Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the MGIC Investment Corporation Second Quarter Earnings Conference Call. All lines have been place on mute to prevent any background noise. [Operator Instructions] I would now like to turn the call over to Mr. Mike Zimmerman. Please go ahead, sir.

Thanks, Lisa. 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 2019 are Chief Executive Officer, Pat Sinks; Chief Financial Officer, Tim Mattke. 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 Newsroom, includes additional information about the Company's quarterly results that we'll refer to during the call and includes certain non-GAAP financial measures. We have posted on our website a presentation that contains information pertaining to our primary risk in force and new insurance written and other information which we think you'll 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 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. At this time, I'd like to turn the call over to our CEO Pat Sinks.

Thanks, Mike, and good morning. I'm pleased to report that during the second quarter our business performed well. As we continue to benefit from the favorable housing and economic environment, we are generating meaningful earnings. Our balance sheet is strong and is continuing to improve as evidenced by the increase in book value per share compared to year-end 2018. We are maintaining our focus on the long-term success of the company and we are in an excellent position to continue to serve our customers while creating shareholder value. In a few minutes, Tim will cover the details of the financial results, but before he does, let me make a few comments. The main driver of future shareholder value creation are insurance in force grew by nearly 7% for the last 12 months, ending the quarter at $213.9 billion. New insurance written was up approximately 13% in the second quarter compared to last year. The size of the mortgage origination market generally has the largest impact on the volume of business we will insure. I would characterize the overall mortgage origination market as healthy. Consumer confidence remained strong and mortgage rates remain attractive. So while the supply of homes available for sale is still tight, there is a strong demand for homes. As a result, we have seen a steady flow of purchased business. During the quarter a good portion of our new insurance written was driven by an increase in refinances. Our refinances don't generally increase our insurance in force and they reduced the persistency rate. The annual persistency on the existing book remained above 80% in the second quarter. I remain optimistic about our ability to prudently grow the insurance in force because we have a compelling business proposition for our customers and consumers continue to feel confident about…

Thanks Pat. In the second quarter, we earned $167.8 million of net income or $0.46 per diluted share compared to $186.8 million or $0.49 per diluted share in the same period last year. The primary driver of the difference in net income for the second quarter of this year compared to the same period last year was the level of positive primary loss reserve development. This quarter we recognized $30 million of positive development compared to $70 million in the second quarter of 2018. For the quarter, on an annualized basis, we generated a 17.5% return on beginning shareholder's equity. Net premiums earned were essentially flat compared to the same period last year, as higher ceded premiums and lower premium yields offset the increase in premiums from a higher average insurance in force. Premium ceded were higher primarily due to the $6.8 million non-recurring termination fee to restructure our 2015 quota share reinsurance transaction. Additionally, premiums ceded modestly increased as a result of higher percentage of the insurance in force being covered by our quota share treaties and insurance-linked note transactions we executed in the capital markets including in the quarter. Net premiums earned also reflect a decrease in premium refunds due to lower claim activity, an increase of $5 million in accelerated premiums per single policy cancellations compared to the same period last year and a lower profit commission due to higher ceded losses. Beginning in the third quarter, our premiums will be modestly benefited because of 2015 quarter share transaction is now ceding 15% versus 30% in prior periods. Losses incurred consists of reserves established on new delinquency notices plus changes to previously established loss reserves. Total loss incurred were $21.8 million compared to a negative $13.4 million in the same period last year. The increase in total…

Thanks, Tim. Before moving to questions, let me give a quick update on the regulatory and political fronts. Regarding housing finance reform, we remain optimistic about the future role that our company and industry can have, but it continues to be very difficult to gauge what actions may be taken in the timing of any such actions. We continue to be actively engaged on this topic in Washington. While no actions have been taken to-date by the FHFA Director, we remain optimistic that what changes do occur will include the use of more private capital, including private MI. The U.S. Treasury Department was directed to develop a plan as soon as practicable for administrative and legislative reforms for the housing finance system. With such reforms aimed at reducing taxpayer risk, expanding the private sector's role, modernizing the government housing programs and achieving sustainable home ownership. The contents of the plan and the timing of its release is unclear at this time. Much like the expected FHFA actions, we would expect it to include the use of more private capital. Regarding the FHA, we continue to think it is unlikely that it will reduce its MI premiums and that the primary focus by the FHA is on improving its operational policies and procedures. Our company and our industry offer many solutions and a great value proposition for lenders and consumers to overcome the number one barrier to home ownership, the down payment. I believe that our company is well positioned to acquire, manage and distribute mortgage credit risk in a variety of forms supported by a robust capital structure that includes our strong balance sheet and where appropriate, reinsurance treaties and the capital markets. I will close my comments where I started. Our business is performing well. We are generating meaningful returns and our balance sheet is strong. We grew our insurance in force, investment income increased, credit losses remain low, expenses are being held in check and MGIC continues to pay a quarterly dividend to our holding company. We are writing high quality new business in what is expected to be a low loss environment that is being added to an existing book of business that is performing exceptionally well and we are generating significant shareholder value. Given the economic and labor market conditions, we anticipate that we will continue to be able generate meaningful increases in shareholder value. Simply put, the company is in great shape. That is why I look – as I look ahead, I'm very excited and confident about the future for MGIC. With that, operator, let's take questions.

[Operator Instructions] Your first question comes from the line of Geoffrey Dunn with Dowling & Partners.

Thanks. Good morning.

Good morning.

Pat, can you talk about the capital management strategy? You didn't return any capital in the first quarter. The amount was negligible in the second quarter or at least well below the run rate of money that you're getting up from the OpCo. And from all appearances, the stock looks attractive in the second quarter, so can you just elaborate on how you're thinking about deploying capital, why you've not deployed much in the first half of the year? And is there any consideration towards a common dividend that might be limiting your appetite on the buyback?

I think – sure, I'd be happy to answer that. First of all, it is top of mind given the capital position that we're in. As Tim alluded to in his comments, we're trying to be opportunistic and very thoughtful. It is a consistent conversation that we have with our Board, an ongoing conversation. As we reported, we bought back $25 million of shares during the second quarter. And so, it's really a case of trying to make sure we're in the market when we feel it's appropriate. Relative to our discussions with our Board, again, it's a regular conversation as we alluded to here, if we don't feel we can redeploy the business back in the business, we will look to return it to shareholders. And that would include share buybacks and dividends, obviously, nothing new to report on that front today, but always part of the discussion.

At what point do you get concerned that the lack of buyback is sending the wrong message to the marketplace when you talk about being opportunistic around intrinsic value?

That's always, again, top of mind. I mean, I don't know if I go so far as to say concern, but it is definitely something we think about.

Okay. And then as a follow-up on the credit side, over the last two quarters, you've seen a deceleration in the pace of improvement on the legacy new notice development. Is there anything you'd call out there? And I guess, particularly the 2004 and 2005 books showed year-over-year growth in new notices. What's created that shift?

Geoff, this is Tim. It's tough to say what's created that shift. I would say, overall, we didn't see – it's quite as strong and seasonal benefit on new notices Q2 of this year as we maybe would see in other years. I don't know if that has anything to do with sort of the tax changes and the lack of refunds maybe for some people. But it's really hard to pin down what specific. I can tell you from looking at it, there's no sort of trends that we're concerned about and obviously, from a reserve standpoint, felt comfortable with releasing reserves again this quarter.

Okay, thanks.

Sure.

Your next question comes from the line of Jack Micenko with SIG.

Hi.

You okay, Jack?

You're cutting out, Jack.

How about now?

Yes, that's good. There you go.

Yes. There you go. Sorry about that, guys. Curious on a couple things. Tim, have you done a sensitivity on the investment portfolio as to what 25 bps would look like, number one. And then number two, your singles mix has come down. Obviously, there's a capital incentive for that. You've kind of sort of in here and sort of a – 15%, 16% kind of mix. Is that – I mean, is that the right number to think about going forward where – to the extent, you want to be in singles. I know you sort of – you have to at some level even for customer requirements, but any thoughts on where that single mix kind of goes to from here as it sort of come down and kind of leveled off?

Yes, I'll take the second question first, Jack. I mean, the singles mix as you said, it can move over time and some time when you have REIT buy activity that can change it as well. I think with NICU being out there and others having comparable out there, that could change sort of competitiveness of how you think about monthlies and singles too, but – when I think of singles, it's going to change a little bit. Sometimes it's going to be close to 10%, sometimes close to 20%, close to 16 that seems to be where we've been pretty stable for a while now. So, I don't read too much into it. But, when we project things going forward, assume that's probably pretty close to where we're going to be unless something changes in sort of the environment. Sort of for your first question, I guess as far as a 25 basis point increase in interest rate, we have a duration of four on the portfolio and we've been pretty steady around there. And so think about in terms of that, obviously from the long-term perspective, with the amount of invested assets that we have, interest rates going up can be beneficial to us. We haven't really had a lot of risk to the portfolio. So that's really what makes the difference, as far as investment income goes. And so as with everybody, we've been sort of watching and waiting to see if interest rates go up over the last few years but that has not really come to fruition. But from a business standpoint, when we look at the overall picture, it's a good environment for us to be operating in. So we sort of look at it from that angle as well.

Okay. So if the fed cuts, for example, later this month or for the balance of the year, you think inflows in the four-year duration can likely offset and you can maybe more maintain investment income at the current levels?

Yes, I would say more than offset.

Okay, thank you.

Sure.

Your next question comes from the line of Bose George with KBW.

Hey, guys, good morning. Just going back to the capital question, in terms of the dividend versus buyback, is there a bias in one direction or another or is that still part of the work in progress?

This is Pat, Bose. No, there is no bias. I mean, we're trying to be very thoughtful about how we do it, weighing all the options. So there's no one particular preferred method over the other. If we were to declare a dividend, obviously, you want to be very confident in our future and what that means to us. So in that regard, we think about it differently than share repurchase, but I wouldn't say there's a bias one way or the other.

Okay. Thanks. And then, actually just – and going back to the new notices discussion, just going forward, do you think the new notices will continue to see modest increases year-over-year? Just kind of curious about the trend that you expect there.

Yes, I mean, I think as we sort of talked about, we're getting into sort of the peak loss years and some of the bigger books that are there from the newer vintages. And so, while there's not a lot of losses in relation to those vintages and they're very good credit quality, I think, sometimes you just run the dynamic of – they are going to throw out losses at some point, and with the size of those books, you might see the slight uptick like we saw now and so I don't think it would surprise us, but I don't think we're worried about that either.

Bose, it's Mike. I would add, I think it's emerging to be maybe a better metric. Over the last several years those year-over-year comps I think were a good sign, a good indicator of watching credit quality and how it's been improving and the legacy burning off, but since going forward with these larger books, I think the better metric going forward might be looking at the number of new notices as a percentage of the beginning number of loans that are current at the beginning of the quarter. And that actually ticked down a little bit, they can seasonally, but were like 1.2% to 1.3% and historically that's a pretty good health and that's a very – kind of very healthy economy in that 1%, 1.5% of the portfolio rolling delinquent each quarter and then obviously with the low claim rate that we're applying to those. So those costs might be getting a little bit tougher, but I think that's becoming less meaningful of an indicator given the low levels that they are at.

Okay, great. That's helpful. Thanks. And actually, just in terms of the NIW and the new business – there's a NIW rate, premium rate. Can you remind me, does that incorporate any of the ILNs or the quota share?

No, Bose, despite no, that's the direct rate that we're showing in the press release.

Okay, great. Thanks.

Your next question comes from the line of Chris Gamaitoni with Compass Point.

Hi, good morning, everyone.

Good morning.

Hey, Chris.

I wanted to get your expectations for future ILN issuance, thinking about the out years, is this now a regular programmatic exercise or was it opportunistic with your recent issuance?

Hey, Chris. This is Tim. I mean, I think the way to think about is programmatic in nature. For us, where we also utilized the forward committed nature of the quota share, we have to build sort of meaningful size, sort of for more recent vintages. And so, this last go around, that meant sort of 15 months of production. So I think it's right to think about it sort of on an annual basis for us in relation to sort of more recent vintages. There's always the possibility you can look at more season books as well. I know some others in the industry have done that. So that's always a consideration to depending upon sort of what the appetite for capital the markets is at the time.

And when is your next option for quota share adjustment that you mentioned.

The next option within the contract itself is at the end of 2021.

And that's the 2015?

That would be for the 2017, and I believe also the 2018 quota share which was separate quota share, it's both have an option at the end of 2021.

Okay, perfect. I just wanted to follow up one more on the decline in the new monthly NIW premium. Is that – I noticed that the book was less risky than last quarter, that must be mix related or was that something else?

This is Tim again. I mean, there's definitely some mix in there. I think obviously with MiQ being out there, it's – the pricing is in there as well, but there's definitely some mix associated with that. As you mentioned, the credit quality looks better this quarter and so part of that decrease is related to the mix.

All right. Thank you so much.

Sure.

Your next question comes from the line of Randy Binner with B. Riley FBR.

Good morning. I had a question about price competition, and it's – I guess that's two parts. One, there was a report, I think, last week that an originator – a mortgage originator was offering discounted MI rates. So I was wondering if that's something that affected you or if that's a broader trend you're seeing. And just in general, how do you characterize pricing competition? Yes, I understand that most of the market now is on some sort of black box model. But just generally in insurance, when losses are low, it can be tempting for underwriters to lower rates. So just wondering kind of how you characterize pricing competition overall in your market.

This is Pat. I would tell you, first of all, that we believe that all of the six private mortgage insurers now have their risk-based pricing models into the market. So, it's a new way of doing business, generally speaking, for all of us anyway. And I would tell you that the pricing is very competitive. That's not to imply that there's any major issues, just that everybody is sharpening the pencil and trying to stay competitive. Relative to the report to last week, I can't really comment on that. I continue to believe that there are those who will continue to want to pick where they want to win. In other words, a net MI company may want to win a particular market or win with a particular customer depending on their assessment of the risk and they will sharpen the pencil. But in a broad sense, we're continuing to see, what we've seen here in the last three to six months.

Yes, Randy, this is Mike. I mean, I just – Pat mentioned it in his opening comments, but just to reiterate it. I mean, when we look at what we deliver to customers and returns, we're looking at the returns and making sure we maintain our returns for shareholders when establishing those prices. So they may ebb and flow back and forth depending on market conditions and the second spot and things of that nature. But it's always with a focus, sort of maintaining returns that shareholders expect.

No, that's helpful. I think, yes, I think people are sensitive to – not so much to six companies, but can a new entrants or new product types as we saw with the initial concerns around imagine EPMI last year or so. And then, just the follow up is on those two programs from Fannie and Freddie. Does those pilot programs are still not – have they taking on aim greater role in the market or are they still very marginal?

Yes. Randy, this is Mike. Yes, I mean, correct. They are still marginal. We don't see much interest in those programs, but it's something that we obviously continue to watch, but haven't seen much uptake from customers at this stage anyway.

Okay, great. Thanks.

Your next question comes from Mark DeVries with Barclays.

Yes, thanks. I wanted to take another crack at the question Jeff asked earlier around capital. I mean, with – if the rate at which you're growing earnings and capital, even if you were to distribute all of the $70 million a quarter, you'd still be growing capital in excess of the pace in which you're growing risk. And so, I guess the question is, is there any reason we shouldn't expect your capital returns to start to converge, at least on that quarterly dividend, because I imagine a scenario in which you've just got this capital is building and is not being deployed.

Yes, Mark, this is Tim. I mean, I think, I know what you're thinking about. So one thing, I guess, I'd say is when we look at the $70 million coming to the holdco, we also take an account sort of the interest carry we have there. And so, when I think about the $280 million annually, we sort of back off the $60 million that we have related to interest carry at that point. So it becomes closer to $200 million. I think from the standpoint when I look back and say the first $200 million authorization we had, it took us 15 months to complete that. So a little bit over a year. So a little bit slower than sort of how the capital is being brought up to the holding company. But that's really where our focus is recognizing it's important to sort of match the outflows of the holdco with the inflows at the holdco. And when we think about sort of the writing company being able to deploy there, that's really more of a discussion with our regulator as to what amount of additional dividends we can get up, and if we can get up additional dividends, that could impact, obviously how much we're able to give back to shareholders. But we also as mentioned sort of in my comments, have other levers. If we can't get there from a dividend standpoint to the holdco, we're looking at the reinsurance and what we do and what levers we can pull there. So we really think about it in those two sort of levels, can we get the dividend out of MGIC to the holdco, and once we're at the holdco, what's the run rate of inflows and outflows.

Okay, that's fair enough. It sounds like there's still considerably more potential for outflows than what we've seen in the last couple of quarters. And I think the point that Jeff was trying to make, I think, while I understand you're trying to be opportunistic and there's certainly volatility to your stock, I can't actually think of a time in the last decade where it's traded, at or above what we think is intrinsic value. So, I would just encourage you to be out there and buying as frequently as possible, just given where the stock is and the amount of capital you're generating.

Appreciate your thoughts.

Duly noted.

Okay. And then, one other thing, I think you said a lot around the average premium. I just want to unpack it a little bit, Tim, it sounds like, like there was, you had the one fee, associated with renegotiating the quota share, which was a big driver of the Q-over-Q decline. But you also said, that you still expect a longer term trend to be down, but you also get a benefit, from the renegotiation of the quarters or how should we think about that in the next few quarters, kind of the average premium trend?

Yes, I mean definitely we still think the average premium trend is down. And just to highlight again, this quarter, there was a couple big things. One, the restructuring that was the 6.8 that was a negative to that and then, but then we also had some benefit in the quarter from the accelerated singles, which probably gave us an extra, let's say $4 million to $5 million this quarter than what we'd been getting previously. So those almost offset, especially when you consider that we would've had a little bit of benefit from premium accrual on refunds. And so then you think about it going forward on the quota share, we're down to 15% quota share with a restructuring, we're able to decrease the cost a little bit. That's probably going to help us maybe somewhere around $4 million a quarter, I would say. And then it's the overall dynamics that you've been seeing, in the past as far as, as the new books come on with a little bit lower premium content because they're higher credit quality, replacing some of the older books with higher premium. So that trend still continues and then from the reinsurance standpoint, we get some of the benefits associated with the quota share restructure on a going forward basis.

Okay. But it sounds like if we think about just one quarter out, assuming rates remain low, refinance activities high, you still get some kind of a benefit from, the singles and then the fee goes away and then you're also picking up some benefits. So, if we think about on a sequential basis, should we expect the average premium to bounce back a little bit next quarter?

I think it depends. As you mentioned it depends upon the refi activities. The refi activity is there and we have, more singles cancellation that would definitely be a benefit, especially when you put it in together with sort of the restructure to 2015 quota share.

Okay, great. Thank you.

Sure.

The next question comes from the line of Mackenzie Aron with Zelman & Associates.

Thanks. I just had one follow-up, Mike for you on the delinquency rates, looking at the new defaults as a percent of the beginning current inventory, what has been the historical run rate there or what would you say is the more normalized level?

Okay, I normalize and I think what's representative of good economic cycles is in that 1%, 1.5% rolling delinquent. On this is account basis versus dollar basis, right. So, now that range was also representative of, when we go back over time, our average FICO scores, 10, 15, 20 years ago or 707, 710 versus seven 750, 760. So I mean, I think we're in the mid-point, up that range of historical, I mean, I think anything in this range, anything under 1.5 and is going to go lower than one, don't know, right, that will depend on the economic forecast, but this is a good representative indicator of a good economic cycle and good borrower characteristics.

Okay. Helpful. And then just another on pricing as well. I know you won't give the percent of the volume that's coming through MiQ but can you just talk and give a little bit of commentary on is there, is the utilization by your customers ramping higher, and just kind of the perception to the black box, another quarter to, to it being out in the market.

Sure, Mackenzie. This is Pat. The use of our risk based pricing model or MiQ is in fact growing. The reason we don't hand out a number is because as we said up-front, we want to be responsible to our customers. So, if that's the method they want, we'll use, if it's your rate card, we'll use that. If it's before we'll use that. So it continues to grow. It grew again in the second quarter. I would expect it to grow in the second half of the year and ultimately become the dominant – I don't if we ever get 100% of the customers there because some of the national accounts prefer forward commitments, but it will become the dominant force. So, our manner of pricing.

Okay, great. Thanks you.

Your next question comes from the line of Douglas Harter with Credit Suisse.

Thanks. As you're thinking about the $70 million dividend, up to the holding company, what are the kind of the limiting factors that would, kind of guide, how fast that can grow?

This is Tim. I mean, it's the conversation that we have with our regulator on a pretty regular basis, probably more formally, annually. But a lot of that conversation is around how do we look sort of in a stress, how do we look as far as the earnings that we created this year? How do we look in relation to risk to capital and PMIERs excess. So all those things I think go into the conversation and it's grown pretty healthy over the last few years. And so, we get to the $70 million per quarter standpoint. Feel good about that but definitely we'll have discussions about whether that can go higher. I think it's, I would say I wouldn't expect this to be paying out dividends sort of on a quarterly basis such that it matches our total earnings by any means. But it's something that we will continue to look at, including potentially, annual dividends on top of it. It's something we could talk about with the regulator, but that is something that would really come into the context of how did we look on PMIERs, how do we look on risk to capital and how does the regulator feel about sort of the economic environment we're in.

Got it. And, again, some of your peers have taken kind of larger one time, dividends or kind of what are your thoughts on that as opposed to getting capital out faster versus the more steady dividend that you guys have been employing?

Yes, I am aware of those. Obviously those come up in conversation with our regulator. We've been definitely focused on the quarterly sort of recurring dividend, but as you know, with the ILN transactions having some large benefits sort of immediately it's part of the conversation. But I, wouldn't expect anything in the near future related to, of us doing a re-insurance transaction and automatically that turning into a dividend is an example.

All right, great. Thank you.

Sure.

Your next question comes from the line of Mihir Bhatia with Bank of America.

Good morning and thank you for taking my questions. If I could start with just, you know, going back to the monthly premium yield on NIW. I think Tim, you mentioned in your answer earlier, you mentioned MiQ is one of the factors that was maybe driving it lower, if I understood correctly, and I was just curious as to why is that? Is there something in the MiQ pricing or is that just because it's being rolled out? I guess if you could just expand on that, I just want to make sure I didn't misunderstand that.

Yes, I mean, I think it just, you think about as we, as we roll it out, as well as sort of the be on the price more discreetly for different type of risks, that gives you ability within that pricing mechanism that you don't have in a standard rate card. And so, I think, from our standpoint, it was not a surprise to see that be down in the quarter as we have continued sort of more penetration with MiQ with our customers.

Got it. So does that imply, as MiQ continues being further adopted by your customers that that pressure will continue?

It is tough to know exactly, obviously, what the competitive dynamics will be in the future. As Pat said, we've had success in rolling out MiQ right now and I don't think we'll ever get to a 100% MiQ. And so I think it's tough to read anything specific into where it would be a quarter for now because it's too much what the competitive dynamic is in the marketplace and what loans are being originated.

It is Mike. The conventional mix was a part of it. You can't, don't just solely attribute, prior to the delivery about that, the mix of business that will also influence that I know you don't have

Yes. No, no, I appreciate that. And actually on mix itself, I think one of the – I had a question just in terms of just your risk in force, one of the things that has been happening for the last few years is almost a little bit of I don't want to call it a full barbell, but it seems that the below 85% LTV is up like, I think, like 5%, 6% of the risk in force now. And at the same time, the 95% plus is obviously increased in the last couple of years. And I was just curious what is driving the increase in the below 85% or what drove like the 5%, 6% from historically, I think it was like below 1% before 2015. So I was just curious on that.

Well, part of it, I mean, is as the pricing through the more discrete pricing, those have lower risks profiles, lower risk content. So when you move away from average price and more discreet pricing, that's going to make it more attractive, certainly, to utilize, so and then actually it is lender choice as far as when borrowers are putting down the amount of money that they put down, do they instead there's less incentive to talk about to putting in an additional 5% down to avoid the mortgage insurance. The pricing is still very attractive. So there's a number of things out there. But those are the main drivers.

Got it. And then just on that same topic on the DTI over 45%.This year, it's been a little bit lower. Is that partly because of the change in methodology or is that a decision that either you've made from the models whether it's by a discreet pricing or just to pull back on over 45%. I think it's down like 3% compared to last year.

This is Tim. I mean, I think it's a little bit of us being able to be more discreet there but I think also it's a little bit to do with sort of the GSTs and sort of what's actually flowing through there. I think you've seen a drop in some of the above 45 DTI volume falling through the GSTs and that sort of becomes sort of what's available to the MIs. And so I don't think we're necessarily an outlier in that regard. I think MiQ helps, but I think it's also the overall sort of market that the MIs are playing and based on what the GSTs are bringing in.

And certainly the lower rate environment also gives you some benefit to that as well.

Right. Okay. No, that makes sense. And then just last question, the litigation. I think last quarter you all took litigation charge. Has that actually settled or is that still just pending?

No, it's still in process.

Okay. Thank you. Those are all my question. Thank you.

Sure.

Your next question comes from the line of Phil Stefano from Deutsche Bank.

Yes. Thanks. Good morning. So, debt-to-capital ratio, I think, something you mentioned is 17% now. I think, if I recall correctly, around two years ago, it felt like low-to-mid 20s was how you guys were thinking about what was “right”. I was just thinking, have that changed at all. Any thoughts on what this looks like as we move forward?

Yes, Phil, I mean, I think from our standpoint and there's been a lot of discussion about 20% in particular, I think as much rating agency views on anything. And what I'd tell you is, my view is below 20% is positive from rating standpoint. Anything below that, I don't think makes as much of a difference. I think for us, it's really about sort of the what benefit leverage can add. I think having some dry powder at the holding company is a good thing. And so, I don't think we want to be much above 20%. So it's something we look at and it's good to have capacity there. But I wouldn't say the 20% is necessarily where we're targeting to be at, but it is something that I think we're mindful of 20% as a ratio that the rating agencies would view and if you're above that for a period of time that they might look more negatively on.

Got it. Can you just give us a reminder on how the latest thoughts around the 9% convertible junior subordinated debentures? I know they'd be expensive to take out, but is this part of the conversation. Can you remove some interesting dilution here by maybe doing issuing debt that is more standard and taking these guys out. How you're thinking about that?

Yes. I mean, it's something we look at it quite frankly, every quarter. We start to refresh analysis on it. As you mentioned, they're expensive to take out. You're effectively prepaying a lot of the interest on it and the way they trade, quite frankly and it's really as the stock price goes up, they become more closer to the money and they sort of stay at the same price or if the stock price trades down, the expectation that you're going to get the 9% coupon for longer keeps the price relatively stable. And so, from a – we've really looked at it from as a good economic opportunity to take them out and sort of the mindset that you’re really just prepaying a lot of that interest and a lot of through the underlying share and really haven't – that's why we haven't executed other than the one time a few years ago where the price declined fairly significantly unrelated to us, but sort of more broader market concerns and tried to take advantage of at that point.

All right. Understood. Thanks, guys.

Sure.

And there are no further questions at this time.

All right. This is Pat again. Thank you, everybody, for your interest in our Company and have a great day.

This concludes today's conference. You may now disconnect.