Essent Group Ltd.

Ladies and gentlemen, thank you for standing by and welcome to the Essent Group Limited Second Quarter 2020 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 during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to turn the call over to Chris Kern, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Denise. Good morning, everyone, and welcome to our call. Joining me today are Mark Cassell, Chairman and CEO, and Larry McAlee, Chief Financial Officer. Our press release, which contains Essence financial results for the second quarter of 2020, was issued earlier today and is available on our website at EssenceGroup.com. Our press release also includes non-GAAP financial measures that may be discussed during today's call. The complete description of these measures and the reconciliation to GAAP may be found in Exhibit M of our press release. Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward-looking statements. These statements are based on current expectations, estimates, projections, and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release, the risk factors included in our Form 10-K, filed with the FCC on February 18, 2020, and any other reports and registration statements filed with the FCC, which are also available on our website. Now, let me turn the call over to Mark.

Thanks, Chris. Good morning, everyone, and thank you for joining us. This morning, we released our second quarter results, which reflect the impact of COVID-19 on our insured portfolio. During the quarter, we experienced an increase in defaults, which resulted in a $176 million loss provision, compared to $8 million last quarter and $5 million for the second quarter a year ago. Our outlook on the economy remains cautious, But we are confident that our buy, manage, and distribute operating model is well suited to navigate this challenging environment. In response to the pandemic and the weakening economy, during the quarter we strengthened our balance sheet by raising $440 million of equity capital. We believe that raising equity was prudent as it strengthens our balance sheet and increases our liquidity. Now let me touch on our results. For the second quarter, we earned $15 million, or 15 cents per diluted share, compared to $136 million, or $1.39 per diluted share for the second quarter a year ago. Even though our results were impacted by increased defaults, we grew adjusted book value per share to $31.02, a 15% increase from June 30th, 2019. At June 30th, our default inventory increased to 38,000, of which 34,000 have been identified as COVID-19 related. We believe that programs such as the federal stimulus, foreclosure moratoriums, and mortgage forbearance may extend traditional default to claim timelines. Accordingly, we estimate that the COVID-19 claims will be modestly lower than our historical experience where borrowers did not have access to these type of programs. For our second quarter loss provision, we are using a 7% claim rate assumption on the COVID-19 defaults versus 9%, which was the estimate used in the first quarter for early-stage defaults. During the quarter, housing continued its resilience, with home prices being supported by limited inventory, increased demand, and low rates. Both new and existing home sales are being fueled by first-time homebuyers, such as the millennials, along with those moving out of densely populated areas in response to the pandemic. As a result, purchase and refi mortgage originations were robust during the quarter. Due to the strong housing environment, we grew insurance in force to $175 billion, which is a 14% increase compared to June of 2019. Our growth this quarter was driven by $28 billion of NIW, offset by runoff as our persistency was 68%. compared to 74 percent last quarter and 85 percent for the second quarter a year ago. On the competitor front, we increased rates on new business by approximately 10 percent in response to the pandemic. Also, the credit quality of our second quarter NIW was higher, with an average FICO of 749 compared to 744 a year ago. Much of this shift was the result of increased pricing on the lower credits, tighter GSE underwriting, and increased share of refi business. At June 30th, our balance sheet is strong, with over $3.6 billion in gap equity and a conservative debt-to-capital ratio of 10%. We also have access to $1.6 billion of excessive loss reinsurance. As validation of our financial strength during the quarter, AMBEST affirmed its A-rating investment guarantee and S&RE, and we continue to be rated A3 and BBB+, by Moody's and S&P, respectively. Essent remains the highest rated monoline in our industry. Our liquidity remains strong as we have $4.5 billion of cash and investments and generated $183 million in operating cash flow during the quarter. Including the net proceeds from our capital raise, we maintain $700 million in cash and investments at the holding company. Although there are no immediate capital needs in our operating businesses, we believe that maintaining this amount of capital at the holding company is prudent. Also, excess capital enables us to take advantage of any growth opportunities should they arise. From a PMIRES perspective, we are well positioned. At June 30th, we have applied the 0.3 factor to the PMIRES asset requirements for defaulted loans resulting from COVID-19, including those in forbearance. At June 30th, Essent guarantees PMIRES sufficiency ratio inclusive of the 0.3 factor is strong at 177%. with $1.1 billion in excess assets. Excluding the 0.3 factor, our PMIR sufficiency ratio would continue to be strong at 138% with approximately $700 million in excess assets. Note that these excess asset amounts do not include cash and investments at the holding company. Finally, in connection with our strong capital position and liquidity, our Board of Directors approved a quarterly dividend of $0.16 per share to be paid on September 10th. We will evaluate future dividends as we continue to navigate the COVID-19 economic environment. Our buy, manage, and distribute operating model provides us confidence in managing our business and generating cash, even though things could be challenging over the near term. Since the founding of Essent, we have built and managed this business for the long term and will continue to do so. Now let me turn the call over to Larith.

Thanks, Mark, and good morning, everyone. I will now discuss our results for the quarter in more detail. Net earned premium for the second quarter of 2020 was $211 million, which represents an increase of $23 million, or 12%, from $188 million in the second quarter of 2019. Second quarter earned premiums are up $5 million compared to the first quarter of 2020, primarily due to a 2% increase in average insurance and an increase in singles cancellation income of $12 million, partially offset by an $8 million increase in seeded premiums. Persistency declined during the quarter to 67.9% at June 30, 2020, from 73.9% at March 31. The average net premium rate for the U.S. mortgage insurance business in the second quarter was 48 basis points, consistent with the first quarter of 2020. and down from 49 basis points in the second quarter of 2019. Single premium cancellation income contributed six basis points to the average net premium rate in the second quarter, while seeded premiums reduced the premium rate by five basis points. Note that these rates exclude the impact of premiums earned by Essent Rate on our GSE risk share transactions. Net investment income, excluding realized gains and losses, was $20 million in the second quarter of 2020, compared to $21 million in the first quarter and $21 million in the second quarter a year ago. The yield on the investment portfolio in the second quarter was 2.2% compared to 2.5% in the first quarter of 2020 and 2.8% in the second quarter of 2019. The impact of lower rates on the investment income was partially offset by a higher average investment balance. Net realized losses on the sale of investments in the second quarter of 2020 were $1.3 million compared to net realized gains of $3.1 million in the first quarter. For the second quarter, we recorded a gain of $2.5 million for the change in fair value of embedded derivatives associated with the insurance-linked note reinsurance transactions compared to a loss of $4.2 million in the first quarter of 2020. Gains and losses on the embedded derivatives are included in other income and are condensed consolidated statements of comprehensive income. As a result of the pandemic and the related dislocation experience since mid-March 2020, the default rate on the U.S. mortgage insurance portfolio increased from 83 basis points on March 31st to 5.2% at June 30th, 2020. We have assumed that all new defaults reported in the second quarter relate to COVID-19. The provision for losses and loss adjustment expenses recorded during the quarter includes $182 million specifically for the new COVID-19 defaults reported between April 1st and June 30th, 2020. Additionally, we experienced net favorable prior period development with respect to the pre-COVID-19 defaults resulting in a consolidated provision for losses and loss adjustment expenses for the second quarter of $176 million. As of June 30th, our consolidated reserve for losses and loss adjustment expenses was $251 million. Of this amount, $189 million relates specifically to the COVID-19 defaults. $7 million of these reserves were ceded under the quota share reinsurance agreement. This reserve represents our best estimate of the ultimate losses to be incurred for claims associated with these defaults. Looking forward, we will continue to monitor the economic environment and gather information on this segment of the default inventory and update our estimate of the reserve as appropriate. Other underwriting and operating expenses were $39 million in the second quarter of 2020 compared to $42 million in the first quarter, principally due to lower travel expenses and a reduction in payroll taxes and benefits associated with bonus payments and stock vestings in the first quarter. The effective income tax rate for the six months ended June 30th was 16%, resulting in an 18% tax rate for the second quarter. As Mark previously noted, we earned 15 cents per diluted share in the second quarter of 2020. Our weighted average diluted shares for the second quarter was 103 million shares, up from 98 million shares in the first quarter of 2020, due to a partial quarter impact of the equity offering, which was completed in early June. We estimate weighted average saluted shares of approximately $112 million in the third quarter of 2020, which includes a full quarter impact of the equity offering. The consolidated balance of cash and investment at June 30, 2020 was $4.5 billion. The cash and investment balance at the holding company was $702 million, which includes the proceeds of $440 million from our equity offering that closed in June. Essent Group Limited paid a quarterly cash dividend totaling $17.9 million to shareholders in June. Consolidated debt outstanding under our credit facility at June 30, 2020, was $425 million, with a weighted average interest rate of 1.9%. As of June 30, the combined U.S. mortgage insurance business statutory capital was $2.5 billion, with a risk-to-capital ratio of 11.7 to 1. The risk-to-capital ratio reflects a reduction in risk and force associated with the affiliate quota share, as well as reinsurance provided by third parties. Essendon guarantees available assets exceeded its minimum required assets as computed under PMIRES by $1.1 billion. Essendon guarantees PMIRES sufficiency ratio was 177% as of June 30, 2020. Under temporary provisions released by the GSEs with respect to PMIRES, private mortgage insurers will apply a 0.3 multiplier to the risk-based required asset amount factor for each insured loan in default that has an initial missed payment occurring on or after March 1, 2020, and prior to January 1, 2021, which the GSEs have defined as the COVID-19 crisis period. The 0.3 multiplier will be applicable to any loan as long as it is in forbearance. For any loan not subject to a forbearance plan, The 0.3 multiplier will be applicable up to three calendar months following the month of the initial missed payment. 34,352 of our defaults have an initial missed payment in the COVID-19 crisis period and receive the 0.3 multiplier in calculating the PMIRES required assets as of June 30th, 2020. Finally, at the end of the second quarter, Essent rehab gap equity of $1 billion, supporting $11.1 billion of net risk and force. Now, let me turn the call back over to Mark.

Thanks, Larry. In closing, although our quarter was impacted by the pandemic, we were encouraged by housing's resilience as mortgage demand continues to be driven by low rates and first-time home buying. We also believe that the pandemic and people working remote will be additional drivers of home buying, especially for those wanting to move out of densely populated areas. The COVID-19 environment is a tremendous test for our buy, manage, and distribute operating model. However, With our robust capital level, strong liquidity, and access to over $1.6 billion of XOL reinsurance, Epson is well-positioned. We believe that our business model will emerge stronger, with a new sense of appreciation for private mortgage insurance and its role in supporting a well-functioning housing finance system. Now let's get to your questions. Operator?

Ladies and gentlemen, to ask a question, please press star, then the number 1 on your telephone keypad. Your first question comes from Phil Stefano with Deutsche Bank. Your line is open.

Yeah, thanks, and good morning. I was hoping you could provide us just a quick update on thoughts around ILNs at this point. There's at least one transaction that happened that was closer to what I would call traditional ILNs pre-COVID, but the pricing was up significantly. How are you thinking about pricing versus need for tail risk? It feels like there's enough capital, but there's capital relief that comes with it as well. What are the moving parts there and how you're thinking about it?

Hey, Phil. Yeah, I mean, I think we're encouraged that the ILN market has kind of reopened. Two of the MIs were in it, have done deals. Freddie's done a couple deals, which I think is important really to the long-term market. viability of the market, which we think it'll recover longer term. Yeah, the pricing's not quite there yet, but we think it'll return over time. It wasn't there early when they started five, six years ago. So I think from our view is, Phil, we have time. Time's on our side. Part of the benefit of the capital raise is we have the ability to warehouse that risk for a period of time. That being said, we'll certainly look and evaluate doing a transaction in the back half of the year. And I think if it works for us from an economic standpoint, you could see us doing it. If not, again, I think we have the patience to execute it when we feel the time is right.

Okay. And now that we have a couple months under our belt post the pricing changes, did you learn anything about the competitive dynamics? of these risk-based pricing engines or any interesting learnings from your own pricing engine as you kind of adjust the dials and things like that on the pricing scale?

Yeah, I think you continue to learn with the pricing engines. I think the market continues to be very, very sensitive to price, more so than it ever was. And I think that's just a reality of the market, whether it's bid cards or the engine. So, yeah, we saw a lot of moving parts in the second quarter in terms of pricing. I think the MIs were a little bit all over the ball field, so to speak, in terms of pricing. So, you know, I'm not going to read too much into the second quarter in terms of the pricing other than I think, you know, we did realize how really, really price sensitive, you know, the lenders are.

Okay. Thank you and hope everyone is well. Sure.

Your next question comes from Douglas Herter with Credit Suisse. Your line is open.

Thanks. Just following up on that train of thought, your sequential growth in the second quarter and again into July seems stronger than peers. Can you just talk about what you were seeing that led to your ability to have that faster insurance and force growth?

Yeah, I mean, I think Two things, Doug, to understand. One, just in terms of our pricing, it was very kind of unit economic driven. When we entered into the pandemic, our view is home prices would flatten and start to decline, which is really still our view. As a result, you kind of need to raise pricing in order to maintain that kind of return profile that you're looking for. in new business. So the result of it kind of was more share, but I don't really think it was driven so much by our pricing as just to, again, some of the competitive environment. It's clear if you just look at how the share has kind of tallied up, a couple of the MIs really reduced share for various reasons. And I think we kind of benefited from that, but not so much from a pricing standpoint, just because we were there and some of the other guys kind of backed off, it seems like. So again, The pricing is really driven in unit economics. Market share, it always ebbs and flows. It was higher this quarter, but it could be lower the next quarter or the previous quarter. So I wouldn't read too much into it other than housing is strong. So I would look at it from a secular standpoint. Doug, if you take a step back, housing is larger than we thought it would be, especially around the purchase side in the second quarter. It really dipped. you know, post-pandemic immediately following and then has bounced back. You know, how long is that sustainable? I think it's hard to tell, but I do think it's encouraging that housing has been as strong as it has been because I think it bodes well from a claim side too, right? I mean, if home prices stay elevated, when and if a borrower goes to claim, and this is going to be like 12 months from now, right, or it could be 24 months from now from a foreclosure standpoint given just the timeline, if home prices are up, that really gives the borrower the ability to sell the house and get out from under the property. And that wasn't really the case in the Great Recession. I don't think that is really well understood. It's not factored into a lot of our loss estimates yet, but I think that's where you'll see some of the benefit. And I think, again, that's a positive that we didn't have in the last downturn.

And then, Mark, just following up on your comment about, you know, the share gains, you know, how much of that can be sticky? You know, the fact that you were kind of there for, you know, the lenders kind of at a period of stress, you know, or others might've, you know, been pulling back, you know, how much of, you know, does that kind of give you goodwill with them? And does that help you kind of sort of keep some of that share in the longterm?

Yeah, no, I don't think it does. I mean, you wish it did Doug, but it's, it's, it's, it's a price game. This is more of a commodity product than I think a lot of the MIs would care to admit, and it's price-driven, so that's why it really gets down to capital and balance sheet and maintaining low expenses. Again, we were able to be in the market because we had the capital to do so. I mean, we had set it up to do it that way. We strengthened the balance sheet. As we talked about in the equity raise, it gave us the ability – to bring on more business and not rely just on reinsurance, as we talked about earlier in my response to Phil's comments, is we're able to kind of warehouse that risk. I think that's the important factor here as we go through this period of uncertainty. And remember, guys, the back half of the year is still uncertain. You know, you have an election coming. You have the stimulus bill, which may or may not happen. What's going to come on? What's going to happen with unemployment benefits? This is still clearly a balance sheet game, and I think our ability to have a strong balance sheet is evidenced by the ratings, maintain strong liquidity, PMAR's access both within the entities and then hold co-cash is really the key. So I wouldn't get too caught up, again, in share. It's going to ebb and flow, but if we're there to – I think the share is reflective of our capital strength, not so much our pricing.

I appreciate that. Thanks, Mark.

Your next question comes from Rick Shane with JP Morgan. Your line is open.

Hey, guys. Thanks for taking my questions this morning. One of the things I'm interested in is when we compare the reserves as a percentage of defaulted risk and force, the reserve rate on the 4 to 11 payment bucket historically has been mid-20s. It's now mid-teens. Two questions there. Obviously, that is a reflection of the idea that the loans and forbearance, the COVID-related loans are likely to have a lower lifetime or eventual default rate or claim rate. But I'm curious how you calibrate that. And also, as we move through the year, looking at the later buckets, the reserve rates are historically the same. I'm curious if we could see a surge as the loan season in default.

Hey, Rick, it's Mark. I would not read anything into that 4 to 11. I mean, you have to be very careful. And we were trying to be clear on the script. But the 7% that we estimated kind of default the claim on the COVID is our best estimate. We're not going to change it as it rolls through the buckets. That's really how, and you think about how defaults normally work. Pre-COVID, we had a 9% estimate. As it rolls through claims, it's obviously going to rise as some cure and others stay there. Your probability of default actually goes up. However, if you take, again, a step back, a new default pre-COVID, 9% to 10% of them eventually went to claim. Here, since it's not going to be the normal roll rate pattern, we've taken a stance, and we did the same thing with the hurricanes, that we're going to do an upfront reserve for that amount, and we'll adjust that. We'll look at that reserve and evaluate and potentially adjust it every quarter, but we're not going to follow the model that we do for a normal kind of roll to claim.

Got it. And that makes sense. Look, we agree with you that the hurricane is an appropriate analogy. The only difference in my mind is that I think that in a hurricane scenario, one of the reasons loans are in default is because the utility of the property may have been diminished if you can't use it. And that's not the situation here.

I completely agree. It's apples and oranges. It's like the hurricanes only in our reserving process. Don't think of it as we're not comparing it to the hurricane. It's really just in terms of the process. A hurricane is an unknown event, and so is this. I mean, we have never, it's not like we can go back and look at it. Well, how was the economy during the 1980s pandemic? I mean, there is no kind of, there is no history to look at. So I think our view was Think about it as in a normal default, 9% eventually go from default to claim. Here we're looking at it and say because of forbearance, you know, we're kind of the delta between the nine and the seven is us giving credit for the benefit that the borrowers have to be in forbearance. That 7% could prove to be conservative or it could prove to be aggressive. This is really just our, you know, our estimate based on, you know, that's just the second quarter.

I appreciate that too. We're clearly across the board struggling with the same math as well. So thank you for sort of explaining your thought process.

Absolutely.

Your next question comes from Jack Masinka with SIG. Your line is open.

Hi, guys. Good morning. On the last question, when you look at the 7% claim rate on the loss incurred this quarter, it appears that perhaps the severity assumption has changed or increased. Just sort of back of the envelope, don't get to the full loss incurred on just the seven. So was there a change in your thinking about severity or an increased conservatism on your severity assumption on this quarter's reserving?

No, Jack, there wasn't. I mean, I think previously, I mean, again, anything below 100 is just the result of we haven't paid a lot of claims to date. So normally when we look at a reserve, we assume 100%. What's driving it is really just the higher loan balance that are in default. I mean, I think it's probably 215 this time last year, and it's like 260 this year. And some of it is just the defaults are a little bit more weighted on the coastal properties because they got hit. That's where we're seeing kind of higher defaults. So it's really – the loan size, not so much us being conservative.

Okay, got it. And of that 34,000 that you're sort of assigning as COVID, do you know how many of those are in forbearance currently? What kind of percentage that looks like?

It's about 90%, which I can't for the life of me figure out why it's not 100%. I mean, you would think over time borrowers would – you would want the borrowers to do it. So I think that's a little bit of just a discrepancy in data. And hopefully over time the servicers will be reaching out to make sure the borrowers enter into the forbearance program to give them the flexibility to kind of – and the time needed to get back on their feet.

Yeah, okay. Larry, real quick, the operating expense line, Certainly understand the quarter-to-quarter step down with payroll, et cetera. But running well under the year-ago quarter dollar rate as well. Incremental cost cutting, anything there efficiency-wise or why that number came in better than a year ago?

Jack, you know, we've touted in the past that we have really just low nominal dollars of expenses. We focus a little bit more on the nominal dollars than the expense ratio. But we provided some guidance in the first quarter of a range of $165 to $170 million for the year. We may be towards the lower end of that range. We're sticking with that range for now, but we may be a little bit towards the lower end of that range based on the rate we're at so far. All right, guys. Thanks. Good luck.

Your next question comes from Mark. Debra is with Barclays. Your line is open.

Yeah, thanks. Just had a question about expected returns on new business. You know, one of your competitors recently commented, they think, you know, given some of the pricing actions that have been taken, they think returns could actually come in higher than kind of the long-term average. Just curious what your thoughts are on that.

Yeah, I mean, we probably disagree with that, Mark. I think, again, I think we price to be kind of in that mid-teen returns. We're kind of in, I would say, the 12% to 15%. You can financially engineer that to make it higher based on your PMIRs assumption. But in order to get to kind of above mid-teens, you would need to have a super low claim rate assumption. I think it's a difficult thing to have in this environment. Again, you know, we're at a 10% unemployment rate. We're kind of, we're still in the midst of the pandemic. So for, you know, for us to say that we feel with any confidence that these are above our long-term returns, you know, I don't think, I mean, you know, we can't speak for others. That's not something we could say. I'd still say it's still kind of in in that kind of 12 to 15, which is really how we gauge it. And again, we'll see how the economy unfolds as to what the end result is. But again, we're still relatively cautious when it comes to kind of the back half of the year.

Got it. And is there anything in the new reproposed GSE capital standards that you're monitoring, which may have the potential to impact your business either for the good or the bad?

Yeah, I mean, it's certainly something we're looking at. I would say the big picture, and we've talked about this in the past, is when the capital standards become final, if they become final, there could be kind of a rollover effect to PMIRES, which could potentially increase the capital requirements for the industry. And that's something we've factored in for a long time as part of why we looked at the capital raise. and it's something we're comfortable with. Again, clear and transparent standards and capital for an industry like ours is important. And I think the result of that, if there was increased capital markets, you would just see pricing adjust. And I think the fact that pricing adjusted so quickly across the industry in response to the pandemic, I think bodes well for the MI's ability to price risk correctly. And I think the industry kind of got a bad rap over the past couple years based on pricing because it went down. But remember, it went down because HPA was up, losses were down. It was, again, a result of unit economics. MIs felt like they could price lower and still achieve those returns. And now in the face of potentially higher claim rates, we raise pricing to achieve those returns. So if the capital or the E changed, I don't think there would be a lot of hesitation for the MIs to raise pricing accordingly to get get to those returns. And it's something I mentioned last quarter, and I've mentioned it a few times in the past, is most lenders don't care what their MI price is. They just care if it's relative to others. So I had a large lender say, you know, he didn't care, you know, 60 basis points, 50 basis points, 40 basis points, as long as he wasn't disadvantaged. And again, I think that bodes well for the long-term kind of pricing sustainability of the business. And, again, I think that would be factored in if the capital requirements changed.

Okay. But anything around, like, GOC risk sharing that you're monitoring? I know the treatment under the re-proposed standards is getting a lot of attention as being a lot more onerous for them, potentially discouraging that. Just thoughts around that?

Yeah, I mean, again, I think that's where it's a little bit apples and oranges with us. You know, we don't see anything on the horizon that would change that. And that's not final yet. Remember, I think there's going to be a lot of pushback. We believe the CRT market in general has been a great thing for all holders of mortgage risk, right? It allows us to distribute that risk to other parties and really disperse it amongst many parties. And I think it's the same thing with the GSEs. The result of the GSEs is it protects the taxpayer. So longer term, I would expect that to, you know, I know it's in the rules, and I know it's open for comment, but I would expect over time for it to come in line where the GSEs would be allowed to use and take advantage of risk transfer.

Okay, great. Thank you.

Your next question comes from Bose George with KBW. Your line is open.

Yes, good morning. The FHA, the last couple of months, it looks like their insurance and force has contracted. Do you think that could help the MIs, or do you think that's happening really at a part of the market that everyone's kind of shying away from now, just given broader caution?

Yeah, I mean, I look at just our NIW for the quarter bows is actually a higher proportion. a higher FICO. Some of that was driven, you know, pricing driven as we raised pricing probably more than 10% around some of the tail. And a lot of it had to do with the GSE just tightening. GSEs did a really good job quickly coming in and kind of slicing the tails. So I think for us from an FHA perspective, we don't look too much into it. Again, we've longer term said we don't, to us, FHFA is actually not a competitor. It's a counterpart, right? And they allow the borrowers that don't really fit our needs to kind of have a successful homeownership experience. So if their volume goes up or share goes up or down and it results in a good thing for the borrower, well, that's a good thing for us. So we don't spend as much time looking at FHA kind of share versus our share maybe as the investor community does. And I wouldn't read too much into it, especially with a market of this size, Bo, as you're talking about a second quarter market that was $250 billion. I mean, it's like the size of most annual markets. It was $150, I'm sorry, $150, but $250 for the year, first six months. And so we're on pace maybe to exceed the largest NIW market ever. I believe it was like 2003, it was $400 billion. So when you have a market of this size amongst six competitors, I'm not sure FHA really kind of It doesn't really enter into the equation too much for us.

Okay. That makes sense. Thanks. Actually, I wanted to ask about M&A. I know there's a lot of other things on people's minds, but just given the valuations in the sector, I'm just curious if you think there could be acquirers looking at the sector.

Again, we haven't thought too much about M&A in this environment. I think we're more focused on continuing to build the strength of the balance sheet, but One of the byproducts of us strengthening the balance sheet and having so much liquidity is we are able to take advantage of any opportunity, should they arise. And M&A, as you know, I've never – I think consolidation in the industry longer term is just a good thing. You know, talking about a commodity-type product where pricing is relatively – you know, it's indifferent, and pricing actually drives volume, which kind of removes the whole market share argument and allows you to leverage costs. And obviously, if its share, if insurance in force did decline amongst a large acquisition, that frees up a lot of capital. So I think it's a good thing for shareholders long term. Many other mature industries over time have consolidated. So I still think that's in the cards. I mean, look at the lenders. You just saw Rockets IPO. They continue to kind of gather share. So we think there's going to be less lenders over time. and I think less lenders means, again, I think from an investor standpoint, shareholder perspective, consolidation is still going to be a good outcome for the industry.

Great. Thanks, Ben.

Thanks. And there are no further questions, Kit, up at this time. We'll turn the call back over to Marc Gasol for closing remarks.

Okay. Well, thanks, everyone, for your participation today, and enjoy your weekend.

This concludes today's conference call. You may now disconnect.