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spk04: Good day and thank you for standing by. Welcome to the Q2 2023 ENAX Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press TAR 1-1 on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press TAR 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Daniel Kahl, Vice President of Investment Relations. Please go ahead.
spk10: Thank you, and good morning. Welcome to our second quarter earnings call. Joining me today are Rohit Gupta, President and Chief Executive Officer, and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business, our performance, and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions. The earnings materials we issued after market closed yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the investor relations section of the company's website at www.ir.inexmi.com. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations, and projections as of today's date. Additionally, they are subject to risks and uncertainties, which may cause results to be materially different, and we undertake no obligation to update or revise such statements as a result of new information. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release, as well as in our filings with the SEC, which will be available on our website. Please keep in mind the earnings materials and management's prepared remarks today include certain non-GAAP measures. reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation, and our upcoming SEC filing on our website. With that, I'll turn the call over to Rohit.
spk06: Thanks, Daniel. Good morning, everyone. Our team delivered another very strong quarter in a dynamic environment. We reported adjusted operating income of $178 million, or $1.10 per diluted share, and delivered a 16% adjusted operating return on equity. Insurance in force grew 9% year-over-year to a record $258 billion, driven by new insurance return of $15 billion and elevated persistency of 84%. During the quarter, we delivered solid new business production, disciplined growth in our insured portfolio, favorable credit performance, Continued acceleration in investment income and expense efficiency. We remain confident in our strategy as well as the strength and stability of the private mortgage insurance business model. While the macroeconomic environment remains uncertain with elevated inflation and heightened borrowing costs, the labor market has been resilient and household balance sheets are healthy. We continue to see evidence that manufacturing quality in the mortgage industry remains strong and that despite ongoing challenges to affordability, credit risk remains within our risk appetite. In addition, looking beyond housing, research indicates that serious delinquency rates for prime borrowers are at or below pre-pandemic levels across consumer sectors. Overall, we remain constructive on the long-term outlook for housing as well as the demand for mortgage insurance. low housing inventory, and first-time homebuyer demand are likely to continue to support home prices, and MI will remain an important affordability tool to help buyers qualify for a mortgage. As higher interest rates have affected mortgage originations, elevated persistency has continued to act as a counterbalance, supporting insurance-enforced growth. Pricing on new insurance written remained constructive during the quarter, and we observed increased pricing on new insurance written in the market. We increased our price on NIW in response to continued macro uncertainty while continuing to onboard the right risk for the right price. The credit quality of our insured portfolio remains strong. The weighted average FICO score was 744. The weighted average loan-to-value ratio was 93%, and our layered risk was 1.3% of risk in force. Our delinquency rate was 1.9%, even with the first quarter of this year, and consistent with pre-pandemic levels. The loss ratio in the quarter was negative 2%. Continued strength in the labor market and household balance sheets, as well as our loss mitigation efforts, helped drive cures above our expectations. And as a result, we released $63 million of reserves. We continue to take a prudent approach to loss reserves and believe we are well-reserved for a range of scenarios. We continue to operate from a position of financial strength and remain well-capitalized relative to our regulatory requirements. PMIR sufficiency at the end of the quarter remained robust at 162% or $2 billion of sufficiency. and 90 percent of our risk in force was covered by credit risk transfers. Earlier in July, we announced our first quota share reinsurance agreement with a broad panel of highly rated reinsurers. This agreement builds on the success of our CRT program and reflects our ongoing commitment to pursue high-quality new business while driving capital efficiency and minimizing credit risk volatility. We also continue to allocate capital in keeping with our balanced approach and three pillars, supporting our policyholders, investing to enhance and diversify our platform, and returning capital to our shareholders. I'll focus on two of those pillars here. I'll start with capital returns. Given the strength of our balance sheet, the stability of our cash flows, and our continued confidence in the business, we have increased our capital return guidance for 2023 to $300 million from $250 million. As we announced previously, we increased our quarterly dividend 14% from 14 cents to 16 cents per share, and the first dividend at that level was paid during the quarter. Additionally, we repurchased $41 million in stock during the second quarter, and through July, we have substantially completed the original $75 million share repurchase program. With that said, I'm pleased to announce that the Board has authorized a new $100 million share repurchase program. Dean will provide additional detail on our capital return plans shortly. I will now turn to investment in the business. We seek opportunities that will create long-term value by growing, extending, and differentiating our platform, supported by our deep expertise in mortgage insurance. I'm pleased to note that during the quarter, we successfully launched an act re, a reinsurer that expands our franchise to access to new business opportunities that are expected to create shareholder value over time. An ACRE is a long-term growth opportunity that provides us with capital-efficient access to the GFC credit risk transfer market. Having received approval from Bermuda Monetary Authority, the GFCs, and an A-minus rating from AMBEST, an ACRE has participated in two Fannie Mae CRT transactions and one Freddie Mac transaction since launch. The attractive risk-adjusted returns and strong underwriting we have seen from these transactions reinforce our decision to enter this market. In addition, we executed a quota share arrangement with Emoco to provide scale for Anakri's A- rating. Importantly, we have intentionally structured Anakri to preserve Anak's dividend capacity, and as you can see from our decisions to increase our guidance, for total capital returns this year to $300 million and the authorization of a new share repurchase program, our commitment to returning capital to shareholders remains strong and well-balanced with our growth initiatives. Led by an experienced leadership team and board, the launch of an Act Re leverages our industry expertise analytic capabilities, and operating infrastructure, and is aligned with our commitment to drive compelling returns and create value for our shareholders. I will now turn it over to Dean, who will cover our performance in detail and will have more to say on Enact-Re in a moment.
spk09: Thanks, Rohit. Good morning, everyone. We again delivered very strong results in the second quarter of 2023. GAAP net income for the quarter was $168 million or $1.04 per diluted share as compared to $1.25 per diluted share in the same period last year and $1.08 per diluted share in the first quarter of 2023. Return on equity was 15.5%. Adjusted operating income was $178 million or $1.10 per diluted share as compared to $205 million or $1.26 per diluted share in the same period last year and $176 million or $1.08 per diluted share in the first quarter of 2023. Adjusted operating return on equity was 16.4%. Turning to revenue drivers, primary insurance and force increased in the second quarter to a new record of $258 billion, up $5 billion or 2% sequentially, and up $20 billion or 9% year over year. New insurance written of $15 billion was up $2 billion or 15% sequentially, driven in part by higher originations, and down $2 billion, or 14% year-over-year, driven by lower mortgage originations resulting from continued elevated interest rates. With elevated interest rates, persistency remained high at 84% in the second quarter, down 1 percentage point sequentially, and up 4 percentage points year-over-year. Given that most of our insured portfolio has mortgage rates at or below 6%, and the expectation that interest rates will remain elevated in the short term, we anticipate continued strength and persistency, which is a positive for the future profitability of our insurance-enforced portfolio. Our base premium rate was 40.3 basis points. down 0.2 basis points sequentially, 2.2 basis points year-over-year, and 0.7 basis points year-to-date. The rate of change in our base premium rate continues to narrow and is in line with our expectations. As a reminder, base premium rate is impacted by a variety of factors and can deviate from quarter to quarter. Our net earned premium rate also reflected lower single premium cancellations year-over-year. For the quarter, single premium cancellations were flat sequentially and contributed only 2 million of net earned premium, limiting its potential for meaningful future dilution. Investment income in the second quarter was 51 million, up 6 million or 12% sequentially, and 15 million or 42% year over year. The rise in interest rates and the current rate environment are favorable for our investment portfolio as our new money yield for the quarter was over 5%. As of quarter end, unrealized losses in our investment portfolio increased by $32 million to $439 million. As I've mentioned, although we generally do not expect to realize these losses, we will act upon opportunities that are expected to generate the highest value at a given time. During the quarter, we identified assets that upon selling generated a loss but presented an opportunity for higher net investment income going forward. We'll continue to evaluate similar opportunities to maximize the value of our portfolio, but this does not change our view that our investment portfolio's unrealized loss position is materially non-economic. Revenues for the quarter were $278 million, down $3 million or 1% sequentially, and up $4 million or 1% year over year. Excluding the opportunistic investment trade just mentioned, which resulted in a $13 million loss in exchange for higher future investment income, revenues in the quarter were up $10 million, or 3% sequentially, and $17 million, or 6% year over year. Net premiums earned were $239 million, up $3 million, or 1% sequentially, and relatively flat year over year. The increase in net premiums earned sequentially was driven by strong IF growth partially offset by the lapse of older, higher-priced policies as compared to our NIW. Turning to credit, losses in the quarter were a benefit of 4 million as compared to a benefit of 11 million last quarter and a benefit of 62 million in the second quarter of 2022. Our loss ratio for the quarter was negative 2% compared to negative 5% last quarter and negative 26% in the second quarter of 2022. Our losses and loss ratio were primarily driven by favorable cure performance, which was above our expectations, resulting in a $63 million reserve release in the quarter. Included in the reserve release were delinquencies from the first half of 2022, which were reserved at a 10% claim rate. New delinquencies decreased sequentially to 9,200 from 9,600. Our new delinquency rate for the quarter was 1%, consistent with pre-pandemic levels and reflective of ongoing positive credit trends. We continue to book new delinquencies at an approximate 10% claim rate, reflecting our prudent and measured approach to reserving in this dynamic environment. Total delinquencies in the second quarter decreased by approximately 500 to about 18,100 as CURES outpaced new delinquencies. The associated delinquency rate stayed flat at 1.9%, which is stabilizing near pre-pandemic levels. Turning to expenses, operating expenses in the quarter were 55 million, relatively flat sequentially, and down 7 million or 11% year over year. The expense ratio for the quarter was 23%, flat to the first quarter of 2023, and below the 26% we reported a year ago. Our performance reflected the ongoing benefit of our cost reduction actions. We continue to expect costs for the full year to decline 6% year over year to $225 million. Moving to capital and liquidity, we continue to operate from a position of financial strength and flexibility. As Rohit referenced, this quarter we executed our first quota share reinsurance transaction as part of our credit risk transfer program. The transaction secured coverage from a panel of highly rated reinsurers covering approximately 13% of our current and expected new insurance written throughout 2023. We believe the inclusion of quota share reinsurance coverage into our CRT program provides incremental capacity on attractive terms at a time of volatility in the CRT market and serves as another proof point for the value of diversified capital sources. As of June 30, 2023, Our CRT program provides $1.5 billion reduction to our PMIRES minimum required assets. Before moving on to a discussion of PMIRES and capital allocation, I wanted to take a minute on EnactRE. As Rohit discussed, we are very pleased to have launched EnactRE during the quarter. EnactRE is a Bermuda-based wholly-owned subsidiary of Emoco, and it's classified as a non-exclusive affiliated reinsurer for PMIRES purposes. Emico has initially contributed $250 million to EnactREIT, which serves as a reallocation of capital to EnactREIT that will be used to support the initial 7.5% quota share of business from Emico and our participation in transactions with the GSEs. The strength of our credit ratings is a key factor in our ability to successfully enter and participate in the GSE CRT market. The quota share agreement with Emico has provided the scale and efficiency to support our strong ratings and opportunities to pursue third-party risk on attractive terms. Over the long term, we believe an Act Re will contribute to increasing our income and shareholder value while preserving our dividend capacity. Additionally, we expect it to have a minimal impact on our expense structure, as evidenced by the fact that we have reaffirmed our expense guidance of $225 million for the year. We have structured an act re to be efficient from a ratings, capital, and expense perspective and will take an intentional approach to growing the business that balances scaling it to optimize a return on capital with our disciplined approach to capital allocation and commitment to our core franchise. We intend to prudently build scale in this business and will continue to keep the market apprised of progress through time. Let me now shift gears to talk about PMIRs and capital allocation. Our PMIRES sufficiency remains strong at 162% or $2 billion above PMIRES requirements, compared to 164% or $2.1 billion in the first quarter of 2023. At quarter end, we had $1.5 billion of PMIRES capital credit and $2.7 billion of seeded RIF provided by our third-party CRT program, which currently covers 90% of our risk in force. Turning now to capital allocation, We remain committed to our prioritization framework, which balances prudently investing to strengthen and differentiate our platform, maintaining a strong balance sheet, and supporting our policyholders and returning capital to shareholders. I've already talked about an act three in our strong PMIRES position, which touch on the first two pillars. So, let me take a moment to speak to capital return. Yesterday, we announced that our board has approved a new $100 million share repurchase program. As with our prior program, Genworth will participate proportionately to their 81.6% ownership, ensuring their proportional ownership of a NAC remains unchanged. We returned a total of $67 million to shareholders during the second quarter, consisting of our $26 million, or 16 cent per share, quarterly dividend, which was increased 14%, and share repurchases totaling $41 million. As of July 30, 2023, we have repurchased $71 million in stock and have $4 million remaining on our current $75 million share repurchase authorization. We are well positioned to return capital to shareholders in 2023, and as Rohit mentioned, with a strong first half behind us, we are increasing our capital return guidance for the year to $300 million, up $50 million from 2022 levels. through a combination of our quarterly dividend, share repurchases, and a potential special dividend in the fourth quarter. In April, Emico, our primary mortgage insurance operating company, completed a distribution of $158 million that will be used to support our ability to return capital to shareholders and bolster financial flexibility. We had a strong quarter in an outstanding first half of 2023. We remain focused on prudently managing our risk driving cost efficiencies, and maintaining a strong balance sheet while executing against our capital allocation strategy. With that, I'll turn it back to Rohit.
spk06: Thanks, Dean. We are very pleased with our results for the second quarter, delivering continued high-quality growth in our insured portfolio and strong returns. Looking forward, we will continue to deploy capital in a manner that balances investment in the business, balance sheet strength, and distributions to our shareholders. Overall, we are well positioned to continue to serve our customers and their borrowers, grow our franchise, and deliver strong performance and value creation for our shareholders. Finally, I'd like to thank our talented team for their commitment and for driving us forward. Operator, we are now ready for Q&A.
spk04: As a reminder, to ask a question, please press TARO11 on your telephone and wait for your name to be announced. To withdraw your question, please press TOR11 again. Please stand by while we'll compile the Q&A roster. And our first question comes from the line of Mihir Pratyah with Bank of America. Your line is now open.
spk08: Hey, good morning, and thank you for taking my question. I wanted to start with competitive intensity in the industry right now. When I look at the market share numbers quarter over quarter, and I understand you don't manage the business by market share, but I guess the question on the competitive intensity is when you look at your market share numbers or the growth you're seeing versus the growth some of the competitors are seeing, This quarter, I think you had the, of the companies that have reported the lowest increase in quarter over quarter origination, suggesting you may be lost a little bit of market share. Now, like I said, I understand you don't manage the business from a market share perspective, but what does that tell you about the competitive intensity of the pricing that others are doing? Is it driven by pricing? Is it that others are pricing more aggressively? Maybe just talk about that in general, what you're seeing in the pricing environment, how people are responding, the changes in pricing. Is pricing getting better, getting worse? What's happening? Thank you.
spk06: Good morning, Mihir, and thanks for the question. As you stated, we have said in the past, market share is not a strategy for us. It's an outcome of our successful execution of our go-to-market strategy, where we talk about charging the right price for the right risk. So I would start off just by saying we like the $15 billion of NNW that we wrote in the quarter and its profile from both pricing and credit mix perspective. Also, I think important to kind of emphasize, especially in this environment, that we continue to see strong underwriting quality and credit policy, which is very much within our risk appetite. Now, market share right now is tough to calculate because there are only three of my companies reporting and three to go. But from our perspective, we think of, quarterly market share being volatile. And we have seen that over the last, I would say, three or so years, especially after all the MI companies moved to opaque rate engines. It's just the volatility on quarterly market share has been higher. And that could be driven by just the timing of pricing moves by different companies. It could also be driven by specific lenders that MI companies do business with and who is growing and who is shrinking in the origination market. I think our focus continues to be that we have a good market position and actually are writing product and new business at very good return. As I also said, coming back to your question on pricing, I said in my prepared remarks that we saw pricing being constructive in the marketplace. And during the quarter, we saw pricing across the industry move up. And we actually moved our pricing up on new insurance written, given the economic uncertainty that's in front of us. So I think that hopefully provides you color on how we think about intersection of pricing and our market position. Last thing I would say, obviously market share numbers are not known, but our directional sense is that if you look at our trailing 12 months of market share, last quarter, the quarter before, while there has been quarterly volatility, that number is actually relatively stable and within a range that is very much aligned with how we think of our market participation, that diversity of our customer base and doing business with close to 1,800 active lenders.
spk01: Got it.
spk08: Thanks for that. In terms of the origination market in general, I guess particularly on the purchase side, where are you seeing particular growth or areas of strength? I mean, you called out a little bit of the economic uncertainty. So maybe talk about just where you expect things to trend for the back half of the year. Thank you.
spk06: Thank you, Mehul, for the question. I would say this is a tough environment to predict mortgage originations. I think just given the volatility we have seen in 10-year treasury yield and the spread to mortgage rates makes it difficult to predict mortgage rates on an ongoing basis, and that in turn means that when you think about consumer behavior, consumers are very interested in buying homes, but between broader inflation, ever-to-date home price depreciation, and then now higher mortgage rates in 2023, I think consumers are just taking that step more carefully. I think what we are optimistic about is When you think of first-time homebuyers, we believe that there are more Americans coming to the age of being first-time homebuyers around the age of 33 to 36 in higher numbers than we have seen in a decade. And then we also know that in terms of their propensity or their desire to buy a home, that is still in place. So whether those folks come to market this month, this quarter, or next year, I think that aspect is tough to predict. Our estimate is that origination market size will still be, purchase origination market size will still be meaningful material this year, so about $1.3-ish trillion is our general range for purchase originations market. Just to give you color on second quarter, We think second quarter did see that spring selling season. Obviously, we don't have final numbers, but our expectation is purchase market was up. Maybe forty ish percent over first quarter. Historical seasonality would be about fifty percent on that number. So, the seasonality is a little bit subdued with borrowers, maybe holding back. What gives us more optimism is my point on first-time homebuyers will come to market. And with the market dynamics we are talking about, MI being a very strong affordability tool for those borrowers. So we still expect MI market size this year to be in the $300-plus billion range, maybe slightly over $300 billion. And while it's lower than prior years, it's mostly purchase-driven, which means it's not churning the book. and still gives us reasonable size scale from a new insurance written perspective.
spk08: And my last question, just on persistency. It seems to have leveled off around this 85% area. I think 84 is the right number to think of through the rest of this year or really till we start seeing rates come down. Thank you.
spk09: Yeah, I'm here. It's Dean. Thanks for the question. Just for some context, again, this is for the broader market. Our highest persistency is really in the high 80%. That happened for one quarter. So we really think about 84% persistency in the quarter as remaining elevated on a historical basis. I do think you saw the one point decline sequentially in part by what Rohit just talked about, the seasonality during the spring selling season. You know, kind of like we talked about where persistency is going to level out, it's hard to predict. We do have a combination of a large new book with very low interest rates, coupled with a pretty dynamic rate environment that Rohit just referenced. You know, it's obviously never going to be 100%. You've got life events, job changes, health issues. divorce and other things that do cause borrowers to pay off their mortgage. I guess what I would say is our view, maybe not as prescriptive, but our view is given that our insured portfolio has loans with mortgage rates kind of at or below the 6% level and our expectation that rates, mortgage rates remain elevated in the short term, we'd expect persistency to remain elevated in the near term, whether that's 84, 85, 83%. hard to predict, but elevated relative to kind of historical levels here.
spk08: Thank you. Thanks, Mayor.
spk04: One moment for your next question. And your next question comes from the line of Bose George with KBW. Your line is now open.
spk03: Hey, good morning, everyone. This is actually Alex on for Bose. Thank you for taking our questions. Kind of another question on pricing. I was wondering if you guys would be willing to discuss your thoughts on the durability surrounding the price increases we've seen across the industry over the past year, and then maybe to drill a little bit deeper, if we were to see the macro outlook potentially improve, could the industry potentially give some of that pricing power back?
spk06: Good morning, Alex, and thank you for the question. I would say the way we think about pricing is difficult to comment at an industry level. Every MI company has their own macroeconomic view and their own view of returns and credit risk. I think our perspective is that we are still not past the point of economic uncertainty being gone. I think we see the balance in the market, kind of the forces I described in my prepared remarks, that on one hand, we are talking about consumers still having healthy balance sheets, labor market being strong. On the other hand, we are talking about broader inflation still being there, elevated home prices from the last two, two and a half years, and at the same time, higher rates at this point of time. And given what Fed has done in terms of increasing rates, the effect of that on economy on consumer is a little bit lagged. So we are still kind of expecting some volatility in the market or some uncertainty in the market. And as I said earlier in my answer, we are increasing our price for that economic uncertainty. Depending on how that uncertainty plays out, we will adjust our pricing. So if that leads to a scenario where there is a short, mild recession, then obviously we did the right thing in terms of increasing price for those credit losses. And if you look back at COVID, we kept our prices elevated during the time of the COVID unemployment spike. And then as unemployment came down, there was adjustment in price. So I would just say that those are kind of the broad boundaries on how we think about pricing. But given kind of we are in a competitive market, I'm not going to describe kind of specific risk attributes or changes that we might make depending on how the market moves.
spk03: Great. Yeah, that makes sense. And then Maybe a quick follow up on an act three. Would you be willing to walk us through the benefits of seating that I think it's seven and a half percent of the enforced business? And then is there a minimum capital requirement at an act three as well?
spk09: Yeah, Alex, I'll take the first question as it relates to the benefit of the quota share. You know, our immediate business objective of an act three was really to gain access to the GRC CRT market on attractive terms. Longer term, you know, we'll look for ways to develop the broader platform for future growth. But in the immediate term, it's all about GSE CRT market. And to accomplish that, we needed, we believe we needed an A minus rating. As you know, the GSE CRT capital standards are predicated on ratings, both capital and collateralization requirements. The seven and a half percent quota share Reinsurance allowed us to scale ENACRE to achieve those A-minus ratings and ultimately was an enabler to provide that access to the GSC CRT market, again, on those attractive terms. So, I really think it's, if you kind of work backwards, you know, we were looking for ratings, the quote, we needed scale for the ratings. And ultimately, the quota share transaction provided an ACRE the scale necessary to get an AM best, A minus rating. That's really the basis for the quota share reinsurance transaction, the affiliated quota share reinsurance transaction.
spk06: And then from a minimum ratings perspective, let me start and then Dean can chime in. I think we don't think of an ACRE having like a single dimension of ratings framework. We actually think about four different ratings frameworks. And think of that as Bermuda Monetary Authority, as Dean just said, AM-based framework. Then we have PMIRES because we are feeding affiliate risk into the entity, and we also intend to primarily focus on GSC credit risk transfer market, and then our internal view on top of it, which would be management capital, either from an economic capital or a solvency capital perspective. So we combine all those views together and then think about the capital needed And I think Dean summarized it well, that as you think about us launching this entity, we are launching this entity with a significant portion of the capital we contributed supporting the affiliate quota share at inception, but obviously forward funding some of the GSE CRT market. And as we move forward, we'll basically continue to look at that capital and our commercial success in the GSE CRT market to make sure that that entity has the right amount of capital. it is important to emphasize, and we said it in our prepared remarks, that we structured this entity in a very capital-efficient way, both from PMIRES and from statutory policyholder surplus. So that allows us to actually achieve scale to Dean's point, achieve A-minus rating, write business on an accretive basis at attractive risk-adjusted returns, and then at the same time continue our balanced focus on return of capital to shareholders, which was evident with the announcements we made.
spk03: Great. That makes sense. And thank you so much for taking our questions. Thanks, Alex. Thanks, Howard.
spk04: One moment for your next question. And the next question comes from the line of Rick Shane with JPMorgan. Your line is now open.
spk07: Thanks for taking my questions. Most have been asked and answered, but I'd love to talk a little bit about the cadence of the second quarter and implications as we move into the third. We did hear that as we move through the quarter, mortgage originations did slow month after month, and I'm curious if that's what you saw and if that's continued. I guess we are now in August, so through July as well.
spk06: Good morning, Rick, and thanks for the question. In terms of, this goes back to my point on trying to predict origination market size this year, I think we are seeing consumer behavior being very well aligned with two things. One is historical seasonality that consumers buy more homes during the spring selling season, so we are continuing to see that. As I said in a previous response, that we saw an increase in purchase originations, and we attribute that to seasonality and that consumer behavior. The second thing is there is an aspect of consumers either coming to market or staying on the sidelines based on where mortgage rates are. I think this is a little bit of unprecedented time that we see significant volatility month to month in 30-year mortgage rates by the fact that 10-year treasury yield is moving in a pretty wide band. And on top of it, we have historically high spread. between 10-year treasury yield and 30-year mortgage, almost standing between 270 to 300 basis points. So when you combine those two factors and you say, like, mortgage rates are, let's say, 6.8%, at that point, we generally see and we hear from our customers when I've talked to CEOs of certain mortgage companies recently, they generally see higher than 6.5% 30-year mortgage rate. It slows down activity. Between 6% to 6.5%, I think activity is a little bit stronger. And then anytime we are in the neighborhood of 6% for 30-year mortgage fixed rate or slightly below it, I think more and more consumers are coming to market, and they see that as a deal. So if you compare that to 2022, that's a net positive because I think 2022, especially middle of 2022, was a year when people were seeing a sticker shock. They were used to a 3% mortgage rate, and they started seeing 6%. I think right now a 6% is more well accepted in the market, but then the range around it kind of guides people's participation in the market. Hope that helps.
spk07: No, it's very helpful. And just dimensionalizing it in that way makes a big difference. One other question. What was the... the PMIRS credit again. I know you'd mentioned, I think you said $1.5 billion. Do you have it with precision? I just wasn't able to find it in the disclosures.
spk09: Rick, hey, it's Dean. It's actually in our QFS on page 14. I think it's 1.524, if I can read my own handwriting. And it's the sum of PMIRS credit required asset credit down in the middle of page 14. Terrific.
spk07: Thank you so much.
spk09: We actually don't sum it. You'll have to do the math. I apologize for that, but it's the sum of that line.
spk07: Hopefully, my Excel will be able to pull it together for me. Thanks, Dean.
spk05: Thanks, Rick. One moment for your next question.
spk04: And next question comes from the line of Eric Hagen with VTIG. Your line is now open.
spk02: Hey, thanks. Good morning. Maybe following up on that actually really quickly. Would you say that there are any thresholds you think about for your capital ratios, which could either lead to, you know, higher or lower capital return than what you guys have guided to? Thanks.
spk09: Eric, I think, you know, what we've talked about, is given the ongoing macroeconomic uncertainty that we expect to hold PMIR sufficiencies probably a little bit higher than we would under maybe more normal times. We've talked about holding PMIR sufficiencies, you know, at or north of 150%. I think, you know, if we think about PMIR sufficiency over a longer time period, maybe with the abatement of the macro uncertainty. You know, we've talked about PMIRES levels pre-pandemic, which were closer to 140%. And so, you know, over a longer period of time as macroeconomic conditions maybe level off, you know, that gives you a sense of where we might head with PMIRES sufficiency. under different facts and circumstances, different macroeconomic environments.
spk06: Yeah, I would just add to that, Eric, that I think from a capital return perspective, you said what could lead for it to be higher or lower. I think all of our capital return guidance is obviously subject to regulatory approvals and macroeconomic conditions. So we feel good about our results year to date. We've delivered very strong performance, as we said in our prepared remarks. But at the same time, we'll continue to keep an eye on the environment in terms of any regulatory changes if that happens or any change in the economic environment, whether housing or broadly. But given the fact that we increased our guidance, we feel very good about the guidance we have given for the rest of the year.
spk02: Yep. Yep, that's helpful. Thank you. Maybe following up on the conversation around mortgage rates and such, I mean, if rates were to rally 50 or 100 basis points from these levels, How much insurance do you think you can put back on your books in that scenario? And maybe even more broadly, like, do you have any perspective on how MI pricing would potentially behave in response to, you know, bigger rallies and interest rates, mortgage rates?
spk06: And Eric, just to clarify, when you say rates were to rally another 50 to 100 basis points, you are saying rates actually being higher, 30-year mortgage rates being higher?
spk02: No, lower.
spk06: Lower. Okay, perfect. So I think if you look at recent months and times when we have actually seen mortgage rates come down to that range, so let's say 6% to 6.5% range, I think that does increase market participation. I will probably offset that expectation with a little bit of a housing market dilemma that we have seen over the last year, which is lack of housing inventory. So I think in an environment where there are more buyers coming to market, but sellers are still not willing to sell their homes, and this goes back to you love your mortgage and you hate your house, that even if you actually want to upgrade your house, but you're in a 3% mortgage and you can't find another house in the market that's attractive to you, you might not actually sell your house. So I think we have to work on that dynamic. I'm not sure if I can give you a rule of thumb on... how much more business could come to market. We would expect purchase originations to be stronger in that scenario. That could be driven by a combination of some units being higher. But if the supply market is tight, that could also lead to home prices rising again, which would essentially give us higher new insurance written. In terms of how much more we can write or we are willing to write, as Dean pointed out earlier, we are operating with a very strong balance sheet, with a very conservative balance sheet, even at the holding company level. So we feel comfortable that if the market size was to increase, we have ample capacity and we have ample ability to source third-party capital through reinsurance or insurance-linked notes market, that we could support a much higher market size and a much higher NIW on our books.
spk02: Right. That was helpful. Thank you. Hey, did you guys say what the weighted average price was at which you bought back stock last quarter?
spk09: We didn't say it, but since inception, Eric, we've bought back shares at $24.30 on that $71 million of share repurchases. Yep.
spk02: Great. Thank you guys very much. Thank you. Thank you.
spk04: Your next question comes from the line of Joffrey Dunn with Zolene Partners. Your line is now open.
spk01: Hi. Thank you. Good morning. Looks like we just got some static. Given your commentary on pricing and the implication that if we're in a soft landing or normalized, it sounds like you might think pricing comes down. I'm curious if you think industry pricing was adequate for the environment a year ago. And so as we think about things going forward, if we're going into something that's more normal, do we go back to where we were a year ago or do we only give part of that back because maybe industry was, on average, cheating a little too much for? Normalize credit.
spk06: Good morning Jeff and thank you for the question. So, let me kind of answer your question in 2 ways. 1st thing a year ago, when we were writing new business, we did say that we found that business to be attractive. in terms of returns, and we believe that we were writing that business above our cost of capital. I think at that point of time, our view of macroeconomic environment was different than today's macroeconomic environment. And let me just separate it into two broad buckets. First thing would be just risk-free rates. Risk-free rates were a lot lower, and I'll just point you to early 2022. And then second thing would be our expectations in terms of unemployment, home prices, and just the uncertainty in the environment. So at that point of time, using those assumptions, we were writing business at good returns. Now, as it turns out, conditions change a lot in the last 18 months or so. I think looking forward, you have a very fair question that if we are in an environment where we do end up with a soft landing, but at the same time, market rates, risk-free rates are still higher, I would expect that we would retain some of the price increases or most of the price increases because our cost of capital would have moved up. So even if the economic expectations are coming back to normal, I could see scenarios in which our pricing actually sustains at a higher level, and that's how we think about it. Obviously, every MI company needs to think of their own frameworks, but we could see that pricing being sustained at a higher level.
spk05: That's helpful. Thank you. You're welcome.
spk04: And we have no further questions at this time. I will now turn the call back over to Rohit Gupta.
spk06: Thank you, Bella. Thank you, everyone. We appreciate your interest in an act, and I look forward to seeing some of you in New York at the Barclays Global Financial Services Conference in September. Thank you all. We'll wrap up the call here.
spk04: This concludes today's conference call. Thank you for your participation. You may now
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