Q4 2024 MGIC Investment Corp Earnings Call
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Speaker Change: Now I'd like to turn the conference over to MS. Diana Higgins head of Investor Relations Ma'am. Please begin.
Speaker Change: Thank you Howard good morning, and welcome everyone. Thank you for your interest in MGIC joining me on the call today to discuss our results for the fourth quarter, our Tim Mackey, Chief Executive Officer, and Nathan Colson, Chief Financial Officer, and Chief Risk Officer.
Speaker Change: Our press release, which contains mgic's fourth quarter financial results was issued yesterday and is available on our website at M. T. G Dot MGIC dot com under newsroom includes additional information about our quarterly results that we will refer to during the call today.
Speaker Change: It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures.
Speaker Change: In addition, we posted on our website our quarterly supplement that contains information pertaining to our primary risk in force and other information you may find valuable.
Speaker Change: As a reminder from time to time, we May post information about our underwriting guidelines and other presentations or corrections to past presentations on our website.
Speaker Change: Before we get started today I want to remind everyone that during the course of this call. We may make comments about our expectations of the future.
Speaker Change: Actual results could differ materially from those contained in these forward looking statements additional information about the factors that could cause actual results to differ materially from those discussed on the call. Today are contained in our form 8-K that was also filed yesterday, if we make any forward looking statements.
Speaker Change: We are not undertaking an obligation to update those statements in the future in light of subsequent developments.
Speaker Change: No one should rely on the fact that such guidance or forward looking statements are current at any other time than the time of this call or the issuance of our 8-K.
Tim Mackey: With that I now have the pleasure to turn the call over to Tim.
Tim Mackey: Thank you Diana and good morning, everyone.
Tim Mackey: We ended the year on a high note with solid fourth quarter financial results capping another successful year.
Tim Mackey: Can we generate a mid teen returns on equity, while returning meaningful capital to our shareholders.
Tim Mackey: Our business strategies and the strength of our business model allows us to be successful in varying economic environments.
Tim Mackey: Consistent with the last few years, our 2024 financial results benefited from favorable credit trends and a disciplined approach to risk and capital management.
Tim Mackey: Now a few financial highlights.
Tim Mackey: In the quarter, we earned net income of $185 million.
Tim Mackey: <unk>, an annualized 14% return on equity for.
Tim Mackey: For the full year, we earned net income of $763 million compared.
Tim Mackey: Compared to $713 million in the prior year.
Tim Mackey: Or is it for us at the end of the quarter stood at more than $295 billion up slightly from the prior quarter.
Tim Mackey: The overall credit quality of our insurance portfolio remains solid with an average FICO of 747% origination Danny.
Annual persistency end of the quarter to 85% remaining relatively flat during the year consistent with what we had expected at the start of the year.
Tim Mackey: We wrote $16 billion of new insurance in the fourth quarter and $56 billion of new insurance for the full year up 21% from the prior year.
Tim Mackey: We remain focused on maintaining a strong and balanced insurance portfolio.
Tim Mackey: We have not seen a material change in the credit performance of our portfolio and early payment defaults remain at very low level, which we believe is a good indicator of near term credit performance.
The strength and flexibility of our capital position during the year supported $750 million in dividend from MGIC to the holding company.
Tim Mackey: We also return meaningful capital to our shareholders through a combination of repurchasing common stock and paid common stock dividends for a total of approximately $700 million.
Tim Mackey: This represents a 92% payout ratio of this year's net income.
Tim Mackey: We expect share repurchases will remain our primary means of returning capital to shareholders. While at the same time continue to pay a quarterly common stock dividend.
Tim Mackey: As discussed through the year, our approach to capital management remains dynamic with financial strength and flexibility of the cornerstones of our strategy.
Tim Mackey: As part of our capital management, we regularly assess capital levels at both the operating company and holding company.
Tim Mackey: During the current and expected environment to position ourselves for success across varying scenarios.
Tim Mackey: <unk> approach to this consistently served our stakeholders well.
Tim Mackey: While we prioritized prudent growth over catheter return opportunities for growing our insurance in force over the last two years has been constrained due to the size of the market.
Tim Mackey: During that same time operating results and credit performance have been strong leading to higher payout ratios.
Tim Mackey: Performance remains strong and our risk profile stable or improving I would expect capital levels at MGIC and the holding company to remain above target and payout ratios remain elevated.
Tim Mackey: Our well established reinsurance program, which includes the use of forward commitment quota share agreements and excess of loss agreements executed either the traditional <unk> market to remain a key component of our risk and capital management strategies.
Tim Mackey: In addition to reducing the volatility of losses in stress scenarios, our reinsurance agreements provide capital diversification and flexibility at attractive costs and reduced our pmiers required assets by $2 2 million for approximately 40% at the end of the fourth quarter.
Tim Mackey: Shifting more broadly to the housing market. Despite some lingering uncertainty remains resilient supported by favorable supply demand dynamics that generally positive economic outlook consents.
Tim Mackey: Consensus forecast projected CMI market in 2025 will be relatively similar in size to 2024 and mortgage rates remaining elevated which leads us to expect another year of high persistency.
Tim Mackey: Additionally, recent forecast indicate moderating growth in home prices, improving housing inventory and continued pent up demand along with favorable demographics, which we believe points to the continued resiliency of the housing market and the industry.
Tim Mackey: With that let me turn it over to Nathan they get into more details on our financial results and capital management activities for the quarter.
Nathan Colson: Thanks, Tim and good morning.
Nathan Colson: As Tim mentioned, we had another quarter of solid financial results.
Nathan Colson: We earned net income of <unk> 72 per diluted share compared to <unk> 66 cents during the fourth quarter last year.
Nathan Colson: For the full year over year net income of $2 89 per diluted share compared to $2 49 per diluted share last year.
Nathan Colson: A re estimation of ultimate losses on prior delinquencies resulted in $54 million of favorable loss reserve development in the quarter.
Nathan Colson: The favorable development this quarter, primarily came from delinquency notices we received in 2023 in early 2024.
Speaker Change: Curious on those delinquency notices.
Speaker Change: Exceed our expectations and therefore, we have made favorable adjustments to our ultimate loss expectations.
Speaker Change: It is still too early to determine the full impact of the Hurricanes Helene and Milton will have on our new notices and our delinquency rate.
Speaker Change: To date, we estimate the impact has been modest with approximately 700, new notices received in the fourth quarter that are leather is a clear result of the hurricanes.
Speaker Change: We adjusted our initial claim rate for new notices received in the fourth quarter from seven 5% in prior quarters to seven 3% this quarter to reflect the expected increase cure rates from the hurricane related delinquencies.
Speaker Change: In the fourth quarter, our account base delinquency rate increased 16 basis points to two 4%, which is consistent with the seasonal trends. We have been discussing and includes a six basis point impact from the hurricane related delinquencies I just mentioned.
The favorable development this quarter, primarily came from delinquency notices we received in 2023 in early 2024.
Speaker Change: While the level of new notices in our delinquency rate of increase relative to recent years, they remain low by historical standards.
Curious on those delinquency notices.
Speaker Change: We continue to expect that the level of new delinquency notices may increase modestly due to the large 2020 through 2022 book years being in what are historically higher loss emergence yours.
It exceeded our expectations and therefore, we have made favorable adjustments to our ultimate loss expectations.
It is still too early to determine the full impact of Hurricanes Helene and Milton will have on our new notices in our delinquency rate.
Speaker Change: The enforced premium yield was $38 six basis points in the quarter and remained relatively flat during the year consistent with what we expected at the start of the year.
To date, we estimate the impact has been modest with approximately 700, new notices received in the fourth quarter that our lives. They clear result of the Hurricanes.
Speaker Change: Given expectations of another year with high persistency in a similar market to 2024, we expect the enforced premium yields remained relatively flat again in 2025.
We adjusted our initial claim rate for new notices received in the fourth quarter from seven 5% in prior quarters to seven 3% this quarter to reflect the expected increase cure rates from the hurricane related delinquencies.
Speaker Change: Our solid operating results together with our strong balance sheet enabled us to grow book value per share to $20 82.
In the fourth quarter, our account base delinquency rate increased 16 basis points to two 4%, which is consistent with the seasonal trends. We have been discussing and includes a six basis point impacts from the hurricane related delinquencies I just mentioned.
Speaker Change: Up 12% compared to a year ago, while returning $700 million of capital to shareholders through dividends and share repurchases and reducing the outstanding shares by approximately 9%.
Speaker Change: The book yield on the investment portfolio was three 8% at the end of the fourth quarter up 20 basis points from a year ago and flat quarter over quarter as the yield on cash and cash equivalents declined offsetting improvements from reinvestment.
While the level of new notices in our delinquency rate have increased relative to recent years, they remain low by historical standards.
We continue to expect that the level of new delinquency notices may increase modestly due to the large 2020 through 2022 book years being in what are historically higher loss emergence years.
Speaker Change: Net investment income was $61 million in the quarter down $1 million sequentially and up $3 million from the fourth quarter last year.
The enforced premium yield was 38 six basis points in the quarter and remained relatively flat during the year consistent with what we expected at the start of the year.
Speaker Change: During the fourth quarter increases in yields across the treasury curve caused fixed income prices to decline, resulting in the unrealized loss position on our investment portfolio, increasing by $129 million.
Given expectations of another year with high persistency in a similar market to 2024, we expect the enforced premium yields remained relatively flat again in 2025.
Speaker Change: Our ongoing focus on expense management and operational efficiency continues to pay off.
Our solid operating results together with our strong balance sheet enabled us to grow book value per share to $20 82.
Speaker Change: Operating expenses in the quarter were $49 million down from $55 million in the fourth quarter last year.
12% compared to a year ago, while returning $700 million of capital to shareholders through dividends and share repurchases and reducing the outstanding shares by approximately 9%.
Speaker Change: For the full year expenses were $218 million down $19 million from 2023 and toward the lower end of the $215 million to $225 million range, we shared throughout the year.
The book yield on the investment portfolio was three 8% at the end of the fourth quarter up 20 basis points from a year ago and flat quarter over quarter as the yield on cash and cash equivalents declined offsetting improvements from reinvestment.
Speaker Change: For 2025, we expect operating expenses will be lower again to a range of $195 million to $205 million.
Speaker Change: Turning to our capital management activities in the fourth quarter.
Net investment income was $61 million in the quarter down $1 million sequentially and up $3 million from the fourth quarter last year.
Speaker Change: We continue to allocate excess capital to share repurchases totaling seven 8 million shares of common stock for $193 million and paid a quarterly common stock dividend of <unk> $33 million.
During the fourth quarter increases in yields across the treasury curve caused fixed income prices to decline, resulting in the unrealized loss position on our investment portfolio, increasing by $129 million.
Speaker Change: And as previously announced in the quarter, we paid a $400 million dividend from MGIC to the holding company the.
Speaker Change: The dividend from them gesture of the holding company reflected capital levels at MGIC that continue to be above our target.
Yes.
Our ongoing focus on expense management and operational efficiency continues to pay off.
Speaker Change: We continued our share repurchase program into 2025 and in January we repurchased an additional $3 5 million shares of common stock for a total of $85 million.
Operating expenses in the quarter were $49 million down from $55 million in the fourth quarter last year.
For the full year expenses were $218 million down $19 million from 2023 and toward the lower end of the $215 million to $225 million range, we shared throughout the year.
Speaker Change: Our share repurchase activity continues to reflect our capital strength financial results and share price levels that we believe are attractive to generate long term value for our shareholders.
As of January 31, we had $372 million remaining on our current share repurchase authorization.
For 2025, we expect operating expenses will be lower again to a range of $195 million to $205 million.
Speaker Change: Also in January the board authorized a 13 <unk> per share common stock dividend to be paid on March 5th.
Turning to our capital management activities in the fourth quarter.
Speaker Change: Consistent with our overall reinsurance strategy to prioritize coverage on the most recent book your vintages in future <unk> as previously announced in the fourth quarter. We further bolstered our reinsurance program with the multi year, 40% quota share transaction with a panel of highly rated reinsurers.
We continue to allocate excess capital to share repurchases totaling seven 8 million shares of common stock for $193 million and paid a quarterly common stock dividend of <unk> $33 million.
And as previously announced in the quarter, we paid a $400 million dividend from MGIC to the holding company the.
Speaker Change: We will cover most of our policies written in 2025 and 2026.
The dividend from them gesture of the holding company reflected capital levels at MGIC that continue to be above our target.
Speaker Change: Also rather than canceling the quota share treaties covering our 2021 <unk>, we amended terms with certain participants from the existing reinsurance panel that effectively reduces the quota share cede rate from 30% to 26% achieving approximately a 50% reduction in the ongoing costs.
We continued our share repurchase program into 2025 and in January we repurchased an additional $3 5 million shares of common stock for a total of $85 million.
Our share repurchase activity continues to reflect our capital strength financial results and share price levels that we believe are attractive to generate long term value for our shareholders.
Tom: That's all I'm going to turn it back over to Tom.
Speaker Change: Nathan.
Tom: With some comments before we open up to questions.
As of January 31, we had $372 million remaining on our current share repurchase authorization.
Speaker Change: Mortgage insurance claims in the housing finance system.
Tom: We're working with.
Also in January the board authorized a 13 <unk> per share common stock dividend to be paid on March 5th.
Tom: Because in the press release.
Tom: The next dropdown implementation program.
Tom: We continue to work to the FHFA the Gse's.
Consistent with our overall reinsurance strategy to prioritize coverage on the most recent book your vintages in future <unk> as previously announced in the fourth quarter. We further bolstered our reinsurance program with a multi year, 40% quota share transaction with the panel of highly rated reinsurers that will cover most of our.
Tom: Other industry key stakeholders responsibly serve low down payment borrowers while advocating for increased use of private MRI in order to protect the taxpayer from mortgage credit risk and to help shape the future of housing finance system.
Tom: In closing, we had a great year successfully executing our business strategies and returning meaningful capital to our shareholders.
Policies written in 2025 and 2026.
Tom: <unk> leadership, and our position in the market and believe their capital strength and flexibility position us to continue to execute and deliver on our business strategies in 2025 and beyond great value to benefit all of our stakeholders.
Also rather than canceling the quota share treaties covering our 2021 <unk>, we amended terms with certain participants from the existing reinsurance panel that effectively reduces the quota share cede rate from 30% to 26% achieving approximately a 50% reduction in the ongoing costs.
Speaker Change: With that operator, let's take questions.
Speaker Change: Ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.
Hey, Paul Let me turn it back over to Tom.
Speaker Change: If your question has been answered or you wish to remove yourself from the queue simply press star one again.
With an approval.
Tom: Some comments before we open up to questions.
Speaker Change: Again, if you have a question or comment at this time. Please press star one one on your keypad. Please standby, while we compile the Q&A roster.
Tom: Mortgage insurance claims in the housing finance system.
Tom: We're working with.
Tom: Excellent.
Tom: To be the next dropdown program.
Tom: To work with the FHFA, the Gse's and other industry key stakeholders responsibly serve low down payment borrowers while advocating for increased use of private MRI in order to protect the taxpayer to mortgage credit risk and to help shape the future of housing finance system.
Speaker Change: Our first question or comment comes from the line of Terry MA from Barclays. Your line is open.
Terry MA: Hey, Thank you good morning.
Speaker Change: So you touched on the new notices.
Speaker Change: So you touched on the new notice claim rate coming down and that was hurricane related but your new notice severity also ticked up a little bit can you, maybe just talk about that and what's kind of driving that.
Tom: In closing, we had a great year successfully executing our business strategies and returning meaningful capital to our shareholders.
Tom: I am confident in our leadership and our position in the market and believe their capital strength and flexibility position us to continue to execute and deliver on our business strategies in 2025 and beyond great value to benefit all of our stakeholders.
Gary: Okay Gary.
Nathan Thanks for the question, it's really it's really a function of just higher exposures on the new delinquencies that were receiving compared to what we would've seen in prior quarters and some of that as a result of receiving more.
Tom: With that operator, let's take questions.
Gary: <unk> relatively more new notices from the 2022 through 2024 vintages compared to prior quarters, which have higher loan amounts and higher exposures, but we're still targeting the same.
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Speaker Change: If your question has been answered or you wish to remove yourself from the queue simply press star one again.
Gary: Severity exposure ratio that we have in the past just it's ticking up due to actual exposures, increasing largely due to the mix of the new notices we are receiving.
Speaker Change: Again, if you have a question or comment at this time. Please press star one one on your keypad.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Got it okay that makes sense and then maybe just on the Opex guide.
Speaker Change: Our first question or comment comes from the line of Terry MA from Barclays. Your line is open.
Speaker Change: You I guess talk about the drivers of that.
Speaker Change: Opex kind of going lower and then maybe just any more color on how much.
Terry MA: Hey, Thank you good morning.
Speaker Change: So you touched on and even notice.
Speaker Change: Lower Opex can go longer term. Thank you.
Speaker Change: So you touched on the new notice claim rate coming down and that was hurricane related but your new notice severity also ticked up a little bit can you, maybe just talk about that and what's kind of driving that.
Speaker Change: Yes, Nathan again, I think the results in the fourth quarter were really reflective of the cumulative impact of all of the changes that we've made over the last couple of years, especially.
Speaker Change: Yeah, Gary it's Nathan Thanks for the question, it's really it's really a function of just higher exposures on the new delinquencies that were receiving compared to what we would've seen in prior quarters and some of that as a result of receiving more on new.
Speaker Change: So as we talk about the guidance range for next year.
Speaker Change: Centered around $200 million.
Speaker Change: Largely operating there in the fourth quarter so.
Speaker Change: It's really been a result of things that we've talked about pretty consistently over time, which is trying to trying to continue to align our resources to where they add value given what customers want and demand.
Speaker Change: <unk> relatively more new notices from the 2022 through 2024 vintages compared to prior quarters, which have higher loan amounts and higher exposures, but we're still targeting the same.
Speaker Change: So that's something that we've always done that we'll continue to do.
Speaker Change: Severity exposure ratio that we have in the past just it's ticking up due to actual exposures, increasing largely due to the mix of the new notices we are receiving.
Speaker Change: Im not.
Speaker Change: I don't think were going to provide anything beyond 2025 in terms of formal guidance, but I would just say I don't believe that the 2025 level is the lowest level that we can achieve either.
Speaker Change: Got it okay that makes sense and then maybe just on the Opex guide.
Speaker Change: You I guess talk about the drivers of that.
Speaker Change: Opex kind of going lower and then maybe just any more color on how much.
Speaker Change: Thank you our next question or comment comes from the line of.
Speaker Change: Lower Opex can go longer term. Thank you.
Speaker Change: <unk> <unk> from Bank of America Ma'am your line is open.
Speaker Change: Yes, Terry Nathan again, I think the results in the fourth quarter were really reflective of the cumulative impact of all of the changes that we've made over the last couple of years, especially.
Speaker Change: Hi, Thank you for taking my questions maybe to start I just wanted to touch on GSE reform privatization as it been in the news lately, maybe just talk about some of the puts and takes.
Speaker Change: MTGE in particular, if that was to happen in <unk> to be released.
Speaker Change: So as we talk about the guidance range for next year.
Speaker Change: Centered around $200 million.
Speaker Change: Yes.
Speaker Change: Question is top of mind, obviously and there is there's a lot of different paths that can take right.
Speaker Change: Largely operating there in the fourth quarter so.
Speaker Change: That's really been a result of things that we've talked about pretty consistently over time, which is trying to trying to continue to align our resources to where they add value given what customers want and demand.
Speaker Change: When we sit back and look at it.
Speaker Change: He has a lot of things that can happen as they think about trying to release the gse's out a conservative shift you can think about them on the shrink that footprint to make it easier which could have an impact obviously on the amount of volume that can flow to us.
Speaker Change: So that's something that we've always done that we'll continue to do.
Speaker Change: Im not.
Speaker Change: I don't think were going to provide anything beyond 2025 in terms of formal guidance, but I would just say I don't believe that the 2025 level is the lowest level that we can achieve either.
Speaker Change: You could also think of in terms of trying to think about the amount of volume that they can do versus FHA and probably a lot of dialogues it'll be had there and we think there's a really good case to be made that.
Speaker Change: It makes more sense from a taxpayer perspective for volume to flow through the <unk> as opposed to FHA, which would benefit us.
Speaker Change: Thank you our next question or comment comes from the line of.
Speaker Change: Your line of the table I think the one thing that we think is important when you talk about <unk> in and coming out of conservatorship privatization or whatever you want to call. It is that theres the right guardrails in place.
Mark <unk>: Mark <unk> from Bank of America Ma'am your line is open.
Speaker Change: Hi, Thank you for taking my questions maybe to start I just wanted to touch on GSE reform privatization has been in the news lately, maybe just talk about some of the puts and takes fee.
Speaker Change: And that you think about how the market will function in the long run.
Speaker Change: And I think it's safe to say that we're always wanted to be thoughtful about the role that private credit and mortgage insurance can play in sort of providing that safety valve.
Speaker Change: MTGE in particular, if that was to happen in <unk> to be released.
Speaker Change: The taxpayers as far as not having the gse's have to take that credit risk.
Speaker Change: Yes.
Speaker Change: Question is top of mind, obviously and there is there's a lot of different paths that can take right.
Speaker Change: We think that's been true for decades, and we think that'll be true in the future as well. So I think we will have a seat at the table in those discussions.
Speaker Change: When we sit back and look at it.
Speaker Change: He has a lot of things that can happen as they think about trying to release the gse's out a conservative shift you can think about them on the shrink that footprint to make it easier which could have an impact obviously on the amount of volume that can flow to us.
Speaker Change: But I don't think were rooting, one way or the other as much as making sure that the right sort of thought processes is going into this process and that the right guardrails in place no matter sort of where we're at sort of ends up.
Speaker Change: You can also think of in terms of trying to think about the amount of volume that they can do versus FHA and probably a lot of dialogue that'll be had there and we think there's a really good case to be made that.
Speaker Change: Okay.
Speaker Change: And then maybe just on the claim rate I appreciate you sort of tick lower this quarter, just because of the hurricane.
Speaker Change: It makes more sense from a taxpayer perspective for volume to flow through the <unk> as opposed to FHA and which would benefit us.
Speaker Change: <unk>.
Speaker Change: I guess, we've had an extended period of reserve releases. So maybe just talk a little bit about what do you need to see happening for you to be convinced that the claim the initial claim rate should be a lower number than the Senate ish seven five that you've been at the last few quarters.
Speaker Change: Your line of the table I think the one thing that we think is important when you talk about <unk> in and coming out of conservatorship privatization at whatever you want to call. It is that theres the right guardrails in place.
Speaker Change: And that you think about how the market will function in the long run.
Nathan Colson: Excuse me here, it's Nathan Thanks for the question I think the way that we look at it as new delinquencies that we received in the quarter.
Speaker Change: I think it's safe to say that we're always wanted to be thoughtful about the role that private credit and mortgage insurance can play in sort of providing that safety valve.
Nathan Colson: There is a wide range of possible outcomes that those will experience in the future given kind of future economic environment.
Speaker Change: Taxpayers as far as not having the gse's have to take that credit risk.
Speaker Change: We think that's been true for decades, and we think that'll be true in the future as well. So I think we will have a seat at the table in those discussions.
Nathan Colson: It is true that the actual economic environment for mortgage credit has been very good over the last few years. So the the notices that we have received have been on a very favorable path and have resolved.
Speaker Change: But I don't think we're rooting, one way or the other as much as making sure that the right sort of thought processes is going into this process and at the right guardrails in place no matter sort of where we're at sort of ends up.
More favorably than we initially expected, which has led to continued reserve releases on prior delinquencies I think if you take that thought process and kind of think about what would it take to meaningfully reduce the new notice claim rate in the future is I think we would have to be fairly convinced that.
Speaker Change: Okay.
And then maybe just on the claim rate I. Appreciate you said it ticked lower this quarter, just because of the Hurricane Bill Quinn.
Speaker Change: Quincy's up I guess, we've had a extended period of reserve releases. So maybe just talk a little bit about what do you need to see happening for you to be convinced that the claim the initial claim rate should be a lower number than the seven ish seven five that you've been at the last few quarters.
The future economic environment, it was going to be as favorable as the recent past economic environment for unemployment for home prices for other things and I think the the future economic environment is always a lot more uncertain than.
Nathan Colson: Then whats happened in the past so I think we're really comfortable with.
Nathan: Excuse me here, it's Nathan Thanks for the question.
Speaker Change: Think the way that we look at it as new delinquencies that we received in the quarter.
Nathan Colson: Where we sit in that it represents historically.
Nathan Colson: Relatively low new notice claim rate.
Speaker Change: There's a wide range of possible outcomes that those will experience in the future given kind of future economic environment.
Nathan Colson: Here too.
Nathan Colson: To the last five or six years, we would have said that.
Nathan Colson: Anything below 10% would have been kind of exceptional credit performance, we've been operating well below that for some time now, but I think with the thought of the range of possible outcomes for new notices being quite wide still I think we feel really comfortable with where we are on the new notice claim rate at least in the near term.
Speaker Change: It is true that the actual economic environment for mortgage credit has been very good over the last few years. So the notices that we have received have been on a very favorable path and have resolved.
Speaker Change: More favorably than we initially expected, which has led to continued reserve releases on prior delinquencies.
Speaker Change: Okay. No that's quite helpful. And then just my last question is what is the normalized delinquency rate like I guess, what we're trying to understand is like you said, we've been in a very favorable environment, but presumably you don't underwrite to this favorable environment.
Speaker Change: I think if you take that thought process and kind of think about what would it take to meaningfully reduce the new notice claim rate in the future is I think we would have to be fairly convinced that the future economic environment. It was going to be as favorable as the recent past economic environment for unemployment for home prices and for other things.
Speaker Change: And there is some kind of more normalized delinquency or claim rate.
Speaker Change: All the weeks like it'll claims payments that you're underwriting to what is that or is there something that you can help us with there like what should be like I'm trying to think of what's the normal credit costs fall Goodbye.
Speaker Change: I think the the future economic environment is always a lot more uncertain than.
Speaker Change: Then whats happened in the past so I think we're really comfortable with.
Speaker Change: Where we sit in that it represents historically.
Speaker Change: Or would that be.
Speaker Change: Our relatively low new notice claim rate.
Yes.
Speaker Change: I would think about it maybe less in terms of what that turns into into delinquency rate.
Speaker Change: <unk> two.
Speaker Change: Prior to the last five or six years, we would have said that.
Speaker Change: Anything below 10% would have been kind of exceptional credit performance, we've been operating well below that for some time now, but I think with the thought of the range of possible outcomes for new notices being quite wide still I think we feel really comfortable with where we are on the new notice claim rate at least in the near term.
Speaker Change: Thats becomes largely a function of persistency and how long books are lasting and on your in force book, What's the relative concentration of recent writings versus older writing things, but I think what we've said pretty consistently over time is that we think said kind of more through the cycle underwriting type loss ratios.
Speaker Change: Okay No that's.
Speaker Change: Quite helpful. And then just my last question is what is the normalized delinquency rate like I guess, what we're trying to understand is like you said, we've been in a very favorable environment, but presumably you don't underwrite to this favorable environment.
Speaker Change: B in that say 20 to 40 range over time.
Speaker Change: And we've been operating in zero or negative loss territory for the last several years so.
Speaker Change: The kind of underwriting expectations are quite a bit worse than what we've been experiencing.
Speaker Change: And there is some kind of more normalized delinquency or claim rate.
Speaker Change: Over the last five.
Speaker Change: Five years or so.
Speaker Change: All week like it'll claims payments that you're underwriting to what is that.
Speaker Change: Got it that's helpful. Thank you for taking my questions.
Speaker Change: Sure.
Speaker Change: Is there something that you can help us with there like what should be like so I'm trying to think of what's the normal.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question or comment comes from the line of Bose George from K BW. Your line is open.
Speaker Change: Credit costs for MRI, what would that be.
Speaker Change: Hey, guys good morning.
Speaker Change: Yes.
Speaker Change: Looking at the debt to income trend in 2024, and it looks like it's been higher than it has been for quite a while.
Speaker Change: I would I would think about it maybe less in terms of what that turns into a into a delinquency rate.
Speaker Change: Thats becomes largely a function of persistency and how long bookstore last thing and on your in force book, What's the relative concentration of recent writings versus older writing things, but I think what we've said pretty consistently over time is that we think said kind of more through the cycle underwriting type loss ratios.
Speaker Change: Pre COVID-19 levels is that a reflection of affordability can you just talk about that and other underwriting offsets to that.
Speaker Change: Just to clarify you're talking about debt to income ratios, yes, just the debt to income ratios.
Speaker Change: Yes.
Speaker Change: I.
Speaker Change: It would be in that say 20 to 40 range over time.
Speaker Change: I do think it's really just a matter of affordability right in and when you think about sort of how much how much home prices went up but on top of that and interest rates have risen that when you look at sort of the ability of someone to qualify.
Speaker Change: And we've been operating in zero or negative loss territory for the last several years so.
Speaker Change: The kind of underwriting expectations are quite a bit worse than what we've been experiencing.
Speaker Change: Having to stretch those debt to income ratios has been something does theres been very true for the last couple of years, especially once interest rates rose. So I think it's safe to say that the other sort of credit characteristics have been.
Speaker Change: Over the last five years or so.
Speaker Change: Got it no. That's helpful. Thank you for taking my questions.
Speaker Change: Relatively stable and favorable such that that's adding one additional risk characteristic that we keep a close eye on.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question or comment comes from the line of Bose George from <unk>. Your line is open.
Speaker Change: And but generally it felt comfortable with that.
Bose George: Hey, guys good morning.
Speaker Change: You can think about you can get premium related to that risk as well.
Bose George: I was looking at the debt to income trend in 2024, and it looks like it's been higher than it has been for <unk>.
Speaker Change: Feel pretty comfortable at sort of the risk return relative to that profile, but it is something I think that we need to be thoughtful about that.
Bose George: Right.
Bose George: Higher than pre Covid levels is that a reflection of affordability can you just talk about that and other underwriting offsets to that.
Speaker Change: That people will have the other good credit characteristics go along with that credit profile. They have a good FICO.
Both of you just to clarify Todd concerned about debt to income ratios, yes, just the debt to income ratios.
Speaker Change: They have good employment history those types of things are important to make sure that someone can be successful and they actually purchased the home and can be able to stay in the home.
Bose George: Yes.
Bose George: Okay.
Bose George: I do think it's really just a matter of affordability right in and when you think about sort of how much how much home prices went up but on top of that and interest rates have risen that when you look at sort of the ability of someone to qualify.
Speaker Change: Okay.
Speaker Change: Very good.
Speaker Change: Just maybe add on both of them and I think if you look at the recent history.
Speaker Change: The third quarter of 2020 to the fourth quarter of 2022, we saw larger increases in the higher DTI segment and Thats. The same periods that mortgage rates were going up it's been relatively flat over the last couple of years and in the supplemental materials that we publish you also talk about required capital on new business and Thats.
Bose George: Having to stretch those debt to income ratios has been something that has been very true for the last couple of years, especially once interest rates rose. So I think it's safe to say that the other sort of credit characteristics have been.
Bose George: Relatively stable and favorable such that that is adding one additional risk characteristic that we keep a close eye on.
Speaker Change: Actually ticked down a little bit now DTI below 50 is not a variable in P Myers, but I think risk based pricing and the ability to price layered risk.
Bose George: And but generally it felt comfortable with that.
Bose George: You can think about you can get premium related to that risk as well as our feel pretty comfortable sort of the risk return relative to that profile, but it is something I think that we need to be thoughtful about that.
Speaker Change: Pretty discretely in a way that we couldnt with rate cards has also been a ways that we've been able to address this kind of a new risk factor in the market by kind of offsetting it.
Bose George: That people will have the other.
Speaker Change: With with kind of better quality other factors so.
Bose George: Good credit characteristics go along with that credit profile.
Speaker Change: I think it is.
Speaker Change: Kind of a function of higher interest rates, we would expect if rates were to go back to three years to 4% that that level of highly Gi would would also come down but.
Bose George: Have a good FICO.
Bose George: Have good employment history those types of things are important to make sure that someone can be successful and they actually purchased the home in and be able to stand on.
Bose George: Okay great.
Speaker Change: It feels like something that we can kind of directly address and our credit policy and pricing approach as well.
Bose George: Very good.
Bose George: Just maybe add on both Xyrem and I think if you look at the recent history.
Speaker Change: Okay, great. Thanks, and then actually just going back to the <unk>.
Bose George: The third quarter of 2020 to the fourth quarter of 2022, we saw larger increases in the higher DTI segment and Thats. The same periods that mortgage rates were going up it's been relatively flat over the last couple of years and the.
Speaker Change: The claim rate question.
Speaker Change: The books that you mentioned, the 23% and 24 that cured.
Speaker Change: And what was sort of the ultimate claim rate on some of that stuff.
Speaker Change: Well.
Bose George: The supplemental materials that we publish you also talked about.
And just just to be clear when.
Speaker Change: It's less the book years and more when we received the new notices so.
Bose George: Required capital on new business, and Thats actually ticked down a little bit now DTI below 50 is not a variable in P Myers, but I think risk based pricing and the ability to price layered risk.
Speaker Change: We received new notices from for many different book years in 2023, we think about them. Then that's kind of a group of notices that are then.
Bose George: Pretty discretely in a way that we couldnt with rate cards has also been a way that we've been able to address this kind of a new risk factor in the market by kind of offsetting it.
Kind of tracked over time, and ultimate claim rates established and the like but.
Speaker Change: Those are not.
Speaker Change: Those are not fully developed so there is not a not a new.
Bose George: With what's kind of better quality other factors. So I think it is.
Speaker Change: Got to finalize the answer I guess on what the ultimate claim rate is but on a lot of those.
Bose George: Kind of a function of higher interest rates.
Bose George: We would expect if rates were to go back to 3% or 4% that that level of hydrogen Ti would would also come down but.
Speaker Change: New notice quarters.
Speaker Change: If I look at it or kind of new ultimate claim rate expectations are somewhere in the 3% to 5% range.
Bose George: It feels like something that we can kind of directly address and our credit policy and pricing approach as well.
For those compared to $7 five initially.
Speaker Change: Some of our more fully developed to notice quarters back into 2021 or 2022.
Bose George: Okay, great. Thanks, and then actually just going back to the.
Bose George: The claim rate question.
Bose George: The books that you mentioned, the 23% and 24 that cured.
Have seen ultimate claim rates and kind of the 1% to 3% range. So.
Bose George: And what was sort of the ultimate claim rate on some of that stuff.
Speaker Change: It's been kind of exceptionally favorable environment.
Bose George: Well.
Speaker Change: For mortgage credit coming out of the kind of peak COVID-19 dislocation in the second quarter of 2020.
Bose George: And just just to be clear when it's less the book years and more when we received the new notices so.
Speaker Change: But early results for new recent notices are showing similar resolution patterns as we track them.
Bose George: We received new notices from for many different book years. In 2023, we think about them then thats kind of a group of notices that are then kind of tracked over time and ultimate claim rates are established and the like but.
Speaker Change: After three months after six months after nine months so.
Speaker Change: It does still feel like that.
Speaker Change: That new notices are experiencing kind of pretty favorable environment and thats, leading to the continued favorable reserve development.
Bose George: Those are not.
Bose George: Those are not fully developed up so there is not a not a new.
Speaker Change: Okay, great. Thanks, a lot.
Bose George: Got to finalize the answer I guess on what the ultimate claim rate is but on a lot of those.
Speaker Change: Thank you. Our next question or comment comes from the line of Douglas Harter from UBS. Mr. Harder Your line is open.
Bose George: New notice quarters today, if I look at it or kind of new ultimate claim rate expectations are somewhere in the 3% to 5% range for those compared to $7 five initially.
Thanks, I was hoping you could talk about the pricing environment for <unk> in the quarter.
Bose George: Some of our more fully developed to notice quarters back into 2021 or 2022.
Speaker Change: You saw.
Speaker Change: Hum.
Bose George: I've seen ultimate claim rates and kind of the 1% to 3% range. So.
Speaker Change: And the competitive dynamics.
Speaker Change: Yes, Doug I'll answer that again, we don't talk a lot about.
Bose George: It's been kind of exceptionally favorable environment.
Speaker Change: Sort of pricing dynamics as they think it gets too close to sort of something we feel is more proprietary on it I think it is fair to say that.
Bose George: For mortgage credit coming out of the kind of peak of a dislocation in the second quarter of 2020.
Bose George: But early results for new recent notices are showing similar resolution patterns as we track them.
Speaker Change: It feels like.
Speaker Change: The risk return continues to be very favorable and I, probably would've said that for better part of last year quite frankly.
Bose George: After three months after six months after nine months so.
Speaker Change: When we look at deploying capital.
Bose George: It does still feel like that.
Speaker Change: What resulted in our Q4 <unk> I think our view is the return expectations were very similar to what we've been experiencing most recently and Thats a good environment for us to be able to deploy that capital into.
Bose George: That new notices are experiencing kind of pretty favorable environment and thats, leading to the continued favorable reserve development.
Speaker Change: Okay, great. Thanks, a lot.
Speaker Change: Thank you. Our next question or comment comes from the line of Douglas Harter from UBS. Mr. Harder Your line is open.
Speaker Change: Great I appreciate it.
Speaker Change: Sure.
Speaker Change: Thank you. Our next question or comment comes from the line of Scott <unk> from RBC capital markets. Mr. Healey <unk>. Your line is open.
Douglas Harter: Thanks, I was hoping you could talk about the pricing environment for <unk> in the quarter.
Scott: Yes. Good morning, just wondering if you could just expand on the last comment about <unk> growth.
Speaker Change: You saw.
Speaker Change: Which was.
Speaker Change: And the competitive dynamics.
Speaker Change: Pretty significant and it sounds like you're pretty optimistic about the return potential on that business, but is there any.
Douglas Harter: Yeah, Doug I'll answer that again, we don't talk a lot about.
Speaker Change: Sort of pricing dynamics.
Speaker Change: Any particular geography or any.
Speaker Change: Get to close to sort of something we feel is more proprietary on it I think it is fair to say that.
Speaker Change: And any other detail you can share on.
While you are feeling so good about that.
Speaker Change: It feels like.
Speaker Change: The business Youre, putting on the books in Q4 versus the past year.
Speaker Change: The risk return continues to be very favorable and I, probably would've said that for better part of the last year quite frankly.
Speaker Change: No and I would say I guess just for clarity I think I feel good about the business. We put on for the last year and I think if you start to think about different geographies of risk factors I don't think we've really taken.
Speaker Change: When we look at deploying capital.
Speaker Change: What resulted in our Q4 <unk> I think our view is the return expectations were very similar to what we've been experiencing most recently and that's a good environment for us to be able to deploy that capital until.
Speaker Change: A significantly different approach to how we've how we've addressed the market in approach.
Speaker Change: The returns and pricing in that regard I think it's more of a continuation it feels like the fourth quarter is more of a continuation.
Speaker Change: Great I appreciate it.
Speaker Change: <unk> of what we had seen earlier in the year I think the one thing I guess to call out is there is probably a little bit more refi volume in our Q4 volume we think about when there is just that little bit of blip, but when interest rates came down.
Speaker Change: Sure.
Speaker Change: Thank you. Our next question or comment comes from the line of Scott <unk> from RBC capital markets. Mr. <unk>. Your line is open.
Speaker Change: Yes. Good morning, just wondering if you could just expand on the last comment about <unk> growth.
Speaker Change: Which is which is really Q3 of last year, but it doesn't turn into NSW for us until Q4 that probably helped us a little bit. So that was probably the only thing that I'd say felt a little bit different about the Q4 volume is probably a little bit more refi volume in there, but again from a deploying capital and further return profile feel like it would look consistent with it but that would probably be the one very.
Speaker Change: Which was.
Speaker Change: Pretty significant and it sounds like you're pretty optimistic about the return potential on that business, but is there any.
Speaker Change: Any particular geography or any.
Speaker Change: And any other details you can share on.
Speaker Change: Well that I could call out that might've been more precedent in Q4 and IW than it would've been earlier in the year.
Speaker Change: While you are feeling so good about that.
Speaker Change: The business Youre, putting on the books in Q4 versus the past year.
Speaker Change: Okay. That's helpful. And then the only question I just had was on the you gave the operating expense guidance for 2025, but the fourth quarter expense ratio was there anything any one time any kind of benefits in there that.
No and I would say I guess just for clarity I think I feel good about the business. We put on for the last year and I think if you start to think about different geographies. The risk factors I don't think we've really taken.
Speaker Change: Ticked down about 400 basis points or so was there any is there anything that you wouldn't expect to repeat in that number.
Speaker Change: A significantly different approach to how we how we've addressed the market in approach.
Speaker Change: Sort of the returns and pricing in that regard I think it's more of a continuation it feels like the fourth quarter is more of a continuation.
Number there for the fourth quarter.
Speaker Change: Yes, Nathan I mean, there are just there is some natural variability just end.
Speaker Change: Of what we'd seen earlier in the year I think the one thing I guess to call out is there is probably a little bit more refi volume in our Q4 volume we think about when there is just that little bit of blip when interest rates came down.
Speaker Change: The expenses that we have on a quarterly basis. So I think if you look at it on like a rolling 12 month basis, it's a lot smoother over time so.
Speaker Change: <unk>, which is which is really Q3 of last year, but it doesn't turn into an AWS price until Q4 that probably helped us a little bit. So that was probably the only thing that I would say felt a little bit different about the Q4 volume is probably a little bit more refi volume in there, but again from a deploying capital and further return profile feel like it would be consistent with that but that would probably be the one very.
Speaker Change: I think the and then Theres a little bit of just the seasonal first quarter is typically higher expenses some year end comp related items.
Speaker Change: Payroll taxes and other things so.
Speaker Change: I don't think that.
Speaker Change: We've never really experienced for every quarters. The same number but I think in general we're kind of operating at that level today that we have given us guidance for 2025, but there are a couple of smaller things, but nothing that I would really call out in terms of.
Well that I could call out that might have been more present in Q4 and IW than it would've been earlier in the year.
Speaker Change: Okay. That's helpful. And then the only question I had was on the you gave the operating expense guidance for 2025, but the fourth quarter expense ratio was there anything any one time any kind of benefits in there that.
Speaker Change: The fourth quarter debt.
Speaker Change: That was kind of significant and nonrecurring.
Speaker Change: But more just a reflection of the cumulative impact of all the changes that we've made.
Speaker Change: It ticked down about 400 basis points or so was there any is there anything that you wouldn't expect to repeat in that number there for the fourth quarter.
Speaker Change: Okay, great appreciate the answers.
Speaker Change: Thank you. Our next question or comment comes from the line of Geoffrey Dunn from Dowling and partners with Cowen Your line is open.
Speaker Change: Yes, Nathan I mean, there are just there's some natural variability just end.
Geoffrey Dunn: Thank you good morning.
Geoffrey Dunn: I wanted to understand the seven 3% claim assumption that better is the way to think of it that the hurricane notices were provisioned at a lower rate and the non hurricane notices were still at seven five with the implication being.
Speaker Change: The expenses that we have on a quarterly basis. So I think if you look at it on like a rolling 12 month basis. It's a lot smoother over time, so I think the and then theres a little bit of a seasonal first quarter is typically higher expenses some year end comp related items.
Geoffrey Dunn: When the Hurricane notices go away we're back to <unk>.
Geoffrey Dunn: Yes, Jeff as Nathan I think that's that's how we thought about it I think thats the right way to think about it.
Speaker Change: Payroll taxes and other things so.
Speaker Change: I don't think that we've never really experienced for every quarters. The same number but I think in general we're kind of operating at that level today that we have given us guidance for 2025, but there are a couple of smaller things, but nothing that I would really call out in terms of the.
Okay.
Geoffrey Dunn: And then with respect to expenses can you talk a little bit about what levers you're pulling to achieve the guidance it.
Geoffrey Dunn: It looks like if you strip out the ceding Commission.
Geoffrey Dunn: Close to 10% reduction year over year, what type of things are you doing to achieve that result in potentially getting an even better result beyond 'twenty five.
Speaker Change: The fourth quarter debt.
That was kind of significant and nonrecurring.
Speaker Change: But more just a reflection of the cumulative impact of all the changes that we've made.
Geoffrey Dunn: Yes.
Nathan Colson: Devon is Nathan again.
I think it's it's.
Speaker Change: Okay, great appreciate the answers.
Nathan Colson: Change is really that we started making in 2022 are kind of use of outside services broadly speaking.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question or comment comes from the line of Geoffrey Dunn from Dowling and partners your.
Speaker Change: Your line is open.
Nathan Colson: Is down quite a bit.
Speaker Change: Thank you good morning.
Nathan Colson: The kind of number of co workers that we have is down.
Speaker Change: I wanted to understand the seven 3% claim assumption, but better is.
Nathan Colson: It was down about 10% to 12% in the year.
Speaker Change: Way to think of it that the hurricane notices were provisioned at a lower rate and the non hurricane notices were still at seven five with the implication being.
Nathan Colson: <unk> had a lot of retirements over the last three years, we've been able to reposition the way that we.
Kind of do our work in certain departments, whether thats, how we call on customers and sales, how we underwrite loans, how we approach it.
Speaker Change: When the Hurricane notices go away we're back to <unk>.
Speaker Change: Yes, Jeff as Nathan I think that's that's how we thought about it I think that's the right way to think about it.
Nathan Colson: How we approach.
Nathan Colson: More of the back office functions like finance and risk management and other things that we have so.
Speaker Change: Okay.
Speaker Change: And then with respect to expenses can you talk a little bit about what levers you're pulling to achieve the guidance it.
Nathan Colson: I don't know that there is one or two major things that we've done I think this has been something that the whole company is pulling towards and.
Speaker Change: It looks like if you strip out the ceding Commission.
Speaker Change: Close to 10% reduction year over year, what type of things are you doing to achieve that result in potentially getting an even better result beyond 'twenty five.
Nathan Colson: We have achieved these results, but I think we also look at where the rest of the industry is expense wise and know that we still have we still have room to go.
Speaker Change: Yes.
Nathan: Devon is Nathan again.
Nathan Colson: And if I think back several years.
Speaker Change: I think it's it's.
Speaker Change: Change is really that we started making in 2022 are kind of use of outside services broadly speaking.
Nathan Colson: With respect to tech spend I think you ramped it up trying to.
Nathan Colson: Accelerate what you were achieving.
Nathan Colson: How do we think about your tech spend these days relative to what it was maybe three years ago.
Speaker Change: Is down quite a bit.
Speaker Change: <unk> kind of number of co workers that we have is down.
Speaker Change: Hey, Jeff I think the way I think of it as we're continuing to invest in the platform, but I think it's fair to say that some of the investments that we're making sort of in 'twenty one into 'twenty two sort of started to pay dividends such that we've been able to bring down run rate external to that.
Speaker Change: It was down about 10% to 12% in the year.
Speaker Change: Had a lot of retirements over the last three years, we've been able to reposition the way that we.
Speaker Change: Kind of do our work in certain departments, whether thats, how we call on customers and sales, how we underwrite loans, how we approach it.
Speaker Change: So as Nathan said, we probably had a little bit more outside services to help with some of the tech spend back in that time period and not quite as much reliance right now.
Speaker Change: How we approach.
Speaker Change: More of the back office functions like finance and risk management and other things that we have so.
Speaker Change: But I think it's fair to say that those that spending that we hope returning to silicones what started to happen.
Speaker Change: I don't know that there's one or two major things that that we've done I think this has been something that the whole company is pulling towards <unk>.
Speaker Change: You could almost three and policies that we need to be thoughtful about continuing to invest in the platform.
Speaker Change: We have achieved these results, but I think we also look at where the rest of the industry is expense wise and know that we still have we still have room to go.
Speaker Change: Most of them.
Speaker Change: We're talking through.
Speaker Change: Technology, and then we want to deal with growth and so it's really just focusing on the things that customers are making sure that we're delivering there.
Speaker Change: And if I think back several years.
Speaker Change: With respect to tech spend I think you ramped it up trying to ask.
Speaker Change: That ultimately.
This is something that is.
Speaker Change: Something that really necessary anymore. It doesn't help us from risk management standpoint, but we really question about how we go about it.
Speaker Change: Accelerate what you were achieving.
Speaker Change: How do we think about your tech spend these days relative to what it was maybe three years ago.
Speaker Change: We've done a lot of that the last couple of years.
Speaker Change: Hey, Jeff I think the way I think of it as we're continuing to invest in the platform, but I think it's fair to say that some of the investments that we're making sort of in 'twenty one into 'twenty two sort of started to pay dividends such that we've been able to bring down run rate external to that so.
Speaker Change: As I said, it's probably not one specific thing to add a little things other than I think it's fair to say that we spent more heavily on tech.
Speaker Change: Coming out of Covid, starting in Covid, that's paid some dividends now and I think the question is how much additional dividends kind of ultimately pay.
Speaker Change: So as Nathan said, we probably had a little bit more outside services to help with some of the tech spend back in that time period and not quite as much reliance right now.
Speaker Change: Okay. Thanks.
Speaker Change: Sure.
Speaker Change: Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to management for any closing remarks.
Speaker Change: But I think it's fair to say that those that spending that we bought returning to silicones, what started to happen, but I think it almost <unk> policies that we need to be thoughtful about continuing to invest on that platform.
Speaker Change: Sure. Thank you Howard I want to thank everyone for your interest in MGIC, who will be participating in the UBS and bank of America financial services conferences next week to have a great rest of your week. Thanks, everyone.
Speaker Change: Most of the rooms.
Speaker Change: Coming through.
Speaker Change: Acknowledging the move.
Speaker Change: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
Speaker Change: Deal.
Speaker Change: It's really just focusing on the things that consumers are making sure that we're delivering that.
Speaker Change: Yes.
Speaker Change: Something that ultimately.
Speaker Change: Something that is in <unk>.
Speaker Change: That really necessary anymore. It doesn't help us from risk management standpoint, so it really a question about how we go about it.
Speaker Change: We've done a lot of that the last couple of years as.
Speaker Change: As Nathan said, it's probably not one specific thing to add a little things other than I think it's fair to say that we spent more heavily on tech.
Speaker Change: Coming out of Covid, starting in Covid, that's paid some dividends now and I think the.
Speaker Change: Question is how much additional dividends kind of ultimately pay.
Speaker Change: Okay. Thanks.
Speaker Change: Sure.
Speaker Change: Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to management for any closing remarks.
Speaker Change: Sure. Thank you Howard I want to thank everyone for your interest in MGIC, who will be participating in the UBS and bank of America financial services conferences next week to have a great rest of your week. Thanks, everyone.
Speaker Change: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
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Speaker Change: Good day, ladies and gentlemen, and thank you for standing by welcome to the Q4 2020 for MGIC Investment Corporation earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question at that time, you will need to press star one one.
Speaker Change: I'll get telephone keypad.
Speaker Change: As a reminder, this conference call is being recorded I would now like to turn the conference over to MS. Diana Higgins.
Speaker Change: Mr Relations ma'am please begin.
Speaker Change: Thank you Howard good morning, and welcome everyone. Thank you for your interest in MGIC.
Speaker Change: Joining me on the call today to discuss our results for the fourth quarter, our Tim Mattke, Chief Executive Officer, and Nathan Colson, Chief Financial Officer, and Chief Risk Officer, Our press release, which contains Mgic's fourth quarter financial results was issued yesterday and is available.
Speaker Change: On our website at M. T G Dot MGIC dot com under newsroom includes additional information about our quarterly results that we will refer to during the call. Today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures.
Speaker Change: In addition, we posted on our website our quarterly supplement that contains information pertaining to our primary risk in force and other information you may find valuable.
Speaker Change: As a reminder from time to time, we May post information about our underwriting guidelines and other presentations or corrections to past presentations on our website.
Speaker Change: Before we get started today I want to remind everyone that during the course of this call. We may make comments about our expectations of the future.
Speaker Change: Actual results could differ materially from those contained in these forward looking statements additional information about the factors that could cause actual results to differ materially from those discussed on the call. Today are contained in our form 8-K that was also filed yesterday, if we make any forward looking statements.
Speaker Change: We are not undertaking an obligation to update those statements in the future in light of subsequent developments.
Speaker Change: No one should rely on the fact that such guidance or forward looking statements are current at any other time than the time of this call or the issuance of our 8-K with that I now have the pleasure to turn the call over to Tim.
Tim Mattke: Thank you Diana and good morning, everyone.
Tim Mattke: We ended the year on a high note with solid fourth quarter financial results capping another successful year, we consistently generate mid teen returns on equity, while returning meaningful capital to our shareholders.
Tim Mattke: Our business strategies.
Tim Mattke: Our business model allows us to be successful in varying economic environments.
Tim Mattke: Consistent with the last few years, our 2020 financial results benefited from favorable credit trends and disciplined approach to risk and capital management.
Tim Mattke: Now a few financial highlights.
Tim Mattke: In the quarter, we earned net income of $185 million and produced an annualized 14% return on equity.
Tim Mattke: For the full year, we earned net income of $763 million compared to $713 million in the prior year.
Tim Mattke: Set forth at the end of the quarter stood at more than $295 billion up slightly from the prior quarter.
Tim Mattke: The overall credit quality of our insurance portfolio remains solid with an average FICO of 747 net origination.
Tim Mattke: Annual persistent at the end of the quarter at 85%.
Tim Mattke: Relatively flat during the year consistent with what we had expected at the start of the year.
Tim Mattke: We were at $16 billion of new insurance in the fourth quarter and $56 billion of new insurance for the full year up 21% from the prior year.
Tim Mattke: We remain focused on maintaining a strong and balanced insurance portfolio.
Tim Mattke: To date, we have not seen a material change in the credit performance of our portfolio and early payment defaults remain at very low level, which we believe is a good indicator of near term credit performance.
Tim Mattke: The strength and flexibility of our capital position during the year supported $750 million in dividend from MGIC to the holding company.
Tim Mattke: We also return meaningful capital to our shareholders through a combination of repurchasing common stock and paying common stock dividends for a total of approximately $700 million.
Tim Mattke: This represents a 92% payout ratio of this years net income.
Tim Mattke: We expect share repurchases will remain our primary means of returning capital to shareholders. While at the same time continue to pay a quarterly common stock dividend.
Tim Mattke: As discussed through the year, our approach to capital management remains dynamic with financial strength and flexibility as the cornerstones of our strategy.
Tim Mattke: As part of our capital management, we regularly assess capital levels at both the operating company and holding company.
Tim Mattke: During the current and expected environment to position ourselves for success across varying scenarios.
Tim Mattke: An approach that is consistently served our stakeholders well.
Tim Mattke: While we prioritize prudent growth over catheter return opportunities for growing our insurance in force over the last two years has been constrained due to the size of the market.
Tim Mattke: During that same time operating results and credit performance have been strong leading to higher payout ratios.
Tim Mattke: Credit performance remains strong and our risk profile stable or improving I would expect capital levels at MGIC and the holding company to remain above target and payout ratios remain elevated.
Our well established reinsurance program, which includes the use of forward commitment quota share agreements and excess of loss agreement executed either the traditional.
Tim Mattke: The land market remains a key component of our risk and capital management strategies.
Tim Mattke: In addition to reducing the volatility of losses in stress scenarios, our reinsurance agreements provide capital diversification and flexibility at attractive costs.
Tim Mattke: <unk> R. P Myers required assets by $2 2 million for approximately 40% at the end of the fourth quarter.
Tim Mattke: Shifting more broadly to the housing market. Despite some lingering uncertainty remains resilient supported by favorable supply demand dynamics that generally positive economic outlook.
Tim Mattke: Consensus forecast projected PMI market in 2025 will be relatively similar in size to 2024 and mortgage rates remaining elevated which leads us to expect another year of high persistency.
Tim Mattke: Additionally, recent forecasts indicate moderating growth in home prices, improving housing inventory and continued pent up demand along with favorable demographics, which we believe points to the continued resiliency of the housing market and the semi industry.
Tim Mattke: With that let me turn it over to Nathan they get into more details on our financial results and capital management activities for the quarter.
Nathan Colson: Thanks, Tim and good morning.
Speaker Change: As Tim mentioned, we had another quarter of solid financial results.
Speaker Change: We earned net income of 72 per diluted share compared to <unk> 66 cents during the fourth quarter last year.
Speaker Change: For the full year over year net income of $2 89 per diluted share compared to $2 49 per diluted share last year.
Speaker Change: A re estimation of ultimate losses on prior delinquencies resulted in $54 million of favorable loss reserve development in the quarter.
Speaker Change: The favorable development this quarter, primarily came from delinquency notices we received in 2023 in early 2024.
Speaker Change: Curious on those delinquency notices.
Speaker Change: Exceed our expectations and therefore, we have made favorable adjustments to our ultimate loss expectations.
Speaker Change: It is still too early to determine the full impact of Hurricanes Helene and Milton will have on our new notices in our delinquency rate.
Speaker Change: To date, we estimate the impact has been modest with approximately 700, new notices received in the fourth quarter that are less likely a result of the hurricanes.
Speaker Change: We adjusted our initial claim rate for new notices received in the fourth quarter from seven 5% in prior quarters to seven 3% this quarter to reflect the expected increase cure rates from the hurricane related delinquencies.
Speaker Change: In the fourth quarter, our account base delinquency rate increased 16 basis points to two 4%, which is consistent with the seasonal trends. We have been discussing and includes a six basis point impact from the hurricane related delinquencies I just mentioned.
Speaker Change: While the level of new notices in our delinquency rates have increased relative to recent years, they remain low by historical standards.
Speaker Change: We continue to expect that the level of new delinquency notices may increase modestly due to the large 2020 through 2022 book years being in what are historically higher loss emergence yours.
Speaker Change: The enforced premium yield was $38 six basis points in the quarter and remained relatively flat during the year consistent with what we expected at the start of the year.
Speaker Change: Given expectations of another year with high persistence in a similar market to 2024, we expect the enforced premium yields remained relatively flat again in 2025.
Speaker Change: Our solid operating results together with our strong balance sheet enabled us to grow book value per share to $20 82.
Speaker Change: Up 12% compared to a year ago, while returning $700 million of capital to shareholders through dividends and share repurchases and reducing the outstanding shares by approximately 9%.
Speaker Change: The book yield on the investment portfolio was three 8% at the end of the fourth quarter up 20 basis points from a year ago and flat quarter over quarter as the yield on cash and cash equivalents declined offsetting improvements from reinvestment.
Speaker Change: Net investment income was $61 million in the quarter down $1 million sequentially and up $3 million from the fourth quarter last year.
Speaker Change: During the fourth quarter increases in yields across the treasury curve caused fixed income prices to decline, resulting in the unrealized loss position on our investment portfolio, increasing by $129 million.
Speaker Change: Our ongoing focus on expense management and operational efficiency continues to pay off.
Speaker Change: Operating expenses in the quarter were $49 million down from $55 million in the fourth quarter last year.
Speaker Change: For the full year expenses were $218 million down $19 million from 2023 and towards the lower end of the $215 million to $225 million range, we shared throughout the year.
Speaker Change: For 2025, we expect operating expenses will be lower again to a range of $195 million to $205 million.
Speaker Change: Turning to our capital management activities in the fourth quarter.
Speaker Change: We continue to allocate excess capital to share repurchases totaling $7 8 million shares of common stock for $193 million and paid a quarterly common stock dividend of $33 million.
Speaker Change: And as previously announced in the quarter, we paid a $400 million dividend from MGIC to the holding company the.
Speaker Change: The dividend from MGIC to the holding company reflect capital levels at MGIC that continued to be above our target.
Speaker Change: We continued our share repurchase program into 2025 and in January we repurchased an additional $3 5 million shares of common stock for a total of $85 million.
Our share repurchase activity continues to reflect our capital strength financial results and share price levels that we believe are attractive to generate long term value for our shareholders.
Speaker Change: As of January 31, we had $372 million remaining on our current share repurchase authorization.
Speaker Change: Also in January the board authorized a 13 per share common stock dividend to be paid on March 5th.
Speaker Change: Consistent with our overall reinsurance strategy to prioritize coverage on the most recent book your vintages in future and IW as previously announced in the fourth quarter. We further bolstered our reinsurance program with a multiyear 40% quota share transaction with a panel of highly rated reinsurers.
Speaker Change: We will cover most of our policies written in 2025 and 2026.
Speaker Change: Also rather than canceling the quota share treaties covering our 2021 <unk>, we amended terms with certain participants from the existing reinsurance panel that effectively reduces the quota share cede rate from 30% to 26% achieving approximately a 50% reduction in the ongoing costs.
Tom: That's all I'm going to turn it back over to Tom.
Tom: And then Peter some comments before we open up to questions.
Tom: Mortgage insurance claims in the housing finance system.
Tom: Working with bill because it <unk> really seem to be the next dropdown program from Tudor.
Tom: The work for the FHFA, the Gse's and other industry key stakeholders responsibly serve low down payment borrowers advocating for increased use of private MRI in order to protect the taxpayer from mortgage credit risk and to help shape the future of the housing finance system.
Tom: In closing, we had a great year successfully executing our business strategies and returning meaningful capital to our shareholders.
Tom: I am confident in our leadership and our position in the market and believe their capital strength and flexibility position us to continue to execute and deliver on our business strategies in 2025 and beyond great value to benefit all of our stakeholders.
Speaker Change: Operator, let's take questions.
Speaker Change: Ladies and.
Speaker Change: Gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.
Speaker Change: If your question has been answered or you wish to remove yourself from the queue simply press star one again.
Speaker Change: Again, if you have a question or comment at this time. Please press star one one.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question or comment comes from the line of Terry MA from Barclays. Your line is open.
Terry MA: Hey, Thank you good morning.
Speaker Change: So you touched on and even noticed good morning. So you touched on the new notice claim rate coming down and that was hurricane related that your new notice severity also ticked up a little bit can you, maybe just talk about that and what's kind of driving that.
Nathan Colson: Yes Nathan.
Nathan Colson: Nathan Thanks for the question, it's really it's really a function of just higher exposures on the new delinquencies that were receiving compared to what we would've seen in prior quarters and some of that as a result of receiving more relatively.
Nathan Colson: Relatively more new notices from the 2022 through 2024 vintages compared to prior quarters, which have higher loan amounts and higher exposures, but we're still targeting the same.
Nathan Colson: Severity exposure ratios that we have in the past just it's ticking up due to actual exposures, increasing largely due to the mix of the new notices were receiving.
Nathan Colson: Got it okay that makes sense and then maybe just on the Opex guide.
Nathan Colson: Can you I guess talk about the drivers of that.
Nathan Colson: Opex kind of going lower and then maybe just any more color on how much.
Nathan Colson: Lower Opex can go longer term. Thank you.
Nathan Colson: Yes, Terry it's Nathan again, I think the results in the fourth quarter were really reflective of the cumulative impact of all of the changes that we've made over the last couple of years, especially.
So as we talk about the guidance range for next year at kind of centered around $200 million.
Nathan Colson: Largely operating there in the fourth quarter so.
Nathan Colson: That's really been a result of things that we've talked about pretty consistently over time, which is trying to trying to continue to align our resources to where they add value given what customers want and demand.
Nathan Colson: That's something that we've always done that we'll continue to do.
Nathan Colson: I don't think were going to provide anything beyond 2025 in terms of formal guidance, but I would just say I don't believe that the 2025 level is the lowest level that we can achieve either.
Speaker Change: Thank you our next question or comment comes from the line of.
Speaker Change: <unk> <unk> from Bank of America Ma'am your line is open.
Speaker Change: Hi, Thank you for taking my questions maybe to start I just wanted to touch on GSE reform privatization as it been in the news lately, maybe just talk about some of the puts and takes.
Speaker Change: MTGE in particular, if that was to happen in <unk> to be released.
Speaker Change: Yes.
Speaker Change: Question is top of mind, obviously and there is there's a lot of different paths that can take right.
Speaker Change: I think when we sit back and look at it.
Speaker Change: He has a lot of things that can happen as they think about trying to release the gse's out a conservative ship you can think about them on the shrink that footprint to make it easier which could have an impact obviously on the amount of volume that can flow to us.
Speaker Change: You could also think of in terms of trying to think about.
Speaker Change: The amount of volume that they can do versus FHA and probably a lot of dialogues it'll be had there and we think there's a really good case to be made that.
Speaker Change: It makes more sense from a taxpayer perspective for volume to flow through the <unk> as opposed to FHA, which would benefit us.
Speaker Change: Your line of the table I think the one thing that we think is important when you talk about <unk> in and coming out of conservatorship privatization at whatever you want to call. It is that theres the right guardrails in place.
Speaker Change: And you think about how the market will function in the long run.
Speaker Change: I think it's safe to say that we're always wanted to be thoughtful about the role that private credit and mortgage insurance can play in sort of.
Speaker Change: Providing that safety valve to the taxpayers as far as not having the gse's have to take that credit risk.
Speaker Change: And we think that's been true for decades, and we think that'll be true in the future as well. So I think we will have a seat at the table in those discussions.
Speaker Change: But I don't think we're rooting, one way or the other as much as making sure that the right sort of thought processes going into this process and that the right guardrails in place no matter sort of where we're at sort of ends up.
Speaker Change: Okay.
Speaker Change: And then maybe just on the claim rate.
Speaker Change: You said it ticked lower this quarter, just because of the hurricane.
Speaker Change: Quincy's up I guess, we've had a extended period of reserve releases. So maybe just talk a little bit about what do you need to see happening for you to be convinced that the claim the initial claim rate should be a lower number than the Senate ish seven five that you've been at the last few quarters.
Quincy: Yes, Nathan Thanks for the question.
Quincy: The way that we look at it as new delinquencies that we receive in the quarter.
Quincy: There's a wide range of possible outcomes that those will experience in the future given kind of future economic environment.
Quincy: It is true that the actual economic environment for mortgage credit has been very good over the last few years. So the notices that we have received have been on a very favorable path and have resolved more favorably than we initially expected which has led to continued reserve releases.
Quincy: On prior delinquencies I think if you take that thought process and kind of think about what would it take to meaningfully reduce the new notice claim rate in the future as I think we would have to be fairly convinced that the future economic environment. It was going to be as favorable as the recent past economic environment for unemployment.
Quincy: <unk> for home prices for other things and so I think the future economic environment is always a lot more uncertain than then.
Quincy: And then whats happened in the past so I think we're really comfortable with where we sit in that it represents historically.
Quincy: Relatively low new notice claim rate.
Quincy: Prior to.
Quincy: Prior to the last five or six years, we would've said that.
Quincy: Anything below 10% would have been kind of exceptional credit performance, we've been operating well below that for some time now, but I think with the thought of the range of possible outcomes for new notices being quite wide still I think we feel really comfortable with where we are on the new notice claim rate at least in the near term.
Speaker Change: Okay. No that's quite helpful. And then just my last question is what is the normalized delinquency rate like I guess, what we're trying to understand is like you said, we've been in a very favorable environment, but presumably you don't underwrite to this favorable environment.
Speaker Change: And there is some kind of more normalized delinquency or claim rate.
Speaker Change: All the weeks like it'll claims payments that you're underwriting to what is that.
Speaker Change: Is there something that you can help us with there like what should be like I'm trying to think of what's the normal.
Speaker Change: <unk> costs for MRI, what would that be.
Speaker Change: Yes.
Speaker Change: I would I would think about it maybe less in terms of what that turns into a into a delinquency rate.
Speaker Change: Thats becomes largely a function of persistency and how long bookstore last thing and on your in force book, What's the relative concentration of recent writings versus older writing things, but I think what we've said pretty consistently over time is that we think that kind of more through the cycle underwriting type loss ratios.
Speaker Change: It would be in that 20 to 40 range over time.
Speaker Change: And we've been operating in zero or negative loss territory for the last several years so.
Speaker Change: The kind of underwriting expectations are quite a bit worse than what we've been experiencing.
Speaker Change: Over the last five years or so.
Speaker Change: Got it that's helpful. Thank you for taking my questions.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question or comment comes from the line of Bose George from <unk>. Your line is open.
Bose George: Hey, guys good morning.
Bose George: Looking at the debt to income trends in 2024, and it looks like it's been higher than it has been for quite a while.
Bose George: Pre COVID-19 levels is that a reflection of affordability can you just talk about that and other underwriting offsets to that.
Just to clarify you're talking about debt to income ratios, yes, just the debt to income ratios.
Bose George: Yes.
Bose George: Thank you.
Bose George: I do think it's really just a matter of affordability right in and when you think about sort of how much how much home prices went up but on top of that and interest rates have risen that when you look at sort of the ability of someone to qualify.
Bose George: Having to stretch those debt to income ratios. It's been something does has been very true for the last couple of years, especially once interest rates rose. So I think it's safe to say that the other sort of credit characteristics have been.
Bose George: Relatively stable and favorable such that that's adding one additional risk characteristic that we keep a close eye on.
Bose George: And but generally it felt comfortable with that.
Bose George: You can think about you can get premium related to that risk as well so feel pretty comfortable at sort of the risk return relative to that profile, but it is something I think that we need to be thoughtful about that.
Bose George: That people will have the other good credit characteristics go along with that credit profile.
Bose George: Have a good FICO.
Bose George: They have good employment history those types of things are important to make sure that someone can be successful and they actually purchased the home and then be able to stand on.
Speaker Change: Yes, I agree with Doug.
Bose George: Just maybe add on Boes, there I mean, I think if you look at the recent history.
Bose George: The third quarter of 2020 to the fourth quarter of 2022, we saw larger increases in the higher DTI segment and Thats. The same periods that mortgage rates were going up it's been relatively flat over the last couple of years.
Bose George: The supplemental materials that we publish you also talk about required capital on new business and Thats actually ticked down a little bit now.
Speaker Change: <unk> below 50 is not a variable in P Myers, but I think risk based pricing and the ability to price layered risk.
Speaker Change: Pretty discretely in a way that we couldnt with rate cards has also been a way that we've been able to address this kind of a new risk factor in the market by kind of offsetting it.
Speaker Change: With what's kind of better quality other factors. So I think it is.
Speaker Change: A function of higher interest rates.
Speaker Change: We would expect if rates were to go back to three years to 4% that that level of high DTI would would also come down but.
Speaker Change: It feels like something that we can kind of directly address and our credit policy and pricing approach as well.
Speaker Change: Okay, great. Thanks, and then actually just going back to the the.
Speaker Change: The claim rate question.
Speaker Change: The book since you mentioned, the 23% and 24 that cured.
Speaker Change: And what was sort of the ultimate claim rate on some of that stuff.
Speaker Change: Well.
Speaker Change: Just just to be clear when it's less the book years and more when we received the new notices so.
Speaker Change: Received new notices from for many different book years in 2023, we think about them then thats kind of a group of notices that are then.
Speaker Change: Kind of tracked over time and ultimate claim rates are established and the like but.
Speaker Change: Those are not.
Speaker Change: Those are not fully developed up so there is not a not a new.
Speaker Change: Got to finalize the answer I guess on what the ultimate claim rate is but on a lot of those new.
Speaker Change: New notice quarters today, if I look at it.
Speaker Change: New ultimate claim rate expectations are somewhere in the 3% to 5% range for those compared to $7 five initially.
Speaker Change: Some of our more fully developed to notice quarters back into 2021 or 2022.
Speaker Change: <unk> seen ultimate claim rates and kind of the 1% to 3% range. So.
Speaker Change: It's been kind of exceptionally favorable environment for.
Speaker Change: <unk> mortgage credit coming out of the kind of peak of a dislocation in the second quarter of 2020.
Speaker Change: But early results for new recent notices are showing similar resolution patterns as we track them.
Speaker Change: After three months after six months after nine months so.
Speaker Change: It does still feel like that.
Speaker Change: That new notices are experiencing kind of pretty favorable environment and thats, leading to the continued favorable reserve development.
Speaker Change: Okay, great. Thanks, a lot.
Operator: Thank you. Our next question or comment comes from the line of Douglas Harter from UBS. Mr. Harder Your line is open.
Douglas Harter: Thanks, I was hoping you could talk about the pricing environment for <unk> in the quarter.
Operator: You saw.
Douglas Harter: Okay.
Douglas Harter: And the competitive dynamics.
Douglas Harter: Yes, I'll answer that again, we don't talk a lot about.
Douglas Harter: Sort of pricing dynamics, just I think it gets too close to sort of something we feel is more proprietary on it I think it is fair to say that.
Douglas Harter: It feels like.
Douglas Harter: The risk return continues to be very favorable and I, probably would've said that for better part of the last year quite frankly.
Douglas Harter: When we look at deploying capital.
Douglas Harter: What resulted in our Q4 <unk> I think our view is the return expectations were very similar to what we've been experiencing most recently and that's a good environment for us to be able to deploy that capital until.
Douglas Harter: Great I appreciate it.
Douglas Harter: Sure.
Speaker Change: Thank you. Our next question or comment comes from the line of Scott <unk> from RBC capital markets. Mr. Hill. Your line is open.
Scott Hill: Yes. Good morning, just wondering if you could just expand on the last comment about <unk> growth.
Speaker Change: Which was.
Speaker Change: Pretty significant and it sounds like you're pretty optimistic about the return potential on that business, but is there any.
Speaker Change: Any particular geography or any.
Speaker Change: And any other details you can share on.
Speaker Change: While you are feeling so good about it.
Speaker Change: Business Youre, putting on the books in Q4 versus the past year.
Speaker Change: No I'd say I guess just for clarity I think I feel good about all the business we put on for the last year and I think if you start to think about different geographies. The risk factors I don't think we've really taken.
Speaker Change: A significantly different approach to how we how we've addressed the market in approach.
Speaker Change: Sort of the returns and pricing in that regard I think it's more of a continuation it feels like the fourth quarter is more of a continuation.
Speaker Change: What we had seen earlier in the year I think the one thing I guess to call out is there is probably a little bit more refi volume in our Q4 volume we think about when there is just that little bit of blip when interest rates came down.
Speaker Change: <unk>, which is which is really Q3 of last year, but it doesn't turn into an AWS press until Q4 that probably helped us a little bit. So that was probably the only thing that I would say felt a little bit different about the Q4 volume is probably a little bit more refi volume in there, but again from a deploying capital and further return profile feel like it would be consistent with that but that would probably be the one very.
Speaker Change: Well that I could call out that might've been more present in Q4 and IW than it would've been earlier in the year.
Speaker Change: Okay. That's helpful and then.
Speaker Change: My question I just had was on the you gave the operating expense guidance for 2025, but the fourth quarter expense ratio was there anything any one time any kind of benefits in there that.
Speaker Change: Ticked down about 400 basis points or so was there any is there anything that you wouldn't expect to repeat in <unk>.
Speaker Change: Number there for the fourth quarter.
Speaker Change: Yes, Nathan I mean, there are just there is some natural variability just end.
Speaker Change: The key expenses that we have on a quarterly basis I think if you look at it on like a rolling 12 month basis, it's a lot smoother over time so.
Speaker Change: I think the.
Speaker Change: And then there's a little bit of seasonal first quarter is typically higher expenses, some year end comp related items and.
Speaker Change: Payroll taxes and other things so I.
Speaker Change: I don't think that we've never really experienced for every quarters. The same number but I think in general we're kind of operating at that level today that we have given us guidance for 2025, but there are a couple of smaller things, but nothing that I would really call out in terms of.
Speaker Change: The fourth quarter debt.
Speaker Change: That was kind of significant and nonrecurring.
Speaker Change: But more just a reflection of the cumulative impact of all the changes that we've made.
Speaker Change: Okay, great appreciate the answers.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question or comment comes from the line of Geoffrey Dunn from Dowling and partners with Cowen Your line is open.
Speaker Change: Thank you good morning.
Speaker Change: I wanted to understand the seven 3% claim assumption, but better.
As a way to think of it that the hurricane notices were provisioned at a lower rate and the non hurricane notices were still at seven five with the implication being.
Speaker Change: On the Hurricane notices go away, we're back to 7% <unk>.
Nathan Colson: Yes, Jeff It's Nathan I think that's that's how we thought about it I think thats the right way to think about it.
Speaker Change: Okay.
Speaker Change: And then with respect to expenses can you talk a little bit about what levers you're pulling to achieve the guidance.
Speaker Change: It looks like if you strip out the ceding Commission.
Speaker Change: You are close to 10% reduction year over year, what type of things are you doing to achieve that result in potentially getting an even better result beyond 'twenty five.
Yes.
Nathan Colson: Devon is Nathan again.
Speaker Change: I think it's it's.
Speaker Change: Change is really that we started making in 2022.
Speaker Change: Use of outside services broadly speaking.
Speaker Change: Is down quite a bit.
Speaker Change: The number of co workers that we have is down.
Speaker Change: It was down about 10% to 12% in the year.
Speaker Change: We've had a lot of retirements over the last three years, we've been able to reposition the way that we.
Speaker Change: Kind of do our work in certain departments, whether thats, how we call on customers and sales, how we underwrite loans, how we approach it.
Speaker Change: How we approach.
Speaker Change: More of the back office functions like finance and risk management and other things that we have so.
Speaker Change: I don't know that there's one or two major things that that we've done I think this has been something that the whole company is pulling towards <unk>.
Speaker Change: We have achieved these results, but I think we also look at where the rest of the industry is expense wise and know that we still have we still have room to go.
Speaker Change: And if I think back several years.
Speaker Change: With respect to tech spend I think you ramped it up trying to.
Speaker Change: Accelerate what you were achieving.
Speaker Change: How do we think about your tech spend these days relative to what it was maybe three years ago.
Speaker Change: Hey, Jeff I think the way I think of it as we're continuing to invest in the platform, but I think it's fair to say that some of the investments that we're making sort of in 'twenty one into 'twenty two sort of started to pay dividends such that we've been able to bring down run rate external to that.
Speaker Change: So as Nathan said, we probably had a little bit more outside services to help with some of the tech spend back in that time period and not quite as much reliance right now.
Speaker Change: But I think it's fair to say that those that spending that we bought returning to silicones what started to happen.
Speaker Change: Look at all of those three and policies that we need to be thoughtful about continuing to invest on that platform.
Speaker Change: Most of the rooms.
Speaker Change: We're still getting through technology.
Speaker Change: There is no.
Speaker Change: Focusing on the things going on.
Speaker Change: Consumers are making sure that women will deliver anywhere.
Speaker Change: Something that ultimately.
Speaker Change: This is something that is something.
Speaker Change: Something that really is necessary anymore. It doesn't help us from risk management standpoint, so it really a question about how we go about it.
Speaker Change: We've done a lot of that the last couple of years.
Speaker Change: Instead, it's probably not one specific thing to add a little things other than I think it's fair to say that we spent more heavily on tech.
Speaker Change: Out of Covid starting in Covid.
Speaker Change: Paid some dividends now and I think the question is.
Speaker Change: How much additional dividends kind of ultimately pay.
Speaker Change: Okay. Thanks.
Speaker Change: Sure.
Speaker Change: Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to management for any closing remarks.
Speaker Change: Sure. Thank you Howard I want to thank everyone for your interest in MGIC, who will be participating in the UBS and bank of America financial services conferences next week to have a great rest of your week. Thanks, everyone.
Speaker Change: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
Speaker Change: Yes.