MGIC Investment Corp (MTG) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for calling by. Welcome to the MGIC Investment Corporation First Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's presentation, Mr. Mike Zimmerman. Sir, please begin.

Thanks, Howard. Good morning, and thank you for joining us this morning and for your interest in MGIC Investment Corporation. Joining me on the call today to discuss the results for the fourth quarter of 2017 and the full year of 2017 are Chief Executive Officer, Pat Sinks; Chief Financial Officer, Tim Mattke; and Chief Risk Officer, Steve Mackey.

I want to remind all participants that our earnings release of this morning, which may be accessed on MGIC's website, which is located at mtg.mgic.com under Newsroom, includes additional information about the company's quarterly results that we will refer to during the call and includes certain non-GAAP financial measures. We've posted on our website a presentation that contains information pertaining to our primary risk in force and new insurance written and delinquency statistics and other information which we think you will find valuable.

During the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about those factors that could cause actual results to differ materially from those discussed in the call are contained in the Form 8-K that was filed earlier this morning.

If the company makes any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. Further, no interested parties should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of the 8-K.

At this time, I'd like to turn the call over to Pat.

Thank you, Mike, and good morning. I'm pleased to report that as we continue to execute on our business strategies, we had another strong quarter and an excellent 2017. In a few minutes, Tim will cover the details of the financial results, but before he does, let me provide a few highlights.

In the quarter, we wrote $12.8 billion of new business, which was equal to the same quarter last year. During the quarter, refinanced transactions increased marginally but remained low, accounting for just 13% of our new insurance written compared to 24% for the fourth quarter of 2016. As most of you that follow the industry know, our industry's market share as a percentage of total originations is 3.5 to 4x higher for purchase loans than refis, and fewer refis generally lowers the cancellation rate of the insurance in force. 2017 saw the purchase and refinance mix for a shift to approximately 90% purchase and 10% refis from 80% and 20%, respectively, in 2016. Even though there was a 44% decrease in refinance applications, it was offset by a 9% increase in purchase applications in 2017 compared to 2016. The shift towards purchase activity resulted in a level of new business written for 2017 increasing about 2% to $49 billion compared to the $48 billion we wrote in 2016 and was about what we expected. For 2018, we expect to write approximately $50 billion of new business, a slight increase from 2017.

The expanding purchase mortgage market, our company's market share of approximately 18-plus percent, the hard work and dedication of my fellow coworkers to deliver stellar customer service and higher annual persistency resulted in a 7% increase in insurance in force, ending the year at $194.9 billion. Since insurance in force is the driver of our revenues, this is a key metric that we focus on. The expected level and mix of new business should result in insurance in force continuing to increase. The increasing size and quality of our insurance in force, the runoff of the legacy books and our strong financial performance position us well to provide credit enhancement and low down payment solutions to lenders, GSEs and borrowers.

And with that, let me turn it over to Tim.

Thanks, Pat. In the fourth quarter, we earned $27.3 million of net income or $0.07 per diluted share compared to $107.5 million or $0.28 per diluted share in the same period last year. For the full year of 2017, we earned $355.8 million or $0.95 per diluted share compared to $342.5 million or $0.86 per diluted share in 2016.

The passage of the federal tax legislation late last year materially reduced our reported GAAP net income for both the quarter and the full year. Subsequent to the enactment of this legislation, we remeasured the value of our deferred tax asset to reflect the lower corporate tax rate. This resulted in a $133 million increase in our income tax provision.

To provide better insight into our operating results and to make year-over-year comparisons of financial results more meaningful, we disclose adjusted net operating income, a non-GAAP measure, along with a reconciliation to GAAP net income in our press release.

Excluding the tax change impact, our adjusted net operating income for the quarter was $160.7 million or $0.43 per diluted share compared to $107.7 million or $0.28 per diluted share for the fourth quarter of 2016. For the full year of 2017, our adjusted net operating income was $517.7 million or $1.36 per diluted share compared to $396.3 million or $0.99 per diluted share in 2016.

The primary driver of the improvement in our financial performance for the quarter and the full year was lower losses incurred. Addressing the quarterly results, losses incurred were a negative $31 million versus a positive $48 million for the same period last year. There were a number of factors that influenced the fourth quarter level of incurred losses.

Each quarter, we review the performance of the delinquent inventory to determine what, if any, changes should be made to the estimated claim rate and severity factors. This review resulted in positive primary loss reserve development of $103 million associated with previously received delinquencies. This compares to $43 million of positive development in the fourth quarter of 2016. This large increase was driven by a materially higher-than-expected cure rate, especially in notices that had been in the delinquent inventory for 12 months or longer. We also saw improvement in the 4- to 11-month category.

Additionally, we saw an increase of approximately 7,000 in new notices during the quarter compared to the third quarter of 2017. The fourth quarter includes approximately 9,300 notices from the areas that were impacted by the hurricanes in the fourth quarter of last year. While some of the 9,300 delinquencies would have occurred regardless of the storms, we believe the large majority would not have occurred and will ultimately cure. In fact, approximately 30% of the notices received in the fourth quarter from these impacted areas have already cured out. And as shown on Page 15 of the portfolio supplement, we have seen a material decrease in new notices from these areas in December. As a result, we used a materially lower claim rate on the majority of these notices.

Using the lower claim rate in hurricane-impacted areas resulted in an average reserve for delinquent loan we reported in the press release to be approximately $20,800. Adjusting for that lower claim rate, the average reserve for delinquent loans would have been $24,000.

Finally, in the quarter, excluding the hurricane-impacted areas, we received 9.5% fewer new notices compared to the same period last year. And reflecting the current economic environment and anticipated cures, we used a claim rate of approximately 10% on these notices. The claim rate assumption used was slightly lower than what we used in the third quarter. There was also a $3 million net benefit related to IBNR and LAE.

During the quarter, new delinquent notices from the legacy book continued to decline at a steady pace and generated nearly 67% of the new delinquent notices received while accounting for just over 22% of the risk in force. The percentage of new notices from the legacy book was lower than prior quarter, primarily due to the fact that approximately 50% of the delinquencies reported from the hurricane-impacted areas came from the 2009 and forward books.

The new delinquent activities from the larger, more recently written books remains quite low, reflecting their high credit quality as well as the current economic conditions. We expect that the legacy books will continue to be the primary source of new notice activity for the foreseeable future.

Reflecting the small delinquent inventory and the impact to the GSE foreclosure moratoriums related to the hurricanes, the number of claims received in the quarter declined 32% from the same period last year. Net paid claims in the fourth quarter were $91 million compared to $113 million last quarter, down 19% for the same reason.

The effective average premium yield for the fourth quarter of 2017 was approximately 49 basis points, which was down about 1 basis point from the last quarter and down approximately 3 basis points from the fourth quarter of 2016. As I have discussed in the past, for a variety of reasons, we expect that the effective premium yield will trend a bit lower in future periods. However, the exact amount and timing is difficult to predict.

At the end of the third quarter, MGIC's Available Assets for PMIERs purposes totaled approximately $4.8 billion, resulting in an $800 million excess over the required assets. The PMIERs excess was approximately $100 million lower than it otherwise would have been as a result of the increased delinquencies for the hurricane. We expect that impact will subside over the course of the next few quarters. MGIC's statutory capital is $2.1 billion in excess of the state requirement.

In addition to writing new business and exploring new opportunities as they arise, we will try to manage the amount of PMIERs excess by continually reviewing our use of reinsurance as well as continuing to seek and pay dividends out of the writing company to the holding company.

When we analyze various options to deploy our capital resources, we need to take into account that the holding company's primary source of capital is the writing company. So while capital is being traded at the writing company level, we need to notify and ask the OCI not to object any dividend payments from MGIC. We also consider the resulting leverage ratio, the ability to continue our positive ratings trajectory, the debt serviceability of the holding company, and of course, any changes to PMIERs.

Regarding MGIC's ability to pay dividends, during the quarter, we were able to increase the dividend paid to the holding company to $50 million compared to the $40 million dividend that was paid in the third quarter. For the full year, we paid $140 million in dividends compared to $64 million in 2016. We are optimistic that dividends of at least the fourth quarter level will continue to be paid on a quarterly basis.

At quarter end, our consolidated cash and investments totaled $5.1 billion, including $216 million of cash and investments at the holding company. The investment portfolio had a mix of 70% taxable and 30% tax-exempt securities, a pretax yield of 2.7% and a duration of 4.3 years. Our debt-to-total-capital ratio was approximately 21% at the end of 2017, down from approximately 31.5% at the end of 2016.

The holding company has resources for slightly more than our targeted 3 years of ongoing debt service. As of December 31, the holding company's annual debt service on the remaining outstanding debt is approximately $60 million. This includes approximately $12 million that the holding company pays MGIC, which owns $133 million of our 9% junior subordinated debt.

Finally, I know that many of you are interested in the possible changes to PMIERs that the GSE has recently shared with us. Unfortunately, we are not at liberty to discuss any of the proposed changes in any detail as we are bound by a nondisclosure agreement. On December 21 2017, we issued an 8-K that informed you that while the FHFA has not yet taken a position on the proposed GSE changes, if they were implemented as proposed, our PMIERs excess of $800 million would be materially reduced. However, we expect that we would continue to maintain an excess and that we'd be able to pay quarterly dividends to our holding company at the $50 million quarterly rate. As a result, we expect cash at our holding company during the fourth quarter 2018 would increase over the level at the end of 2017. At the time, we have been told by the GSEs the changes to the PMIERs will not be effective prior to the fourth quarter of 2018 and there will be a 6-month implementation period prior to the effective date. We do not plan to provide updates on the status of the discussions with the GSEs and FHFA until they are finalized.

With that, let me turn it back to Pat.

Thanks, Tim. Before moving to questions, let me give a quick update on the regulatory and political fronts. In regards to housing finance reform, we remain optimistic about the future role that our company and our industry can have, but it continues to be very difficult to gauge what actions may be taken and the timing of any such actions. As an individual company and through various trade associations, including USMI, we are actively engaged on this topic in Washington. It appears that GSE reform proposals may be forthcoming from the Senate and the House, but we do not think it is likely that they would be acted upon in 2018. We are encouraged that the discussions are now more inclusive of the role of each of the GSEs, FHA and private capital versus treating them as separate topics.

Regarding the FHA specifically, a new director has been nominated, and while we have not had conversations directly with him, we continue to believe, based on our discussions with various parties in the administration, that the FHA will not expand its footprint in housing finance in the foreseeable future.

Regarding PMIERs, there's no additional update that I can provide beyond what Tim has described.

I'm very excited and confident about the opportunities MGIC has to continue to serve the housing market. Our insurance in force increased by 7% to nearly $195 billion. Persistency increased by more than 3 percentage points. New delinquent notices declined as the newer books of business continue to generate low levels of new delinquent notices, and the legacy portfolio continues to run off and generate fewer losses. Further, the anticipated claim rate on existing delinquencies declined, and we maintained our traditionally low expense ratio. During 2017, we made further progress on our capital structure, and our debt to capital ratio now stands at approximately 21%, and the holding company received $140 million in dividends from MGIC.

Looking ahead for the full year of 2018, the overall origination market is expected to be modestly lower but with a stronger -- or a strong purchase component. I expect that our insurance in force will continue to grow due to the level of new business we expect to write. Further, I anticipate that the number of new delinquency notices, claims paid and delinquency inventory will continue to decline. And finally, we will continue to focus on capital management activities and maintaining our industry-leading expense ratio. As I have said the last number of quarters, I continue to believe that there's a greater role for us to play in providing increased access to credit for consumers and reducing GSE credit risk while generating good returns for shareholders, and we are committed to pursuing those opportunities.

With that, operator, let's take questions.

(Operator Instructions) Our first question or comment comes from the line of Bose George from KBW.

And so the first question is just on defaulted claims. I mean, we've talked, I guess, the last couple of years just about normal being the 10% number. And now that you're there and just given the strong trends on the new books, could you talk about the potential for that number declining over time and what could move in that direction?

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

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

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

Okay. And if you could just let me try one on PMIERs. I know you have your confidentiality. But just -- is the process this time similar to last time? Was there a sort of a GSE version that you guys saw earlier when there were comments before it hit the public? Is that part kind of parallel with what we saw in PMIERs 1?

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

Our next question or comment comes from the line of Mackenzie Aron from Zelman & Associates.

I guess, my question mainly is around just capital management given that the $200 million dividend will still be able to happen in 2018 despite PMIERs. So can you just give some thoughts on what the use of that capital is and timing? Is it something that we're going to have to wait to see when PMIERs gets finalized before there's more clarity there? But just any comments around the capital use.

Yes, it's something -- this is Tim. It's something we obviously have been focused on and are focusing on over the last few quarters as we've been able to get more dividend capacity up and get to sort of that target of a 3x multiple on the interest carry at the holding company and finally being able to get, as I mentioned, just slightly above that. I would say it is fair to say, though, until we know more certainly where PMIERs 2.0 would be, it'd be more difficult for us to take additional action. But it's something that we look at every quarter. And obviously, if we can continue dividends coming out of the writing company, which we think we'll be able to, it will be something that we'll continue to look at and we'll ultimately address.

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

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

Okay. That's fair. And then, just one more quick one. Sorry if I missed it in the prepared remarks, but just the impact of single premiums this quarter on the net premium yield.

Yes, it wasn't on the prepared remarks, but I think it was about $8 million in accelerated earnings. And in comparison, we had about $9 million last quarter. So from an average basis point premium yield, probably about 0.25 point.

Our next question or comment comes from the line of Geoffrey Dunn from Dowling & Partners.

My questions were just answered.

Our next question or comment comes from the line of Phil Stefano from Deutsche Bank.

I was hoping we could talk a little bit about mortgage rates in the 10-year. It feels like we have been expecting them to rise for some time. Maybe we're on the precipice and that kind of precludes the question of -- so when we think about the move in the 10-year or mortgage rates, do you have a feel for the sensitivity you can give us around originations? Presumably a spike in one or the other, something material would slow down originations. But any thoughts on how we could think about the sensitivity around that?

This is Mike. It's a long-held belief that consumers -- it's more about consumer confidence and -- than supply of housing. Clearly, if rates spiked up dramatically, there will be some type of delay in activity. And really, the -- you have to look at the reason why rates are rising. But slow and steadily rising rates historically in a strong or improving economy with improving jobs and wage growth improves consumer confidence and you can see people continuing to buy homes. So I think there'd have to be some type of dramatic spike, and you have to look at what the reason is for that before we get to see any type of shock to originations.

Okay. All right. That makes sense. And I'm going to take a shot at a reserves question and just see. Is there any guidance you can give us on how we can think about reserve adequacy moving forward or maybe some sensitivity around where is the legacy book currently reserved versus where you're reserving new defaults? The -- obviously, the reserve development, the tailwind from that has been a significant benefit the past 6, 7 quarters. So anything you can help us to better understand kind of where we are, how much gas is there left in the tank potentially would be very helpful.

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

Our next question or comment comes from the line of Chris Gamaitoni from Compass Point.

Is there anything specific that you're seeing in the data that you would attribute the higher cure rate in 12-plus months default by getting -- so any sense of how long those -- being the improvement, how long those delinquency -- those loans that have been delinquent are you seeing improving now?

I think, Chris, as we mentioned, it's definitely in the loans that have been in default for longer than 12 months, we saw considerable improvement again this quarter. And I'd say it's across not just loans that are 12 months but also loans that are 24 months delinquent or even 36 months delinquent, we're seeing considerable increase in the cure rates on that. So pretty much across-the-board there. And we mentioned in the comments, we also saw some improvement in the 4 to 11 and pretty wide base from a geographic perspective as well.

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

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

Our next question or comment comes from the line of Jack Micenko from SIG.

I'm going to come at the claim rate assumption question maybe a little differently. I guess, Tim, the definition of much in your mind, I'm curious what that would be. You look at the period '94 to 2002 and it's probably a pretty good string of time for the business. You talked about 10% being the historical average, but historically speaking, have you been below the 10%? And can you put numbers around what that claim rate assumption that's driving the reserving maybe has been in times of equally decent credit quality?

Yes, Jack, looking at that period and in my mind, not much better, meaning it's not 50% better than where we are now. It's 1 point or 2 potentially. So even if you look at that period from a historical standpoint, I don't think most periods got much better than in the 8% or 9% sort of claim rate on those new notice activities. And so when I say much, I'd sort of put it in that realm.

Okay. That's actually pretty helpful. And then in the press release, I saw the single premium yield came in over where it's been in the prior 2 quarters. I know there's some seasonality, but I'm wondering when refi is slow, is there something going on in pricing there in the marketplace that we should know about? Or is there some portfolio dynamic that drove that singles premium yield down quarter-to-quarter?

This is Mike. Our pricing [method] is really just left unchanged, so it really has to do with the competition of the business that we saw and how -- obviously, how competition did do relative to when the lender selects that product.

Our next question or comment comes from the line of Doug Harter from Crédit Suisse.

My questions have been asked and answered.

Our next question or comment comes from the line of Sean Dargan from Wells Fargo.

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

Yes, I guess, from what vintages are coming from, again, Sean, it's really the legacy book. So it's the 5, 6, 7, 8 books which make up the default inventory. And again, with the loans that have been in default inventory for a longer period of time, that's really where the reserves are coming from, so what we refer to as the legacy books. As far as the timing of the release, it's really a matter of going through the process of establishing the reserves every quarter. And so we don't -- aren't paying attention to what tax ramifications are of that, although based on where we are from a taxpayer standpoint, it wouldn't make a difference. But we go through the process as we normally would irrespective of the tax consequences.

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

No, we go through it on a quarterly basis.

Okay. And just one follow-up on housing finance reform. I saw something recently that Director Watt provided a document to the Senate Banking Committee expressing a preference for secondary market entities which the shareholder owned. I know it's early in the process and you don't think anything's going to get done in 2018. But would there be a place for private mortgage insurance in such a scenario?

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

(Operator Instructions) Our next question or comment comes from the line of Mihir Bhatia from Bank of America.

I had just a couple of quick questions. Firstly, just starting around persistency. Obviously, it's started to go up here as rates have increased. Can you talk about just what the high watermark may be as rates increase? I guess, 2-part question. First is, has persistency increased at the rate you would have expected given how rates have increased? And secondly, just how high can it get? I think expectations are for 2, 3 more rate increases this year. So what kind of -- how high can it get, like historically how high has it got maybe in like the 90s cycle, if you will?

It's Mike. The 90s is probably not a good comp to use. That was a very good deal, just a very different origination market. I mean, refis -- there was a 2-point kind of rule of thumb before refis take place versus 0.375 points maybe, depending on the originator. So back in the 90s, we hit in the mid-90% persistency, but we certainly wouldn't expect that type of level at all. At the -- we're at 80% right now. The fourth quarter usually has a little bit of slowdown in prepayment. There's some seasonality given the home buying season and such. So we've stated before over the past that we think the mid-80s would be the high-watermark for it. Whether it can get there or not remains to be seen, too, because home prices increasing gives borrowers the ability to do refinances for cash out or drop the mortgage insurance, things of that nature. So there's a lot of gives and takes relative to that versus just a straight mortgage prepayment rate. And relative to the rate hikes, it really depends on the shape of the curve and where it goes. Couple more up, 10 years at 2.50%, 2.55% or so today, mortgage rates have not moved in correlation to that directly. So go back to the answer somebody asked earlier about effect of rates on mortgage origination, we don't see that having a significant impact going -- at least for this year.

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

This is Mike here again. I would say the originator tends to get to the borrower before the borrower gets to the appraiser and sell them on the flat or even a slightly higher rate environment. So it's a minor component. We haven't looked at it in a number of years. But maybe in the more than 20%, sort of 15% of our cancellations are from that type, dropping the insurance. But that's fairly dated. But I would say, more generally speaking, the originator is quicker to the borrower than the borrower is to the appraiser.

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

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

Okay. Great. And then, just last question on capital plans. Understand that you want to wait until you have PMIERs -- a little more certainty around PMIERs before announcing something. What -- just philosophically, I guess, what are the priorities for you once you have the cushion from PMIERs and you have that certainty of -- on the capital side? Is it buyback? Is it something to do on the debt side, whether it's convertible -- dealing with the converts -- some more with the converts or senior notes or what have you from -- because of rating agency pressure? Just trying to understand what your priorities would be on the capital side.

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

Our next question or comment comes from the line of Mark DeVries from Barclays.

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

Yes, the average premium yield market, I think it's much more of the mix that was there. I think we are hurt, like I said, maybe 0.25 points from a basis point standpoint because of the singles. I think reinsurance, we probably see as a little bit more on losses. There might have been 0.25 points also on it. But otherwise, the other part of the downward is sort of the mix of the business that some of the older vintages fall off at a higher premium rate on, especially some of the bulk, it gets replaced. Even though we've been adding some new business a little bit higher rates this year than we had in the past, there's still, on average, a little bit lower rate on the non-legacy book versus the legacy book. So the good news is, I think, with some of the NIW we're putting on this year a little bit higher premium rate, it should get to sort of a bottom, if you will, sooner than it would have been if we had looked at this 2 years ago but still very difficult to predict when exactly that will happen and at what point that happens because of how persistency impacts things and how would put on new business impacts that premium rate.

Okay. Got it. And next, just a question on the dividend from the writing company. I mean, you've had several quarterly increases in that. It almost sounds, maybe I missed in your comments, like that's plateauing here. Is $50 million a quarter the right level going forward or could we expect some additional request for increases?

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

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

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

Okay, fair enough. And just in case anybody from the FHFA or the GSEs is listening, I would encourage them to release you from this nondisclosure. I don't really understand what public interest is served by not having transparency around this process. So I'll end there.

I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks.

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

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