Essent Group Ltd. Common Shares

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 Essing Group second quarter 2023 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.

Thank you, Rob. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO, and David Weinstock, Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Caron, President of Essent Guarantee. Our press release, which contains Essent's financial results for the second quarter of 2023, 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 with the SEC, filed on February 17, 2023, 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.

Thanks, Bill, and good morning, everyone. Earlier today, we released our second quarter 2023 financial results, which continue to benefit from our high-quality insurance portfolio and favorable credit performance. Also, rising interest rates continue to drive higher investment income and elevated persistency, which supports the growth of our enforced portfolio despite pressure on new business volumes. Our long-term outlook on housing remains constructive, as we believe that demographic-driven demand and low inventory should provide foundational support to home prices. While there is still uncertainty surrounding the U.S. economy, we remain confident in our robust capital position and the strength of our buy, manage, and distribute operating model. And now for our results. For the second quarter of 2023, we reported net income of $172 million compared to $232 million a year ago. As a reminder, our results last year were favorably impacted by the release of certain reserves associated with COVID-related defaults. On a diluted per share basis, we earned $1.61 for the second quarter compared to $2.16 a year ago. And our annualized return on average equity was 15%. As of June 30th, our insurance and force was $236 billion, a 9% increase compared to a year ago. Our 12-month persistency on June 30th was 86%, and approximately 75% of our in-force portfolio has a note rate of 5% or lower. We expect that the current level of rate should support elevated persistency through the back half of this year. 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%. Embedded HPA continues to benefit our business as the mark-to-market on the in-force portfolio mitigates the risk of claims, especially in light of the supply constraints and housing inventory. On the business front, our industry remains competitive while the pricing environment remains constructive. We continue to focus on optimizing our unit economics and leveraging our proprietary scoring engine, S&Edge, and selecting and pricing long-tail mortgage credit risk. Overall, we remain pleased with the business we are writing and the related expected returns. We continue to execute upon our diversified and programmatic reinsurance strategy, while focusing on optimizing our cost of reinsurance. During the quarter, we successfully executed the tender of two seasoned ILN deals, which retired $637 million of bonds that did not provide any regulatory or economic capital credit. Also, last week, we priced our ninth Radnor Re ILN transaction, selling $281 million of bombs, covering production from August of last year through the first half of 2023. Our belief remains that access to multiple sources of capital is a key element of our operating model, and we are pleased with the executions of both the tender and the latest ILN deal. As of June 30th, S&RE's third-party annual rate run revenue are approximately $80 million, while our third-party risk and force is approximately $2 billion. During the quarter, S&RE continued to capitalize on the current environment to optimize returns and contribute to the profitability of our franchise. Cash and investments as of June 30th were $5.4 billion, and the annualized investment yield for the second quarter was 3.5%. up from 2.5% a year ago. Our new money yield in the second quarter approximated 5%, providing continued tail ends for our investment portfolio. As a reminder, for every one-point increase in the investment yield, there is a roughly one-point increase in ROE. We continue to operate from a position of strength with $4.7 billion in GAAP equity, access to $1.4 billion in excess of loss reinsurance, and over $1 billion of available holding company liquidity. With a trailing 12-month underwriting margin of 78% and operating cash flow of $697 million, our franchise remains well positioned from an earnings, cash flow, and balance sheet perspective. Our strong financial performance affords us the ability to take a balanced approach between capital deployment and distribution. This includes the approximately $93 million associated with the title acquisition we completed at the start of the third quarter. Similar to when ESSEN restarted, we view title as a long-term and attractive call option for the future growth of the ESSEN franchise. Year-to-date through July 31st, we repurchased approximately 1.1 million shares for $46 million. Further, I'm pleased to announce that our board has approved a common dividend of 25 cents. We continue to see our dividend as a meaningful demonstration of the confidence we have in the stability of our cash flows and the strength in our capital position. Now, let me turn the call over to Dave.

Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the second quarter, we earned $1.61 per diluted share compared to $1.59 last quarter and $2.16 in the second quarter a year ago. As Mark previously mentioned, our second quarter 2022 results benefited from the release of approximately $63 million of reserves associated with COVID-related defaults from 2020. Net premium earned for the second quarter of 2023 was $213 million and included $17.7 million of premiums earned by Essent Re on our third-party business. The average base premium rate for the U.S. mortgage insurance business in the second quarter was 40 basis points, consistent with last quarter. The net average premium rate was 33 basis points in the second quarter of 2023, down one basis point from last quarter, due primarily to the net impact of the successful ILN tender Mark discussed. Seeded premium increased to $39.5 million in the second quarter, compared to $33.6 million in the first quarter, largely due to the tender. Net investment income increased $2 million, or 5%, in the second quarter of 2023, compared to last quarter due primarily to higher yields on new investments and floating rate securities resetting the higher rates. Other income in the second quarter was $8.1 million, which includes a $2.7 million gain associated with the fair value of embedded derivatives in certain of our third-party reinsurance agreements. This gain was largely due to a decrease in our derivative liability resulting from the reduction in outstanding insurance-linked notes from the completed tender offer. This compares to a $368,000 decrease in the fair value of these embedded derivatives in the first quarter of 2023. The provision for loss and loss adjustment expense was $1.3 million in the second quarter of 2023 compared to a benefit of $180,000 in the first quarter of 2023 and a benefit of $76.2 million in the second quarter a year ago. At June 30th, the default rate was 1.52%, down five basis points from 1.57% at March 31, 2023. Other underwriting and operating expenses in the second quarter were $42.2 million, a decrease of $6 million from the first quarter. The first quarter included higher transaction costs associated with our title acquisition and higher payroll taxes associated with the vesting of shares and incentive payments, which historically occur in the first quarter. The operating expense ratio was 20% this quarter, a decrease from 23% for the first quarter. We continue to estimate that other underwriting and operating expenses will be approximately $175 million for the full year 2023, excluding expenses associated with the title acquisition and related transaction costs. Income tax expense in the second quarter of 2023 includes $5.3 million of net discrete tax expense associated with prior year tax returns. For the balance of 2023, we currently estimate income tax expense will be a 15.2% annualized effective tax rate. During the second quarter, Essent Group paid a cash dividend totaling $26.5 million to shareholders, and we repurchased $29.5 million of shares under the authorization approved by our board in May 2022. As Mark noted, our holding company liquidity remains strong and includes $400 million of undrawn revolver capacity under our committed credit facility. At June 30th, we had $425 million of term loan outstanding with the weighted average interest rate of 6.87%, up from 6.52% on March 31st. At June 30th, 2023, our debt-to-capital ratio was 8%. During the second quarter, Essendon Guarantee paid a dividend of $90 million to its U.S. holding company. Based on unassigned surplus at June 30th, the U.S. mortgage insurance companies can pay additional ordinary dividends of $278 million in 2023. At quarter end, the combined U.S. mortgage insurance business statutory capital was $3.2 billion, with a risk-to-capital ratio of 10.5 to 1. But that statutory capital includes $2.2 billion of contingency reserves at June 30th. Over the last 12 months, the U.S. mortgage insurance business has grown statutory capital by $181 million, while at the same time paying $300 million of dividends to our U.S. holding company. As Mark noted, effective July 1, 2023, S&US Holdings acquired all of the outstanding shares of the capital stock of the agency's national title and all of the membership interests of Boston National Title for $92.6 million in cash. The acquisition was funded using existing cash and short-term investments, and the purchase price is subject to customary post-closing adjustments. Now let me turn the call back over to Mark.

Thanks, Dave. In closing, our capital position, liquidity, and underlying results remain strong. The high quality of our portfolio and strong employment are driving credit performance, while our interest rates are benefiting the persistency of our enforced book and investment income. This strong operational performance continues to generate excess capital, which we will deploy using a measured approach between investment in growing our franchise and distribution. We remain confident in our buy, manage, and distribute operating model and believe a measured approach to our capital is in the best long-term interest of Essent and our stakeholders. Now, let's get to your questions. Operator?

At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. And your first question comes from the line of Mihir Bhatia from Bank of America. Your line is open.

Hi, good morning, and thank you for taking my questions. I wanted to start by asking about the reinsurance transaction. Are these the first of these debtors that you've done? Did they have an impact on premiums in the quarter? I think one of your competitors talked about that a little bit, having done them for the first time this quarter. Just wondering if you could maybe give us some color on that. just the economics of the transaction, how you expect it to impact future quarters, seeded premiums or premium rates. Thank you.

Sure. Hey, Mihir. Nice to hear your voice. A couple things, yeah. On the tender, think about it. I think around $8 million of it was additional seeded premium for this quarter. That's why you saw the jump. But longer term, we should see approximately $40 million of savings, so all in kind of 30-ish. which you'll see a reduction in the seeded premium in future years. And that's really, you know, those are the two deals that really didn't give us a lot of either PMIRES capital or economic capital credit. So we don't see us tendering any other deals at this time. But, again, that was a unique circumstance because those deals got locked out with the COVID default, so they really didn't pay down. So it was a good opportunity. We talked about in past quarters optimizing deals.

uh that reinsurance cost so this is a good example of us able to do that all right no thank you that is quite helpful um and then just switching gears up to the title business maybe now that the transaction is closed maybe talk a little bit about what your initial focus is going to be how fast do you think the integration can go to the extent there is much integration to do And just what should we be expecting in the near term from that business, even if it's just at a really high level from a revenue standpoint or something? Thank you.

Yeah, I mean, again, we just closed it just a little over a month ago. So we're really just getting started on the integration here. It's two different companies. We'll run them as kind of two divisions with an Essent title. So the integration process is really going underway, and it's probably quite extensive. Again, I would look at this. I said this back in February. This acquisition was more akin to us buying the Triad platform back in 2009. With that, we got an operating platform. We got some really good people. But it was, you know, we were essentially a startup. And the title business that we acquired is not quite a startup, but it's more startup-like. So we're going to approach it that way. We're going to build out the infrastructure, improvements to be made around the system. There's going to be investments, and we're going to take a long-term approach. So like I said, again, in the script, think of it as a call option for the investors. There's 2%. of our gap equity. This is a three, five, 10 year, uh, program. You know, this is the chance for us to build another, uh, significant operating business, but they don't happen overnight. I mean, when we started Essent, you know, we, we wrote our, we started building it in 09. Uh, we did our first loan in 10. We didn't break even at 12. So this, this is an, uh, this is not going to be very material at all from a financial perspective. So I wouldn't model much at all for the next. I think it's going to take us realistically 12 to 18 months just to stand it up, to get it to where we can foresee kind of future growth, both on the agency side and the lender services side. Again, these are smaller companies. And that's really what we wanted. We wanted this startup-type platform to allow us to kind of build out. But again, near-term growth, Financially, from a modeling perspective here, I wouldn't put much in.

Okay.

Thank you.

Thanks for being with us.

And your next question comes from the line of Rick Shane from J.P. Morgan. Your line is open.

Hey, guys. Thanks for taking my question this morning. Look, you guys have been consistently innovative both from an operational perspective but also in terms of your use of technology. We are arguably on the cusp of maybe the next really significant technology evolution in terms of machine learning and AI. I am curious as a data heavy company, but also a mid-sized business with mid-sized resources, how you will take advantage of this and how you're pursuing this, and particularly anything you're seeing through your venture portfolio that's intriguing.

Yeah, Rick, taking a step back, just on the MI side, let me try to break it into pieces, right? On the MI side, we're pretty far in in terms of the use of artificial intelligence and machine learning around the engine, and we have been for quite a while. It's all you know, hosted in the cloud. Most of our operating platform now is in the cloud. So we've kind of shifted that into the cloud, which, you know, there's a big protection from a cyber perspective, we believe. A lot of computing power up in the cloud, but there's a cost to it too. So you put out a good point. We're not, you know, we don't have endless resources. So you're really, just like I talked about on the reinsurance side, you have to optimize kind of the IT costs. I would say we're in a really good spot on the MI side. There's going to be some improvement that we're going to make. We're able to leverage the engine now around underwriting. So kind of like an automated underwriting system that'll help us on the non-delegated piece, again, from an efficiency standpoint. And we've continued to use over the years technology to lessen those costs. So less underwriter input, more underwriter analysis. So we've We constantly look at that. We'll have, I would say, continued improvements on the MI side, but it's a little bit of the law diminishing returns. We only have 400 folks on the MI side, so there's not a ton of efficiencies continued to be made other than you'll make the model better. On the title side, that's a different story. When you think about our business on the MI side, the three main risks are credit, regulatory, and operational, kind of in that order. I think on the title side, operational risk is probably number one. Regulatory is number two, probably not as severe as on the MI side per se. And third is credit. They don't really have a lot of credit risk because they do the work so well. I mean, if you do the title search well and the curative work well, you shouldn't have a lot of claims. So there's a misnomer there. in the title business, there's not a lot of claims. There's not a lot of claims because they do a good job. That number one risk on the operational side is it's very people intensive. So there is can we use some of the learnings on the MI side to be more efficient on the title side. It remains to be seen. It's a technology. It's definitely a way to lessen the amount of input and people that you need on that side of the business. But it's not that simple. It's going to take a while. And I think the technology on that side will be pretty early in the process. We're going to have to make investments on the title side around technology. The two big things on the title side in order to scale longer term are you're going to need to have more control over your operating platform and more control over the data. And I think that's, you know, smaller companies, they just use off-the-shelf software. You know, they use the larger company's data. Longer term for Essent, longer term meaning five, ten years, Rick, you have to take control of that. I mean, we own that on the MI side. We could have never built out our pricing engine if we had to rely on competitors for data or for access to the system. It's almost... it wouldn't have been done. So you're going to have to have that same look on the title side. In terms of ventures, we're looking at some funds that are dedicated to artificial intelligence, and we're close on a couple. And there, they don't really do anything in financial services. So there the key is, what can you learn? What are they investing in that's applicable to the financial services side? So it's a little bit of a jump. We're seeing some in some of the portfolio companies, but I think we're just kind of scratching the surface. So again, that's part of when we talk about ventures. It's really outsourced corporate development. We're looking for companies and funds where we can learn things that can now improve the core business. With Tidal now, we have two core businesses potentially to improve. So actually the impact of ventures should be a little bit wider going forward.

Mark, thank you for the answer.

And your next question comes from a line of Bose George from KBW. Your line is open.

Hi, guys. Good morning. Actually, I wanted to ask just about the ILN transaction you did. How would you compare the execution in the ILN market with, you know, what you're seeing in the XOL, just the traditional reinsurance market?

Yeah, both. We had pretty good execution on the island side. I think, you know, significantly better than we had last year and probably closer to the 2021 levels. I think the more important, and you've heard me say this before, the more important aspect of reinsurance isn't so much the quarter-to-quarter pricing. Yeah, heck, we did a nice job this quarter. There wasn't a lot of supply in the market. We hit the market at the right time. You know, good for us. But that's not really... That's not really the importance of it. The importance of it is really the sustainability and the duration of the reinsurance market. And because it's, you know, buy, manage, and distribute operating model, but this is the distribute part of it. So you're really looking for the continued availability. And, you know, financial services 101 is really multiple sources of capital. So we're feeling better, I would say, quarter by quarter as to the ultimate sustainability of the reinsurance market. It's been tested twice. It was tested during 2020 when clearly the market shut down for a little bit, but did open up in the fourth quarter and there was transactions. And I thought last year, to be honest, was the biggest test. You're talking about volatility and upward movement in rates during the year, which caught everyone by really whipsaw. HPA at all time levels, media, you know, media crying that HPA is going to be up. It's going to crash. The MIs crash. You know, it's going to be hard for the MIs to do well. And yet we did an XOL, an ILN, and a closure. So the markets were open, albeit at higher prices. And now as we get into a year, you know, 12 months ago, you know, the environment is completely different. You know, inflation has really subsided. HPA has flattened out, has grown a little bit in certain sectors. So there's a, you know, credit still remains strong. And I think investors realize that. So I think, again, I wouldn't be surprised if you see other entrance into the ION market because I think it looks like it's a good time to be tapping that side of the market.

Okay, great. That's helpful. Thank you. And a couple of little modeling questions. The other income line item was up. What was driving that?

Yeah, but it was a safe livestock. You know, other income, there's a handful of things in there, but I would say probably the principal item of moving that up a little bit. So you had a couple of things, right? I mentioned that the derivatives in there. So that was really the big thing that, you know, we had derivative gain this quarter and last quarter we had a small unfavorable valuation. So that's really, that's going to bounce around associated with the derivatives.

Okay, great. And then actually just the share count was down a little bit as well, so just was curious what drove that.

Yeah, we repurchased, I think we've done 1.1 million shares repurchased through this year. We started in March, those given a lot of that uncertainty with the KB index. So, you know, we felt like, again, purchasing shares in that 90% to 95% book value really is pretty creative to book value for share growth. So, yeah, that's really the mover.

Okay, great. Thank you.

Sure.

Your next question comes from a line of Doug Harder from Credit Suisse. Your line is open.

Thanks. Mark, can you talk about the pricing dynamics you saw in the second quarter and, you know, kind of whether that changed kind of over the course of the quarter?

I think prices continued to move up. I mean, we were, you know, our average premium on new insurance written was probably up equally, both in the first and second quarters. I would say in the second quarter, probably, you know, a little bit more pricing around the tails. less base increases, but I think we're at a good... And we said it in the script. I mean, it's a pretty competitive... It's always a competitive market, but it's... I think the pricing from a normalized standpoint, right? And we say normalized at 2% to 3% claim rate. I think the pricing is... The unit economics of the pricing are kind of within that 12% to 15% range. I think given the uncertainty, though, Doug, right? I mean, we still think, you know, things will, you know, the recession should, you know, it's the long-awaited recession. You know, we're still believing it's in the 24-time period as the impact of higher rates kind of work their way through, you know, especially smaller businesses. The consumer has a lot of cash now and is still employed, but if smaller businesses start to lay off, so you could start seeing that impact in 24. So there still is more price increases to be had. Again, from a market standpoint, we're always shooting to be in that mid-teen share market share. And to the extent that we can optimize pricing around that, I think we'll continue to do that. And I see that You know, in the industry, we've said this from the get-go, if you're number one in share, it's because you have the lowest price. It's almost all best execution across both the engine and card. So there's really no hiding that. So I think the game is how do you optimize your premium and maintain that share? And I think the whole industry has done a good job with it. I mean, it's been nice to see. You've heard, you know, for years that, The industry is not disciplined, and I think that's the furthest thing from the truth. I think the key, though, is really the advent of the pricing engines, right? The industry has changed under three primary methods from the last 10 years. One, which people don't talk too much about and not enough about, is just the credit quality of the book, and that's really a result of both the GSEs, the improvements around You know, their engines, the qualified mortgage, which kind of keeps a lot of that, I would say, poor quality business outside of the GSE. So the GSEs have really been a great guardrail. Second has been reinsurance, which we talked about, our ability to offload that risk. And the third is the pricing engines itself. Just the base engine, forget our ability to optimize score or the essence score. That's great. That's a little bit different when I'm talking about the engines itself and the ability to make changes on it have really changed the industry. So we were able to react during COVID. The industry raised pricing in the face of this uncertainty. And then this past year, the ability to raise pricing across different MSAs, different tails, whatever appetite the MI industry, any participant had, they were able to impact that change, which, again, five, ten years ago, you couldn't do it. You couldn't institute a price increase every quarter with a rate card. It would have been virtually impossible with all the lenders out there having to change their system, needing regulatory approval. So this ability around the engine to make these, I would say, more micro changes, it's created pricing power for the mortgage insurance industry. And more so than people really realize. And I think that's, you know, the ability. We've always had the discipline. We just didn't have the ability to affect that, you know, kind of, you know, pragmatically put that discipline to work day to day because of how the market how the mechanism worked with rate cards. And I think the engine has been a real breakthrough for the industry and gives us a lot more of that flexibility that other industries enjoy in terms of pricing credit risk.

I appreciate the answer, Mark. Thank you. Sure.

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 Eric Hagan from BTIG. Your line is open.

Hey, thanks. Good morning. You know, maybe kind of like a bigger picture question here. I mean, if loss rates across the industry stay this low into early 2024, mid-24, how do you see that potentially changing the competitive dynamic, like, in the industry itself as we look into next year? Like, the fact that everyone seems to be generating excess returns with loss rates being this low, I mean, how do you see that, you know, affecting pricing and competition? maybe even your own policy towards capital return as we look to next year? Thank you, guys.

Yeah, it's a good question. I would say I wouldn't think it would impact pricing, Eric, because remember, we're pricing for that normalized 2% to 3% credit, and part of the results are impacted by the economy, of which we have no control over, right? So if losses are better, that will generate more excess capital. And then there's choices, right? Again, there's choices to return that to shareholders via dividends or repurchases or to invest outside of the core business. And I think that'll be the real result. I would be surprised if, again, just given the dynamics, if losses are lower, again, none of us really, these are actuarial-based models, so we don't price quarter to quarter and say, hey, losses are lower, let's go lower the pricing on new production. And again, just given the competitive dynamics around pricing, if you lower price to, again, bring in more business, it's easily matched, right? So again, there is no, there's a great, that's where when we talk about kind of the, you know, the pushes and the pulls around pricing and then just given the information that we all have, everyone can kind of see where the market's going. So it would be a short-lived gain and you really would just be, you know, you would really just be giving away economics, as opposed to saying, hey, we're going to price for a normalized unit economics, 12% to 15% returns, the result of a lower provision is excess cash. How do we deploy that? And I think taking a step back, again, not quarter to quarter, even next year, Eric, my view is the winners and losers in MI, and it's not a binary, we could all be winners, is really how the different companies deploy that excess capital, right? And you can't judge that quarter by quarter. It's really going to be over the next three to five years. And I think it's some that choose to return it all and shrink. We'll have less choices. Others, you know, we're in the other camp, right? We're in, you know, I can't speak to other strategy. Everyone has, I mean, all the strategies seem to be pretty sound and it's in the eye of the beholder for us. we have a reinvest cash and grow mentality. We just happen to believe that longer term, growing book value per share, and we've grown at 19% per annum since we went public. It'll be harder as we get bigger, but that's the challenge. It's going to force you to put capital to work and to continue to grow that book value per share. I think that's what we're focused on. And I think, again, a lower result on the provision would give us more cash to pursue that goal.

Right on. Thank you guys very much. Sure.

Your next question comes from a line of Jeffrey Dunn from Dowling and Partners. Your line is open.

Thanks. Good morning. I fell off for a minute, so I'm not sure if I missed this, but can you provide the dollar impact of the tender offers on CD premium this quarter?

$8 million, I think, was an additional seeded premium.

Got it. And then I wanted to follow up on pricing. So I understand you're pricing for the longer-term credit, normalized credit. How do the mechanics of investment yield and higher interest rates affecting cost of capital factor into that? Obviously, we're thinking forward to when, let's say it's a soft landing and the economic expectations get better. I'm trying to understand... kind of the puts and takes that might help sustain pricing at these improved levels versus what might be given back as economic expectations hopefully improve?

Yeah, good question. Again, I think on the yield, that's another factor where our yields historically have been kind of in that 2% to 3% range, putting new money to work at 5%. That's a pretty significant increase both in nominal dollars fall into the bottom line and certainly improves the unit economics. However, when pricing, we use probably a more normalized investment yield, kind of closer to like a 3%. So we don't incorporate that into our pricing is really kind of the short answer. It's really driven around credit. We look at pricing on an unlevered basis, so we don't really look at the cost of debt. We don't have a lot of debt anyway for it. to make me meaningful. I think again, you know, Jeff, if you're looking, you know, with the economy brightens, I'm not sure that lowers pricing. I would find it hard to believe. In fact, I think it's, you know, nothing would surprise me. Uh, but again, when you're pricing for a normalized, just do the simple math, two to 3%, uh, claim rate, you know, the capital that we hold either economic or P Myers, that normalish, you know, expenses and investment income, uh, that NIW should have a forehand on it. And if it does, you're probably going to have good economics. You start driving it down to where it was at the end of 21 and 22, it's just not good economics. We were pretty outspoken about it then, and that's one of the reasons to the earlier question with Eric. We're going to continue to look for other places to allocate capital because you don't want to be in that situation where you have to follow the market down. And I think that's, we have to be careful of one of our, you know, one of the six MIs is part of a much larger insurance company and they do a fantastic job of allocating capital so they can move in the market and out of the market. And I think that's, when you look at companies that you want to emulate, I think that's one, you know, we can't emulate their strategy because we don't have their experience on the PNC side, but creating choices around allocating capital allows you, you know, that also affords you the ability to stay more disciplined.

Okay. And then obviously the risk to your statement is differing views of what normalized credit actually is. You know, is it two to 3% QM or is it one and a half to two? Where's your general sense or confidence that the industry is aligned with your assessment of normalized credit?

I don't know. I mean, I can't really speak to them. I just think about the big picture. Two or three loans out of 100 going bad doesn't sound like super aggressive to me. It seems pretty normalized. So I think when you're saying one-ish, I think that's where you're probably moving a little bit. You only need a small bump before that number is way off. So I think that's Again, when the pricing drove down to that level, you had to believe that it was probably less than one. It was really hard to make the math work in my view. I can't really comment on what others think. I think our view, which has been there for a while, and it's given the credit criteria of the book, which is a good book, but it's still a high LTV book. Again, I think it's a pretty pragmatic assumption on our part.

Okay, thank you.

You're welcome.

And there are no further questions at this time. I will now turn the call back over to management for some final closing remarks.

Thank you, Operator, and thanks, everyone, for participating today, and have a great weekend.

This concludes today's conference call. Thank you for your participation. You may now disconnect.