Essent Group Ltd. (ESNT) Q4 2021 Earnings Report, Transcript and Summary

Good morning. My name is Julianne and I will be your conference operator today. At this time. I would like to welcome everyone to Essent Group's Limited, Fourth Quarter and Full-Year 2021 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers ' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Phil Stefano, Vice President of Investor Relations. You may now begin your conference.

Thank you, Julianne. Good morning, everyone and welcome to our call. Joining me today are Mark Casale, Chairman and CEO and Larry McAlee, Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Curran, President of Essent Guaranty. Our press release, which contains Essent's financial results for the fourth quarter and full-year 2021 was issued earlier today and is available on our website at essentgroup.com. Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward-looking statements. These statements are based on current expectations, estimates, projections, and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release, the risk factors included in our Form 10-K filed with the SEC on February 26th, 2021, and any other reports and registration statements filed with the SEC, which are also available on our website. Now, let me turn the call over to Mark.

Thanks, Phil, and good morning, everyone. Earlier today, we released our fourth quarter and full-year 2021 financial results, which reflect the strength of our buy, manage, and distribute operating model. Our focus remains on optimizing our unit of economics in generating high-quality earnings and strong returns, while continuing to fortify our balance sheet, reduced through the cycle earnings volatility, and take a measured approach to capital management. Our outlook for our business remains positive as several trends continue to support housing's resiliency. Demand outweighing supply should continue to support home price appreciation, albeit at a more moderate pace. While low unemployment with rising income should continue to benefit credit. In addition, purchased demand remains elevated as a result of demographic trends, which is positive for our franchise since we are levered to first-time home buyers. And now for our results, for the fourth quarter, we reported net income of $181 million as compared to $124 million a year ago. On a diluted per share basis, we earned $1.64 for the fourth quarter, compared to $1.10 a year ago. For the full-year we earned $682 million, or $6.11 per diluted share, while our return on average equity was 17%. At December 31, our insurancing force was $207 billion, a 4% increase compared to $199 billion at the end of 2020. The credit quality of our insurancing force remains strong with an average weighted FICO of 745, and an average LTV of 92%. Following our November ILN end transaction, we have reinsurance coverage on 90% of the portfolio as of December 31. During the quarter, we successfully rolled out the next generation of our risk-based pricing engine, EssentEDGE. We believe EDGE has a competitive advantage, given a number of data points that we analyze when pricing credit risk through machine learning and cloud-based technology. Given these advantages, our team will continue to strive for broader adoption of EDGE technology away from static rate cards. We believe this continued evolution of pricing is mutually beneficial, delivering our best price to borrowers, while optimizing our unit economics. A Bermuda -based reinsurance company, Essent Re, had a strong year in writing high-quality and profitable GSE risk-share business and continuing to provide fee-based MGA services to our reinsurer clients. Essent Re ended the year with $1.8 billion of risk in force compared to $1.4 billion at the end of 2020. We believe there is a continued opportunity for Essent Re to capitalize on the growth in a GSE risk-share market. Our Essent Ventures unit was formed to make investments which are intended to give us access to information to improve our core business, enhance financial returns, and increase our book value per share. We closely monitor the ongoing intersection of the housing finance, real estate, insurance, and technology sectors, and believe there will continue to be opportunities to take advantage of this changing landscape by leveraging our mortgage technology, credit, and operational expertise. As of December 31, we are in a position of strength with $4.2 billion in GAAP equity, access to $2.7 billion in excess of loss reinsurance, and over $1 billion of available liquidity. With a full-year 2021 operating margin of 80% and operating cash flow of $709 million, our franchise remains well-positioned from some earnings, cash flow, and balance sheet perspective. As evidence of this, Essent Guaranty remains the highest rate of monoline in our industry at A by AM Best, and A3 and BBB + plus by Moody's and S&P respectively. The strength of our model also enables a measured approach to capital distribution. In 2021, we returned over 1/3 of our earnings to shareholders in the form of dividends and share repurchases. We remain committed to managing capital for the long-term, exhibiting patience in our capital planning to maintain strengthen in our balance sheet. As of December 31st, our book value per share was $38.73. Since going public in 2013, our annualized growth rate in book value per share is 21%, and we continue to believe that success in our business is measured by growth in book value per share. Finally, given our financial performance during the fourth quarter, I am pleased to announce that our Board has approved a $0.01 per share increase in our dividend of $0.20. This is the fourth consecutive quarterly increase, and represents a 25% increase from a year ago, which we believe is a meaningful demonstration of stability in our earnings and cash flow. Now, let me turn the call over to Larry.

Thanks, Mark and good morning, everyone. I will now discuss our results for the quarter in more detail. For the fourth quarter, we earned $1.64 per diluted share compared to $1.84 last quarter and $1.10 in the fourth quarter a year ago. We ended 2021 with insurance in force of $207 billion, a decrease of $1 billion from September 30th and an increase of $8 billion or 4% compared to $199 billion at December 31st, 2020. Persistency at December 31st, 2021 increased to 65.4% compared to 62.2% at the end of the third quarter and 58.3% at June 30th, 2021. Net earned premium for the fourth quarter of 2021 was $217 million and included $11.4 million of premiums earned by Essent Re on our third-party business. The average net premium rate for the U.S. mortgage insurance business in the fourth quarter was unchanged from the third quarter at 40 basis points. For the full-year 2021, our net earned premium rate was 41 basis points. Income from other invested assets in the fourth quarter was $15 million, including $12 million of net unrealized gains, compared to $41 million, including $39.5 million of unrealized gains recorded in the third quarter of 2021. Other invested assets are principally comprised of limited partnership interest in venture capital, private equity, and real estate funds, which are carried at fair value. The provision for losses and loss adjustment expenses was a benefit of $3.4 million in the fourth quarter of 2021, compared to a benefit of $7.5 million in the third quarter. The benefit for losses recorded in both the third and fourth quarters was impacted by the continued cure activity in our default portfolio. At December 31, the default rate is 2.16%, down from 2.47% at September 30, 2021, and down from 3.93% at year-end 2020. Since the fourth quarter of 2020, we have reserved for defaults reported using our pre - COVID-19 reserve methodology. As a reminder, for new defaults reported in the second and third quarters of 2020, we provided reserves using a 7% claim rate assumption. This assumption was based on the expectation that programs, such as the federal stimulus, foreclosure moratoriums and mortgage forbearance may extend traditional default to claim timelines and result in claim rates lower than our historical experience. We have not adjusted these reserves previously recorded in the second and third quarters of 2020, which were -- which totaled $243 million as they continue to represent our best estimate of the ultimate losses associated with these defaults. Other underwriting and operating expenses were $41 million in the fourth quarter, down $1 million from the third quarter. The expense ratio was 19% for the full-year 2021, which we believe is the lowest in the industry and compares to 18% in 2020. We estimate that other underwriting and operating expenses will be in the range of $175 million to $180 million for the full year 2022. The effective tax rate for the full year 2021, including discrete income tax items was 17%. For 2022, we estimate that the annual effective tax rate will be 16%, excluding the impact of any discrete items. During the fourth quarter, Essent Group Limited pay to cash dividend totaling $20.8 million to shareholders and repurchased $68.6 million of stock. Through December 31st 2021, we have repurchased approximately 3.5 million shares for a total of $158 million. During the fourth quarter, Essent Guaranty paid a dividend of $100 million to achieve as holding company. On November 10th, we closed the Radnor Re 2021-2 Insurance-Linked Note transaction, which provides $439 million of fully - collateralized Excess of Loss reinsurance protection approximately $12.4 billion of risk in force on mortgage insurance policies written from April 2021 through September 2021. Additionally, in December, the company completed an amendment to our credit facility, which included the issuance of an additional $100 million term loan and an increase in the revolving component of the facility to $400 million. As of December 31st, 2021, no amounts have been drawn under the revolver. The amended credit facility matures in December 2026. After applying the 0.3 factor to the PMIERs required asset amount for COVID-19 defaults, Essent Guaranty PMIERs sufficiency ratio is 177%, with$1.4 billion in excess available assets. Excluding the 0.3 factor, the PMIERs sufficiency ratio remains strong at 165%, with $1.2 billion in excess available assets. Now, let me turn the call back over to Mark.

Thanks, Larry. In closing, we are pleased with our fourth quarter and full-year 2021 financial results, which reflect our continued focus on optimizing our unit economics in generating high-quality earnings and strong returns. Our solid operating performance in 2021 also generated excess capital, which we continue to deploy in a balanced manner between reinvestment in our franchise and distribution to shareholders. Looking forward, we will continue to manage our franchise to grow book value per share and believe that our approach is in the best long-term interest of our employees, policyholders, and shareholders. Now let's get to your questions. Operator?

Thank you. [Operator Instructions]. We'll pause for just a moment to compile the Q&A roster. And our first question comes from Mark DeVries from Barclays. Please, go ahead. Your line is open.

Yes, thanks. Mark I was hoping you could just comment on what you're seeing, in a competitive environment around pricing.

Mark, nothing really different than we've seen in last quarters. Again, with the engines, it's a little bit more opaque in terms of what you see. I would -- our pricing was very consistent in the fourth quarter. So in terms of share, which we always say ebbs and flows, we may have lost a little bit in the quarter. But again, I think we've remained relatively consistent. And that's primarily driven by the engine now, Mark. I mean, it's agnostic to market share. We're really looking at the almost the intrinsic value of each loans. So there's going to be higher FICO s that we shy away from or price better or lower FICO s that we price a little bit better. Remember, we just rolled it out in the fourth quarter, so we're doing a lot of different testing around price elasticity, which we'll continue to do throughout this year. So again, long-term. I know it's around, but we'll grow over the market growths. But in terms of competitiveness, you've seen us. You can see some guys reaching in a little bit and some guys pulling back, but that's been the story every quarter. So again, I think from a longer-term standpoint, this is really going to be about credit selection, and I think that's where we have the advantage in terms of pricing. We feel like we're getting our fair share, but we're getting it at the unit economics that we're comfortable with.

Okay, great. And then, would be it [Indiscernible] hearing your latest thoughts on potential for consolidation in the industry?

Yeah. There -- it's -- I don't think much has changed. I still believe there needs to be a catalyst. I don't really believe the GSE s are a hurdle to it, in my view, whether they say more or less. This points to less though, Mark, in terms of scale, right? Do you really need six sales forces running around and talking to lenders, which we believe will continue to consolidate? In terms of the revenues, since it's all price-driven, this idea of loss market share is really an old adage to be quite honest. And you would say when you've combined companies scale is actually going to matter to deliver better pricing to borrowers, especially with technology. So, longer term, I still think it makes sense, but [Indiscernible] needs to be a catalyst. And I can't really speak to that, I haven't seen any catalyst. I think the catalyst -- my gut is is there going to be credit. So, if there's an event where the companies differ in terms of capitalization, leverage, expense management, and there's a credit event, that probably could trigger consolidation more so than the environment we're in today where credit is relatively benign, and all of the companies are doing, I think, very well.

Okay. Great, appreciate it.

Our next question comes from Rick Shane from JP Morgan. Please go ahead, your line is open.

Hey. Good morning, everybody, and thanks for taking my question. We're entering or we're in the midst of a really interesting competitive environment for originators with the market shrinking. And as we've seen in the past, there are a lot of the behaviors that occur in terms of pricing, and in terms of potentially starting to weaken credit standards a little bit. The final factor that we're going to be facing is that there has been so much home price appreciation, and so a lot of the Refi activity that we would expect in the near-term, will be cash out Refi. All of these potentially changed the credit profile for you. I am curious how you think about managing credit risk in an environment where there's probably a little bit more aggressive behavior on behalf of your originators.

Hey, Rick. It's Mark. Excellent question. And we've given some thought to it, to be quite honest, and we talked a lot about it over the past few weeks. Think of it two ways, big picture. We do have the hedging around the reinsurance, right? So we're -- I don't want to say we're capped out, but we have laid off a lot of the mezzanine risk. So if there's a credit hiccup, I do think we've taken a lot of the volatility out of the model. And that's, again, things investors haven't quite realized. So we're not going to probably realize it until there's an event. The second thing which is probably more answering your question in a better manner, is again the engine that we have on the front end. It's kind of built for this Rick, right? I mean, think about rate cards that are out there today. And some in the industry still, whether it's lenders or mortgage insurers, still like the rate cards because it's a simpler way to get share, But our engine is not a market share tool, it's a risk management tool. So again, let's play out your scenario. Credit gets a little looser, right? Cash out refi s, I can't argue. Lenders are always going to reach. That's what they try to do. Do we really want to be pricing every 76090 LTV across the country the same? I don't think so. And that's what rate cards do. I think with the engine, and again, how we were not really relying on FICO because we're relying on the raw credit bureau information, which has mortgage payments and all those other factors besides a FICO, which is really looking more at an unsecured type performance. And we're also building out. We haven't done this yet. We're in the process of building out a better severity portion to the model. We can then pick and choose that we liked -- loans that we like. And I think that's going to become more important when the environment gets a little rougher in terms of credit. And also there could be some differentiation amongst MSA in terms of HPA. We're seeing certain MSAs where the HPA has really spiked. I think it spiked a little bit more than you would think from a supply and demand standpoint. I hope you want to price those borrowers as well as you want to do in an environment where the HPA has been a little bit more moderate. So again, this is going to play out over time, but we feel like we really have the tool and the information to make better decisions going forward. Doesn't matter in a market like this where everything is good, and you can lower price or reduce price across the board, which is actually not a bad strategy when credit is benign. But it's probably not a great strategy when things get a little rougher.

That's great, Mark. Thank you so much.

Sure.

Our next question comes from Thomas McJoynt from KBW. Please go ahead. Your line is open.

Hey, guys. Good morning. Thanks for taking my question. The first one I want to ask about, is the expenses. They came in a little bit below the full-year guide of $170 to $175 million this year. I was trying to see if there are any drivers of that. And then when you think about next year, looks like you're modeling about 5% to 8% growth and operating expenses. Could you talk about some of the puts and takes there, in terms of what you guys are investing and what you think can drive that slight increase?

We'll continue to invest. I think in Mark's comments, we talked about investments in technology and people. People are really the primary driver of our expense base. It's about 2/3 of our expense costs. So that really would be the driver for next year. In terms of this year, we were just slightly below our range, and I think it's probably just good expense management.

Okay, great. And then on a different topic. So the dividend has now been raised four consecutive quarters now. Could you remind us how you think about the dividend versus buyback analysis? I know you targeting a certain yield or combined payout ratio with that.

That's a good -- that's a good question, Tommy. I would say we returned a 1/3 of the capital in 2021. I wouldn't say that's a good rule of thumb going forward, but it's something to keep in mind. We generally favor -- we take a measured approach to it, so we're -- we like both. And I think when we take a look at it, it's not just what the payout ratio is. It's really a matter of managing ROEs, right? So as the business continues to grow, ROEs are important. You're generating excess capital. We break it out. So dividends and repurchases both reduce the denominator in that calculation. And as we think about new investments outside of the core, outside of the core, I would -- the ventures unit that we have. Also Essent Re, you can kind of lump into that. Those are ways to increase the numerator. I think we have a balanced approach to it because over time that's really your goal. So we don't want to get too far ahead of ourselves in kind of increasing the payout and then we're a little short when we think there's an interesting opportunity to grow the business, or there's a credit event. So again, that's kind of how we think about it. All in, we favor dividends. That that was our first approach too. We think putting cash back in investors ' hands is a very tangible demonstration of kind of the -- and -- our confidence in the sustainability of our cash flows. And, I think we feather that, we layer in repurchases around that. I think it's pretty balanced approach to it, and I would expect that to continue going forward.

Appreciate talking to you, Mark

You're welcome.

[Operator Instructions] Our next question comes from Mihir Bhatia from Bank of America. Please go ahead, your line is open.

Hi. Thank you for taking my questions. Maybe -- I wanted to start with just with the NIW. And I understand the pricing and the -- and you don't worry about market share and the pricing. That's fine. So I just wanted to make sure I'm understanding this correctly. Was it really just a function of the business that was coming through the market? The mix of the business coming through the market was such that it was maybe rated a little bit more this quarter towards pockets that are not as exciting for you from a return profile standpoint, and that's really what drives the -- drove the quarter-over-quarter or was there some change you made as you adjusted your models to where you maybe put it back in certain pockets or certain geographies or something like that?

Yes. There is a little bit of both in there. Again, the model is new and it's not based on FICO. So with that, it was fully implemented. I think 91% of the model is now credit-based. Still, some of the lenders still rely on the first origin of it because we're not getting those additional data pieces. Again, we're in that testing period, but I would say just to take a step back me here, we didn't really -- our average Premium rate didn't really change. So you can read into that what you want, but our average Premium rate on NIW didn't change. We didn't really adjust overall pricing up or down. There might have been pockets of up or down, but overall, you can read into it that others probably are leaning in. I mean, it's clear even when you can see how the numbers have come out just with the four MIs. Some NIW declined and some didn't and like a broken record here. But if you're share's up a lot, it's not because you did anything better, it's because you had lower price. I mean, that's that's what it is. And again, sometimes they lean in and sometimes they back out, but that's the difference, I think, between us. We really look at the engine more as a risk management tool and I think it can be used as a market share tool because it's harder to -- you can go in and change the pricing and rent share for a period of time. But I think again, our average premium rate changed or stayed the same and we believe the share drops. So again, you can read into that where you want.

Sure. No, that's helpful. And then just -- I wanted to ask maybe a big picture question. On Slide 10, you highlighted some of the key milestone in Essent's evolution. So when we look at this slide next year, what are we going to see as for 2022? What is the big thing you're working on this year that we should be thinking about from a strategic standpoint that maybe gets added next year?

That's a good question. I wouldn't say we have something up our sleeve every year. I mean, it's a long-term business. I don't want to hold out hope that we're going to innovate something new. I would say longer-term. In the longer-term take a step back, and this is kind of how we think about it, the core business we believe continues to drive really good returns. And we can get caught up in the unit economics. They as good as they were a few years ago? No, they are not, the pricing is going down significantly. So it's not -- they're not as good as they were, there are still pretty good. And you have to balance that with -- the market has been a lot bigger. So, the general cash flow that's coming out of our business now is quite large, and you're talking about really 80% operating margins, $700 million of operating cash flow. That's pretty good. You can talk about it in basis points, but -- or you could talk about it in cash. And we -- so we like the business. We also think -- again; we do believe housing is still relatively strong. Again, in the longer-term, let's take three to five-years. The core demand around millennials is still there. You've done the work before, you've seen it. You have $4 to $5 million new potential homeowners coming online over the next four plus years. That's pretty good. So we think the intrinsic or core demand will continue. That will ebb and flow a little bit, right? If rates go up, that will cause those homebuyers to pause. We saw that a lot in the fourth quarter of 2018. I think you'll see it again, especially if rates go over four. But keep in mind in 2018, we were talking about rates going to five. So it's all relative. But I think longer-term, the core demand is there. Another thing that's probably not that well appreciated is just how where our book is situated. You have 75% of the book that was originated in the last two years with an average rate of just a little bit above 3%. I think the other 25% is before that and the rate there is kind of north of four. If you do get the spike in rates, which, again, is going to hurt new originations, mostly refinance versus core purchase demand, I think you have a chance for the book to extend, which I think is underappreciated. So when you think of that and then just -- and again, in terms of the core business, again, that's part of the reason, put this all in context for investors. Chris moved over to be the head of the mortgage insurance business. And a lot of Chris ' focus is just going to continue to focus on those -- every individual item around those unit economics, right? We talk about -- that's how we think about it. So if you think about premium and losses, that net underwriting income, that's really EssentEDGE, and we're going to continue to try to improve EssentEDGE. I alluded to it earlier, I think one of our goals this year is to improve it around severity and to start modeling out HPA impacts in a much more granular level than we have today. Again, that's -- those are signs for improvement. The other thing we're -- we'll be able to do or are working on is levering EDGE for other parts of the business. So to use some of that information to improve our underwriting or to actually make our underwriting more efficient, we've made investments in technology around customer service, a lot of what we call self-service, right? So it's easier for a customer to get into our system and get their answer versus they call their account manager, who calls our call center, who gives the answer. I mean, that's how it was done. And if you think about just how employees are right, every employee is a consumer. And the consumer has -- and the ease-of-use of the consumer outside of work with iPhones and iPads is so much more streamline. They want to come in the world and have the same experience. I think we have that in mind, and we're going to try to do that experience because ease-of-use is a big deal for our customers. And again, now that we've moved to the Cloud, the Cloud has a lot of great things. There's a lot of things about the Cloud that you want to make sure you have a really strong infrastructure around that and make sure that it doesn't break. It's different than when you had data centers; you had hot back up and warm backup. These are different issues that we're working with. So again, we have all the benefits of the Cloud, but you have to manage some of the risks of the Cloud too. And again, I think having Chris do that day-to-day and spending the time on it, with me, I'm still involved, obviously, but also frees me up to think about longer term; what other engines can we create? The core engine always going to be tough to be, but we have Essent Re, which we said continues to grow, albeit at a much smaller pace. We like it. And I've heard it from you before, Mihir, directly, "How is Essent going to get into a new business? They've never done it and competitors haven't been able to do it. " But look at us and reaming here. We started that back in 2014. It was a new business. It wasn't a business we were in and actually rights business that we don't do. It's an extension and it's analogous to our core business, which is how we think about some of these newer businesses. And I think it's been a big success. I mean, you look at it, it has done two things: it's allowed us to reinsure 35% of the core business over to Bermuda, which improves unit economics. And they're writing third-party business, both mainly with the GSEs and they have an MGA, which is, I think, seven insurers now that provides, I would think, a third of their income as fee. And that's a business again that's has been -- if we -- if it was a separate company and there's like six folks over there, so what they do is -- but they leverage our underwriting expertise, they leverage our modeling expertise. And again, as we think of new businesses or ventures, which again is our third potentially growing engine, that's how we think about it. And I'm going to spend more of my time thinking through how we can create and grow that engine.

Got it. Thank you so much for that very comprehensive -- thanks.

Sure.

Our next question comes from Doug Harter from Credit Suisse. Please, go ahead. Your line is open.

Thanks. Mark, can you just talk about home price appreciation how, obviously, a net positive for the existing book, but how you think about that on affordability standpoint on NIW today? And just if you put it all together, the outlook for how that plays out over the next couple of years.

Yeah. I would break it into two things. I do think affordability in certain markets is going to become an issue, given the rise in HPA, and we think it could rise another 7% to 8% even this year. But I do think you have to look at it on a regional basis. So, as I alluded to earlier, that -- higher rates could actually -- that could actually help stem the tide in terms of HPA growth, although, it doesn't quite help affordability, I think it will -- It could potentially slowdown and have that pause on some of the purchases. Although again, longer term, I don't think it impacts the demand. And when I say pause, what happens is, we've talked to borrowers and we've talked loan officers. When you first go in and the price is higher, rates are higher, there's a -- you have to almost readjust your expectations. You're going in thinking the rate was going to be three and now it's four. Do you wait? Do you wait for -- to save more money for a down payment? Do you use mortgage insurance, which obviously, we would like to see? But I do think people at some point, these are life decisions that aren't generally driven by the numbers per se, but I do think it takes time for people to re-adjust. And then getting back to Essent, again, I think this is from our Essent EDGE, you're going to make different decisions around the borrower, and you're going to incorporate some of that affordability into your front-end decisions. So if HPA was up, we'll pick an MSA. There are certain MSA s in the Southwest that are up 45% over the year. It's pretty heated. Someone there is more likely to be stretching for the home. So, you're probably going to price that differently, again, then another market where the HPA has been more moderate. So, I think it's -- just like in the last recession, Doug, which I actually do remember because I unfortunately lived through it even though it was 15 years ago, and folks tend to have short memories, there was -- it was the sand states that brought down a lot of things that -- and it was -- that's where the most of the damage was done. Part of -- when we say credit selection is key, you can almost identify, they're not the same markets as they were last time, but kind of dodging some of the bullets there and maybe over-allocating capital to lesser or more markets where again the intrinsic value is holding up, I think will be a little bit of the differentiator again if there's a dislocation in the market.

Got it. And then is that the basis behind what you were saying of spending time on the engine for severity?

Yes.

Okay. Makes sense. Thank you, Mark.

Yup.

And our last question will come from Ryan Gilbert from BTIG. Please go ahead, your line is open.

Hi, thanks, good morning guys. I wanted to go back to the comments you made around lending standards. And I guess from a practical perspective, so far in grant, it's only been a month in 2022, but in practice, are you seeing lenders actually loosen their standards in -- so far this year? And as we look out to the rest of the year with expectation for Federal Reserve rate hikes, how do you think lending standards evolve and your own thoughts around pricing going forward -- pricing and underwriting going forward?

Sure. Really good questions, Ryan. I would say, remember, keep in mind when you talk about loosening standards, there's a lot of guardrails, and we've talked about this for a long time. Q1 is a guard rail, and the G&C is doing an excellent job. Our DU & LP have come a long way, and I would say our engine EDGE is applicable for their, so it's in terms of how we access data, and how we look at it. So you -- a lender can want to loosen credit all they want, it's not going to get past that GSEs. So -- and so I think that's something for -- from an MI investor perspective, keep focused on, right? Because again, that's -- we have that guard rail. We have our upfront pricing, which we hope we can delineate between some of the goods and the bads and we have that backstop, but the GSE is not letting it get through. I think the loosening credit, the thing to be on the watch for, Ryan, is there going to -- the lenders may be trying to go more to the PLS market, right? And that's not -- that's -- I want to say that's the wild west, but that's not guided by the GSEs. A lot of smart investors, you have the rating agencies, but they don't have the modeling and kind of that first line of defense the GSEs have. And if the pricing in the higher yield market does it help there to more loans go PLS, if lenders can try to get another source of liquidity, they're going to do it. We don't really -- we don't play in that market per se. We haven't -- MIs haven't played into that market in 15 years. So, is there an opportunity for us to play in? Potentially if the rating agencies come on board. But then again, you really want to have -- credit selection is going to be key there, because you don't have that backstop that you have with the GSE. Again, we feel pretty comfortable around the credit, now that it gives us going to the GSEs. I think again, we take a lot of comfort in the GSEs, in their protocols, in their engines, in their QC abilities. Once it gets to the POS market, if it does, and there's a chance for us to play, I think there, we're going to have to do a little bit more work. Some of these loans could go to bank balance sheets. Put in general, a lot of the banks we deal with on the regional and National side are very conservative. Usually, they're going to do a non-QM and it's going to be more on the jumbo side. And those loans that we've had over the past ten years are performed extremely well.

Okay. Got it. Last quarter, we talked about flat-based premiums in 2022. Do you still feel good about that target?

Yeah. I mean, I think it's -- the base premium, you have to break it down. The base premium rate is really a function of a pricing on new insurance. And again, some of the pricing is lower over the past couple of years or over the past three years. And as we said, that's been kind of 75% of our portfolio. So that's working its way. So I could see the base premium rate lightening up a bit this year. And then if you think about the all-in premium, a lot of drivers there, Ryan. We're looking at probably a reduction in singles cancellation income. I mean, we really did 2% singles in the fourth quarter. The whole portfolio is less than 10% now. So even if you looked at our unearned premium reserve, there's only so much you can get from that. So again, it's hard to predict where it is today in terms of where it's going. And then the ceded premiums line, we would expect that to grow. We are in the market currently for a quarter share. And we haven't -- we did not do a quarter share in 2021. We like the aspect of it again, so we're back in the market. We want to diversify our sources of reinsurance. And that's actually a bigger hit to premium rate. However, it also lowers losses and lowers expenses. It kind of comes out in the wash. But if you just focus on premium rate, you probably come to the wrong conclusion. But again, just in terms of the yield, it's still -- I think we exited the year in the 40 - ish range. But again, if we're to decline over the course of the year because of some of those factors, it wouldn't surprise me.

Okay. Got it. Thanks very much.

Sure.

And we have a question from Geoffrey Dunn from Dowling and Partners. Please go ahead, your line is open.

Good morning. Mark, I just wanted to follow-up on what you just said about the QSR. How do you think about a committed QSR when you price new business, do you factor the return leverage into your pricing or do you still do it on a naked basis?

We look at it both ways. We clearly look at it on lever. I still think that's the purest way to look at it because you can't see -- you can fool yourself, Jeff, and you say, hey, we have a little bit of leverage over here and we used a little debt, and you can rationalize in a lower pricing. I do think that we clearly look at it as a lift to it, there's no doubt about it. But when we think about -- as we price, it's still the unlevered basis and that's really the difference. When we say unit economics, we're still in that 12 to 15 range depending on what's going on in the market, clearly closer to 12 - ish now, given where pricing is. With leverage and some of those things, you can get to that mid-teens return. And that's kind of what we're seeing, what we're printing through the P&L. So obviously through the P&L, you're going to get the benefits of those things along with the tax rate. But we still like the discipline on looking at it unlevered.

Great. All right, thank you.

You're welcome.

We have no further questions. I'd like to turn the call back over to management for any closing remarks.

No. Thanks to everyone for your participation today and have a great weekend.

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