Essent Group Ltd (ESNT) 2016 Q4 法說會逐字稿

Good morning. My name is Kelly, and I will be your conference operator today. At this time, I'll would like to welcome everyone to the Essent Group Limited fourth-quarter 2016 conference.

(Operator Instructions)

Thank you. I will now turn the call over to Chris Curran, Senior Vice President of Investor Relations. Mr. Curran, you may begin your conference.

Thank you, Kelly. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO and Larry McAlee, Chief Financial Officer.

Our press release, which contains Essent's financial results for the fourth-quarter and full-year 2016 was issued earlier today, and is available on our website at Essentgroup.com in the Investors section. Our press release also includes non-GAAP financial measures that may be discussed during today's call. The complete description of these measures and the reconciliation to GAAP may be found in Exhibit L of our press release.

Prior to getting started, I would like to remind participants that today's discussions are being recorded, and will include the use of forward-looking statements. These statements are based on current expectations, estimates, projections, and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially. For a discussion of these risks, please review the cautionary language regarding forward-looking statements in today's press release; the risk factors included in our Form 10-K filed with the SEC on February 29, 2016; and any other reports and registration statements filed with the SEC, which are also available on our website.

Now let me turn the call over to Mark.

Thanks, Chris. Good morning, everyone, and thank you for joining us today. I am pleased to report that Essent had a very successful 2016, as well as another quarter of strong financial performance. In fact, our fourth-quarter results represent our 17th consecutive quarter of profitability. Portfolio growth, strong credit performance, and a leveragable expense base continue to drive our earnings growth, and generate strong returns for our shareholders.

As we have stated before, Essent's long-term goal is simple, and that is to build a high credit quality and profitable mortgage insurance portfolio. We remain optimistic about our business heading into 2017, as the underlying fundamentals of housing are positive, and the real estate cycle remains in expansion mode. Strong demographics such as the millennials entering their peak buying years and demand out-pacing supply in many markets continue to drive purchase mortgage demand.

Given these factors, along with builders' increasing supply for first-time home buyers, we believe that housing will continue to be strong for the next several years. Additionally, the environment for our industry remains positive, and we are estimating that industry NIW in 2017 will be comparable to the robust levels in 2016.

Now, let me touch on our results. For the full-year 2016, we increased net income 41% to $223 million, from $157 million in 2015, while also generating an 18% return on average equity for the full year. On a per-diluted-share basis in 2016, we earned $2.41, compared to $1.72 in 2015. Our increase in net income continues to be driven by the increase in our insurance in force, which grew 28% to $83 billion as of year end, compared to $65 billion at the end of 2015. Additionally, our combined ratio declined to 34% in 2016, as a result of further expense leverage and strong credit performance.

As of year end, our insured portfolio had a weighted average FICO of 749, and a default ratio of 47 basis points. Our balance sheet remains strong, with $1.9 billion of assets, and $1.3 billion of equity at year end. Also, we grew adjusted book value per share 21% to $14.49, compared to $12.01 at the end of 2015. As a reminder, Senior Management's long-term incentive compensation is driven by annual growth rates in book value per share. We believe that book-value-per-share growth is a key metric in demonstrating value to our shareholders.

In Bermuda, we remain pleased with Essent Re's growth, as it continues to re-insure Essent Guaranty through the affiliate quota share, and participate in GSE risk share. Essent Re's growth during 2016 was stronger than expected, primarily as a result of strong NIW levels in the core business.

To support this growth, we drew an additional $50 million under our $200 million credit facility during the fourth quarter, and contributed this amount to Essent Re. As of year-end 2016, we remain comfortable with our capital position, which includes approximately $50 million of cash and investments at HoldCo, and $100 million of capacity under the credit facility.

Turning our attention to Washington, we continue to monitor activity that may have implications on housing finance and our business. Early indications are trending in the direction of less government support versus more, as evidenced by the recent reversal of the FHA price decrease. We continue to believe that our industry can be further leveraged within a housing finance system where more private capital can be deployed to support housing, while also lowering taxpayer risk. Now let me turn the call over to Larry.

Thanks, Mark, and good morning everyone. I will now discuss the results for the quarter in more detail. For the fourth quarter, we reported net income of $62.7 million, or $0.68 per diluted share. Net income for the quarter is up 5% over the third quarter of $59.7 million, and 41% over the fourth quarter a year ago of $44.5 million. Note that our third-quarter results included a favorable valuation adjustment of $2 million, or approximately $0.02 per diluted share, associated with the amendment of certain GSE risk share reinsurance contracts that resulted in a change from derivative to insurance accounting.

Earned premium for the fourth quarter was $117 million, an increase from $111 million, or 5% over the third quarter, and an increase from $89 million, or 31% over the fourth quarter of 2015. The average premium rate for the fourth quarter was 56 basis points, down slightly compared to 58 basis points for the third quarter, and relatively flat compared to 55 basis points for the fourth quarter a year ago.

We continue to be pleased with the credit performance of our insured portfolio, ending the quarter with a default ratio of 47 basis points. Our provision for the quarter was $3.9 million, compared to $5 million for the third quarter, and $4.2 million for the fourth quarter a year ago. The reduction in our provision this quarter compared to last quarter is primarily driven by an improvement in our reserve factors on our default portfolio, as a result of higher cure rates and lower claim severities.

Other underwriting and operating expenses were $35.2 million for the fourth quarter, and our expense ratio was 29.8%, compared to 29.6% in the third quarter, and 33.1% for the fourth quarter of 2015. For the full-year 2017, we estimate that total underwriting and operating expenses will be approximately 5% higher than our fourth-quarter annualized run rate.

Our effective tax rate for the fourth quarter was 28.2%, and for the full-year 2016 was 28.6%. I should note here that effective January 1, 2017, we adopted a new Accounting Standards Update issued by the FASB related to employee share-based compensation awards. This update requires that excess tax benefits or deficiencies be recorded as a discrete item in the tax provision in the income statement in the quarter the share award vests. Excess tax benefit or deficiency represents the tax effect of the difference between the fair value of the share award on the date of vesting, versus the date of grant.

We expect to record a discrete excess tax benefit of approximately $0.03 per diluted share in the first quarter of 2017, based on the current stock price. For 2017, excluding the impact of the excess tax benefit to be recorded in the first quarter, we estimate that our full-year effective tax rate will be in the range of 26.5% to 27%, not incorporating any impacts of possible federal tax reform.

Consolidated balance of cash and investments at December 31, 2016 was $1.6 billion. The cash investment balance at the Holding Company was $47 million, compared to $45 million as of September 30, 2016. As Mark touched on earlier, during the fourth quarter we drew an additional $50 million under our revolving credit facility, and used the proceeds to make a capital contribution to Essent Re. As of year end, we now have $100 million outstanding on this facility, with $100 million of undrawn capacity. The interest rate on the amount drawn under the credit facility at December 31, 2016 was 2.73%.

As of December 31, 2016, the (technical difficulty) was $1.1 billion, with a risk-to-capital ratio of 14.7 to 1, compared to 14.8 to 1 as of September 30, 2016. Finally, Essent Re had GAAP equity of $401 million, supporting $4.2 billion of net risk in force as of December 31, 2016. Now let me turn the call back over to Mark.

Thanks, Larry. In closing, Essent had another successful year of financial performance, as we continued growing our high-quality earnings and generating strong returns for our shareholders. As discussed, we remain positive on housing, and believe that the real estate cycle remains in expansion mode. The Essent franchise is strong, and we are well positioned to continue to grow in both the states and Bermuda. We remain optimistic about Essent's prospects, and the role of private mortgage insurance in US housing finance.

Now let's turn the call over to your questions. Operator?

(Operator Instructions)

Your first question comes from Bose George from KBW. Your line is open.

Hi guys, good morning. Actually, first just wanted to ask about the losses incurred. You noted the drivers of the lower number this quarter. When we think about the outlook there, is 4Q a good run rate now for how you've reserved for new notices?

Yes, I wouldn't necessarily look at fourth quarter as a run rate, Bose. Again, the number of defaults is still relatively small. The claims paid is relatively small. I think longer term you've really got to take a step back, and I would point you to our supplemental information, where we talk about incurred loss ratios by vintage. I think if you look at that, that's probably a better indicator of longer term where losses could potentially go. Again, the newer vintages you can't tell, but some of the older vintages are really becoming seasoned enough where you can start to really make a call on what the ultimate loss ratio is.

Okay. Actually, just in terms of the changes that you saw this quarter on the losses incurred, can you talk about that a little bit?

Bose, that's typical with how we do. We review our loss factors as part of our reserve methodology every quarter. This quarter we continued to see improvement, and those were factored in. As you saw, our severities this year continue to trend very favorably, so those were reflected in there.

Okay, great. Then actually one on market share. I know you don't usually like to discuss market share. Your singles were down quite a bit. Your NIW relative to peers seemed to be a lot better quarter over quarter. Do you think you took some share this quarter?

Tough for us to tell, Bose. Again, a few of the participants haven't even reported yet. We're usually the last one. We don't focus too much on that in terms of where we stand. I think we continue to grow insurance in force. I think that's what we're really focused on. NIW levels were healthy, but I do think the market continues to be healthy.

In terms of share, again, we're comfortable. We said before in that 12% to 14% range. I think given the merger with Arch and UG, you could probably look at it probably more of a 13% to 15% range going forward. Again, I don't know if that's going to happen on a quarter-by-quarter basis, but again longer term, with six participants versus seven, I think you're going to see a natural share shift. Again, we've always talked about that 12 to 14. I think we have since the IPO. Given that there's one less competitor, extending that range is probably prudent.

Okay, great. That's helpful. Thank you.

Sure.

Your next question comes from the line of Mark DeVries from Barclays. Your line is open.

Yes, just had a follow-up question on that. Without focusing specifically on whether you gained share or not, your NIW was up 75% year over year, which is pretty impressive, and certainly more than what we've seen from the market. Could you give us some color on where the greatest areas of strength were?

Yes, Mark. I think it's something that -- we're going into our eighth year of business, so we continue to add clients. We added a nice amount in 2016. We talk about always activation and utilization. I think utilization across some of the newer clients is up. It's a natural part of the story that we continue to grow, that there's some natural share growth or natural just client growth, and over time that does result in more NIW.

Again, we're just -- we're really -- I think the ultimate gauge is still the insurance in force, and I think that's -- to me, that's the thing we're the most pleased with, is growing insurance in force 28% in 2016. We grew at 29% in 2015. I think that's really a function also of the bigger market.

Remember, when the market's bigger, market share's not as important of a metric. It just isn't. Think of it, in 2016 the market was bigger than it was in 2009, 2010, and 2011 combined. An overall -- high tide lifts all boats. An overall market really helps us. I think it helps the industry in total. I think it helps around stability of pricing and all those sort of things.

The market was higher than its long-term average in 2016, and when we see comparable for 2017, that's a really good thing. These are high levels of NIW. Again, for us to get our fair share of it -- and like I said, maybe it's now that's in the 13% to 15% range, I think that bodes well for future growth within insurance in force.

Okay, got it. One area of strength I did observe is in your NIW is the 95% plus LTV bucket is up pretty materially year over year. Is that attributable mainly to the GSE's new 97% LTV program? If so, how much more room, runway do you have? Is this similar to several years back when the FHA raised pricing, you had to re-train loan officers to think of private MI as an alternative to the FHA in these situations?

Yes, I still think that growth is on the margin, but you're right. Now that the GSEs have rolled their 97 programs, you're seeing more and more, especially the larger lenders, start to develop programs around that. We started seeing that pick up in the second quarter last year. We would expect it to continue to increase. But you're right, yes, it really around training the loan officer and showing private MI as a good alternative to FHA; and we think that will continue.

Okay. Great, thanks.

Your next question comes from Doug Harter of Credit Suisse. Your line is open.

Thanks. Mark, I was wondering if you could give a little thought on now that you've drawn on the credit facility for another $50 million, at what point do you think about doing a more permanent financing there, and how are you thinking about your options today?

Yes, Doug, it's a good question. I think as we said in the script, we remain pretty comfortable with our capital position, given where we are at the end of the year. Future capital needs really at this point are dependent upon growth in Essent Re. Remember, Essent Re has two forms of growth. It's the affiliate quota share and also has the third-party business. Given our current forecast, we remain pretty comfortable. Remember, Essent Guaranty is self-generating capital at this point, and Essent Re is not too far away from that. I think that really -- that gives us the confidence to remain comfortable with capital.

But again, we always think about capital. Should the opportunity come up to strengthen the capital position, increase our financial flexibility by replacing the line with more permanent financing, it's certainly something we would evaluate. We always say capital begets opportunities. I think we've shown in the past new capital, our ability -- the line's a good example to draw down new capital and able to put it to work at pretty good returns. I think that's something we'll continue to evaluate. I think we have a pretty good track record there.

Then how are you thinking about the quota share and sizing that? Is that something you would consider changing, or do you wait and see how tax reform plays out in the US before making that decision?

As we said in the past, I think increasing the quota share is something that we will continue to evaluate. Again, it's more of a capital optimization play versus a tax play. Because remember, as I said earlier, Essent Re is a little bit capital-consumptive. The quota share at this point is still a little bit from a capital standpoint, it's not as efficient as it is with an Essent Guaranty. But also with tax reform on the table, I think we're going to -- it's prudent for us to see how that plays out in terms of where it is. Tax reform -- it's a once-in-a-generation type event. I think it could take longer than people think, but I've been surprised before. I think we're going to sit back, see how it goes, and then we'll obviously monitor it and then proceed accordingly.

Great. Thanks, Mark.

Your next question comes from Jack Micenko of SIG. Your line is open.

Hi, good morning. Looking at the supplemental, the 2014 vintage has the 3.9% loss ratio. From the table, it looks like the big change there is FICO. Is that 3.9%, Mark, what you were referring to Bose's question when you think about the vintages after that look more like the 14% from a composition standpoint, and thinking about 3.9% as that three-year seasoning number? Is that what you were talking about?

Yes, it is. I was probably pointing more toward 2013. It's a little bit more in 2012. There's only 30%-something left in the 2012 vintage. I feel like that's a -- we have a pretty good sense of it. I think 2014, there's still 60% of the balance left, Jack, so it's hard to -- you don't want to make a call on that.

Really, that is -- to follow up, they're all in that range, that low-single-digit type range. I think right now early indications, I think the whole book is probably 3%. Early indications -- again, what we're still seeing on the front end, and it's obviously contingent on where the economy goes, but again the quality of a 750 FICO book is pretty good. You've heard me say this in the past.

That's the big difference in the portfolio versus the pre-crisis. Pre-crisis, the Freddie Mac high LTV portfolio, average FICA was 705. The industry was bar-belled, too. The industry, probably, for most of the participants back -- and let's call it 2006, 40% of their business was below 680. Today, we're right around 5% below 680, so it's not a barbell portfolio. When you get a borrower with an average FICO of 750, most likely they have better reserves. They probably have a lower DTI. In fact, in our portfolio they do have a lower DTI.

If something were to happen to them on the employment side, they have more resources at their disposal to make payments. That's a big deal. I think -- and this is where we're different than some of the other consumer finance. Folks compare us to different consumer finance, and we just have a different makeup of the portfolio. I think that's something that's not well appreciated yet, I think, by the investor community, but I do think it bodes well. There's a little bit of a secular shift in credit. If you think about quadrants, we're in that right upper hand quadrant of secured high credit. I think we see that trend continuing.

Hi, Jack, it's Chris. Just to be clear, though, certainly you have the older vintages in which maybe you can really get a feel for what's left as far as the burn-out. But in no way were we referencing that we think that the entire book is going to be at a 3% to a 4% incurred loss rate.

Yes, and in fairness, we're splitting hairs between 3.3% and 3.9%, in the broader picture. Larry, with the stock price impact on the tax rate, can you one, give us a little more sensitivity so maybe we can model what that could look like, and then help us understand the cadence of the stock? I think you said it was due to -- reflected in the quarter the awards were given. Is that a normal even impact over the year? Is it front-end weighted? How do we think -- can you give us a little more color, and maybe try to model some of that?

Yes, Jack, good question. The accounting for these excess tax benefits or deficiencies has changed. In previous years, the excess tax benefit or deficiency went to the equity section, so it didn't affect earnings. Beginning this year, it will be recorded in the quarter the share awards vest. For us, essentially all of our share awards vest in the first quarter of each year. When you're thinking about this going forward, we'll have this impact in the first quarter.

The $0.03 per diluted share that we estimated, we feel pretty comfortable with that estimate for the first quarter of this year. But the stock price will have more of an impact in future years as other shares vest -- as others grants vest. We can take it off line and talk about it a little more detail. We'd be happy to do that.

Okay, great. Thank you.

Your next question comes from Vic Agrawal of Wells Fargo. Your line is open.

Thanks, good morning. Thanks for taking my questions. You talked about the shift of credit in the portfolio. Should we assume that -- severity obviously was lower in 2016 than it was the several years prior to that. Should we expect 2016 is sort of where you're thinking, as opposed to 80% to 90% severities that you saw over the last several years?

No - hi, Vic, it's Larry. I would not make that assumption. This year we still have a relatively small number of claims being paid. It's still the law of small numbers. We would think going forward that severities would be probably closer to the 2015 level of about 93% than they were to this year. Again, at the small levels we had very favorable severity experience this year. But we think that's probably not a good assumption going forward, and closer to the 2015 annual severity would probably be more realistic.

Thank you. Then Mark, I think you talked about the first-time home buyer. Can you give us some more color on what activity you've seen with the back-up in rates and what's your thoughts for the remainder of the year?

Yes, I think the rates are higher, so we saw close to 4.5% post-election; but they backed down in 30-year something along the lines of 4-1/8% now, which is higher than it was last year, but not materially so. Again, it's early in the year, Vic. I think we're -- I've been out on the road a couple times, actually more than a couple times, so the traffic I've seen in the southeastern part of the country is -- what I heard was as strong as last year. You're seeing that activity.

I think the story within home building within this part of the industry is clear. Supply is still low, so builders are still really ramping up supply. I think the important part is that they're really starting to target the first-time homeowner. One of the larger home builders in the country now I think is 50% starter homes, and the average ticket is somewhere along the lines of $250,000. Our average loan size is $229,000. It's right in our wheelhouse.

You've heard me talk before about the impact on the millennials. I was just looking at a core logic study the other day that shows the millennial generation, which is really that -- call it 1980 to 2000, 80 million individuals. The largest cohorts of that population are between 23 and 25 years old. The average age of the first-time homeowner is 31. There's a wave, I think, from a demographic standpoint that will continue to come on line.

But these are secular three-to-five-year trends. It's hard to predict that in a quarter or even a yearly basis. Rates obviously could pause things there. We don't necessarily see it this year. But again, I think longer term that gives us the confidence, I think longer term, to think housing has -- is still in that -- the early stages of the expansion mode. Again, tough to predict quarter over quarter, but we continue to see the next several years being pretty good.

Thanks for that. Mark, I think -- I know that you like to spend a lot of time with your customers, and you mentioned the southeast. Are you seeing similar trends in other part of the country? Can you maybe comment on that, as well?

Yes, again, I think the trends are fairly consistent across the rest of the country. Again, it's a little early. I got to see and touch some of the parts of the southeast. Check in on the second-quarter call, and I'll be able to give you some more color based on my travels.

Thanks for the comments.

Your next question comments from the line of Mackenzie Aron of Zellman Associates.

Thanks, good morning, and congrats on another strong quarter. Mark, is there any update on the risk-sharing conversations that have been had with the GSEs over the last few months? Any update there, or any expectations for going into 2017 as to how that conversation might continue to develop?

I think in terms of particular transactions, I think the forward deal that we were on in the fourth quarter is still in process. We would expect that to come up for renewal. We think the GSE, the risk share is still on the table, continues, I think will grow as the GSEs continue to grow, as originations continue to grow. But there's nothing new precisely on the table. I think it's around the growth.

The other factor obviously is the new administration, and I think I mentioned in the script with FHA, the pricing roll-back, there just seems to be more of a -- you read about it, you hear about it, and when you talk in Washington, there's more talk towards more private capital. Again, what that means in the next quarter or this year, Mackenzie, it's tough to tell. But again, longer term, we think that bodes well.

Again, we think as an industry we're very well positioned. We're connected to thousands of lenders across the industry, with the capital position of the MIs, which continues to build, both at Essent and with our competitors. It's a pragmatic way to continue -- and an easy way, I think, for private capital to take on more of the burden versus the taxpayer. Again, it's early in the stages. The new administrations just started. But I think the tone of what we're hearing early on is -- I think it's favorable for the industry.

Okay, great. On that same topic, some of the conversation that's come out of DC about Dodd-Frank and CFPB and potentially rolling back some of the regulation, you've talked a lot in the past about the guard rails that those new regulations have established. Do you see that changing over the next few years, if that really comes to fruition? How does that impact the business?

It's a good question. I think what we're hearing really around Dodd-Frank has to do with more of the bank regulations. In certain parts of it, the pendulum shifted a little too far. The idea is to push it back a little bit towards the middle.

I think when it comes to mortgage, I think -- we haven't heard much, nor do we expect to. We're very pleased with QM. I think our lender partners are, I think the GSEs are. I think these guard rails are important. To have DTI limits and rules around underwriting, that's how the business should be operated. There's a lot of Dodd-Frank that was good, and I think they're trying to roll back some of the stuff that maybe is a little excessive.

I think in the mortgage market it's worked well. Look at the results of the quality of underwriting that you're seeing from the lending community, you're seeing in the GSE portfolio, and you're obviously seeing it in the MI portfolio. I think those guard rails are good, and we would expect them to stay.

Great. Thanks, Mark.

Your next question comes from Rick Shane of JPMorgan. Your line is open.

Thanks, guys, for taking my question. Really, related topics. Mark, when you look into 2017, is there anything we should be thinking about from the operating expense structure strategically, and particularly as the portfolio starts to season? Then the second and related question is, is there a virtuous relationship between the low loss rate, the low credit expenses, and the low operating expenses that we should be considering, as well?

Yes, Rick, in terms of the relationship, I don't think they're connected at all. I think they're more around -- our view always is the best risk managers are the best cost managers. I think we're careful about both.

To answer your question on expenses, again, we focus as we've said in the past really on the nominal expenses. I think they're growing, albeit at a relatively much slower rate than our revenues. Part of that is I would say a chunk of it, as Larry mentioned, a chunk of it is some of the stock, but the other is just more variable costs, more underwriters to handle the increased volume, is probably the biggest piece of it. That's money well-spent in my opinion.

We continue to do more non-delegated underwriting. That percentage continues to tick up, which means more underwriters. Again, maybe that does -- that's probably a little bit lower losses down the road, because you are looking at it, so there is a little bit of a linkage there. I think you're correct.

Longer term, I think we've always guided to that 40% combined ratio. That's the way to have it come out in the wash. We're obviously doing a little bit better than that now, and we would expect the losses to season, and the loss rate to go up, and the expense rate to continue to go down over the next few years.

Okay, great. Thank you, Mark.

You're welcome.

Your next question comes from Mihir Bhatia from Bank of America. Your line is open.

Good morning, and thank you for taking my questions. Firstly, congratulations on another strong quarter. I just had a couple of really quick questions, first on your single premiums. It was down a fair amount again quarter over quarter, and I'm just wondering what is driving that? Is this a decision you all are making, or is it just a function of the market just being smaller for that business?

I think it's a little bit of both. I would say probably more with the market. Our view is since the borrower-paid pricing changed or got reconfigured this time last year, you saw better pricing in the higher FICOs. I think that really pushed, just from an execution standpoint, pushed borrowers more to borrower-paid

I would say at its height we saw singles probably in that 30%, perhaps even 35% range. Tough to gauge, because not everyone reported it. I would say it's probably closer to 20% to 25%. If you're in the 20% range, you're probably at market. If you're higher, you're probably above the market. We've always been below the market. I think our portfolio still is 80%-20%.

I wouldn't read too much into one quarter. It's not like we targeted, per se. Clearly, an 88%-12% mix is a better return dynamic than someone -- another competitor that's at 75%-25%. I think the math is relatively straightforward. Again, since we're return-driven that always tends for us to shoot more for the monthly. Again, it comes down to the borrower and where the pricing is. I think it's probably more market-driven, and we'll always going to be a little bit below the market, to sum it up.

Great, okay. Then on the average premium rate, was there any benefit this quarter? I saw the re-fis were up a fair amount, just from maybe single premium amortization or something, or was it a pretty clean number and we can take this number as we move forward, obviously understanding that newer business is being written at a slightly lower rate?

Yes, I wouldn't necessarily bake it in. I think we've been saying that there's always a component of singles cancellation in every quarter, because the singles cancel. I think it's a little heightened both in the second and third, and even the fourth quarter, given some of the re-fi activity. We still think mid-50%s is a pretty good gauge for the foreseeable future, and then we'll obviously update it past that. But I think still mid-50%s is a good gauge for you.

Oh, okay, great. Then just one other question. Any comments, just in terms of -- can you provide any more detail on your prior-year reserve releases? Pretty consistently, I think, this year you had between -- around $1.5 million to $2 million in prior-year reserve releases. Any comments on that, and why that's happening?

Yes, Mihir, this is Larry. I think you hit the nail on the head. It's pretty consistent year over year. We saw some of the favorable severity experience that we saw this year in terms of the severity rate going down from low 90%s to low 70%s, but nothing other than that. Again, as we talked about earlier, we guide severity rates up closer to the prior-year level of that 92%, 93%, as a longer term amount that we would expect to see.

Okay, great. Thank you so much.

There are no further questions at this time. I turn the call back over to Management for closing remarks.

Thank you, operator. We'd like to thank everyone for participating in today's call, and enjoy your weekend.

This concludes today's conference call. You may now disconnect.