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spk14: Welcome to the ENAX Q2 2020 for Earnings Conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mr. Daniel Cole, Vice President of Investor Relations.
spk13: Please go ahead.
spk09: Thank you and good morning. Welcome to our second quarter earnings call.
spk07: Joining me today are Rohit Gupta, President and Chief Executive Officer, and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions. The earnings materials we issued after market closed yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the investor relations section of our website. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations, and projections as of today's date. Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different, and we undertake no obligation to update or revise such statements as a result of new information. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release, as well as in our filings with the SEC, which will be available on our website. Please keep in mind the earnings materials and management's prepared remarks today include certain non-GAAP measures. Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation, and our upcoming SEC filing on our website. I'll turn the call over to Rohit.
spk15: Thank you, Daniel. Good morning, everyone. Our second quarter results concluded an excellent first half of 2024. We remain focused on our priorities of driving profitable growth, maximizing efficiency, and creating value for our shareholders. Our disciplined execution across each of these translated into strong financial performance. During the quarter, we reported adjusted operating income of $201 million, up 21% sequentially and 13% year-over-year. Adjusted EPS was $1.27. Adjusted return on equity was a solid 17%, and insurance-enforced was a record $266 billion, up 1% sequentially and up 3% year-over-year. As we mentioned last quarter, we continue to navigate through a complex operating environment. The U.S. economy is holding up well with a strong labor market and household balance sheets that remain healthy overall. While macro factors such as inflation, higher interest rates, and geopolitical conflicts remain potential risks, there are a number of positive trends supportive of housing and credit. Delinquency rates for prime mortgage borrowers are consistent with pre-pandemic levels. Our manufacturing quality continues to be strong, and our portfolio continues to retain high embedded equity. Over the longer term, the drivers of demand also remain intact as a growing number of people with less than 20% down payment resources reach the typical age for purchasing their first home. Overall, we are confident that mortgage insurance will continue to be a crucial resource to both buyers and lenders alike. Higher rates continue to benefit persistency, which again offset the effect of a higher rate environment on origination volumes and help drive insurance-enforced growth. The credit quality of our insured portfolio continues to be strong. At quarter end, the risk-weighted average FICO score of the portfolio was 745. The risk-weighted average loan-to-value ratio was 94%, and layered risk was 1.3%. Pricing remained constructive in the quarter, and we maintained our commitment to prudent underwriting standards. Our pricing engine allows us to deliver competitive pricing on a risk-adjusted basis, and we continued to underwrite and select risk prudently while generating attractive returns. The delinquency rate in the quarter was 2%, flat as compared to last quarter and consistent with our expectations. During the quarter, we released reserves of $77 million driven by favorable credit performance and our effective loss mitigation efforts. Based on continued strong cure performance and our current market expectations, we reduced our claim rate on new and existing delinquencies from 10% to 9% during the quarter. This change is aligned with our measured and prudent approach to loss reserves. We believe we remain well-reserved for a range of scenarios. Dean will have more to say on this shortly. We continue to operate from a position of financial strength and flexibility. At quarter end, our PMR sufficiency was 169% or $2.1 billion of sufficiency, and approximately 77% of our risk in force was subject to credit risk transfers. We continue to execute against our CRT strategy during the quarter with an additional excess of loss transaction, further reducing our credit risk and enhancing our capital efficiency. During the quarter, we issued $750 million in senior notes, further strengthening our financial position by allowing us to refinance near-term maturities and saving $2 million in annual interest expense. This was our first investment-grade debt issuance as a public company and the largest investment-grade debt issuance in the industry in over a decade. The strength of our capital position and cash flows has allowed us to continue executing against our capital allocation priorities, which are supporting existing policyholders, growing our current business, investing in attractive new business opportunities, and returning excess capital to shareholders. On our last capital allocation priority, we continued to return capital to our shareholders. During the quarter, we repurchased $49 million of shares. As of June 30th, we have completed our $100 million share repurchase program and have $238 million remaining in our recently announced $250 million authorization. We also distributed $29 million to shareholders via our quarterly dividend. We now expect our total capital return to be between $300 and $350 million in 2024, reflecting our continued strong performance and balance sheet. Finally, we have continued to pursue strategic opportunities to extend our platform into compelling adjacencies that enhance our return profile, differentiate our platform, and leverage our core competencies. A year ago, we successfully launched Anacri, expanding our platform into the GSE credit risk transfer market. During the quarter, we continued to participate in the GSE CRT transactions that came to market. Since its inception, Anacri has performed well, maintaining a strong underwriting and attractive return profile. An Act Re is sufficiently funded to support its growth for the foreseeable future and remains a long-term capital and expense efficient growth opportunity. Finally, I would like to take a moment to touch on our culture. At an Act, we strive to create a culture that encourages collaboration and are committed to maintaining an engaging work environment where our teams are at their best. I'm pleased to announce that during the quarter, an act was recognized as one of the best places to work by the Triangle Business Journal. We appreciate this acknowledgement of our leadership in the workplace and a testament to the strength of our team. Overall, we are pleased with our excellent performance in the first half of 2024. Looking ahead, we are focused on executing against our strategic priorities and are committed to maximizing value for all of our shareholders. With that, I will now turn the call over to Dean.
spk11: Thanks, Rohit. Good morning, everyone. We delivered another set of strong results in the second quarter of 2024. Gap net income for the second quarter was $184 million, or $1.16 per diluted share, compared to $1.04 per diluted share in the same period last year and $1.01 per diluted share in the first quarter of 2024. Return on equity was 15%. Adjusted operating income was $201 million, or $1.27 per diluted share, compared to $1.10 per diluted share in the same period last year and $1.04 per diluted share in the first quarter of 2024. Adjusted operating return on equity was 17%. As I explain the drivers of this quarter's performance, I'll highlight the differences between net income and adjusted operating income. Turning to revenue drivers, primary insurance and force increased in the second quarter to a new record of $266 billion, up $2 billion sequentially, and up $8 billion or 3% year-over-year. New insurance written was $14 billion, up $3 billion sequentially, and down $1 billion or 10% year-over-year. Persistency was 83% in the second quarter, down two percentage points sequentially, and down one percentage point year over year. The sequential decline in persistency is aligned with historical seasonality as we transition to the spring selling season. Given the current level of mortgage rates, persistency remains elevated, and this marks the ninth quarter in a row of persistency at or above 80%. Only 4% of the mortgages in our portfolio had rates at least 50 basis points above the prevailing market rate. We anticipate that elevated persistency will continue to help offset lower production in the current higher rate environment. Net premiums earned were $245 million, up $4 million or 2% sequentially, and up $6 million or 3% year over year. The sequential and year-over-year increases in net premiums were driven by insurance and forest growth and our growth in attractive adjacencies consisting primarily of a NAICS, REES, GSE, CRT participation. These increases were partially offset by higher seeded premiums. Our base premium rate of 40.3 basis points was up 0.2 basis points sequentially and flat year-over-year. As a reminder, our base premium rate is impacted by several factors, and tends to modestly fluctuate from quarter to quarter. Our net earned premium rate was 36.4 basis points, up .1 basis points sequentially, as higher seeded premiums partially offsets the increase in base rate. Investment income in the second quarter was 60 million, up 3 million, or 5% sequentially, and up 9 million, or 17% year over year. Higher interest rates have increased our investment portfolio yields, and as our portfolio rolls over, we anticipate further yield improvement. During the quarter, our new money investment yield continued to exceed 5%, contributing to an overall portfolio book yield of 3.8%. Our focus remains on high-quality assets and maintaining a resilient A-rated portfolio. As we previously stated, While we typically hold investments to maturity, we will selectively pursue income enhancement opportunities. During the quarter, we executed a strategy resulting in $8 million of pre-tax losses in exchange for higher future investment income, which is excluded from our adjusted operating income. While we will continue to evaluate and pursue similar opportunities as appropriate, this does not change our views that our investment portfolio's unrealized loss position is materially non-economic. Turning to credit, losses in the second quarter of 2024 were negative 17 million, and the loss ratio was negative 7%, compared to 20 million, or 8%, respectively, in the first quarter of 2024, and negative 4 million, and negative 2%, respectively, in the second quarter of 2023. The sequential and year-over-year decrease in losses and the loss ratio were primarily driven by a reserve release of $77 million reflecting favorable cure performance and the lowering of our claim rate expectations from 10% to 9%. We not only lowered our claim rate on existing delinquencies, but also new delinquencies as a result of sustained favorable cure performance and our current market expectations. The $77 million reserve release compares to a reserve release of $54 million and $63 million in the first quarter of 2024 and second quarter of 2023, respectively. New delinquencies decreased sequentially to 10,500 from 11,400 in line with seasonal expectations. Our new delinquency rate remained consistent with pre-pandemic levels and for the quarter was 1.1% compared to 1.2% sequentially and 1% in the second quarter of 2023. Total delinquencies in the second quarter decreased sequentially to 19,100 from 19,500. The primary delinquency rate decreased five basis points sequentially to 2% in line with pre-pandemic levels. Turning to expenses, operating expenses in the second quarter of 2024 were 56 million, and the expense ratio was 23%. compared to 53 million and 22 percent respectively in the first quarter of 2024 and 55 million and 23 percent respectively in the second quarter of 2023. We also initiated a voluntary separation program during the second quarter that resulted in a restructuring charge of 3 million that is excluded from our adjusted operating income and represents approximately one percentage point impact in the expense ratio for the quarter. We remain focused on operating efficiency and still expect our expenses, excluding these restructuring charges, to be in the range of $220 to $225 million for 2024. Moving to capital, we continue to operate from a strong capital and liquidity position, reinforced by our robust PMIRS efficiency and continued successful execution of our diversified CRT programs. During the quarter, we secured $90 million of additional excess of loss reinsurance coverage to reduce credit risk and enhance our capital efficiency. And as of June 30, 2024, our third-party CRT program provides $1.8 billion of PMIRES capital credit. Our PMIRES efficiency was 169% or $2.1 billion above PMIRES requirements at the end of the second quarter. During the quarter, we also elected to exercise cleanup calls on two CRT transactions covering the 2014 through 2019 books and the 2020 book. These two transactions account for approximately 15% of our risk in force. We exercised these cleanup calls in part because they provided nominal loss coverage and PMIRES credit, and the associated loans have high embedded equity, which reduced the probability of loss. As a result of these commutations, at the end of the second quarter, 77% of our risk and force was subject to credit risk transfer, which is down from 90% at the end of the prior quarter. We further strengthened our balance sheet during the quarter through our $750 million debt offering. We used the proceeds to refinance our 2025 notes, which extends our maturities and will result in $2 million in annual interest expense savings. The transaction resulted in $11 million of debt extinguishment costs, consisting of approximately $8 million in debt redemption costs, and approximately $3 million in accelerated debt issuance costs in the quarter, both of which are excluded from our adjusted operating income. Turning to capital allocation, we continue to execute against our capital prioritization framework, which balances maintaining a strong balance sheet, investing in our business, and returning capital to shareholders. During the quarter, we paid $29 million or 18.5 cents per common share through our quarterly dividend, reflecting a 16% increase as previously announced. Today, we announced the third quarter dividend of 18.5 cents per common share, payable September 9th. Additionally, we continue to focus on accelerating our share buyback participation and repurchase 1.6 million shares at a weighted average share price of $30.43 for a total of $49 million in the quarter. In July, we repurchased an additional .4 million shares at a weighted average share price of $31.01 for a total of $13 million repurchased. During the quarter, we completed our $100 million share repurchase authorization, and as of July 26, 2024, there was approximately $226 million remaining on our $250 million repurchase authorization. The strength of our capital position allows us to balance investing in the business with returning capital to shareholders, and as I just detailed, we now expect to return approximately $110 million through our common dividend in 2024. Additionally, we expect to return between $190 million and $240 million through our share buyback program. Collectively, these result in an expected 2024 capital return between $300 and $350 million, reflecting our consistent performance and strong balance sheet. As in the past, the final amount and form of capital returned to shareholders will depend on business performance, market conditions, and regulatory approvals. Overall, we are incredibly pleased with our performance in the first half of 2024. We believe we are well positioned for the second half of the year and beyond. and will remain focused on prudently managing risk, maintaining a strong balance sheet, and driving solid returns for our shareholders. With that, I'll turn the call back to Rohit.
spk15: Thanks, Dean. As I reflect on our performance and look to the second half of 2024 and beyond, I continue to be encouraged by the long-term dynamics of our market. Our product continues to help people responsibly achieve the dream of homeownership in a complex environment. Our dedication to this principle underpins all aspects of our business and drives our efforts to deliver exceptional value for all of our stakeholders. Operator, we are now ready for Q&A.
spk14: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. Your first question comes from the line of Soham Bansal from BTIG. Your line is now open.
spk03: Hey, guys. Good morning. Hope you're doing well. Just the first one on NIW, it looked like it was lower versus some of your peers that reported this quarter. So I was just wondering if there's any errors or factors that maybe you stepped away from or anything discernible to note there. Thanks.
spk15: Good morning. So thank you for the question. So no, there was nothing different this quarter. There is some level of volatility that happens quarter to quarter. And obviously, we still don't have one peer who has reported in the market. So tough to tell where we are on market share. But the way we see the market from a pricing perspective, we saw the pricing being constructive in the market. We think that the four peers out of five who have reported are in a tight range. Four peers actually have a $13 billion handle in terms of NIW, so it seems like most people were kind of pretty close. And then I think in the past we have talked about the way we think about market participation is you almost have to look at trailing 12 months of market share and market participation, not that market share is a goal. It's more of an outcome for us. But if you look at the last four quarters, I think you see some volatility in our participation, but generally in a pretty tight range. So we are comfortable with our participation in the market. We like the approximately $14 billion of NIW we wrote in the quarter. And the guidelines, the pricing that we are getting on that, we are very happy with that.
spk03: Okay, great. And then on the lower claim rate, you know, I mean, Credit is obviously still very good. Consumer seems in a good place. But it does seem like the consumer is slowing on the edges. And if you look at just inventory that's potentially building in some of the large markets, Texas, Florida, right, these are some of the risks that we're seeing. But I guess you did take it down. So wondering how you're looking at this or assessing those risks going forward and how sustainable do you think the lower sort of claim rate can be? Thanks.
spk11: Yeah, so thanks for that question as well. You know, I think we previously discussed there were a couple potential catalysts for the reassessment of claim rate. First relates to economic uncertainty and a reduction in economic uncertainty. And then second, you know, if we gave more consideration to the sustained delinquency performance and elevated cure performance that we've seen over time, those would both be potential catalysts for the reassessment of claim rate. This quarter, we really relied on both of those in making the change from 10 to 9. If we take those kind of in their piece parts, very much in line with the consensus view on that macroeconomic environment, we believe the economic uncertainty is reduced. That doesn't mean that it's completely gone away. And I think our 9% claim rate still reflects the ongoing presence of uncertainty. but that range has certainly narrowed and that is one of the catalysts for the change this quarter. And then secondarily, we gave certainly some more weight and you can think about, you know, consideration or weight to our recent delinquency performance this quarter. So the result is we lowered the claim rate both on the most recent delinquency cohorts. So think about that from the second half of 2023 through first quarter 24 and also the claim rate on new delinquencies. If we think about the go forward, what would cause us to reevaluate that? I think it's similar catalyst. If economic uncertainty changed and or we gave more weight to ongoing performance, I think either one of those could cause us to come back and evaluate that claim rate through time. And again, we're going to continue to apply what we believe is a prudent and measured approach to loss reserving through time.
spk15: Yes, second question, Soham, in terms of inventory buildup as well as consumer softening. I think we are definitely keeping an eye on it. I think we have seen some volatility. If you think about second half of 2022, early 2023, we saw some volatility in the market, but eventually the trends came back to more fundamental trends. which we believe are driven by several macro factors. On the housing side, there is less inventory in the market than there are people who are interested in buying homes. We think that at least the number is somewhere around 2 million homes short in the market compared to people who actually want to buy. While the inventory has risen recently in the month of June, and it's kind of closer to four months, it's still below the long-term average. A balanced market is closer to six months. And in markets like Florida, what we are seeing is inventory is rising in the smaller markets. So if you look at where the sales happen, more than 80% of sales, markets where more than 80% of sales happen actually still have very stable and kind of low inventory. And then in the smaller markets, there's been some rise, so we are keeping an eye on it. But going back to Dean's point, I think we are keeping an eye on unemployment, which is a big factor in kind of how we think about credit, and then also keeping an eye on the housing market balance.
spk03: Okay, great. Thanks for the call. I guess, Roy, just if I could squeeze one in, I think, you know, as we sort of get in the back half of the year, I think, you know, investors are sort of thinking about, you know, how MI could be viewed in sort of the context of a new administration potentially, right? And I guess we know how they're viewed in the current administration, but if you could just spend a minute and talk about, you know, potential ramifications, you know, whether that's ending conservatorship or, you know, just going to more of a free market sort of approach, anything there would be great. Thank you.
spk15: Yes. So very good question. So I would say MI is well positioned kind of on both sides of the aisle. I think from a consumer perspective, we are a product that actually helps consumer achieve the dream of homeownership. We actually help consumers get on the path of wealth accumulation through homeownership, which over the last 30, 40 years has been one of the biggest factors driving buildup of wealth. So I think from Our mission, our purpose perspective, if you think about a democratic administration, our priorities are very aligned. If you think of number of first-time homebuyers we are putting in homes in a low-affordability environment, I think in the most recent quarter, 60-plus percent of our consumers were first-time homebuyers. So we are very tied to the mission and purpose and very aligned with FHFA and the GSCs in terms of their priorities. If you think about a Republican administration, I think from a product perspective, we are also putting private capital ahead of taxpayer risk. So whether it comes to us competing with FHA program in terms of putting private capital ahead of FHA, we are serving a good purpose there. And then obviously, as you think about GSEs, us getting in first loss position in front of the GSEs accomplishes that purpose of putting private capital in front of taxpayer capital, which I think has served well in the past. As far as GSE reform is concerned, obviously that's been a topic of discussion for whatever, 16 years since GSEs went into conservatorship. So the odds of that are difficult to call at this point of time because a lot of things have to line up for the reform to happen just given the number of considerations in place.
spk08: Thanks a lot for that, guys.
spk15: Thank you so much.
spk08: Thank you.
spk14: Your next question is from the line of Rick Shane from J.P. Morgan. Your line is open.
spk05: Hey, guys. Thanks for taking my questions this morning. Look, one of the most interesting evolutions over the last two or three years has been the understanding or the appreciation that a lower volume, high persistency solution environment is actually potentially more favorable than a high volume, lower persistency environment. As we shift potentially in rates and could see a pickup in mortgage volumes, I'm curious how you guys are thinking about this, especially because at this point, portfolios in the industry are so barbelled in a way that we've never seen before with huge cohorts of very low rate underlying mortgages and a growing cohort of higher rate mortgages that are probably refinanceable.
spk15: Yeah, Rick, thank you for your question. I would say, given the composition of our portfolio, and we disclosed some details from a mortgage rate perspective on slide nine of our earnings presentation, I think the portfolio is very well positioned from consumers who actually are incented to refinance in this environment or even if rates start falling. You can see that only 4% of our book was how we define in the money from a refinance perspective. And then more importantly, 78% of our policies are actually have a mortgage rate of below 6%. So mortgage rates will actually, in our assessment, will have to go closer to 5.5% for that population to start coming into an economic incentive to refinance. Obviously, there are life events where people actually simply upgrade their homes or downsize their homes. But in terms of refinance incentive, a good portion of our existing book actually doesn't have refinance incentive, even if mortgage rates were to fall by, let's say, 150 to 175 basis points. From a market perspective and from a potential perspective for our business, I think an ideal scenario is as mortgage rates come down and affordability gets better, we actually start getting much higher origination market for MI industry because a lot of consumers who are in the sidelines are first-time homebuyers. And as I said earlier, within first-time homebuyers, the usage of our product is at a very high level. that ratio sits somewhere closer to 60% of all first-time home buyers use our product to get into homes. So you actually have a growing market, but at the same time, our insurance in force has more stickiness because consumers have a low enough rate that they are not refinancing out of their mortgage from a rate perspective.
spk05: Got it. And could you see a scenario where some of the less affordable, riskier products portions of your portfolio that sort of boils off a little bit faster and those borrowers actually move into even more affordable mortgages?
spk15: Absolutely. That is always possible, Rick. So if you think about consumers who actually have higher rates, or are higher LTVs, obviously there's an incentive as they build equity in their homes, whether it's through home price appreciation or amortization, you can see them having a higher refinance incentive. I would say that we have one of the benefits of having been in business for 40 plus years is we actually have a lot of data where we can model those scenarios and actually look at which consumer cohorts based on all risk attributes, including mortgage rates, have a higher propensity to refinance, and that baked into our expectations when we run the business.
spk04: Got it. Okay. Thank you very much for taking my questions this morning. Thank you, Rick.
spk13: Your next question is from the line of Bose George from KBW.
spk14: Your line is now open.
spk17: Hey, good morning, everyone. This is actually Alex on for Bose. Maybe just to start relating to the updated capital return guide, I was just wondering if you could maybe discuss the drivers of the higher guidance and maybe specifically if this is being driven by better return expectations versus maybe slower growth expectations. Thanks.
spk11: Yeah, Alex, thanks for the question. I really don't think it's the latter, but let me go to the drivers. I think it's a lot of the considerations we said. as it relates to where we'll perform in the range are also the considerations for why we increase from a discrete number to the range of 300 to 350. Starts with business performance. I think business performance has been very strong. We don't have a prescribed payout ratio, but certainly business performance is a key consideration as we think about both setting the capital return target at the beginning of the year and then modifying that throughout the year. I think the economic environment is another key consideration. I talked about some modest improvement from our perspective on the economic environment that led to the reduction in the claim rate this quarter. That carries over into our decisions to what to do about the return of capital for the remainder of the year. And then, you know, lastly, regulatory. I think the regulatory environment is conducive to increasing from a discrete number to a range. You know, the form, excuse me, Alex, the form of that is going to be dictated by several factors. You know, we've talked about the form in sort of a waterfall type approach. The fact that we have a lot of, we put a lot of certainty into our quarterly dividends and the way we establish them. And then share buybacks are kind of that opportunistic tool based on market conditions. And I think we mentioned last quarter we have a preference for share buybacks, all things, you know, market conditions being conducive. And then special dividend is the plug to return capital based on our objectives if we can't do so versus the other two forms.
spk15: Yeah, Alex, just to completely agree with Dean, just to add one aspect of business performance versus market growth. Given the NIW numbers we have delivered and obviously need a little bit more information to assess market size, but the guidance we had provided for MI market size at the beginning of the year is actually very much in line with where we believe MI market size is trending at this point in the year. So I don't think it's a market slowdown because I think the market is actually trending very much in line with expectations. We have mentioned before that we launched Anakri last year. We continue to grow that business, and we have described that as growing that business in months, quarters, years, not in a very short term, but that growth continues to go in the right direction. So completely agree that this is driven by business performance versus slower growth.
spk17: Okay, great. That all makes sense. And then maybe just another follow-up on the capital return. And I think we just went over it a little bit. But just thinking about where shares trade versus peers, they do screen a little cheap at the moment. But is there maybe a price-to-book level that you think about where we could potentially see maybe more capital return through the special dividend as opposed to repurchases, just given where shares currently trade on the recent share performance?
spk11: Yeah, Alex, on... On our share buyback program, we look at a lot of different factors. Obviously, price to book is one, forward price to book is another. We have our own view of intrinsic value, so we kind of triangulate those views and others as we think about setting the appropriate targets for use of share buyback as a means to return capital. So I wouldn't go into a prescription of a certain current period price to book. There's more considerations, maybe a little bit more complexity to it than that. I will just reemphasize our, you know, we said it last quarter, I think we still have the perspective that we have a preference for returning capital via share buybacks, assuming market conditions accommodate. And we still retain special dividend as a means if that doesn't hold.
spk16: Okay, great. Thanks so much. Thank you. Thanks, Alex.
spk14: Once again, to ask a question, please press star 1-1 on your telephone. Your next question is from the line of Mihir Bhatia from Bank of America. Your line is open.
spk06: Hi. Good morning, and thank you for taking my questions. I wanted to start first just on the premium. You mentioned the premium environment is constructive. I guess the question really is, have premium rates troughed for now, or do you expect the base premium rate to just, you know, kind of maybe slowly grind a little bit higher as the new loans come in, or is there potential still for declines in the premium rate?
spk11: Yeah, Nahir, thanks for the question. I think we've talked about this. several times in the past, but just base premium rate is impacted by a number of different variables. As you know, new insurance written levels, NIW rate, persistency, mix, even premium refund estimates all impact the base premium rate. So that complexity can cause quarterly variation. I think our view is that base rates are going to continue to stabilize, and we'd expect flattish base premium rates throughout the year. You know, from my perspective, you know, the two-tenths of a basis point increase in sequential quarter basis is really in line with that flattest expectation, so I wouldn't equate that to a bottoming out. Okay. And then...
spk06: In terms of, sorry if I missed this, but did you guys give a market size, the NIW market size? I think last quarter you had said similar to last year. Is that still the view?
spk15: Yes. So we gave a market expectation of full year, and that full year expectation was generally in line with 2023. We gave that guidance, I believe, in February. And I believe 2023 was $285 billion-ish. I think as we navigate towards the end of the year and rates coming down recently, you could see some upside to that. But right now, I think that 285 or somewhere close to that sounds pretty good.
spk06: Okay. And then I guess the last question is just on the voluntary separation program. I just wanted to understand, should we take from that, I guess what is the driver of that? Is it just efficiency improvements, or is it the market has been a little slower to come back than you had maybe anticipated? Thank you.
spk15: Yeah, Mayor, so just as a reminder, this is not the first voluntary separation program or the first reduction we have done from an expense perspective. We are very expense conscious and are always working towards making our business efficient through the right processes and the right investments. uh we announced to the market that in december of 2022 we had done a voluntary separation program and that was also driven by very similar investments and outcomes so we have invested in our business in our technology and processes for the last 10 years When you think about examples like our underwriting productivity, our underwriting productivity has increased consistently over the last 10 years. And as we achieve new milestones in that journey, it gives us an ability to make our business more efficient. So think of this as along that journey as we make investments in technology, processes, data, And we get the benefit of those investments. We use those opportunities to make the business more efficient. So that was the driver of the recent reduction. And I think as Dean stated that it basically equated to about $3 million of separation costs. And we'll come back as we approach the end of the year to give a new run rate. Obviously, these separations have some kind of working notice. So it's going to have limited impact on 2024 expenses, but as we think about 2025 expenses, we'll take a complete and comprehensive look at the business and provide expense guidance as we start 2025.
spk11: Yeah, the only thing I'd add to that, Mihir, and it picks up right where Rohit left off, is that $3 million restructuring charge obviously isn't in our full-year guidance of 2020 to 2025 for 2024. Yeah.
spk15: Mayor, one thing I should have said just to round out the answer. If you think about our insurance in force, we are now at the highest insurance in force we have ever had, $266 billion. And from an employee count perspective, our business has never been more efficient. So hopefully that kind of connects the dots between our strategy, how do we kind of invest in technology and processes, and then harvest the benefits of that.
spk06: No, that all makes sense. Thank you so much for taking my questions.
spk09: Thanks, Mayor. Thanks, Mihir.
spk14: Your next question is from the line of Jeffrey Dunn from Dowling. Your line is open.
spk02: Thanks. Good morning. Dean, can you disclose the amount of development that was in the current period provision this quarter?
spk11: Yeah, that's losses on news were $60 million in the quarter.
spk02: Yeah, how much of that was development related to the 10 going to 9?
spk11: Yeah, great question, Jeff. Sorry. So, if you break out the 77 million into its piece parts, about 56 million of that is related to elevated cure activity, and about 21 million is related to the reduction of the claim rate from 10 to 9. And as I mentioned in a prior answer, that's really focused on uh, the second half, 2023 through first quarter, 2024 accident quarters. Uh, we booked new delinquencies at the nine. So there is no, um, favorable development relative to, um, that 60 million losses on news.
spk02: Okay. So the first quarter ran, yeah, first quarter ran through prior year.
spk10: Yes. Prior period.
spk02: Got it. All right. And then, um, more of a macro question. What are some of the softer MSAs you're watching right now?
spk15: Yeah. Jeff, this is Rohit. It's tough to give guidance on specific geographies. I would just say that That's part of our commercial strategy, so don't want to discuss it on an earnings call. We do deploy our pricing and risk appetite strategy at an MSA level. So rest assured that both from an expedience perspective as well as market data sourcing perspective, we basically are looking at different MSAs and putting that view forward in our risk appetite and pricing. If I was just to use the market, I would say, like, use a smaller market like Boise, where you basically might have seen a run-up during the COVID time period in terms of inflow of population, and then once COVID ended, population basically went back to where they came from. And as a result, there's been less activity there. So we use all the way data from that as well as economic activity data at an MSA level to project where markets might be going.
spk02: Okay. And last question. Can you talk a little bit about how execution looks between the traditional XOL versus ILN markets? Seems like we're still kind of on the XOL side of things. Just curious how ILNs are matching up.
spk11: Yeah, I think we haven't been in the island market for a couple quarters now, but I think both markets are performing very, very well. What I mean by that is there's a little bit of imbalance between supply and demand. Obviously, mortgage insurers and ACT included have lower NIW over the most recent periods, and so less capacity or less need for coverage, less coverage to acquire. And at the same time, you have new investors in the ILN market space, in the capital markets, and new reinsurers coming in to the traditional reinsurance market, providing additional capacity. And that's driving some favorability in terms, whether that's price or whether that's STIPS. So I'd say both markets look attractive, very attractive. You know, right now, our CRT plans for the second half of the year are probably pretty limited. We'll reconsider, you know, unless we do something more opportunistically. But I think our base plan is to go into 2025 with forward XOL and forward quota share capacity and bring that to market and hopefully take advantage of those attractive market conditions.
spk01: That's helpful. Thank you.
spk11: Thank you. Thanks, Jeff.
spk14: Very no further questions at this time. I would now like to turn the conference back to our speakers for any closing remarks.
spk15: Thank you, Mikey. We appreciate everybody's interest in an act. We will be hosting a fireside chat with JP Morgan tomorrow, and we will be attending JP Morgan Future of Financials Forum in mid-August. We look forward to seeing you at one of these events. Thank you.
spk13: This concludes today's conference call. Thank you all for participating. You may now disconnect. you Thank you. Thank you. music music
spk00: Thank you.
spk14: Good day and thank you for standing by. Welcome to the NX Q2 2020 for Earnings Conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mr. Daniel Cole, Vice President of Investor Relations.
spk13: Please go ahead.
spk09: Thank you and good morning. Welcome to our second quarter earnings call.
spk07: Joining me today are Rohit Gupta, President and Chief Executive Officer, and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions. The earnings materials we issued after market closed yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the investor relations section of our website. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations, and projections as of today's date. Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different, and we undertake no obligation to update or revise such statements as a result of new information. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release, as well as in our filings with the SEC, which will be available on our website. Please keep in mind the earnings materials and management's prepared remarks today include certain non-GAAP measures. Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation, and our upcoming SEC filing on our website. With that, I'll turn the call over to Rohit.
spk15: Thank you, Daniel. Good morning, everyone. Our second quarter results concluded an excellent first half of 2024. We remain focused on our priorities of driving profitable growth, maximizing efficiency, and creating value for our shareholders. Our disciplined execution across each of these translated into strong financial performance. During the quarter, we reported adjusted operating income of $201 million, up 21% sequentially and 13% year-over-year. Adjusted EPS was $1.27. Adjusted return on equity was a solid 17%, and insurance-enforced was a record $266 billion, up 1% sequentially and up 3% year-over-year. As we mentioned last quarter, we continue to navigate through a complex operating environment. The U.S. economy is holding up well with a strong labor market and household balance sheets that remain healthy overall. While macro factors such as inflation, higher interest rates, and geopolitical conflicts remain potential risks, there are a number of positive trends supportive of housing and credit. Delinquency rates for prime mortgage borrowers are consistent with pre-pandemic levels. Our manufacturing quality continues to be strong, and our portfolio continues to retain high embedded equity. Over the longer term, the drivers of demand also remain intact as a growing number of people with less than 20% down payment resources reach the typical age for purchasing their first home. Overall, we are confident that mortgage insurance will continue to be a crucial resource to both buyers and lenders alike. Higher rates continue to benefit persistency, which, again, offset the effect of a higher rate environment on origination volumes and help drive insurance-enforced growth. The credit quality of our insured portfolio continues to be strong. At quarter end, the risk-weighted average FICO score of the portfolio was 745. The risk-weighted average loan-to-value ratio was 94%, and layered risk was 1.3%. Pricing remained constructive in the quarter, and we maintained our commitment to prudent underwriting standards. Our pricing engine allows us to deliver competitive pricing on a risk-adjusted basis, and we continued to underwrite and select risk prudently while generating attractive returns. The delinquency rate in the quarter was 2%, flat as compared to last quarter and consistent with our expectations. During the quarter, we released reserves of $77 million, driven by favorable credit performance and our effective loss mitigation efforts. Based on continued strong cure performance and our current market expectations, we reduced our claim rate on new and existing delinquencies from 10% to 9% during the quarter. This change is aligned with our measured and prudent approach to loss reserves. We believe we remain well-reserved for a range of scenarios. Dean will have more to say on this shortly. We continue to operate from a position of financial strength and flexibility. At quarter end, our PMR sufficiency was 169% or $2.1 billion of sufficiency, and approximately 77% of our risk in force was subject to credit risk transfers. We continue to execute against our CRT strategy during the quarter with an additional excess of loss transaction, further reducing our credit risk and enhancing our capital efficiency. During the quarter, we issued $750 million in senior notes, further strengthening our financial position by allowing us to refinance near-term maturities and saving $2 million in annual interest expense. This was our first investment-grade debt issuance as a public company and the largest investment-grade debt issuance in the industry in over a decade. The strength of our capital position and cash flows has allowed us to continue executing against our capital allocation priorities, which are supporting existing policyholders, growing our current business, investing in attractive new business opportunities, and returning excess capital to shareholders. On our last capital allocation priority, we continued to return capital to our shareholders. During the quarter, we repurchased $49 million of shares. As of June 30th, we have completed our $100 million share repurchase program and have $238 million remaining in our recently announced $250 million authorization. We also distributed $29 million for shareholders via our quarterly dividend. We now expect our total capital return to be between $300 and $350 million in 2024, reflecting our continued strong performance and balance sheet. Finally, we have continued to pursue strategic opportunities to extend our platform into compelling adjacencies that enhance our return profile, differentiate our platform, and leverage our core competencies. A year ago, we successfully launched Anacri, expanding our platform into the GSE credit risk transfer market. During the quarter, we continued to participate in the GSE CRT transactions that came to market. Since its inception, Anacri has performed well, maintaining a strong underwriting and attractive return profile. An Act Re is sufficiently funded to support its growth for the foreseeable future and remains a long-term capital and expense-efficient growth opportunity. Finally, I would like to take a moment to touch on our culture. At an Act, we strive to create a culture that encourages collaboration and are committed to maintaining an engaging work environment where our teams are at their best. I'm pleased to announce that during the quarter, an act was recognized as one of the best places to work by the Triangle Business Journal. We appreciate this acknowledgement of our leadership in the workplace and a testament to the strength of our team. Overall, we are pleased with our excellent performance in the first half of 2024. Looking ahead, we are focused on executing against our strategic priorities and are committed to maximizing value for all of our shareholders. With that, I will now turn the call over to Dean.
spk11: Thanks, Rohit. Good morning, everyone. We delivered another set of strong results in the second quarter of 2024. Gap net income for the second quarter was $184 million, or $1.16 per diluted share, compared to $1.04 per diluted share in the same period last year and $1.01 per diluted share in the first quarter of 2024. Return on equity was 15%. Adjusted operating income was $201 million, or $1.27 per diluted share, compared to $1.10 per diluted share in the same period last year and $1.04 per diluted share in the first quarter of 2024. Adjusted operating return on equity was 17%. As I explain the drivers of this quarter's performance, I'll highlight the differences between net income and adjusted operating income. Turning to revenue drivers, primary insurance and force increased in the second quarter to a new record of $266 billion, up $2 billion sequentially, and up $8 billion or 3% year-over-year. New insurance written was $14 billion, up $3 billion sequentially, and down $1 billion or 10% year-over-year. Persistency was 83% in the second quarter, down two percentage points sequentially, and down one percentage point year over year. The sequential decline in persistency is aligned with historical seasonality as we transition to the spring selling season. Given the current level of mortgage rates, persistency remains elevated, and this marks the ninth quarter in a row of persistency at or above 80%. Only 4% of the mortgages in our portfolio had rates at least 50 basis points above the prevailing market rate. We anticipate that elevated persistency will continue to help offset lower production in the current higher rate environment. Net premiums earned were $245 million, up $4 million or 2% sequentially, and up $6 million or 3% year over year. The sequential and year-over-year increases in net premiums were driven by insurance and forest growth and our growth in attractive adjacencies consisting primarily of a NAICS, REES, GSE, CRT participation. These increases were partially offset by higher seeded premiums. Our base premium rate of 40.3 basis points was up 0.2 basis points sequentially and flat year-over-year. As a reminder, our base premium rate is impacted by several factors, and tends to modestly fluctuate from quarter to quarter. Our net earned premium rate was 36.4 basis points, up .1 basis points sequentially, as higher seeded premiums partially offsets the increase in base rate. Investment income in the second quarter was 60 million, up 3 million, or 5% sequentially, and up 9 million, or 17% year over year. Higher interest rates have increased our investment portfolio yields, and as our portfolio rolls over, we anticipate further yield improvement. During the quarter, our new money investment yield continued to exceed 5%, contributing to an overall portfolio book yield of 3.8%. Our focus remains on high-quality assets and maintaining a resilient A-rated portfolio. As we previously stated, While we typically hold investments to maturity, we will selectively pursue income enhancement opportunities. During the quarter, we executed a strategy resulting in $8 million of pre-tax losses in exchange for higher future investment income, which is excluded from our adjusted operating income. While we will continue to evaluate and pursue similar opportunities as appropriate, this does not change our views that our investment portfolio's unrealized loss position is materially non-economic. Turning to credit, losses in the second quarter of 2024 were negative 17 million, and the loss ratio was negative 7%, compared to 20 million, or 8%, respectively, in the first quarter of 2024, and negative 4 million, and negative 2%, respectively, in the second quarter of 2023. The sequential and year-over-year decrease in losses and the loss ratio were primarily driven by a reserve release of $77 million reflecting favorable cure performance and the lowering of our claim rate expectations from 10% to 9%. We not only lowered our claim rate on existing delinquencies, but also new delinquencies as a result of sustained favorable cure performance and our current market expectations. The $77 million reserve release compares to a reserve release of $54 million and $63 million in the first quarter of 2024 and second quarter of 2023 respectively. New delinquencies decreased sequentially to 10,500 from 11,400 in line with seasonal expectations. Our new delinquency rate remained consistent with pre-pandemic levels and for the quarter was 1.1% compared to 1.2% sequentially and 1% in the second quarter of 2023. Total delinquencies in the second quarter decreased sequentially to 19,100 from 19,500. The primary delinquency rate decreased five basis points sequentially to 2% in line with pre-pandemic levels. Turning to expenses, operating expenses in the second quarter of 2024 were 56 million, and the expense ratio was 23%. compared to $53 million and 22% respectively in the first quarter of 2024 and $55 million and 23% respectively in the second quarter of 2023. We also initiated a voluntary separation program during the second quarter that resulted in a restructuring charge of $3 million that is excluded from our adjusted operating income and represents approximately one percentage point impact in the expense ratio for the quarter. We remain focused on operating efficiency and still expect our expenses, excluding these restructuring charges, to be in the range of $220 to $225 million for 2024. Moving to capital, we continue to operate from a strong capital and liquidity position, reinforced by our robust PMIR sufficiency and continued successful execution of our diversified CRT programs. During the quarter, we secured $90 million of additional excess of loss reinsurance coverage to reduce credit risk and enhance our capital efficiency. And as of June 30, 2024, our third-party CRT program provides $1.8 billion of PMIRES capital credit. Our PMIRES efficiency was 169% or $2.1 billion above PMIRES requirements at the end of the second quarter. During the quarter, we also elected to exercise cleanup calls on two CRT transactions covering the 2014 through 2019 books and the 2020 book. These two transactions account for approximately 15% of our risk in force. We exercised these cleanup calls in part because they provided nominal loss coverage and PMIRES credit, and the associated loans have high embedded equity, which reduced the probability of loss. As a result of these commutations, at the end of the second quarter, 77% of our risk and force was subject to credit risk transfer, which is down from 90% at the end of the prior quarter. We further strengthened our balance sheet during the quarter through our $750 million debt offering. We used the proceeds to refinance our 2025 notes, which extends our maturities and will result in $2 million in annual interest expense savings. The transaction resulted in $11 million of debt extinguishment costs, consisting of approximately $8 million in debt redemption costs and approximately $3 million in accelerated debt issuance costs in the quarter, both of which are excluded from our adjusted operating income. Turning to capital allocation, we continue to execute against our capital prioritization framework, which balances maintaining a strong balance sheet, investing in our business, and returning capital to shareholders. During the quarter, we paid $29 million or 18.5 cents per common share through our quarterly dividend, reflecting a 16% increase as previously announced. Today, we announced the third quarter dividend of 18.5 cents per common share, payable September 9th. Additionally, we continue to focus on accelerating our share buyback participation and repurchase 1.6 million shares at a weighted average share price of $30.43 for a total of $49 million in the quarter. In July, we repurchased an additional 0.4 million shares at a weighted average share price of $31.01 for a total of $13 million repurchased. During the quarter, we completed our $100 million share repurchase authorization, and as of July 26, 2024, there was approximately $226 million remaining on our $250 million repurchase authorization. The strength of our capital position allows us to balance investing in the business with returning capital to shareholders, and as I just detailed, we now expect to return approximately $110 million through our common dividend in 2024. Additionally, we expect to return between $190 million and $240 million through our share buyback program. Collectively, these result in an expected 2024 capital return between $300 and $350 million, reflecting our consistent performance and strong balance sheet. As in the past, the final amount and form of capital returned to shareholders will depend on business performance, market conditions, and regulatory approvals. Overall, we are incredibly pleased with our performance in the first half of 2024. We believe we are well positioned for the second half of the year and beyond. and will remain focused on prudently managing risk, maintaining a strong balance sheet, and driving solid returns for our shareholders. With that, I'll turn the call back to Rohit. Thanks, Dean.
spk15: As I reflect on our performance and look to the second half of 2024 and beyond, I continue to be encouraged by the long-term dynamics of our market. Our product continues to help people responsibly achieve the dream of homeownership in a complex environment. Our dedication to this principle underpins all aspects of our business and drives our efforts to deliver exceptional value for all of our stakeholders. Operator, we are now ready for Q&A.
spk14: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. Your first question comes from the line of Soham Bansal from BTIG. Your line is now open.
spk03: Hey, guys. Good morning. Hope you're doing well. Just the first one on NIW, it looked like it was lore versus some of your peers that reported this quarter. So I was just wondering if there's any errors or factors that maybe you stepped away from or anything discernible to note there. Thanks.
spk15: Good morning. So thank you for the question. So no, there was nothing different this quarter. There is some level of volatility that happens quarter to quarter. And obviously, we still don't have one peer who has reported in the market. So tough to tell where we are on market share. But the way we see the market from a pricing perspective, we saw the pricing being constructive in the market. We think that the four peers out of five who have reported are in a tight range. Four peers actually have a $13 billion handle in terms of NIW, so it seems like most people were kind of pretty close. And then I think in the past we have talked about the way we think about market participation is you almost have to look at trailing 12 months of market share and market participation, not that market share is a goal. It's more of an outcome for us. But if you look at the last four quarters, I think you see some volatility in our participation, but generally in a pretty tight range. So we are comfortable with our participation in the market. We like the approximately $14 billion of NIW we wrote in the quarter. And the guidelines, the pricing that we are getting on that, we are very happy with that.
spk03: Okay, great. And then on the lower claim rate, you know, I mean, Credit is obviously still very good. Consumer seems in a good place. But it does seem like the consumer is slowing on the edges. And if you look at just inventory that's potentially building in some of the large markets, Texas, Florida, right, these are some of the risks that we're seeing. But I guess you did take it down. So wondering how you're looking at this or assessing those risks going forward and how sustainable do you think the lower sort of claim rate can be? Thanks.
spk11: Yes, thanks for that question as well. You know, I think we previously discussed there were a couple potential catalysts for the reassessment of claim rate. First relates to economic uncertainty and a reduction in economic uncertainty. And then second, you know, if we gave more consideration to the sustained delinquency performance and elevated cure performance that we've seen over time, those would both be potential catalysts for the reassessment of claim rate. You know, this quarter, we really relied on both of those in making the change from 10 to 9. If we take those kind of in their piece parts, you know, very much in line with the consensus view on that macroeconomic environment, you know, we believe the economic uncertainty is reduced. That doesn't mean that it's completely gone away. And I think our 9% claim rate still reflects the ongoing presence of uncertainty. but that range has certainly narrowed. And that is one of the catalysts for the change this quarter. And then secondarily, we gave certainly some more weight and you can think about, you know, consideration or weight to our recent delinquency performance this quarter. So the result is we lowered the claim rate both on the most recent delinquency cohorts. So think about that from the second half of 2023 through first quarter 24 and also the claim rate on new delinquencies. If we think about the go forward, what would cause us to reevaluate that? I think it's similar catalyst. If economic uncertainty changed and or we gave more weight to ongoing performance, I think either one of those could cause us to come back and evaluate that claim rate through time. And again, we're going to continue to apply what we believe is a prudent and measured approach to loss reserving through time.
spk15: Yes, second question, Soham, in terms of inventory buildup as well as consumer softening. I think we are definitely keeping an eye on it. I think we have seen some volatility. If you think about second half of 2022, early 2023, we saw some volatility in the market, but eventually the trends came back to more fundamental trends. which we believe are driven by several macro factors. On the housing side, there is less inventory in the market than there are people who are interested in buying homes. We think that at least the number is somewhere around 2 million homes short in the market compared to people who actually want to buy. While the inventory has risen recently in the month of June, and it's kind of closer to four months, it's still below the long-term average. A balanced market is closer to six months. And in markets like Florida, what we are seeing is inventory is rising in the smaller markets. So if you look at where the sales happen, more than 80% of sales, markets where more than 80% of sales happen actually still have very stable and kind of low inventory. And then in the smaller markets, there's been some rise, so we are keeping an eye on it. But going back to Dean's point, I think we are keeping an eye on unemployment, which is a big factor in kind of how we think about credit, and then also keeping an eye on the housing market balance.
spk03: Okay, great. Thanks for the call. I guess, Roy, just if I could squeeze one in. I think, you know, as we sort of get in the back half of the year, I think, you know, investors are sort of thinking about, you know, how MI could be viewed in sort of the context of a new administration potentially. I guess we know how they're viewed in the current administration, but if you could just spend a minute and talk about potential ramifications, whether that's ending conservatorship or just going to more of a free market sort of approach, anything there would be great. Thank you.
spk15: Yes, so very good question. So I would say I might as well positioned kind of on both sides of the aisle. I think from a consumer perspective, we are a product that actually helps consumer achieve the dream of homeownership. We actually help consumers get in the path of get on the path of wealth accumulation through homeownership, which over the last 30-40 years has been one of the biggest factors driving build up of wealth. So I think from Our mission, our purpose perspective, if you think about a democratic administration, our priorities are very aligned. If you think of number of first-time homebuyers we are putting in homes in a low-affordability environment, I think in the most recent quarter, 60-plus percent of our consumers were first-time homebuyers. So we are very tied to the mission and purpose and very aligned with FHFA and the GSCs in terms of their priorities. If you think about a Republican administration, I think from a product perspective, we are also putting private capital ahead of taxpayer risk. So whether it comes to us competing with FHA program in terms of putting private capital ahead of FHA, we are serving a good purpose there. And then obviously, as you think about GSEs, us getting in first loss position in front of the GSEs accomplishes that purpose of putting private capital in front of taxpayer capital, which I think has served well in the past. As far as GSE reform is concerned, obviously that's been a topic of discussion for whatever, 16 years since GSEs went into conservatorship. So the odds of that are difficult to call at this point of time because a lot of things have to line up for those, the reform to happen just given the number of considerations in play.
spk08: Thanks a lot for that, guys. Thank you, Sam. Thank you.
spk14: Your next question is from the line of Rick Shane from JP Morgan. Your line is open.
spk05: Hey, guys. Thanks for taking my questions this morning. Look, one of the most interesting evolutions over the last two or three years has been the understanding or the appreciation that a lower volume, high persistency environment is actually potentially more favorable than a high volume, lower persistency environment. As we shift potentially in rates and could see a pickup in mortgage volumes, I'm curious how you guys are thinking about this, especially because at this point, portfolios in the industry are so barbelled in a way that we've never seen before with huge cohorts of very low rate underlying mortgages and a growing cohort of higher rate mortgages that are probably refinanceable.
spk15: Yeah, Rick, thank you for your question. I would say, given the composition of our portfolio, and we disclosed some details from a mortgage rate perspective on slide nine of our earnings presentation, I think the portfolio is very well positioned from consumers who actually are incented to refinance in this environment or even if rates start falling. You can see that only 4% of our book was how we define in the money from a refinance perspective. And then more importantly, 78% of our policies are actually have a mortgage rate of below 6%. So mortgage rates will actually, in our assessment, will have to go closer to 5.5% for that population to start coming into an economic incentive to refinance. Obviously, there are life events where people actually simply upgrade their homes or downsize their homes. But in terms of refinance incentive, a good portion of our existing book actually doesn't have refinance incentive, even if mortgage rates were to fall by, let's say, 150 to 175 basis points. From a market perspective and from a potential perspective for our business, I think an ideal scenario is as mortgage rates come down and affordability gets better, we actually start getting much higher origination market for MI industry because a lot of consumers who are in the sidelines are first-time homebuyers. And as I said earlier, within first-time homebuyers, the usage of our product is at a very high level. That ratio sits somewhere closer to 60% of all first-time homebuyers use our product to get into homes. So you actually have a growing market, but at the same time, our insurance in force has more stickiness because consumers have a low enough rate that they are not refinancing out of their mortgage from a rate perspective.
spk05: Got it. And could you see a scenario where some of the less affordable, riskier products portions of your portfolio that sort of boils off a little bit faster and those borrowers actually move into even more affordable mortgages?
spk15: Absolutely. That is always possible, Rick. So if you think about consumers who actually have higher rates, or are higher LTVs, obviously there's an incentive as they build equity in their homes, whether it's through home price appreciation or amortization, you can see them having a higher refinance incentive. I would say that we have one of the benefits of having been in business for 40 plus years is we actually have a lot of data where we can model those scenarios and actually look at which consumer cohorts based on all risk attributes, including mortgage rates, have a higher propensity to refinance, and that baked into our expectations when we run the business.
spk04: Got it. Okay. Thank you very much for taking my questions this morning. Thank you, Rick.
spk14: Your next question is from the line of Bose George from KBW. Your line is now open.
spk17: Hey, good morning, everyone. This is actually Alex on for Bose. Maybe just to start relating to the updated capital return guide, I was just wondering if you could maybe discuss the drivers of the higher guidance and maybe specifically if this is being driven by better return expectations versus maybe slower growth expectations. Thanks.
spk11: Yeah, Alex, thanks for the question. I really don't think it's the latter, but let me go to the drivers. I think it's a lot of the considerations we said as it relates to where we'll perform in the range are also the considerations for why we increase from a discrete number to the range of 300 to 350. Starts with business performance. I think business performance has been very strong. We don't have a prescribed payout ratio, but certainly business performance is a key consideration as we think about both setting the capital return target at the beginning of the year and then modifying that throughout the year. I think the economic environment is another key consideration. I talked about some modest improvement from our perspective on the economic environment that led to the reduction in the claim rate this quarter. That carries over into our decisions to what to do about the return of capital for the remainder of the year. And then, you know, lastly, regulatory. I think the regulatory environment is conducive to increasing from a discrete number to a range. You know, the form, excuse me, Alex, the form of that is going to be dictated by several factors. You know, we've talked about the form in sort of a waterfall type approach. The fact that we have a lot of, we put a lot of certainty into our quarterly dividends and the way we establish them. And then share buybacks are kind of that opportunistic tool based on market conditions. And we, I think we mentioned last quarter, we have a preference for share buybacks, all things, you know, market conditions being conducive. And then special dividend is the plug to return capital based on our objectives if we can't do so versus the other two forms.
spk15: Yeah, Alex, just to completely agree with Dean, just to add one aspect of business performance versus market growth. Given the NIW numbers we have delivered and obviously need a little bit more information to assess market size, but the guidance we had provided for MI market size at the beginning of the year is actually very much in line with where we believe MI market size is trending at this point in the year. So I don't think it's a market slowdown because I think the market is actually trending very much in line with expectations. We have mentioned before that we launched an ACRE last year. We continue to grow that business, and we have described that as growing that business in months, quarters, years, not in a very short term, but that growth continues to go in the right direction. So completely agree that this is driven by business performance versus slower growth.
spk17: Okay, great. That all makes sense. And then maybe just another follow-up on the capital return. And I think we just went over it a little bit. But just thinking about where shares trade versus peers, they do screen a little cheap at the moment. But is there maybe a price-to-book level that you think about where we could potentially see maybe more capital return through the special dividend as opposed to repurchases, just given where shares currently trade and the recent share performance?
spk11: Yeah, Alex, on... On our share buyback program, we look at a lot of different factors. Obviously, price to book is one, forward price to book is another. We have our own view of intrinsic value, so we kind of triangulate those views and others as we think about setting the appropriate targets for use of share buyback as a means to return capital. So I wouldn't go into a prescription of a certain current period price to book. There's more considerations, maybe a little bit more complexity to it than that. I will just reemphasize our, you know, we said it last quarter, I think we still have the perspective that we have a preference for returning capital via share buybacks, assuming market conditions accommodate. And we still retain special dividend as a means if that doesn't hold.
spk16: Okay, great. Thanks so much. Thank you. Thanks, Alex.
spk14: Once again, to ask a question, please press star 1-1 on your telephone. Your next question is from the line of Mihir Bhatia from Bank of America. Your line is open.
spk06: Hi. Good morning, and thank you for taking my questions. I wanted to start first just on the premium. You mentioned the premium environment is constructive. I guess the question really is, have premium rates troughed for now? Or do you expect the base premium rate to just, you know, kind of maybe slowly grind a little bit higher as the new loans come in? Or is there potential still for declines in the premium rate?
spk11: Yeah, Nahir, thanks for the question. I think we've talked about this. several times in the past, but just base premium rate is impacted by a number of different variables. As you know, new insurance written levels, NIW rate, persistency, mix, even premium refund estimates all impact the base premium rate. So that complexity can cause quarterly variation. I think our view is that base rates are going to continue to stabilize, and we'd expect a flattish base premium rates throughout the year. You know, from my perspective, you know, the two-tenths of a basis point increase in sequential quarter basis is really in line with that flattest expectation, so I wouldn't equate that to a bottoming out. Okay. And then,
spk06: In terms of, sorry if I missed this, but did you guys give a market size, the NIW market size? I think last quarter you had said similar to last year. Is that still the view?
spk15: Yes. So we gave a market expectation of full year, and that full year expectation was generally in line with 2023. We gave that guidance, I believe, in February. And I believe 2023 was $285 billion-ish. I think as we navigate towards the end of the year and rates coming down recently, you could see some upside to that. But right now, I think that 285 or somewhere close to that sounds pretty good.
spk06: Okay. And then I guess the last question is just on the voluntary separation program. I just wanted to understand, should we take from that, I guess what is the driver of that? Is it just efficiency improvements, or is it the market has been a little slower to come back than you had maybe anticipated? Thank you.
spk15: Yeah, Mayor. So just as a reminder, this is not the first voluntary separation program or the first reduction we have done from an expense perspective. We are very expense conscious and are always working towards making our business efficient through the right processes and the right investments. We announced to the market that in December of 2022, we had done a voluntary separation program, and that was also driven by very similar investments and outcomes. So we have invested in our business, in our technology and processes for the last 10 years. when you think about examples like our underwriting productivity, our underwriting productivity has increased consistently over the last 10 years. And as we achieve new milestones in that journey, it gives us an ability to make our business more efficient. So think of this as along that journey as we make investments in technology, processes, data, And we get the benefit of those investments. We use those opportunities to make the business more efficient. So that was the driver of the recent reduction. And I think as Dean stated that it basically equated to about $3 million of separation costs. And we'll come back as we approach the end of the year to give a new run rate. Obviously, these separations have some kind of working notice. So it's going to have limited impact on 2024 expenses, but as we think about 2025 expenses, we'll take a complete and comprehensive look at the business and provide expense guidance as we start 2025.
spk11: Yeah, the only thing I'd add to that, Mihir, and it picks up right where Rohit left off, is that $3 million restructuring charge obviously isn't in our full-year guidance of 2020 to 2025 for 2024. Yeah.
spk15: Mayor, one thing I should have said just to round out the answer. If you think about our insurance in force, we are now at the highest insurance in force we have ever had, $266 billion. And from an employee count perspective, our business has never been more efficient. So hopefully that kind of connects the dots between our strategy, how do we kind of invest in technology and processes, and then harvest the benefits of that.
spk06: No, that all makes sense. Thank you so much for taking my questions. Thanks, Mahir.
spk14: Your next question is from the line of Jeffrey Dunn from Dowling. Your line is open.
spk02: Thanks. Good morning. Dean, can you disclose the amount of development that was in the current period provision this quarter?
spk11: Yeah, losses on news were $60 million in the quarter.
spk02: Yeah, how much of that was development related to the 10 going to 9?
spk11: Yeah, yeah. Great question, Jeff. Sorry. So, if you break out the 77 million into its piece parts, about 56 million of that is related to elevated cure activity, and about 21 million is related to the reduction of the claim rate from 10 to 9. And as I mentioned in a prior answer, that's really focused on the second half 2023 through first quarter 2024 accident quarters. We booked new delinquencies at the nine, so there is no favorable development relative to that 60 million losses on news.
spk02: Okay, so the first quarter ran through prior year?
spk10: Yes, prior period.
spk02: Got it. All right. And then... more of a macro question. What are some of the softer MSAs you're watching right now?
spk15: Yeah. Jeff, this is Rohit. It's tough to give guidance on specific geographies. I would just say that That's part of our commercial strategy, so don't want to discuss it on an earnings call. We do deploy our pricing and risk appetite strategy at an MSA level. So rest assured that both from an experience perspective as well as market data sourcing perspective, we basically are looking at different MSAs and putting that view forward in our risk appetite and pricing. If I was just to use the market, I would say, like, use a smaller market like Boise where you basically might have seen a run-up during the COVID time period in terms of inflow of population, and then once COVID ended, population basically went back to where they came from. And as a result, there's been less activity there. So we use all the way data from that as well as economic activity data at an MSA level to project where markets might be going.
spk02: Okay. And last question. Can you talk a little bit about how execution looks between the traditional XOL versus ILN markets? Seems like we're still kind of on the XOL side of things. Just curious how ILNs are matching up.
spk11: Yeah, I think what we haven't been in the island market for a couple quarters now, but, you know, I think both markets are performing very, very well. And what I mean by that is there's a little bit of imbalance between supply and demand. Obviously, mortgage insurers and ACT included have lower NIW over the most recent periods, and so less capacity or less need for coverage, less coverage to acquire. And at the same time, you have new investors in the ILN market space, in the capital markets, and new reinsurers coming in to the traditional reinsurance market, providing additional capacity. And that's driving some favorability in terms, whether that's price or whether that's STIPS. So I'd say both markets look attractive, very attractive. You know, right now our CRT plans for the second half of the year are probably pretty limited. We will reconsider, you know, unless we do something more opportunistically, but I think our base plan is to go into 2025 with forward XOL and forward quota share capacity and bring that to market and hopefully take advantage of those attractive market conditions.
spk01: That's helpful. Thank you.
spk11: Thank you. Thanks, Jeff.
spk14: Very no further questions at this time. I would now like to turn the conference back to our speakers for any closing remarks.
spk15: Thank you, Mikey. We appreciate everybody's interest in an act. We will be hosting a fireside chat with JP Morgan tomorrow, and we will be attending JP Morgan Future of Financials Forum in mid-August. We look forward to seeing you at one of these events. Thank you.
spk14: This concludes today's conference call. Thank you all for participating.
spk13: You may now disconnect.
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