MGIC Investment Corp (MTG) 2002 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MGIC investment fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touch-tone telephone. I would now like to introduce your host for today's conference, Mr. Jim McGinnis. Sir, you may begin your conference.

Thank you, Operator. With me on the call this morning are Curt Culver, president and CEO, and Larry Pierzchaiski, Executive Vice President of Risk Management, both of whom are joining us from another location on the road this morning. Also with me here at MGIC are Mike Lauer, Executive Vice President and CFO; and John Fisk, Executive Vice president of strategic planning.

During the course of the call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results to differ materially is in our third quarter 10-Q and in this quarter's earnings release. If the company makes forward-looking statements, by making those statements we are not undertaking an obligation to update those statements in the future in light of subsequent developments.

With that, I'll turn it over to Curt.

Thanks, Jim. And good morning. MGIC earned 137 million for the quarter and 620 million for the year while significantly increasing loss reserves. 2002 was our busiest year ever as we set new records for both the quarter and the year in new insurance written and policy cancellations. We wrote $92.5 of new insurance this past year, and a record 25.3 billion in the fourth quarter alone. And despite record low persistency of 56.8%, grew the in-force book 7% to 197 billion. The in-force growth coupled with the higher average premium rates on our bulk business resulted in strong arm premium growth of 11% in the quarter and 13% for the year. In addition, we grew the investment portfolio by 16%, to 4.7 billion on strong cash flows, and our financial flexibility as measured by our risk-to-capital ratio continued to improve to 8.7 to 1.

We achieved these results despite very challenging economic conditions and the convergence of three negative trends in our business, those being: Record low persistency, higher underwriting expenses, and higher loan delinquencies. Regarding credit loss trends, both the inventory of delinquent loans and delinquency rates continued to increase in the fourth quarter as expected, due to the seasoning and composition of our larger books of business as well as the weak economy. Reflecting the larger delinquency inventory and higher average severity related to deeper coverages, we increased loss reserves by 68 million in the quarter.

Regarding expenses, as I mentioned earlier, the fourth quarter was our busiest quarter ever, and resulted in 11% increase in underwriting expenses over fourth quarter last year. At the same time, our GAAP expense ratio declined to 15% from 16% a year earlier.

Now, turning to this year, 2003. Mortgage originations should approximate 1.8 to 2 trillion down from about 2.5 trillion this year, with all of the reduction coming in refinances as we expect purchase transactions to grow by about 4% and exceed 1 trillion for the first time ever. As far as how it will flow throughout the year, we see the first half still dominated with strong writings by our company driven by refinances, but as a result of that lower persistency, as well as higher expenses. In the second half as volumes moderate, we -- and particularly in the refi area, we expect that consistency will improve, underwriting suspensions should decline, we should see book growth benefit from the higher consistency. Regarding the loss side of the business, the delinquency inventory should continue to increase as the book ages and the economy continues to come weak in the first half of the year. Consequently, we will see a increase in claims and incurred losses.

Let me take a few minutes to spend on four topics that seem to come up a great deal in our presentations, those being persistency, our bulk business, real estate values, and captive reinsurance. As I mentioned a minute ago, at just under 57% persistency, that's at a record low, with heavy refines volume in the pipeline and expected to continue in the first quarter, I expect that the persistency will go lower and start to recover by midyear. However, the good side of that is longer term, the impact of the huge 2002 refinance book will be positive as refinance books historically are most profitable with higher persistency and better credit quality. Regarding the bulk business, probably the most misunderstood aspect of our business, we have $38.5 billion of bulk insurance in force, which is about 19.5f% of our total book. 55% of the bulk business has prime credit scores, 27% are -- have credit scores considered A minus and 18% sub prime.

As I meet with investors, a misconception about the business seems to stem from these high delinquency rates when you compare them to our traditional delinquency rates. However, we anticipate these rates and claim rates and price the bulk business significantly higher than our traditional business to compensate for the higher risk. In fact, we expect lifetime paid loss ratios to reach 65% versus around 35% on our traditional business. But we're able to achieve attractive returns despite the higher loss ratio because the expense ratio is less than 5% versus in the neighborhood of 20% for our traditional business and none of the premium is shared with captive reinsurance arrangements. To date, the bulk business has developed within our pricing expectation and is very profitable with an effort to date paid loss ratio of 16.5%.

The third topic, real estate values, continues to receive some press, although I think it's been moderating, related to the housing bubble concerns. And while we've seen values slow, which to us is very beneficial for a variety of reasons, we still don't see any signs of a housing bubble particularly in the segment of the market we serve, where the average home value is about $150,000. Home prices continue to rise in all states nationally and were up an average of 6.2%. Demand continues to be strong driven by favorable demographics, excellent affordability, and a shortage of housing supply. And that market strength is confirmed through our claims mitigation efforts which saved the company 127 million this past year, compared to 87 million the prior year and 70 million the year prior to that. I feel very good about real estate values in the market that we serve.

The last topic relates to our announcement -- recent announcement limiting the percentage of premiums MGIC will see under excess of lost captive reinsurance arrangements. As most of you know, captive reinsurance is an arrangement in which the mortgage lender, through which a mortgage insurer, such as MGIC receives portion of the premium on the business insured with that lender, in exchange for the captive assuming a second layer of claimed losses, generally at four or 5% attachment point. Up until about a year ago, the% of premiums seated was generally limited to 25%. Subsequently, however, captive arrangements involving premium sessions of 40% have become more common, particularly with larger lenders. Why did we make this decision? Well, frankly, the returns are unacceptable on this business. When you have 60% of the premium retained by the insurer, to recover a loss ratio that traditionally runs in normal times around 40%, and you add an expense ratio of 20% on top of that, that is not a return that's acceptable for our company.

So let me now, before we go to questions, just summarize where we are and where we see the year going. We see 2003 as a year in which MGIC transitions to higher persistency and lower underwriting expenses in the second half of the year. As the economy gets back on track, improving loss trends as we move into 2004. Finally, with respect to earnings guidance for this year, our previous guidance that diluted earnings per share excluding realized gains would be in the range of 6.05 to 6.20 was based on our expectations at the time that the economy, persistency, and underwriting expenses would all improve sooner than we now expect. Consequently, the company's new guidance is for diluted earnings per share excluding realized gains to be in the range of 5.85 to $6.10.

With that, let's take questions.

Thank you. Ladies and gentlemen, if you have a question, at this time please press the 1 key on your touch-tone telephone. If your question has been answered or you which to remove yourself from the cue please press the pound key. Our first question is from Rob Ryan.

Good morning.

Good morning.

Persistency has been under pressure for about 24 months with this unending refinance boom. But one of the reasons it's grown nicely has been the bulk business. What's the outlook for 2003 in terms of bulk?

We had a very good quarter and it looks like a strong first quarter, and where we've talked about it being approximately 20% of our volume, I think it's going to be a little higher than that next year, I think about 25% of our volume will be bulk-related, as we see significant opportunities continuing. So I think it will be an excellent year for us relative to bulk pricing and bulk volume volume.

Okay. How about over on the loss side of the equation? Looking forward, the types of net additions to your reserve that you would expect, especially in the context of the third and fourth quarter being so strong in terms of those net additions, how about for next year based on, you know, maybe the economy improving somewhat, and, therefore, the -- somewhat of a moderation of the increases in the delinquency rates? Or, just what are you expecting and, therefore, what kind of [incurreds] should we look for?

Rob, Mike here. I'm down in Milwakee here. I guess I would say that relative to your comment, we would see a reduction obviously in the -- from the amount that we -- the increase in the fourth quarter. Looking at something significantly less. Overall, I would say that in a macro standpoint, we're looking at a continued increase in paids as we talked about for the last two or three-quarters. These books are continuing to come in, they're major cycle, claim cycle period. We've seen some increase in severity this last quarter, so we see an increase in paids quarter to quarter sequentially, probably not to the degree that we saw here quarter to quarter from fourth to third, but some type of increase quarter to quarter sequentially, both on the bulk and flow side. I guess with respect to notices, again, we continue to see an increase, albeit probably not the same level of increase we think that the increase in the second half of the year won't be to the same degree. At this time, that's what our forecast includes, that we see some moderation in some of these books later in the year so not quite the same increase in notices in the second half of the year on a quarter-to-quarter basis. Finally with respect to reserve change, I would look towards somewhere of about a range of somewhere between probably 80 to 110, $120 million in reserve increase depending on what would happen obviously to notice levels. Should notice levels decline, that would be a plus to that. I don't think that we'll start off the year at the same level that we've increased in the fourth quarter, it would be significantly less than that, but we do anticipate both an increase in paids and notices, but not anywhere near the notice increase that we saw. So a moderation, if you will, in the first quarter from the fourth.

Okay, great. Can you just give us the severity statistics for the fourth quarter?

Jim, do you have it?

Yeah. Let me just grab them here. Here they are. Average severity about 20,900 in the quarter, that was versus 19,700 in the third.

Do you have it broken down into traditional and bulk?

Yeah. We've got traditional at about 22,000, and bulk at about 19,002.

Thank you very much.

Thanks,.

Our next question comes from David Hochstim.

Can you talk about what the reaction has been from lenders to your change in captive plans and also then maybe talk a little bit about that increase in severity that we have seen in the flow business and whether that increase in severity will continue as claims paid rise?

Let me take the first half of that and Mike and Jim can address the latter half. Relative to the reaction, I've met with -- we have 11 customers that would like to be at 40% levels with us, and I've met with 10 of those. I have my 11th meeting on Monday. The reaction has been mixed, as I expected. In some cases, this is a very important revenue element for customers, and it continues to be available in the marketplace from competitors other than MGIC. And in some cases, this will cost us business with customers. In other cases, actually, we've discussed business volumes with customers as we've gone through our discussions why we need to do our -- or take this stance in other cases, this is the most-type kill, there's still a wait and see. It's been very mixed, I would expect it will cost us some market share, but at the levels or the returns that that business is written on, not that we ever like to lose market share, but at the levels of returns that this business generates, it is not business that's appropriate for our company to write. So I expect some customers to decrease. I know a couple have increased with us. I think the net result will be we'll loose this market share.

Is it possible to give us what average premiums look look look like on the bulk versus the flow business, and the trend for the last couple of quarters?

Mike, do you --

No. Well, I mean, what you're saying, David, is that the average basis points up in the quarter.

Right.

And that's a function obviously of primarily driven by the bulk business as Curt talked about.

On the bulk business it's continued to increase pretty steadily over the last four quarters. Larry, I think that's correct.

Right, Jim, that's correct. It was a real positive quarter relative to pricing.

Okay. And then with respect to claims paid and kind of the trend there?

I think the claims paid issue is probably on the flow side and I would say that that's primarily driven by deeper cover products that are coming in out of those books where we wrote a lot of deeper cover. So we'll continue to see that, I think, on the flow side.

And the other thing I'd say is year in and year out, you know, the average loan amount that we insure probably moves up in the neighborhood of four or 5% because of house price appreciation in general. Each year you'll have the impact of that. And also, you get an economy like we are now where things slow down, that also lessens the loss mitigation opportunities.

We also should see, though, more 95s than 90s this next year. Higher premium rates from that, as many of you know, when we get into a purchase transaction year, we just do -- I think this year we're probably at about 37% 95s or so, you'd expect higher levels than that. So that positively impacts our premium rates also.

Can you tell us how Sherman did this quarter relative to last quarter?

It was up modestly.

Okay. Thanks.

Our next question comes from Marcus Perone.

Hi, I wanted to follow up on the captive reinsurance question, we think it's absolutely appropriate for you to follow that strategy, to focus on profitability and not mart share. Secondly, I wanted to ask, a question was asked about the lenders' reaction, but I'm curious if you've seen anything in the marketplace from a competitive reaction?

Not to date. I mean, some public companies, I guess, have commented relative to their rationale. I would think, the whole industry would like to see this happen, but I don't want to speak for the industry and I haven't had any conversations with others in the industry. So I really can't tell you more probably you've heard more than we have.

Okay, thank you.

Thank you. Our next question comes from Christopher Bonafides.

It looks is C bass numbers were very strong this quarter. Can you giver me what your expectations are for that over the next couple of quarters? In the past, you've typically said it's been weaker in the second half of the year versus the first, but this fourth quarter looks really strong to me.

I think relative to C bass, again, it's driven by securitizations and I would say from a forecasting and modeling standpoint, you probably want to model off of this year about the same trends. And I would say a modest increase, okay. They had an exceptional year this year. And on a quarter-to-quarter basis, I think any year would probably follow like the previous year. They would have securitizations probably in the second quarter, they did have some in the fourth quarter. So I think from a quarter-to-quarter standpoint, I'd like too to this year to be a base year with no appreciatable uptick unless we get some securitizations. That would be a good guideline.

And that same line item in that other revenue, given we know what C bass does, you mentioned Sherman was up modestly, the rest would have to be contract underwriting revenue; is that correct?

Yeah. A Curt mentioned, we anticipate that to decline in the second half of the year, contract underwriting volume.

Okay.

Thank you. Our next question comes from Kevin St. Pierre.

Good morning. Question a reserving policy. You built reserves by 68 million this quarter, maintaining reserve for delinquency number. Some your competitors seem to take a more proactive than reactive approach to reserving and building reserves. Building reserves when paid claims are low, and building less when claims are higher, thus muting the voltivity of EPS. I was just wondering, have you considered that approach, one? And Number two, if the bulk book is indeed performs as you had expected, why wouldn't you have built reserves in advance of expected rising of delinquencies?

From a GAAP standpoint, we're limit today establishing reserves based on the notices we've received. To illustrate your point, we booked some large bulk business. If we didn't have any delinquencies, there's very little reserving effect for that. We don't have a large IBNR in this industry. So the premise for this industry is that you reserve on notices as opposed to some other industry where you don't have any notices and you have a large IBNR. So in this particular industry, you reserve on the delinquencies, and most of those, you know, cure out. So it's just the opposite. So we have a large number of notices on each book coming in, and a small percentage go to claim. But I can't really address what some of the other companies do, but on a GAAP standpoint, from our principles, we reserve based on the notice of delinquencies.

Unrelated follow-up, if I could. Doing the math, it seems 12% of total loans are A minus or sub prime. Can you break that out by A minus versus sub prime?

We can, but I don't have it handy. Do you have it with you, Jim?

It's about eight to 9% A minus and about 3% sub prime.

Thank you.

Thank you. Our next question comes from Barry Cohen.

Good morning.

Morning.

Just a couple, maybe you can help me understand something in a broader context. If one was to disaggregate the default rates again your primary insurance that's in force versus kind of the, you know, bulk and sub prime business that has much higher default rates, you still receive fairly substantial increases in default rates since, let's say, '97, '98. And what I'm trying to understand is, typically speaking, from, you know, listening to you and your competitors at conferences and conference calls in the past, that the taper tends to season with losses usually in the fourth or fifth year. What I'm -- what I'm trying to understand is given how much of the paper has essentially turned over in the last, you know, seven years, if you go back and take a look at the shear volume of refinances over the decade and certainly over the last six years, we've probably had at least two or three major refinances that have taken place, certainly over the last, you know, 24 months. How is it that the default ratios are as high as they are given the fact that you're essentially turning over the book as much as you are, therefore your peak loss rates and default rates haven't come through necessarily inI'm note arguing that there's a problem, I'm just trying to understand.

Larry, are you there?

Let me try, and then Larry can add on. For one thing, when a loan's delinquent, it can't refinance. So you are left with those loans when you go through refinance periods, even to the book turns over, those don't, they stay with the book. And the other is just a case of huge books that we've written in the last few years that are maturing and not running off, and as a result, you get higher delinquencies there. Just in the maturation process. Finally, I'd say on the flow side of the business, there is more risk in that business than there was four years ago. I've talked about that publicly from the aspect of underwriting standards. Today except much higher levels of total debt to income ratios, approximately 40%, which five years ago, prior to '97, you did not see that. And so just on the flow business itself, you're running higher delinquencies because of our country's move to expand home ownership. And we've done that through expanding the total debt to income ratios, and that's resulted in significantly higher delinquency ratios on the books written since '97 and prior.

Uhm-hmm. So if we look back on 2002 and you look at the amount of in force that was basically, you know, refinancing that you recaptured or took from someplace else, how much of your in force was left on your books during that course of that year due to the fact that they were delinquent, and how much of those people who were generally delinquent can you not simply cure up to working the file? Because typically when you talk to lenders, they'll say yeah, someone's delinquent, we'll work the file harder, we'll do some things to cure them up, get some stuff done and lo and behold, they write the loan.

What do you mean, they'll write the refinance?

Yeah.

Well, if people are delinquent, generally, the investor won't purchase that.

No, they're worth the file so they essentially cure the delinquent.

I think they have rules relative to, like 12 months of being current before they'll fund a new loan on that borrower. So those borrowers are unable to refinance.

Okay. So when you say delinquent, you really mean someone whose almost approaching default.

No, they missed a payment.

Okay. All right. Well thank you.

You bet.

Thank you. Our next question comes from Howard Shapiro.

Hi. Good morning. Just a quick question again on captive reinsurance. I do agree with Mark on the economics of your decision, but I'm curious to know how much potential share in market you would be prepared to lose. Let's just say theoretically that all 11 of the customers, Curt, that you've met with say they're not going to do business with you from this point forward. Are you prepared to walk away from all of that business?

Well, that won't happen, Howard, but going through the mathematics, which I just described, it would make sense to do that. I can't -- how can you run a company where you lose money on each policy that you write and justify that business? I mean, I grew up in the restaurant business. If my dad said hey lets sell hamburgers for less than what they cost, how long do you think we'd stay in business? That does not make sense to me to justify doing business to lose money on a policy written. And so I have a hard time when people frankly ask that question from the aspect of well -- I mean, I don't know how to justify doing business if I lose money with that customer.

Are there other alternatives? Are you perhaps going to them and saying we're willing to do business with you even seating more than 25%, but you'll need to lower the attachment point at which you take losses?

Clearly. As you know, we're very willing to write quota share up to 40% of our premiums where there is a true risk-sharing arrangement. And so this is all about attachment points and where wee see the attachment points now it is not a level that you can profitably run the business. If you have lenders participate sooner in the attachment points, that clearly is something that you can discuss with that customer under quota share or quasi-quota share arrangements.

How willing are they at this point in the discussions to consider lowering the attachment points?

Well, they love the revenue side and they don't like the loss side. No surprise there.

Right.

But for long-term sustainability, as I say, certain customers are much more willing to have that discussion than others. It's one of those things that's too good to be true, you know what, it goes away.

Something the -- does the RESPA lawsuit that you settled play a role in this in terms of their willingness to consider lowering the attachment point?

I really don't want to comment on that. That's their -- I'd be commenting for them rather and that's not appropriate.

Okay. Thanks very much.

You bet.

Thank you. Our next question comes from Scott Kauffman.

Good morning guys. Could you speak quickly to any potential change in the dividend policy in light of the new potential stimulus package, if you've discussed it at all internally?

Well, I mean, certainly it would make another -- we have discussed it. It would certainly make another opportunity in addition to -- I mean, in looking at share buyback or new business, it would be something we are talking about. Now, the realities of that is the lack of flexibility that you have going forward relative to a share repurchase or pursue excluding you from possibly getting involved in another business. So we're talking about it, if it does happen, obviously it's something we'd consider more seriously. But as it stands right now, I would say share buyback or new business opportunities are more interesting to us.

Okay. Thank you. And just one other question, if I could. You took about 10 cents off the top end of the guidance range for next year. Can you disaggregate that into what you think it's related to, a slower than expected economic recovery, and what's related to lower persistency?

No, I don't think so. It's just a combination of all those factors.

Okay, thank you very much.

Thank you.

Thank you. Our next question comes from Bruce Harting.

Curt, you expressed losses as a percentage of, you know, premium income, yet the captive captives are expressed in a different way, I second Mark's view and Howard's that you're doing the right thing but one of the points that some of your competitors have made is they think the captives Mr. Experience losses, and I think you've said you think that it's unlikely in this kind of economic cycle. Can you talk about the various attachment points and how that traffic lights apples to apples to your loss ratio? Thanks.

Yeah. What Bruce is referring to the -- is the attachment points on these are generally at four claims per hundred or five claims per hundred. Generally on the 40% seeds it's at four claims per hundred. And you know, as you run into -- there will be books of business with certainly lenders that will cross over, I think, into their area. But the realities are, Bruce, that I think we're going to be running as an industry at three and a half to four claims per hundred. And at that level, you don't get any -- you don't make any money as a mortgage insurer. So even if you go up to five per hundred, the reality is you've not made any money and you get that back from the lender. So to give up all profitability on writing that business with a lender for the opportunity at some distant point in the future to maybe recoup one claim per a hundred and run a zero return business up until you get that so you can maintain that zero return business, I got to tell you, that doesn't make sense. So we see, as we look at it, we see books going out based on higher delinquencies that we see that are now baked into the business as we try and do more to expand home ownership at closer to the 40% -- 40% loss ratio barrier, which as you know at MGIC, we haven't approached in quite some time. These 40% seeds make okay sense when you run at two per hundred, but when you get higher than that, they don't. At four per hundred, you've destroyed all profitability. It doesn't matter what you do after that to recoup from the lender, you haven't made any money. So if you're running your business at zero returns with an idea that maybe you can recoup something even at zero return to maintain zero return business, it just doesn't make sense.

And the April1st start date is because you had to give 90 days notice to the regulators?

That's correct. Under the documents that we've executed with each of the captive reinsurance arrangements, we had to give 90 days notice.

Thank you.

Our next question is from Mitch Katz.

(INAUDIBLE) How are you?

Good.

The negotiations you're having with your lenders, are you offering other services in exchange for lower seating?

Well, MGIC as other competitors, competes by adding value to our lenders, we do that through a variety of things such as contract underwriting, defender, where we defend the large servicing portfolios, many of the major customers have. A variety of things that we do. Relationships with the federal home loan banks. So in some cases, pool insurance. Relative to their secondary market transactions. So I mean, we do a variety of things to garner the market share that we have as a company. Most importantly, execute as people. So I'm not quite sure what you're asking. What I'm asking is, say, should we look for your expenses going up because of this new rule or are there any areas like higher losses or should we be looking at some change in your earnings mix? Well, first of all, again, it's premature to speculate on what's going to happen relative humidity share. While I said I think we'll lose some share, I don't put that in the significant category, and I think that will be recouped over time. Now, if you lost business, if you took Howard's scenario where you lost that business, you would see expenses come down rather dramatically to reflect the fact that we are doing business with that amount of business for the company. But my expectation is that we'll lose some share, but not significant, and that the business we write will be more profitable and it won't be because we are doing something else, it will be, we are focus focusing resources where they're most profitable to the company, not adding to those.

Okay. And the tax rate has been coming down in the last two quarters. What would be a good run rate that we can use?

I think you can stay at about 24 rate going forward for for '03. We've -- the generator of that obviously is the higher percentage of investment income we have, the operating income and we continue to shift the portfolio we have, at least about 10 percentage points in this year in annuities. We look to that rate that we currently have in the fourth quarter probably to continue throughout next year.

So around 28%?

That's correct.

Thank you very much.

Thank you.

Our next question comes from Gary Gordon.

How are you doing?

Good morning, Gary.

Most of my things have been answered, but obviously as you're saying, you could lose some share in the prime business, more activity in bulk, do you have any particular self-imposed limits on how much you're willing to increase that business percentage of your portfolio assuming the margin might be increasing at a faster than 25% rate because the prime business could be shrinking?

Each quarter we look at what we're writing and relative to to the volume that we do as a company. So we'll continue to be in that 20 to 25% range, Gary.

Okay. And just to follow up, you did mention that the pricing looked pretty good on the bulk business.

Excellent.

Any particular reason for that or are some people backing away from the business? Is there general consensus among your peers that the business should be priced higher? Any way to tell that?

I think it's mostly a function of the Capital Markets and what I mean by that is the spreads between some of the lower-rated and higher rated, AA, AAA, has widened and is quite large at the moment. Our policy brings more value when spreads widen because our coverage makes more of the issue higher-rated chances than lower rated chances. So as spreads widen, our product brings more benefit, and thus we're able to take advantage of some of that through higher pricing.

Is it a fact the bond market is giving you less competition?

Yeah, that's correct..

Thank you.

Thank you. Our next question comes from Jeffrey Dunn.

Good morning. We've covered a lot of the issues that face us over the next couple of quarters. I guess what I'm interested in is has this cycle accelerated your thinking about the business model at all, namely, diversification into non MI businesses as really the only MONO line remaining? It appears you're probably more sensitive this time around. What is your current thinking of plans for the future?

Well, if there are businesses that give us returns comparable to the business that we're running, certainly we have an interest in it. But to do it just to do it, doesn't make sense. And we've got terrific opportunities in our business today relative to serving the bulk market, but more importantly, all the business that's going to be driven by demographics. I also think 80/10/10s, the changes going on in that world will drive business back to us. So we love the mortgage insurance business. We're through a cycle here where it hasn't -- it's not looked as good, but we're getting through that cycle. But, Jeff, if there are businesses that we feel can return the -- returns that we think or commence receipt with what we're doing, then we're very interested.

I think financial guaranty is a business a number of your economies are doing. Is that something that you would actively see yourself pursuing over the next year or two?

That is a business, as you know, dating way back. It came out of the MGIC investment family many years ago. So we thinks that a business that is somewhat synergistic to what we do and know. So that is something that we've looked at off and on and may have appeal.

And then on the buyback, it's bounced around a lot this year, shares are materially depressed. What kind of guidance can you give us as far as your expectation for activity over 2003?

As I mentioned in the last call, you know, we did complete the last repurchase. This last year, we.-- bought almost 6.4 million shares, 6,000,374. We at the last board meeting, we got authorization to -- for another 5 million shares. And in the fourth quarter, we began to utilize that approval and purchased a small amount, about 59,000 shares. So relative to going into this year, we will continue to look to the market and probably as Curt mentioned, relative to capital, we'll look at a number of alternatives. Someone talked about dividends before. That obviously is something, and we will have on the agenda as well as stock repurchase and also looking at alternative business investment. So with respect to forecast, I can't give any guidance other than we'll update you each quarter on what the current strategy is with respect to that capital. The beauty of it is we're in a wonderfully strong position to make those choices.

Do you have any expectation that you would request a special dividend up from a sub?

Well, with respect to any of those activities, we would do that. That's exactly what we would do do. So -- and we would report out on that.

Thanks.

Thank you.

Thank you. Once again, if you have a question, please press the 1 key. The next question is from Jim Kissinger.

I have one kind of follow-up on upstreaming capital to the holding company. Where are you in that process and what -- I know there are rules and limitations on the timing of when you can request specials relative to the last time you've done it. Can you just kind of give us a sense of the timing of your ability to access that capital?

Well, with respect to timing, I would have to request a meeting and go meet with the commissioner and explain the amount we would require, and the purpose of it. And subject to their review, we would either be accepted or declined. Of course the timeliness of that has always been excellent, so I mean, with respect to history, I can tell you that it's always been good. Obviously, if you look at the capital position we're in excellent shape, notwithstanding as difficult as the year was, we did generate, even after the stock repurchase, about 500 million positive cash flow for the year. So it was not strong year cash flow-wise. We're continuing to build surplus. The balance sheet's in excellent shape. We're in an excellent position to have those meetings. Now, with respect to the amount of that dividend, that would have to be discussed at such a meeting. But as far as automatically taking up anything, no, anything of any significance I would have to have a meeting and discuss the amount and the purpose.

Mike, can you tell me when the last time you requested a special and how much did you upstream at that time?

I think last year in the first quarter we requested 150 and got it.

Okay. Thank you.

You bet.

Thank you. Gentlemen, I'm showing no further questions at this time.

Before we go, first of all, thank you for all your interest. We have another interesting year in front of us, but one that I feel good about. The -- I would like to make announcement, many of you know Jim McGinnis, and Jim has announced his retirement in late February of this year after 29 years with the company. He's been a tremendous contributor since starting in '74 and works with us in the finance and audit and most recently the investor relations functions. We've done a lot of traveling together and he embodies what our MGIC people have, a tremendous amount of credibility. When he says something, he means it, sincere and does a great job fuss, and I would like to take this opportunity to thank Jim for his many years of service to the company. He's done a great job and I've been proud to work with him. By the at the same token, I'd like to make announcement that Mike Zimmerman -- Mike will replace Jim as Vice President of investor relations. He has been with us for seven years, been in the mortgage business 22 years. At MGIC most recently, he's been the vice president of mortgage banking strategies, has a tremendous understanding of the business and the financials, and will do a great job in filling the big shoes that Jim leaves us with. So I'd like to just congratulate Jim on a wonderful career at MGIC and I've been proud to work with you, Jim. Thank you.

Thank you all.

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