MGIC Investment Corporation (MTG) Earnings Call Transcript & Summary

Okay. Good morning. Thank you all for joining. I'm very pleased to be joined on the stage by Tim Mattke, the CEO of MGIC Investment. We're going to be doing a fireside chat. So the format is I've got a number of prepared questions for Tim. Maybe we'll pause in the middle for some audience response questions and then turn it to you all for Q&A if you've got any.

So Tim, just leading off with PMI penetration on purchase loans. This declined modestly since peaking in 2020. You just discussed the origination environment for 80% plus LTV loans and how that market has performed compared to the broader mortgage market.

I think it's still a positive market theme. I think when you think about the penetration there, obviously, there's been a little bit more cash in the system cash buying that's happening. But I think about the overall market, while it's going to be down this year from a purchase standpoint, I think that's -- at this point, that feels baked in for the rest of the year. It's still robust. The demographics are strong as far as people want to purchase above [ EDLTV ]. When I think about it overall, we've had a view for a long time, that's just the demographics of millennial generation to come into peak home-buying years have been a tailwind for us for a while. We still think it is for a few years. There is a supply-demand issue, which we probably talked about a little bit as well. But overall, I think we're really happy with the purchase market this year, refi market, different story. But as I think if you've followed us for a while, the purchase volume is much more what drives their book of business. The refi, while it's a nice headline print, it's really turning our book at best, sometimes it's more likely that people are [ refying ] out of line. So they have purchase volume strong is an important driver of in-force and ultimately in our revenue line.

Yes. For those not as familiar with the story, could you spend a little more time talking about that tailwind from -- particularly from the aging and millennials?

Yes. Well, I think our -- we've had this thesis, quite frankly, since going back to 2012, 2013, that if you look at millennials, but even if you get to the point where they weren't homeowners at the same level as prior generations, it was really more of a delay in when they would purchase and really is to do a life event that most people are going to buy a home when they have life events, whether it's getting married, having kids. I think we're at that peak, but we still have a pretty good part of that millennial generation to buy. It really -- the delay got pulled them forward a little bit at the beginning of the pandemic. I think that's why I saw a large rush. I think people valuing homeownership like they haven't before. And if you haven't owned the home before realizing that also might be where you work, pushed, I think some people to then finally purchase a home if they hadn’t done it before. Obviously, savings rates went up during that period of time, too, and so people were able to deploy that. But I still think there's -- from a demographic standpoint, there's a lot of good tailwinds there. And when you think about what's on everybody's mind is what's happening with home prices. I think when you look at that strong -- still strong demand, compare it with the lack of supply that's been true, I think, for over a decade at this point that homebuilding just didn't come back at the rate that it probably should have to meet this potential demand after the financial crisis. That's an issue that's not going to be solved over the next year or 2, obviously. And so I think that supply-demand balance, I don't see home prices going up the way they have the last couple of years, and quite frankly, I hope that they don't. But I think our belief would be that they're pretty flat for the next couple of years. And I think that's because you're going to see that balance moderate out as far as supply demand.

Okay. Turning to your NIW market share, it has bounced around over the last 4 quarters. Can you discuss what you're seeing from a competitive standpoint that's increased share volatility for the industry broadly? And what role risk-based pricing has had on market share?

Yes. When I reflect back, so I think the last couple of years, we balanced between 19% to 21% market share on average, leading the industry over that period. I feel like we've been pretty consistent. But relative to historical, there has been more movement, especially if you look at the broader industry. I think a lot of it has to do with risk-based pricing. You have some customers. It's not all the customers albeit some customers that they're best by sell and whatever the best price is. So if you're looking to win back some share, you can do that. I would say it's not all about price, though, for all the customers. Even if the customers that have best by sell, some of who don't use all 6 MIs. So you have to have that relationship, have a value proposition broader to be one of the, let's say, 4 MIs that they ultimately use. And I think the other part is we've always been really strong from community banks, credit unions, those institutions that are maybe a little bit less likely to use the risk-based pricing models or you can still use them, but allocate their business not just on best price. So I think you're going to see the volatility continue in the industry. But I think we get a lot of questions so where is that coming from? Is it bulk bid pricing? Is it -- to me, that's easy spot to win business is when you are in a risk-based pricing world, and you can change price. It's good from a risk, I think, mitigation standpoint for the industry, but it creates a lot more volatility on market share on a regular basis.

Great. So it looks like private MI picked up meaningful share over government in the second quarter, reaching the highest level since the financial crisis. Can you just discuss the current competitive balance between PMI and the FHA alternatives?

I'd say we don't spend a lot of time focused on exactly where FHA is as an example. We believe for the last 2 years that FHA was going to drop price. We didn't think it would have a material impact if it does. I think that's not just us, I think the rest of the industry had that view as well. So we've been surprised it hasn't happened. We've been more focused, quite frankly, within competition within the industry itself and happy with the quality of credit we're able to get compared to what FHA gets. I fully expect that they're still going to drop their MI premium. I think it could happen this year. But I do think they're a little bit conflicted as to is it the right move? Will it really move the needle as far as helping the communities they want to help? Especially when you sit back and think about the supply/demand dynamic I just mentioned, I think our view is you might shift someone from a conventional to FHA loans. That doesn't create a new buy or it just changes their execution. From a taxpayer standpoint, puts more risk in the system because it's 100% covered. And is that really the right answer versus thinking about where FHA really should serve. But again, all that being said, I'd expect they're going to do something. I just don't know how big it's going to be and it could be targeted, but I don't expect it's going to have significant impact on the private MI industry.

Yes. You said you think it might be this year. Is there any natural timing on their calendar around certain events where that might happen? Or could it just come out of nowhere?

I mean I think it could always just come out of nowhere. But the way I've heard them talk about it, and I think the way things have happened historically, the actuarial report is a big deal for them. That normally comes out October, November time frame. They probably start to get some insight into it slightly before that. I think you start to go through the budget process and think about it. So my expectation is Q4 is what I would expect to hear something, if we're going to hear something this year, which is -- that's just a few weeks away at this point. But again, we've been wrong on this for the last 2 years. I thought as soon as the administration took office, I thought it could be in the first week that the FHA changed premium reductions. That's the chatter we're hearing at the time. We haven't heard a lot recently other than, again, I think the general view that we feel compelled to do something. And I think the general view that their capital levels will look better than they did a year ago based upon what's happened. But they've also pointed to one to play out a little bit longer on their forbearance and delinquencies that came about during COVID. I think those are still relatively elevated for their book of business, which has a little bit more difficult credit characteristics than private MI does.

Okay. And -- if they do cut, what do you expect the impact would be on the private mortgage [ range ]?

I think the way we've tried to, I guess, give a range, I think we thought like less than 5% of volume. I think the other part that's tough to know is, at the same time, we know that the GSEs and FHFA in particular, is looking at GSEs and their fees. I don't have any read into whether anything will come of that or not. I know when you talk to the GSEs, you talk to FHFA to think about how can we help in certain programs. Obviously, other equitable housing plans that are out as well. So I'm sure they would look to, can we cross subsidize more things? Can we change GPs to help different communities? That can all end up being a loss with what FHA does. But I don't get the sense it be coordinated. So I think it would be -- you could get FHA premium reduction one day. And you might not hear -- even if they do something on GPs, that could be months out, that could be a year out before they do something there. So I don't think there would be a coordinated movement, so you could still have some volatility as far as how markets sort of share might move between private MI and FHA.

Yes. Okay. Just switching to industry pricing. There is a lot of talk on the 2Q earnings growth across the sector about recent pricing adjustments, price increases. Can you just talk about high-level what you're seeing in the industry?

Yes. I think that is one of the beauties of the risk-based pricing engines. You can pretty much change price every day if you want to. And you can change it at a much more granular level than we have been able to historically. So I think with the environment feels different than it did a year ago with HPA. The expectation of home values being generally flat. I don't think credit is getting worse. I think the credit box looks phenomenal still, which is a good thing. But you start to look at certain markets, certain geographies where you might be more concerned. I think us, others in the industry take a look at that and say, “Do we need to get compensated more if the risk is higher?” And I think generally, when you think about that, I think about markets where they've had higher home price appreciation than average, and they say, “Okay, when you think about potential stress environment, those are the markets that could get hit harder.” And so when you try to think about how you deploy your capital, you feel like you need a little bit more return to be able to -- if that were to come about. So I think the industry is sort of trying to feel it out. It's a competitive marketplace. It always has been. I think at the outset of COVID, the industry proved that it was pretty disciplined with risk-based pricing engines of taking price up where there was concern, where there was a little bit of uncertainty in the market. So I have the expectation that when you look at a little bit of uncertainty, not everybody's going to behave exactly the same, but I think we have the tools now that we can take that into account, whatever we think we need to get the right return.

Okay. And would you expect to see any material shift back to the FHA just given some of the recent price increases and…

I would not expect that. No.

Okay. Is that -- I mean is -- to what do you attribute that? I know there's an element to which there's -- part of this is just muscle memory that lenders get into where it’s like, “Okay, for this type of borrower, PMI is the best execution.” Does that make them a little bit less rate sensitive in decisions? Is that part of what would prevent share from shifting, what relative changes in price?

I think that's part of it. I think there's been a pretty good delineation of where it's best execution for private MI versus FHA. And even with pricing, it increases a little bit within our industry, it's taking it back to levels. I don't see it going back to levels where it was 5 years ago overnight. It's going to be probably an increase that happens or that you would expect could happen. And so I don't see there being a big shift there. I do think there's a speed of execution and certainty of doing things. And I think from a lender standpoint, it's true, especially when there's a lot of volume there. They want to make sure they close the loans. But I can tell you when they're -- when the volume is down and they want to make sure they can do as much volume as they can. They want certainty and execution. I think private MI gives that to them, the certainty of execution, both in terms of feeling comfortable with coverage and who they're dealing with, but I think also in terms of making sure they can close the loans and get through the underwriting process in a timely fashion. I don't think they feel as comfortable with that always with FHA. And so I think that's why you see the natural tendency of a lot of lenders to prefer to go to conventional route, use private MI, even if there's -- even if there could be a potential price benefit you go on the FHA route.

Okay. That's helpful. And the price increases of late have been -- are definitely helpful. But as we think about prior to that some of the ongoing downward pressure, how should we think about the net impact of existing book and putting on new business at slightly higher premiums?

Yes. I think it's tough to know. We came into the year, I think we were on record of saying we assumed our average premium rate on the in-force is going to be down about 1 bp a quarter. So down 4 bps over the course of the year. And I think through Q2, we were down maybe closer to 1.5%. So a lot of logical questions of, “Okay, so is that an indication of something that's happening?” At the same time, you also have a shift from refi activity purchase. On an average, purchase loans are going to be priced higher than refi because they're going to have on average higher LTVs just in general. So I think that shift also plays into where pricing ultimately comes through and whether it's happening with the in-force book. So there's a lot of factors at play there. Same time, persistencies rising on already existing books. So all that factored in makes it a little bit more -- it's always difficult, if I say it's even more difficult than average to figure out where exactly the average premium comes on the in-force book because you're trying to figure out what's going to stick around? What are your pricing on new business? What's the refi versus purchase mix? Although I'd say for us, refi volume, I think, was less than 5% last quarter. I don't see that changing the balance of the year with what's happening with interest rates, obviously.

Okay. Great. Maybe a little early for this question, but it's topical. What impact, if any, do you expect student loan debt freeness could have on the addressable market? Does it pull forward a little bit more the demand from millennials freeing them up from some of their debt obligations a little bit earlier than they might otherwise?

Yes. It's definitely -- it's a question that we get and then we got a lot going into whether there would be any release there. I come back to the supply-demand dynamic and say, “Okay, if there's definitely going to be on margin, some more potential borrowers because they don't have a student loan, the student loan forgiveness that happens there.” But when I think about the supply-demand equation, it just creates a little bit of excess demand that could happen there. I don't think it addresses how much supply is out there ultimately. And I think as far as the numbers that will ultimately influence and bring them into potential homebuyers, I don't see that really shifting the overall dynamic there. So I think you can qualify some more borrowers, but you still have an issue where I think you have a number of people competing for homes at that point. So can it help a little bit and bring more to the addressable market? Yes. But I think overall, I don't think our view has changed as far as that supply-demand dynamic and the home prices probably feel like they're sorting themselves out for the next year as opposed to creating a lot more demand that would inflate home prices.

Okay. Got it. Changing topics. Can you just discuss the persistency outlook for the back half of the year given what mortgage rates have been doing?

Yes. I think -- well, we moved from a little over a year ago, we were just below 60% persistency, I think moving up closer to 70% now. By the end of the year, I assume we'll be somewhere closer to 80%. I don't think we'll probably get all the way to 80% at this point. And generally, when I think about persistency, I think about 80% is a nice long-term average where you ultimately get to, I think it go above that. But I look back to our historic high points of persistency. And I think at certain points, we got to 90% persistency decades ago. I just view there, even with today's environment, if interest rates stay high, I just don't view probably persistencies being able to be that sticky as getting to 90% because it's easier to refi now, less cost to refi, you have a lot more people coming for refi. But even without that, if you look at home price appreciation that's happened, it probably makes it more likely that someone is going to go out, and they don't do it often, but it makes more likely someone is going to go and appraise and see if they can get PMI removed at that point as well. Again, that's not something we see on a regular basis. It's much more common than someone we cancel in conjunction with a refi. So I think trending towards 80%, towards the end of the year, where it goes from there, I think it goes slightly higher, but I don't see it getting meaningfully higher probably than 80%.

In your corporate history, do you have much data around a scenario like this where you have rapid HPA to see what borrower behavior is like whether it's enough to then incentivize people to go out and get an appraisal and cancel their MI?

We do have history on it. I think we're always surprised that there isn't a bigger uptake on that. I think it's the minority of what actually cancellations come from. Much more typical a cancellations come from someone amortized to 78 on original, they refi debt where they move. That's much more likely what has happened historically. Although, this is a different environment. You're coming out of pandemic, a lot stimulus money. It's just -- it feels probably not like an environment we've exactly seen before, which is I think a lesson we always think about that. We can try to play like stress scenarios of great recession. But whatever created that isn't probably what's exactly going to be what comes into the next stress environment. But it gives you a sense of what can happen and what the consumer might think.

Okay. And for those who may not be familiar with the rules, I think what you referred to the 78, if -- I think if the principal amortizes down below 80, then you're eligible and it's 78 is it automatic?

It’s automatically cancelled. Correct.

Got it.

Yes, that's under the Homeowners Protection Act.

Yes. Okay. Let's see. Turning back to the purchase origination market. Just hearing more about your longer-term outlook there and the role that private mortgage insurance plays in that?

Yes. I think our view is, and you look at the forecast from MBA and Fannie and Freddie. So purchase market is down this year from over the last couple of years. But the bigger part of the origination market being down is the lack of refi. And so as I mentioned earlier, lack of refi for us, that's normally just turning the book. But the purchase volume this year is going to be stronger than it was in 2019. So when you look at comps, 2020, 2021 for a record-setting years for the company as well as for the private MIs and industry. So it's always -- it's a tough comp coming into 2022, and we talked with our teams about that, that it's not going to feel great when you look at the headline number on NIW. So if you look back and look at our history and compare it to 2018, 2019, we still have a higher NIW, higher purchase volume than we had in those years, which we thought were really good years. So look at it all in that perspective. So my expectation is you look at balance of ‘22 and then you go to ‘23, ‘24, I don't see any big shift in purchase, I think it's going to be in that range. I don't see it coming back like a hockey stick by any means. I don't see it falling off. I think there's still, like I mentioned earlier, strong purchase demographics as far as people who still have not purchased their first home that will want to purchase their first home. So I think they will keep purchase volume in line with where we're expecting it to be in '22, which again is a very solid origination market for us. Again, the refi volume, it's a big deal for our customers, not having that refi volume there. But for us, that's loss of an issue and much more focused on the purchase market where we have higher penetration.

Okay. Quick question, has there been any impact on your portfolio as a result of errors and credit reporting from Equifax?

I think there's water around here, but knock on wood, not yet really. I think there's been a lot of discussion on it. I think it's safe to say it's a headache for the industry at the very least, trying to think through the permutation of what would this mean. But from the data that's been shared with us is as well as our conversations with customers, I think it's just that, it's a headache. It's trying to get your arms around what the issue is. But at the end of the day, what's been shared with us is the issue is pretty minor, and that's something that I expect to be -- it's something that's material that we even have to talk about for the most part.

Okay. Great. I'm going to pause here and turn to the audience response section. If those of you in the room are willing to participate, please grab the controller in front of you and register your response. The questions. What do you view as the biggest catalyst for MTG over the next 12 months? One, better than expected to earn premium yield; two, better-than-expected insurance in force growth; three, capital returns; four, better-than-expected credit performance; or five, other. Okay. So pretty split between better-than-expected earned premium yield, capital returns, and credit performance. Next question, please. What is the biggest risk to shares? One, weaker-than-expected earned premium yields; two, weaker-than-expected insurance in-force growth; three, less-than-expected capital returns; four, weaker-than-expected credit performance; and five, other. Okay. Interestingly, I thought that would have mirrored the -- we've got 80% weaker-than-expected credit as the risk. Next question, please. Over the next year, would you expect your position to, one, increase; two, decrease; three, remain the same? All right. So mostly remain the same.

Which doesn't surprise me. I mean I think being around this industry for a while, it's you look what's the catalyst, there's concerns on the economic environment. We feel really good about -- I mean, to the second question, weaker-than-expected a credit performance. It depends on what your expectations are, right? The credit box feels as strong as it has for the last decade. When you talk to the GSEs, I think even when the -- even we really talk about the direct housing goals, they talk about it in terms of these need to be targeted and we're not looking to expand the overall box. But we're coming off of a decade of historically low losses. And so if you expect it to stay at that level, our expectation is not going to stay at that level. It's got to normalize somewhat. I think the question is, what does it normalize to. But we think even as a normalized it still creates a great return profile for us, great positive net income. But it's going to be -- I'd expect it's going to be higher than it has been.

Yes. Fair enough. All right. I wanted to open it up to the audience for questions if there are any. If not, I’m happy to continue.

Just maybe if you could make a comment about your credit ratings, aspirations, and do you think what it's going to take in order to cross over to full IG? Is it worth it?

Yes. I wish I had a really good answer for you on that because I think sometimes with the rate of gains, it's tough to know exactly what you need. We got positive upgrade for Moody's, which we expected. It would have been great to have that sooner. They don't move as quick on the way up. S&P, they've gone through methodology changes. I mean if you look at our scorecard and the results of their quantitative analysis, we'd score out as an investment-grade rating, but there's a lot of qualitative factors that sort of downgrade us. So I believe it should be higher, but obviously, they haven't yet. So that's the barrier. I think the industry, I think our company has a tremendous amount of capital in it right now. I think we're well suited to be able to handle stress environments, including S&P's views of what stress environments would be. I look to AM Best as another rating agency that doesn't really factor in when you're thinking about bonds. But they've got us rated highly based upon their review of potential stress scenarios. So it's tough to put a time period on and when we can get there because I would have hoped to have been there sooner. I think the pandemic slowed things, especially for S&P even if they start to think about it, they want to see how things played out. But it doesn't feel like an imminent next month type of thing, even with Moody's making the movement. But that's not to say that I can't be surprised to the upside. But I don't think -- what I would say is, I guess, just to put a little finer point on that. For Moody's, I think we had a sense that delevering a little bit more would help, and we did that. I think that helped, although I think ultimately, we probably -- we got to 15% debt-to-cap. They still probably with no with us being around 20% debt-to-cap, and I think we still would have ended up in a similar position. S&P, I don't think has been overly prescriptive as to where you need to get to. But again, they'll look at the industry, they look at the company, and figure out what the appropriate rating is. I just -- I don't see anything imminent right there.

Can you speak to your capital return outlook a little bit more, just balancing economic uncertainty of a very well-hedged large in-force book? How do you see the puts and takes over the next 12 to 18 months?

Yes. Well, one, I couldn't believe that we got almost 30 minutes without any capital discussion, which I don't -- I don't know what it means if we're doing a good job or just no one wants to ask the question. I think -- when we step back, when we think about capital return, I think we've been really proud of what we've been able to do the last couple of years as far as balancing share repurchase, dividends, raising the dividend as well as bringing in a good amount of debt, bringing down into debt-to-cap. We don't have as much debt outstanding anymore. So if we have similar earnings, I think in theory, it creates, obviously, more available for repurchases or increases in dividends. I do think you need to balance it. I think we've always said that unless we have flow of funds coming up from the writing company, we're not going to get caught in at the holding company. And so we want to see the flow coming up. With what we're doing with reinsurance with ILNs, XOLs, and traditional reinsurance markets, the earnings were contributing on a quarterly basis right now. Again, I expect the expectation of home price is relatively flat. I think that strong earnings can continue generally. And I think that means that dividends can still meaningfully come up, especially with the amount of capital we have. I think it's safe to say that we need to be thoughtful about capital. We don't want to get cut shorting capital in a stress environment. I was really happy at the beginning of COVID, when -- even though delinquency spiked, we didn't feel like we had to go out and raise capital right away because that stress right away of concern of what was going to happen after a month or 2 turned into, “This is a really good market for us to play capital into,” and we didn't have to worry about raising capital to do that. And so I think we're always going to be mindful of that. The capital is not just to insulate us from potential losses that will happen also is to be able to write new business as well. All that being said though, we try to be thoughtful about how we can return it. We try not to get ahead of ourselves from a share repurchase standpoint. We're really planning quarter to quarter, trying to think about where are we now, what's good, what's good to be able to deploy back. But I don't see us changing behavior based upon our expected scenario. I think we expect that we're still going to be able to have the dividend. We're still going to be refusing shares, especially being below book value. Our view is in a stressed environment, it's an earnings event. It's not a capital event. So if you think about that, we think we're going to be accretive to book based on our current book of business. Which again, if you look at the embedded HPA in our book of business, if you look at the 2020, 2021 books, there's a lot of good embedded HPA that even if home values fall, we feel like it's a really strong resilient book on top of the credit quality of that book of business that we feel confident in being able to continue to return capital, even though it doesn't feel -- again, the environment doesn't feel as good as a year ago. I think we aren't seeing anything in the statistics that lead us to believe that it's going to create a far worse operating environment for us.

Yes. Tim, on a related question on that topic, how does the procyclicality of PMIERs impact your capital planning? Do you have a sense for how much your PMIERs cushion would go away under a stress scenario, whether it's just a garden-variety recession or global financial crisis?

Yes. And it's probably is -- we pay as much attention to that probably is what actually happens to the P&L because what I said is wanting to be able to make sure we can deploy capital, we think we want to. So when we run through our stress scenarios. Again, we're looking for stress. We're looking for liquidity, what the stress is and what the underlying credit quality of our book of business right now, liquidity isn't an issue, it isn’t a stress scenario. It generally is an issue for us because of how long it takes to play out from a claims planability. Then look at income levels, many look at capital levels. And PMIERs being pro-cyclical, you have to be really thoughtful about the spike in delinquencies and how much additional capital you need to hold if delinquencies go up. And again, if you think back to what happened during COVID, GSEs and FHFA, I think, recognize that with all the forbearance that was going to happen, it was happening that the ultimate claim rate on those will not be the same. And so they gave us a haircut for that. But I think also as an industry as the company sat there and said, they could have made a different decision. And if there have any different decision, you don't want to find yourself in a spot where even though you don't think there's going to be losses, you don't have the capital to deploy into a good market.

Okay. But any color you can provide us on if you -- let's just say you saw a doubling of unemployment from here, what that could mean for defaults in your PMIERs cushion and how comfortable you are with where you are currently capitalized?

I think, I mean, if unemployment doubles, I still feel like that's going to be an earnings event for us and not an overall capital event. So I still feel like we're probably still we’re at least treading water, if not growing capital still in that situation. And so that doesn't worry me. It has to be something that's more of a shock than that in my perspective.

As we think about PMIERs cushion. I mean, I know everyone is reluctant to quantify what they feel like it's appropriate. But that's a good way to think about it. You want to hold enough that if you wake up tomorrow and the economic scenario is very different that you had enough cushion there to absorb a reasonable scenario for stress on your delinquencies? Is that...

Yes, I think it's a reasonable way to think about it. And I think the other part of it is everybody is going to have some air in their modeling. And so even if your model tells you you're going to have enough, you might want a little bit more, especially if you think there's additional volatility in the market. The other part of it is you have to think about -- you have to get the approval from our regulator too. So how do they feel that -- there's some qualitative things that go into that. Our ability to execute in the ILN market and our ability to execute the traditional reinsurance market, all those things are more qualitative things that they take into account when they think about our dividend capacity as well. And we do too. I mean if time periods where the ILN markets weren't functioning at the level that they don't have at its certain periods, we're more reluctant to go and ask for dividend from our regulator and saying, “This market is shut, this one is not.” Not effectively wanting to take the risk, it's tough to ask a regulator to say, "Let's take out a big dividend at the same time.” It's just -- it feels like those things need to be a little bit more in sync to again, to have that relationship with the regulator to the trust your view of things.

Okay. Great. So your -- ever since the big surge in defaults in the other stages of the pandemic, cures have significantly outpaced the fall. How much longer can that continue? And is there much more room left for you to have favorable developments related to the COVID-related defaults that you've experienced?

So I'd split that a little bit into as far as can cures continue to outpace new notices. I think we find it hard to believe that new notices that, that can continue, honestly. It's just if you look at how strong that performance has been, if you look at the size of books that we roll out in 2020 and 2021, when you think about when their peak loss years are into year 3 and 4 and 5 after origination. Just the pure math, I think, makes us believe it's hard on an overall book that new notices won't start to outpace cure activity, especially as the fault inventory comes down and you've got those large books. Again, it's not that that's a bad sign for those books of business. It's just that when you write that much volume, you're going to have -- even if you have 1% delinquency rate, you're still going to start to build that inventory, I believe. As far as positive development on loss reserves, I think the way Nathan, our CFO explained in the last call, is we set up the ultimate claim -- or expectation the ultimate claim rate when these loans defaulted. And we've made adjustments over time. But as the cure activities continue to come in even a couple of years later, it's basically mathematically put us in a spot where it's impossible to get to the ultimate claim rate that we would have expected based upon when the next new pure comes in, we're still expecting pretty high claim rate. And when that cure comes in, it almost makes it mathematically impossible to continue to expect claim rate ultimately at that rate. And so that's where you've seen the development come in. We continue to adjust it. Could it be positive? Yes. Could it be negative? I'm hoping for positive, but it's really a function of the math and what we see as far as cure activity. Our belief has always been stuff that stays around the longest in default inventory is going to be the hairiest, -- it's going to be the stuff that's more likely to go to default. That said, when home prices have risen the way they have the last couple of years, there's a lot better alternatives from a loss mitigation standpoint for someone to -- even if they're going to go get for closed on, there's a way for them to actually be able to, from a short sale, be able to sell the home and get the equity out of home, such there's not a loss to our customer, and there's not a lost customer claims-paying ability.

Okay. Great. Can you talk a little bit more about what investors should expect as far as future reinsurance transactions and how those transactions could impact the premium yield?

Well, when we think about the reinsurance markets, I think we always think in terms of the ILN market as being much more volatile spot market. So generally, when we think about pricing our flow business, we tried to ignore that even though we expect to do that execution, we try to ignore what that pricing level will be because you don't know if it will be there when you're ready, the markets have been closed for months at a time, and there's just more volatility on it. I think our pre-pandemic, we are pricing wave spread on some of those around 270. I think our most recent deal with priced around mid-500s as an example. I think if you look at traditional reinsurance markets, even on an XOL basis, we'd expect less volatility on that overall pricing. We did our first XOL deal with traditional reinsurers this year. And part of the reason was because we thought it to be more attractive to the ILN markets and also want that to be another option for us available in the future. And when I look at our quota share with traditional reinsurers, we placed on a forward commitment basis. And been able to place it out a couple of years, which gives us a lot more certainty. So when you think about their quota share, we're much more likely to think about that in terms of how do we think about that and the capital relief it provides cost of capital when we think about our pricing. I view that as even less price-sensitive market generally from the XOL. Not that they're not price-sensitive, but I think that's viewed -- they're standing in our shoes. It's viewed as much more a long-term relationship. And so I -- my expectation there is much less volatility even on the pricing there. So it's informative. I don't view their direct correlation to our overall pricing. It is a feedback group. I've heard others in our industry to discuss it as that. I think it is. But it's one input in the feedback loop just like when you look at your home price forecast. And we look at what's happening with the credit box, all of that goes into how should we be pricing the business today.

Okay. Great. I think that's a great place to stop. Please join me in thanking Tim for all of his comments.

Thanks, Mark.