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spk09: Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the SN Group fourth quarter and year-end earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press the star one. Thank you. Phil Stefano, Vice President, Investor Relations. You may begin your conference.
spk01: Thank you, Rob. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO, and David Weinstock, Interim Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Curran, President of Essent Guarantee. Our press release, which contains Essent's financial results for the fourth quarter and full year 2022, was issued earlier today and is available on our website at EssentGroup.com. 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 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 SEC, on February 16th, 2022, and any other reports and registration statements filed with the SEC, which are also available on our website. Now let me turn the call over to Mark.
spk10: Thanks, Phil, and good morning, everyone. Earlier today, we released our fourth quarter and full year 2022 financial results. Our strong performance, which reflects the earnings power of our business, benefited from better than expected credit performance, along with increased persistency and investment income as a result of higher rates. These results demonstrate the strength of our economic engine in generating high-quality earnings. Heading into 2023, we remain confident in our buy, manage, and distribute operating model, despite some economic uncertainty. While our franchise is levered to the economy and housing, we continue to manage the business considering a range of scenarios. As for the economy, the consumer has shown resilience and unemployment has been relatively stable. With regards to housing, We remain constructive over the longer term as we continue to believe that low inventory and demographic driven demand should support home prices. And now for our results. For the fourth quarter of 2022, we reported net income of $147 million as compared to $181 million a year ago. On a diluted per share basis, we earned $1.37 for the fourth quarter compared to $1.64 a year ago. For the full year, we earned $831 million, or $7.72 per diluted share, while our return on average equity was 19%. At December 31st, our insurance and force was $227 billion, a 10% increase compared to a year ago. Our 12-month persistency on December 31st was 82%, and the weighted average note rate of our book is approximately 3.8%. While there has been some relief to affordability pressures since rates peaked last November, recent mortgage rates should continue to translate to an elevated level of persistency. At the same time, the credit quality of our insurance and force remains strong, with a weighted average FICO of 746 and a weighted average original LTV of 92%. On the business front, we activated 150 new customers in 2022 as we continue to drive lender penetration, and growing the Essent franchise. In addition, based on expected credit normalization, we increased rates during the year. Our pricing engine, Essent Edge, enables us to efficiently raise rates in targeting adequate risk-adjusted returns in pricing long-tail mortgage credit risk. And we believe that Edge is mutually beneficial, delivering our best price to borrowers while helping to optimize our unit economics. Our Bermuda-based reinsurance entity, S&RE, had another strong year of performance, writing high-quality and profitable GSC risk share business and continuing to provide fee-based MGA services to our reinsurer clients. As mentioned last quarter, the current environment is providing S&RE with improved pricing and opportunities to move up in the structure to optimize returns. S&RE ended the year with third-party annual revenues of approximately $69 million, and third-party risk and force of approximately $2 billion. Since 2014, Essendree has earned over $275 million of net income from its third-party business. Essend Ventures, our strategic investment unit, was formed to enhance financial returns while gaining insights to improve our core business. Ever to date, these investments have created $85 million of value, of which $64 million have been returned as realized proceeds. As of December 31st, the carrying value of other invested assets is $258 million. It was through these efforts in Essent Ventures that we identified our planned title transaction. Title insurance is a natural complement to our mortgage insurance business with relatively stable underwriting performance and efficient capital requirements. This acquisition adds a team of seasoned title professionals to Essent and provides a platform to leverage our capital position, lender network, and operational expertise in a well-established adjacent sector. Cash and investments as of December 31st were over $5 billion, and the annualized investment yield for the fourth quarter was 3%. For the full year of 2022, our investment yield was 2.6% compared to 2% in 2021. As a reminder, for every one point increase in the investment yield, there is a roughly one point increase in ROE. As of December 31st, we are in a position of strength with $4.5 billion in gap equity, access to $2.5 billion in excessive loss reinsurance, and over $1 billion of available holding company liquidity. With a full year 2022 operating cash flow of $589 million, our franchise remains well positioned from an earnings, cash flow, and balance sheet perspective. At year end 2022, approximately 98% of our portfolio is reinsured. In the fourth quarter, we closed a quota share transaction with a panel of highly rated reinsurers to provide forward protection for our 2023 business. We will look to continue executing upon our diversified and programmatic reinsurance strategy that mitigates earnings volatility from economic cycles and provides capital relief. In 2022, we return nearly one quarter of our earnings to shareholders in the form of dividends and share repurchases. We remain committed to a balanced approach between capital distribution and capital deployment, including investing $100 million for our planned title acquisition that I previously mentioned. Further, given our strong financial performance during the year, I am pleased to announce that our board has approved a 2 cents per share increase in our common dividend of 25 cents. Moving forward, we will review our common dividend annually as we continue to believe that maintaining and steadily increasing dividends is a meaningful demonstration of the confidence we have in the stability of our cash flows and the strength of our operating model. Now, let me turn the call over to Dave.
spk04: Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the fourth quarter, we earned $1.37 per diluted share compared to $1.66 last quarter and $1.64 in the fourth quarter a year ago. We ended 2022 with insurance and force of $227.1 billion, an increase of $4.5 billion from September 30th, and an increase of $19.9 billion, or 10%, compared to $207.2 billion at December 31st, 2021. Persistency at December 31st, 2022 increased to 82.1%, compared to 77.9% at the end of the third quarter. Net premium earned for the fourth quarter of 2022 was $207 million and included $14.6 million of premiums earned by S&RE on our third-party business. For full year 2022, our net earned premium rate for the U.S. mortgage insurance business was 37 basis points. The average net premium rate in the fourth quarter was 34 basis points, a decrease of one basis point from the third quarter. We expect that the net earned premium rate for the full year 2023 will be largely unchanged from the fourth quarter rate of 34 basis points. Net investment income increased $5.2 million, or 16%, in the fourth quarter of 2022 compared to last quarter due primarily to yields on new investments and floating rate securities resetting to higher rates. Other income in the fourth quarter includes a $6.5 million loss due to a decrease in the fair value of embedded derivatives in certain of our third-party reinsurance agreements. which compares to a $5.2 million gain on the valuation of embedded derivatives last quarter. The provision for loss and loss adjustment expenses was $4.1 million in the fourth quarter of 2022 compared to $4.3 million in the third quarter and a benefit of $3.4 million in the fourth quarter a year ago. At December 31st, the default rate was 1.66%, up 11 basis points from 1.55% on September 30th, largely due to traditional default seasonality. For the full year 2022, we recorded a net benefit of approximately $175 million, due largely to cure activity on defaults reported in the second and third quarters of 2020. Other underwriting and operating expenses in the fourth quarter were $46.9 million, up $4.8 million from the third quarter, largely due to an increase in professional fees. The expense ratio was 20% for the full year 2022 and compares to 19% in 2021. We estimate that the other underwriting and operating expenses will be approximately $175 million for the full year 2023, excluding any expenses associated with the announced title business acquisition and related transaction costs. The effective tax rate for full year 2022, including discrete items, was 15.9%. For 2023, we estimate that the annual effective tax rate will be approximately 15.5%, excluding the impact of any discrete items. During the fourth quarter, Essend Group paid a cash dividend totaling $24.6 million to shareholders. Also in the quarter, Essend Guarantee paid a dividend of $55 million, and Essend Guarantee of PA paid a dividend of $5 million to the U.S. holding company. As of January 1, 2023, The U.S. mortgage insurance companies can pay ordinary dividends of $318 million in 2023. As of quarter end, the combined U.S. mortgage insurance business statutory capital was $3.2 billion with the risk to capital ratio of 10.2 to 1. Note that statutory capital includes $2.1 billion of contingency reserves as of December 31, 2022. Over the last 12 months, the U.S. mortgage insurance business has grown statutory capital by $226 million while at the same time paying $320 million of dividends to our U.S. holding company. As a reminder, Esten has a credit facility with committed capacity of $825 million. Borrowings under the credit facility accrue interest at a floating rate tied to a short-term index. As of December 31st, we had $425 million of term loan outstanding with a weighted average interest rate of 6.02%, up from 4.39% at September 30th. Our credit facility also has $400 million of undrawn revolver capacity that provides an additional source of liquidity for the company. At December 31st, our debt-to-capital ratio was 8.7%. Also at December 31st, Essendon Guarantee's PMIR sufficiency ratio was strong at 174%, with $1.4 billion in excess available assets. Excluding the 0.3 COVID factor, the PMIR sufficiency ratio remained strong at 165%, with $1.3 billion in excess available assets. Now let me turn the call back over to Mark.
spk10: Thanks, Dave. In closing, we are pleased with our fourth quarter and full year 2022 financial results, which reflect our focus on optimizing union economics to generate high-quality earnings and strong returns. Looking through the one-time tailwind of COVID reserve development on earnings, the underlying results for 2022 were solid. The high credit quality of our portfolio and strong employment drove credit performance, and higher interest rates benefited the persistency of our in-force book and investment income. Our strong operating performance continues to generate excess capital, which we will deploy in a balanced manner between investment in growing our franchise and distribution to our shareholders. We believe this measured approach is in the best long-term interest of Essent and our stakeholders. Now let's get to your questions. Operator?
spk09: At this time, I'd like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Mark DeVries from Barclays. Your line is open.
spk03: Yeah, thanks. I was hoping to get some color if you can provide any on the title acquisition, kind of what your expectations are for earnings contribution, and how you think about investing in that business and growing it from here.
spk10: Yeah, Mark, I would take a step back. I would say shorter term, I'm not going to project any kind of earnings around this over a period of time, and we'll obviously update everyone every quarter. We look at this very similar to the platform we bought off of Triad back in 2009. It really was like our ticket into the mortgage insurance business, and we see similar parallels with Triad. the acquisition of both BNC and Antec. They're good platforms, really strong, talented people, relatively small, obviously, in terms of the industry. And we look at, you know, first off, we're going to continue to invest in the infrastructure in both, put more capital into the underwriter, try to improve the ratings. invest in people, and then look for ways where we can provide some synergies. Clearly, a lot of synergies just in terms of, you know, back office, right, in terms of finance and legal and some of those things which we're, you know, we have a pretty good handle on. And then over time, in terms of our technology platform and digging in on the operational side, to look for ways to grow. So it's that old Walter Viston saying, control profitability growth. So we're going to look at it over. This is like a three five 10 year plan mark. It's not something we're going to come out of the gate with earnings. It's a new industry for us. It's an industry we understand well because it's an adjacent sector. But we're going to take our time. We're going to continue to you know apply you know kind of that hard work and operational expertise to it. And I think over time we'll be able to grow it. But it's definitely from our standpoint you know, big picture, it's complimentary to the MI business. So the MI business has, you know, credit risk, regulatory risk, operational risk, you know, titles more operational risk, regulatory risk, and kind of capital and credit are on the lower end. So longer term, we think it's very complimentary. There's clearly some overlap with lenders, but you're looking at a As we look to grow Essent, right, and you've heard me say over the years, we want to grow Essent. We love the mortgage insurance business, and we've grown it, and we think we can continue to grow it as housing grows, but the pond is only so deep. So when you look at title with annualized revenues in the $20 to $25 billion kind of range, it's a big market, and our view is it's something for us to, as we look at that next phase of Essent and building other operating engines, we thought this was a good pond to go into.
spk03: Okay, that's helpful. And I know, I think in the past, Mark, you've also expressed interest, you thought about diversification and consumer credit related businesses. Is that something that's still kind of on the table or are you going to be really focused on both continuing to execute within the MI business and building out this new title venture?
spk10: Yeah, I would say for the foreseeable future, we're going to be digging into title a lot. So not that that's off the table. Remember, you know, we really have, when you think about the core business, we have Essendree, which continues to grow. You know, title is kind of our third, you know, kind of area. I would say around the consumer credit and analytics, you know, most likely if we were to make an investment there, it would be via the ventures group, right? So that's kind of teed up. to do direct investments. But I would say for the foreseeable future, we're going to be pretty focused on the title.
spk06: Okay. Makes sense. Thanks.
spk09: Your next question comes from the line of Rick Shane from J.P. Morgan. Your line is open.
spk07: Thanks for taking my question this morning. Just really one thing. You recently completed the negotiation of your 2023 quota share agreement. I'm curious in your conversations with the panel of reinsurers how investors in the space are looking at the outlook for 23. Do you think that it is... coherent with your views or in line with your views? And how do you feel about pricing?
spk10: Yeah, I mean, I think in speaking with the reinsurers, we actually had one of the large brokers in the office, I think in the last three or four weeks to kind of give us a deep dive just on on that market, or at least an update on that. We feel pretty good about the market, and I would say it's all about the sustainability of reinsurance, Rick, both with reinsurers and with the capital markets. The pricing is gonna ebb and flow, right? So we've paid a little bit higher pricing on both over the past 12 months, but if you think of the three or four years before that, we've had excellent pricing. So it's really the sustainability, and those markets are gonna remain open I think we feel pretty confident on both. The reinsurer market is really now, even though they've had hardening on different parts of the business, they clearly look at mortgage as kind of counter-cyclical to that and good diversification. And what happens with these reinsurers, they continue to invest in teams. It becomes like another business line. So we believe it's pretty sustainable. And again, the pricing is going to go up and down. depending on the market or their views on credit, you know, just like we have our views on the front end. So again, I think the pricing is adequate. Sustainability is very good. And just to throw in there, you know, on the S&R side, we've been kind of the, you know, we've been fortunate to, you know, we've been able to capitalize on that increased pricing. So we wrote the most business that we've had ever in 2022, and we're able to move up the capital structure. So we're able to get more premium for less risk, which is always a nice trade-off to get. And then just finally, just in terms of reinsurance, Rick, I just think if you think we're five years into this programmatic reinsurance, and it's still around. It paused a little bit during COVID, but it came back. You know, last year, tons of uncertainty around where rates were and the economy. There's still uncertainty, but I would say it's not as heightened as it was in that October and November timeframe when inflation was kind of running rampant. We still got reinsurance done. So let's work backwards. So say we're here five years from now, and now we're 10 years into programmatic reinsurance. I think it sends a strong signal, and I've been saying this for a while, The reinsurance has fundamentally changed the mortgage insurance business. It was always a buy and hold kind of model where Essin and others, we had an uncapped liability on our balance sheet. And that is no more. 98% of the book is reinsured. Sure, we pay for it, but we've taken that capital volatility away from the business. And I know we're viewed in the market more like a specialty finance company, kind of boom and bust. But I think over time, I think that's going to change. I think we're going to be viewed more like a specialty insurance company where our specialty just happens to be mortgage and housing and not having that. And of course, those specialty insurance businesses have ebbs and flows, but they're valued a lot higher than specialty finance companies because of the sustainability of their cash flows. So again, we have to prove it out. We're five years into it. We're not going anywhere. We'll continue to do it. We'll continue to grow the business and, you know, we'll let the chips fall where they may. But we feel pretty good around how that's kind of starting to shape up.
spk07: Got it. Well, as a specialty finance analyst who's enjoyed covering your company, the market can do what it wants, but I'm going to still continue to look at you as a specialty finance company. There obviously is a real-time feedback loop. with pricing in that market, and it's not just Essent who's participating, and you have alluded to a harder market. Again, I'm assuming that you are seeing that that is weaving its way through into the competitive environment in terms of pricing for you and that there is continued pricing power.
spk10: Yeah, I mean, I guess if you look at just the reinsurance side, just to put it in context, Rick, In general, we pay four to five basis points of our premium for reinsurance. So in the last year, it's gone up a point, maybe a little bit more, right? We've raised pricing on the front end more than that. So again, if you think about, again, just the sustainability of the reinsurance and put it in context of the premium we charge, we still think it's a pretty good value. Got it.
spk07: Thank you very much.
spk09: Sure. Your next question comes from the line of Mihir Bhatia from Bank of America. Your line is open.
spk02: Good morning, and thank you for taking my questions. I wanted to start on the insurance side first. I understand your net premium rate guidance is flat, but I did want to ask about the enforced yield or the base premium rates that you report on slide 16. There seems to be a real stabilization there. Some of your competitors have talked about increasing premiums on new business. So should we expect that base premium rate to maybe start blending higher and then it's like really insurance costs that are driving the net premium rate to be flat?
spk10: I think that's – I don't know that I would necessarily say they're going to turn up. But in terms of have they bottomed, we feel like they're getting pretty close to the bottom if they haven't already bottomed. So, yeah, that base premium rate of around $40,000 when you think about the business on the new insurance written, we're getting pretty close. And then obviously then it does have the chance to go up from there. But I think, Mihir, the other point of this is just the value of the pricing engines, right? And in terms of our ability and the industry's ability to kind of price adequately for the risk. So we saw in COVID, where things were unclear and the industry was able to kind of pivot and change the pricing. And then clearly the pricing, in our view, kind of bottomed out last year in that probably first quarter, maybe near the end of it. And that was reflected in our share as we talked about this on the calls. We started increasing pricing. Others have increased pricing. And that continues today. And there's a couple reasons for that. There's a few reasons for that. A little bit of the reinsurance cost that we alluded to. in my answer to Rick. You know, second clearly is kind of some of the clouds forming around the economy. I would say most importantly, though, here, it's the normalization of credit, right? So this, you know, this below 1% default rate, our view is all the time it's been more like 2 to 3. And if you're going to have adequate returns at a 2 to 3% claim rate, the pricing needs to come up. And we're obviously not the only ones to see that. So It's come up. We think it could continue to rise. We'll raise pricing. We're expecting to raise pricing again in the first quarter of 23. And if it keeps going up, you're going to see new premium levels that you haven't seen since 2018. I mean, so it's really moving in the right direction. But in the context of the borrower, it's still very efficient, right? I mean, you're talking about we charge almost less than half of where the GSEs charge. So I think from a pricing to the borrower, it's very efficient and actually helps our counterparties and our stakeholders because you have to adequately price for this long tail risk. And our view is we're doing it, clearly our competitors are doing it. And I think that's probably one of the more important points for investors to grasp out of this quarter is kind of not just the stabilization of pricing, but kind of where pricing has the potential to go, but also just the ease of using the engines and the way it's able to kind of help us target adequate returns. It's something we said five years ago, four years ago when we started the engines, that it was more of a risk tool than a market share tool, and I really think that's starting to play out across the industry.
spk02: Right. Got it. That makes sense. And thank you for that. We would agree about that. You know, the premium conversations have certainly been quite encouraging this quarter. Maybe just turning to the deal. And I understand you don't want to talk about, you know, short term, like one, two years, what you're seeing in terms of, you know, financial benefits or targets or anything at this early stage. But maybe like, you know, you mentioned, you know, this is a long term play for you, three years, five years down the line. How are you going to be judging success of the deal from a financial standpoint? Do you think it's like, you know, 20, 30, 40% of total profits for, you know, the combined Essend group? Or is it a much slower, longer tail than that, where there's like, you know, it takes a while to just build up that kind of momentum? Like, how are you thinking about, like, you know, give us at least a long term something about how you're thinking about judging the success of this?
spk10: Yeah, I mean, it's a fair question, right? I would say, again, I would go to, and we're going to be disclosing this separately, right? I mean, just given, you know, the revenues of the title business relative to the revenues of the MI business, it would most likely be a separate segment. So this is going to play out for everyone. As you know, we're going to be pretty transparent. I would say we really look at returns at the end of the day. So we have these core return targets of 12 to 15 in the core business. We have it within S&RE. And I will remind you, when S&RE, we break it out, I think folks are going to be pleasantly surprised as to kind of the returns of the business. And just you saw it, and it's in the script. I mean, you're looking at, you know, almost $70 million of revenues. And, you know, there's expenses assigned to that for sure, but there's also investment income. So it's a good business. It has. It's right within that 12% to 15% return profile. The ventures, which is... it's not really a business, but it certainly is a unit that we manage separately that also has return targets. So we've had, you know, we've returned, we've had pretty good return on that initial investment. I believe the IRR since inception is 17%. So it's right again within that 12 to 15% target. And I think with title, you know, it's going to be the same thing. It's a little bit capital light. So the return should be higher. In terms of the growth, I mean, here, we're going to have, it's going to be, you know, business is an error process. So we're going to get in there. We have two, and these are really two businesses, right? You have the Antec business, which is almost like a wholesale. You know, it's an underwriter, but it attracts title agents. It's relatively small, you know, 200 title agents that they have. So we're going to, as we look at Antec, it's going to be how can we How can we grow their base of title agents? How can we activate new agents? How can we build out a larger sales force? How can we scale some of those things? How can we use our capital from a ratings perspective to make it more attractive for salespeople to come and work for us and for agents that want to use us? What offerings can we invest in to make that attractive? On the BNT side, they're a top 10 player with lenders, really around centralized refinancings, which has clearly been down. But again, can we sign up new lenders leveraging our lender network? We'll see. We believe we can. And can we help strengthen their operations so they can take on more business? It's not just signing lenders up. We really took a step back building the MI business and made sure the operations were very crisp so we could take on business. In MI, we were competing with very large and established competitors. When we first signed up lenders, we had to make sure they had a really good experience or they wouldn't have come back. This was all before you guys saw us in the public market. This will play out a little bit publicly. But it's the same game plan. So we're going to go in and take this kind of a step at a time and build it brick by brick. And we're fortunate here that the platforms are a little bit more established. We didn't have any salespeople. And I think when we first started, we had approximately zero lenders signed up. So they're obviously further ahead. And we believe that it's almost like a partnership. We love kind of the experience and the talent that we're getting in both organizations. And combining that with Essent, can we help scale that? So longer term, we never thought Essent would be this big. When we first started the business and wrote the business plan, we thought if we could get to 10% share, we would do really well. And that was in a much smaller market. So some of it's going to depend on the size of the market, the size of house prices. So as house prices go up, title insurance premiums go up. We know we're, you know, I think Antic is the 15th largest, you know, so we're, you know, we're far maybe half a point of share. So we're, it's tiny. So, you know, we're going to get in there and, you know, again, it's three, five, 10 years. And so I don't want to put a number on it, but we certainly would expect supplemental income. We don't do things not to make money. So, you know, whether, you know, where that, you know, where that ends up over the long term, we'll find out. We're just trying to caution people in the short term. that we're not trying to come out of the gate to show you earnings. We'll always sacrifice early on investment. We certainly don't want to lose money, but I think the prize is longer term in growing the business. Got it. Great.
spk02: I think we look forward to hearing more as you finally close the acquisition and start providing more details. Thank you. You're welcome.
spk09: And again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from the line of Bose George from Keefe, Bruett, and Woods. Your line is open.
spk05: Yes, good morning. Actually, just one more on the title. You know, when you think about sort of the long-term growth trajectory, do you think it's more driven by M&A or organic or just how is the combination there?
spk10: Yes. Yes. It's too early to tell. I think we're always going to favor organic growth of those. That's how we build Essent. The title industry has different dynamics, however, so we're well aware of both. There is an opportunity to use our balance sheet. I would say we have a pretty large capital position, but we're not going to be in the business of just buying title agents left and right. I think we could eventually get to the point where we're acquisitive, but we really want to understand the operations of both and the potential to grow them organically. And there's going to be a limit to that, but it's kind of baby steps. So first, close on the transaction, and that's probably not going to be to the third quarter, and then really think through how do we strengthen the infrastructure of both businesses and then look for ways to grow organically. And my guess is we'll end up doing both. You'll grow organically and you'll complement that with acquisitions, but that's down the road.
spk05: Okay, great. Thanks. And then just in terms of financing it, can you use cash at the insurance company for buying title insurers?
spk03: I'm sorry, could you repeat that?
spk05: Is this funded with Holdco Cash or... I mean, is it possible to buy title insurers at the insurance company itself?
spk10: Good question. Now, the acquisition will be out of Essent U.S. Holdings. So just to remind everyone, Essent U.S. Holdings is a sub of Essent Group, and Essent Guarantee is under Essent U.S. Holdings. So this will be a sister company to Essent Guarantee. So different pots of capital, for sure.
spk05: Okay, great. Thanks. And then just one last one. On the expenses for next year, I didn't know if you said that, but did you give guidance for what we should expect for OPEX for next year?
spk10: Yeah, we're right around $175 million, but that does not include title. So it's just for the MI business, and obviously we'll include title upon the close, and we'll add to that. So it's pretty much business as usual in terms of expenses. Little noise in the fourth quarter. due to the deal, and there'll be a little noise with some of the transaction costs. But in terms of the core business, you know, we feel pretty good about that number.
spk06: Okay, great. Thanks.
spk09: Your next question comes from a line of Jeffrey Dunn from Dowling & Partners. Your line is open.
spk08: Thanks. Good morning. Good morning. I wanted to look at the credit this quarter a little bit in terms of the current period provisions for equity development. The average provision there is up a bit. So I was just curious, did you change your claim rate at all? Is that just seasoning of the early stage delinquencies? Can you provide a little bit more detail?
spk06: Yeah, Jeff. It's Dave Weinstock.
spk04: You know, on the whole, we haven't really made any significant changes. You know, we have a an actuarial model that we feel really good about. I think we've talked about in the past that our expectations on early claims is somewhere in that 8% to 9% range. And if you look at where our reserves are at December 31st, we're at 8% for those early delinquencies. So really nothing significant there as it relates to what came in in the fourth quarter.
spk08: So probably more just geography and average loan size?
spk06: Yeah, I think that's fair. Yeah, I think that's a fair assessment.
spk08: Okay. And then, Mark, you brought up the cash flow for 22 in your prepared remarks, and obviously one of the things that's helping that is the industry doesn't really have any paid claims. I was expecting a COVID once forbearance plan started ending, you'd have a jump in paid claims as you could proceed with those, but it seems like that hasn't been happening. So is that something that we're just waiting for the spike to happen, or has the embedded equity really taken that spike out of the recovery, and this is just going to gradually phase up as the notice inventory stages build out?
spk10: Yeah, I think that's actually a good assessment of it, Jeff. I mean, one, most of the guys in forbearance originally in COVID cured. A lot of times they cured because they sold the house. I mean, and we can see that now. I mean, with the technology, you can see when one of your defaulted loans is listing. And we could see, like, where it was at, where we have it, you know, marked at and where they're selling it at. So in that market, they were able to kind of get out of that, which we had assumed was going to be part of it. And I think it's the same thing here. Just the embedded equity in the mark-to-market that we have on the book has really helped that. And then in terms of just, you know, I'm not sure – and this is longer term, but the forbearance and the tool that it is with the GSEs, I actually think that's going to be a common occurrence around events. Clearly it happened with hurricanes. It happened with COVID. So other significant recessions, I would not be surprised. It's a very effective tool of keeping borrowers in their homes and allowing them to work it out. In the post-crisis, we had HAMP and HARP, But there the milk was kind of already spilled on the floor and it was a way to help, you know, mitigate that. With COVID, like right out of the gate, the GSEs were extremely responsive. It was really a smart move. I mean, it hurt us, right, because we had to post reserves for it. And in terms of, you know, people were defaulting because they were allowed to. But longer term, keeping borrowers in their home is really good for everyone, except maybe for those who live in a default-type world and things like that. So I think it's a common tool, and I think it's a real benefit to the industry that is maybe a little bit underappreciated.
spk06: Okay, great. Thank you. You're welcome.
spk09: And there are no further questions at this time. I will turn the call back over to management for some final closing remarks.
spk10: I'd like to thank everyone for calling in today and their interest in Essent, and have a great weekend.
spk09: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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