MGIC Investment's (MTG) CEO Pat Sinks on Q4 2015 Results - Earnings Call Transcript

| About: MGIC Investment (MTG)

MGIC Investment Corporation (NYSE:MTG)

Q4 2015 Results Earnings Conference Call

January 21, 2015, 10:00 AM ET

Executives

Mike Zimmerman - SVP, IR

Pat Sinks - CEO

Tim Mattke - EVP and CFO

Steve Mackey - EVP of Risk Management

Analysts

Geoffrey Dunn - Dowling & Partners Securities

Bose George - Keefe, Bruyette & Woods, Inc.

Jack Micenko - Susquehanna Financial Group/SIG

Mackenzie Kelley - Zelman & Associates

Sam Cho - Credit Suisse

Mark DeVries - Barclays Capital

Eric Beardsley - Goldman Sachs

Chris Gamaitoni - Autonomous Research

Amy DeBone - Compass Point

Al Copersino - Columbia Management

Patrick Kealey - FBR

Tom LaMalfa - TSL Consulting

Scott Frost - Merrill Lynch

Mike Zaremski - Balyasny Asset Management LP (NYSE:BAM)

Sean Dargan - Macquarie

Operator

Good day, ladies and gentlemen. And welcome to the MGIC Investment Corporation Fourth Quarter Earnings Call.

At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's call is being recorded.

I would now like to turn the conference over to your host Mike Zimmerman. Sir, you may begin.

Mike Zimmerman

Thanks Shannon. 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 and full year of 2015 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 Investor Information, 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, new insurance written and other information we think you'll 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 an obligation to update those statements in the future in light of subsequent development. Further, no interested parties should rely on the fact that such guidance or forward-looking statements are current at any other time other than the time of this call or the issuance of the Form 8-K.

At this time, let me turn the call over to Pat.

Pat Sinks

Thanks Mike, and good morning. During 2015 we focused our energies at positioning the company for growth and compliance with the financial requirements contained in PMIERs that were finalized in June.

I am happy to report and as a result of the actions we took during the year, as of December 31, 2015, MGIC is fully complying with the PMIERs financial requirements.

Turning to the results for the quarter, net income for the fourth quarter was $102.4 million or $0.24 per diluted share. Excluding an adjustment to the DTA valuation allowance reversal, adjusted net income for the fourth quarter was $113.9 million or $0.26 per diluted share, compared with net income of $75 million, or $0.19 per diluted share for the same quarter a year ago.

For the full year net income adjusted for the reversal of the DTA was $485.3 million, or $1.13 per diluted share, compared with $252 million or $0.64 per diluted share in 2014.

I am pleased to report that our insurance in force, the primary driver of our future revenues increased by approximately 6% during 2015 ended at $174.5 billion. This growth reflected the expanding purchase mortgage market, our increased market share and the hardworking dedication by fellow coworkers.

I am also pleased with the low level of losses 2009 through 2014 books are generating and the positive trends we continue to experience on the pre 2009 business relative to new delinquent notices in claims and the declining delinquent inventory.

The increase in size of our insurance in force, the continued runoff of the older books, continued solid housing market fundamentals such as an increase in household formations and increased wholesales and our solidified capital position puts us in a great place to provide credit enhancement and low down payment solutions to lenders, GSEs and borrowers, now, and in the future.

In a few minutes Tim will discuss in more detail the financial results, but first I would like to make a few comments about our approach to the business.

At MGIC we've always believed in taking a long term view of the market, but we make our decisions relative to capital requirements, returns and the competitive landscape including more recently a secular shift at places increased emphasis on risk adjusted returns.

We believe that to be successful in this business over the long term our mortgage insurance needs to prudently grow its insurance in force be transparent in its offerings to customers and achieve at a minimum double-digit after tax returns through the cycle.

The basic tenets of our beliefs have been under pressure over the last year or so as higher capital charges have been mandated by the GSEs as well as an increase in what I would call operate current pricing. By operating current pricing, I am referring to both black box pricing and the offering of alternative rate cards on a so called select basis that several of our competitors are promoting.

And so with that long term view in mind and an eye towards improved transparency that we'll be revising our premium rate cards for both borrower paid and lender paid premium plans.

We expect these adjustments to the premium rate structure to generate comparable risk adjusted returns across the spectrum of loans we ensure.

Importantly, we expect that the revised rates will result at lifetime after-tax returns that are consistent with not lower than the mid teens returns we expect to earn after considering reinsurance.

In some instances the borrower-paid monthly rates or BPMI are higher and in some instances the rates are lower. But in all scenarios, the revisions consider the associated capital charges or PMIERs as well as the current marketplace dynamics.

Realizing the investors need more information and granularity to understand the analyzing changes to the premium structure, we provide some examples of the revised BPMI rates and the impact that the revised rates would have on returns in the portfolio supplement that was posted to our website early this morning.

The revised rate structure may likely cause some of the lower FICO score business to shift away from us. However, we still expect to retain some of that business as lenders value the customer service we provide and are increasingly finding it more efficient and cost effective to use private mortgage insurers versus FHA.

Additionally the GSEs reintroduction of the 97% loan to value program making it some of the low FICO business in the private mortgage insurers because it will allow borrowers with private MI to enjoy faster equity build up and have the ability to cancel MI coverage as compared to FHA alternatives.

As a result of these changes and minor preferences, we expect to write modestly less business in 2016 than we did 2015 primarily in the lower FICO scores.

However we expect the insurance and force portfolio will grow modestly in 2016. By modestly I mean in single digits. The overall origination market is expected to continue to shift towards more purchase transactions and fewer refinances, which is a net positive for our company and our industry.

We estimate that our industry's market share is approximately three to four times higher for purchase loans compared to refinances and historically MGIC tends to be a the higher end of that range.

Let me take a few minutes to provide an update on our industry's opportunity to further reduce the risk borne by the GSEs and ultimately impacts payers. We believe that private mortgage insurers can assume risk before even get to the GSEs and a deeper coverage, or front-end risk sharing, would be a way to readily implement this.

We have many supporters who agree with this approach including the MBA, who recently submitted letters to the FHFA of this town.

We're encouraged that there is a requirement in the 2016 FHFA scorecard to conduct an analysis and assessment of front-end risk sharing including a request of public input. Meanwhile we've continued these discussions with the GSEs and FHFA on these matters both at the Trade Association and individual company level.

We continue to believe that the next logical step is for the FHFA to conduct a pilot programs with the MIs and lenders to validate the concept and we're working towards that goal.

Tim will now go through the financial highlights for the quarter.

Tim Mattke

Thanks Pat. First let me address PMIERs. As a result of the actions we've taken, which include the restructuring of our reinsurance agreement in the third quarter, the repatriation of $387 million for MIC to MGIC in the fourth quarter and the second quarter transfer of $45 million of assets from MGIC's subsidiaries to MGIC.

As of yearend 2015, MGIC's available assets total approximately $5 billion and based on our interpretation of the financial requirements, it's minimum required assets are $4.5 billion.

I would also like to note that the yearend mix still has approximately $100 million of statutory capital in excess of the minimum State Capital Requirement and in the fourth quarter, we commuted the remaining risk at MGIC's Australian subsidiary and it has approximately $38 million of assets at yearend. These assets are not included in our available asset for PMIER purposes.

Turning to the financials, the year-over-year improvement in the financial results was primarily driven by a lower level of incurred losses. The lower level of incurred losses was primarily due to the receipt of 48% fewer delinquency notices and those notices had a lower claim rate applied to them when compared to the same period last year.

Reflecting the current economic environment, new notices received in the fourth quarter estimated to have a claim rate of approximately 13%, which was flat to the third quarter. Additionally, we had net positive development and our loss reserves of approximately $10 million to $15 million during the quarter.

The pre-2009 legacy books continue to dominate the new notice activity and generate approximately 91% of the new delinquent notices received during the quarter, while those books now comprise just over 37% to the risk-in-force and approximately one third is benefitted from the HARP program.

We expect that the pre 2009 books will continue to be the main contributor to our new notice activity for several more years.

The new delinquent inventory ended the year down 22% from last year and down 3% sequentially. We expect to see the inventory continue to decline due to the eventual resolution of older delinquencies combined with a lower level of notices being received. However, we're not expecting significant improvement in the claim rate on these notices we receive in 2016.

The number of claims received in the quarter also declined. . It was down 42% for the same period last year and down 7% quarter-to-quarter. Net paid claims in the fourth quarter were $188 million, down 24% from the same period last year and down 9% from last quarter.

As expected, the calculated weighted average effective premium yield for the quarter dropped to 52 basis points from the third quarter level as a full effect to the new reinsurance agreement had its impact in the quarter.

As a reminder, we expect the effective yield to be two to three basis points lower in 2016 than the 52 basis points recorded this quarter as more losses are ceded to the reinsurers, which reduces our profit commission.

Best said, the net cost to the new reinsurance agreement during the quarter came in as expected at approximately $11.5 million.

At quarter end, cash and investments totaled just under $5 billion, including $402 million of cash and investments at the holding company and a mix of 78% taxable and 22% tax exempt securities, a pretax deal of 2.5% and a duration of 4.7 years.

Looking at the holding company, during the fourth quarter, we repaid a $52 million of senior notes that were maturing. Additionally, we repurchased $11.5 million par value of the 2017 Convertible Senior Notes, which is equivalent of approximately 855,000 shares if they were converted.

To help bolster the liquidity at the holding company, insurance subsidiaries that do not include MGIC or MIC, received approval from the OCI and paid $38.5 million in dividends to investment.

Additionally we have been having ongoing discussions with the OCI, which I would characterize as positive to allow MGIC to pay quarterly dividends and we hope to receive approval as early as the first quarter of this year. Any such dividends would be considered special versus regular.

Our total interest expense on the outstanding debt is approximately $62 million per year. Regarding the overall capital structure in leverage of the holding company, we continue to analyze our options and are willing to consider options to lower the leverage ratio, reduce interest expense or minimize dilutions that add long term value to shareholders.

Finally in the quarter, we adjusted the DTA valuation allowance release, which decreased book value by $0.02 per share. Under the Applicable Accounting Rules, we're required to treat the valuation allowance release as a discrete item and look at the calendar year as a whole when calculating our tax provision.

In releasing the valuation allowance in Q3, we are required to estimate Q4 income. The adjustment to the valuation allowance release in Q4 was a result of a modest underestimation of Q4 income. For modeling purposes you should think about our tax rate being in the low 30s.

With that, let me turn it back to Pat.

Pat Sinks

Thanks Tim. Before moving to questions, let me give a quick update on the regulatory and political fronts, review and updating of State Capital Standards by the NAIC, which Wisconsin insurance regulator is leading, continues to move forward although we are not aware of a timeframe for implementation. We still do not expect to revise state capital standards to be more restrictive than the financial requirements of the PMIERs.

While no real legislative progress is being made on overall housing policy in Washington, we continue to be actively engaged in these discussions to be sure we have a seat at the table.

I continue to believe that the current market framework is what we will be operating in for a considerable period of time or certainly until after the Presidential Election.

Regarding the update today, while we cannot say definitely that there will not be any further price reductions based on public comments by FHA officials, we are not aware of any changes that are being planned at this time.

In closing, during 2015 we made great progress in transitioning the company from one that was still in recovery mode to a company that is now positioned for growth.

We had income of $485 million or $43 billion of high quality business. The insurance portfolio grew. Lower incurred losses as the level of delinquencies and claim payments continue to fall. MGIC's risk to capital ratio improved to 12.1 to 1. Our market share within our industry is strong and we maintained our traditionally low expense ratio.

With PMIERs compliance behind us and bolstered capital position, provided by the quality books of recent years and reinsurance, I see lots of opportunity for MGIC in the coming years.

I firmly believe that there is 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 that we are committed to pursuing those opportunities.

With that, operator, let's take questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question is from Geoffrey Dunn with Dowling & Partners. You may begin.

Geoffrey Dunn

Thank you. Good morning.

Pat Sinks

Good morning.

Geoffrey Dunn

First on credit, I think in the previous calls you've indicated maybe the year-over-year incidence improvement assumption could be maybe in the range of 150 to 200 bps. Do you think that's still a prospect for '16?

Tim Mattke

Geoff this is Tim. I’d say that we don’t think that's the likely scenario, but it would improve by that much. As we get closer to what we’ve said is a historical average of 10%, expect the claim rate on the new notices, it gets tougher to make that move.

It's on a percentage basis becomes more significant and when we look at how we put on the notices in the fourth quarter compared to the third quarter it was pretty much stable. So I would say that a full movement of another percent to percent and half next year we would not expect.

But one thing I would say though is we normally seasonally see some improvement in Q1 based upon the notices coming in. So you could see us being better in Q1, but we will expect to revert it after that point.

Geoffrey Dunn

So overall you think it would be less than 100 bps?

Tim Mattke

That's what our view would be right now, correct.

Geoffrey Dunn

Okay. And then obviously a lot of movement on this new rate card. If you put your '15 business through the new card, is your average rate higher, lower or in line with what you actually generated for '15?

Mike Zimmerman

Geoff, this is Mike. By applying it to the second half of '15 business, we would have a higher premium rate with the same rate business right.

Geoffrey Dunn

Okay. Thank you.

Operator

Thank you. Our next question comes from Bose George with KBW. You may begin.

Bose George

Hi, can you hear me?

Pat Sinks

Yes.

Tim Mattke

Yes.

Bose George

Yes, hi good morning. A couple more on the new rate card, just the pricing was in place in 2015 just -- would you guess would be the impact on your NIW in terms of what would end up -- could end up moving to the FHA?

Pat Sinks

I think it would be similar to what we're forecasting for 2016 and that is that you would seen more business potentially shift to the FHA because we're going to increase prices in the lower cycles. Now we don’t expect to lose all of that business because we're still in more efficient execution, but we will lose -- would lose some of them.

Bose George

Is it possible to quantify that a little in terms of the percentage of NAW?

Mike Zimmerman

Look Bose this is Mike. About 15% of our business was below 700 and so you know probably, I think the order maybe as much as half of that.

Bose George

Okay. That's helpful, thanks. And then just on Slide 19 and 20, those are helpful and just looking at the back of the envelope that we did on ROEs it looks like in the scenario one, it was kind of 20% for the higher quality and 10% for the lower and in scenario two you kind of end up in the mid teams for both, does that seem right?

Mike Zimmerman

Yeah Bose, this is Mike. You're absolutely correct. That’s right.

Bose George

Okay. Great. Thanks a lot.

Operator

Thank you. Our next question comes from Jack Micenko with SIG. You may begin.

Jack Micenko

Hi, good morning. Rate card again. Looking at the slides 19 and 20 in the presentation, it looks like you went to a more granular bucketing around FICO. Is that -- and I also noticed that some of the lower ends of -- with the 727, 39 implies a pretty significant price increase. Am I looking at that the right way? And what is the rationale behind going to more FICO buckets?

Tim Mattke

Look again, I think it really does reflect in the increased capital charges of PMIERs along the way and then also and that's the primary reason for it and then those are -- build into that those risk adjusted returns, we get to comparable rates.

Jack Micenko

Okay. And then, increasing the lower ends pricing obviously, PMIERs driven as well, but is there sort of an acknowledgment there we can interpret on your part that hey look the FHA may raise -- lower price again, I’m sorry. And let's just forego that business anyway at this point or do have any view there?

Pat Sinks

This is Pat. No that did not influence our thinking that maybe an outcome, but that did influence our thinking. Ours was based strictly on PMIER requirements and the need for us to generate adequate returns.

We're very sensitive to the role that we play in the marketplace. We would very much like to play at those lower FICOs if possible and play important role in housing policy, but obviously we got to generate returns that are adequate.

Jack Micenko

Okay. Great. And then with -- one last one for me, with stock here bouncing around what we think is close to book value here, does your mindset change around additional redemption on the converts or any share repurchase or anything along those lines?

Tim Mattke

Yeah, this is Tim. It's something that we obviously keep a close eye on. We're focused on making sure we pay off 2017 to get into dividends. All the writing companies do that.

As we mentioned we'll look opportunistically to see if there is anything else we can do on the other converts. These are 9%. So it definitely peaks our interest, but we have to make sure it makes sense from us from a long-term perspective.

Jack Micenko

Okay. Thank you.

Tim Mattke

Thanks.

Operator

Thank you. Our next question comes from Mackenzie Kelley with Zelman & Associates. You may begin.

Mackenzie Kelley

Thanks. Good morning. Just on the new pricing as well, when you think about the share that you got from your existing customers, I know you've talked in the past about have some of the larger especially the banks require standardize pricing across all of their MI providers.

How do you expect this new rate strategy to work particularly for those customers and is there any risk that pricing you won’t able to adopt that pricing for certain customers or that you are actually at risk of losing share with them?

Pat Sinks

This is Pat. I would say these things have happened in the past and what typically happened is some of those large more sophisticated lenders look at all their MI problems and try to get lined up.

We obviously can't predict what our competitors will do. We believe this is the right thing to do is based on the input from customers, in other words they didn’t tell us what our pricing should be, just that pricing is important to them.

And so you know we make these kind of judgments with that in mind. But what -- how competition is going to react and where the lenders may push us, remains to be seen.

Mackenzie Kelley

So when you expect pricing to be down in '16 you don’t think that if the rest of the industry doesn’t follow suit. I know that you don’t know what your competitors are going to do, but if you are more competitive on the highest FICOs, is there actually opportunity for you to take share among the higher FICOs relative to your competitors?

Pat Sinks

Yes, I guess just to be clear, we don't think that when you look across us that we think price is down. In certain sales it's down, but it’s up another 1,000 sort of weighted average as we think we end up in pretty similar spot.

But as far as us being able to pick up more business in certain sales we aren’t making any assumptions associated with that when we look at our plan for 2016. We’re looking at a similar mix other than the fact that we might lose some business to FHA for example on the low FICOs as we increase the price there.

Mackenzie Kelley

All right.

Pat Sinks

Thanks.

Operator

Thank you. Our next question comes from Douglas Harter with Credit Suisse. You may begin.

Sam Cho

Hi, this is actually Sam Cho filling in. So there has been a lot of negative press on commodity prices and how that affects housing markets in states like Texas.

Just wanted to share your thoughts on your exposure to these markets and whether the industry as a whole is ready to take on a slowdown in these markets if it does occur?

Steve Mackey

Yes, this is Steve. We’re very closely watching the development and the impact in those economies especially in Texas. We have about 6% of our risk in Texas, the biggest chunk of that or the biggest kind of attrition that’s probably in Houston which is about 2%.

So we’re very closely monitoring those markets and those situations. We have a number of economic forecasting tools that we get in house. We also have a number of home priced tools in house as well looking at the performance in our current portfolio.

We’re certainly not seeing anything yet, but we’re very closely monitoring it and as we see things develop, we'll evaluate and try to take appropriate action.

Sam Cho

Got it. So my second question is going back to the FHA and the possibility of cutting prices. So how is the industry positioned right now versus when the FHA they cut last year?

Steve Mackey

Well, we think that over the course of 2015, the price cut that the FHA announced in early '15, we probably lost about 5% business to the FHA.

We still get a fair amount where the monthly mortgage amount to the consumer is higher with private mortgage insurance but the lenders prefer the private mortgage insurance execution because they're able to cancel VMI and they're able to build equity faster. So we think it cost us about 5% of the business.

Also a lot of the FHA growth was in the refi segment as we saw particularly in the first half of the year.

Sam Cho

Got it. And my final one is have you heard any updates on deeper cover MI?

Steve Mackey

Well, as I said in my prepared comments, we are engaged in conversations with the FHFA and the GSEs. When I say we, I mean our Trade Association USMI as well as us as an individual company.

In their scorecard, they put out what they called an RFI or asked for an RFI, request for information and we will certainly respond for that though officially it hasn’t come out yet.

But there is lot of ongoing discussions. There is a lot of momentum about it, but the GSEs and the FHFA have to do their due diligence and so we’re progressing nicely, but there is more work to be done.

Sam Cho

Got it. Thank you.

Operator

Thank you. Our next question comes from Mark DeVries with Barclays. You may begin.

Mark DeVries

Yeah, thanks. So it seems to me like the type of flattening on the rate card that you're doing was kind of inevitable with the new risk rates that came out under premiers. I know it’s not easy to project what your competition is doing, but interested in hearing your level of optimism around the prospect of competitors essentially following this and us getting some pricing stability as we head into kind of the middle of 2016?

Pat Sinks

Mark, you’re right. We’re hesitant to comment on what competition is doing, and we are not going to do that.

Mark DeVries

Okay, but just thoughts on, this is a news, your reaction to my comment that its inevitable and it seems to make sense and it could be some baseline that the industry can coalesce around.

Tim Mattke

Well again Mark, yes and we think that this is a very logical thing to do given the increased capital charges that came about as a result of PMIERs and where the business is being generated and returns but that the business mandates over the long term that Pat mentioned in his opening comments. So we think it's a very logical position for us to take and that’s why we did it.

Mark DeVries

Okay. And then it looks like there was kind of a material drop in both the cures and the paids and the 12-month pass-through bucket in this quarter. Is there anything to call out there?

And I guess as a separate question, how do we think about the reserves on that bucket going forward because it seems like that bucket is rolling off very slow. There is probably not a lot of new inventory coming into it.

And it raises the question of how many of these defaults will actually result in claims because there is clearly in some cases deficiencies in the documentation and the ability to even prefect the claim? How do you guys think about that when you’re looking at your reserve levels?

Tim Mattke

Yeah, I would say Mark, we look at that and we track all of the resolutions happening on all those loans. We obviously have some loans that we would deny if they weren’t able to protect the claim.

What I would say is we haven’t had the experience recently or over the last couple of years whereas the services on any material basis haven’t been able to protect the claim.

So I don’t think that is our working assumptions within the reserving for that. Now it's back to change over time and maybe there is some bad loans out there, but that is reflected in our numbers with '17 yet.

Mark DeVries

Is your sense of servicers may just be sitting some of those loans because they don’t know what to do with them?

Tim Mattke

That's not our sense. There is a lot of these that get hung up in a bankruptcy process that take a lot of time to just work through the system. We see a lot of these loans being in judicial phase and they take a long time to get to resolution.

And so when we looked -- went out and sort of trying to do some sampling on these loans, there seems to still be some activity associated with them as opposed to not sitting on them.

Steve Mackey

And just to add a little bit about to that, this is Steve, some of the states that are very slow in allowing foreclosures like New York and New Jersey. Those can -- those are starting to become a higher percentage of our late stage delinquency buckets as the states that have been more proactive in dealing with foreclosures worked their inventory through.

So those have moved up as a percentage and there is still very, very slow states that we're getting down to the states that are really, really slow and that's I think what is holding up the process.

Mark DeVries

Okay. And is there anything to call out in kind of the drop we saw in both the curers and the paids in that bucket?

Mike Zimmerman

Mark this is Mike. I think the paid is just a function of what Steve and Tim just articulated is that we have less raw materials if you will in that bucket of claims being submitted, but looking at the transitions from the middle stage buckets to the 12 plus, that’s been relatively steady.

So if on an absolute basis it's because there are fewer delinquencies on account basis, but as a percentage it's fairly -- it's been fairly steady.

Mark DeVries

Okay. Thanks.

Operator

Thank you. Our next question comes from Eric Beardsley with Goldman Sachs. You may begin.

Eric Beardsley

Hi, thank you. Just on the rate card changes again, I think over the last two months you talked about if you narrow price and move to more tiered levels, you could potentially produce the scope who you're serving that might not be good for the industry long term.

And do you feel like you’re doing that with these rate changes you talk about actually losing some share to the FHA at the low end and I guess if so, what drove this? Is it really PMIERs or how much is competition?

Pat Sinks

Well, I think it’s a combination of the two? PMIERs was a major influence that was introduced in June and we spend the second half of the year assessing it and declared in our own minds the returns that were not adequate.

Again we very much like to play in that market. As I think Mike said earlier, about 15% of our business in '15 was below FICOs. So we have the appetite for it and just that we have to be sure that we generate adequate returns. So as PMIER is driven as much as anything else.

Eric Beardsley

Got it. And then I guess as we think about -- you made a comment that your pricing would be up and I think we calculate industry average may be, be up two basis points on borrower paid relative to last year.

If you start to lose some of that lower FICO business, particularly if the FHA cuts premiums, where would you see pricing netting out on average versus 2015?

Tim Mattke

We think it’s going to be very close to the same.

Pat Sinks

Based on the mix of business, we'll get to your point.

Eric Beardsley

Yes. I guess if you were to factor an FHA premium cut?

Tim Mattke

Well if the FHA cuts their premiums, I don’t think it’s going to impact us in any great way because number one, the rules we’re just announcing, we’re increasing rates and I think some of the other MIs have done the same.

So we expect to lose some of that business to begin with and then in addition, one of the big differentiators in the lower FICOs are the LOPAs at the GSC level and unless the GSCs are going to change their LOPAs and we have no indication of that, we don’t have an opportunity for much of that business to begin with.

So a further price cut, we can't lose more than where we're losing if you will, it's just going to be -- the difference is just going to be greater.

Eric Beardsley

Got it. And then just I guess lastly as we think about just back on the credit commentary in terms of the claim rate I guess where do you peg it in the fourth quarter and just want to make sure I understood about potentially not improving 100 to 150 bps in terms of I guess what the improvement you saw this year on average and 2015 versus '14 and where we could think about that claim rate coming in next year?

Tim Mattke

Yes, we saw it in the fourth quarter around 30% claim rate on new notices, which was pretty similar to where we were in the third quarter. That had improved during the year to up to the third quarter.

But like I said earlier, our expectation in 2016 is that we wouldn’t see much improvement over that 30% claim right for the full year. I did say the first quarter seasonally, normally we see the cure rate get a little bit stronger and so adversely the claim rate is a little bit lower in the first quarter.

But when you look at the full year, we wouldn’t expect it to be materially better than the 13% that we experienced in the fourth quarter.

Eric Beardsley

Got it. So I guess if we’re running around 13% third quarter, fourth quarter, what had to be significantly higher in the second quarter then to actually not be below that level?

Tim Mattke

I think I’m looking at sort of the run rate excluding the first quarter.

Eric Beardsley

Okay. Got it. Got it. So weighted average could end up working out lower just as you start to exit the year maybe not significantly better than it is now?

Tim Mattke

I’d say not significantly correct.

Eric Beardsley

Okay. Great, thank you.

Operator

Thank you. Our next question comes from Chris Gamaitoni with Autonomous Research LLP, you may begin.

Chris Gamaitoni

Good morning. Thanks for taking my all.

Pat Sinks

Sure.

Chris Gamaitoni

Moving to the capital structure side, you talked about potential personal actions, how much cash do you want to hold at the holding company that’s not related to debt payment, just kind of working capital?

And what do you think your target debt level or debt-to-cap level would be assuming, once everything gets worked out?

Tim Mattke

Well, there’s a lot there as far as assuming when everything gets worked out. What I’d say is we much prefer to hold excess capital that we have at the holding company as the writing company, but there is a long way to go to get to that point because we have to have our regulator approved dividends out.

So one of the reasons why we’ve been very focused on getting dividends out of MGIC and we’re happy to get some dividends out of some of the sister entities recently was to get that flexibility of the holding company.

But that -- those will come hopefully quarterly starting this year like we said and that will give us some flexibility at the holding company, especially payoff for 2017.

As far as then the cap ratio, as we said we want that to come down from where it is right now, we said that we think that even though ratings might not matter quite as much right now from a standpoint of being able to get business from our lender customers, in the long run we think it will matter more and so we’re focused on keeping the ratings improvement. So we’d like to see those cap ratios continue to come down.

Chris Gamaitoni

And is there any -- is there any thought about the opportunity to switch out some of you converts for -- at least partially with term debt?

Tim Mattke

It’s something that we talked about. The Management Team and with the Board about to try to understand what our options are. That went up definitive that we plan on doing at this time.

Chris Gamaitoni

Okay. And then finally it looks like you’ve about 11% available asset buffer at the writing company. Is that about the right level or do you -- have you now that it's finalized, have you targeted kind of a buffer level you want to hold down there?

Tim Mattke

I’d say we’re still looking at how much we want to hold there. Like I said earlier I think we preferred to hold more access at the holding company if we could. We would expect that that buffer will grow as some of the older books burn off a little bit here and we become -- continue to be profitable.

So that could grow a little bit and then hopefully that just allows us to free up more dividend capacity would be the goal.

The other adjustment that we would be looking at is obviously working with our partners on reinsurance trying to size the reinsurance deal appropriately. That’s worked very well for us and that give us a lot of flexibility and that’s why we try to develop those relationships.

Chris Gamaitoni

Right, but you don’t have a target of we want to hold 5% buffer at the writing company or 10 or whatever might be.

Pat Sinks

But we don’t know.

Chris Gamaitoni

Okay. That’s all my questions. Thank you.

Pat Sinks

Okay. Thanks.

Operator

Thank you. Our next question is from Amy DeBone with Compass Point. You may begin.

Amy DeBone

Hi, thanks for taking my question. I just want to follow up on just this cap structure question, when you talk about your mid teen or turn target, is that relative to required assets or equity?

Pat Sinks

The mid teen returns that we are targeting with our pricing and in looking at returns or the economic returns and I guess economic capital that we have deployed against the credit size of the business.

Amy DeBone

So then if we're looking at the available asset balances like $5 billion and shareholder equity is about half that amount and when you talk about the capital coming down, do you expect the difference between those two balances to come down as well.

Steve Mackey

Amy its Steve, they are somewhat -- there are obviously related figures that are with it. But one is on a statutory basis, and when we are talking about those returns, we are talking about it at the writing company level. Clearly the profitability on a GAAP basis will increase shareholder equity or as Tim said our available assets will grow too.

Pat Sinks

Yeah, I guess the one thing I think maybe try to pick out of it is there would be no leverage implied within the returns that Steve is talking about on an economic basis. So I think you try to link it somewhat to as your debt-to-cap comes down with the number that Steve has that's not levered number as far as including any sort of debt at the holding company.

Amy DeBone

Okay. So if longer term, you were able to lever that return, that would be upside.

Pat Sinks

Yes, let me just clarify a little bit. You can look at the required asset levels in PMIERs as a proxy for economic capital. So that would be a proxy for a regulatory capital requirement and we're looking at regulatory capital requirement versus what we think the economic capital would be and then pricing to the more restrictive of the two.

Amy DeBone

Okay. And which was the more restrictive of the two?

Pat Sinks

Generally it’s the PMIERs requirements.

Amy DeBone

Okay. And then when you mention that tax provision adjustment related to underestimating 4Q net income, can you just provide more color on if it was revenue or expenses that came in above your expectations?

Pat Sinks

It would have been the losses, the losses with the positive development we have in the quarter, we wouldn't have had that forecasted.

Amy DeBone

Okay. And that’s all my questions. Thank you.

Pat Sinks

Thanks.

Operator

Thank you. Our next question is from Al Copersino with Columbia Management. You may begin.

Al Copersino

Hi, thanks very much. Just two clarifying questions if I can. I just want to make sure I fully understood the answer to the last question. So the mid teens figure you communicate that doesn’t include leverage, but it is also using -- its using the PMIERs requirement for equity rather than your existing equity.

So those two things would -- I’m guessing would essentially offset or perhaps they may even be more upside from the lack of leverage to assume. So the mid teens return you talk about may translate into mid teens or slightly higher on a reported basis. Do I have that correct?

Pat Sinks

I think leverage can improve those ratios. I think it comes between where the mix as far as the I guess I would say un-deployed capital at the writing company compared to the leverage that you're able to get a benefit from at the writing company or at the holding company I should say.

Tim Mattke

When we're looking at our pricing, we're looking at our weighted average cost to capital and what we believe that is and the economic capital or PMIERs capital. So those two components -- the weighted average cost to capital certainly reflects our debt and estimated cost of equity.

Al Copersino

Okay.

Tim Mattke

That’s reflected in there. The mid teens does as any -- as we’ve shown in the example include the impact of reinsurance, but those are really the primary components that we’re considering and we’re talking about mid teen returns.

Al Copersino

Okay. And then the last again clarifying question I had, you’ve answered a question and said that the rate card changes you're making that if applied to your 2016 business, your estimate is that the overall pricing would be about the same as under the old rate card.

I guess a quick question there if that’s the case does that imply higher risk adjusted returns as presumably a bigger portion of your business would come from the higher FICO scores?

Tim Mattke

We expect on a risk adjusted basis that this should be relatively flat to slightly up.

Al Copersino

Okay. All right. Great. Thank you.

Tim Mattke

Thank you.

Operator

Thank you. Our next question is from Patrick Kealey with FBR. You may begin.

Patrick Kealey

Hey guys, thanks for having me on. First question on deeper cover MI you still seem pretty confident that the pilot program is coming down the pike. So maybe you can give us an update on your thoughts of what timing would be there given the analysis that’s being done and the comments with the FHFA?

Pat Sinks

Sure, it’s difficult to forecast the timing. The FHFA has not yet formally put out the RFI, the Request for Public Comment. My sense of it is that would be towards the end of the first quarter and I’d expect them to take till through the end of the second quarter to gather input.

So I think you’re well into the second half of the year before we would see anything and we are -- while we’re very engaged in the discussions, there is still a lot of work to do and we’re not prepared to forecast any certainty into any kind of transaction getting done yet this year, although we’re certainly going to try to do that.

Patrick Kealey

Great, and then just one housekeeping question, on your expense ratio, heading into 2016, do you think there is additional leverage in that line or do you think where you're exiting the year for full year '15 is probably a good run rate for the next 12, 24 months?

Pat Sinks

Yes. The expense ratio drips down a little bit this year. I’d say we wouldn’t expect to be quite as low in 2016, but would expect to be within a couple of points of where it is right now.

Patrick Kealey

Okay. Great. Thanks guys.

Operator

Thank you. Our next question is from Tom LaMalfa with TSL Consulting. You may begin.

Tom LaMalfa

Thank you. And good morning, congratulations on a good earnings report. Continue the improvement. I’ve really two questions for you and they are in a sense inter-wrapped, but they pertain to the industry and the industry’s strategy in dealing with the 800-pound gorilla in the room the 29% market share of the FHA is today.

What’s the thought on how to deal with that? And my second question has to do with risk sharing and whether all of the deals that are being done by the GSEs whether they're helping or hurting the mortgage insurance industry? Thank you.

Pat Sinks

Hey pal, this is Pat. Thanks for the questions. And the first one relative to the FHA market share, as I said I think it’s a combination of the reduction in prices earlier in '15 as well as the LLPAs that are added on at the GSE level. Until those change, it’s very difficult for us to say we’re going to win business back from the FHA.

We have for many years as a company and as an industry approached the FHA to try to find ways that we can work more closely together. That there is ways that in fact we do the same things, there is not an obvious difference in that they have a mission that we have public shareholders but there is a middle ground where we can play.

So it’s difficult to see that number moving in any major direction. It could be impacted by a purchase versus refi mix, but we’re well aware that we talk about it often how can we partner with those guys but oftentimes they have bigger priorities to deal with or you’ll see every two years you got a change in the guard here and you got to go through a whole reeducation process.

In terms of risk sharing, I don’t think there’s anything that’s going on right now that are hurting the MIs. However, we’re very sensitive to that. Obviously we’re protective of our turf and we think not only can -- our narrative is very, very strong.

We are private capital, we're first dollar loss, if we can help reduce the GSE exposure, we by definition reduce tax fair exposure. So it’s a strong narrative. The FHFA has been very clear that this is no longer a pilot. It's been in their scorecard now for three to four years. This is a way of doing business.

I think the GSEs have embraced it if you will and acquired to distribute model where they acquired the risk and then distributed on the back end. Our point and those of others like the MBA and the Urban institute folks like that, is that there is not enough capacity in the current market to satisfy the needs of the GSEs.

And therefore we need to be able to find -- they need to be able to find alternative instruments, alternative executions and that’s where frontend risk sharing and particular private MI comes in.

So I can't say that they've heard us thus far, but we watch it very closely. And as I said in my meetings with the FHFA and the GSEs, we as an industry are private capital and we’re saying in front of them waiving our arms going, here we are at this point and they’re doing their due diligence and hopefully at some point this year we'll hear something more positive.

Tom LaMalfa

Thank you.

Operator

Thank you. Our next question is from Scott Frost with Merrill Lynch. You may begin.

Scott Frost

Hi, I think I’ve got this, but I just want to make sure I understand how you think about the effects of the new pricing structure on lower FICO borrowers, would you characterize them as potential borrowers you’re okay with messing or alternatively once you would like to capture, but can’t because of FHA or other reasons?

Mike Zimmerman

Well, Scott this is Mike. We would at these -- at our pricing we would like to have these borrowers to our delight. As you point out, the impediment of that is FHA as well as the Pat mentioned the GSEs, LLPA that cause the monthly payment to go higher.

On an all in basis the cost if you just take out just the insurance as a discreet element, get how with finance as a loan amount, in case of FHA, we believe the consumer is better off because they have accountability with it.

Pat Sinks

Just to add on for what Mike was talking about, the PMIERs requirement has certainly increased the amount of capital we have the hold in those buckets over what the original rate card or previous rate card was priced to. So that’s the big driver as making sure we hit our hurdle rate then we turn targets against that increased amount of capital.

Scott Frost

Okay. Okay. Next question. I think you touched this a little bit, the current environment has some thinking that about a potential reemergence of asset quality issues, can you talk about why that may or may not be occurring?

Pat Sinks

Well, I think it depends on how this evolves. There is a huge amount of I would say risk in some of the energy related states. We're certainly focused on those where we have a material risk exposure. Texas is the only, what I would call energy state where we have an exposure greater than 1% of our portfolio.

But I think right now it's all -- it's very uncertain and it's going to take some time to see how things evolve. So we’re monitoring it. We have tools to help us manage our risk. We do have -- the risk exposure in Texas is part of our reinsurance agreement. So we share some of that risk, but we’re monitoring it very closely.

At this point, we haven’t seen any science that would warn us taking significant action other than monitor very closely.

Mike Zimmerman

Scott, this is Mike I would just add to that too, when you look outside of Texas and the point that Steve made to the consumer at large, employment is well skyrocketing. It continues to expand wages while are modestly expanding especially in the non-supervisory payroll segment.

Credit card debt seems to be holding in there. So we said we continue to monitor not only the market, but from the consumer perspective, which is the big driver of employment perspective, that we hope maintaining its relative strength, but that's something that has little bit better as monitoring in a volatile time.

Scott Frost

Okay. And last question and I appreciate the comments on leverage and what it sounds like as you are trying to drive. It sounds like an upward and our SR rating trajectory because those ratings along when it will matter.

The question I have is your sense that your equity capital providers agree with that view?

Pat Sinks

I think it comes down to what the opportunity is there. As we talk with investors and talk internally there is always a trade-off there. If the affluent debt ratio that helped you with the ratings, but the ratings don't matter for the volume of business you can write, you can obviously make the argument, why lower leverage. You should have more leverage at that point.

But it is our belief that over the long run if the ratings -- excuse me will manner and then that will help us keep the volume and get -- write the business that we want to write and without having investment grade rating over the long run that we could be hurt in that matter, not that it hurts us right now, but that's our focus. So we want to make sure we keep open those lines of availability of the business we want to get.

Scott Frost

So just to make sure, just to re-characterize, if you don't see an operational benefit to those ratings, that would be -- that would cause you to reconsider that view.

Pat Sinks

I think it's a fact -- it's a factor in what we look at. It's something that you have to consider it. So what do we think the return to the shareholders are by the different levers that you can pull as far as the debt ratio.

Scott Frost

Okay. Thanks.

Pat Sinks

Welcome.

Operator

Thank you. Our next question is from Mike Zaremski with BAM Funds. You may begin.

Mike Zaremski

Okay. Thanks for fitting me in. First question, primary average claim payment levels are up about 6% year-over-year to above $50,000. Can you help us think about the variables and dynamics impacting that metric?

Tim Mattke

Yes. Some of it can be impacted by the mix of the loans that are. I think there is some aspect of it that can be impacted by the duration of how long those have been delinquent.

As Steve was talking about earlier, we have a lot of loan that have been in delinquent inventory for a significant amount of time. So some of those carrying cost we paid our percent of the claim on those. So that's probably the biggest impact of that versus anything to do with home values or anything like that.

Mike Zaremski

So I guess, are you saying the -- it's funny to think about this perceptively the new vintages will have much lower levels than the older vintages. So I need to bifurcate and just kind of an estimate based on vintage and that will come, kind of let me trend where that's going over time?

Tim Mattke

It's not really a vintage issue as much as it is because both of these loans that are being paid off around the always higher books of business, it's how long they've been in the developed inventory for is probably the biggest component that would add additional cost to the average claim payment.

Pat Sinks

Mike, it's Pat. I would just give you some perspective of the current average loan size if loans were ensuring than the $215,000, $202,000 range. So then you take that time coverage rate and obviously we would have it frequently, but just to give you some perspective on the loan side that we're ensuring it.

Tim Mattke

Another driver of that over the year was primary countrywide settlement. We were holding a lot of claims and the average size of the claim coming to from what people may have settlement has been one of the drivers of that increase.

Mike Zaremski

Okay. That helps. Lastly the investment portfolio yield continues to move north. What's going on there? Are you guys talking on more risk, more duration? Do you have more appetite?

Tim Mattke

It's more on the duration side. As the years went on we moved from probably around the 4% duration to 4.7% duration. So that's probably the biggest component. We aren't necessarily taking on more risk. We are moving to more tax preference. But the biggest driver in the pretax yield is what we've disclosed obviously will not be that mix. It's more on duration side.

Mike Zaremski

I guess you keep planning on adding more text preferences is that what you said, the tax rate will be low 30s for 2016?

Tim Mattke

Yes. We do have moved more toward tax preference during the year than we would continue to do so.

Mike Zaremski

Got it. Thank you.

Tim Mattke

Yes.

Operator

Thank you. Our next question is from Vik Agrawal with Wells Fargo Securities. You may begin. Vivek Agrawal, your line is open. Please check your mute button. Our next question is from Sean Dargan with Macquarie.

Sean Dargan

Thanks and good morning. I have a question about a competitor. There is a financial conglomerate that's coming out with the results of a strategic review next week.

I am just wondering if you can give us any thought on one possible outcome, which is UGC being spun out. If that company UGC was subject to the same investor scrutiny that you and your peers are, what do you think that would do to competitive pressures or their pricing?

Mike Zimmerman

Sean, hi this is Mike. As you're closer to that, I would say and the folks that follow the P&C space and what the management teams are thinking a lot over there than we are, that we would watch and observe it to see what the structure is than who -- where do they end up?

Do they end up for something else or they end up independent. I think at this point I’d expect them for us to make comments about what it would mean to the industry.

Sean Dargan

Okay. And a related question: you for several years now have been talking about pricing to mid-teen ROEs over the cycle. But the market is not valuing your peers there now.

And an argument can be made that perhaps a P&C carrier with a lower tax domicile could pay a premium for you and make a deal ROE accretive. Do you think the stand-alone business model for an MI is the appropriate one?

Pat Sinks

This is Pat. I don’t know if it's the most appropriate one based on history in a sense that for years we’ve had both, the standalone an MI company as well as one that’s been owned by a larger parent company. We’ve seen both business models successful.

Obviously it depends on return calculations and returns on -- it depends on alternative uses of capital on your expectations of returns. We’ve seen, for instance, reinsurers interested in the MI space because on a relative basis our returns are better than theirs.

So it’s difficult to predict, which is the better model. I think some of the fundamental things that influence that decision is this is a capital intensive business and while you can put money in, you can't always get money out.

We’ve learned that many times over many years because the insurance regulators are very cautious and appropriately so. And so it’s not something you can make a quick buck on.

I think in addition to that there is -- until GSE reform shows some greater clarity and we think that’s going to be a few years out, it’s difficult to -- and it’s not to say that it won't happen, that somebody won't come in and either start an MI or buy an MI, but there is still a lot of uncertainty around GSE reform and what that means and the influence they have on what the private mortgage insurance can do.

Sean Dargan

Okay. Thank you.

Operator

Thank you. Our next question comes from Jack Micenko with SIG, you may begin.

Jack Micenko

Hi guys, thanks for the follow up, my original follow up has been answered but Pat since I’m on the line, your opening commentary seemed to really drill on transparency a bit more and I was hoping you can expand on that.

Obviously there is a newer entrant that’s focused on black box and I think a larger one has been doing it for some time. I guess what I’m trying to get at is, is there an increased interest or demand from your customer base to be more transparent and can you maybe flush that out a little bit for us?

Pat Sinks

Well, first in terms of transparency, fundamentally we believe that that’s the right thing to do and so that’s the way we run our company. In terms of the black box pricing versus transparency, the black box pricing has been in place now for a few years and the number one thing we do is stay very close to our customers.

We do business with just about everybody and the feedback that we get is that they prefer transparency. That’s not to disparage our competitor that does black box, but the feedback we solicit says they prefer the transparency. They want to know what premium rates are gong to charged.

So I think what the comment in regards to black box, I use the term off rate card pricing and that is as these pricing changes have developed in the MI market, we’ve seen more what we would call, I guess what I’d call one-off deals or deals are being cut with individual lenders.

And as time has gone by we see more and more of those deals being cut and at some point in time they are no longer one-off. And we don’t believe that’s the best way to run this business and run our company.

And so we’re saying in an effort to try to, not to say that that would never happen again, I don’t want to say that because it most likely will in certain circumstances, but we want to take those one-off deals out of the norm, out of the main and create a transparent pricing structure that makes sense for everybody

Jack Micenko

Okay. Thank you.

Operator

Thank you. Our next question comes from Bose George with KBW. You may begin.

Bose George

Hey guys. Just wanted to ask about pricing on singles. Are you guys making any changes there?

Pat Sinks

Yes, we're updating the rate cards and singles as well.

Bose George

And is the change that you are making there an increase largely to reflect the increased capital charge?

Pat Sinks

Yes, that is correct.

Bose George

And just given that, do you think we could see a shift from the industry market share from LPMI to BPMI, just because it looks like everyone is going to be raising rates there?

Pat Sinks

We certainly think that is a potential outcome.

Bose George

Okay, great. Thanks.

Operator

Thank you. Our next question is from Eric Beardsley with Goldman Sachs. You may begin.

Eric Beardsley

Hi. Thanks. A really quick follow-up. Do you know offhand how much of the positive development in 2015 was from a lower claim rate? And is there a way to think about what a 100 basis point improvement in claim rate would do for positive development this year?

Tim Mattke

Eric, are you just talking about the claim rate, the improvement on the new notices?

Eric Beardsley

Well…

Tim Mattke

The development on our existing notice inventory?

Eric Beardsley

I guess just new notices, but if you could break that out, it would be helpful.

Tim Mattke

I think, I don't have the numbers off the top of my head. We would have to go back and look and see where we were at the beginning of the year as far as where the expected claim rate was. My recollection is we're probably around 15 and slightly below and so that's improved to 13 by the end of the year.

So if you take that delta tied to a number of new notices in the year, that's probably your number. As far as the benefit on the our existing notices, we have a disclosure in our Q and it will updated in our K to talk about the positive development on loss reserves and breaks it out on what the component is on the claim rate.

Eric Beardsley

Got it, okay. So as we go into '16 here, is there a view that positive development I guess it will be more dependent upon what happens with the existing delinquencies and cure rates as opposed to what's trending with new notices?

Tim Mattke

Yeah, our view is again on new notices. From a claim rate, we think that we're 13 now and we don't see expect significant improvement there and so if you saw a reserve development, it would more on our existing notices.

Eric Beardsley

Okay. Great. Thank you.

Operator

Thank you. I am showing no further questions at this time. I would like to turn the call back over to management for closing remarks.

Pat Sinks

Okay. This is Pat. Thank you very much for joining our call. I know the nature of these -- on the beast if you will as to always look forward, but I do want to reiterate what a great year we had in 2015 with $485 million in income before the DTA. $43 billion of high-quality insurance in force done in a year where there were great competitive pressures.

The company has been profitable for eight consecutive quarters. So demonstrating a consistent pattern of profitability is important to our regulators and shareholders, our customers.

The underlying quality of business, Steve talked a little bit about concerns in some of the areas he states, but generally speaking we feel very good. So I want to not lose sight of what was accomplished my coworkers in our company in 2015.

We talked obviously a lot today about the price changes. We try to be very, very thoughtful there. First and foremost what we do is stay very close to our customers always. We believe customer service is the way to compete on.

It's not just the case of price. In some cases it is, but that said, our feedback from our customers watching what our competitors have been doing and getting a better understanding of what PMIERs really means to us has led us to the action and so we've taken it at the right time.

At the end of the day, what we need to do is compete and we will compete and we will do balancing the needs of our customers as well as our shareholders. So with that, we'll close out the call and I think everybody much for your participation.

Operator

Ladies and gentlemen, this concludes today's conference. Thanks for your participation and have a wonderful day.

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