NMI Holdings Inc (NMIH) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NMI Holdings Third Quarter 2017 Earning Conference Call. (Operator Instructions) I would now like to introduce your host for today's conference, Mr. John Swenson. Sir, you may begin.

Thank you, Bruce, and good afternoon, everyone. Welcome to the 2017 third quarter conference call for National MI. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Bradley Shuster, Chairman and CEO; Adam Pollitzer, our Chief Financial Officer; and Julie Norberg, our Controller. Financial results for the quarter were released after the close of the market today. The press release may be accessed on NMI's website located at www.nationalmi.com under the Investors tab. During the course of this 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 or trends to differ materially from those discussed on the call can be found on our website or through our regulatory filings with the SEC. If, and to the extent, the company makes forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no interested party should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also note that on our website, we provided a reconciliation of certain non-GAAP measures used on this call to the most comparable measures under GAAP. Now to our conference call. Brad will open with an update on the state of the business, and then Adam will discuss the financial results in detail. After some closing remarks from Brad, we'll take your questions. With that, let me turn the call over to Brad Shuster.

Thank you, John, and good afternoon, everyone. I'm pleased to report that in the third quarter, National MI delivered record financial results. We continue to build significant momentum with our customers and grow our high-quality portfolio of insurance-in-force. We achieved our record results while maintaining our focus on prudently and proactively managing risk, product mix, expenses and capital. We wrote a record $6.1 billion of new, high-quality mortgage insurance, up 21% over the second quarter. This included record monthly premium NIW of $4.8 billion, which was up 18% over the second quarter and up 16% over the third quarter of last year. Insurance-in-force of $43 billion was up 12% over the prior quarter and up 53% over the third quarter last year. This is by far the fastest rate of growth of insurance-in-force in our industry. Net premiums earned for the quarter were a record $44.5 million, up 17% sequentially and up 40% over the third quarter of 2016. This top line growth drove record pretax income of $19.5 million, up 105% sequentially on a reported basis, and up 55% after adjusting for ILN transaction cost in the second quarter. Pretax income was up more than threefold over the third quarter last year. We have delivered on our 2017 exit return on equity goal a quarter early, with a 9.8% return, and continue to progress toward our goal of delivering mid-teens returns as we exit 2018. Book value at quarter-end was $511 million or $8.53 per share. Our strong financial performance in the third quarter is a direct result of the values upon which we founded the company, the team we have built and the strong execution our team has delivered for our customers over the past 5 years. As we look at our success both over the long-term and the past quarter, it is clear that our unique value proposition in particular, our enhanced certainty of coverage and sensible servicing is resonating with lenders. In addition, the broad scope of our underwriting approach and risk management framework are bearing out in the quality of our portfolio, and our focus on recruiting, training and retaining talent has allowed us to build the best team in the industry. We are proud to have recently been named one of Fortune Magazine's Best Places to Work for the second year in a row. Our ultimate goal is to deliver strong returns to our shareholders, a metric that is now accelerating consistent with the high-quality portfolio we have built and the solid execution of our team. As of the end of the quarter, we had 1,240 approved master policies and a record 809 active customer relationships. We continue to build momentum and activated 25 new customers in the third quarter, bringing our total activations in 2017 to nearly 100 new accounts. An activation means that we have established connectivity with the customer and generated a first application or first NIW with that account, and it sets the stage for meaningful NIW volume in the future. We also continue to expand our business with existing accounts who value our high-touch, customer-centric approach and recognize the unique protections afforded by our commitment to underwriting and our rescission relief principles. With this proven formula and our continued momentum in new customer activations, we have established a platform for growth that we believe will drive significant shareholder value over time. Looking at the broader mortgage insurance landscape, we believe the market grew slightly in the third quarter, driven by continued strength in purchase originations and a modest rebound in refinancing activity. Our purchase volume was up 19% over the prior quarter and up 22% over the third quarter last year. For the quarter, purchase mortgages comprised 88% of our NIW. This year has highlighted the importance of purchase activity as a driver of the overall mortgage insurance market. We estimate approximately 20% of purchase mortgages require mortgage insurance, while only 5% of refinancing originations require coverage. As a result, we are seeing a 2017 mortgage insurance market that is similar in size to last year, with modest growth in purchase activity, fully offsetting a decline in refinancing. Looking towards next year, assuming no change in the broader economy, we expect to see continued growth in purchase mortgage volume, which should again drive a healthy mortgage insurance market. We believe this outcome is reasonable, even in an environment of gradually rising interest rates as the industry has seen strong purchase markets at interest rates several percentage points higher than where we are today. We are encouraged by the tone of conversation around regulatory matters in Washington, and continue to believe the current administration and Congress are biased toward expanding the role of private capital in the housing finance system and are favorably inclined toward including mortgage insurance in any framework of reform. The nomination of Brian Montgomery as FHA Commissioner and the confirmation of Pam Patenaude as HUD Deputy Secretary as well as recent recommendations for FHA reform published by the Congressional Budget Office reinforce our views in this regard. Although these developments are encouraging and we remain optimistic about the value of private mortgage insurance, under any housing financial reform scenario, the timing and potential benefits of any reforms are difficult to predict. In the meantime, we are enjoying great success and growth in the current regulatory and competitive environment, and believe that any policy development is likely to be constructive. One final note. Our thoughts go out to those affected by recent hurricanes and wildfires. These events are tragic and they may directly impact homeowners in properties securing our insured loans. We expect to see some increase in the notices of default we receive in future periods as a result of these events. However, given the industry's past experience and the terms of our master policy, we do not expect that the increase in notices of default will have a material impact on our ultimate claims paid. In summary, we had an outstanding quarter. We are continuing to cultivate customer relationships where our reliability as a counterparty and our dedication to customer service are valued. We are adding high-quality insurance-in-force at a faster rate than any other industry participant. We are staying highly focused on managing risk, expenses and capital, and we are delivering on our goal to maximize returns. With that, let me turn it over to Adam for more detail on the financial results.

Thank you, Brad, and good afternoon, everyone. As Brad mentioned, we had a record quarter. We achieved record NIW of $6.1 billion and continued our rapid growth in high-quality insurance-in-force. Premium yield continues to improve and we achieved record premiums earned of $44.5 million. Losses continued to be modest and expenses were flat quarter-on-quarter, which drove record underwriting ratios. And we achieved strong growth in net income and book value, delivering a nearly 10% annualized return on equity in the quarter. Now, to the detailed results. Primary insurance-in-force was $43.3 billion at quarter-end, up $4.7 billion, or 12%, from $38.6 billion at the end of the second quarter, and up 53% compared with the third quarter of 2016. As of quarter-end, monthly product represented 66% of our insurance-in-force, which compares with 64% as of the second quarter and 57% as of the third quarter of 2016. Given our current NIW mix and portfolio runoff, we expect that monthly product will continue to increase as a percentage of insurance-in-force. Runoff rate in the quarter was 3.8%, up from 3.4% in the second quarter, reflecting the seasonal uptick in housing turnover. 12-month persistency in the primary book was 85.1%, up from 83.1% last quarter. Weighted average FICO of risk-in-force was 747, which compares with 749 as of the end of the second quarter. This reflects a modest migration of our book to a normalized FICO distribution, which correlates with the higher average rates on our monthly NIW over the past several quarters. Total NIW of $6.1 billion was up 21% compared with the second quarter. The mix was 79% monthly product, which compares with 81% in the second quarter and 71% in the third quarter last year. Premiums earned for the quarter were $44.5 million, up 17% compared with $37.9 million in the second quarter and up 40% compared with the third quarter of 2016. We earned $4.3 million from cancellation of single premium policies in the third quarter, up from $3.8 million in the second quarter. Reported yield for the quarter was 43.5 basis points, up from 41.3 basis points in the prior quarter. This was driven primarily by increases in core yield attributable to both a higher mix of monthly insurance-in-force and progressively higher average rates on monthly NIW over the past several quarters. These increases more than offset the impact of the ILN, which was in effect for the full quarter versus only 2 months following the offering on May 1 in the second quarter. Gross premium yield, which is before the impact of reinsurance, was 50 basis points, up from 47 basis points in the second quarter. Weighted average rate on NIW across all products in the third quarter was 50 basis points, consistent with the first and second quarters. We expect net or reported yield to be approximately 42 to 43 basis points in the fourth quarter. This reflects an expected continuation of recent trends, offset somewhat by a modest drop in cancellation activity due to a seasonal slowdown in the housing market. Investment income in the third quarter was $4.2 million, up from $3.9 million in the prior quarter. Underwriting and operating expenses in the third quarter were $24.6 million. This compares with expenses of $28 million in the second quarter, which you may recall, included $3.1 million of costs related to our ILN transaction. Adjusting for these financing related costs in Q2, expenses were essentially flat quarter-on-quarter. Our expense ratio in the third quarter declined to 55% compared with an adjusted 66% in Q2. We currently expect full year operating expenses will come modestly inside of our previous $108 million guidance. Additionally, we continue to expect that our expenses for the remainder of 2017 and through 2018 will allow us to achieve our return targets. Claims expense was $1 million in the quarter. We had 350 notices of default in the primary book as of the end of the third quarter, up from 249 at the end of the second quarter. We paid 4 claims in the quarter compared to 8 claims paid in Q2, bringing ever-to-date claims paid to 27. Our third quarter loss ratio, defined as claims expense, divided by net premiums earned, was 2.1%. As we have said previously, we expect our loss ratios over the next several years to be in the low- to mid-single digits. Other expenses of $3.9 million in the quarter included $3.4 million of interest expense and $500,000 attributable to the change in the fair value of the warrant liability. The fair value of the warrant liability is primarily tied to fluctuations in our stock price, with the expense generally growing as our stock price rises. We estimate that every $1 movement in the value of our shares drives a $ 600,000 change in the warrant value and corresponding pretax GAAP expense. If our share price remains at current levels through the end of the year, we estimate we will incur a $1.8 million pretax nonoperating expense in the fourth quarter. However, under current accounting guidance, we expect that most of this impact will not be reflected in diluted earnings per share. It's also worth noting that even with this expected impact to net income, we still anticipate achieving our return target for the fourth quarter. Now moving to the bottom line. Net income for the third quarter was $12.3 million or $0.20 per diluted share, up from $6 million or $0.10 per share in the prior quarter. The effective tax rate for the quarter was 37%, which we expect will be our quarterly rate for the remainder of the year. At quarter-end, cash and investments were $713 million, up from $694 million in the prior quarter. As of quarter-end, we had $62 million of cash and investments at the holding company. Book equity at the end of the third quarter was $511 million, equal to $8.53 per share, up from $495 million or $8.27 per share at the end of the second quarter. As of quarter-end, total available assets under PMIERs grew to $495 million, which compares with risk-based required assets of $356 million. In summary, we achieved record results on every key measure of financial performance. As we continue to grow our book of high-quality mortgage insurance and manage risk and expenses, we expect that our embedded operating leverage will continue to drive margin expansion and increasing returns on equity. With that, let me turn it back over to Brad for his closing remarks.

Thank you, Adam. We are excited about our record performance in the third quarter, both in terms of our success with customers and the results we delivered for shareholders. We believe the macro economic backdrop, healthy housing demand and long-term demographic trends are favorable for our industry and to the achievement of our near-term and long-term financial goals. We are executing on our business plan and are well-positioned to continue to win with our customers and to drive industry-leading growth in premiums and profits for many years to come. With that, let's bring back the operator so we can take your questions.

(Operator Instructions) And our first question comes from the line of Phil Stefano from Deutsche Bank.

So I was hoping you could talk a little bit about the trajectory for new customers has been relatively solid. How does that look as we look into the fourth quarter '17 and 2018? Should we expect this trajectory to continue? Or are there pipes that are tied in with some new significant customers that you're thinking about? And then, how could we think about the growth from new customers combined with growth from current customers? Anything qualitatively could help us think about these things as the NIW continues to move forward.

Sure. Thanks, Phil. This as Brad. So we continue to have a very nice pipeline of new customers coming on. It's -- sometimes it's a little hard to pinpoint it to any particular quarter but generally, there is a number that we're expecting over the next several quarters, some of them are quite significant. And then, once we get customers activated, we've had enough history now, as a company, to see how we're able to take that initial activation and then expose the customer to our level of service and create some real satisfaction there that we see migrating into significant wallet share with that particular lender given time. Again, it's difficult to predict the exact level of traction and exact quarters when you get your increase but over time, once we've had a period of quarters to demonstrate to our customers what we are able to do, we see our traction growing.

Is it fair to continue to think about that the flow of business continues to start relatively small with the new customers and picks up with time?

Yes, that's the general rule, is that you'll start with a relatively small allocation. Then as you prove what you're able to do, it can ramp up and some organizations ramp you more quickly than others but generally, it applies to all customers in that way.

Okay. And one more for you, just looking at the mix of NIW between monthly and single, it feels like it's shifted to something that's historically more in line with the industry. But it feels like at least in the past quarter or 2, the peers are writing less singles. They're more in that 10% range? Is there a reason to think that the proportion you're writing is going to come down? Does the 80-20 still feel about right? Any thoughts you can help guide us to there will be appreciated.

Yes, Phil, we're still -- at least, the numbers we have seen so far, it still suggests kind of an 80-20 split. And so our performance for the last several quarters has been very much in line with that. We will bounce around a little bit, maybe from an 85 level to a 75 level, but we expect to be somewhere in that range. And we have not seen an overall shift as you described.

Okay, fair enough. So they don't (inaudible) as we look forward then the remix is largely completed.

Yes. For us, it is. John?

So also not all the singles volume is lender-paid, there is a meaningful amount of singles volume that is borrower-paid. So maybe that's what you're looking at when you look at the peers, it's lender-paid singles.

And our next question comes from the line of Bose George from KBW.

A couple for me. First, the average premium is up a couple of basis points, so it's stronger than we've been looking for. Can you just point to drivers of the improvement quarter-over-quarter? And also just can you talk about how you see that trending over time?

Sure, Bose. It's Adam, I'll take that. The increase that we achieved in the third quarter that we saw in the third quarter was driven by a higher mix of monthly insurance-in-force overall in the portfolio and progressively higher rates on monthly NIW over the past few quarters. The other fees embedded in there, as we thought where we might be in Q3 versus where we actually came out, cancellation activity held a bit stronger later into the third quarter than we had anticipated. So while this is a modest impact, it was another component. As we look forward, we expect net yield at least in the fourth quarter, will be in the range of 42 to 43 basis points, with the variability within that band, primarily coming from cancellation activity. As we look toward next year, we'd expect to maintain a roughly these levels of 42 to 43 basis points, with some upside potential to that based, one, on cancellation activity and then the characteristics of the monthly portfolio itself.

Okay, great. That's helpful. I mean, do think that your premium expectation has increased a little bit relative to when we spoke on the last call?

Yes, okay. I think on the last call, we're talking basis points here but basis points on a large portfolio of notional has significant impact. So we're happy with how it's progressed. Where we're sitting today the guidance that we're providing, the 42 to 43, that probably is half a basis point to a basis point up from what we otherwise would have guided you if we had this particular conversation on the second quarter call.

Okay, great. Thanks, that's helpful. And then actually, just going back to the comment you made on the share-based compensation. When we -- just from a GAAP standpoint, does that mean for the fourth quarter, you'll have the share-based comp and then that $1.8 million number you've referred to?

And so, Bose, I should clarify. That reference, the $1.8 million is not related to share-based compensation, it's related to the warrant liability. So we have a warrant separate from share-based comp, where fluctuations for that warrant liability flow through our income statement because it's reflected on a liability basis versus on an equity basis. There is a nuance to the diluted EPS calculation for warrants that are accounted for on a liability basis. And in particular, for those that are required to be settled on a share basis, which is the case for our warrants, because we include the shares underpinning that warrant in our diluted count, we essentially back out the expense from the numerator when we're running our diluted EPS calculation. And so what we were focusing you on there is the diluted EPS impact. The $1.8 million of pretax GAAP expense will still fall through our GAAP income statement.

Okay, great. That's helpful. Just one more for me. Can you just remind us how much insurance-in-force you can still write based on the existing capital you have?

We've got $139 million, call it PMIERs cushion. It's no hard and fast number as to the dollar amount of insurance-in-force, but that allows us to write. It's a significant -- it gives us a significant amount of runway well into 2018 before we need to think about supporting continued growth with accessing the markets.

And our next question comes from the line of Randy Binner from B. Riley.

I wanted to just ask on the expenses. They were better this quarter, your guide for the year is for it to be a little inside $108 million. I just want to understand kind of, what the timing -- if it's timing issues or if this is a pattern where the third quarter is lower and fourth quarter is higher going forward.

Yes, it's certainly not a pattern as to what you'll see as we go forward from a 2Q to 3Q to 4Q rhythm. Much of it is what we were able to achieve in the third quarter. A portion of the outperformance comes from permanent efficiencies that we can carry into the fourth quarter and into 2018. And a portion of it reflects about timing of certain items, the timing of new hires and other projects that have either shifted into the fourth quarter or to 2018. I'll say candidly, as we think about our expense load for the full year of 2017, internally, we're not adjusting our expectations for expenses in the fourth quarter based on the results that we achieved in the third quarter.

And then, yes, so this is -- so then there is '18 and any kind of view you can help us with on how to think about that looking to next year. Just because there's been a little bit of a swing factor and it's great to see the improvement there, but where do you think that might land in '18?

Well, we continue to -- obviously, it helps to perform well, it's something that we're focused on. It's too early to provide you with an indication, a formal indication of expenses for 2018. Of note, we do expect to be making investment in our people and systems to support the continued development of our franchise. Now, we're always mindful about balancing those investments with the goals that we've outlined from a return standpoint and what we'd like to achieve from an operating leverage standpoint and just general expense discipline. In terms of an early steer, it's probably useful to note a few items. One, normal expense inflation for us runs about 2% to 3% per year. We are growing our business and though the majority of our expenses are fixed, we would expect to have -- we do have certain variable costs that will see an uptick as our NIW grows and as our insurance-in-force grows. Importantly, as we think about all of those items in the mix and we're running our own internal budgeting process, we're mindful and believe we'll be able to achieve the ROE targets that we've outlined on the timeline that we've indicated with the expenses that we expect to incur in 2018.

I think I'll just sneak one more in on FHA, the -- and I've asked this question on other calls as well. But I take it at this point that FHA involvement in the market, the mortgage insurance market, has been really status quo this year despite a view from the new administration. I think that there is a preference for private product, but then there's been some appointments that you all alluded to. And so the question is, can you affirm or confirm that the FHA involvement in the market's been status quo. And if so, when might we expect to see their involvement in the market change?

Randy, this is Brad. I think our general perception has been is that the FHA involvement in the market thus far has been status quo. Obviously, very difficult to predict timing in Washington these days, as to when any kind of changes would be implemented in the marketplace. But having said that, I just would reinforce our belief that the opportunities exist for the situation to get better relative to the FHA. And exactly what form that takes or the exact timing is very uncertain at this time, but we do feel good about the current environment and the possibility that it could get better.

And our next question comes on the line of Mackenzie Aron from Zelman & Associates.

First question, quick modeling one, Adam. What was the premiums earned on the pool insurance-in-force that was covered by the QSR?

It was $930,000 for the quarter.

And then on the utilization rate, looking at the active customers, it seems to have really jumped [this quarter]. Was that anything specific? Do you think you're benefiting from some of the uncertainty and consolidation that's going on with some of your competitors? Or is that really just a function of these lenders starting to utilize you guys as an MI counterparty?

Yes, McKenzie, we don't internally have a calculation that we run for utilization rate. So it's not something that we track. What we -- and we don't externally break out the contributions of customers by different groupings. We certainly do track that success internally on a detailed account level basis, and we've been quite pleased with the growth that we've achieved in each of the accounts that we've activated in 2017 as they've aged through the course of the year. So the NIW volume that we've captured from the first quarter activations was higher in Q3 than it was in Q2, which itself was higher than it was in Q1. Over the long term, we do continue -- we're focused on new activations because over the long-term, we expect that these accounts will be valuable customers and will contribute a meaningful amount of NIW, just as we expect from all of the customers that we have on our platform.

And our next question comes from the line of Chris Gamaitoni from Compass Point.

Most of my questions have been answered so I'll ask one kind of off the wall. Do you have any color on what's driving kind of the increased cancellations? Is it still purely from refinance or are you seeing any impact of rising home values and/or a pickup in people moving more?

We don't have that [much as, John] -- Chris. So don't have that granularity to point to in terms of why the housing turnover is occurring. But purchase market was robust in Q3, so you saw a nice uptick quarter-on-quarter in terms of purchase activity and therefore, housing turnover, right? That resulted in the cancellations of our singles.

Chris, the other point to note is that while the dollar volume of cancellation revenue that we recorded in the third quarter is up to $4.3 million versus $3.8 million in the second quarter, what that represents is a component of our net earned. And really, what I'm saying there is what it represents is a component of our net reporting yield is basically flat, so the dollar volume of cancellation revenue that we're generating going forward will have some amount of a natural tailwind, simply because the size of our portfolio is growing, and that's part of what's happening for us.

And then maybe if you could address, I noticed the 97 product for NIW was up 108%, the rest of business is relatively flat. So any commentary on that, if you're particularly targeting that area, or it's just the natural flow coming through the business?

No, it's just -- as we tally it, the NIW that we got from 97s was about 12% for the quarter. I think that's in the Q or maybe in our tables in the earnings release. And that really just reflects the mix of the market. Our mix of 97, as we look at it, we believe it's consistent with what others have reported. And I think more importantly, it's worth noting, we're comfortable with the mix of business that we're seeing today. We believe we priced appropriately for the risk of higher LTV loans, and the credit performance of our portfolio remains quite strong.

And our next question comes from the line of Geoffrey Dunn from Dowling & Partners.

First, I want to clarify, with respect to the hurricane, you just said no impact on claim -- ultimate claims paid. I just want to clarify that you don't expect much of an impact on the P&L, meaning that you're going to provision at a much lower instance assumption or I guess, can you clarify that with respect to the [hurricane].

Yes. So Geoff, we're going to, obviously, continue to collect data on the NODs we expect to have occur. And if we get the right information to suggest that those NODs will not migrate into claims, then we will not provide loss reserves on them. Absent the information, we'll just need to work through and see what we get. But our goal, will be to not have the P&L disrupted with the large increase provided for losses that ultimately will not flow to claim.

And Geoff, I just want to clarify one nuance in the question that you asked. I think as you ask the question, you said you wanted to confirm the statements that we made that we would not have any claims paid related to the storm. And so that was not Brad's statement. Brad's statement in our remarks is that we don't expect the notices of default we received resulting from the storms or the wildfires will have a material impact on our ultimate claims paid. And ultimately, as we roll forward, a lot of this is going to be about gathering information. We -- our GAAP reserves and in the claim expense that we take in any given period is based on our view as to what are the probable and estimable losses related to the loans that we insure. So as we get new information, we're going to be focused on making sure that we have as much detail as possible to come to an informed view as to what is probable and estimable. It is a fair assumption right now to assume that the losses that we reserve for on this particular cohort defaults. We'll have a different underlying set of assumptions around what is probable and estimable than what we would normally see in our portfolio.

Okay. With respect to the premium rate, you're talking about kind of a 42, 43 bp net rate right now. If you strip out the reinsurance, the pool premium and refundings, is the implication for the core premium yield ultimately, is that going move towards that 50 bps you cited on your NIW? Is that kind of where this tops out or is it something more in the high 40s?

In terms of where it tops out, we don't run this forward for an extended period. But if you stripped out those items and try to isolate, I think the core yield as you've termed it -- if you strip out -- remember, cancellation activity is contributing 3 to 4 points, so you strip that out as well. That 42 to 43 basis points translates to, call it, 46 basis points or so of core yield, before the effects of cancellation revenue which would move it higher, and before the effects of reinsurance, which would then take some amount off of that.

Geoff, the cancellations contribute about 4 bps in both second quarter and third quarter. So the...

No, I understand it. I'm trying to strip out all the noise and find out what your core profitability is on that premium rate of 44 bps this quarter. Just trying to understand if that trajectory has a possibility going to 50, which I think is what you cited on NIW, or is it a lower amount?

And Geoff, we should align as a follow up, we calculate that core rate not as 44 in the third quarter but around 45.5, a little bit higher than 45.5.

Okay. And then lastly, with respect to the investment yield, you continue to get gains there. Is that simply just the reinvestment of the profitability each quarter or you'd continue to make moves shifting the portfolio around?

No meaningful changes in the strategy, Geoff. We are investing more -- a larger and larger percentage of the portfolio, we're able to go a little bit longer with, obviously, just as it grows and our liquidity remains relatively flat, but that's basically the only driver.

And our next question comes from the line of Bose George.

Can you just remind us how the profit commission on your reinsurance is calculated?

Sure. So it's embedded in the contract that we have. It's roughly [60%] (corrected by company after the call) of the ceded premiums that we have in any given period.

(Operator Instructions) At this time, I'm showing no further questions.

Okay, thank you, operator. And thank you for joining us on the call today. We look forward to seeing you at our Investor Day in New York on November 17. Thanks again.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.