MGIC Investment Corporation (MTG) Q4 2012 Earnings Report, Transcript and Summary

Michael J. Zimmerman - Senior Vice President of Investor Relations Curt S. Culver - Executive Chairman, Chief Executive Officer, Chairman of Executive Committee, Chairman of MGIC and Chief Executive Officer of MGIC Lawrence J. Pierzchalski - Executive Vice President of Risk Management - Mortgage Garuanty Insurance Corporation J. Michael Lauer - Chief Financial Officer, Executive Vice President, Chief Financial Officer of Mortgage Guaranty Insurance Corporation and Executive Vice President of Mortgage Guaranty Insurance Corporation

Geoffrey M. Dunn - Dowling & Partners Securities, LLC Randy Raisman Scott Frost - BofA Merrill Lynch, Research Division Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division Douglas Harter - Crédit Suisse AG, Research Division Matthew Howlett - UBS Investment Bank, Research Division Jordan Hymowitz Jasper Burch - Macquarie Research Craig William Perry - Sabretooth Capital Management, LLC Jack Micenko - Susquehanna Financial Group, LLLP, Research Division Shawn Faurot

Good day, ladies and gentlemen and welcome to the MGIC Investment Corporation Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, this program is being recorded. I would now like to introduce your host for today's program, Mr. Mike Zimmerman, Senior Vice President, Investor Relations for MGIC. Sir, you may begin.

Thanks, Jonathan. 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 2012 are Chairman and CEO, Curt Culver; Executive Vice President and CFO, Mike Lauer; and Executive Vice President of Risk Management, Larry Pierzchalski. I want to remind all participants that our earnings release of this morning, which may be accessed on our website, which is located at mtg.mgic.com, under Investor Information, includes additional information about the company's quarterly results that we will refer to during the call and includes certain non-GAAP financial measures. As we have indicated in this morning's press release, we have posted on our website the supplemental information containing characteristics of our primary risk in force, new insurance written and a summary of excess claims-paying resources, 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 on 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 party 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 Form 8-K. With that, let me turn the call over to Curt.

Thanks, Mike, and good morning. As reported in the press release we issued this morning, the net loss for the fourth quarter was $386.7 million or $1.91 a share, and the net loss for the full year was $4.59 per share. Included in the quarterly results is a onetime charge of $267.5 million that relates to the previously disclosed Freddie Mac settlement. Additionally, we established a $100 million reserve to reflect probable settlements of 2 rescission disputes, one with Countrywide and the other was another lender. While we do not have agreements with Countrywide or this lender, we believe these settlements are probable. So while these charges adversely affected our reported results for the quarter, I'm pleased that we have settled our Freddie Mac dispute and that we have made substantial progress towards resolving the Countrywide dispute. In tandem with these efforts, we are continuing to execute our strategy of writing new business through a combination of MGIC and, as needed, MIC. We continue to be an eligible insurer of both Fannie Mae and Freddie Mac and are pleased to be in a position to be able to continue to provide borrowers with a more affordable insurance option for higher-quality loans than they could find with the FHA. In the fourth quarter, which is typically a slower period for new writings, new insurance written was $7 billion, up 67% from the same period last year and flat to last quarter. More recently, in January we wrote $2.4 billion of new insurance and February, after considering the number of working days, appears to be tracking close to January's level. The new business written since mid-2008 now accounts for approximately 33% of our risk in force. And as I have discussed on past calls, this new business augments our existing claims paying ability as each $20 billion of insurance we write is expected to add approximately $400 million of premiums in excess of losses over the estimated life of the book. An additional $3.5 billion of HARP-refinanced transactions were completed during the quarter, bringing the total to $11.2 billion for the year and $18 billion since the inception of the program. All in, approximately 11% of our primary insurance in force has benefited from HARP or similar refinance programs, and more than 98% of them are current. Additionally, approximately 11% of the insurance in force has been modified through HAMP or other loan modification programs. Our industry continues to regain market share from the FHA. We estimate the private mortgage insurance industry's market share at approximately 10% in the fourth quarter, up from approximately 6% a year ago. Within our industry, MGIC's reported market share was approximately 18% for the full year and 17% for the fourth quarter. We estimate that approximately 75% of the private mortgage insurance market is comprised of the more profitable monthly premium plans and, within that segment, we estimate our market share to be 21% in the fourth quarter. Losses incurred in the fourth quarter were $688.6 million, including the $367.5 million of charges I've previously mentioned relating to Freddie Mac and the rescission settlements. Adjusting for these changes -- or these charges, the level of incurred losses resulted primarily from the number of new delinquent notices received, which were lower than the third quarter. The delinquent inventory continued to decline during the quarter and into January of this year, ending at 137,847. We expect to issue our February statistics on March 8, that will reflect a further decline in the delinquent inventory. Paid claims in the fourth quarter were $628 million and includes a $100 million initial payment called for in our Freddie Mac settlement. Excluding that payment, claims paid were $528 million, down 10% from last quarter and down 25% from 1 year ago. Claims received continued to decline throughout 2012. We expect that the current claim-filing patterns we are experiencing will continue and will result in both claims received and claim payments being lower in 2013. We realized gains of $87.4 million during the quarter that were embedded in the investment portfolio and have realized the total of $198 million in 2012. Cash and investments totaled $5.3 billion as of the end of the quarter, including cash on investments at the holding company of $315 million. Our next debt maturity is approximately $100 million, due in 2015. So we believe we have no medium-term liquidity issues at the holding company. Reflecting the Freddie Mac settlement in the chart for probable Countrywide and other settlement, as of December 31, MGIC's risk-to-capital ratio rose to just under 45:1, and MIC's was just over 1:1. MGIC's increased risk-to-capital level was expected by us and by the OCI, our primary regulator, and is exactly why we established our plan to utilize MIC. MIC has $448 million of capital and we believe we could write 100% of our new business out of MIC for at least 5 years at the current mix and volume levels of new insurance written if we obtained GSE approval. MIC wrote $2.4 billion of new insurance in 2012 and we are currently writing new mortgage insurance to MIC in 8 jurisdictions. Those jurisdictions accounted for 19% of all our business written -- new business written in 2012. We are often asked how high can MGIC's risk-to-capital ratio go before our insurance regulator, the OCI, would take action. Our response is that once the risk-to-capital ratio exceeds regulatory thresholds, the ratio becomes a relatively blunt metric that does not take into account the most critical consideration, that being future cash flows of an in force book of business. We believe that the OCI considers this the most relevant factor, is whether an insurance assets and future cash flows are sufficient to pay claims in full. That is, do the resources to pay claims, namely cash and investments plus future premiums from the existing in force portfolio exceed the level of expected claim obligations? We call this claims paying ability and it is a measure that is also an important consideration by the OCI when evaluating our firm. We believe that in a base-case scenario, we have excess claims paying ability that -- at MGIC of $1.4 billion as shown in the portfolio supplement posted on our website. Although we expect that there will be more than sufficient resources at MGIC even under a stress loss scenario, our forecast calls for the risk-to-capital ratio at MGIC to rise. As a result, we are evaluating a number of options to address the elevated risk-to-capital ratio with the objective of material reducing it -- or materially reducing it. These options include utilizing existing insurance subsidiaries for internal reinsurance, external reinsurance, contributing additional capital from the holding company and raising external capital. We are in discussions with the OCI and the GSE on these matters. Regarding Washington, the CFPB issued its long-awaited rule for QM, or qualified mortgage, and we expect the Qualified Residential Mortgage, or QRM, definition will be out soon, perhaps in the next few months. Our initial read on the QM rule is that appears to line up fairly well with the type of lending that is taking place today in the marketplace and the type of business we want to insure. We believe that most lenders will be reluctant to make loans that do not meet these parameters. Given the credit characteristics presented to us and considering the temporary category allowed for loans that meet GSE underwriting requirements, we estimate that 99% of our new risk written in 2012 would have met the QM definition. Finally, there continues to be many people voicing ideas regarding the role of the GSEs, although I'm not sure there will be much interest in pursuing them at this time, given everything else Congress has on its plate. Also, the FHA recently announced another price hike that will be effective April 1, and it seems to be considering making additional changes regarding pricing, loan size and underwriting guidelines for loans with high credit scores to reduce its market presence and help restore its capital base. This should be very positive for our industry. So to summarize, we are pleased to have the Freddie Mac dispute resolved and made significant progress on the Countywide resolution. Regarding the business, we are encouraged that new delinquent notices we received during 2012 were 21% lower than 2011 and new business writings were 70% higher. And we are encouraged by the continued outstanding quality of the new insurance written, the declining trend of new notices, claims received and paid and the growing share of business we are retaking from the FHA. With that, operator, let's take questions.

[Operator Instructions] Our first question comes from the line of Geoffrey Dunn from Dowling & Partners. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: Curt, I understand the mix strategy and kind of securing the viability of the company. Can you talk to the competitive side though? How do the banks look at the financial position of the company? And do they just basically say, as long as you're approved by the GSEs, that's fine? Or do they look at more capacity coming into the market and maybe remember all the rescission issues in the past? And does that create a threat to your market share?

Well, I mean, new capacity always creates that, Geoff. Frankly, we welcome the new capacity. I think it's a great sign relative to the franchise value in Washington. So that competitive nature that it adds to the industry is welcome. Regarding our own risk-to-capital ratio, I think our company has done a good job. People know the company. I think they look at what's behind the numbers, the support the OCI has given relative to the claims-paying ability of the company and the fact that the loans are all eligible for purchase by Fannie Mae and Freddie Mac. And so it hasn't been a significant competitive issue for us as reflected in our market share. I mean, the market share that we've lost, Geoff, has been the result of new entrants in the business but also been, as I've pointed out, the single-premium business, where we are not competitive for return reasons, and was at least 25% of the market -- I mean, we don't do much business there. So the business we lost is more reflective of business we didn't want or didn't want to pursue for return reasons than for risk capital reasons. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: Okay. And then on a bigger industry picture question, where do you think we stand with the FHFA's look at deeper coverage for the GSEs and maybe an expanded role of the MI industry relative to the historical role?

Well, again, as we add more capacity to the industry I think that becomes a more interesting alternative for the FHFA. As far as where that stands, I don't know. But I think the fact that more capacity is being added, there certainly is a feeling in Washington to get more private market involvement. So I think it just makes it a more interesting proposition for them. They'd love to lower the risk relative to the GSEs, and it's an outstanding way to do it.

Our next question comes from the line of Randy Raisman from Marathon Asset Management.

Just to the comment you made on looking to lower the risk-to-capital ratio. Is that because you're getting more pressure right now or is just to be proactive? Just -- it's the first time I've heard you guys say that.

Yes. It's totally to be proactive relative to -- I mean, the GSEs, we have signed agreements through 2013. So that's not an issue but it's something we know we need to address so that it doesn't become a competitive issue.

The GSEs are looking at new eligibility requirements and capital adequacy for the industry and we don't know exactly where they would come at. So we, as Curt said, we want to be prepared so it doesn't become an issue and why we keep looking at those options.

Our next question comes from the line of Scott Frost from Bank of America.

Just a follow-up on the -- to make sure I understand why you're talking about the insular [ph] risk to capital. This is a competitive issue. You're worried about perhaps losing share but it's -- you're saying it's not a solvency or regulatory issue at present. Is that correct?

That's correct.

Okay. And on your slide presentation, you've put in a disclosure about a run-off scenario. What I was wondering was should we assume the timeframe from that is the 5-year period you're referencing there?

No. We'll let Larry Pierzchalski address that.

Yes. The run-off scenario is a true lifetime run-off scenario. So once again, it's taking our in forces of the year-end 2012, no new business, and running it off over the course of its life. So it goes beyond the 5 years.

I'm sorry, it does? Okay.

It goes beyond 5 years, yes.

Okay, all right, okay. When does -- how much -- can you just sort of give us some color on how much would roll off by 2017? Is that the bulk of it? Is it half of it? Is it what I mean...

Well, clearly, Scott, this is Mike Zimmerman. Clearly, the losses are going to be front-end loaded in that run-off scenario because of the delinquency inventory that we have. We aren't breaking down the year-by-year blow of it but, certainly, it's going to be front-end loaded in a run-off scenario, right? Because you're not replacing anything. So by definition it would be more weighted towards the front.

Our next question comes from the line of Bose George from KBW. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Actually in that run-off scenario, are you assuming that $600 million in incremental rescission-related settlements? Is that right?

Yes, that includes rescissions and various claims settlements, reimbursements.

Both -- including the charge that we took for Countrywide. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, including that $100 million this quarter?

Right. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then just going back to your comment on the single-premium market. Is that 25%, do you think that's down from where it was or is that kind of the level it had been trending?

I think as -- it's in that ballpark. It may have been a little higher but -- maybe 30%. But it's in that 25% to 30% camp and has been, I think, over the past probably 1.5 years, 2 years. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then how would you characterize the return in that business versus the regular, traditional business?

Well, I mean, in looking at our analysis of that business with probably a 10% loss ratio, Larry, we were looking at low-single-digit returns on that business. And, again that's with a 10% loss ratio so -- versus our other monthly premium, which were in the neighborhood of 20% return. So it's quite a significant difference in returns relative to that business on outstanding loss ratio numbers. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, great. And then actually one last thing. In terms of the new notices you're getting, what percentage of that is pre-2009? And what percentage are re-defaults?

I can answer the re-default. About 25% or so of the new notices as of late are first timers, 75% are repeat offenders. And relative to the split on '09, less than 2% is now.

Less than 2% of the new notices would be '09 and newer. So we're still generating notices on the '08 and back books.

Our next question comes from the line of Douglas Harter from Crédit Suisse. Douglas Harter - Crédit Suisse AG, Research Division: Can you guys give us an update as to kind of how you're seeing cures [ph] develop? If you try to strip out some of the seasonality of cures [ph]?

The cures [ph] are -- last year relative to '11 were relatively flat but we're starting to see, hopefully, a continued month-to-month improvement. Home prices, as you know, the last few months have been positive. I think Case-Shiller came out Tuesday and it was up 6% year-over-year. That's encouraging. The job numbers are -- seem to be improving. So the model suggests that with those at our back, the cure rate should improve through the year and beyond.

Our next question comes from the line of Matthew Howlett from UBS.

Just a follow-up on the cure [ph] rate. My first question, as it relates to that, I mean your -- the home price appreciation guidance you're giving is on a national basis. But clearly on some of the MSAs in the rust belt and in Nevada or Florida, I mean, that's going up a lot more. Is there a possibility or can you quantify if your portfolio, how many people could regain equity in their homes over the next several years and whether or not that could really influence the cure [ph] rate?

Matt, Mike Zimmerman here. The issue that would be all those older loans, right? The 2007 loans, let's say as an example, have lost 40% of their value in those -- or more in those markets that you'd talked about. So even if they're up, they're up -- they're still -- they have significant negative equity. So it certainly helps newer loans. It helps consumer confidence in those markets, things of that nature. But relative to if a borrower loses their job in a market that was depressed, while even though it's up, they have limited abilities to cure [ph] by selling their properties through home price appreciation.

Okay. So they're sort of very underwater. There's really no chance?

They'll keep progressing up and, over time, that obviously will mitigate. And again, it's very positive for consumer confidence and the local economies and jobs in those markets. So there is positives to it but just not for those borrowers that lose their ability to pay.

Okay, great. The second question relates to the servicing behavior. Has there been any meaningful rescissions on servicing behavior? I know that you have a very deep delinquent bucket that's aged, that's aging. Is there anything in your policies or relates to servicing, foreclosing or issuing a claim? I mean, anything that suggests that the servicers have to act a certain way the next several years?

Well, the policy -- certainly the servicers have a duty to get help mitigate losses. We analyze the claims that come through looking for -- to make sure that proper servicing is taking place, offering modifications, repayment plans, et cetera. To date, we haven't seen significant levels of that in the claims that we've been processing. We'll certainly keep an eye out for that and we do have -- as I said, the servicers do have that duty to mitigate losses. So is their explicit language that I could point you to in the policy, that's says X, Y and Z? No, but there is a duty to mitigate losses.

Nothing that relates to aging and the timeframe that they have to act on a foreclosure?

Well, I mean, again that's the duty to mitigate losses. There's state guidelines relative to foreclosure but keep in mind that servicers also may violate -- violate's the wrong word but go past those standard timelines. But they're mitigating losses through offering modifications or other activities or bankruptcy may extend it out there, et cetera. So -- but we will curtail interests and other expenses if the timeline is exceeded. But we're not going to deny the claim for that reason but we would curtail it. But -- and again, we probably curtail 2/3 or more of our claims but it's not a significant dollar amount.

Got you. And just last question on some of the new business being written. It's obviously up significantly. Are you seeing any FHA to GSE refinancing into private-label MI from the higher-cost FHA premium? Are you doing any more of that? Do you expect more of that?

We can't -- it's hard for us to tell where the loan comes from, I mean, right? So unless you'd actually go and [indiscernible] look at the HUD-1 where it was disclosed. Was it an FHA loan that refied into a conventional? So I'd say we don't have enough data to be able to answer that question in any great detail.

Our next question comes from the line of Jordan Hymowitz from Philadelphia Financial.

Two quick things. One, you said that in the beginning, $20 million of premium. Can you give that stat again that you used in the beginning?

$20 billion of new business today would generate $400 million of premiums over losses -- in excess of losses. So it would contribute $400 million to capital to the company.

Over the lifetime of the book.

That was my next question, okay. From what type of lifetime are you assuming?

Well, if you take the $20 billion, our premium rate is roughly 60 basis points. So if you multiply that by average renewal of about 4x, it gives you about $500 million. We think that, conservatively, the loss ratio on the new business is 20% or less, so that's $500 million in net revenue, $100 million of loss, $400 million net, which Curt speaks to.

Fine. And that leads into my second question, is you're assuming 60 basis points on new business. Radian is assuming 51 basis points of new business. Why the difference?

The single premiums. They were at a significant, I mean...

About 1/3 of -- we write less than 10% in singles and they write about 1/3. And the way the earning patterns on those are different, that's what drives the difference in those yields.

So if you both go back to monthly premiums, the trend's going to be towards the 60-basis-point number?

One more time, Jordan?

If we go back to month -- yes, the trend on monthlies is around 60 basis points.

Our next question comes from the line of Jasper Burch from Macquarie.

I guess starting off with how much unrealized gains do you still have in the book? And was the selling of asset what drove the net interest income to decline in the quarter?

Well, it's been a combination. Right now, at year-end, the gain was about $41 million. But over time, as we've talked in the last 3 or 4 quarters, we've been shortening the duration of the portfolio that match the claimed payments. We're at -- we have been at the peak and now it's declining. But we're at the higher levels of the claimed-payment curve. So with that in mind, we've been selling down the portfolio, taking the gains and shortening the duration. So that really was the genesis of that and it worked out, quite frankly, to our advantage over the last 1.5 years, 2 years.

Okay. And then on the $100 million Countrywide reserve. I mean, what's the confidence around that number? And sort of why, I mean, that number and why now?

Well, a couple of things. First of all, it's 2 settlements and we're in the final stages of negotiations and have calculated the amount and it's $100 million. And we believe we're very close to signing. So with respect to probability, we think we're very close and with the idea that we'd know the amount, we've recorded it.

And Jasper, relative to timing, as we've been telling the curve [indiscernible] the last year or so, we've been in mediation discussions and the point of the mediation discussion was to try to get to a resolution. So the why now is because we're getting closer and we've made that significant process -- progress towards reaching that resolution.

And the amount has been identifiable.

That's helpful. Just a couple more. You guys -- what's your outlook on new insurance written? I mean, do you, given your capital levels, expect to be growing that $7 billion number?

The -- I mean, our outlook is we're going to write more new insurance next year than we wrote this year. Not a meaningful increase, but more. And the reason for that is the amount of business our industry continues to recapture from the FHA, which I think will just continue to grow as you deal with the shortfall or as the government deals with the shortfall at FHA. And also, the bias, which it should be, relative to the private sector coming back to the mortgage and housing area. So there's a lot of business to recap -- quality business to recapture from the FHA and that will happen with their continued price increases and as they deal with the deficit in their capital situation.

Okay. I guess, Radian, I guess starting a year ago, they've been guiding to profitability in 2013. You guys have consistently provided your excess claims-paying resources estimates and now, you obviously have some sort of expectation for new insurance written. In your sort of internal models, I mean when do you expect the company to turn profitable?

We don't forecast that. We don't comment on that.

Okay. So and then I guess just a little bit of a technical question. I mean, the upfront versus multi-premium, obviously, the relative income off of that is highly dependent on certain -- or I guess what you accrue is highly dependent on the persistency, right? So I mean what is the actual upfront fees that you're seeing in the market right now that are sort of comparable for a policy to that 60-basis-point number that you're giving on the monthly?

Well, Jasper, first off, the 60 is the weighted average of our entire writings, the different LTVs, different FICO scores. So there's not a direct comparable that we provide. I mean, our rate card that we have out on our website, you can look at, around 50-ish basis points for the highest credit scores in -- off-hand, I'm trying to remember our single-premium price with it, but it's less than a 3 multiple of that -- or sorry, the marketplace is less than a 3 multiple of that. So maybe what I can do is follow up with you offline and those others listening, those cards are all out on our website and you can kind of see that comparison but I'll be able to kind of walk that through with you.

I mean, but where we've lost business is where basically the single premium has been a 2-year, in essence, 2 monthly premium years. And if you look at the books of business, you'd say they're -- they've got 4 to 5 years relative to premiums that we're writing on the monthly side. So you can see it's about half of what we would get on a monthly premium relative to what a single premium is.

Our question comes from the line of Craig Perry from Panning Capital.

I think the answer to the when are you profitable question is 2014, based on my math, but I'm happy to check it with whoever that was later. Question about new capital. You guys talked about different alternatives for capital reinsurance, paying down cash in the holding company, and even potentially external capital. Can you give us some thoughts about how you're thinking about those options? And if you're talking about external capital, what would that look like? And please keep us in mind at Panning when you think about external capital.

Well, I think that all of those are pretty self-evident. The one thing, we do have some capability of maybe restructuring some of the subsidiaries and shifting some risk from one subsidiary to another that would reduce MGIC's risk to capital. And we're currently reviewing that strategy with both the OCI and, ultimately, we'll review it with the GSEs too. So that's something different. External reinsurance is, I guess, pretty straightforward. We're looking at laying off some of the risk on some of the newer books if we need be that would continue to help MIC risk-to-capital if we needed it. And then obviously, we still have some excess cash at the holding company. We could dividend that down. And then ultimately look at the markets. And based on what our friends in Philadelphia did, the market's pretty acceptable for the space. We know that because we've had a number of inquiries. And so, as Curt pointed out, the good news is that there's a significant amount of capital interested in our industry. We've got new competitors coming in. They've attracted capital. We had the offering this week that was well-received. And we know that, just by talking to institutions in the last couple of months, there's a lot of interest in our industry. So that all bodes well and we'll look at all those alternatives.

Right. I'm sorry, just so I understand the potential capacity to do reinsurance, how do I -- how would the math work on that? Would that be out of the -- I'm sorry, is it the MICs? I can't remember all the different operating companies. Which subsidiary would be the one doing the self-reinsurance? Or would it be external reinsurance?

The external reinsurance, there we'd be looking at MIC on the new books. And the idea there would be that building a longer-term relationship with reinsurers and, secondarily, providing support in the event we were to write the significant amount of business in the out-years, that we'd have some additional support.

I think the important part about the external reinsurance is that, I mean, you may look at it today and say it's not necessary but we're, as Mike said, for future flexibility. The GSEs are in discussions with our industry relative to new capital standards and, frankly, none of us know, including them, what the resolution of that is for the future. So our look at external reinsurance is more about future flexibility and relationship in the future than a need today.

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

Most of my questions have been asked. Just thinking about the late-stage default bucket. Have you -- thinking about how many -- can you provide us how many of the 58% on the default side have been in -- have not made a payment in, say, more than 1 or 2 years compared to how many in that bucket are kind of stringing along, making a payment here or there? And in terms of helping us build out what the cure [ph] and claim numbers ultimately look like on that piece of the business?

Well, we do have some information on that, that exhibit that breaks out the older inventory but it doesn't break it out specifically the way you've asked it. That bucket, 12 payments or more, continues to trend down. It's 71,000 out of the total and a year ago that was 89,000. So it continues to trend down. It's been at about 50%. What I can't tell you, I don't have in front of me here is some of the statistics that you mentioned about how many have made some payments and how many have not made all.

Yes. Jack, this is Mike Zimmerman. And we don't have that stat right in front of us. So when we look at -- talked about it last quarter, I think there was a very -- 60-plus-percent of these delinquencies made at least one payment during the quarter. Specifically, relative to the 2-year or older delinquencies, that number looks like much smaller. But similar to what Radian has seen, we're seeing the same thing. I mean, we all have the same -- basically the same flow policy, the same kind of fish out of the same waters. So you do see borrowers making payments. Some of those are repayment plans. The more important part is how many are curing [ph]? So you make a payment -- you're 6 months behind, you make a payment, you're still 6 months behind. But you do see a significant level of payment activity but less the one the older delinquencies.

Our next question comes from the line of Shawn Faurot from Deutsche Bank.

Most of this has been talked about but I wanted to see -- you talked a lot about capital and options there and you touched on the GSE kind of new risk-based capital metrics.

Shawn, we can hardly hear you. Can you either close your phone or yell at me like you usually do?

Is that better?

A little better.

Okay. Yes, just on capital and risk-based capital metrics, you guys talked about it a little bit but I wanted to see if you could give any more commentary on what options there are out there for -- other than risk to capital or whether it's surplus? What are they really looking at? Or what are the options that are kind of on the table that you guys are discussing with them? And essentially [indiscernible] would look at capital?

Well, I guess I would say, first of all, with respect to managing capital, that's what -- is something we looked at 5 years ago, and said, "Hey, with the size of this book and where the economy's headed, MGIC may have some risk-to-capital issues." So we set up this subsidiary with $450 million, MIC. And the idea was to try to have that as a backstop. That's where we are now. We're writing either in MGIC or in MIC, as the case may be and using that. But ultimately, as the market's turning now, with more opportunity to write more business, we're looking at augmenting that. And as Curt said earlier, also for market conditions, to take a look at is there anything else that we can do to reduce risk to capital knowing that there may be some changes made in '14 or '15 relative to the industry and we want to be well-positioned for that.

And again, just as a rider, that's despite the excess resources that we -- in the runoff scenario.

Do you think that the -- obviously, understanding that you guys have MIC and have an ability to write out of that entity. I mean, do you think that new metrics may impact MGIC and/or MIC more broadly as it relates to whether it's MGIC writing in non-risk-based capital states? Or I guess I'm just trying to understand, if MGIC kind of goes into runoff in a way and you have MIC, why does it really matter if the risk-based capital metrics changed?

Well, we don't know what they'll change to. Whether they'll 15:1, 18:1, 20:1. We don't need -- I mean, I think they're all thinking and something we've advocated here at MGIC to them is that they go to a risk-based adjusted capital model, whereby they look at the risk you're insuring and also, the premium stream on that risk as part of the capital contribution. So we don't know where those areas are and it's our duty in running this company to create the flexibility that we're highly successful in the long term. I mean, if you look at the opportunity ahead in this industry, it's outstanding. And we want to make sure we have the capital to serve that market, to take advantage of that outstanding opportunity that we have.

Yes. No, I agree, and it sounds like the OCI is in line with you guys as far as how they're looking at your capital, so that's helpful.

Very much so.

Our next question is a question from Douglas Harter from Credit Suisse. Douglas Harter - Crédit Suisse AG, Research Division: This is just a follow-up on the profitability of the new business. I think I might have just missed how you were thinking about expenses in that calculation?

Well, the calculation we gave was if you write $20 billion at 60 basis points average premium and it has an average life about 4 years, that's $500 million of revenue. 20% loss ratio is $100 million on the $500 million. We think we're doing better than that given the track of the newer business. And our expense ratio is roughly 20% but then you would be getting some investment income over time on that $500 million. So it's just a broad brush, give you a feel for the profitability of each new book of business.

Our next question is a follow-up from the line of Geoffrey Dunn from Dowling & Partners. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: In the last couple -- or in some of the months in the last several months, you've had some cure [ph] development that's resulted from policy caps. Is there more of that activity expected for '12? And did you have an estimate of the loans that will fall out as a result of that?

We had about 1,000 this quarter, I believe.

Going forward, there's a handful of aggregates in the pipeline. But there will be in the order of a couple of hundred rather than close to a thousand. So they won't happen each month but we would see a few of them happen over the course of the year. But once again a couple of hundred items would come out of inventory. It wouldn't necessarily impact reserves or losses because in setting reserves, we kind of look at how much is left in the aggregate loss limit in that calculation.

Our next question is a follow-up question from the line of Scott Frost from Bank of America.

Just a -- this is just a housekeeping matter. I can't seem to find -- you used to provide or you provide primary risk on defaulted loans. Did I overlook that or do you not provide that?

That will be in the 10-Q or K.

Our next question is a follow-up question from the line of Jordan Hymowitz from Philadelphia Financial.

Yes. I was just wondering, do you provide any slide information similar to Radian did of the percent of loans by bucket that you expect to default and what their rescission rate on that would be?

No. What we provide you is the, rather than a forward-looking forecast of that information, we give you the actual activity and the trend activity so that you can take that information and look at the cure [ph] rates by category, calculate -- get the roll rates and kind of see that it would support the level of reserves that we have. But we go with the trends rather than giving a forecast that, quite frankly, half of you might believe and half of you wouldn't. So it's -- we choose to disclose out the facts.

It's in that supplement, Jordan.

[Operator Instructions] This does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks.

I would like to thank you all for your interest in our company and have a good day. Thank you.

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