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spk03: But so I think we're, you know, don't think that the most recent activity is reflective of what we expect for the full inventory of delinquent loans. But HPA, I think, has certainly been, you know, a benefit to the industry and to our reserve levels, as evidenced by the reserve releases that we've had the last couple of quarters. So, you know, if we continue to see favorable cure activity and home price appreciation, you know, that's something that will reflect when we're reestablishing, you know, estimates in future quarters.
spk05: Okay, great. Thank you.
spk00: We have your next question from both George with KBW. Your line's open.
spk01: Hey, good morning. Actually, what was your ultimate loss expectation that you're using now for those peak COVID delinquencies?
spk03: It poses, Nathan, I think, you know, initially, we would have been somewhere around 7%. If you go back to the initial estimates, we would have set in the second and third quarters of 2020. I think combined with the development that we had in the fourth quarter of 2021, and now in the first quarter of 2022, I think you're in the maybe four to 5% range for ultimate losses.
spk01: So, okay, great. Thanks. And then just the, you know, the profit commission benefits that comes from the reserve release. Did you, can you break that out?
spk03: Well, you may have to follow up on that. I think it does vary by treaty too. But I think the benefit there is really as we, you know, seed less losses, it comes through as increased profit commission. But on a net P&L basis, there's really not any impact because we no longer get the benefit of those seeded losses.
spk01: Okay, great. Thanks. And then actually one more for me. What's kind of the normalized pre-mires cushion that you're going to target?
spk03: Yeah, we've talked about kind of targeting a pre-mires excess for a number of reasons that I think are pretty dynamic. So we ended the quarter with an excess level that was above our targets, which supported the dividend activity, and that's something that we'll continue to reassess in future periods.
spk01: Okay, great. Thanks.
spk00: We have your next question from Jeffrey Dunn with Dowling and Partners. Your line's open. Please go ahead.
spk04: Thanks. Good morning. Nathan and Tim, I'm curious how you're thinking about your 23 notes and bigger picture how you think about debt leverage in the MI model considering the significant increased use of the leverage offered by reinsurance and ILNs. Do you think you want to look to retire the 23s, or is it still a business model where you maintain a mid-teens debt-to-cap?
spk02: I'll take that to start, Jeff. Nathan was kind enough to let me speak on this one a little bit, but he can fill in the details. I think your question alludes to something that we've been thinking about for a while, is with some of the leverage you can get from reinsurance, the question is what should we have from a debt leverage standpoint? And I think it's fair to say that we've been aiming lower. At least one of the rating agencies has guided sort of sub-15 debt-to-cap ratio, and that's something that we've been focused on. So when it comes to the 23 specifically, that gives us some options to think about, you know, either refinancing, rolling some part of it, but paying back a chunk of it. And obviously, as interest rates have moved, we've started to look more closely at that, and as the time horizon to when those come due, it's coming closer. But, you know, we're thinking about that along with the 63s, which obviously takes out dilutive shares as well, but That's part of the deleverage, the paying back the federal home loan bank. I think that's all our view of generally being lower on a debt leverage basis, recognizing that the reinsurance in our mind is cheaper than the debt leverage, and it's at the right level, being at the insurance company that we can pay the premiums from. It also gives us loss absorption protection, especially in downside sort of stress scenarios. Yes.
spk04: Okay. I don't know if Nathan had a follow-up on that, but that's great. I appreciate it.
spk02: Okay. Thanks.
spk00: Thank you. We have your next question from Doug Harter with Credit Suisse. Your line is open. Please go ahead.
spk05: Thanks. Can you talk about your expectations for investment income, how long the rise in rates we saw in the first quarter kind of takes to meaningfully flow through the portfolio?
spk03: Yeah, sure. Doug is Nathan. You know, I think in the same way that the decrease in rates didn't come through the portfolio immediately, I, you know, we're not going to see the, the increase in rates come through immediately as well. I think reinvestment rates for us have been north of 4% recently, which is, I think is great long-term, but we've got a portfolio with a duration of about four to five years. So, you know, that's not going to turn over overnight, certainly. But we do generate a lot of positive cash flow and also a lot of investment income and paydowns and maturities. So I think we're excited about the opportunity to get to reinvest at these market rates.
spk05: And then can you talk about kind of how your targeted returns for the MI business has factored in investment yields and whether this environment potentially provides upside to that?
spk02: Yeah, this is Tim. I think when we try to think about our returns, we try to think about them as not having sort of risk associated with investment yield. And so we try to strip out sort of an investment income, if you will, from that equation overall and just try to look at the risk we're taking associated with the mortgage itself. Not to say that from an overall gap basis, it doesn't help us. But I think when we think about how we price the risk, higher interest rates generally don't dictate, and investment rates don't really dictate the change in pricing philosophy for us on the actual mortgage loan.
spk05: Understood. Thank you.
spk02: Sure.
spk00: I'm showing no further questions at this time. I would now like to turn it back to the management for any closing remarks.
spk02: Sure. Thanks, Alexander. Just want to take this moment, as we previously announced, Mike Zimmerman plans to retire after 27 impactful years at MGIC. Mike mentioned this morning this is his 77th earnings call. And while he'll still be with us for a little while, I want to take this opportunity to recognize him before we welcome Diana Higgins on our Q2 earnings call. I think I speak for a lot of people at MGIC, both now and those that have preceded me, I express my gratitude for Mike for his countless contributions to MGIC over that time. Mike's been a trusted confidant for me and for those who came before me. Mike pretty much saw everything during his time at MGIC and handled each situation with a professionalism that's second to none. And he also found a way to have fun in the process of doing it. So I thank him for that. It's truly been a pleasure for me. And while I'll miss this camaraderie at work, I know the memories and friendship will last past this time at MGIC. So thank you, Mike. Thanks, Tim. Appreciate that. And with that, everyone have a great day and appreciate your interest in the company.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now leave.
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