Earnings Call Transcript - ESNT Q2 2022

Operator, Operator

Good day and welcome to the Essent Second Quarter 2022 Earnings Conference Call. Please note that today's conference is being recorded. At this time, I would like to turn the conference over to Phil Stefano, Vice President of Investor Relations. Mr. Stefano, you may begin your conference.

Philip Stefano, Vice President of Investor Relations

Thank you, Erica. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO; and David Weinstock, Interim Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Curran, President of Essent Guaranty. Our press release, which contains Essent's financial results for the second quarter of 2022, was issued earlier today and is available on our website at essentgroup.com. Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward-looking statements. These statements are based on current expectations, estimates, projections, and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release. The risk factors included in our Form 10-K filed with the SEC on February 16, 2022, and any other reports and registration statements filed with the SEC, which are also available on our website. Now, let me turn the call over to Mark.

Mark Casale, Chairman and CEO

Thanks, Phil, and good morning, everyone. Today, we released our quarterly financial results which continue to reflect the favorable credit performance of our in-force portfolio. For the second quarter of 2022, we reported net income of $232 million as compared to $160 million a year ago. Similar to last quarter, our results benefited from the release of COVID reserves associated with defaults from the second and third quarters of 2020. On a diluted per share basis, we earned $2.16 for the second quarter compared to $1.42 a year ago, and our annualized return on average equity was 22%. From a macro standpoint, our long-term structural outlook for the housing market is positive despite near-term headwinds. Rising rates in response to inflation and home price appreciation have pressured affordability, resulting in a slowdown in housing activity and mortgage production. However, the undersupply of housing and a strong labor market should continue to support home prices and credit performance in the short term. Longer term, we believe that demographic trends are favorable and should continue to bolster housing demand. As of June 30, our insurance in force was $216 billion, a 6% increase compared to $204 billion a year ago. The credit quality of our insurance in force remains strong, with a weighted average FICO of 746 and a weighted average original LTV of 92%. Strong home price appreciation in recent years has enabled the accumulation of embedded home equity for a material portion of our book. While home price growth will likely moderate going forward, this embedded value should mitigate the risk of future claims on our in-force book. Our 12-month persistency at June 30 was 73%, while the 3-month annualized persistency was 82%. The weighted average note rate of our book is in the mid-3% range, while 81% of our insurance in force is comprised of 2020 and later vintages. Our in-force portfolio remains well positioned after the recent rise in rates with higher rates translating to higher persistency. We continue to execute upon our diversified and programmatic reinsurance strategy. In the second quarter, we closed an excess of loss forward transaction to cover an additional 20% of our 2022 NIW. Combined with our 20% quota share transaction in the first quarter, 40% of our current year business is covered with forward reinsurance protection. As of June 30, approximately 98% of our portfolio is reinsured. Our reinsurance entity, the Essent Re, continues to write profitable GSE business and support our MGA clients. As of June 30, annual run-rate revenues are approximately $60 million, while our third-party risk in force was nearly $2 billion. We remain pleased with Essent Re's performance and its contribution to the profitability of our franchise. Cash and investments as of June 30 were nearly $5 billion, and the investment yield for the second quarter of 2022 was 2.5%, up from 2.1% in the first quarter. The recent rise in rates is providing some tailwinds for our investment portfolio as yields in the second quarter on new money approximated 4%. We continue to operate from a position of strength with $4.3 billion in GAAP equity, access to $2.6 billion in excess of loss reinsurance, and approximately $1 billion of available liquidity. With a trailing 12-month operating cash flow of $630 million, our franchise remains well positioned from an earnings, cash flow, and balance sheet perspective. As of June 30, our book value per share was $39.67, an increase of 9% from $36.32 a year ago. We remain committed to managing capital for the long term, taking a measured approach to maintain strength in our balance sheet. Given our financial performance during the second quarter, I'm pleased to announce that our Board has approved a $0.01 per share increase in our dividend of $0.22. We continue to believe that dividends are a meaningful demonstration of the confidence we have in the stability of our earnings and cash flow as a result of our buy, manage, and distribute operating model. Now, let me turn the call over to Dave.

David Weinstock, Interim Chief Financial Officer

Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the second quarter, we earned $2.16 per diluted share compared to $2.52 last quarter and $1.42 in the second quarter a year ago. Net premium earned for the second quarter of 2022 was $212 million and included $13.1 million of premiums earned by Essent Re on our third-party business. The net average premium rate for the U.S. mortgage insurance business in the second quarter was 38 basis points, a decrease of 1 basis point from the first quarter. Net investment income increased $4.7 million or 19% in the second quarter of 2022 compared to last quarter due to higher yields on new investments and floating rate securities resetting to higher rates. Other income in the second quarter was $1.6 million, which included a $5.5 million loss due to a decrease in the fair value of embedded derivatives in certain of our third-party reinsurance agreements. This compares to $7.2 million last quarter, which included a $4.4 million gain due to the increase in the fair value of these embedded derivatives. The provision for losses and loss adjustment expense was a benefit of $76.2 million in the second quarter of 2022 compared to a benefit of $106.9 million in the first quarter and a provision of $9.7 million in the second quarter a year ago. As a reminder, last quarter, as defaults in the second and third quarters of 2020 continued to cure at elevated levels, we revised our estimate of the ultimate claim rate for these defaults from 7% to 4%. During the second quarter of 2022, these defaults continued to cure at elevated levels, and we revised our estimate of the ultimate claim rate for these defaults from 4% to 2%. As a result, the provision for losses this quarter includes a benefit of $62.9 million from the second and third quarter of 2020 defaults. Other underwriting and operating expenses in the second quarter were $42 million, an increase of $1 million from the first quarter. The expense ratio was 20% this quarter, a slight increase from 19% in the first quarter of 2022 and the full year 2021. We estimate that other underwriting and operating expenses will be approximately $170 million for the full year 2022. During the second quarter, Essent Group paid a cash dividend totaling $22.4 million to shareholders. As a reminder, Essent has a credit facility with a committed capacity of $825 million. Borrowings under the credit facility grew interest at a floating rate tied to a short-term index. As of June 30, we had $425 million of term loan outstanding with a weighted average interest rate of 2.92%, up from 1.99% at March 31. Our credit facility also has $400 million of undrawn revolver capacity that provides additional sources of liquidity for the company. At June 30, our debt-to-capital ratio was 9%. During the second quarter, Essent Guaranty paid a dividend of $100 million to its U.S. holding company. The U.S. mortgage insurance companies can pay additional ordinary dividends of $303 million in 2022. As of quarter end, the combined U.S. mortgage insurance business had statutory capital of $3.1 billion with a risk-to-capital ratio of 10.2:1. Note that statutory capital includes $2 billion of contingency reserves at June 30 of 2022. Over the last 12 months, the U.S. mortgage insurance business has grown statutory capital by $253 million while at the same time paying $347 million in dividends to our U.S. holding company. Now, let me turn the call back over to Mark.

Mark Casale, Chairman and CEO

Thanks, Dave. During the second quarter, our business continued generating strong earnings and robust returns. Our balance sheet, capital, and liquidity remain strong, providing optionality in managing our business both offensively and defensively. We believe that our measured approach of deploying excess capital is in the best long-term interest of our franchise and stakeholders. Looking forward, we remain confident in the strength of our operating model and view Essent as well positioned to support affordable and sustainable homeownership. Now, let's get to your questions. Operator?

Operator, Operator

Your first question comes from the line of Mark DeVries with Barclays.

Mark DeVries, Analyst

Mark, I was hoping to get your updated thoughts on how you're thinking about deploying excess capital here. And what might you need to see before you get a little bit more aggressive repurchasing the shares?

Mark Casale, Chairman and CEO

Yes, Mark, that's a good question. Regarding the return of excess capital to shareholders, we increased the dividend, which we believe is the best way to show our confidence in the sustainability of cash flows. Sustainability is important during both good and bad times, so we must consider that in the current environment. About repurchases, when we authorized the $250 million repurchase plan in May 2021, it was intended for 18 months, ending this year, and we completed that in April. We have now reauthorized another $250 million for flexibility, but our intention was for it to last through this year. Therefore, we have paused this quarter and might pause for another quarter or two. Many factors affect this decision, especially the visibility of the market. The economy presents various data points and opinions, making it hard to predict outcomes, especially as it relates to unemployment. While credit remains strong, we notice some weakness among low-end consumers which could eventually affect our customers, though we haven't observed any significant signs yet. On the offensive side, as previously mentioned, we're looking to invest in or acquire other earning assets. This is a long-term strategy, and we don't assess it quarterly or feel rushed. Ultimately, capital creates opportunities, and while we are satisfied with our current capital position, our approach will depend on how the economy unfolds.

Operator, Operator

Your next question comes from the line of Rick Shane with JPMorgan.

Rick Shane, Analyst

Mark, there’s an interesting dynamic emerging right now regarding concerns about affordability related to new originations. When we consider your portfolio and the industry as a whole, there’s significant concentration in vintages with low rates and a lot of embedded home price appreciation. Additionally, income, which can fluctuate, is a third factor for affordability. When examining the risk, do you think it’s sentiment-driven that home price depreciation might lead to a decline in borrowers’ willingness to pay? It doesn’t seem like there’s much that will distort the existing policies on affordability when looking at the major vintages.

Mark Casale, Chairman and CEO

That's a great question, Rick. You're highlighting an often overlooked strength in our portfolio. We’ve consistently stated that insurance in force is our primary metric for evaluating the business, as that’s where we generate our premiums. The vintages from 2020 and 2021 are remarkably strong, even historically, especially considering the simultaneous factors at play. Our book is currently rated at 3.5%, which means its persistence will last longer than we originally anticipated. With mortgage rates around 5%, this book will continue to produce cash for an extended period. On the risk side, we have embedded home price appreciation, so the market value is significantly lower than when we first priced the business. For that to change adversely, we would need a drastic decline in home prices, potentially driven by a spike in unemployment that we haven't experienced in a long time. We feel confident about that portfolio and its ongoing cash flow. However, regarding risk, the focus shifts to newer originations, which are now occurring at higher home price appreciation and rates. This new business will likely turnover more quickly given the current rate environment and expectations for future rate movements in relation to the 10-year treasury. Rates may fluctuate around the 5% mark, but we are closely monitoring the elevated home price appreciation, which is a concern for the entire industry. Our business model allows mortgage insurers like us to adapt to market changes quickly due to our filing processes, which proved effective during the COVID pandemic. Although certain markets have experienced varying rates of price increases, we must maintain a forward-looking perspective on supply factors that have been crucial. Ultimately, it all hinges on unemployment; we are heavily tied to it. Even with a robust credit book, if borrowers lose their jobs, defaults will occur. We saw this during COVID, with unemployment rising leading to increased defaults. We believe we are well-positioned. From a capital perspective, we are strong, and we anticipate that defaults will return to more normal levels. We've witnessed a favorable credit cycle over the past decade, with one of your colleagues aptly referring to it as a super credit cycle several years back. Looking ahead, it’s difficult to imagine claims dropping below 1%. Even in a normalized claims environment, we expect to maintain a 40% to 45% combined ratio, indicating healthy operating margins above 50%. Therefore, we remain optimistic about the industry’s future. In a broader context, the housing market appears strong due to intrinsic demand from millennials, evidenced by demographic statistics. Today, there are approximately 45 million individuals in their 20s, and the average age for first-time homebuyers is in their early 30s, suggesting an influx of 4 to 5 million new homeowners over the coming years. I always view the bigger picture, considering the macroeconomic environment we operate in, and if someone has doubts about housing, they may find it hard to support our company. However, we continue to have confidence in the housing sector, and when we analyze our economic fundamentals within this context, we find ourselves in a favorable position.

Operator, Operator

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

Doug Harter, Analyst

I guess as you look out over the next 12 months or so, I expect kind of the purchase market to trend and therefore, what that might mean for insurance or growth?

Mark Casale, Chairman and CEO

I'm sorry. You broke up a little bit, Doug, could you repeat that?

Doug Harter, Analyst

Sure. Just I guess as you look out over the next 12 months, how do you expect the purchase market to trend and what that might mean for your insurance?

Mark Casale, Chairman and CEO

I think purchases will be relatively strong in the next 12 months, although not at the level they were in the last year. Part of our volume is somewhat masked by the larger loan balances. The number of new units is a bit lower. However, I believe there is intrinsic demand. Even with a 5% rate, many decisions about purchases or life events are being considered, especially for a family of four looking at the long term. We still expect demographics to support strong purchases. As for significant growth over the next 12 months, I'm not certain, considering the overall environment with inflation, interest rates, and ongoing uncertainty regarding employment.

Operator, Operator

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

Bose George, Analyst

Actually, it looks like your market share rebounded a bit. I know some of that is quarter-over-quarter noise, but just curious if there’s any read-through to pricing, whether you’re more comfortable with pricing, just given some of the price hardening that your peers have talked about?

Mark Casale, Chairman and CEO

I believe our market share for the first half of the year was just under 15%. Over time, market shares tend to stabilize. In this quarter, we noticed some of our competitors retreating, which is beneficial for us regarding EssentEDGE. Unlike older models that rely solely on FICO scores, EssentEDGE uses a custom score that interprets data differently. When we are closer to the market clearing price, we can secure more loans than when we're above it. In the third and fourth quarters, we were noticeably above the market clearing price. The industry is fundamentally driven by price, and having the largest market share generally correlates with the lowest prices. Our emphasis on unit economics and the long-term growth of book value per share leads us to feel comfortable operating in the middle of the pack, as that's where the market seems to be. We aim to optimize our unit economics with our engine. If we manage to capture 15% to 16% of the market and improve on premium and expected losses slightly better than the market, we believe we'll have an expense advantage and a favorable tax rate that enhances our return on equity. This industry is highly competitive, and rather than trying to outsmart our well-informed competitors, we plan to focus on executing our strategy effectively. We have demonstrated this capability over time, and our engine provides another opportunity to improve our unit economics.

Bose George, Analyst

Okay, great. That's helpful. And then actually on the tax rate, is there anything that you're following like in terms of the global minimum tax or any of the other tax discussions in D.C. that could impact your tax rate?

Mark Casale, Chairman and CEO

Yes. It’s pretty early in that. I mean, everything we’ve seen, there hasn’t been an impact, but these things are always subject to change. But I think we’re good for now.

Operator, Operator

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

Mihir Bhatia, Analyst

I wanted to return to the earlier price discussion. I'm interested in how the gap has narrowed. Was this due to your competitors adjusting their prices to align more closely with yours? Or did you also modify your prices because your outlook on the economy improved or because of decreasing risks? Any additional insights you can provide would be helpful as we try to understand the competitive dynamics.

Mark Casale, Chairman and CEO

It's a good question. We mentioned earlier that the first quarter was somewhat indicative of the market clearing price. I believe some of our competitors adjusted their pricing, which we observed. Our engine performs best when we are near the market clearing price; if we're significantly above it, it's less effective. Many competitors seem to have started to adjust their pricing, which we view positively. It suggests that pricing may have reached a bottom, which is encouraging, especially given the current environment. It wouldn't surprise me, as we actually raised our pricing towards the end of the second quarter. We typically implement a baseline increase and may consider additional adjustments in the latter half of the year, depending on competitors' actions. Our aim is to find a balance within the market while optimizing our unit economics. If we hold 20% market share, our engine isn't performing at its best; effectiveness peaks in narrower margins. From an investor perspective, I believe the industry outlook remains positive. With the uncertainty we're facing, the expected claim rates or probability of defaults are likely to rise, as they did during COVID. I thought the industry reacted swiftly to those changes. The notion of a race to the bottom among mortgage insurers is incorrect; companies price based on their credit outlook. If they anticipate strong credit over time, their pricing will reflect that, considering capital structure and leverage. Thus, an increase in pricing is anticipated, and we may see higher prices in the next 6 to 12 months.

Mihir Bhatia, Analyst

That is interesting. I wanted to follow up on some comments from this call and in general. We have seen a strong credit cycle for several years. While I understand that uncertainty is increasing moving forward, much of your portfolio is stable, and there has been significant embedded home price appreciation in it. Consumers have benefited from wage growth, and the existing portfolio has a longer life. My question is regarding normalized delinquencies. I realize that with new policies, your underwriting must take that into consideration. Do you realistically anticipate achieving a normalized delinquency rate in the next year or two, considering all the other factors and the strength of the portfolio? Or is it more likely that it will take longer to reach your normalized delinquency level?

Mark Casale, Chairman and CEO

Yes. I think Rick mentioned it earlier. It's really divided, right? The core of the 2021 book is isolated. We expect that defaults will follow the trend of unemployment. Essentially, we're closely linked to unemployment. Our outlook suggests that unemployment may rise, leading to potentially higher defaults in that 2021 cohort, but we do not anticipate a high volume of claims due to the built-in home price appreciation. When we speak with some investors concerned about a housing downturn, the instinct is often to reference the great recession. However, the portfolios the mortgage insurers had compared to today are drastically different. For instance, you're looking at a 705 FICO layered risk, and 30% of the products that originated during the great recession are no longer eligible for the government-sponsored enterprises. Therefore, we possess a significantly stronger credit portfolio, as well as the benefit of embedded home price appreciation and reinsurance protection. Unlike before the crisis, when mortgage insurers faced uncapped liabilities, now 98% of the portfolio is protected. This helps alleviate the risks. Additionally, regarding credit, while there's a bit more risk due to high home price appreciation, the government-sponsored enterprises have an important role here. One of them has recently tightened their credit standards around riskier loans, which actually benefits us. As mentioned in our roadshow, one of the best developments for the mortgage insurance industry was the implementation of the qualified mortgage rule. If the non-qualified mortgages from the past few years had been originated, they would have ended up in our portfolio, but they haven’t. Those are more complicated loans that have a different execution route through the point of sale market. If the government-sponsored enterprises had taken that risk, it would be part of our portfolio. Overall, I believe the dynamics have changed significantly in both the core portfolio and the risk associated with newer business, which remains quite manageable even without considering home price appreciation.

Operator, Operator

Your next question comes from the line of Ryan Gilbert with BTIG.

Ryan Gilbert, Analyst

There has been a great discussion about credit performance, and I appreciate all the insights shared. Building on that, considering the quality of the current mortgage book and the changes in the mortgage industry since the financial crisis, how are you evaluating a realistic downside scenario for mortgage loss rates during your portfolio stress testing? Also, how should we consider what a realistic downside scenario looks like in the next couple of years, especially with the expectation that unemployment may rise?

Mark Casale, Chairman and CEO

Yes, it varies. We analyze numerous scenarios, but I would emphasize that we recently reaffirmed our A3 rating from Moody's. As part of this process, we conducted a stress test on our portfolio similar to a great recession scenario. We chose to do this to gain an external perspective; we usually perform these tests internally. The results showed that we would not incur losses over a five-year period. While we might not generate substantial profits during severe stress, we also wouldn't deplete our book value, which is a crucial point. In contrast, many mortgage insurers suffered significant declines in book value during the last recession. When book value diminishes, it creates an uncertain floor for stock prices. However, if we can maintain our book value during severe stress, it indicates that capital markets will remain accessible for us to raise funds, whether through debt or equity, at competitive prices similar to reinsurers. Considering a severe recession scenario, higher pricing would likely emerge, with clean credit conditions. Historically, after the last recession, we were fortunate to enter the market with a strong book. This should occur again, and unlike some MIs that didn't survive that era, we will. I anticipate that all our competitors, structured similarly, will also endure. When reinsurance communities face catastrophic events, pricing typically increases, allowing them to raise capital and continue operations. I predict the mortgage insurance industry will experience something similar, which should eventually be reflected in our market multiples as investors recognize the sustainability and robustness of our model. Our competitors deserve credit as they are also prioritizing safety and strength in reinsurance during stressful times. We're confident in our ability to survive these pressures; while we don’t expect to profit significantly during severe stress, surviving is essential. Historically, there has been a perception that the MI industry might collapse under severe stress. Recently, we discussed this concern with an investor, detailing our analysis. Our top 25 investors own 80% of our shares and are well-informed, while the broader market may not fully grasp the intricacies of our niche sector. Nevertheless, I believe this understanding will grow over time. As we navigate uncertain environments, we will raise pricing, adjust pricing in different markets, adopt a more conservative cash distribution, and maintain a measured approach regarding our operations.

Ryan Gilbert, Analyst

I understand. That's very helpful. My second question is about purchase new home loans. I realize that buying a home is a significant life decision, and most families aren't focused on daily changes in the 10-year treasury. However, mortgage rates have decreased, potentially by 100 basis points over the past month and a half. The question we're facing is whether this drop in mortgage rates has led to an increase in purchase demand based on the data for July. It doesn't appear to be the case, but I'm curious if you've noticed anything in your business that might indicate any improvement or increase in demand over the past few weeks or month?

Mark Casale, Chairman and CEO

I wouldn't specify anything in particular. We need to look at it in terms of New Insurance Written for the industry, which I think is a good indicator. The first quarter was 105 and the second quarter was about 120. We believe it will be lighter in the latter half of the year. However, in July, applications didn’t fall too significantly; they were down moderately, but not drastically. For the third quarter, I am uncertain about its comparison to the second quarter, but my guess is it will be a bit lighter. As for the fourth quarter, it's too early to predict, as it will depend on interest rates. I wouldn't call it a strong positive signal; purchases have actually held up quite well. The real concern regarding originations for us has been refinancing. In the second quarter, 98% of our portfolio was purchased loans, with certain days hitting 99%, which is unprecedented in our company's history. Even though we've only been around for 10 years, that's impressive. I believe the consistent demand for purchases will continue, albeit with some ups and downs due to interest rates. It takes time for people to adjust to higher rates. Looking at purchases in the long term, especially with the demand from people in their 20s, I think we're in a good position moving forward. However, it's challenging to predict outcomes on a quarterly basis.

Operator, Operator

Your next question comes from Geoffrey Dunn with Dowling & Partners.

Geoffrey Dunn, Analyst

Mark, I want to revisit the comments you made about defaults that could rise from the 2021 cohort but don't see a lot of claims coming out of that. That echoes the comments you made in the past where new notices drive reserving and then it's HPA and employment, et cetera, that can affect the ultimate claim. So the problem is with new notices going up, that drives incurred losses higher; it affects your PMIERs assets. So how do you approach the reserving for what is really a unique book of business? Do you attempt to speculate at lower ultimate claim rates and speculate on severity assumptions based on HPA? Or do you stick to a more conservative approach which would imply the prospect for maybe more recurring favorable development down the road? How do you approach the book that you’ve never had precedent for reserving for in the past?

Mark Casale, Chairman and CEO

That's a great question. We'll definitely take a more conservative approach. Our actuarial model is based on our historical data as well as the Triad data. We feel more comfortable with this model, which we review quarterly, and we usually make adjustments at least once a year. Generally, we'll continue using it. In the past, we have deviated from the model, particularly during the hurricanes. We found that the second and third quarter cohorts of 2020 were so unusual that the model didn't seem to fit, so we estimated a 7% to address that. However, we quickly returned to the model after two quarters, which did cause some fluctuations. In 2021, we noticed that borrowers would default, go into forbearance, build reserves over a few months, and then recover. This led to significant changes in our reserves. We expect something similar to happen again. If borrowers enter forbearance, they will likely use it, but I’m not sure our outcomes will be as favorable this time because jobs returned quickly. In summary, we try to adhere to the actuarial model, which is informed by history, but we don't feel confident enough to make substantial changes. From a PMIERs perspective, the GSEs would likely prefer us to maintain a conservative stance.

Geoffrey Dunn, Analyst

Okay. And then just in terms of how you thought about HPA in your pricing and in your reserving? What levels were you assuming in the last couple of years relative to the actual performance? I mean, were you assuming a couple of percent and we saw the double digits? Or can you just kind of frame up your rough approach to HPA?

Chris Curran, President of Essent Guaranty

Geoff, it's Chris. So with regards to HPA within our modeling and certainly our pricing, I would say we've taken a moderate view. It does not reflect certainly the HPA actuals that you've seen over the last couple of years. So when we look at the unit economics, it's certainly more reflective of a, I'll call it, a moderate view of HPA going forward.

Geoffrey Dunn, Analyst

Okay. And as your reserves developed, do you do any kind of mark-to-market for HPA? Or do you let it play out in your claim rate?

David Weinstock, Interim Chief Financial Officer

Geoff, it's Dave Weinstock. We do look at the HPA of the defaults, and we refresh that regularly. So that it does have an impact and will play itself through our reserve numbers as we update them.

Operator, Operator

There are no further questions at this time. I'll turn the call back over to management for closing remarks.

Mark Casale, Chairman and CEO

Well, I'd like to thank everyone for joining today and have a great weekend.

Operator, Operator

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