MGIC Investment Corporation (MTG) Q1 2017 Earnings Report, Transcript and Summary

Good morning. My name is Holly, and I will be your conference operator today. At this time, we’d like to welcome everyone to the MGIC Investment Corporation First Quarter Earnings 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 conference over to Mike Zimmerman, Senior Vice President of Investor Relations. Sir, the floor is yours.

Thanks, Holly. Good morning and thank you for joining us this morning and for your interest in MGIC Investment Corporation. Joining me on the call today to discuss results for the first quarter of 2017 are CEO, Pat Sinks; Executive Vice President and CFO, Tim Mattke; and Executive Vice President of Risk Management, Steve Mackey. I want to remind all participants that our earnings release of this morning, which may be accessed on our website, which is located at mtg.mgic.com under Newsroom, includes additional information about the Company’s quarterly results that we will refer to during the call, and includes certain non-GAAP financial measures. We have posted on our website a presentation that contains information pertaining to our primary risk in force and new insurance written, and other information which we think you will find valuable. During the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about those factors that could cause actual results to differ materially from those discussed on the call, are contained in the Form 8-K that was filed earlier this morning. If the Company makes any forward-looking statements, we are not undertaking obligation to update those statements in the future in light of subsequent developments. Further, no interested parties should rely on the fact that such guidance or forward-looking statements are current any time other than the time of this call or the issuance of the 8-K. At this time, I’d like to turn the call over to Pat Sinks.

Thanks, Mike, and good morning. I’m pleased to report that we had another strong quarter and we’re off to a great start for the year. In a few minutes Tim will cover the details of the financial results. But before he does, let me provide a few highlights. First, insurance in force, primary driver of our revenues increased by nearly 5% year-over-year ending the quarter at $183.5 billion. This growth reflects the expanding purchase mortgage market, our Company’s market share of approximately 18% and the hard work and dedication of my fellow co-workers to deliver stellar customer service. The 2009 and newer books now comprise 73% of our risk in force, and continued to generate a low level of losses, accounting for just 17% of the new notices received in the quarter. The increasing size and quality of our insurance in force, the runoff of the older books and our strong financial performance positions us well to provide credit enhancement and low down payment solutions to lenders, GSEs and borrowers. While mortgage rates have come down from their post-selection highs, they are still meaningfully higher than they were before the election. As a result, we saw a decrease in refinance transactions in the first quarter, dropping to 17% of our new insurance written from 24% in the fourth quarter of 2016. Year-to-date through mid April, refinance applications accounted for just 13% of total applications compared to 19% for the same period last year. With higher mortgage rates and less refinance activity, we saw an increase in persistency during the quarter and expect to see annual persistency metric we report each quarter increase subsequent periods. Additionally, year-to-date purchase application activity compared to the same period last year is 8% higher, which is the net positive for our Company and our industry. For the quarter, we wrote $9.3 billion of new business, up 12% from the same period last year. Given the current market environment, we expect to write about the same amount of business that we get in 2016. This amount of new business which is consistent with the last several years combined with an expected increase in persistency should result in insurance in force increase in 2017. In late March, we announced that we would be redeeming our 2% senior convertible notes which accelerates the holders’ decision to convert their notes to shares of our common stock. The conversion will improve our leverage ratios and decrease our interest expense. Tim will discuss this transaction when he discusses the financial details for the quarter. Tim?

Thanks, Pat. In the quarter, we earned $89.8 million of net income or $0.24 per diluted share versus $69.2 million or $0.17 per diluted share for the same period last year. To make the year-over-year comparison of financial results more meaningful, we also disclose net operating income, a non-GAAP measure. A reconciliation of GAAP net income to net operating income is included in the body of the press release. With that said, our net operating income for the quarter was $117.1 million or $0.31 per diluted share compared to $76.1 million or $0.19 per diluted share for the first quarter of 2016. The primary driver of the improvement in our financial performance was lower losses incurred. Losses incurred were $28 million versus $85 million for the same period last year, primarily due to a lower estimated claim rate on both new and existing delinquencies and fewer new notices received compared to the same quarter last year. We updated our expected claim rate for previously received delinquent notices as the actual period experience has outperformed our previous estimates. As mentioned in the press release, this resulted in the benefit of approximately $47 million to our primary loss reserves. Also in the quarter, there was a $2 million benefit primarily relating to IBNR. In the first quarter, we received 11% fewer new notices versus the same period last year. And reflecting the current economic environment and the typical seasonally strong first quarter we use the claim rate of approximately 10.5% on these notices. As a result of seasonal factors, we would expect the claim rate for new notices received in subsequent periods of 2017 to be modestly higher than the rate used in the first quarter, but lower than the rates used in comparable periods of 2016. As we’ve previously discussed, we view a 10% claim rate as a long-term average. The pace of improvement in the claim rate continues to be difficult to project, given the atypical performance of the pre-2009 book. The new delinquent notices from the larger, more recently written books remained quite low, reflecting the high credit quality. And new delinquent notices from the legacy book continue to decline at a steady pace. We expect the legacy books will continue to be the primary source of new notice activity for the foreseeable future. During the quarter, the legacy books generated nearly 83% of the delinquent notices received while comprising just over 27% of the risk in force. Reflecting the declining delinquent inventory, the number of claims received in the quarter declined 22% from the same period last year. Net pay claims in the first quarter were $128 million; primary pay claims were $130 million, down 22% from the same period last year. The effective average premium yield for the first quarter of 2017 was 50.1 basis points, which compares to 50.7 basis points for the first quarter of 2016. As I have discussed in the past, there is going to be variability in this rate each quarter for a variety of reasons. We expect that the effective premium yields would trend lower in future periods. However, the exact amount and timing is difficult to predict. But we expect it could be 2, perhaps 3 basis points over the course of the next year. At the end of the first quarter, MGIC’s available assets totaled approximately $4.7 billion, resulting in a $700 million excess of the required assets the PMIERs. MGIC’s statutory capital is $1.7 billion in excess of the state requirements. Reflecting the profitability and quality of the new books of business as well as the improved performance and runoff of the legacy books, the excess over the PMIERs required asset was slightly higher than the range we are currently targeting. In addition to writing new business and exploring new opportunities as they arise, we try to manage the amount of excess by continuingly reviewing our use of reinsurance as well as continuing to seek and pay dividends out of the writing company. Regarding MGIC’s ability to pay quarterly dividend, we previously disclosed that the Wisconsin insurance regulator approved the $20 million dividend that was paid to the holding company in the first quarter. We continue to be optimistic that the quarterly dividends will continue and are planning to ask more and receive a higher dividend in the second quarter. We are hopeful that the dividends can grow in the future, especially if the difference between available assets and required assets under PMIERs growth as we expect. As a reminder, OCI authorization is sought before MGIC pays any dividend. On March 21st, we issued an irrevocable notice of redemption of our 2% convertible senior notes due in 2020 with a redemption date of April 21, 2017. As of April 18, 2017, approximately 89% of the holders have elected to convert their notes to shares of our common stock. And we expect that the remainder will also elect to convert their notes to shares of our common stock by the redemption date. As a result, earlier this month, we repaid $150 million that was previously drawn on our line of credit as those resources will not be needed to settle the redemption. This transaction combined with the upcoming maturity of the 5% senior notes will lower our debt to capital ratio and reduce our debt service obligation. At quarter-end, our consolidated cash and investments totaled $5.1 billion including $451 million of cash and investments at the holding company. The investment portfolio had a mix of 68% taxable and 32% tax exempt securities, a pre-tax yields of 2.6% and a duration of 4.6 years. The holding Company cash position includes $150 million that we drew from the credit facility in March. Also included in the holding company position is approximately $145 million that will be used to pay the remaining portion of our 5% senior convertible notes that mature in May of this year. After considering these two items, the remaining cash at the holding company provides approximately two years of debt service coverage. When we analyze various options to deploy our capital resources, we need to take into account that the holding company’s primary source of capital is the writing company. So, while capital is being traded at the writing company level, its ability to pay dividends at holding company is subject to OCI review and approval. We also consider the resulting leverage ratio, the ability to continue the positive ratings trajectory and the debt service ability at the holding company. With that, let me turn it back to Pat.

Thanks, Tim. Before moving to questions, let me give a quick update on the regulatory and political fronts. The review and updating of state capital standards by the NAIC, continues to move forward albeit slowly. At this time, we do not expect the revised state capital standards to be more restrictive than the financial requirements of the PMIERs. In regards to the housing reform, we remain optimistic but it continues to be very difficult to gauge what actions may be taken and the timing of such actions. But a message that private capital could play a greater role in housing policy is being heard in is a positive for MGIC and our industry. As an individual company and through various trade associations, including USMI, we continue to be actively engaged in Washington, hoping to shape a greater role for private mortgage insurance. Regarding the FHA, we previously announced rate cut but reversed in mid January, which was welcome news and we’re still waiting for Dr. Carson to announce his choice to run FHA, so meanwhile the status quo remains. Many lenders remain concerned over legal risks associated with FHA lending and servicing, and we’ve been more activity promoting GSE 95% and 97% LTV programs, which require private mortgage insurance. We continue to believe that it does not make sense to change FHA pricing without first addressing the larger question of the government role in housing at a time when prior capital primarily in the form of mortgage insurance is ready, willing and able to take risk and lower tax payer exposure. In closing, we’re off to a great start in 2017. Our insurance in force continue to grow, persistency has started to rise, new delinquent notices decline as the newer books of business continue to generate low levels of new delinquent notices, and the legacy portfolio continues to run off. Further, we anticipate a claim rate and existing delinquencies decline; we maintained our traditionally lower expense ratio. The writing company was upgraded to BBB plus by S&P and the holding company received a $20 million dividend from MGIC. I’m very excited and confident about the opportunities MGIC has to continue to serve the housing market. I firmly believe that there is a greater role for us to play in providing increased access to credit for consumers and reducing GSE credit risk while generating good returns for shareholders and we’re committed to pursuing those opportunities. With that, operator, let’s take questions.

[Operator Instructions] Our first question is going to come from the line of Bose George with KBW.

The first question on insurance in force. On your last call, I thought you guys had said that insurance in force growth probably started a little slower and then for the full year you do something like 4% to 5%. For the first quarter, it looks like it was 4.5ish year-over-year. Are those trends stronger than expected and do you think there is upside to that full year number?

Hey Bose, it’s Mike. No, I’d say -- we would reiterate that guidance I mean through couple of cents here or there but we would still expect that type of growth.

And then in terms of the market share from any follow-on from Arch United Guaranty. Are you seeing that already or is that still to come?

Bose, this is Pat. I would tell you that it’s still early. We’re seeing a little bit on the margin but nothing significant, but we would expect those decisions to be made throughout the course of 2017, perhaps as late as the second half of the year.

Okay. Thanks. And then just actually one on persistency. You noted persistency has increased. It was flat quarter-over-quarter. So, I was just curious where it was like in March and then where you could see that going later this year?

The statements right, you’re right, flat quarter-over-quarter, that 76.9. And then what that does imply is that during the quarter, it went up, the annual measurement. So, I don’t want to stress, I want to make sure that we don’t overstress I should say the quarterly run-rate. But the quarterly run-rate was in the 80% to 82% payout range. I wouldn’t say that that’s going to be the annual number but for the quarter that’s where it came in. But, I’d say that’s one quarter.

Our next question is going to come from the line of Doug Harter with Credit Suisse.

Thanks. It looks like the premium rate on new insurance in force was up a couple of basis points this quarter. I wanted to square that with the commentary around that premiums could -- rate could fall by a couple of basis points, so over the course of the year?

Yes. This is Tim. I mean, I think obviously in the quarter, we saw a little bit of uptick just on the NIW on its own from what we see in the prior quarters, probably a little bit higher from an LTV, from a mix standpoint. But if you look, that’s still lower than probably where we were a year ago. And so, I think our view is the general trend downward as some of the older books of business fall off at the higher premium rate. So, it holds true. Although that’s obviously something that we continue to look at depending upon how the mix changes going forward.

And I guess in that mix, I mean one of the things you have talked about in the past behind kind of your move to move to more tiered pricing was some feeling of being adversely selected into lower FICOs. Was there anything about the mix that kind of makes you uncomfortable or is that -- are you kind of happy with the way that the mix is moving in terms of credit quality?

This is Steve. I think we’re very happy with the way the mix is with credit quality. I’d say any movement we’ve seen over the last couple of quarters has been minor. But overall, the credit quality of the book remains outstanding.

And our next question is going to come from the line of Vivek Agrawal with Wells Fargo Securities.

Hi. Good morning. Thanks for taking my questions. Tim, I think in your comments you mentioned that you had a higher excess PMIER capital than you like and then you have mentioned that you were going to evaluate new opportunities as they arise. Can you maybe expand on what some of those potential new opportunities could be?

Well, I think the thing that we have to keep in mind is that we have the excesses building at the writing company and that the key to being able to deploy the capital as we like to deploy it back to the MI business to the extent we can, but we are growing the PMIERs excess. And so then, to get it out of MGIC it requires dividends. And so, I think that’s where we’re focused on, being able to get dividends out of MGIC to the extent we can deploy it in MGIC. And that will give us more flexibility at holding company. But right now, if you look at the holding company cash at the end of once we get past paying back for 2017 in May here, we’re going to have effectively two years of interest carry, which is amount that we would like to have at the holding company at that point. But that obviously, if we continue to get dividends out of MGIC that will create more opportunity and options for us as we move forward.

Thanks. And then, as mortgage originators gain on sell margins and volumes have been declining. And I guess if that persists, how do you see that potentially affecting premium rates and/or potential product mix that they use?

This is Mike, I mean, as you know mortgage bankers, when volume declines are going to start looking for other avenues to increase their production, whether that is expanding the credit box or lower credit criteria, [indiscernible] but we have our guidelines and our pricing and if it meets our -- meets those parameters, we will take that. Whether -- how it plays out within the origination community that remains to be seen. But we’ve got our guidelines out there [indiscernible].

Our next question will come from the line of Jack Micenko with SIG.

Hey. Good morning, guys. This is actually Soham Bhonsle on for Jack. Last quarter, you guys had said that you expect 5% to 10% impact on NIW, where the FA to cut pricing. But now that that appears to be off the table, do you guys sort of look at that as incremental opportunity for the industry or how should we think about that?

Yes. Soham, this is Mike. Right. I think we mentioned it in our K is that our expectation -- we would be flat year-over-year, so in that $48 billion range. So, of course the timing was everything last quarter; it was 24 hours before the inauguration where we had our call and that was the statement that FHA made and reversed that 24 hours later. We’d expect that would be flat. And I think similarly for the industry as we have less refinance activity, they can play -- a big driver to hold origination product.

That makes sense. And then, shifting gears, Pat, why don’t you give your thoughts on the VA market, where we’ve seen quite a significant share creep over the last couple of years, which is probably taking away more from FHA than PMI. But just curious to see where do you think that share eventually balances out, especially given the backdrop of the current administration and the level of defense spending expected over the next couple of years?

Well, I think relative to the VA, it’s growing, to your point, tremendously. And we would expect it to grow little bit more but certainly not at the same pace. It’s a very attractive program of veterans. And so, I think that will grow a little bit more but then it comes down to how we compete more with the FHA. And the VA with this zero down payment program is obviously very difficult for us to compete with. So, then, it becomes us on and the FHA. And I think we continue to line up there very well. We’re anxious to hear Dr. Carson selects the new FHA commissioner, optimistic that it’s somebody we can work with and we can play a greater role. So, our VA could grow a little bit more in the margin and then the rest is left for us and the FHA, and I’m optimistic about our chances.

Is it fair to say that you don’t really see them as your competition today?

Well, we do see them as our competition, -- the VA, we’re talking about, we do see them as our competition and that they play in the high LTV space. That said, the product differentiation between what we do or what they do is stark [ph] enough that in a sense they’re not a competitor. You know what I mean. However, they take some business. But for them to do -- they are offering zero percent down payment product, which is just something that we’re not comfortable with.

I just wanted to add, when you look at the VA volume especially over the last year and half, and there has been a number of reports out on this from Ginnie Mae that there is some very aggressive originators that are churning the VA production within three to six to nine months after it was originated, which is outside of VA guidance. So, some of that could be -- some of the increase -- it’s hard to pinpoint exactly what mix and what percentage, but some of that was a result of that very aggressive origination strategy on the parts of some large originators. So, I think that’s right, we have more veterans, transactions from that side, there could be some balancing because of more enforcement from Ginnie Mae about making sure that originators don’t churn he portfolio.

And our next question will come from the line of Mackenzie Aron with Zelman & Associates.

Great. Thank you. First question, can you just help quantify what the single premium impact on the effective premium yield this quarter was relative 4Q?

Yes. Mackenzie, this is Tim speaking. I think from a pure dollar basis, there was about -- we had about $5 million in accelerated singles in this quarter versus 11 last. So that’s probably somewhere around 1, 1.5 half basis points on the average premium yield.

Okay, perfect. And then, just, can you provide an update on what you’re seeing in the judicial states and where these late stage defaulters [ph] that’s been stuck in the process, any kind of incremental progress is being there and just kind of give us update on how you think some of these late states defaults will get cleared this year?

This is Steve. I think that we are seeing some improvement in New Jersey. So, it’s modest at this point, but we’re seeing some better flow coming through New Jersey. Florida still seems to be kind of a tail of old versus new foreclosures, so things that were hung up in the process due to other -- a multitude of reasons are still slow in Florida, but newer foreclosures are moving through. The big slowdown still seems to be in New York, the big sticking point. So, some modest improvement in New Jersey; Florida continues to make progress but New York just seems to be sitting there.

Our next question will come from the line of Mark DeVries with Barclays.

Yes. Thanks. I was hoping you could help us think through how much more runway we may have to see continuation of these double-digit year-over-year declines in new notices. When you just think about the fact that you’re still getting 82% of your new notices from the legacy loans and it’s only 27% of your risk in force that not only implies you’re getting almost no losses from the new stuff but clearly all of it is coming from the legacy. And as that continues to burn down, the fact that it’s still at 83%, makes me think we’ve got several more years of this type of decline. Is that a reasonable assessment, given those numbers?

Yes. This is Tim. Yes, I think that’s exactly what we would predict. I think you are spot on, on that thought process.

Okay, great. Thanks. And then finally, could you just discuss how lapse rates have really been trending over the course of the quarter and now into April are you starting to see persistency just kind of gradually improve?

Mark, this is Mike. This is again to say -- I don’t want to overemphasize a quarterly run rate. But, for the quarter, it was -- it continued to drip up and I think we -- and this is a full quarter of 82%. I don’t know, I’d have to calculate from the actual month of March itself. But I think we’re much relaxed [ph] with those numbers just because [indiscernible] but it’s definitely credit [ph] is higher that’s why we made that comment that you know, the press release had comment that we’re thinking credit is higher. We still don’t know [ph] what’s value of that. Over time, we wouldn’t expect the portfolio to get above the 84% or 85% type of persistency level, somewhere in the lower 80 kind of a normalized rate.

And our next question will come from the line of Phil Stefano with Deutsche Bank.

It seems like that the fall off from the Arch UGC is the primary focus when people talk about market share shift in the space. I was wondering why another MI who potentially has some concerns in their overall business and maybe they may be acquired, maybe they won’t be. Is there potential for market share shift to come out of them as well? Why does it seem like no one is talking about that?

I think as much as anything everybody’s got a wait and see attitude, wait and see approach to see how things develop in the case of the Arch United Guaranty merger as well as I assume you’re referring to Genworth and their potential acquisition by China Oceanwide. So, I think lenders are just trying to wait and see how things develop, what that means to them as counterparties. Both organizations, all the MIs continue to be formidable competitors. So, it’s still early in the year, and we’ll see how it plays out.

Okay. And changing gears little bit, it seems like the potential regulatory changes, the timing which they are going to happen is unknown but could be beneficial for the space or at least slanted in that direction. How should investors be thinking about this inherent call option in the business and earnings? And is this a conversation that you have with the Board when you think through the business prospects evaluation? Anything qualitatively you can help us with there will be appreciated.

Sure. This is Pat again. There is lot of discussion going on around GSE reform primarily and FHA reform to a lesser degree. There is a lot of activity going on both on the lobbying [ph] organizations, certain groups have written papers, the MBA [ph] put together a task force that issued a very thoughtful paper, they are out with it today in more detail. The Milken Institute has a paper out in GSE reform, the Parrott Zandi group is out with a paper. That said, there is a lot of talk and lot of discussion, I’ll call at a low level. People are trying to put things together and come up with a meaningful plan. Now to translate that into action is a whole another discussion. It’s difficult to see right now that even with the best of proposals the Congress is going to take any action, barring any kind of severe economic shock to the GSEs. And reason is of course as we all know and read, there are other priorities that Congress is dealing with. And so, housing reform, while it gets a lot of headline and a lot of play in our discussions going on, translating into action is quite difficult. Thus, as we talk about on these calls and then also to your question, as we talk with our Board, we’re very cautious in trying to forecast how that may play out. We have not factored anything into our forecast, assuming a certain type of reform. That said, we are optimistic, the papers I referred to, for instance this MBA paper that just came out, they did a wonderful job. And all of those papers support the use of private mortgage insurance, not only the use, but the greater use of private mortgage insurance. So, the narrative around private capital and what we are is very strong and in fact could play a greater role. But we’re not ready yet to make the leap to say yes, let’s start factoring into our forecast.

Our next question will come from the line of Chris Gamaitoni with Autonomous Research.

Can you give us a sense of how discussions with regulators related to your capital go? Is there any metric they look at on allowing let’s say greater dividend as you continue to build significant excess capital or is it more seasonal?

Chris, this is Tim. I mean, I think there is -- we have very healthy, I’d say robust discussions with our regulator on a regular basis. I don’t think they are looking at any one metric per se. We talk in particular about that we believe that our excess to PMEIRs continue to grow as well for us for dividend because while that’s not the way that they look at it, they recognize the risk based approach of it and also the NAIC is looking at sort of adopting their own risk based approach that would also include premium. So, I think they get a comfort level as we grow on excess against PMEIRs that that bodes well for us and we can have discussions around that. I think discussions around our use of reinsurance, they take some comfort in that, as far as any sort of stress scenario. And so, we have I’d say pretty wholesome discussion, but no one metric they look at. But obviously, discussions have I think been very productive so far and we continue to have plan of having discussion with them.

Okay. And do you have update on when normal dividends with using -- utilizing contingency reserve will begin to occur again? Is that anytime in your foreseeable future?

It’s not the level where I’d say it outstrips what we’re getting right now. I mean, I think when you think about contingency reserve, it builds for a 10-year period of time. So, when you think we turn profitable, you start to have a 10-year runway there. So, we’re still a few years out from being able to not build that contingency reserve which is really a drag on that ordinary dividend calculation.

Right. I guess on that vein, do you -- now that credit continues to improve pretty well in consistency and has been for a few years. Do you have any sense of how many of years away we are from the loss ratio kind of on the ex-reserve release hitting your normalized level that you guys point out?

Well, I think that’s tough to predict, Chris. I mean I think as we talked a little bit earlier in the comments in the call, a lot of the notices are coming still from the older book. And so, when we talk about a normalized rate, it’s going to depend upon how that sort of falls off and obviously how well the new originations that we continue to write perform at the level that they have, and obviously the books that we’ve written over the last number of years perform exceptionally well, better than we would have probably expected. Now, whether that will continue is obviously difficult to know, but the trend is definitely there. I think it’s tough to know exactly where it sort of bottoms out and get stable and whether it gets [ph] stable there quite frankly.

Our next question will come from the line of Randy Binner with FBR Capital.

I just have a couple cleanup questions. I guess, the first is just on the yield; it’s not a big driver in the model, but it was a little bit higher than we thought. You went through what your asset composition was there between taxes exempt and non-tax exempt. But, do you have any unusual kind of gains or prepays or anything in this quarter or is that a good run rate going forward?

I think that’s a pretty good run rate, nothing that was unusual or unordinary in the period.

And then, you mentioned as part of the $49 million of favorable reserve development, you mentioned something about an IBNR shift, I just didn’t catch that. What were the comments around the IBNR shift as part of that?

Yes. This is Tim again. We just gave the number that we had $2 million that was primarily related to IBNR. So that I won’t say it’s much of the shift -- our expectation as far as the number of IBNR notes that we need to be reserving for -- have been declining over the past few quarters, so we update that assumption every quarter as well. So that resulted in $2 million of favorable development.

Okay. So, small? Okay, got it. thanks a lot.

Yes.

And our next question will come from the line of Mihir Bhatia with Bank of America.

First, I just wanted to clarify your comments on the premium rate being 2 to 3 basis points lower. Is that year-over-year from 2016 full year or from the Q1 50 basis points level?

I would say that we look at it, we think it could be up to 2 to 3 basis points lower from where we’re currently. I don’t think we’d expect to see actually down about 3 points. But I think it depends upon something private commissions can change, so we want to make sure that we at least take that in consideration of how it could fall of. But, the trend has definitely been there over the last year for the decline to be occurring.

Got it. That makes sense. And then just a question on your single premium share declining. Was that due to actions on your part or was that just more a function of the market as a whole?

Yes. Mihir, this is Mike. This really is more a function of the market as a whole; we don’t know if there are any changes really to our approach [indiscernible]. We obviously -- we have always preferred and continue prefer the monthly but really sort of a function of the market and the rate environment right that [indiscernible] higher rate for the borrower.

Got it. Okay, that make sense. And then on your -- the reserve development, the reserve release. I know you mentioned the claim rates. Was there any change to your severity assumptions?

We always update the assumptions relating to severity. I would say that from a development standpoint that they weren’t material.

Okay, got it. And then, just last question, in terms of the high LTV loans like the 95 plus, clearly in the last couple of years with the 97% program that share is increasing and that’s understandable. Now, is there a level at which you would be -- you start being resistant to writing more or is that just a function of reprice for it appropriately and as much as we can write on that we’ll write?

No. This is Steve. We believe we price for it appropriately, but we also have a tolerance for a certain level of that higher LTV, because it is more sensitive to a downturn. And so, we will -- we do have thresholds in place around that.

Okay. And I assume you’re not willing share what that is.

That’s correct.

Okay. That’s fine. No, I mean you have sub-10 percentage, just when you look back at what it was in the mid 2000 stuff, I was just wondering on that anyway. That’s fine. Thank you so much.

That’s above our threshold.

And our next question will come from the line of Jason Kashwar [ph] with Bank of America. And that line has been withdrawn. Our next question will come from the line of Ron Bobman with Capital Returns.

Hi. Good morning. I’m sorry in advance if I missed this kind comment. A.M. Best has, as you know, come out with some guidelines for I guess mortgage insurance and mortgage reinsurance. And I’m wondering if you expect sort of the A.M. Best, the evolution of their sort of focus on mortgage insurance and increase definition around their mortgage insurance view is going to have an impact on the cost of reinsurance for traditional MIs?

This is Tim. I think it’s too early to tell what that will be. Obviously I think A.M. Best is looking at it, because they view a lot of their customers, clients as participating more in it. And so, when you have either regulators or rating agencies taking a closer look, it always leaves you open to some view change. But I have not heard any, but I think it’s too early to know exactly how those reinsurers will look at it. But I haven’t heard anything from a market standpoint that leads me to believe that this would shift anything.

At this time, we have no further questions. I’ll turn the call over to Mike Zimmerman for closing comments.

This is Pat. I just want to thank everybody for joining our call. And have a great day.