Earnings Call Transcript - MTG Q3 2021

Operator, Operator

Good day, and thank you for being here. Welcome to the MGIC Investment Corporation Third Quarter 2021 Earnings Call. All participants are currently in a listen-only mode. After the presentation, there will be a question-and-answer session. Please note that today’s conference is being recorded. I would now like to turn the call over to your speaker, Mr. Mike Zimmerman. Please proceed.

Mike Zimmerman, Speaker

Thanks, Mel. 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 third quarter of ‘21 are Chief Executive Officer, Tim Mattke; and Chief Financial Officer, Nathan Colson. I want to remind all participants that our earnings release from last evening, which may be accessed on our website, is located at mtg.mgic.com under Newsroom and includes certain additional information about the company’s quarterly results that we will refer to during the call as well as a reconciliation of the non-GAAP financial measures to the most comparable GAAP measure. We have posted on our website a presentation that contains information pertaining to our primary risk in force, new insurance written, reinsurance transactions, and other information that we think you’ll find valuable. I also want to remind listeners that from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website that investors and other interested parties may 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, including COVID-19, that could cause actual results to differ materially from those discussed in the call are contained in the Form 8-K and Form 10-Q that were filed last night. If the company makes any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. Further, no interested party should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of the Form 8-K or 10-Q. With that, I’d like to introduce Tim Mattke.

Tim Mattke, CEO

Thanks, Mike. Good morning, everyone. I’m pleased to report that we generated another quarter of very strong financial results. After my opening remarks, Nathan will provide more detail about our financial results and capital position. Then, before we open the line for questions, I’ll wrap up by discussing the current operating environment, including activities related to housing finance policy. During the quarter, we earned GAAP net income of $158 million. Quarterly financial results continue to reflect the solid credit quality of our increased insurance in force, a strong housing market, a decreasing delinquency rate, and improving economic conditions as more local economies return to pre-pandemic levels of activity. As we expected, refinance activity had slowed. However, the purchase market remains strong and accounted for nearly 90% of the $28.7 billion of new business we wrote in the third quarter. This level of new business writings combined with a higher annual persistency resulted in our insurance in force increasing 2.4% to $268 billion, nearly 12% higher than last year. Reflecting the continued strength of the housing market, purchase applications in our application pipeline, a leading indicator of NIW, continue to account for more than 85% of applications received in recent months. The last 5 quarters’ NIW were the 5 biggest in our company’s 64-year history. So it did not surprise anyone that we do not expect to continue writing such high levels of new business. As we look out over the next several quarters, we expect the refinance activity will remain low, and the purchase activity, while lower than the records of the 5 prior quarters, will remain robust as consumer demand for homes remains strong and interest rates, despite rising modestly, are still attractive by historical standards. This environment, combined with increasing annual persistency, should allow our insurance in force to continue to grow, although perhaps at a slower annual rate than we have been enjoying in recent quarters. Taking a look at our in-force portfolio, our loss ratio was a low 8.1% in the quarter. This result primarily reflects the current economic conditions, the quality of our existing book of business and a low number of new delinquency notices received. I continue to be encouraged by the quality of new insurance written and the positive trends in credit performance, which continued through October. At quarter end, the excess of our PMIERs available assets over the minimum required assets increased by $300 million to $2.6 billion, and our PMIER sufficiency ratio was 180% at the end of the third quarter. As we discussed last quarter, our capital management strategy centers on maintaining financial flexibility of both the holding company and the writing company to protect our policyholders and to create long-term value for shareholders. This value can be created by writing more primary mortgage insurance, pursuing new business opportunities, retiring debt, paying dividends, and/or repurchasing stock. We executed on this strategy during the quarter by writing $28.7 billion of new business and by returning nearly $180 million to shareholders through the repurchase of 10 million shares and paying the increased common stock dividend. In connection with our strategy, maintaining capital flexibility of the holding company means retaining a target level of liquidity well in excess of our near-term needs. At the operating company, it means maintaining diverse sources of capital and a PMIER sufficiency ratio that will enable us to grow even in times of stress and will position us for changes to our operating environment. Of course, these target levels are dynamic and change with the operating environment. We believe that our holding company and writing company capital management strategy will create long-term value for shareholders while allowing us to continue to be a well-capitalized counterparty for our customers. In summary, we continually look for ways to maximize near-term business opportunities while remaining focused on the long-term success of the company and value for our shareholders. I believe the actions we have taken this quarter in the announcement of the new share purchase authorization that Nathan will discuss demonstrate our commitment to that strategy. We have a strong and dynamic balance sheet. We are confident in our positioning in the market, and we like the risk-reward equation that the current conditions offer. With that, let me turn it over to Nathan.

Nathan Colson, CFO

Thanks, Tim, and good morning. As Tim mentioned, we had another quarter of strong financial results. In the third quarter, we earned $158 million of net income, or $0.46 per diluted share, and generated an annualized 13% return on beginning shareholders' equity. Adjusted net operating income was $157 million, compared to $150 million in the third quarter last year. During the quarter, total revenues were $296 million, the same as last year. The net premium yield for the third quarter was 38.4 basis points, down 0.7 basis points compared to last quarter. The decrease was primarily due to a decline in the in-force premium yield as older policies, which generally had higher premium rates, continued to run off. As refinance activity decreased, we also saw less benefit from accelerated premiums earned from single premium policy cancellations, which amounted to $17 million during the quarter, flat to last quarter but down from $32 million in the third quarter of 2020. Now, regarding credit, net losses incurred were $21 million in the third quarter, compared to $29 million last quarter and $41 million in the third quarter last year. We received about 9,900 new delinquency notices in the quarter, representing less than 90 basis points of the number of loans insured at the start of the quarter, contributing to a low loss ratio of 8.1%. In comparison, in the third quarter of 2019, prior to the COVID-19 pandemic, we received about 42% more new delinquency notices, which represented around 140 basis points of the loans insured at the beginning of that quarter. The loss ratio in the third quarter of 2019 was 12.7%. We are encouraged by the strength of the housing market and the positive credit trends we are seeing, including the low level of early payment defaults, which suggest good near-term credit performance. These positive credit trends continued in October, as our notice inventory declined by another 1,500 notices, with cures outpacing new notices. The estimated claim rate on new notices received in the third quarter of 2021 was roughly 7.5%, compared to about 8% in the third quarter of 2020. In this quarter, we saw $18 million in favorable loss reserve development, compared to minimal development last quarter and in the third quarter last year. This favorable development was mainly due to delinquency notices received before the COVID-19 pandemic began. We still have not seen enough support to adjust the reserves related to the significant number of COVID-related delinquency notices from Q2 of last year, but we remain positive as we observed a similar level of notices and cures in October as we did in September. The volume of claims received in the quarter remained very low due to various foreclosure and eviction moratoriums, with primary paid claims amounting to $18 million compared to $11 million last quarter. The slight increase in paid claims this quarter was mainly due to a commutation of coverage on non-performing loans. We anticipate claim payments will remain low for the upcoming quarters, considering the timelines for foreclosure and eviction moratoriums for GSE loans and the additional procedural safeguards required by the CFPB. Next, I’d like to discuss our capital position and capital actions during the quarter. As Tim noted, we paid an $0.08 per share dividend this quarter, amounting to $27 million, and repurchased 10 million shares for a total of $150 million. In October, we repurchased an additional 3.8 million shares for $60 million under a 10b5-1 plan we implemented earlier this year. The Board also authorized a new $500 million share repurchase program that is set to expire at the end of 2023. As previously mentioned, the Board declared an $0.08 per share dividend payable on November 23. By the end of the third quarter, we had $716 million in holding company liquidity and $2.6 billion in access to the PMIERs minimum requirements at the operating company. MGIC’s access to the PMIERs requirements as of September 30 led to a PMIERs sufficiency ratio of 180%, remaining above our current target level. Since MGIC’s capital position surpasses our current target level, we are in discussions with our regulator regarding a dividend to be paid in the fourth quarter of 2021. As of October 31, 2021, our holding company’s liquidity is still above our target levels, even if we fully utilize the remaining $81 million of the share repurchase authorization expiring at the end of 2021. Any additional dividends from MGIC to the holding company in the fourth quarter would enhance the holding company’s liquidity. Currently, we plan to utilize these additional dividends, if received, to address the eventual redemption of our 9% Convertible Junior Debentures due in 2063. Our recent 10-K has more details, but under the terms of the debentures, we can redeem them for principal plus accrued interest when our share price exceeds a specified level for 20 of 30 consecutive trading days. For 2021, this share price threshold is $17.20, which has been decreased annually due to the dividends paid in the previous year and certain provisions allowed under the debentures. We anticipate issuing a redemption notice for the debentures soon, with the redemption date at least 30 days later. If we do provide a redemption notice, we expect nearly all debenture holders will opt to convert their debentures into common stock before the redemption date. Under the terms of the debentures, we can choose to pay cash to converting holders instead of issuing shares, which we expect to do in most situations. Given our favorable operating results and recent share price performance, we believe it is appropriate to position the holding company for actively considering the retirement of the debentures. While the timing remains uncertain, retiring the debentures would eliminate around 16 million potentially dilutive shares and $19 million in annual interest expense, lowering our debt-to-capital ratio by about 300 basis points as of September 30 on a pro forma basis. As Tim mentioned, we maintain our belief that our balanced approach to sustaining a strong capital position offers the best flexibility to maximize long-term value for both the writing company and the holding company. This approach includes utilizing forward commitment quota share reinsurance treaties, accessing capital markets for excess of loss reinsurance via ILN transactions, and pursuing dividends from MGIC to the holding company as needed. While this is not an indication of the amount of dividends we expect, we currently anticipate future dividends from MGIC to the holding company will occur less often than the quarterly rhythm we had before COVID, partly due to the strong liquidity position of the holding company. With that, let me turn it back to Tim.

Tim Mattke, CEO

Thanks, Nathan. Before moving to questions, let me address a few additional topics. The federal government, through its various agencies, including FHFA and CFPB, continues to focus its housing policy efforts on providing access to sustainable and affordable housing, promoting foreclosure and eviction mitigation for homeowners impacted by COVID-19, and ensuring a successful economic recovery, not on making large-scale changes to the housing finance infrastructure. We will continue to advocate for the increased use of private mortgage insurance in the housing finance industry in order to reduce taxpayer exposure to housing while still maintaining a resilient housing finance system. At MGIC, we are focused on providing critical support to the housing market, especially low and moderate-income and first-time home buyers. Long term, I remain encouraged about the future role that our company and industry can play in housing finance and believe that other regulators and policymakers share a similar view because our company and industry are organized solely to provide credit enhancement solutions to lenders, borrowers, and the GSEs in all economic cycles. Not only does private mortgage insurance offer dedicated capital day in and day out to the housing industry, it offers many solutions and a great value proposition for lenders and consumers to overcome the primary barrier to homeownership - the down payment. In closing, let me recap by saying that we are currently writing high levels of quality new insurance and are experiencing low levels of delinquencies, both newly reported and within our delinquency inventory. The housing market remains strong, and we have a book of business that has solid underwriting credit characteristics, which is supported by a strong and dynamic balance sheet with a low debt-to-capital ratio, an investment portfolio of nearly $7 billion, contractual premium flow, and a robust reinsurance program. I’m confident in our positioning in this market, and we like the business opportunities that the current operating environment presents. We have the right team in place to build on our solid foundation to continue to deliver competitive offerings and best-in-class service to our customers and generate strong returns for our shareholders. With that, operator, let’s take questions.

Operator, Operator

We have the first question from Bose George.

Bose George, Analyst

Okay, first, regarding capital return, do you have a target debt-to-capital range we should consider as we think about the timing of capital return?

Nathan Colson, CFO

Bose, this is Nathan. I’ll take that one, and thanks for the question. I think what we’ve said last quarter and still feel the same way is that right now, we’re in the low 20s, 20% to 21% debt-to-capital. I would certainly feel comfortable if that came down a little bit, but I also feel comfortable with where we are. So I don’t feel like we need to take near-term actions but also don’t feel like if some of the smaller debt issues that we do have outstanding, like the 9%s, if we are able to resolve those, we wouldn’t feel like we need to necessarily issue new debt in order to replace that either.

Bose George, Analyst

Okay, great. That’s helpful. When you redeem the 2063 bonds, is there any book value impact we should consider?

Nathan Colson, CFO

The only thing I would consider is that under the terms of the debentures, our redemption notice occurs when the underlying stock is valued at about 130% of par value; on the balance sheet, they are recorded at par value. To settle them, if we pay cash instead of issuing shares, there would likely be an impact on book value based on the difference between the value of the underlying shares and the par value. However, this will depend on future share price movements and our redemption notice, so it's difficult to determine exactly, but I believe there will be a book value impact.

Operator, Operator

We had the next question comes from the line of Cullen Johnson.

Cullen Johnson, Analyst

Just wondering if you could expand a little on the favorable development in the pre-COVID population, what factors might be driving development there, you think?

Nathan Colson, CFO

Yes. This is Nathan again. I think similar to what we’ve been talking about, it’s really for us every quarter doing a similar evaluation and really asking ourselves if we have enough new evidence to change our initial estimates? I think out of that pre-COVID cohort, there weren’t nearly as many forbearance items in there as the kind of peak COVID-related notices. They’ve had longer time to work their way through. And I think it got to the point where the actual cure activity to date just made it such that it felt like our initial estimates were a little too high and ultimately took that $18 million in favorable development this quarter.

Cullen Johnson, Analyst

Got it. That makes sense. And then just kind of looking at required assets under PMIER. They’ve remained relatively constant in the last few quarters, despite maybe as delinquent loans age, they tend to carry some higher capital requirements with them. So would it be fair to think of that dynamic maybe being counteracted, so to speak, by just the pace of cures of delinquent loans you’ve seen that have just outpaced new notices?

Nathan Colson, CFO

Yes. I think specific to the required assets on delinquent loans, I think you’re right to call out those 2 dynamics. The last aging bucket in PMIERs 2.0 I believe is 12 months plus. So a lot of the loans there are in their kind of final aging bucket at this point, but we continue to see good cure activity and the notice inventory continuing to decline. So when there’s less delinquent risk, obviously, less required capital for that risk.

Operator, Operator

We have the next question comes from the line of Mark DeVries.

Mark DeVries, Analyst

I had a follow-up question about the redemption of the debentures. Nathan, did you indicate that the stock needs to be trading somewhere above $17 for a couple of weeks before you can redeem?

Nathan Colson, CFO

Yes, Mark, this is Nathan. That’s right. For 2021, the key share price level for the debentures is $17.20. Because of the dividends that we paid in calendar ‘21, including the fourth quarter dividend that we will pay, that level will come down for calendar ‘22 to, we think, around $17 even. So, that’s the level that we need the share price to be at for 20 of 30 consecutive trading days in order to redeem the debentures.

Mark DeVries, Analyst

Okay. In terms of considering the impact, would you assume that since you expect everyone to convert to common stock, you would then use the cash that would have been needed to buy back the bonds, if they didn’t convert, to buy back those bonds instead of the stock?

Nathan Colson, CFO

So as I mentioned in the prepared remarks, under the terms of these debentures, we’re actually able to settle in cash or shares if holders convert. So even if they elect to convert, we have the option to settle in cash. There’s a set formula in the document that describes how that works. But we think under most circumstances, we would pay in cash versus issuing the shares and then repurchase them.

Mark DeVries, Analyst

Got it. Got it. That’s helpful. And separate question, Tim. Some of your and my peers have been investing or exploring investments in related non-MI businesses. It’s been a long time since the discussion days. But as you sit here today with considerable excess capital, could you just discuss your views on diversifying the business through M&A as a strategy for enhancing shareholder value?

Tim Mattke, CEO

Yes, Mark. I appreciate the question. It's been a while since we had those discussions, but I do remember them. As I mentioned in my prepared remarks, when considering how to deploy capital, we focus on writing high-quality business. We also take into account other investment opportunities, viewing them from a diversification perspective. However, if we don't find anything that we believe would create real value for the enterprise and shareholders, we then consider capital return as the best use of any excess capital we have. That's been our approach. We are always on the lookout for anything that might be beneficial over time, but we haven't encountered such opportunities in the last decade. This doesn't mean we wouldn’t consider them, as having excess capital is advantageous for exploring such options. Still, nothing has come to our attention that would prompt a change in our current practices.

Operator, Operator

Next question comes from the line of Doug Harter.

Doug Harter, Analyst

Just hoping you could talk a little bit about your expectations for what a normal level of new notices is in this current environment and how home price appreciation impacts that?

Nathan Colson, CFO

Nathan shared that the number of new notices has been decreasing over time, primarily due to the decline of the legacy book. Recently, the delinquency rates for new notices on more recent vintages have been low. However, many of these low rates are still linked to the legacy book. As that legacy book continues to lessen, there may be some positive impact. In the next few years, we expect challenges from large volumes of business from 2019, 2020, and early 2021 that will be entering a period where new delinquency notices typically increase. This makes it difficult to predict trends beyond the short term. Nathan also pointed out that while home price appreciation may not completely eliminate delinquencies, it could lead to fewer severe claims or even result in cures for some delinquencies.

Operator, Operator

Next question comes from the line of Mihir Bhatia.

Mihir Bhatia, Analyst

Just a couple of quick ones for me. First, I just wanted to follow up on Mark’s question around M&A. I guess Mark asked a little bit outside of M&A with like some of your peers, but maybe I’ll ask just about the industry itself. Do they need to be fixed mortgage insurance companies? And what are your thoughts around potential industry consolidation here? I mean I ask because everyone seems to have excess capital, credit is reasonably good, but valuations are basically book value. So just wondering what your thoughts are on that.

Tim Mattke, CEO

No, it’s a fair question. One, I would expect that we have gotten and we’re going to continue to get as an industry. The way we look at it, I think the way I just look at it is as sort of a math equation. Anybody looking to sell is looking to get paid for their book value and effectively their market share and future market share on that. You have to make sure that the loss in that sort of share you can counteract that with expense savings. The math from when we’ve looked at this has not worked. I think it’s something probably everybody in the industry looks at somewhat regularly. And so whether we need fixed, that’s a good question. We’ve had a lot of volume in the last few years. That’s made it easier. We’ve indicated that we think volume is going to be slightly lower next year, but we do think we’re going to be able to continue to grow insurance in force. So it’s something that’s, I think, a question that we’re going to continue to get asked, we’re going to continue to look at. But the math has to work from the loss of potential share of the two combined entities compared to the expense savings that you can have.

Mihir Bhatia, Analyst

Okay, that makes sense. I was wondering about the regulatory front. Could you see any impact from recent developments by the states? For instance, New York has been discussing requiring nonbanks to comply with the CRA. While I know that wouldn’t directly affect you, could there be any indirect effects?

Tim Mattke, CEO

Yes. I mean, again, it’s a valid question, and the message just came out this week. I think from a knock-on effect, obviously, we’re regulated by the states currently. And so some states are more active than others. So I think it’s something that we have a team that pays close attention to that. I don’t foresee any knock-on effect from that per se. I think it could lead to some more discussions with some of our customers as to how they participate in that space and how we could help. But that is not a huge portion of our business at this point. But we’re well-suited to be able to have those conversations with those customers as they want to engage in it, and we are normally proactive with those customers. And so can create opportunities from a regulatory standpoint. Again, we try to stay abreast of what’s happening out there. I don’t see a specific knock-on effect though here that I am concerned about.

Mihir Bhatia, Analyst

Okay, that's helpful. Now for my last question, which is quite significant regarding the premium rate for the entire industry. It's understood that there are dynamics causing the decline. My main concern is where the yield of the in-force portfolio will stabilize. You previously shared information on new issuance premium yields. Would you be willing to share your current quarter new issuance yield or any insights on where you foresee portfolio yields stabilizing?

Tim Mattke, CEO

Yes. When we examine portfolio yields, we've discussed the trend we've seen over the last few quarters, averaging about a basis point each quarter. We expect this trend to continue as we approach the end of the year. However, there are market factors that can influence this, particularly in terms of pricing for new business. Additionally, as we shift towards more purchase volume, we typically see a slight increase in loan-to-value ratios and premiums. This mix can affect how premiums fluctuate, which is why we are cautious about making long-term predictions in this area. It's an important question that we consider. Ultimately, our main concern is the returns generated from the business. We remain confident in the risk-return relationship associated with our deployed capital, which we believe is favorable in the current industry landscape.

Mike Zimmerman, Speaker

Mihir, this is Mike. Maybe just to add on to that. I mean why it is difficult is because we’re looking to predict prepayments. For everybody wants to have prepayments of like the 2019 book and prior. If you look at the last 2 years, ‘20 and ‘21, it’s about 65% of our current in-force. So 35% from ‘19 to prior, which is higher premium rates before the more granular pricing and the risk base and all those things have taken place. Think the quarter, if I go back last quarter, it was like 40%. So that gets to be part of the struggle, right, in trying to forecast where things are at. It’s not only new business coming in, but it’s also the pace of prepays of the old book, and it’s a long-tail business. So that’s what makes it more complicated to try and give more specific guidance.

Operator, Operator

Next question comes from the line of Ryan Gilbert.

Ryan Gilbert, Analyst

Unfortunately, I jumped on the call late. So I apologize if you’ve already answered this. But is there any impact or benefit to your premium yield going forward from the QSR terminations?

Nathan Colson, CFO

Ryan, it’s Nathan. There will be a modest benefit. One of the reasons why we elected to terminate those deals is that the prepayments out of those books had been so significant that they’re just relatively small deals at this point. And those are some of our older single vintage quota share deals. We had less optionality relative to reducing the quota share terminating. So felt like I think in one case, it was our only option. So I do think directionally, there’s a positive there, but I think it’s going to be very modest. And again, that will still show up in the Q4 numbers, including the termination fee that we pay across those 2 deals, which is $5 million combined. So the favorable effect of not ceding premium under those deals won’t really be until the first quarter of ‘22. But like I said, they’ve really run down quite a bit. So there’s not a lot of volume in those, from a premium standpoint or from, say, a PMIERs benefit standpoint at this point.

Ryan Gilbert, Analyst

Okay, got it. Second question on NIW. It looks like the 90-plus LTV NIW has been ticking up as a percentage of total over the course of 2021. Is that just a function of home price appreciation and the characteristics of total origination volume? Or is that more an MTG strategy to capture the best returns on NIW in the market?

Tim Mattke, CEO

I would say that the movement there has been as much about the market and the sort of the move from a bigger portion of NIW being from refinance to being more purchase driven. And so just with the lack of refis on average higher LTVs in that population. But I’d say that would be the biggest driver.

Ryan Gilbert, Analyst

Okay, great. The last one for me is on, I guess, the relationship between premium yield and insurance in force. And if I look at Q3 relative to Q2, you’ve been able to offset lower premium yield with higher insurance in force. Do you think that’s a dynamic that can continue in Q4 and in 2022? Or should we be thinking about not getting enough persistency to offset premium yield compression ahead?

Nathan Colson, CFO

It’s Nathan. I’ll address that. We believe we can continue to grow the insurance in force, albeit at a more modest pace compared to recent quarters, where we currently see a 12% year-over-year growth this quarter. If we are growing insurance in force, we anticipate that the in-force yield will keep declining, and this decline is occurring more rapidly. While it’s challenging to predict this precisely, these are certainly opposing factors. Even if the premium yield decreases, we expect that to be offset by the growth in force over the next couple of quarters. Looking further out, the outlook will depend on various market-driven factors, which makes it difficult to forecast.

Operator, Operator

Next question comes from Geoffrey Dunn.

Geoffrey Dunn, Analyst

First, just a technical question. Nathan, where is the $5 million termination fee going to be booked? Is that going to run through premium or the expense line?

Nathan Colson, CFO

Geoff, it’s Nathan. It will be on the premium line.

Geoffrey Dunn, Analyst

Okay. And then as you think about your 2063, are you suspending your open market buyback activity or changing the parameters of your 10b5-1 in anticipation of that? Or are you continuing with the same parameters you had for your Q3 buyback?

Nathan Colson, CFO

I think the way that we’ve thought about that is once we’ve provided the redemption notice that, that is kind of a period where we could potentially be issuing stock, it wouldn’t be appropriate for us to be repurchasing shares, at least from our perspective at that time. But until the time that we provide the redemption notice, which again is after that kind of 20 or 30 trading days, it’s not really impacting kind of how we’re thinking about share repurchase execution in the near term.

Geoffrey Dunn, Analyst

Okay. And then the last thing I wanted to follow up on is the question about M&A. I'm curious if, as you consider diversification, you evaluate the economic value against the potential challenges of actually realizing that value, especially if diversification gets stuck in a multiple. Does that factor in as you think about diversification compared to returning excess capital to shareholders?

Tim Mattke, CEO

Jeff, I guess I’d say it comes into play in that when we look through the lens, it has to make sense as far as how it, I think, aligns with our business. And I do think it ultimately has to translate into value to our shareholders, too. And so I don’t know if those are always mutually exclusive necessarily. But it is a thought process in that. It has to be meaningful, in my opinion, for it to really be diversification, right? It can’t be something that’s small and that does not translate into value in the eyes of shareholders. Now my hope would be that everything that we do creates value and then ultimately, the shareholders view it that way. But that’s an important sort of piece of the connection in my mind is that you need to ultimately create that value for the shareholders, and that’s done through operating the business. With where we are right now, we feel very confident we’re able to do that and that we’re also able to create value in returning the excess capital.

Operator, Operator

We don’t have any questions queued at the moment. Please continue, presenters.

Mike Zimmerman, Speaker

Okay. Well, I want to thank everybody for their interest in MGIC and hope everyone has a safe and healthy holiday season as we move into the last part of the year. Thanks, everyone.

Operator, Operator

Thank you. Ladies and gentlemen, that concludes today’s conference call. Thank you all for participating. You may now disconnect.