the holding company.
Ravi: Shareholders' equity as of March 31 was $2 billion.
Ravi: And book value per share was $24 56.
Ravi: Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio was $26 and 42.
Ravi Mallela: Up 3.4% compared to the fourth quarter and 17.1% compared to the first quarter of last year. In the first quarter, we repurchased $25.2 million of common stock, retiring 840,000 shares at an average price of $29.98. As of March 31st, we had 152 million of repurchase capacity remaining under our existing program. At Quarter End, we reported total available assets under PMIRS of $2.8 billion and risk-based required assets of $1.6 billion. The excess available assets were $1.3 billion.
Ravi: Up three 4% compared to the fourth quarter, and 17, 1% compared to the first quarter of last year.
Ravi: In the first quarter, we repurchased $25 $2 million of common stock retiring 840000 shares at an average price of $29 and 98.
Ravi: As of March 31, we had $152 million of repurchase capacity remaining under our existing program.
Ravi: At quarter end, we reported total available assets under <unk> of $2 8 billion and risk based required assets of $1 6 billion.
Ravi: Excess available assets were $1 3 billion.
Adam S. Pollitzer: Overall, we delivered standout financial results during the quarter, with consistent growth in our high-quality insured portfolio and record top-line performance, favorable credit experience, and continued expense efficiency, driving record bottom-line profitability and strong. With that, let me turn it back to Adam. Thank you, Ravi. We had a terrific quarter, once again delivering significant new business production, continued growth in our insured portfolio, and record financial performance. Looking forward, we're encouraged by the continued resiliency that we see in the macro environment and housing market, and we are well positioned to continue delivering differentiated growth, returns, and value for our shareholders.
Ravi: Overall, we delivered standout financial results during the quarter with consistent growth in our high quality insured portfolio and record top line performance favorable credit experience and continued expense efficiencies driving record bottom line profitability and strong returns.
Ravi: With that let me turn it back to Adam.
Adam: Thank you Ravi.
Adam: We had a terrific quarter once again delivering significant new business production continued growth in our insured portfolio and record financial performance.
Adam: Looking forward, we're encouraged by the continued resiliency that we see in the macro environment and housing market and we are well positioned to continue delivering differentiated growth returns and value for our shareholders.
Adam S. Pollitzer: We are leading the market with discipline and distinction. Sustainable secular trends are fueling the long-term private MI industry opportunity. And we are well-positioned with a strong customer franchise, a talented team that's driving us forward every day, an exceptionally high-quality book covered by a comprehensive set of risk transfer solutions, a robust balance sheet, and the significant earnings power of our platform. Taken together, we're confident as we look forward.
Adam: We are leading the market with discipline and distinction sustainable secular trends are fueling the long term private industry opportunity.
Adam: And we are well positioned with a strong customer franchise, a talented team that's driving us forward everyday and.
Adam: And exceptionally high quality book covered by a comprehensive set of risk transfer solutions.
Adam: Robust balance sheet and the significant earnings power of our platform.
Adam: Together, we're confident as we look forward.
Adam S. Pollitzer: Before closing, I also want to take a moment to acknowledge Ravi and thank him for the important contributions he's made to National MI's success over the past two and a half years. He has brought a valuable strategic perspective to our management team, and he's been an important business partner for me. Under his leadership as CFO, we've delivered standout operating performance and record financial results quarter after quarter. We've continued to lead with innovation in the risk transfer market, have successfully introduced our share repurchase program, and have made the right investments to position National MI for continued long-term success.
Speaker Change: Before closing I also want to take a moment to acknowledge Ravi and thank him for the important contributions he's made to national <unk> success over the past two and a half years Ravi.
Ravi: <unk> has brought a valuable strategic perspective to our management team and he has been an important business partner for me.
Ravi: Under his leadership as CFO, we've delivered standout operating performance and record financial results quarter after quarter.
Ravi: We've continued to lead with innovation and the risk transfer markets has successfully introduced our share repurchase program and have made the right investments to position National EMI for continued long term success. So thank you Robby.
Adam S. Pollitzer: So thank you, Ravi. Our new CFO, Aurora Swithinbank, will be joining us in May, and we're excited to welcome her at a time when we have such significant momentum across our business. With that, I'll ask the operator to come back on so we can take your questions.
Speaker Change: Our new CFO Aurora Swift <unk> bank will be joining us in may and we're excited to welcome her at a time when we have such significant momentum across our business with that I'll ask the operator to come back on so we can take your questions.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star, then 2. Your first question comes from Bose George on KBW. Please go ahead.
Speaker Change: Thank you we will now begin the question and answer Jason.
Ravi: To ask a question you bunker stocks and one on your telephone keypad.
Ravi: If you're using a speakerphone please pick up your handset before pressing the case.
Ravi: If at any time your question has been addressed and you'd like to withdraw. Your question. Please press Star then two.
Ravi: Your first question comes from Bose George with <unk>. Please go ahead.
Unknown Attendee: Hey, good afternoon, everyone. This is actually Alex on for Bose.
Ravi: Hey, good afternoon, everyone. This is actually Alex on for Bose to start out it looks like you're at 95% plus LTV bucket increased our amount of Europe on a year over year basis to 11% of total on IW from 4% in last year's first quarter and it looks like that bucket has been in the low double digits over the last couple of quarters as well.
Unknown Attendee: To start out, it looks like your 95% plus LTV bucket increased on a year-over-year basis to 11% of total NIW from 4% in last year's first quarter. And it looks like that bucket has been in the low double digits over the last couple of quarters as well. Could you talk through some of the drivers of that increase? Is that just a reflection of some of the affordability challenges we're seeing in the market currently? Or is there anything else you'd highlight there? Yeah.
Speaker Change: Could you just talk through some of the drivers of that increase is that just a reflection of some of the affordability challenges. We're seeing in the market currently or is there anything else you'd highlight there yes sure Alex.
Adam S. Pollitzer: Yeah, sure, Alex. I'd guide you to go back and look at some of our transcripts from earlier calls last year. We made a conscious decision in late 2022 and early 2023, as house prices were declining and the outlook was a little bit less certain for the path going forward, to curtail the flow of 97 LTV volume coming into the portfolio. It's one of the benefits that we have with Raych EPS, where we can very actively and precisely manage the flow of risk coming into our portfolio at any point in time.
Speaker Change: Guide you to go back and look at some of our transcripts from earlier calls last year, we made a conscious decision in late 2022 in early 2023 as house prices were declining and the outlook was a little bit less certain for the path going forward to curtail the flow of 97, LTV volume coming into the portfolio. It's one of the benefits that we have with.
Speaker Change: <unk>, where we can very actively and precisely manage the flow of risk coming into our portfolio at any point in time, beginning on our first quarter call last year, we talked about though as things have stabilized as the market had really digested and recalibrated to elevated interest rates and house prices again began to resume their climb toward record highs.
Adam S. Pollitzer: Beginning on our first quarter call last year, we talked about how as things had stabilized, as the market had really digested and recalibrated to elevated interest rates, and house prices again began to resume their climb toward record highs, that we were going to be comfortable accepting a modest amount of incremental 97 LTV volume into the portfolio. And that's really what you see.
Speaker Change: We were gonna be comfortable accepting a modest amount of incremental 97, LTV volume into the portfolio and Thats really what you see we've been at this I think we're 11% this quarter at roughly that level for the last several quarters. The other item that I would note, though is that even though our volume has increased for that risk cohort year on year.
Adam S. Pollitzer: We've been at this, I think we're 11% this quarter, roughly that level for the last several quarters. The other item that I would note, though, is that even though our volume has increased for that risk cohort year on year, very deliberately, we feel good about having curtailed it in late 22 and early 23. And we feel good about having taken an incremental amount of volume over the last several quarters. However, we still meaningfully under-index the broader MI market for 97 LTV operations. The rest of the market was at around 15% compared to our 11% this quarter.
Speaker Change: We deliberately we feel good about having curtailed in late 'twenty two when early 'twenty three and we feel good about having taken an incremental volume over the last several quarters, we still meaningfully under index the broader semi market for 97 LTV concentrations. The rest of the market last quarter was that around 15% compared to.
Speaker Change: Our 11% this quarter.
Adam S. Pollitzer: Okay, great. Thanks for that. That all makes sense. Then, maybe just one more quick one.
Speaker Change: Okay, great. Thanks for that that that that all makes sense and then maybe just one more quick one so you and your peers, both or all of the peers have kind of meaningful a meaningful level of P. Myers excess capital currently I believe atomized now around 80% of the minimum required a required level, a dog or 80% above the minimum required loved.
Adam S. Pollitzer: So you and your peers both, or all the peers, have kind of a meaningful level of PMIRs excess capital. Currently, I believe NMI is now around 80% above the minimum required level at quarter end. When we think about excess capital moving forward, is PMIRs still the best metric to consider? Or do you think the industry will continue to run with meaningful excess levels for the time being?
Speaker Change: At quarter end, when we think about excess capital moving forward is P. Myers are still the best metrics are concerned here or do you think the industry will continue to run with a meaningful excess levels for the time being.
Adam S. Pollitzer: Yes, I think there's a yes to both of those, in fact. So I think PMIRS still sets the binding capital constraint for us and others in the industry to a significant extent on almost every policy that we ensure. There may be a few policies that affect our internal view of economic capital, but in the main, it is PMIRS that drives our needs and it's PMIRS that we manage against. Generally speaking, though, in terms of the excess that we're carrying relative to the PMIRS minimum requirements, capital is key for us. And we're obviously in a terrific position today.
Speaker Change: Yes.
Speaker Change: I think there is yes to both of those in fact, so I think <unk> still sets the binding capital constraint for us and others in the industry to a significant extent on almost every policy that we insure T mirror sets the binding capital constraint there may be a few policies, where our internal view of economic capital, but in the main it ESP mirrors that.
Speaker Change: <unk>, our needs and it's P mirrors that we manage against broadly speaking, though in terms of the excess that we're carrying relative to the <unk> minimum requirements.
Speaker Change: Capital is is key for us and we're obviously in a terrific position today, we've got a strong liquidity and funding position, we benefit from the broad protection of our comprehensive reinsurance program, which not only provides us with risk transfer benefits, but also with real capital efficiency and benefit we've got a conservative investment portfolio and we.
Adam S. Pollitzer: We've got a strong liquidity and funding position. We benefit from the broad protection of our comprehensive reinsurance program, which not only provides us with risk transfer benefits but also with real capital efficiency and benefits. We've got a conservative investment portfolio, and we have ready access to capital across the funding spectrum. And when we look at it today, even though the macro environment has proven to be remarkably resilient in the face of elevated interest rates, risks certainly remain. I think market volatility over the last few months serves to highlight that.
Speaker Change: Have ready access to capital across the funding spectrum.
Speaker Change: And when we look at it today, even though the macro environment has proven to be remarkably resilient in the face of.
Speaker Change: Elevated interest rates risk certainly remain I think market volatility over the last few months serves to highlight that and so as we think about our excess capital position, we want to make sure that we're being balanced right. We want to make sure that on the one hand, we ran.
Adam S. Pollitzer: And so as we think about our excess capital position, we want to make sure that we're balanced. We want to make sure that, on the one hand, we recognize that there's value in conservatism, that we're prudently managing our needs and building that access and that excess in an appropriate way. But there's obviously a cost associated with that that we need to be mindful of, and carrying too much excess. What we really think about is an excessive amount of capital at any given point in time can serve as a tax on our return potential.
Speaker Change: Recognize that theres value in conservatism that we're prudently managing our needs and building that access and that access in an appropriate way, but there's obviously a cost associated with that that we need to be mindful of and carrying too much access, but we really think about as an excessive amount of capital at any given point in time conserve.
Speaker Change: A tax on our return potential.
Adam S. Pollitzer: We think we're really striking that right balance now. We've just delivered record financial results. We posted an 18.2% ROE, and we've also been able to return a significant amount of capital to shareholders under our repurchase program. As we look going forward, the sizing of that excess capital position, the line between a prudent amount of excess and something beyond that that we would think of as excessive will naturally move depending on the risk environment that we're in. Great
Speaker Change: We think we're really striking that right balance now we've just delivered record financial results, we posted an 18, 2% ROA and.
Speaker Change: And we've also been able to return a significant amount of capital to shareholders under our repurchase program as we look going forward the sizing of that excess capital position. The line between a prudent amount of excess and something beyond that that we would think of as excessive will naturally move depending on the risk environment that we.
Speaker Change: We're in.
Unknown Attendee: Great, that makes sense. Thanks for taking the questions, Adam.
Speaker Change: Great that makes sense, thanks for taking the questions Adam.
Speaker Change: Yeah.
Unknown Attendee: The next question comes from Mark Hughes, a tourist. Please go ahead.
Speaker Change: The next question comes from Mark Hughes of choice. Please go ahead.
Unknown Attendee: Yeah, thank you. Good afternoon, Adam. Adam, I wanted you to just expand a little bit on what you saw transpire during the quarter that gave you confidence to release those prior accident year reserves. You know, what in the housing market, the aging of the book, what, what were the key factors?
Mark Douglas Hughes: Yeah. Thank you good afternoon.
Mark Douglas Hughes: Adam I Wonder if you could just expand a little bit on what you saw what transpired during the quarter that gave you confidence released.
Mark Douglas Hughes: Our accident year reserves.
Mark Douglas Hughes: You know what in the housing market.
Speaker Change: Aging of the AR.
Speaker Change: Of the book.
Speaker Change: What are the key factors.
Adam S. Pollitzer: Sure. It's a good question, Mark.
Speaker Change: Sure. It's a good question Mark at the end of the day ratings. It is really it's first and foremost about how the defaults that we had on the balance sheet or in our portfolio at the end of the prior quarter. How they performed we actually saw our cure rates during the quarter.
Adam S. Pollitzer: At the end of the day, right, it's really, it's first and foremost about how the defaults that we had on the balance sheet or in our portfolio at the end of the prior quarter performed. We actually saw our cure rates during the quarter move up to their highest levels in the last two years, not by a dramatic degree, it wasn't a seismic shift, but cure rates in the first quarter of 24 were the highest they'd been in the last two years.
Speaker Change: Move up to their highest levels in the last two years not a dramatic degree it wasn't a seismic shift but cure rates in the first quarter of 'twenty for the highest level they've been in the last two years. So we came into the quarter with 5099 defaults, we had over 35% of those defaults short out.
Adam S. Pollitzer: So we came into the quarter with 5,099 defaults. We had over 35% of those defaults cure out, and borrowers resume timely payment of principal and interest on their loans, and so that allows us to obviously release the reserves that we held against that population of defaults. We've also talked about in prior quarters that our general bias when we're establishing our reserves is to anchor more towards downside scenarios, and so we continue to do that at each quarter end.
Speaker Change: And for borrowers to resume timely payment of principal and interest on their loans and so that allows us to obviously released the reserves that we held against that population of default.
Adam S. Pollitzer: As you roll forward then with another quarter of actual macro development, actual development in the housing market, while we're not necessarily changing that anchoring to downside scenarios, the actual experience over the last quarter ended up coming in better than what our embedded assumptions had been at the time we established reserves at year end, and it's both of those items that drove the release. It's the really strong cure activity that we saw within the default population and the continued strength and resiliency in the macro environment and housing market relative to the assumptions that we had embedded in our year-end reserve position.
Speaker Change: <unk> also talked about in prior quarters that our general bias when we're establishing our reserves.
Speaker Change: Anchor more towards downside scenarios.
Speaker Change: So we continue to do that at each quarter and as you roll forward, then with another quarter of actual macro development actual development in the housing market, but we're not necessarily changing that anchoring to downside scenarios. The actual experience over the last quarter ended up coming in better than what our embedded assumptions had been at the time we.
Speaker Change: <unk> reserves at year end and it's both of those items that drove the release, it's the really strong cure activity that we saw within the default population and its continued strength and resiliency in the macro environment and housing market relative to the assumptions that we had embedded in our year end reserve position.
Adam S. Pollitzer: You talked in that context, severity was up a bit. I know you spoke to the idea that the, you know, you thought the claims that you did get might have more merit. But I wonder if you could just discuss the increase in severity.
Speaker Change: In that context, the severity was up a bit I know you.
Speaker Change: Poke into the idea that the.
Speaker Change: You talked to claims, but you did get Mike have more.
Speaker Change: More merit.
Speaker Change: But I wonder.
Speaker Change: Yes.
Speaker Change: If you could just discuss the <unk>.
Speaker Change: Increase in severity.
Adam S. Pollitzer: Yeah, so far, I'd say it's been really, really modest. A couple of items.
Speaker Change: So I'd say, it's been really really modest a couple of items one.
Adam S. Pollitzer: One... When we establish our reserves, we're going through and individually modeling, in this case, each of the 5,109 loans that are in default in the portfolio. And based on our view and set of assumptions around macro, but also the individual characteristics of the loan, the borrower, and our estimation of the current mark-to-market equity position for the loan, we're applying individual default to claim rate assumptions and individual severity assumptions for each of those loans.
Speaker Change: When we established our reserves were going through and individually modeling in this case each of the 5109 loans that are in default in our portfolio and based on our review and set of assumptions around macro but also the individual characteristics of the loan the borrower our estimation of our current mark to market.
Speaker Change: Well positioned for the loan.
Speaker Change: We're applying individual default to claim rate assumptions in individual severity assumptions for each of those loans were not applying a broad homogeneous peanut butter spread assumption across the entire default population.
Adam S. Pollitzer: We're not applying a broad homogeneous peanut-butter spread assumption across the entire default population, so every loan has its own individual risk characteristics. Things didn't actually move in a meaningful way from year-end through March 31st. The weighted average severity assumption underpinning our reserves at the end of the first quarter was 65%, and that compares to 66% at year-end. So it is evaluated on a real-time basis for the new population at any given point in time, but it actually didn't move in a consequential way from year-end.
Speaker Change: So every loan has its own individual risk characteristics things didn't actually move in a consequential way from year end through March 31, the weighted average severity assumption underpinning underpinning.
Speaker Change: Our reserves at the end of the first quarter was 65% and that compares to 66% at year end. So it is evaluated on a real time basis for the new population at any given point in time, but it actually didn't move and a consequential way from year end.
Unknown Attendee: I appreciate that. Thank you.
Speaker Change: I appreciate that thank you.
Speaker Change:
Speaker Change: Okay.
Mihir Bhatia: Once again, if you wish to ask a question, please press star and then 1. The next question comes from Mihir Bhatia with Bank of America.
Speaker Change: Once again, if you wish to ask a question. Please press Star then one.
Speaker Change: Your next question comes from Nathan <unk> with Bank of America.
Nathan: Please go ahead.
Mihir Bhatia: Hi, thanks for taking my question and good afternoon. I wanted to maybe start with just a little go back to your comments on pricing. I think you described it as constructive in your prepared remarks.
Nathan: Hi, Thanks.
Nathan: For taking my questions and good afternoon I.
Nathan: I wanted to maybe start with just go back to your comments on pricing I think you described it.
Adam S. Pollitzer: And I was curious about that. Is this does that mean, is that meaning to suggest that you guys are still taking prices and the industry is still taking prices? Or is it just more? Discipline and staying steady.
Nathan: Constructive.
Speaker Change: In your prepared remarks, and I was just curious about that.
Speaker Change: Does that does that is that meaning to suggest that you guys are of course, taking price in the industry is still taking price or is it just small.
Speaker Change: Discipline on staying steady.
Adam S. Pollitzer: Yeah, it's much more stability, but the industry pricing, we've used the phrase through sort of the second half of 2022 and into the earlier part of 2023 on our calls that pricing was going up, and that was necessary at the time, and we were pleased to see that the industry was able to achieve that. For the last several quarters, though, we've noted that industry pricing is at a point of balance and stability, and that's what we see today. It's stable. It's rational.
Nathan: Yes, it's much more stability, but the industry pricing, we would use the phrase through sort of the second half of 2022 and into the earlier part of 2023 on our calls that pricing with lateral hire in view of emerging risks in the market and that was necessary at the time and we were pleased to see that the industry was able to achieve.
Nathan: That for the last several quarters, though we've noted that the <unk>.
Nathan: Industry pricing is at a point of balance and stability and Thats, what we see today. It's stable. It's rational we continue to be encouraged by the broad discipline that we see across the sector and I think most importantly, we're where we should be right. What would appoint a balanced means is that we're fully and fairly supporting our customers and their borrowers.
Adam S. Pollitzer: We continue to be encouraged by the broad discipline that we see across the sector. And, I think most importantly, we're where we should be, right? What a point of balance means is that we're fully and fairly supporting our customers and their borrowers, but at the same time, we're using rates, among other tools, to appropriately protect our balance sheet, our returns, and our ability to deliver long-term value for shareholders. So today, the rate environment, we would say it's constructive because it's stable and price allows us to strike that right balance between making sure that we first and foremost keep our customers and their borrowers in mind and prioritize them, but also don't lose sight of the need for us to deliver value, balance sheet stability, and returns for shareholders.
Nathan: But at the same time, we are using rate among other tools to appropriately protect our balance sheet, our returns and our ability to deliver long term value for shareholders. So today the rate environment. We would say we would say is constructive because its stable and also price allows us to strike that right balance between making sure that we first and foremost keep our custom.
Nathan: And their borrowers in mind and prioritize them, but also don't lose sight of the need for us to deliver value balance sheet stability and returns for shareholders.
Adam S. Pollitzer: Thanks. And then, maybe just switching for a second, I wanted to follow up on the cure rate discussion from a couple of answers ago. What is driving, I mean, I understand what you said, it's a little bit higher than the past, but it is still a pretty high rate. And I just wanted to understand, do you know what is driving the cure rate higher? Is this the new GFC program post-pandemic? Has that changed in any way? Are you thinking about the default to cure assumptions? Is it too early to tell on that? Just trying to understand if it's a higher cure rate disruption.
Speaker Change: Got it thanks, and then maybe just switching for a second I wanted to follow up on the cure rate discussion from a couple of answers about what is driving me now I understand what you said you know, it's a little bit higher than boss, but it is still a pretty high rate, but I. Just wanted to understand do you know what is driving the jewelry tayo is it the new GSE.
Speaker Change: Brooke programs or spend that make has that changed in any way you're thinking about that before you. All assumptions is it too early to tell on that I'm, just trying to I think that if I could.
Speaker Change: You already did structure, yes. It is.
Adam S. Pollitzer: Yeah, Mihir, it's a great question. In fact, we would view there as being perhaps an opportunity going forward. We really don't have a rich historical data set to understand how some of the new programs, the new modification waterfall, and the codification of the payment deferral program will ultimately impact long-term credit performance. We're optimistic, but that's not explicitly factored in or even implicitly factored into our reserving. And so what we're seeing, look, I'd say, generally speaking, our existing borrowers remain incredibly well-situated.
Speaker Change: Great question in fact, we would view there as being perhaps opportunity going forward, we really don't have a rich historical data set to understand how some of the new programs. The new modification waterfall. The codification of the payment deferral program will ultimately impact long term credit performance, we're optimistic, but that's not explicitly factored in or even in.
Speaker Change: <unk> factored into our reserving and so what we're seeing but I would say generally speaking our existing borrowers remain incredibly well situated makes up strong credit profiles. There in loans that were originated under our rigorous underwriting review those loans were used to fund the purchase of a primary residence and many borrowers including those in default.
Adam S. Pollitzer: They've got strong credit profiles. They're in loans that were originated under a rigorous underwriting review. Those loans were used to fund the purchase of a primary residence, and many borrowers, including those in default, benefit from having significant embedded equity positions. They're in homes that, on a relative basis, have really manageable debt service obligations because they've got historically low 30-year fixed note rates. And I would say there's real value in them cashing out, right? Because curing out of their default allows them to retain that historically low 30-year fixed note rate and, obviously, stay in a house today with significant embedded equity.
Speaker Change: Benefit from having some significant embedded equity positions.
Speaker Change: They are in homes that on a relative basis have really manageable debt service obligations, because they've got historically low 30 year fixed rates and there is a I would say there is.
Speaker Change: There is real value in them shorting out right because curing out of their default allows them to retain that historically low 30 year fix note rate and obviously stay in house today with significant embedded equity and so we're seeing borrowers even when they run into challenges there they've generally been able to recover in <unk>.
Adam S. Pollitzer: And so we're seeing borrowers, even when they run into challenges, they've generally been able to recover and cure their defaults before we see claims develop. And that's obviously a real positive because anything that keeps a borrower in their homes is valuable for the borrower, certainly. We think it's valuable as a social matter and also from an economic standpoint. And ultimately, it's beneficial for us as a claim cost matter. Adam, I just want to, Mihir, I'll just add one additional thing.
Speaker Change: Sure. They are defaults before we see we see claims develop.
Speaker Change: And Thats, obviously, a real positive because anything that keeps a borrower in their homes. We think is valuable for the borrower certainly we think it's valuable as a social matter. We think it's valuable from an economic standpoint, and ultimately a beneficial for us as a claim cost matter.
Speaker Change: Adam I'll just add one here I'll just add one additional thing.
Adam S. Pollitzer: You know, we talked about it in the previous quarter that there's a degree of seasonality that tends to come through. And so in Q1, we typically see a bit of improvement. And so what we saw in this quarter, as we got through the end of the quarter, was a little bit of that seasonality coming through and boosting our cure rates as a result.
Speaker Change: We've talked about it in the previous quarter that there is a degree of seasonality that tends to come through and so in Q1, we typically see a bit of improvement and so what we saw in this quarter as we got through the end of the quarter was a little bit of that seasonality coming through and boosting our cure rates as a result.
Speaker Change: Got it have you ever disclosed how much embedded equity is in like the default population.
Speaker Change: Our in force population.
Adam S. Pollitzer: Yeah, it's meaningful. So we don't disclose it...
Speaker Change: So it's meaningful so we don't disclose it for the enforced population, we obviously do a mark to market ourselves we have shared what the default the equity position of our default population is on earnings calls in the past and we're happy to so at March 31, 91% of our default population had at least 10% equity 77% had at least.
Speaker Change: 15% equity and 65% had at least 20% equity underpinning their mortgages and obviously equity provides both a significant incentive for them to carry out of their default and it also provides us the ability to sell their way out of a default without ultimately progressing to a foreclosure on claim.
Adam S. Pollitzer: And then my last question, and then I'll give someone else a chance.
Speaker Change: Got it. Thank you and then my last question and then I'll get out like give someone else a chance.
Adam S. Pollitzer: I just wanted to ask about, you know, you mentioned seasonality, obviously, seasonalally entering the moving season or the seasonally stronger housing season. What are you hearing from your partners, customers, originators, or as you travel around? Are you hearing more optimism this year? Just curious about what you're hearing, if there are particular markets where you're more excited, less excited. Love to hear your thoughts. Thank you.
Speaker Change: Wanted to ask about you mentioned seasonality, obviously seasonally entering I guess moving season.
Speaker Change: These will be stronger housing season.
Speaker Change: Are you hearing from your off those customers originators.
Speaker Change: As you're probably wrong.
Speaker Change: During more this year just curious on what you're hearing is definitely thinking about markets, where you are more excited less excited laughter yoga. Thank you yes.
Adam S. Pollitzer: Yeah, look, certainly there was, I think, increasing optimism earlier in the year, and we saw, you know, degrees of increases in activity. I think that was for a few reasons. One, obviously, rates had dipped from their highs late last year, and that brought some new activity to the market. But a big part of it, though, is I think prospective buyers have recalibrated, right? This is the new reality.
Speaker Change: Yes.
Speaker Change: Certainly there was I think increasing optimism earlier in the year and we saw.
Speaker Change: The degrees of increases in activity I think that was for a few reasons. One obviously rates have dipped from their highs late last year and that brought some new activity to the market a big part of it though is I think also prospective buyers have recalibrated right. This is the new reality higher for longer is the new reality and at some point theyre not saying paused with.
Adam S. Pollitzer: Higher for longer is the new reality, and at some point, they're not staying paused with the need for them to. The decision to buy a house is really driven by life events, first and foremost. There's obviously a heavy financial aspect to it, but it's life events that drive the borrowers and the buyers' decisions. And those life events don't pause simply because interest rates have moved higher. And so we saw a large part of the market, we think, really recalibrate.
Speaker Change: The need for them to.
Speaker Change: The decision to buy a house is really driven by life events first and foremost there is obviously a heavy financial aspect to it but its life events that drive the borrowers and the buyers decisioning and those life events don't pause simply because interest rates have moved higher and so we saw a large part of the market, we think really recalibrate let.
Speaker Change: When we can see what's happening now, it's obviously rates have shifted higher over the last few a few months, but broadly speaking, we honestly delivered strong and RW production growth in the insured portfolio and heavy growth in <unk> production in the first quarter and so we're still optimistic when we.
Adam S. Pollitzer: We'll need to see what's happening now. Obviously, rates have shifted higher over the last few months. But broadly speaking, we obviously delivered strong NIW production, growth in the insured portfolio, and heavy growth in NIW production in the first quarter. And so we're still optimistic. When we had our call last quarter, we shared some perspective on our outlook for market size, MI market size this year. And we shared that we expect the MI market size, the NIW opportunity, will be roughly the same size this year as it was last year. Last year was about $285 billion in NIW volume. And we still believe that and still expect that that'll be where the industry lands roughly this year.
Mihir Bhatia: Got it. Thanks so much for taking my questions.
Speaker Change: Had our call last quarter, we shared some perspective on our outlook for market size semi market size. This year and we shared that we expect the semi market size. The <unk> opportunity will be roughly the same size. This year at as it was last year last year. It was about $285 billion I'll, then IW volte.
Speaker Change: And we still.
Speaker Change: We still believe that and still expect that that'll be worthy industry lands roughly this year.
Speaker Change: Got it thanks, so much for taking my questions.
Speaker Change: Okay.
Unknown Attendee: The next question comes from Sohan Bosley with BTIG.
San Jose: The next question comes from San Jose with Bank T J.
San Jose: Go ahead.
Unknown Attendee: Hey guys, good afternoon. Hope you're all doing well. I guess the first one just on ROE, Adam. Looks like you've been putting up sort of high teens over the last few quarters and 18.2% again this quarter. Can you just maybe talk about the sustainability of that ROE over the next year or so and how should we be thinking about upside and downside ranges going forward?
San Jose: Hey, guys. Good afternoon hope, you're all doing well.
San Jose: I guess first one just on ROE Adam.
Speaker Change: It looks like you've been putting up sort of high teens over the last few quarters and 18, 2% again. This quarter can you just maybe talk about the sustainability of that ROE over the next year or so.
Speaker Change: How should we be thinking about upside downside ranges going forward.
Adam S. Pollitzer: Yeah, look, I think it's a good question, so it's nice to have you back on our calls. We always appreciate spending time with you.
Speaker Change: Yes.
Speaker Change: Yes look I think it's.
Speaker Change: It's a good question. So it's nice to have you back on our calls we always appreciate you spending time with you.
Adam S. Pollitzer: And so we understand the question. We understand the focus on, we say, return and earnings development patterns. What I would instead focus you on, though, is the fact that we have a large, high-quality, and short portfolio with massive embedded value. We've got a terrific team that's helping us to lead with discipline, innovation, and efficiency. And most importantly, we see a tremendous long-term need from our customers and their borrowers for continued down payment support.
Speaker Change: And so.
Speaker Change: <unk>.
Speaker Change: We understand the question we understand the focus on we say return in earnings development patterns. When I would instead focus you on though is the fact that we have a large high quality and short portfolio with massive embedded value. We've got a terrific team, that's helping us to lead with discipline innovation and efficiency and most importantly.
Speaker Change: We see a tremendous long term need from our customers and their borrowers for continued downpayment support we just delivered record profitability another quarter of 18, 2% Roe.
Adam S. Pollitzer: We just delivered record profitability, another quarter of 18.2% ROE, and we're growing book value and book value per share on an accelerated pace. As we look at over the next year, where things trend, as you noted, we'll see natural fluctuations period to period. That's normal, right? Our volume, pricing, persistency claims, expenses, capital, all of these items are never going to be static, but over the long term, we expect that we'll be able to continue to grow book value at an accelerated pace and that, you know, we'll be having this conversation one, two, and three years forward from where we are now from a successively higher, stronger, and more valuable perch regardless of how ROE develops, you know, say over a 12-month period.
Speaker Change: And we're growing book value and book value per share on an accelerated pace as we look out over the next year where things trend.
Speaker Change: As you noted, we'll see natural fluctuations period to period, that's normal right our volume pricing persistency claims.
Speaker Change: Expenses capital all of these items are never going to be static, but over the long term, we expect that we'll be able to continue to grow book value at an accelerated pace.
Speaker Change: We will be having this conversation one two and three years forward from where we are now from a successively higher stronger and more valuable perch, regardless of how Ro develops say over a 12 month period.
Adam S. Pollitzer: Got it. And Adam, you know, you mentioned sort of this secular trend in the industry a few times now. And so I'm just wondering, you know, housing affordability continues to be an issue in the US, right? And obviously, that's not great for home ownership, but it could be an interesting opportunity for MI, right, where you could just continue to penetrate the market even further if fewer folks can put 20% down. So just curious if you try to sort of size that opportunity, like an incremental opportunity as we think, think long term. Yeah.
Speaker Change: Got it and Adam you mentioned, sorry, this secular trend in the industry a few times now and so I'm just wondering it seemed like look housing affordability continues to be an issue in the U S right and obviously, that's not great for homeownership, but it could be an interesting opportunity for am I right, where you could just continue to.
Adam: Penetrate the market even further if fewer folks can put 20% down. So just curious if you tried to sort of size that opportunity like incremental opportunity as we think long term, yes. So again, it's a good question and in fact, it is one of the secular drivers and so if we tally those but we expect that the housing market broadly will expand in.
Adam S. Pollitzer: Yeah, so again, a good question. And, in fact, it is one of the secular drivers. And so if we tally those, we expect that the housing market broadly will expand, and origination volume overall will rebound. We've got the underlying drivers, right, of population growth serving as a demographic tailwind. There's also the practical and emotional pull towards homeownership, right? So home ownership rates are increasing. The supply, demand, and balance that we see across almost all markets nationally is driving long-term house price appreciation.
Adam: <unk> volume overall will rebound.
Adam: We've got the underlying drivers rate of population growth serving as a demographic tailwind. There is also the practical and emotional pull towards homeownership right. So headship rates are increasing this supply demand imbalance that we see across almost all markets nationally is driving long term house price appreciation and for al.
Adam S. Pollitzer: And for our industry and for us, because rateable exposure is not based on the number of homes, the number of loans that we insure, but rather it's based on the dollar value and size of those loans, rising house prices, which drag loan sizes higher, also provide a tailwind to growth. And then, as you noted, we do think that we will see an increasing number of borrowers going forward who need down payment support and who will find success and value and turn to the private MI industry. And so, you know, we have highlighted this for some time.
Adam: Our industry and for us because ratable exposure is not based on the number of homes. The number of loans that we ensure rather it is based on the dollar value and size of those loans rising house prices, which drag loan sizes higher also provide a tailwind to growth and then as you noted we do think that we will.
Adam: See an increasing number of borrowers going forward, who need downpayment support and who will find success in value and turning to the private industry and so we have highlighted this for some time, we candidly think it is a bit underappreciated, but the long term growth opportunity.
Adam S. Pollitzer: We candidly think it's a bit underappreciated, but the long-term growth opportunity and let's put it into very real practical terms, right? 2023 was a year in which the private MI industry delivered $284 billion in NAW volume. Almost all of that was purchase activity. Obviously, with rates moving where they are, there was very, very little refinancing volume. That $284 billion of NAW volume, if you scope out the peak pandemic years, represents the second or third largest private MI market ever.
Adam: Let's put it into very real practical terms right 2023 was a year in which the private industry delivered $284 billion of NSW volume almost all of that was purchase activity, obviously with rates moving where they had there was very very little refinancing volume.
Adam: That $284 billion of NSW volume, if you scope out the peak pandemic years represents the second or third largest private market ever and at the same time the origination environment right was quite stressed and there was the smallest number of loans originated in the U S. Since.
Adam S. Pollitzer: And at the same time, the origination environment, right, was quite stressed, and there was the smallest number of loans originated in the US since sometime in the mid-1990s. The data gets a little bit hazy earlier than 2000, but sometime between 1995 and 1997 was the last time that we had that many transactions and loans originated in the US. And if you pair those together, what we had is one of the largest MI markets ever.
Adam: Sometime in the mid Ninety's, the data gets a little bit.
Adam: Yes.
Adam: Hazy earlier than 2000, but sometime between 1990, 5% to 1997 is the last time that we had that SKU number of transactions number of loans originated in the U S and if you pair those together what we had is one of the largest markets ever.
Adam S. Pollitzer: Well, at the same time, we had one of the smallest origination markets ever. And from our vantage point, we think that that sets a very high floor for where MI Industry and IW Volume will go rolling forward.
Adam: While at the same time, we had one of the smallest origination markets ever and from our vantage point, we think that that sets a very high floor for where my industry and IW volume will go rolling forward.
Unknown Attendee: Yep, all good points. Thanks for the thoughts.
Speaker Change: Yes, Aldo points, thanks for that.
Adam: Yeah.
Unknown Attendee: Your next question comes from Rex Shane with J.P. Morgan. Please go ahead.
Adam: Your next question comes from Rick Shane with JP Morgan. Please go ahead.
Unknown Attendee: Hey guys, thanks for taking my questions this afternoon. Look, when we look at the reserve coverage as a function of default, risk, and force, it's actually been very steady quarter over quarter. That suggests that as you're experiencing cures within the Portfolio, they're sort of relatively evenly distributed in terms of power. Otherwise, you would sort of... Some seasoning, you might see an increase in the reserve rate otherwise. Is that the right way to think about it?
Richard Barry Shane: Hey, guys. Thanks for taking my questions. This afternoon.
Richard Barry Shane: Look when you look at the reserve coverage as a function of defaults our risk in force, it's actually been very steady quarter over quarter.
Adam: <unk>.
Richard Barry Shane: That suggests that as you're experiencing shores within the portfolio that they're sort of relatively evenly distributed in terms of aging because otherwise you would sort of see some seasoning you might see an increase or decrease.
Adam: In.
Adam: The reserve rate otherwise is.
Adam: Is that the right way to think about it in the other part of that question is are there certain cohorts are vintages, where you were seeing.
Adam S. Pollitzer: The other part of that question is, are there certain cohorts or vintages where you were seeing underperformance in terms of roll rate? Rick, it's a great question and you're spot on, and so we put some numbers to it. In the first quarter, the average reserve, the net reserve, so it takes into account reinsurance, the average net reserve that we established against each of our new notices that came through in the period was $15,200. In the fourth quarter, it was $15,500, but these are inconsequential marginal differences between the two.
Adam: Under performance in terms of roll rates.
Speaker Change: Rick It's a great question and you're spot on and so if we put some numbers to it in the first quarter. The average reserve net reserves. So it takes into account reinsurance the average net reserve that we established against each of our new notices that came through in the period was $15200 in the fourth quarter. It was 15000.
Speaker Change: $500, but these are inconsequential marginal difference between the two we are seeing a lot of consistency quarter to quarter in terms of.
Adam S. Pollitzer: We are seeing a lot of consistency quarter to quarter in terms of the profile of borrowers that are emerging in default status and also those that are maturing out. And so it's not just, as you know, it's not just that the size of the default population is staying roughly constant; it was a 20-count move from year end through the end of the first quarter, but also the underlying profile and characteristics of the borrowers and the loans, and the properties are all staying very consistent.
Speaker Change: The profile of borrowers that are emerging in default status and also those that are carrying out and so it's not just as you noted it's not just that the size of the default population is staying roughly constant.
Speaker Change: 20, count move from year end through the end of the first quarter.
Speaker Change: But also the underlying profile and characteristics of the borrowers and the loans. The properties are all staying very consistent in terms of a particular vintage where we might be seeing worst performance no I think what we are seeing is as.
Adam S. Pollitzer: In terms of a particular vintage where we might be seeing worse performance, no. I think what we are seeing is that, as the newer production years age, our 2022 and 2023 books age, and those borrowers naturally, some subset of them unfortunately progress into default status and march towards claim, those book years and the borrowers who are in default aren't different in their profile or their performance other than the fact that they have less embedded equity than borrowers who purchased their homes in 2020 and 2021 and obviously benefited from the significant rally and That's the real item that we watch for that is factored in though into our reserves because we're establishing reserves based on the mark to market and assessment for each loan individually. Got it.
Speaker Change: Yes.
Speaker Change: As the newer production years, HR 2022, and 2023 books age and those borrowers naturally some subset of them. Unfortunately progress into default status in March towards claim those book years, and the borrowers who are in default or indifferent in their profile or their performance others.
Speaker Change: Then the fact that they have less embedded equity than borrowers who purchased their homes. In 2000, 22000, 22021, and obviously benefited from a significant rally in home prices that we saw through the course of the pandemic. That's the real item that we watch for that is factored in now into our reserves because we're establishing.
Speaker Change: Our reserves based on the Mark to market and assessment for each loan individually.
Unknown Attendee: Okay. And it's funny, I had the number of defaults up by 10 loans, and I sort of had this mental picture of you guys waiting around on the last day of the quarter, hoping that 11 would come in, so it would be down sequentially. Yeah, and Rick, you helped me there. I think I said 20. But you're right. It's 10. The default count increased by 10. Fair enough. Thanks, guys.
Speaker Change: Got it okay, and it's funny I had the number of defaults up 10.
Speaker Change: Loans and I sort of had this mental picture do you guys waiting around on the last day of the quarter, hoping that <unk> 11 would come in so it would be down.
Speaker Change: Sequentially, yes.
Speaker Change: And Rick you helped me there I think I said 'twenty, but youre right. Its 10 default count increased by 10.
Speaker Change: Fair enough thanks, guys.
Unknown Attendee: The next question comes from Doug Harter with GBS. Please go ahead.
Speaker Change: The next question comes from Doug Harter with UBS. Please go ahead.
Unknown Attendee: Thanks. Good afternoon. Can you talk about, you know, kind of how you're thinking about the pace of capital return for the course of the year and just any updates around the thoughts around, you know, introducing a dividend?
Douglas Michael Harter: Oh, Thanks, and good afternoon.
Douglas Michael Harter: Can you talk about kind of how you were thinking about the pace of capital return.
Douglas Michael Harter: For the course of the year and just any updates around the thoughts are around <unk>.
Douglas Michael Harter: Introducing a dividend.
Adam S. Pollitzer: Sure, why don't I cover those? So I'll cover the dividend first. But right now, we're focused on our repurchase program and deploying the remaining $152 million of capacity that we have. We see repurchase as a way for shareholders to directly participate in the value that we're creating. It also is really helpful for us to maintain the right funding balance, optimizing between our equity debt and reinsurance usage, and it's obviously supportive of future EPS and ROE outcomes.
Douglas Michael Harter: Sure why don't I.
Speaker Change: Some of those so.
Speaker Change: I'll cover the dividend first but right now we're focused on our repurchase program and deploying the remaining $152 million of capacity that we have we see repurchases away.
Speaker Change: For shareholders to directly participate in the value that we're creating and it also is really helpful for us to maintain the right funding balance optimizing between our equity debt and reinsurance usage and also it's obviously supportive of future EPS and ROE outcomes, we're really pleased with the execution that we've achieved.
Adam S. Pollitzer: We're really pleased with the execution that we've achieved to date. We've repurchased 174 million shares so far, that's 7.3 million shares at a weighted average price to book multiple of roughly one times. That really is our focus today.
Speaker Change: <unk> to date, we've repurchased to date 174 million of stock at $7 3 million shares at a weighted average price to book multiple of roughly one times.
Speaker Change: And so that really is our focus today, we don't have any other plans right now but over time as we continue to perform and grow the dividend stream thats available to the holding company from our primary operating subsidiary we may have an ability to introduce a common dividend, but for right now repurchase is our it's our primary.
Adam S. Pollitzer: We don't have any other plans right now, but over time, as we continue to perform and grow the dividend stream that's available to the holding company from our primary operating subsidiary, we may have an ability to introduce a common dividend. But for right now, repurchase, it's our primary focus. In terms of the pace of activity, I'd expect that we'll continue to execute at a roughly similar pace as we have been. We've talked about how the existing program runs through year-end 2025, and there's no hard and fast rule.
Speaker Change: <unk> in terms of the debt.
Speaker Change: The pace of activity I would expect that we will continue to execute on a roughly similar pace as we have been we have talked about how the existing program.
Speaker Change: <unk> through year end 2025, and there is no hard and fast rule, we execute according to a pricing grid that we establish and share with the banks that assist us with the repurchase activity and so in periods, where stock price is higher we may buy back a little bit less in periods, where stock price dips, we may be more active but generally speaking we guided to assume that we will.
Adam S. Pollitzer: We execute according to a pricing grid that we establish and share with the banks that assist us with the repurchase activity. In periods where the stock price is higher, we may buy back a little bit less. In periods where the stock price dips, we may be more active. But generally speaking, we've tended to assume that we'll be roughly rated in our execution through the remaining time and the remaining dollars on the program, and that continues to be the case.
Unknown Attendee: Appreciate that. And then, just one more.
Speaker Change: Roughly ratable in our execution through the remaining time in the remaining dollars on the program and that continues to be the case.
Speaker Change: I appreciate that and then just one more how are you.
Adam S. Pollitzer: How are you? How are you thinking about, you know, kind of going back into the ILN market as another form of reinsurance? Yeah, look, we have found significant
Speaker Change: How are you thinking about kind.
Speaker Change: Going back into the island market are two to kind of.
Speaker Change: It's another form of reinsurance.
Adam S. Pollitzer: Yeah, look, we've found significant success in the ILM market in the past, but I'd also say we've found real success in the traditional reinsurance market with our XOL execution. We value the credit risk transfer benefits and the PMIRS efficiency and funding that we achieve in each.
Speaker Change: Yes look we have found significant success in the island market in the past, but I'd also say we found real success in the traditional reinsurance market with our <unk> execution.
Speaker Change: The credit risk transfer benefits and the <unk> efficiency and funding that we achieve in EG.
Adam S. Pollitzer: We have been skewed more towards the XOL market recently. I think we've done six deals since the beginning of 2022, and those deals in the traditional markets really help us compress the cycle time between transactions. We're able to secure forward flow coverage, so we have forward flow XOL coverage in place for all production that we generate this year from the traditional market. That's not something that's available in the ILM market, and so there's a lot of value, I'd say, in both. We do expect that at some point in the future, we'll be back in the ILM markets, but right now, we're finding a lot of success in the XOL market.
Speaker Change: Have been skewed more towards the <unk> market more recently I think we've done six deals.
Speaker Change: Since the beginning of 2022 and those deals in the traditional markets really help us compress the cycle time between transactions, we're able to secure forward flow coverage that we have forward flow extra well coverage in place for all production that we generate this year from the traditional market that is not something thats available in the ILS market.
Speaker Change: <unk>.
Speaker Change: And so theres a lot of value I would say in both.
Speaker Change: We do expect that at some point in the future we will be back on the island markets, but right now were finding a lot of success in the <unk> market.
Speaker Change: Yeah.
Speaker Change: Great. Thanks, Adam.
Unknown Attendee: Your next question is a follow-up question from Mark Hughes with Truist. Please go ahead. Academy, Mark, Elijah, Nicole.
Speaker Change: The next question is a follow up question from that change with <unk>.
Speaker Change: Please go ahead.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Pardon me Mark you're live in the call.
Speaker Change: Yeah.
Unknown Attendee: Sorry about that. I was on mute.
Speaker Change: Sorry about that.
Mark Douglas Hughes: Last quarter, you had talked about the premium yield.
Mark Douglas Hughes: I think your outlook was for relative stability.
Mark Douglas Hughes: You're obviously up a little bit when you look at the current pricing on the business that Youre writing.
Unknown Attendee: Last quarter, you talked about the premium yield. I think your outlook was for relative stability. You're obviously up a little bit. When you look at the current pricing on the business that you're writing, how do you, do you have an update on that and is it stable from here, maybe a little bit more improvement?
Mark Douglas Hughes:
Mark Douglas Hughes: How do you are you.
Mark Douglas Hughes: You have an update on that and stable from here, maybe a little bit more improvement.
Adam S. Pollitzer: Yeah, good question. Really, we'd reiterate the general perspective that we had shared last quarter, which is that we've obviously enjoyed some degree of premium yield inflecting higher for a few quarters running now, which is a real positive for us. But as we model it going forward, we do expect that our core yield, which strips away the impact and movements of our reinsurance costs and cancellation earnings, will remain generally stable through the remainder of the year.
Mark Douglas Hughes: Yes.
Speaker Change: A good question really we reiterate the general perspective that we had shared last quarter, which is we've obviously enjoyed some degree.
Speaker Change: Premium yield reflecting higher for a few quarters running now which is a real positive for us, but as we model that going forward, we do expect that our core yield which strips away.
Speaker Change: The impact of movements of our reinsurance cost and the cancellation earnings will remain generally stable through through the remainder of the year, we'll see benefit from strong persistency in the pricing gains that we've achieved over the past year those will provide us with the real support for that stability in our net yield is more difficult to.
Adam S. Pollitzer: We'll see benefit, you know, from strong persistency in the pricing gains that we've achieved over the past year. These will provide us with the real support for that stability. And our net yield is more difficult to forecast, obviously, because it's also going to be impacted by two things, by any decisions that we make with respect to further reinsurance execution through the year, and, more importantly, by our loss experience as the profit commission on our quota shares fluctuates with changes in our seeded claims expense. And so obviously, that one will really depend on how the default population develops, how the macro environment develops, but core yield, we expect continued stability as we roll forward.
Speaker Change: To forecast, obviously, because it's also going to be impacted by two things by any decisions that we make with respect to further reinsurance execution through the year and more importantly by our loss experience as the profit Commission on our quota shares fluctuates with changes in our ceded claims expense.
Speaker Change: And so obviously that one will really depend on how the default population develop how the macro environment develops but core yield we expect continued stability as we roll forward.
Unknown Attendee: And then on the investment portfolio, what was the yield on the portfolio overall? And then can you share the new money yield? Yeah, the
Speaker Change: And then on the investment portfolio.
Speaker Change: The yield on the portfolio overall, and then can you shared new money yields.
Unknown Attendee: Yeah, the investment portfolio yield overall for Q1 was 2.9%. And from a new investment perspective, we're seeing rates, new money rates around five to five and a half percent. Obviously, that'll depend on the duration, the bond type ratings, and just demand in the market. You know, nothing's really changed about the profile of our investment portfolio or the new purchases we're making. But that's
Speaker Change: Yes.
Speaker Change: <unk> portfolio yield overall for Q1 was two 9% and from a new investment perspective, we're seeing.
Speaker Change: <unk>, new money rates around five to five 5%, obviously that will depend on the duration of the bond type ratings and just demand in the market.
Speaker Change: Nothing has really changed about the profile.
Speaker Change: Of our investment portfolio or the new purchases were making but thats what were seeing.
Speaker Change: Okay.
Speaker Change: Thank you very much.
Unknown Attendee: Your next question comes from Scott Helleneck with RBC.
Speaker Change: Your next question comes from Scott <unk> with RBC. Please go ahead.
Unknown Attendee: Yeah, the NIW showed year over year growth. However, one of your competitors that had reported showed a decline. I'm just curious if you can talk about I know it's too early to talk about market share, but do you feel like you're, you know, kind of increasing that wallet share with the existing customers that you had talked about? And maybe some of those new accounts, but did you talk about what's driving that in the quarter? It seemed like it had accelerated. Yeah.
Speaker Change: Yeah.
Scott: <unk> showed a year over year growth.
Speaker Change: One of your competitors.
Scott: Reported showed a decline I'm just curious if you can talk about I know, it's too early to talk about market share, but do you feel like your.
Scott: Increasing that wallet share with existing customers that you talked about it maybe some of those new accounts, but just talk about what's what's driving that in the quarter. It seemed like it accelerated.
Adam S. Pollitzer: Yeah, absolutely. Also, as you noted, it's difficult to measure because there's only us and one other company that are out, so we don't know until we get through earnings season how things will ultimately land. I'd say first and foremost, we're delighted with the results that we achieved in the quarter. We wrote $9.4 billion of high-quality, high-return new business. We're working hard to support our customers and their borrowers, and we're driving continued growth quarter-on-quarter in our insured portfolio. As for share and what's driving it, I'll give the standard disclaimer, which is that, as we've said many times, we do not manage to market share.
Scott: Absolutely.
Scott: Also as you noted it is difficult to measure because there's only us and one other company that are out so we don't know.
Scott: Until we get through earnings season, how things will ultimately land I would say first and foremost we're delighted with the results that we achieved in the quarter. We wrote $9 4 billion of high quality high return new business, we're working hard to support our customers and their borrowers and were driving continued growth quarter on quarter, our insured portfolio as for share and what's driving it.
Scott: The standard disclaimer, which is <unk>.
Scott: We've said many times, we do not manage to market share. We are focused on serving our customers deploying capital in a risk responsible manner, we want to make sure that we're writing as large volume of high quality high return and high value business that we can and ultimately doing so in a way that allows us to drive profitable growth in our short portfolio.
Adam S. Pollitzer: We are focused on serving our customers and deploying capital in a risk-responsible manner. We want to make sure that we're writing as large a volume of high-quality, high-return, and high-value business as we can, and ultimately, doing so in a way that allows us to drive profitable growth in our insured portfolio. The success that we had in the quarter really traces to the same reasons that we've been successful for quite some time. It's really about on-the-ground execution.
Scott: The success that we had in the quarter really traces to the same reasons that we've been successful for quite some time, it's really about on the ground execution, we're adding more customers, we're providing value added input away from price to our existing accounts. So that we can win an increasing share of their wallet, we're proactively managing our mix.
Adam S. Pollitzer: We're adding more customers. We're providing value-added input away from price to our existing accounts so that we can win an increasing share of their wallets. We're proactively managing our mix of business, our NIW flow by borrower, by geography, by product risk dimensions, and we're just generally showing up in the market for lenders and borrowers with consistency every day. And all in all, it's really the basic building blocks of on-the-ground execution that are driving our success.
Scott: Our mix of business are in IW flow by borrower by geography by product risk dimensions, and we're just generally showing up in the market for lenders and borrowers with consistency everyday and all in it's really that the basic building blocks of on the ground execution that are driving our success.
Unknown Attendee: All right, that's helpful. And then just another question, too, on just risk and force when you look at the table, and they're the top 10 states. It looked like you had a lower share of the top 10 states year over year. Are there any states that you want to call out that you're growing as a percent of the bulk year over year that are kind of becoming more significant? Anything to call out there?
Speaker Change: Alright, that's helpful. And then just another question too on just just risk enforced when you look at the table and now the top 10 states.
Speaker Change: It looked like you had a lower share of the top 10 states year over year and is there any are there any states that you want to call out two youre growing as a percent of the book year over year that are kind of.
Speaker Change: Becoming more significant anything to call out there.
Adam S. Pollitzer: No, we've got a, at this point, you know, we've been at this for quite some time. Our customer, our sales team does a phenomenal job of obviously adding customers, making sure that we maintain strong and active dialogues and access to existing accounts that we've worked hard to penetrate in the past. And we have access at this point to basically the entire addressable MI and NIW opportunity. And so we have a broadly diversified national customer franchise, which helps us obviously achieve a broadly diversified geographic or a portfolio that is broadly diversified by geography.
Speaker Change: No we've got a at this point we've been at this for quite some time, our customer France. Our sales team does a phenomenal job of obviously, adding customers, making sure that we maintain strong and active dialogues and access to existing accounts that we have worked hard to penetrate in the past and we have access at this point to basically the <unk>.
Speaker Change: Higher addressable MRI and <unk> opportunity and so we have a broadly diversified national customer franchise, which helps us obviously achieved a broadly diversified.
Speaker Change: Geographic or a portfolio that is broadly diversified by geography.
Adam S. Pollitzer: Okay, great. And just the last one on persistency. It's kind of held stable. Is there any expectation and change that it will kind of be around a similar range for the rest of the year? Yeah, well, in terms of
Speaker Change: Okay, Great and then just a last one on persistency, it's kind of held stable is there any expectation and changed or you expect it to kind of be around that.
Speaker Change: Range.
Speaker Change: For the rest of the year.
Adam S. Pollitzer: Yeah, look, we'll likely continue to see, I would say, some natural trending off of, you know, peaks, right? I think we were a little north of 86% late last year; we're 85.8% this year. We do expect, though, certainly with rates where they are relative to the embedded note rates in the portfolio, that persistency will remain well above historical trend as we progress through 2024. And even if we see a little bit of movement, it'll be up or down by degrees.
Speaker Change: Yeah look in terms of.
Speaker Change: Well we will.
Speaker Change: Likely continue to see I would say some natural trending off of peaks right. I think we were a little north of 86% late last year. We're 85, 8%. This year, we do expect though certainly with rates, where they are relative to the embedded note rates in the portfolio that persistency will remain well above historical trend as we progress through 2024.
Speaker Change: Even if we see a little bit of movement, it will be up or down by degrees.
Speaker Change: Great. Thanks.
Operator: This concludes our question and answer session. I would like to turn the call over to Mr. Swenson to close.
Unknown Attendee: This concludes our question and observation I would like to turn the conference back to Mr. Johnson for closing remarks.
John M. Swenson: Well, thank you again for joining us. We'll be participating in the BTIG Housing Finance Conference on May 7th and the Truist Financial Services Conference on May 22nd. We look forward to speaking with you again soon.
Johnson: Well. Thank you again for joining us will be participating in the <unk> housing Finance conference on May seven and the Truest financial services Conference on May 20, <unk>, we look forward to speaking with you again soon.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Unknown Attendee: Sure.