MGIC Investment Corporation (MTG) Q4 2017 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and thank you for calling by. Welcome to the MGIC Investment Corporation Fourth (sic) Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. I would now like to introduce your host for today's presentation, Mr. Mike Zimmerman. Sir, please begin.

Thanks Howard. 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 the results for the fourth quarter of 2017 and the full year of 2017 are Chief Executive Officer, Pat Sinks; Chief Financial Officer, Tim Mattke; and Chief Risk Officer, Steve Mackey. I want to remind all participants that our earnings release of this morning, which may be accessed on MGIC's web site, 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 web site a presentation that contains information pertaining to our primary risk in force, the new insurance written and delinquency statistics, 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 at 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.

Thank you, Mike, and good morning. I am pleased to report that as we continue to execute on our business strategies, we had another strong quarter and an excellent 2017. In a few minutes, Tim will cover the details of the financial results, but before he does, let me provide a few highlights. In the quarter, we wrote $12.8 billion of new business, which was equal to the same quarter last year. During the quarter, refinanced transactions increased marginally, but remain low, accounting for just 13% of our new insurance written, compared to 24% for the fourth quarter of 2016. As most of you that follow the industry know, our industry's market share, as a percentage of total originations, is 3.5 to four times higher for purchased loans than refis, and fewer refis generally lowers the cancellation rate of the insurance in force. 2017 saw the purchase and refinance mix for a shift to approximately 90% purchase and 10% refis from 80% and 20% respectively in 2016. Even though there was a 44% decrease in refinanced applications, it was offset by a 9% increase in purchase applications in 2017 compared to 2016. The shift towards purchase activity resulted in a level of new business written for 2017, increasing about 2% to $49 billion compared to the $48 billion we wrote in 2016, and was above what we expected. For 2018, we expect to write approximately $50 billion of new business, a slight increase from 2017. The expanding purchase mortgage market for a company's market share of approximately 18% plus, the hard work and dedication of my fellow coworkers to deliver stellar customer service and higher annual persistency, resulted in a 7% increase in insurance in force, ending the year at $194.9 billion. Since insurance in force is the driver of our revenues, this is a key metric that we focus on. The expected level and mix of new business should result in insurance in force, continuing to increase. The increasing size and quality of our insurance in force, the run-off of the legacy books, and our strong financial performance, position us well to provide credit enhancement and low down payment solutions to lenders, GSEs and borrowers. And with that, let me turn it over to Tim.

Thanks Pat. In the fourth quarter, we earned $27.3 million of net income or $0.07 per diluted share compared to $107.5 million or $0.28 per diluted share in the same period last year. For the full year of 2017, we earned $355.8 million or $0.95 per diluted share compared to $342.5 million or $0.86 per diluted share in 2016. The passage [ph] to the Federal Tax legislation late last year materially reduced our reported GAAP net income for both the quarter and the full year. Subsequent to the enactment of this legislation, we remeasured the value of our deferred tax assets to reflect the lower corporate tax rate. This resulted in a $133 million increase in our income tax provision. To provide better insight into our operating results and to make year-over-year comparisons to the financial results more meaningful, we disclosed adjusted net operating income, a non-GAAP measure, along with a reconciliation to GAAP net income in our press release. Excluding the tax change impact, our adjusted net operating income for the quarter was $160.7 million or $0.43 per diluted share compared to $107.7 million or $0.28 per diluted share for the fourth quarter of 2016. For the full year of 2017, our adjusted net operating income was $517.7 million or $1.36 per diluted share compared to $396.3 million or $0.99 per diluted share in 2016. The primary driver of the improvement in our financial performance for the quarter and the full year was lower losses incurred. Addressing the quarterly results, losses incurred were negative $31 million versus a positive $48 million for the same period last year. There were a number of factors that influenced the fourth quarter level of incurred losses. Each quarter, we review the performance of the delinquent inventory [indiscernible] what, if any changes should be made to the estimated claim rate and severity factors. This review resulted in positive primary loss reserve development of $103 million associated with previously received delinquencies. This compares to $43 million of positive development in the fourth quarter of 2016. This large increase was driven by a materially higher than expected cure rates, specially on notices that have been in the delinquent inventory for 12 months or longer, we also saw improvement in the four to 11 month category. Additionally, we saw increases of approximately 7,000 in new notices during the quarter compared to the third quarter of 2017. The fourth quarter includes approximately 9,300 notices from the areas that were impacted by the hurricanes in the fourth quarter of last year. While some of the 9,300 delinquencies would have occurred regardless of the storms, we believe the large majority would not have occurred, and will ultimately cure. In fact, approximately 30% of the notices received in the fourth quarter from these impacted areas have already cured out, and as shown on page 15 of the portfolio supplement, we have seen a material decrease in new notices from these areas in December. As a result, we used a materially lower claim rate on the majority of these notices. Using the lower claim rate in hurricane impacted areas resulted in an average reserve for delinquent loan we reported in the press release, to be approximately $20,800. Adjusting for that lower claim rate, the average reserve for delinquent loans would have been $24,000. Finally, in the quarter, excluding the hurricane impacted areas, we received 9.5% fewer new notices compared to the same periods last year, and reflecting the current economic environment and anticipated cures, we use a claim rate of approximately 10% on these notices. The claim rate assumption used was slightly lower than we used in the third quarter. There was also a $3 million net benefit related to IBNR and LAE. During the quarter, new delinquent notices from the legacy book continued to decline at a steady pace and generated nearly 67% of the new delinquent notices received, while accounting for just over 22% of the risk in force. The percentage of new notices from the legacy book was lower than prior quarter, primarily due to the fact that approximately 50% of the delinquencies reported from the hurricane impacted areas, came from the 2009 in forward books. The new delinquent activity from the larger, more recently written books remains quite low, reflecting their high credit quality, as well as the current economic conditions. We expect that legacy books will continue to be the primary source of new notice activity for the foreseeable future. Reflecting a smaller delinquent inventory and the impact of the GST foreclosure moratoriums related to the hurricanes, the number of claims received in the quarter declined 32% from the same period last year. Net paid claims in the fourth quarter were $91 million compared to $113 million last quarter, down 19% for the same reasons. The effective average premium yield for the fourth quarter of 2017 was approximately 49 basis points, which was down about 1 basis point from the last quarter, and down approximately 3 basis points from the fourth quarter of 2016. As I have discussed in the past, for a variety of reasons, we expect that the effective premium yield will trend a bit lower in future periods, however the exact amount and timing is difficult to predict. At the end of the third quarter, MGIC's available assets for PMIERs purposes totaled approximately $4.8 billion, resulting in a $800 million excess over the required assets. The PMIERs excess was approximately $100 million lower than it otherwise would have been, as a result of the increased delinquencies for the hurricanes. We expect that impact will subside over the course of the next few quarters. MGIC's statutory capital is $2.1 billion in excess of the state requirements. In addition to writing new business and exploring new opportunities as they arise, we will try to manage the amount of PMIERs excess by continually reviewing our use of reinsurance, as well as continuing to seek and pay dividends out of the writing company to the holding company. 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 created at the writing company level, we need to notify and ask the OCI, not to object any dividend payments from MGIC. We also consider the resulting leverage ratio, the ability to continue our positive ratings trajectory, the desk service ability of the holding company, and of course, any changes to PMIERs. Regarding MGIC's ability to pay dividends; during the quarter, we were able to increase the dividend paid to the holding company to $50 million compared to the $40 million dividend that was paid in the third quarter. For the full year, we paid $140 million in dividends compared to $64 million in 2016. We are optimistic that dividends of at least the fourth quarter level, will continue to be paid on a quarterly basis. At quarter end, our consolidated cash and investments totaled $5.1 billion, including $216 million of cash and investments at the holding company. The investment portfolio had a mix of 70% taxable and 30% tax exempt securities, a pre-tax yield of 2.7% and a duration of 4.3 years. Our debt-to-total-capital ratio was approximately 21% at the end of 2017, down from approximately 31.5% at the end of 2016. The holding company's resources were slightly more than our targeted three years of ongoing debt service. As of December 31, the holding company's annual debt service on the remaining outstanding debt is approximately $60 million. This includes approximately $12 million that the holding company pays MGIC, which owns $133 million of our 9% junior subordinated debt. Finally, I know that many of you are interested in the possible changes to PMIERs the GSE has recently shared with us. Unfortunately, we are not at liberty to discuss any of the proposed changes in any detail, as we are bound by a non-disclosure agreement. On December 21 of 2017, we issued an 8-K that informed you, that while the FHFA has not yet taken a position on the proposed GST changes, yet they were implementing as proposed, our PMIERs excess of $800 million would be materially reduced. However, we expect that we would continue to maintain an excess, and that we would be able to pay quarterly dividends to our holding company, at the $50 million quarterly rate. As a result, we expect cash at our holding company during the fourth quarter of 2018 will increase over the level at the end of 2017. At the time, we have been told by the GSE, that changes to PMIERs will not be effective prior to the fourth quarter of 2018, and there would be a six month implementation period prior to the effective date. We do not plan to provide updates on the status of the discussions with the GSE and FHFA until they are finalized. 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. In regards to housing finance reform, we remain optimistic about the future role that our company and our industry can have, and it continues to be very difficult to gauge what actions may be taken and the timing of any such actions. As an individual company and through various trade associations, including USMI, we are actively engaged on this topic of Washington. It appears that GSE reform proposals may be forthcoming from the Senate and the House, but we do not think it is likely, that they would be acted upon in 2018. We are encouraged that the discussions are now more inclusive about the role each of the GSEs, FHA and private capital versus treating them as separate topics. Regarding the FHA specifically, a new director has been nominated, and while we have not had conversations directly with him, we continue to believe, based on our discussions with various parties in the administration, that the FHA will not expand its footprint in housing finance in the foreseeable future. Regarding PMIERs, there is not additional update that I can provide, beyond what Tim has described. I am very excited and confident about the opportunities MGIC has to continue to serve the housing market. Our insurance in force increased by 7% to nearly $195 billion; persistency increased by more than 3 percentage points, new delinquent notices declined, as the newer books of business continue to generate low levels of new delinquent notices, and the legacy portfolio continues to run-off and generate fewer losses. Further, the anticipated claim rate on existing delinquencies declined, and we maintained our traditionally low expense ratio. During 2017, we made further progress on our capital structure, and our debt-to-capital ratio now stands at approximately 21% and the holding company received $140 million in dividends from MGIC. Looking ahead for the full year of 2018, the overall origination market is expected to be modestly lower, but with a stronger or a strong purchase component. I expect that our insurance in force will continue to grow, due to the level of new business we expect to write. Further, I anticipate that the number of new delinquency notices, claims paid, and delinquency inventory, will continue to decline, and finally, we will continue to focus on capital management activities and maintaining our industry leading expense ratio. As I have said in the last number of quarters, I continue to believe, that there is a greater role for us to play in providing increased access to credit for consumers, and reduce GSE credit risk, while generating good returns for shareholders, and we are committed to pursuing those opportunities. With that operator, let's take questions.

[Operator Instructions]. Our first question or comment comes from the line of Bose George from KBW. Your line is open.

Hey guys, good morning. Actually the first question is just on defaulted claim. I mean, we have talked, I guess the last couple of years, just about normal being the 10% number. Now that you are there and given the strong trends on the new books, could you talk about the potential for that number, is it declining over time, and what could move it in that direction?

Well, it's Tim speaking. We have gotten to that 10% that we viewed as sort of the long term historical. I think, is there a possibility to get stronger than that? There is obviously that possibility. But for it to get much stronger than that, I don't see that being a necessarily significant driver in our [indiscernible] going forward. It's going to be much more, continue to decline the new notices coming [indiscernible]. So it's tough to speculate exactly where it can get to, but I wouldn't think about it being much lower than 10%, if it was able to get below 10%.

Okay, great. Thanks. And then actually just one on the corporate tax rate, and just, when you think about the outlook for the corporate tax rate, are munis -- your investment in munis or your outlook for that, does that change over time, just given the lower tax rate, and where could we see the corporate tax rate head over time?

Well, it's a good question. I think obviously, with the lower tax rate, it makes us look at munis through that lens or that tax rate. We still think at certain point, there can be good value in them and a good part of the portfolio. So I think we will reexamine where we want to be on that, as it obviously changes the calculus a little bit, so we will take that in account, as we look to position the portfolio moving forward.

Okay, thanks. And actually, let me just try one on PMIERs. I know you have their confidentiality, but is the process this time similar to last time, was there sort of a GST version that you guys saw earlier, and when there was comments before it hit the public, is that part kind of parallel to what we saw in PMIERs 1.

Bose, this is Mike. To be honest with you, we don't really know what the process is going to be going forward, that's what it was with the first go-around. Clearly, there is going to be dialog over time, until they are finalized. But what the back and forth will be and the timing of that and the outcomes remains to be seen.

Okay, great. Thanks.

Thank you.

Thank you. Our next question or comment comes from the line of Mackenzie Aron from Zelman and Associates. Your line is open.

Thanks. Good morning. Congrats on the quarter. I guess my question mainly is around capital management, given that the $200 million dividend will still be able to happen in 2018, despite PMIERs. So can you just give us some thoughts on what the use of that capital is, and timing? Is it something that we are going to have to wait to see what PMIERs could finalize before there is more clarity there? Or just any comments around the capital used?

Yeah it's something -- this is Tim. It's something we have obviously been focused on and have been focusing on over the last few quarters, as we have been able to get more dividend capacity up and get to sort that target of a three time multiple on the interest carried to holding company, and finally being able to get, as I mentioned, just slightly above that. I would say, it is fair to say though, until we know more certainty around where PMIERs 2.0 would be, it would be more difficult for us to take additional actions. But it's something that we look at every quarter, and obviously, if we can continue dividends coming out of the writing company, which we think we will be able to, it will be something that we will continue to look at and will ultimately address.

Okay. And then, with PMIERs, once it is finalized, is there some type of buffer I think in the past, you might have talked about a 10% number, that once it is finalized, what the right buffer amount would be?

Yeah, it's another good question. I think that's a tough one to answer until we know what they are and how we look under them and what the makeup is. So that 10% to 15% I would just say, was staged upon sort of the PMIERs, how we looked under them and under various stress scenarios. So I think we will take all those things to account in the PMIERs 2.0. But until we know what those are, I think it's tough to know exactly what the buffer will need to be.

Okay, that's fair. And then just one more quick one, sorry if I missed in the prepared remarks, but does the impact of single premiums this quarter on the net premium yields?

Yeah, it wasn't on the prepared remarks, but I think it was about $8 million in accelerated earnings, and in comparison, we had bought $9 million last quarter. So from an average basis points premium yields, probably about a 0.25 of a point.

Okay, perfect. Thank you.

Sure.

Thank you. Our next question or comment comes from the line of Geoffrey Dunn from Dowling and Partners. Your line is open.

Thanks. Good morning guys. My questions were just answered. Thank.

Okay, thanks Geoff.

Thank you. Our next question or comment comes from the line of Phil Stefano from Deutsche Bank. Your line is open.

Yeah, thanks and good morning. I was hoping we could talk a little bit about mortgage rates in the tenure. It feels like we have been expecting them to rise for some time? Maybe we are on the precipice and that kind of precludes the question of -- so when we think about the move in the tenure or mortgage rates, do you have a feel for the sensitivity you can give us around originations? Presumably a spike in one or the other, something material, would slow down originations. But any thoughts on how we can think about the sensitivity around them?

Hey Phil, this is Mike. We have long held and believe that, it's more about consumer confidence and supply of housing. Clearly, if rates spiked up dramatically, there would be some type of delay in activity and really, you'd have to look at the reason why rates are rising. But slow -- steadily rising rates historically in a strong or improving economy or improving jobs or wage growth improves consumer confidence, and see people continuing to buy homes. So I think there'd have to be some type of dramatic spike, and then [ph] definitely look what the reason is for that, before we could see any type of shock to originations.

Okay. All right. That makes sense, and I am going to take a shot at the reserves question, and see, is there any guidance that you can give us on how we can think about reserve adequacy moving forward, or maybe some sensitivity around where is the legacy book currently reserved, versus where you are reserving new defaults? The -- obviously the reserve development, the tailwind from that has been a significant benefit in the past six, seven quarters, so anything you can help us to better understand kind of where we are, how much cash is there left in the tank potentially, would be very helpful?

Sure Phil. It's Tim. I mean, I think from our perspective, we feel like they are appropriately seated right now from a -- looking at the legacy book versus sort of newer vintages. The majority of the reserves are from the legacy book, because that's where delinquencies are from. So there is really no differentiation for the most part, as the reserves sit right now. So it's something you know, we look at every quarter, and it just -- the good news is that, the economies kept on going and the cure activity has been stronger than we would have expected to have seen a year ago, until we have been able to reflect that or update a reserve assumption. But to predict where it will go past dollars, is obviously very difficult.

Understood. Thanks and best of luck.

Thanks.

Thank you. Our next question or comment comes from the line of Chris Gamaitoni from Compass Point. Your line is open.

Good morning guys.

Good morning.

Is there anything specific that you are seeing in the datas, that you'd attribute the higher cure rate in 12 plus months default [Indiscernible], any sense of how long those -- the improvement along those delinquency -- the loans have been delinquent, that you are seeing improving now?

Well I think Chris, you know, as we mentioned, it is definitely in the -- those loans that have been in default for longer than 12 months. We saw considerable improvement again this quarter. That phased across not just loans that are 12 months, but also loans that are say 24 months delinquent or even 36 months delinquent, we are seeing considerable increase in the cure rates on that. So pretty much across the board rate, and as we mentioned in the comments, we also saw some improvement in the four to 11, and pretty wide based from a geographic perspective as well.

Okay. And then do you have any thoughts about how the benefits of tax reform to your business will be dropped to the bottom line? Do you think it will be passed through in pricing competition in the industry to employees? Any thoughts initially?

This is Pat. I'd be happy to take that one. I think that's to be determined, and I don't mean to be vague in my answer, but it's still early in the year, as to how it will play out. -- and the share math returns go up, whether or not that will be competed away, that's a possibility. But we haven't seen any indication of that yet.

Perfect. Thank you so much.

Thank you. Our next question or comment comes from the line of Jack Micenko from SIG. Your line is open.

Good morning. To come at the claim rate assumption question maybe a little differently. I guess Tim, the definition of much in your mind, I am curious what that would be. You look at a period, 1994 to 2002, and it's probably a pretty good string of time for the business, you know, you talk about 10 being the historical average, but historically speaking, have you been below the 10 and can you put numbers around what that claim rates assumption that's driving the reserving, maybe has been in times of equally decent credit quality?

Yeah Jack, looking at that period, in my mind, not much better is, meaning it's not 50% better than where we are now. It's a point or two potentially. So even if you look at that period, from a historical standpoint, I don't think those periods got much better than 8% or 9% sort of claim rate on those new notice activity. And so, when I say much, I sort of put it in that realm.

Okay. That's actually pretty helpful. And then in the press release, just a single premium yield came in, over where it has been in the prior two quarters. I know there is some seasonality, but I am wondering when refi slow is there, is there something in pricing there in the marketplace that we should know about, or is there some portfolio dynamic that drove that singles premium yield down quarter-to-quarter?

Jack, this is Mike. Our pricing is unchanged though, it really has to do with the composition of the business that we saw, and obviously how competition bids too, relative to when the lender selects that product.

Okay, great. Thank you.

Thank you. Our next question or comment from the line of Doug Harter with Credit Suisse. Your line is open.

Thanks. My questions have been asked and answered.

Thank you. Our next question or comment comes from Sean Dargan from Wells Fargo. Your line is open.

Thanks and good morning. If I could just come back to the positive development again, is there any kind of detail you can give us in terms of what vintages this is coming from? And also if you can remind us, how much discretion [ph] you have and when to release these reserves, because the bottom line impact would be more favorable in 2018 with a lower tax rate I would imagine?

Yeah. I guess from what vintages are coming from, Sean, it's really the legacy book. So it's the five, six, seven eight books which make up the default inventory, and again, with the loans that have been default inventory for a longer period of time, that's really where the reserves are coming from. So what we refer to as the legacy books. As far as the timing of the release, it's really a matter of going through the process of establishing the reserves every quarter, and so, we aren't paying attention to what the tax ramifications are that -- although based how we are [ph] from a taxpayer standpoint, it wouldn't make a difference. But we go through the process as we normally would, irrespective of the tax consequences.

Okay, thanks. And that's not on a quarterly basis, not like an annual actuarial assumption?

No, we go through it on a quarterly basis.

Okay. Thanks. And just one follow-up on housing finance reform. I saw something recently that Director Watt provided a document to the Senate Banking Committee, expressing a preference for secondary market entities, which would be shareholder owned. I know its early in the process, and you know I am thinking, it's going to get done in 2018. But would there be a place for private mortgage insurance in such a scenario?

This is Pat. The answer to that is yes. I mean, I don't know specifically what Mr. Watt has in his plans. But I can tell you from what we have learned both in the House and in the Senate, and what they are thinking introducing in 2018, includes a significant role for private capital, and as part of that, private mortgage insurance would be included. So we are very active in that arena, to make sure that we protect what we have and also seek opportunity. So I am confident you will see a large component of private capital in any plan that's put forward.

Okay. Thank you.

Thank you. [Operator Instructions]. Our next question or comment comes from the line of Mihir Bhatia from Bank of America. Your line is open.

Thank you and good morning. Firstly, obviously decent -- good quarter again, so congratulations on that. I had just a couple of quick questions, firstly, just starting around persistency. Obviously, it's started to go up here, as rates have increased. Can you talk about just what the high watermark maybe, as rates increase. I guess, two part question, has persistency increased at the rate you would have expected, given how rates have increased, and secondly just, how high can it get, I think expectations are for two, three more rate increases this year. So what kind of -- how high can it get historically, how high has it got, maybe in like the 1990s cycle, if you will?

Mihir, its Mike. The 1990s was probably not a good comp to use, but it was a very good -- just a very different origination market. Refis was at two points, caught up in a rule of thumb before refis take place, versus three-eighths of a point maybe today, depending on the originator. So back in the 1990s, we hit in mid-90% persistency, but we certainly wouldn't expect that type of level in all. We are at 80% right now. The fourth quarter usually has a little bit of a slowdown in prepayments. There is some seasonality, given the homebuying season and such. We have stated over past, that we think the mid-80s would be the high watermark for it. Whether it can get there or not, remains to be seen too, because home prices increasing gives borrowers the ability to do refinances or cash outs or drop the mortgage insurance, things of that nature. So a lot of gives and takes relative to that, versus just a straight mortgage prepayment rate. And relative to the rate hikes, well it depends on the shape of the urban [ph] where it goes. Couple of more up-- tenures at 250, 255 or so today, and mortgage rates have not moved in correlation to that directly. So we will go back to the answer somebody asked earlier about effect of rates on mortgage originations. We don't see that having a significant impact, at least for this year.

Got it. Let me ask you, you mentioned in your answer about the home price appreciation, and obviously that's one of the advantages of private mortgage insurance versus the FHA. How much of your business, I guess -- how often do you see those types of cancellations away, borrowers are taking advantage of home price appreciation? Because clearly, there has been a fair amount of home price appreciation in the last few years. How I guess -- the question is, how much do borrowers actually go through the process of getting a reappraisal or whatever they need to do, to get that mortgage insurance taken off their mortgage?

Mihir, this is Mike here again. I'd say the originator tends to get to the borrower, before the borrower gets to the appraiser, and even in a flatter EBITDA and a flatly higher rate environment. So it's a minor component, we haven't looked at it in a number of years, but maybe no more than 20% or 15% of our cancellations are from dropping the insurance. But that's fairly dated. But I would say more generally speaking, the originator is quicker to the borrower, than the borrower is to the appraiser.

Got it. Thanks. And then just going back to tax reform a little bit. I know you have talked about, depends on what the competition does with respect to pricing or what have you, for the benefits of tax reforms falling through to the bottom line. Have you guys announced, obviously you are disciplined in expenses, but have you announced anything or have you guys taken any OpEx actions, where obviously we have obviously seen lots of announcement from other larger companies. But have you guys done anything, where you have increased OpEx, because of tax reform, whether it's both onetime bonuses or increases or what have you?

This is Pat. We have not announced any such actions.

Okay. Great. And then just last question on capital planned, understand that you want to wait till you have PMIERs -- clear more certainty about PMIERs before announcing something. What, just philosophically I guess, what are the priorities for you, once you have the cushion from PMIERs and you have that certainty on the capital side? Is it buyback, is it something to do on the debt side, whether its convertible, dealing with the convert -- some more with the converts or senior notes or what have you, because of rating agency pressure, just trying to understand, what your priorities would be on the capital side?

Yeah, this is Tim. I think from a capital management, I think there would be no pressure from the rating agencies, as far as the junior debt, that's still outstanding. So we very much view that as sort of an economic trade. It would be nice to get rid of it. But if you are prepaying number of years of interest effectively, might not make sense to do, which when we actually had MGIC buy it back, almost a couple of years ago now. It was very-very, I guess -- an economic trade that we were able to make at that point, and where it currently trades now, wouldn't be as much so. The other thing I think we have always said, is we are very cognizant of the amount of dilution that was created through the crisis. So that's one thing we obviously look at as well. We need to look at, sort of the liquidity flowing up to the holding company, if you were to think about dividends coming out from the holding company, of how strong will that be and how consistent. So all of those things are things we are thinking about. Things that we will think about, dependent on the market conditions at the time. And so I think, the good thing is we have a lot of flexibility and a lot of options, and the other pieces too, is there anything from investment back in the business that we could think about, whether it's expanding the footprint and VMIs [ph] having more volume, or there is other opportunities we'd have there, that are close to what we do right now and sort of leverage our core competencies. I think those are all the things we have to look at.

Great. Thank you. Those were all my questions.

Thank you. Our next question or comment comes from Mark DeVries from Barclays. Your line is open.

Yeah thanks. Sorry if I missed this, what drove the sequential decline in the average premium? It didn't sound like it was any kind of material change in the amortization on the singles. Kind of what was behind that? And Tim, given the decline this quarter, kind of where we stand today, what are your expectations going forward for the trajectory of the average premium?

The average premium yield market I think is much more of the mix that was there. I think we heard, like I said, maybe a quarter of a point, from a basis points standpoint because of a single reinsurance. We probably ceased a little bit more on losses than it might have been a quarter of a point also on it. But otherwise, part of the downward is sort of the mix or the business that some of the older vintages fall off at higher premium rate on, especially some of the bulk that gets replaced. Even though, we have been adding some new business a little bit higher rate this year than we had in the past. There is still, on average, little bit lower rates on the non-legacy book versus the legacy book. So the good news is, I think with some of the NAW we have been putting on this year, a little bit higher premium rate, it should get to sort of a bottom, if you will, sooner than it would have been, if we had looked at this two years ago. But still very difficult to predict when exactly that will happen, and what point that happens, because of how persistency impacts things and how we put on new business impacts that premium rates.

Okay. Got it. And next just a question on the dividend from the running company. You have had several quarterly increases in that. It almost sounds to me basically in your comments like, that's plateauing here. Is $50 million a quarter the right level going forward, or could we expect some additional request for increases?

I think with where we are right now, we wouldn't expect increases in the short term here. I think it's something we will continue to look at, especially as PMIERs is finalized, as we look forward and continue to generate profit and feel good about sort of our view of the capital at MGIC. And we obviously have those discussions with our regulator, the OCI, and there are always good discussions, and we plan to continue to have them.

Okay, fair enough. And then just finally, I know you can't comment on the specifics around the PMIERs proposal. We are hoping you could provide a little more specificity around what you guys meant specifically around the excess getting materially smaller under the rules? Is there any kind of additional color you can provide there?

Hey Mark, it's Mike. No, really can't provide anything there. I mean, the excess if $800 million, which is where it was at the end of September. So any more color, would really start getting more insight as to what some of the proposals were. So we really can't give any more color there.

Okay, fair enough. And just in case anybody from the FHFA or the GSE is listening, I want to encourage them to release you from this non-disclosure. I don't really understand what public interest is served by not having transparency around this process. So I will end there, and thanks.

Thank you, Mark.

Thank you. I am showing no additional questions in the queue at this time. I would like to turn the conference back over to management for any closing remarks.

This is Pat. I want to thank everybody on the call, our shareholders and investors for your interest in our company. All the analysts that follow us, we had an outstanding 2017 and we are very well positioned for 2018. I want to thank our board for their continued guidance, our management team for their leadership. My 800 coworkers who show up every day and deliver results, and of course our customers for their partnership with us and loyalty to us. So with that, thank you very much and we will sign-off.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.