MGIC Investment Corp (MTG) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, ladies and gentlemen, this program is being recorded. I would now like to introduce your host for today's program, Mr. Mike Zimmerman.

Good morning, and thank you for joining us today on the call, and for your interest in MGIC Investment Corporation. Joining me on the call today to discuss the first-quarter results for 2006 are Chairman and CEO Curt Culver, Executive Vice President and CFO Mike Lauer, and joining via telephone, Executive Vice President of Risk Management, Larry Pierzchalski.

Before we get started this morning, I wanted to remind all participants that our earnings release of this morning, which may be accessed on MGIC's Website, located at www.MGIC.com, includes additional information about the Company's quarterly results that we will refer to during the call, and includes certain non-GAAP financial measures.

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 quarterly earnings release. 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 developments. With that to start this morning's discussion, I'd like to introduce Curt Culver.

Thanks Mike, and good morning. Net income in the first quarter totaled 163.5 million, compared with 182 million a year ago. Diluted earnings per share was $1.87 versus $1.90 a year ago.

New insurance written was 10 billion, comprised of 7.9 billion of flow business and 2.1 billion of bulk business. Relative to the flow business, I am encouraged that the MI penetration is starting to increase, based on anecdotal information from customers; also on the increase from year end to last week in the percentage of loans with mortgage insurance that we processed in our contract underwriting operations, and then in addition, our single file product comprised 7.5% of our flow new insurance written, versus 5.7% in the fourth quarter.

The bulk business continues to be constrained by extremely tight spreads, and as such, the majority of the bulk business insured in the quarter by our industry was related to GSE transactions. And while we generally do quite well in this space, given our relationship with the agencies, the mix of business this past quarter was business we generally weren't excited about relative to return hurdles, and as a result we weren't successful on many of the bids.

Insurance in force declined in the quarter to 167 billion, compared to 170 billion last quarter. And while persistency improved slightly to 62% on an overall basis, and 66.2% on our flow business, the smaller new insurance written writings, especially in the bulk space, coupled with the continued runoff from the large 2003 book, led to the in force decline.

Paid claims in the quarter were 135 million, down from 148 million last quarter and 149 million a year ago. Losses incurred were 115 million, versus 172 million last quarter, reflecting the expected seasonal improvement in the notices of delinquency, to 76,362 notices from 85,788. Of that total, we estimate 3100 delinquencies remain as a result of Hurricanes Katrina, Rita and Wilma, compared to 5300 last quarter.

Underwriting expenses in the quarter were 75 million, up from 71 million last quarter, reflecting incremental option expenses, as well as startup expenses for our international expansion. In addition, 2 million of the incremental expense was related to our Myers Internet business, which was fully offset by revenues.

In the quarter we repurchased 1.37 million shares at a cost of approximately 91 million, and used the remainder of the quarterly and special dividend to pay down our commercial paper line and to fund our cash dividend. We expect to continue to receive the 55 million quarterly dividends throughout the year, and we will discuss another special dividend with the Wisconsin Insurance Department later this year.

Regarding the remainder of the year, I still think NIW will approximate 60 billion, although unlike a quarter ago, I think the challenge will be in the bulk business due to narrow spreads. I am encouraged by the flow business for the reasons I mentioned earlier.

Persistency also should continue to inch forward throughout the year and ultimately lead to in force growth later in the year. Given the strength of the economy, I'm also encouraged by the loss side of the business. Paid losses should be within the range of 575 to 600 million, compared to 612 million last year, and incurred should be in line with paids. Expenses for the year should be up modestly, as we discussed last quarter, with significant offsets from other revenues. Finally our joint venture contributions in the quarter were in line with our expectations, although we continue to feel that their annual contribution will be down slightly for the year.

So with that, operator, let's take questions.

(OPERATOR INSTRUCTIONS). David Hochstim.

I wonder, could you talk a little about the credit situation in the Midwest relative to California and the Northeast, in terms of just ongoing deterioration last quarter? Mike suggested that you might not see as much of a drawdown reserves or, I guess, (indiscernible) losses incurred. And it looks like that's what happened. I just wondered how bad is the Midwest and how much worse could it get.

Let me first talk just about what's happened on a macro basis, and then Larry can talk a little bit more about it. With respect to the Midwest, we have not seen much decrease in the delinquencies as we saw across the rest of markets. They are down slightly. But more importantly, we haven't seen any change in severity and claims rate. As a matter of fact, claims rate might have picked up a notch. So, we have not seen any improvement in the Midwest of any material event, and specifically even saw -- in our reserve factors we've got more, if you will, put away for the existing delinquencies, albeit the fact that delinquencies did tick down slightly, but not significant. Larry?

Relative to the Midwest and California, we do keep a close eye on both areas. To date, we're just hearing that the housing market in California is slowing a bit, but relative to delinquency and [pure] claim activity, really quarter to quarter there's been no change. And as far as the Midwest goes, Michigan and Ohio continue to be soft. Their delinquency rates are higher than the rest of the country, and (indiscernible) rates are lower. Once again, quarter to quarter we haven't seen any deterioration, and the economic news with the automakers doesn't suggest any improvement here in the near-term.

Can you remind us what's seasonally normal in the second quarter in terms of delinquency change?

Traditionally we would expect to see another seasonal downtick. We saw that last year. Delinquencies went down about 2000 in the second quarter, and about -- they were down 7000 in the first quarter. So, I think that we would anticipate (indiscernible) the economy continues at about this pace, we would expect to see some seasonal correction downward in the second quarter. And then normally we'd see an increase in the third and fourth, increase in delinquencies.

Ed Groshans.

I guess you touched on the bulk items, and the expenses -- they do seem -- there was some commentary last quarter about them being up modestly, and I guess they're a little bit higher than I was looking for. Can you give us a breakout? You said 2 million is related to the acquisition of Myers. How much was related to the international expansion?

Less than 1 million. (multiple speakers) 2 million for stock option accounting, FAS 123R.

And Myers, again, was related to running the business, and as I said, was fully offset by revenues.

So, those three items pretty much explain it all?

Yes.

Yes.

I was just reading in the paper this morning some of GM's problems, and there was an issue regarding pension obligations and that potentially coming on the balance sheet. So I was wondering, does MGIC have an unfunded pension obligation that would be coming on?

No, we're fully funded.

Lastly, in the subprime buckets, it shows year-over-year delinquencies were up. And I was wondering if you could just touch on that a little bit.

Larry, you want to touch on that?

With regard to subprime, we are doing more in the flow channel in the more recent years than in prior years. And as a result of doing more of that type recently, as it moves into the two-year old, four-year-old aging, that business will throw off more (inaudible). So, it should rise as a result of us writing more subprime in the last few (inaudible)

The delinquency rate actually went down (indiscernible)

Sequential basis.

yes.

It was just we had a question posed to us. I was just wondering, when we look at -- I guess the kind of question in my mind is, if I'm looking at December '06 compared to December '05, would I be expecting the rate to be a little but higher, based on what you're saying is more writings in the flow channel?

In essence, there's newer business that you would expect to have delinquencies on. That statistic doesn't bother me in the least.

Is that just the function of now it's in the flow channel, so it has longer average life expectancy?

No, not really. It may be a half a year. So it's in the same ballpark.

Ken Posner.

I've got a question about C-BASS. I understand that C-BASS purchased a considerable volume of subprime loans in the fourth quarter, with very good timing, as spreads were wide. And with spreads having compressed again, C-BASS should be sitting on an unrealized gain. And I'm wondering if that unrealized gain would have already shown up in the first-quarter results, in terms of a mark-to-market, or whether we'll have to wait for them to securitize those loans before we see those gains.

I don't think that's -- this is Mike -- there wouldn't have been any significant pickup in the first quarter yet. I think to your point, they would be waiting. We may see some transaction the second half of the year of some realized gains.

Could you talk a little bit more about the factors or assumptions that lead you to look for the joint venture income being down slightly this year over last?

I think the point we made on the January call was that they did have an extraordinary year last year, both of them, and especially Sherman. And to think that they were going to outperform at that level with the number of transactions they had, we thought it prudent to indicate that perhaps in the second half of the year, they would not achieve the same level of performance.

And if you looked at it, C-BASS we expect to have a better financial year than last year. But Sherman was up so significantly, and a number of those on onetime gains. We just didn't think they could replicate that again.

So you're saying focus more on Sherman, then?

Yes.

Rob Ryan.

I wonder if you could go into some of the aspects of the brighter outlook for insured penetration, or what you've seen anecdotally so far -- things like the success of piggyback loan penetration, or how much business seems to be going more the GSE route as opposed to private-label, mortgage-backed securities that might end up being uninsured.

I can't comment relative to the GSE penetration. But clearly, as I mentioned, really there were three factors. And something you could do very easily -- talk to any of the customers and mortgage originators, and they will tell you that mortgage insurance is right now a less expensive execution. And as a result, they're seeing an increase relative to their own operations moving to that versus the piggyback. And that's reflected, as I mentioned, relative to us in a couple things that we can at least show evidence of, and that's the MI penetrations on loans that we contract underwrite, which I mentioned, has improved rather nicely quarter-over-quarter, as well as the single file, which has gone up to 7.5% of new insurance written versus 5.7 last quarter. And again, single file is primarily used by lenders relative to executing against piggybacks. So again, I think you can talk to just about any lender, and they will tell you what we've talked about. And we have evidence twofold on contract underwriting as well as our own mortgage insurance single file volume.

What are you seeing so far on the relative portion of total originations in so-called exotic products that generally were funded by uninsured private-label mortgage-backed securities? Are the tougher underwriting standards appearing to take hold, and therefore, from like a quality perspective, also more of the business might come back to the mortgage insurance execution?

Again, I would say I think so. Clearly, the guidance that has been given has been taken very seriously. And as a result -- and I think you're seeing it again with mortgage originations, that there are less of the payment option ARMs and other instruments that you have mentioned. So, clearly, I think there's a return to some more normalcy relative to originations.

I'll just add to that a little bit on the -- the rating agencies, as you know, have come out pretty strongly, I'll say, or at least vocally about the IOs in particular. And there seems to be a shift, especially in this [upfront], to more of the 40-year fixed-rate IO, versus the adjustable rate, from a payment (indiscernible) perspective. So again, to Curt's point, I think that the sentiment, not only from the regulators but also then from the investor community, is forcing that to come to be in the marketplace.

Just last thing -- how are you feeling about new money investment rates as well as persistency today as opposed to three months ago, given what long-term interest rates have done in the interim?

Given what long-term rates are doing right now, I'm even more bullish relative to penetration and persistency relative to our returns. That's only going to be positive for us.

Geoff Dunn.

I thought it was a pretty good quarter, so I don't have too many questions. But in terms of the anticipated request for another special dividend, should we be thinking about the annual amount of special dividend along the same lines as last year, or do you think there's additional capacity to request more this year, given your capital position?

No, I wouldn't -- it would not be more than last year, no.

(multiple speakers) in terms of current capital capacity at the holding company that could be used for buyback, where does that balance currently stand?

There's very little cash at the holding company, about 2 or 3 million. So, it's still a function of dividending up funds.

When is the regular quarterly dividend expected to come up?

I think the next one is June.

Michael Grasher.

A couple of follow-up questions. Net net on the C-BASS, Sherman, are we still guiding for lower at the end of the year?

Yes.

Secondly, on the sub-prime business, any specific MSAs that you would highlight or target in terms of what is really driving these delinquencies a bit higher?

I really don't think it's a geography issue. The subprime business does throw off more delinquencies. They tend to come quicker. We have been writing more. On the other hand, we get more premium. So, relative to the subprime business, [book to book book], things are in line.

Curt, you spoke about the impact of that '03 book on persistency. How should we think about that in terms of where that book might be from a crossroads? When does the impact become less, or what percent is that '03 book now as a percent of the total risk in force?

I think it's about 20% of the risk in force. It's going to, if you will, peter out this year. I think cancellations year-over-year are down about 20%, so you can see it starting to have an impact, or a lesser impact. So again, the second half of the year, I think, it will have much less of an impact. And that's why I also look for in force growth in the second half of the year.

Very good. Just one final follow-up, I think, to Rob's questions about anecdotal evidence on the 801010. Does it seem like the originators are, and banks are leading with more often than not the mortgage insurance, or are they still what you can tell leading with 801010?

There is a real sea shift. I've done -- I was a speaker at a number of these MBA conferences, one out East and one recent in the Midwest. And I've been traveling a lot with customers, and there really is a sea change relative to the attitude towards mortgage insurance. And again, ultimately the key is they want to make the loan and they want to do the best execution in doing that. And that is mortgage insurance. And so we are seeing a change relative to large banks even offering single file, which they hadn't prior. So, I'm very encouraged relative to mortgage insurance penetration on the flow side.

Thanks very much for your comments and congrats on the quarter.

(OPERATOR INSTRUCTIONS). Ed Groshans.

Just relative to the last one, you were talking about last quarter, the reeducation process of some of the brokers, and now there seems to be more of a sea change.

Relative to the attitude of banks in offering mortgage insurance relative to, or in lieu of piggybacks.

So, do you still think you need to do the same type of reeducation process? I know you highlighted California last quarter.

We have a lot of work to do in that, particularly on the coast. And part of that, which is helpful to us, is the Myers Internet. They host 5600 Websites for brokers. They're the leading Website hoster. They've got, I think, about 2500 with realtors. So, that's a very important part of the education process for us, along with our 100 salespeople. And in addition, our industry is working on funding an effort amongst all our companies relative to that reeducation process. So, there are a number of things going that need to go. But the attitude relative to even offering mortgage insurance at the aggregator level -- those people that are aggregating the loans to sell to Fannie and Freddie -- has changed, whereby now it's on the front burner, where it used to only be a second mortgage they would offer. That's a big change.

Fantastic. Lastly, could you just give us an update on the insurance commission's investigation into captive reinsurance?

Yes. Relative to New York -- there's two states that have an interest in this area. Relative to New York, they asked us, along with others in the industry, to review our premium rates, and to file new rates based on recent experience or to explain why new rates aren't necessary. At the end of March, we responded, MGIC, that our premium rates were reasonable and were not excessive or inadequate, hence we didn't feel any new rates were necessary. We also said that given the unique nature of mortgage insurance that we can't reprice our policies and that they're on for the long-term; we need to take that account in pricing. We haven't heard anymore from New York since responding. In the case of Minnesota, we responded to their administrative subpoena at the end of February and met with the department at the beginning of March, and the meeting went very well. There have been no subsequent developments relative to that. And there have been no requests for information from any other states.

Are you expecting other ones? I know there's a couple of other states looking into other companies.

I think they're looking at title insurance, but I can't speak for the states. I don't know. We have not heard of any more inquiries relative to our business.

Do you think there's a difference between the way the captive reinsurance agreements are set up and the business practices of the titles that would insulate the MIs to some degree?

I can't talk to the title insurance, but on the mortgage insurance side, we have actuary opinions that justify the transactions. And they're reasonable, and so we certainly think they are.

David Hochstim.

Just wondered, could you give us an idea how much additional debt capacity there would be at the holding company now that you've paid down some of the debt in the first quarter? And does that save very much in terms of interest expense going forward (multiple speakers)

I think debt capacity is a unique thing. You know, we'd have to spend some time with the rating agencies about at what level would they be comfortable at. With respect to the CP line, in particular they have an aversion to that line, the rating agencies, because it's short-term money, and they deal with the concept of this problem that mortgage insurers have in dividending up capital to the holding company to pay off that debt. Do you follow?

So, even though we have a $300 million line, and we use that line from quarter-to-quarter, depending on what cash flows are and dividend capacity is, and what we like to do is keep it around 100 or $150 million. And so the payment, if you will, in the first quarter was to pay down the line. It had been up to 183, I think. Recall we repurchased some shares in the fourth quarter. We used that line as part of that funding capacity, knowing that the dividend was coming in the first quarter. So, it's a timing element for us. But to keep it at a higher level would be -- if you read some of the write-ups from some of the rating agencies, it's a negative, if you will, keeping it much higher than that.

Could you tell us what you have learned about international so far?

There are, I would say, some low-hanging fruit that we think we can be doing business with in the next year that we're pursuing. And longer-term there's terrific opportunities.

Okay. And near-term -- would that be in '06?

It would be late '06, probably '07.

David Chamberlain.

It looks like the frequency on the bulk delinquencies came down quite a bit quarter-over-quarter, obviously, somewhat seasonal. Is there anything else that's going on there? Is it a book seasoning, or --

I didn't understand your question.

It looked like the loss frequency on your bulk business, I think, came down quite a bit from the fourth quarter. I was wondering is that just seasonality, or is there something else going on there?

Are you talking about the delinquency rate?

Yes.

Okay, I just wanted to (indiscernible) ratio.

I think that's just the --

-- seasonal nature. I think both the flow and the bulk experienced the same thing.

We had about a 9000 decrease in delinquencies quarter-to-quarter, so it's part of that.

So, it was expected.

Just the increased MI penetration that (indiscernible), just numerical (indiscernible) can you give me a sense maybe last year what you were seeing in terms of penetration on contract underwriting versus what you've seen kind of year-to-date?

At year end, 19.5% of our loans that were -- that were contract underwritten had mortgage insurance on them. At the end of last week, 24% had mortgage insurance on them.

And has that 19.5% been lower than that? Has that kind of moved up, or has that been the trough basically?

That's near the bottom. It may have dipped down to 19 or something, but that was pretty much bottom.

And if you think about, I guess, 2000 -- previously, maybe a couple of years ago, was it multiple was that 19.5%?

It was much higher, much higher, and we've got a lot of room to grow. And I'm excited about that opportunity.

Brad Ball.

Just to clarify on the last question, overall penetration last year was less than 10% (multiple speakers)

Yes, I think it was like 9.5%

And you had said, I think, on the January call that you expected it to go above 11%. Are you sticking with that forecast?

Up to 11%, yes.

I don't know if I quantified it. I expected it to increase this year. That's why I felt our volume would pretty much match last year's, even though the general market will be down about 20%.

Just to clarify, are you thinking, then, penetration might be even a little better based on the anecdotal data to date?

Again, I didn't remember quantifying it, so I don't want to quantify it. I think -- it will be better then it was last year, I just don't know how much better.

Could you give us an update on what you think will happen with respect to MI tax deductibility?

There's so much going on in Washington that it's kind of gotten lost in the shuffle. We were hoping that there would be a tax bill that would come out that this could be attached to. And I don't even want to say I'm optimistic, but I will still say I'm optimistic that something will be done, again, because of the support which -- within both the House and the Senate, as well as both parties, for the bill. And it is not a partisan issue that everything else in Washington is, and it makes good sense for home ownership. So, I'm still optimistic relative to the merits of the bill; the issue is are they going to get any legislative things done this year, given the partisan nature of politics today.

The latest scoring is more reasonable than (multiple speakers)

The latest scoring was much more reasonable because of the fact that they scored it on an annual basis. They scored it just going forward, not including other loans. In the past they had included all loans that were already insured in that score. And the new score was just prospective, as well as a one-year bill, although it will be part of the group of annual extenders that gets extended every year as part of just the process of Washington. The scoring is better. The attitude is better. I think the attitude in the Ways and Means committee is better. But the issue, again, is just the inability for any legislation to happen.

Just finally, on credit quality in the hurricane-stricken regions, I guess the federal government just came out with relatively lenient rules for rebuilding in New Orleans. Do you see that having any impact on your delinquency rates and the ultimate claims that you'll experience down there?

I really don't know what impact it might have. Again, we've got 3100 delinquencies from that region; not a huge part of what we do. Again, there are policy protections within that. So, whatever happens, I don't think it will have a significant impact on our company.

Eric Wasserstrom.

The amount of seeded premium continues to kind of tick up very slowly. Can you just tell us what the driver of that is, given the comments that you made earlier about the reviews of your premium policies and such?

It just relates to the fact more business is running through captive reinsurance treaties.

So, it's simply a mix of (inaudible)

It is just more business going through lenders that have captive relationships with us.

(indiscernible)

I was wondering if you could give us a sense for how much narrower bulk spreads are versus a year ago, and why they continue to be less attractive near-term. And if you can also talk a little bit about what competitors are doing in terms of premium rates.

Relative to the spreads, and I'm keying off of BBs over LIBOR, really I'd say spreads hit bottom probably early '05, trended upward towards the end of '05, and really increased a bit towards the end of '05. But ever since the end of '05, they've trailed back down and have gotten close to where they troughed in early '05. So, I single out the BBs because the mortgage insurance -- the benefits of mortgage insurance takes in particular the lowest rated tranches, the BBs, BBBs and minimizes those, and increases the AA, AAA tranches. Aside from the spreads themselves, there also seems to be quite a few buyers of these lower tranches; more than in the past. So, between the spreads being narrow and the number of active buyers at the lower tranches, there's a lot of liquidity there at pretty attractive execution relative to the MI execution. You would think with some of the economics of the home and house markets flowing and whatnot, you would think the spreads would widen. They haven't done that since the beginning of the year; they've actually narrowed. What drives that? Hard to tell. There just seems to be a lot of cash looking for whatever kind of yield.

Relative to competitors, there's just differences relative to the mix of business and how people feel about ARMs, how people feel about (indiscernible), how people feel relative to loan-to-value, how people feel relative to even premium rates. Some companies are more aggressive on the very best of quality and things of that sort. So, that's why I related back to the mix that was coming through the GSEs this quarter was not one that was -- one relative to our liking. Now, a quarter ago it was very much to our liking. So, it doesn't mean that that won't happen again; it's just different companies have different areas that they pursue and are more aggressive on. And the mix that we saw this quarter was ones that we weren't as aggressive on.

Just as a follow-up to the seeded premium question, are the mortgage originators doing anything differently? Are they being any more lenient with respect to that, or are they being more aggressive now that volumes are slowing?

There's been no change.

Just to put a metric on there (indiscernible) additional information about the percentage of flow insurance in force that's subject to risk sharing arrangements was 20 -- 46.7% at the and of the first quarter of '04; it's now, at the end of -- there was a quarter lag on the reporting here, but it's now 47.8. So, to Curt's point on that, more business running through those versus a change, if you will, in operating strategy.

Ken Posner.

On the comment about the rating agencies and how borrowing at the holding company would be viewed as a negative by the rating agencies --

That's on the CP line.

Would there be any problem in borrowing at the holding company to buy back more stock if it's not CP?

There'd be a significant tax disadvantage because of the munis that we hold.

Why is that?

Did you say borrowing at the holding company or the writing company?

My question is borrowing at the holding company, buy back more stocks.

We could do that, yes.

Because some of the rating agencies have been reviewing their capital standards for the MIs. I don't know if they've come to any conclusions. But that would be a way to buy back stock in advance of getting the state regulator to free up the capital.

Right. You're correct about the rating agencies; they're all in the process of reviewing their models, and have not yet finalized their positions on it. But theoretically, we could raise more debt at the holding company if we wanted to do that. What we have been doing in lieu of that was increasing the dividends from the writing company.

But you could do both, right? It seems unlikely that the rating agencies will come out thinking that a multiple of 6.6 or 6.5 of risk to capital is the right number. And I know in the past you all have suggested the right number would be back up in the teens, which if the rating agencies came to that conclusion, they might allow you to borrow at least somewhat at the holding company while you wait for the contingency reserves at the regulated entity to gradually year after year fall by the wayside. And it would seem a shame if the right ratio was really, let's say, 12 to 1, to be forced to operate at 6 to 1. And if you through leverage at the holding company can get closer to the 12 to 1, that would do great things for the return on equity of the Company.

We look at that every year and discuss it internally and with the rating agencies. There is -- they have a little bit less propensity to debt to equity ratios than you might imagine.

That's right, they're not (multiple speakers)

And there's also a double leverage ratio.

That's right. So --

In theory, we could do that. We have elected, rather than take on more debt, to increase the cash dividend from the writing company; the holding company (inaudible) use it.

So, assuming that the rating agencies came out with something reasonable, are there any other obstacles besides the rating agencies that would keep you from borrowing more at the holding company?

No. Probably cost of funds, and I guess the dilution effect.

Or other uses of the funds.

Paul Miller.

I just had a clarification question on -- Curt, you made a comment saying that paid losses should be right around, was it (multiple speakers)

575 to 600.

575 to 600?

Yes. At the year end, we said that we thought they would be flat to slightly down. We're seeing improvement, and so we're going a little lower right now.

The improvement, I guess, is coming from -- is it the coast that's giving you a lot of confidence on that?

I think it's widespread.

I guess that's one of the reasons you always told us that if you see us releasing reserves, we're seeing a very strong credit position in our company. And I think you told us that you probably weren't going to release reserves this year. At least I have it in my notes. I might have --

I think we would have said that for the year. On a quarterly basis, see again the reduction in delinquencies in the quarter about 9000, and similarly we had a reduction last year. I think what we indicated on the call in January was that for the year we probably would not have a net reduction. But once again, as we get through the rest of the year, I would anticipate if we have a normal seasonal adjustment in June, we could see some release. And then traditionally, we see some increase in delinquencies. If the economy holds better and we don't see the increase in delinquencies, then we might have a net reduction, whereby incurreds might be less than paids for the year, although I wouldn't say that this early in the year.

You also made a comment to somebody on the call that you dividend up about $55 million a quarter right now, and you probably can't get any more than that [unless] somebody makes another decision outside of your control. And that comes up in June. Does that mean that we probably can't expect a lot of buybacks in the second quarter?

No, not necessarily.

Why is that?

If we have a dividend before then, (multiple speakers)

Special dividend. Yes.

And when do you hear back? When would you know if you get the special dividend, and when will we know?

When we ask for it, they say yes and we tell you. That's the (indiscernible)

There is a possibility this could come out in the second quarter?

Possibility.

James Shanahan.

I wanted to ask your opinion on Puerto Rico. You're the most significant player in that market. And I was wondering if you could comment on what you're seeing there competitively and also in terms of credit quality.

Larry, you want to talk about the -- it's been a wonderful place to operate, but Larry may have more specifics.

Losses have very low -- continue to be very low. We don't have much competition from other MIs. So, it's been going great. But being the risk guy, it is an isolated place that could turn. But it's been wonderful over the last five, 10 years.

My question about competition was more in terms of what you're seeing from the mortgage players there in the local market.

That, like others, has been a case where we have had piggyback executions, and I really don't know in Puerto Rico specifically if we've seen increased mortgage insurance penetration. I can't comment on that. It's not one area that I've followed up on.

I suspect it's a small market for you overall. But do you happen to know what the dollar value is of risk in force in Puerto Rico relative to the total book?

It's less than 2% of our insurance in force, risk in force.

Tony (indiscernible). Sir, your line is open.

I guess he's gone. Are there any other questions?

I'm not showing any further questions in the queue at this time.

Let me wrap it up. Again, thank you all for your interest in our company. As you can tell, we have -- we are optimistic relative to persistency improvement and MI penetration, and also on the loss side of the business. Our challenge is growing revenue. But I think with those factors in place, what we see with increased penetration, that too will happen, but not yet in '06. So, all in all, we're very optimistic relative to the business trends. With that, all of you have a nice Easter. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect.