Good day, ladies and gentlemen, and welcome to the MGIC Investment Corporation, Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Mr. Mike Zimmerman, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Candice. 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 second quarter of 2015 are CEO, Pat Sinks; Executive Vice President and CFO, Tim Mattke; 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 MGIC's 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. We've posted on our website a presentation that contains information pertaining to our primary risk in force and new insurance written and other information we think you will find valuable. During the course of this call, we may make comments about our expectations of future, which includes any statements regarding our ability to comply with the GSE mortgage insurance eligibility requirements. 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 obligation to update those statements in the future in light of subsequent development. 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 Form 8-K. Now, I'd like to turn the call over to Pat Sinks.

Thanks Mike. Good morning. I'm pleased to report that in the second quarter of 2015, the company continued to grow our insurance in force by adding another $11.8 billion of high quality new insurance. We also continue to experience positive trends on pre-2009 business relative to new delinquent notices, paid claims, and the declining delinquent inventory. The combination of profitable new business, the continued runoff of the older books, and a strengthened housing market position us well to provide credit enhancement solutions to our customers now and in the future. In the second quarter, we recorded net income of $113.7 million or $0.28 per share compared to $0.12 per share in the second quarter of last year. The year-over-year improvement of the financial results were primarily driven by lower losses incurred, as well as an increase in earned premium. Tim will go over the financial highlights of the quarter in a few minutes, but, first, I would like to make a few comments about the current market dynamics and strategic items we are focused on. Then, I will wrap up with a discussion of the regulatory and political fronts. We estimate that our industry's market share for the first half of 2015 was approximately 13%. Within the industry, we believe that we have approximately 20% to 21% market share. Approximately 25% to 30% of the business the industry is writing is single-premium policies, which is predominantly lender-paid or LPMI. Consistent with our expectations, LPMI singles comprised approximately 17% of our NIW this quarter and, reflecting the competitive environment, there was an average discount of approximately 11% from the LPMI rate card. To-date, the FHA premium reduction that went into effect earlier this year is not impacting our volumes in any material way. We still win business and may have a…

Thanks, Pat. As Pat mentioned, the year-over-year improvement of the financial results were driven by primarily a lower level of incurred losses and modest growth in net premiums earned. The lower incurred losses in the quarter reflects the fact that we received approximately 18% fewer delinquency notices, and those notices had a lower claim rate when compared to the same period last year. Reflecting the current economic environment, new notices received in the quarter estimated to have a claim rate of slightly less than 14%. During the quarter, we also updated our claim rate assumption for notices received over the last several quarters given the actual experience had outperformed our original estimates. This resulted in a benefit of approximately $20 million to $25 million. Regarding late-stage delinquencies, we still have not seen any evidence that would materially alter our expectations and therefore still expect a high rate of claim on that bucket. The legacy books of 2008 and prior continue to generate approximately 94% of the new delinquent notices received during the quarter, although its book now comprise just 42% of the risk in force. The delinquent inventory ended the quarter down 22% year-over-year and down 8% sequentially as the last part of the Bank of America settlement was operationalized. We expect to see the inventory continue to decline during 2015 due to the eventual resolution of older delinquencies combined with the lower levels of notices being received. The number of claims received out for the client, it was down 24% from the same period last year and down 2% quarter-to-quarter. Paid claims in the second quarter were $222 million, down 26% in the same period last year and down 4% from the last quarter. Similar to the delinquent inventory, we expect paid claims to be lower in 2015 than…

Thanks, Tim. Next, let me give a quick update on the regulatory and political front. The review was updating of state capital standards by the NAIC, which Wisconsin insurance regulator is leading, continues to move forward, although we are not aware of the timeframe for implementation. We still do not expect the revised state capital standards to be more restrictive than the financial requirements of the PMIERs. No real progress is being made in overall housing policy, although the Shelby Bill that pass the Senate Banking Committee did call for the use of front-end risk sharing including the use of private mortgage insurance. And while the future of this particular bill is uncertain, it provides an important reference point along with the Johnson-Crapo framework in the ongoing holding policy discussions, which is positive for private mortgage insurance. However, I continue to believe that the current market framework is what we will be operating in for considerable period of time. In closing, during the quarter, we continued to make great progress. We wrote $11.8 billion of high-quality business, the in-force portfolio grew, the level of delinquencies and claim payments continue to fall, MGIC's risk-to-capital ratio improved to 13.2:1, our market share within our industry is strong, and we maintained our traditionally low expense ratio. With PMIERs behind us, I see lots of opportunity for MGIC in the coming years. And I firmly believe that there is a greater role for us to play in providing access to credit and reducing home ownership cost for consumers, and we are committed to pursuing those opportunities. With that, operator, let's take questions. [Operator Instructions]

And our first question comes from Bose George. Your line is now open.

Hey, guys. Good morning. The first one is just on the high LTV loans here. The loans with LTVs over 95% was 5% compared to around 2% last year. Is that coming from the new 97s%, and where do you that percentage going over time?

Yes. That's due to Freddie and Fannie getting back into the 97% LTV space. That move was made earlier this year. It took them a few months to kind of get things into place. So I think what we're seeing here in the quarter is probably representative we're settling out.

Okay. Great. And then actually one on reinsurance, any thoughts about what you'll do in terms of reinsurance after the end of 2015? Could you reduce the percentage of NIW that's subject to reinsurance at that point?

Well, just to be clear, the new reinsurance agreement will cover NIW in 2016, and that will be a 30% quota share. I'd say subsequent to that, I think we'd look at other forms of reinsurance. What we said previously is still true. We view reinsurance as an important part of our plan going forward, an important part of our capital structure. It doesn't necessarily have to take the form of a quota share, but we think the current structure with the profit commission, in particular, makes it an enticing, I guess, alternative for capital right now. But going forward, for the 70% books going forward, we take a look at other forms as well.

Okay. Great. Thanks.

Sure.

Thank you. And our next question comes from Mark DeVries. Your line is now open.

Yeah. Thanks. First question is on the premium yield. It sounds like there's kind of a onetime hit this quarter due to the reversal of the premium deficiency reserve. Should we expect that to move back up to 52 basis points or higher going forward?

Yeah. This is Tim. Let me address the PDR. So the PDR previously housed some of the reserves that we'd have had for return of premium on loans that we will pay claims on and on rescission. And so you can think of it as, as we release for the PDR, we had to reclassify that liability as general liability that came back as a contra against premium. So that's been - that release of the PDR was a direct hit to the premium line this quarter. So going forward, we would not have that noise in the premium line. The only thing I would say is, as I mentioned, that the new reinsurance agreement will cover 70% to 75% of our in-force as opposed to the 60% it covers right now. So that could have a little bit of an impact on the yield, but you won't have the noise associated with the PDR release going forward.

Okay. Do you know how much the impact was on the yield in the quarter?

It was about 1 point, 1.5 point.

Okay. Got it. And, Tim, I know you mentioned that you're kind of considering capital actions right now. I was hoping to get a little bit more color on that. At least, how much of the Holdco cash do you think is available for capital actions and how you're thinking about your options right now?

Well, when we think about our options, I think we take a look at the different convertible securities we have out there. I mean, set aside the debt that we have maturing at the end of this year, which we have cash set aside for, we look at our 2017 and look at that they have to be above $13.44 to convert at that point. So we want to make sure we have enough liquidity to handle that in case those don't convert. And then, we look at our 2020s that have a low coupon of 2% on them, but we have the ability to force convert them in 2017 if it's above $9.04, which the stock is trading at right now. So that - the early part of 2017 would provide sort of a natural deleveraging point for us if we didn't want to do something sooner. So I think we're looking at that along with what ability we might have over the next couple of years to get dividends out of MGIC and try to look at all those factors in relation to how we want to look at the capital structure moving forward.

Okay. And then, given the amount of credit you're getting for the reinsurance from the GSEs, how much of your cash at the holding company do you think is available that you could use to potentially retire some of these converts?

Well, I think as far as the exact amount, I'm not going to speak as far as the exact amount there. What I would say is, because the credit we're getting from reinsurance, we don't expect that we're going to have to use any holding company cash to put into MGIC to meet PMIERs. And so, the cash that's at the holding company now is really for the debt and the convertibles that are there at the holding company.

Great. Thank you.

Welcome.

Thank you. And our next question comes from Eric Beardsley. Your line is now open.

Hi. Thank you. Just wanted to clarify, you mentioned the claim rate was still 14% in the quarter, and there was $20 million to $25 million of positive development.

Yeah, Eric. We said slightly below 14%. So that's a little bit of an improvement versus where we would have been, we'd say, last quarter. Again, first quarter is a little bit different seasonally, but definitely improvement of where we would have been sort of fourth quarter, which would be a more traditional quarter last year. So we're seeing some improvement on that. That improvement, again, is below 14% of the new notices and had some impact, then, on us looking at the reserves we'd set up for prior quarters on notices as well. That's the $20 million to $25 million benefit.

Got it. And your outlook, I think you said you expected the claim rate to decline modestly over the balance of the year. Just curious in terms of the seasoning, basing on the newer vintages, is there a scenario where you could see that getting below 10% over the next couple of years?

Well, the one thing I'd say is most of our new notices are still coming from these old books. And so, I think it's less of an impact as far as what you think the loss rates will be on the newer books and more - I think what's more affecting it right now is sort of the repeat offenders, as we like to refer to them at, is that the new notices continue to be a high proportion of repeat offenders and those have a higher propensity to cure.

Got it. As you look out further, is there anything to think that the new vintages could be significantly better than you had seen in the past in terms of that claim rate being - I think, in the past, you talked about somewhere around 10% being perhaps normalized?

Yeah. I'd say the 10% historically has been kind of the national average in normal times; some markets, obviously, lower than that, a few higher than that. But I think a reasonable expectation long term for things to settle out would be about 10%.

Okay. Great. Thank you.

Thank you. And our next question comes from Mackenzie Kelley. Your line is now open.

Thanks. Good morning. Pat, can you speak to the average decline in the discount on the lender paid single premiums from the rate card? Looks like that came down this quarter from the first quarter. Just an update on the pricing environment and if that was something intentional or if it was just maybe a demand change?

Wait. I'm going to let Larry handle that one.

Yeah. The amount of LPMI and the discount really kind of would probably move around quarter-to-quarter, dependent upon the volume coming from various lenders. So, in the - from the first quarter to second quarter, we did get less business from one lender in particular which caused the LPMI to drop from 20% to 17%. And then, associated with that, the discount went from 13% to 11%. So, it really depends upon what the various accounts are doing quarter-to-quarter in the LPMI space.

Okay.

Yeah. I would just add some market color to Larry's analysis on the numbers is that while LPMI, as we talked about, is still - the thought there is around 25% to 30% of the business. It seems like the new requests are slowing down a bit. So, I don't want to say the markets peaked in any way, shape or form but it seems to be settling in a little bit and that's how we're looking at it.

Okay. And is that driven by - is that a refi versus purchase mix issue or there's been a lot of regulatory sanction from the CFPB and maybe the state regulators on the LPMI? Do you think lenders are backing away from it for that reason or there's something else going on?

I think some lenders have looked at it as more of a refi product than a purchase market product. So, I think that could be influencing it. Relative to any CFPB or other inquiry, we're not aware that any lender has pulled back as a result of that. We've not been told that in any official way.

Thank you. And our next question comes from Jack Micenko. Your line is now open.

Hi. Good morning.

Good morning.

I wanted to ask about maybe some timing on deeper coverage. Obviously, you're getting on the rate or on the lineup would be a positive. We're thinking is that maybe a first half 2016, second half 2016, could you see something sooner? Just curious as to what obviously, highly speculative, but what are you thinking on potential pilot for deeper coverage?

Sure. Well, first of all, I think, there is a lot of discussion around front-end risk sharing, and as a component of that, deep cover private mortgage insurance, a lot on the headline. Obviously, the private mortgage insurance industry is pushing for the idea. We've got the MBA are pushing for the idea, particularly, as it relates to access to credit, the Housing Policy Council and other policymakers are weighing in. So, there's a lot of positive momentum at the headline level. Once you get below that, it becomes more of a challenge, and that is you're finally putting a pencil to paper to say how much will the additional MI insurance cost and how much GSE relief will come in turn. And so, we've just started those discussions with the GSEs and the FHFA. We've agreed to continue the discussions. We have some work to provide. We, being the industry, MI industry, have some work to provide. The FHFA did ask us to come back to them. And so, I think that process, in and of itself, will take the rest of 2015. My point is, is that we believe it's the right thing to do but when you get down into putting a pencil to paper it becomes a real challenge. It's not something that's imminent. I can't give you a specific timeframe for 2016. My guess would be sooner rather than later, but again, we want to build on the positive momentums there, but not yet prepared to make a specific forecast on when it might happen. There's a lot of legwork that needs to be done.

Okay. Fair enough. And then, I guess, on the lender-paid, have you seen - I mean, it looks like the pricing discounting came in a bit quarter-to-quarter coming off the last question. Have you seen maybe less participants around the hoop or anything with the updated PMIERs, or is it really not as relevant because we don't have anything until the beginning of 2016?

Yeah. This is Mike. Yeah. I don't think the updated PMIERs have influenced anything. I wouldn't expect any changes from the marketplace, in general. I mean, later in the year possibly, but I don't see any impact relative to that change. Clearly, rates rising. LPMI, even though it's added to the interest rate. So, as interest rates rise, it's going to be - becomes a little bit less competitive of a tool as well for lenders relative to the borrower-paid premiums. So, you'll have to just kind of wait and see how everybody react to those things. At least now we're kind of evaluating the impacts of returns and the competitive landscape for it but nothing relative to just because of the publication at this point in time.

Okay. Great. Thank you.

Thank you. And our next question comes from Sean Dargan. Your line is now open.

Thank you and good morning. I'd like to follow up on the LPMI even further. So, if I look at what the FHSA put out, the required capital charge is now subject to a multiplier of either 1.1 times or 1.35 times depending on LTV, which would take a high-single digit ROE product down to mid to low-single digit. So, I mean, I guess, my question is why wouldn't you be selling this in 2016?

I'm sorry. Why wouldn't we be selling it?

Sorry. Why would you be involved in...?

Why would we offer it?

Yeah, why would you offer it?

Well, first of all, this is Pat, as we said, we're taking a hard look at it. I mean, returns are absolutely critical to us. We spend a lot of time talking about it. So your question is spot on. I think, in and of itself, if you look at the product based on the simple math, you'd say why would we offer it? You can't run this business at single-digit returns for any length of time. It's short-term thinking. That said, what we typically do is look at it on a customer-by-customer basis where you've got blended returns, and a customer may want a piece of discounted LPMI. We continue to be defensive in this manner. That has not changed at all. We do not have our sales organization out there proactively selling it where we do - we do it where we need to do it. And so, now what we're trying to assess is, to your point, with the returns going down, do we go to individual customers and consider a price increase? Should we do it across the board? We have to look hard at the returns that will drive as much as anything our decision, but we also may have to be cognizant of customer needs and competition.

Okay. And, I guess, a derivative question of that is if I look at your market share for the monthly business, you have a higher market share I think you do for a total NIW production.

Yes.

Right. So, if the market acts rationally and everybody pulls back on single-premium LPMI, single premium business then in theory your market share should go up?

That's correct. I mean, your assumption is correct. All else being equal, we get less in the LMPI space, more in the borrower page space. So, if LPMI were to decline or go away and we get our 20%, 21% our share, more it would go up.

Okay. Thank you.

Thank you. And our next question comes from Chris Gamaitoni. Your line is now open.

Good morning, guys. Thanks for taking my call. Another follow-up on LPMI. The lower percentage of your NIW quarter-over-quarter, was that reflective of just lower demand from the market or were you being more selective compared to peers? I'm just trying to see if the industry declined or was it's just you?

Once again, the decline from the first quarter to second, I'd say was driven by two things. One customer in particular, we didn't receive as much businesses in the first quarter. And secondly, the LPMI product is much more of a refinanced product. So, as refinancers tapered off from the first quarter to second quarter that in itself would tone down the LPMI percentage overall.

All right. Then on persistency was down in the quarter. Was that simply just more refis that were locked in the first quarter being funded in the second quarter.

Hey, Chris. This is Mike. That's right. That's the annual number. So [indiscernible]...

Yeah.

...refis come down. Which...

Okay.

... [indiscernible] that's exactly right.

Yeah. No problem. And then, is there any - can you give us any - I know it's really early but just the thoughts around potential returns for deeper cover or would those have lower returns than your current MI business, theoretically they'd be lower risk. I'm just trying to get a sense of how that would all work?

Chris, this is Mike. I'd say - as Pat was saying, we're at the very early stages because we don't know what benefit the GSEs would provide in the form of lower g-fees and LLPAs as a result of us taking more risk. So, we don't really know where you can price that. So you got to do some theoretical exercises. So I think it's premature to think about that at this point until we get a better handle on what the counterparties would do.

Okay. Well, thank you very much for taking my call.

Sure.

Thank you. And our next question comes from Geoffrey Dunn. Your line is now open.

Thanks. Good morning.

Hey.

I guess, I'll start with deeper cover. I mean, if that ever went through, it's pretty transformative for the industry, so. I know that the FHFA could ask for the scorecard, but if this ever really move forward past pilot, do you think it could go without really Congress changing the charter?

Yes. We do. I mean - this is Pat. I think [indiscernible], I mean, the thought is that we - the charter can stay in place. I mean, this is a pretty simple execution when you think about it. We're just asking the lenders to select a deeper level of MI, so I don't see the need to change the charter requirement - on the above 80s%, I assume is what you're referring to.

No. I'm really talking below. Above 80% to me is more of a rounding error. It's really the below 80% stuff, so - I mean, is that what we're talking about, the below 80%? I mean, that's where the opportunity...

Oh, I'm sorry. Are you asking if it got beyond pilot, would they create a charter mandating that the GSEs do that?

Well, no. I'm just saying that it's such a profound change in the industry if you start providing cover below 80%. Is that something the FHFA alone would stand up and do through scorecard, or do you really think that it would have to be a congressional mandated change?

Yeah. Geoff, this is Mike. I think in that order, it would be probably led by FHFA because, I mean, we can clearly see the GSE reform is not rapidly progressing over the last several years, or progressing at all for that matter. So we think it'd be led by the FHFA. Does it - would it be beneficial if they run it into the charter? Absolutely. But it's not necessarily that it really becomes an execution for - the FHFA would say, you know what, this helps access to credit and it helps lower the credit risk of the GSEs and lower taxpayer exposure. So that, if they did it on their own, there'll be no need to go to Congress and ask them to change the charter. But clearly, if we could get written into the charter that way, that would be beneficial, but it's not required.

Yeah. And deeper cover provided by the MIs upfront is kind of an alternative to some of the back-end transactions they're doing today, where they're laying off the risk on 60% to 80%. So they're already kind of laying it off in that 60% to 80% LTV space. This would be an alternative to do it upfront rather than at the backend.

Yeah. I'm just thinking on the backend, they control it, whereas on the frontend, they're kind of competing with you on the GP side.

Absolutely.

I think you hit why there's a lot of legwork to be done.

Yeah.

So [indiscernible] the reasons why.

All right. And then, looking at the new reinsurance, you'd previously said that the cost of reinsurance was probably around 3 bps. Obviously, we've had time go by and everything, but is the cost of you net-net similar on the new structure?

Yes.

Okay. And then last, Tim, on the investment portfolio it looks like the yield started to climb up. Are you repositioning or extending duration at all that's helping that yield, and is that sustainable?

We are extending duration a little bit. I think duration was close to 4.5 now. So the yield went up because of that. We're repositioning there. We also are moving a little bit more into [ph] tax preference as well.

All right. Great. Thank you, guys. Take care.

Okay.

Thank you. And our next question comes from Doug Harter. Your line is now open.

Thanks. Just to follow up on that last point, until we get sort of any clarity on deeper coverage, are you considering putting some capital to work in the existing risk-sharing transactions?

You mean, the ones on the backend?

Yes.

Yeah, that is a consideration. I would tell you there's nothing imminent, but now that PMIERs is done and we know the rules that is something we'd like to participate in, given the opportunity.

And, I guess, how do you view the available returns on that versus kind of the more traditional backend coverage that you're writing?

To be determined. I mean, it depends on the structure. If we can deploy - as an example, deploy more capital into the day-to-day business, if LPMI were to decline, as we talked about a little earlier, I'd rather put it there than the backend deals; but if the returns are attractive on the backend and meet our hurdle rates, we'd go for it.

Great. Thank you.

Thank you. And our next question comes from [ph] Jordan Smith. Your line is now open.

Hey. It's actually Jordan Hymowitz from Philadelphia Financial.

You're disguising yourself there, Jordan.

In the quarter, how much earnings were generated by [ph] accelerated effects, the correct word, prepayments on the single premium business versus last year? In other words, when you are single premium, you pay a certain amount and it's earned over a number of years. And because prepayments have risen, I would imagine an increased amount of earnings we got in this quarter than last quarter because there was more refinancing in the single premium business. Can you quantify those numbers?

Yeah. Jordan, I mean, it's something we looked at because we know it came up last quarter as far as with all the refi activity. I would say from our premium earned perspective, it impacted quarter-over-quarter less than $0.5 million.

Okay. $0.5 million, you said?

Yeah. As far as the delta between quarters.

Okay. Thank you.

Thank you.

Thank you. [Operator Instructions] And our next question comes from Jack Micenko. Your line is now open.

Hi, guys. Thanks for the follow up. Under the assumption that discounted LPMI is a tool to drive market share gains, I mean, what's preventing some of those from coming in and lowering price on monthly pay if the returns in the lender-paid are no longer acceptable? I mean, is the, I guess, the FHFA attention on this an implicit mandate around price competition overall? How do we think about that?

Well, I don't think the FHFA is around price competition. I think it's more along the lines of counterparty strength. I mean, one influences the other, obviously. To your question, specifically what would prevent it or allow it, at the end of the day, the pricing is dictated or approved rather by the insurance departments of the respective states. So each company, we have to make the case as to why they would want to drop their premium or adjust their premium in any way.

Okay. And, I mean, is that something that's on your radar screen as a potential concern or pricing has been stable now for, I guess, about a year and a half on the monthly, any thoughts on - I mean, does the industry hold its ground or do you think there's potential price risk as we migrate away from this type of product?

As you said, I mean there was - a year and a half ago or so, there was around a 5 basis point reduction across the board in borrower pay. We haven't seen any material signs of that happening out in the marketplace. Could somebody go out and decide in order to grow the market share, I am going to lower my price it would clearly come in the form of lower returns. So, Pat mentioned the government relative to the states approving those prices, making sure there's been adequate return. But I would assume the investment community would also have some vote in that relative to where they would want to deploy their capital. So, we've said for longstanding, we can't - we don't think this business is sustainable, single-digit returns. If the capital gets trapped, it's difficult to return capital. The shareholders been extracted out of the writing companies because of the government's process with it. So, we think it mandates a higher return. What would prevent another company or somebody from coming in deciding to discount it would be - they decide they're acceptable - accepting lower returns.

And then, I guess the lender - some of the lenders, I think they're may be more active with the discounting it, I think their market shares are pretty significantly different in refi versus purchase?

As Yeah.

Is that - so, that's a correct assumption?

As Yeah. I think that's right. I mean, you see most of the - with refi volumes the various call centers and such, there was - that's where, I think price competition in general, from a consumer's perspective, they're shopping rate more in a refi than they are in the home and whether it's like [ph] 0.125 or .25 or 0.375 higher rate on a purchase, while it's certainly a consideration on a purchase, the reason you're refining is take advantage of lower. So you're going to be more rate conscious in refi world.

Perfect. Thanks for the follow-up. Thank you.

Sure.

Thank you. And our next question comes from Geoffrey Dunn. Your line is now open.

Thanks. Sorry. I had one follow-up on the deeper coverage. With the discussions that are going on with - specifically, the deeper coverage component of the front-end, is it just with the private MIs, or is there a scenario where deeper coverage could be provided by different vendors other than just an MI-licensed company?

Well, the talk broadly is for front-end risk sharing, which would include executions beyond private mortgage insurance. I'm not sure exactly what those would be, but presumably some form of capital markets transaction. As you look at the Shelby Bill that spoke to front-end risk-sharing, the MBA talks about front-end risk sharing and deep cover MI is a component of that. We obviously have a view that deep-cover private mortgage insurance is the preferential way to go. And however, if we're not going to be the only game in town that - what's critical to us then is that there'd be parity in the capital rules. In other words, PMIERs is very specific or the NAIC is very specific on how much capital we have to hold as an MI company. And so, if another - if the GSEs, for example, are going to accept another form of risk-sharing, our view is they should be asking about for the same amount of capital. So, in those cases where risk-sharing is defined as broader MI, parity in capital is critical.

And on the back end with the STACR, ACIS deals, is there a parity on the capital rules now between you participating on an ACIS deal versus a Bermuda Re company?

No. I mean, is there - writing the rules - different rules for the reinsurers and they're buying the bonds, right, so they're collateralizing that way with it. So really their issue is more of that it's a spot loss ratio that the agencies are going to and they have no coverage beyond their estimate, whatever they're selling the losses to where the deeper cover would help.

The other point that we try to make is that to understand respective roles, we've said and Larry said many times over the years, that if the private MIs have to compete in the spot market, we will not be successful. But if the objective is to create a housing policy that is long-term and works over different cycles, then the private mortgage insurers have to play. You can't go to just capital markets executions because they will move in and out of the market. And that's another reason for them to have to tie up capital for the long-term.

All right. Great. Thank you.

Thanks, Geoff.

Thank you. And our next question comes from [ph] Mike Zaremski. Your line is now open.

Hey, thanks. One question. Did you guys touch on why the share count declined quarter-over-quarter and didn't reflect one of the convertibles?

Yeah. The share count, it's all a function of whether that convertible would be dilutive or anti-dilutive. And that takes the consideration, the interest expense associated with [audio gap] (42:37) 20.63. So, the reason why they weren't included in the share count, if we would include the share count, we would have had to also subtract off the interest expense on those in the quarter and that would have made our EPS get better, which from the accounting rules, you can't do for weighted average shares for dilution purposes.

Okay. Got it. Thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn the conference back over to management for any further remarks.

Okay. This is Pat. Before we end the call, I want to take a moment to recognize Larry, our Chief Risk Officer and that this will be his last earnings call as we have previously announced Larry's retirement. Larry's been with MGIC for 33 years and has held the CRO position since 1992. In fact, in my research, I think it was this month 23 years ago. So, Larry's hair is a little grayer than it was back then. That length of time means that we and he experienced many different cycles and have seen both the good times and the bad times and now the good times again. Throughout, Larry has provided great insights into the markets and has played a critical role for MGIC. Larry knows the private mortgage insurance business as well as anyone and he will be missed. Thank you, Larry, for all of your dedication and hard work. And we wish you great success on all of your future endeavors.

Thanks, Pat.

And with that, we're going to close the call. Thank you for the interest in our company.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day, everyone.