MGIC Investment Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 1, 2024

There are 9 speakers on the call.

Operator

Ladies and gentlemen, and thank you for standing by. Welcome to the MGIC Investment Corporation Fourth Quarter 2023 Earnings Call. At this time, all lines have been placed on mute to prevent any background noise. At the end of today's presentation, we'll have a question and answer session. I will now turn the conference over to Diana Higgins, Head of Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning. Welcome, everyone. Thank you for joining us today and for your interest in MGIC. Joining me on the call to discuss our results for the Q4 are Tim Mackey, Chief Executive Officer and Nathan Colson, Chief Financial Officer. Our press release, which contains MGIC's 4th quarter financial results was issued yesterday and is available on our website atmtg.mgic dotcom under Newsroom includes additional information about our quarterly results that we will refer to during the call today.

Speaker 1

It also includes a reconciliation of non GAAP financial measures to their most comparable GAAP measures. In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk in force and other information you may find valuable. As a reminder, from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website. Before getting started today, I want to remind everybody that 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.

Speaker 1

Additional information about the factors that could cause Actual results to differ materially from those discussed on the call are contained in our 8 ks that was also filed yesterday. If we make any forward looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. No one 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 our 8 ks. So with that, let's get started. I now have the pleasure to turn the call over to Tim.

Speaker 2

Thanks, Diana, and good morning, everyone. I'm happy to report we again delivered a solid quarter capping another year of excellent financial results, while returning meaningful capital to our shareholders. Our performance is a testament to the dedication and hard work of each member of our team. Their ability to adapt to market dynamics has been instrumental in our success. During the year, we continue to benefit from favorable credit trends, prudent risk management strategies, a disciplined approach to the market and a focus on through the cycle performance.

Speaker 2

We remain committed to delivering long term value for our shareholders as we begin the New Year. Turning to a few highlights. In the Q4, we earned $185,000,000 of net income and produced an annualized 15.2% return on equity. For the full year, we earned $713,000,000 At the end of the quarter, insurance in force, the main driver of future revenue, stood strong at $294,000,000,000 The overall credit quality of our insurance portfolio remains solid with an average FICO origination of 746 an average original LTV of 93%. We wrote $11,000,000,000 of NAW in the 4th quarter $46,000,000,000 of NIW for the full year.

Speaker 2

The level of NIW in the year is primarily reflection of the smaller MI origination market. Underwriting standards remain strong and our NAW continues to have strong credit characteristics. We continue to experience the headwinds of small origination market by current interest rates and affordability challenges. The supply of homes for sale remains limited due to the lock in effect for homeowners with mortgages that have interest rates well below the current market rate. The same borrowers are also significantly out of the money to refinance which has led to historically low refinance volumes across the mortgage origination industry including the MI market.

Speaker 2

Those headwinds are offset by the tailwinds that higher interest rates have on persistency on our insurance in force. Annual persistency ended the 4th quarter at 86%, from 82% a year ago and 66% at the end of 2021. The net results of lower NIW and increased persistency that our insurance in force has remained relatively flat during the year consistent with what we expected at the start of the year. Home prices to be resilient despite affordability challenges and high interest rates. Although the current supply demand dynamic creates challenges for first time homebuyers, This dynamic continues to support home prices and helps mitigate the downside risk of home prices.

Speaker 2

Many economic forecasts indicate home prices being relatively flat in 2024, which we believe would be a long term positive for our industry. While there is still some uncertainty, the housing market remains resilient and the outlook for it in the economy is generally positive. Although the 5 homes available for sale is low, there is pent up demand and demographic trends suggest meaningful long term MI opportunities as the millennial and Gen Z population continue to demonstrate a strong desire for homeownership. Given the crosscurrents I just discussed, we expect the MI market to be roughly the same size in 2024 it was in 2023. Taking a look at the credit performance of our insurance portfolio, our delinquency inventory and rate continue to be at historic lows.

Speaker 2

To date, we have not seen a material change in the credit performance of our portfolio overall and early payment defaults remain at very low levels, which we believe is a good indicator of near term credit performance. As a result of the strength and flexibility of our capital position during the year, We paid $600,000,000 in dividends from MGIC to the holding company, including a previously announced $300,000,000 dividend in the 4th quarter. We also returned approximately $460,000,000 of capital to our shareholders through a combination of repurchasing common stock I'm paying a quarterly common stock dividend, which was increased by 15% in the 3rd quarter. As I mentioned on our last call, with our debt to capital ratio in our target range with the ventures being fully retired, we have completed our planned delevering activities and we expect our capital return payout to increase from a low level in That was the case in the Q4 as we repurchased 7,000,000 shares of common stock for $123,000,000 and paid $0.115 per share dividend to our shareholders for a total of $32,000,000 We continue to expect share repurchases will remain a primary means of returning capital shareholders. In 2024 through January 26, we repurchased an additional 1,800,000 shares of common stock for a total of $34,000,000 Our recent share repurchase activity reflects capital strength and financial results previously highlighted and share price levels that we believe are attractive to generate long term value for remaining shareholders.

Speaker 2

As of January 26, had $240,000,000 remaining on our current share repurchase authorization. The Board authorized $0.155 per common stock dividend to be paid on March 5. We are very active across our reinsurance program during the Q4 and Nathan will share details on our reinsurance activities. Before turning it over to Nathan, I'd like to share a few more comments. I'm happy to report that in January S and P upgraded MJC's financial strength and credit ratings to A- and upgraded the credit rating of the holding company to BBB- and the holding company is now fully investment grade.

Speaker 2

The outlook for the ratings is stable. S and P's rationale for the upgrades include an improved view of MGIC's capital adequacy resulting from the implementation of S and P's revised capital adequacy methodology, MGIC's risk management, disciplined approach to underwriting resulting in strong portfolio quality and prudent use of reinsurance. Lastly, as many of you know, Steve Thompson, our Chief Risk Officer, will be embarking on a well earned retirement in March after serving the company for more than 25 years. I am proud to have Steve serve as my first CRO in my tenure as CEO. Thank you, Steve, for your passion and and leadership that you demonstrated every day.

Speaker 2

Nathan will assume the responsibility for overseeing the risk management department in addition to the finance department upon Steve's retirement. With that, let me turn it over to Nathan.

Speaker 3

Thanks, Tim, and good morning. Before getting into the details on the financial results, I also want to thank Tim for the opportunity and thanks Steve for his dedication and leadership. Steve was one of the first people I met when I joined MGIC in the risk management almost 10 years ago and he has been a friend and mentor for me. We will miss Steve's wisdom and experience, his personality and wit, but Mostly, we will miss Steve because he's a great guy that people wanted to be around. I feel very fortunate for the opportunity to oversee the risk team that Steve has developed.

Speaker 3

I'm excited to lead such a talented group. Turning back to the financial results. As Tim mentioned, had another quarter of solid financial results. We earned net income of $0.66 per diluted share compared to $0.64 during the Q4 last year. For the full year, we earned net income of $2.49 per diluted share compared to $2.79 per diluted share last year.

Speaker 3

The results for the Q4 were reflective of continued exceptional credit performance we have been experiencing. This has again led to favorable loss reserve development and resulted in a negative 4% loss ratio this quarter. Our review and re estimation of ultimate losses on prior delinquencies resulted in $60,000,000 of favorable loss reserve development in the quarter. The favorable development this quarter primarily came from delinquency notices received in the second half of twenty twenty one and in 2022. In the quarter, our delinquency inventory increased by 4% to 25,700 loans, which continues to be low by historical standards.

Speaker 3

In the quarter, we received 12,700 new delinquency notices compared to 12,300 last quarter 11,900 in the Q4 last year. While new notices were higher year over year, they were 7% below the pre pandemic levels seen in the Q4 of 2019. We continue to expect that the level of new delinquency notices may increase due to the large 2020 2021 book years being in what are historically higher loss emergence years. During the quarter, total revenues were $284,000,000 compared to $292,000,000 in the 4th quarter last year. Net premiums earned were $226,000,000 in the quarter compared to $244,000,000 last year.

Speaker 3

The decrease in net premiums earned was primarily due to an increase in ceded premium in the quarter, resulting from previously announced transactions that included canceling the quarter share agreements covering our 2020 NIW and a tender offer for certain tranches of the HomeRe Insurance Link notes. Combined these transactions resulted in an additional $13,000,000 in ceded premium in the 4th quarter. The in force premium yield was 38.6 basis points in the quarter, flat quarter over quarter consistent with our expectations. Given our expectations for another year with higher persistency in a smaller MI market, we expect the in force premium yields remain relatively in 2024 as well. Book value per share at the end of the 4th quarter was $18.61 up 17% compared to a year ago.

Speaker 3

The increase in book value per share was due to our strong results and accretive share repurchases, offset somewhat by our quarterly shareholder dividend. While higher interest rates continue to be a headwind for book value per share, Higher interest rates are a positive for the earnings potential of the investment portfolio and that continues to come through in our results. The book yield on the investment portfolio of the quarter at 3.7%, up 20 basis points in the 4th quarter and up 70 basis points from a year ago. Net investment income was $58,000,000 in the quarter, up $3,000,000 sequentially and up $12,000,000 from the Q4 last year. During the Q4, our reinvestment rates were above the book yield and assuming a similar interest rate environment, We expect the book yield to continue to increase, but at a slower rate as the increase in book yield in the last year has narrowed the difference between our book yield and reinvestment rates.

Speaker 3

Operating expenses in the quarter were $55,000,000 down from $74,000,000 in the Q4 last year. For the full year, expenses were $237,000,000 down $12,000,000 from 2022 and toward the lower end of the $235,000,000 to $245,000,000 range we provided a year ago and reiterated throughout the year. For 2024, we expect operating expenses will be lower again to a range of $215,000,000 to $225,000,000 a reduction of $20,000,000 from the range we provided last year. Our reinsurance program, which includes the use of forward commitment quota share reinsurance agreements and excess of loss reinsurance agreements executed in either the traditional or ILN market is an important component of our risk management and capital management strategies. These agreements reduce the volatility of losses in adverse macroeconomic environments and provide diversification and flexibility to our sources of capital.

Speaker 3

Our overall strategy is to focus on and prioritize the most recent book year vintages or future NIW and to recapture season book year vintages if the reinsurance no longer offers significant loss protection in stress scenarios. As Tim mentioned, we were very active across our reinsurance program in the Q4. As previously announced, in the Q4, we completed our 7th ILN transaction, which provides $330,000,000 of loss protection and covers nearly all of our policies written From June 2022 through August of 2023, we executed a 30% quarter share agreement with the panel of diverse and highly rated reinsurers that will cover most of our policies written in 2024. We also elected to cancel the quarter share treaties covering our 2020 NIW conducted a tender offer for certain tranches of seasoned ILN deals. These actions are all consistent with our strategy to concentrate our reinsurance program and coverage on our most recent book years or future NIW.

Speaker 3

Our reinsurance strategy is well established and we have been consistent buyers in both traditional and ILN markets. We have consistently placed quota share reinsurance covering our future NIW since 2013 and have had at least one HomeRe ILN transaction in each of the last 6 years. This approach has served us well and we appreciate and value the relationships and trusted partnerships we have developed over the years and look forward to continuing to build our relationships in the reinsurance markets in 2024 and beyond. With that, let me turn it back over to Tim.

Speaker 2

Thanks, Nathan. As we celebrate another successful year, I'd like to acknowledge the collective efforts of our talented and passionate team. Each team member played a role in making 2023 a success. I to express my appreciation and gratitude for their hard work, dedication and commitment to excellence. As we begin the New Year, we continue to be encouraged by the resiliency of the housing market optimistic about the opportunities that lie before us.

Speaker 2

With our solid foundation, talented team, financial strength and capital flexibility, We are well positioned to continue to execute on our business strategies and achieve success for all of our stakeholders. With that, operator, let's take questions.

Operator

Our first question comes from the line of Bose George from KBW.

Speaker 4

Hey, guys. Good morning. Actually, first on the expenses, obviously that's Very good guidance on the reduction. Just curious, like this in 2023, you guys had the pension expense. Apart from that, can you just talk about other drivers of the reduction?

Speaker 4

And then does it kind of suggest the expense ratio that can be like in that 23 range down from kind of the mid-20s?

Speaker 3

This is Nathan. Thanks for the question. Yes, I think from an expense ratio standpoint, I think you're kind of in the range that we're thinking for 2024 as well. In terms of reductions, I mean, we did have some unique items in the Q4 of 2022 and the Q1 of 2023. But really the range that we're providing for next year is consistent with the run rate that you've seen over the last couple of quarters, really just kind of the full year of that run rate that we've kind of run out for the 3rd 4th quarters of this year.

Speaker 4

Okay, great. Thanks. And then actually in terms of share buybacks, in the supplement you show that There's going to be a sharp increase in the contingency reserves starting in 2025. Will that have an impact on capital return or I mean, is it obviously you guys are returning it at a pretty robust level already. So just curious if that changes anything?

Speaker 3

This is Nathan. I don't know that it changes things necessarily, but it certainly helps alleviate something that could have been a constraint. If you look at that supplement page, we've been kind of drawing down statutory surplus over time. This year, we're in 2024, we are going to get some 10 year releases on contingency reserves. But really in 2025, we start to get Now those full years with $500,000,000 plus of contingency reserve releases.

Speaker 3

So that would allow us flexibility to continue to pay dividends without Kind of running out of without surplus getting too low, because I think that could have become a constraint. But With contingency reserves now kind of approaching release, I think that's something that may not be a practical constraint for us.

Speaker 4

Okay, great. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Terry Ma from Barclays.

Speaker 5

Hi, thanks. Good morning. I think you mentioned you expect the in force premium yield to be flat in 2024. So How should we think about the net yields? Should that kind of just track the Q4 levels?

Speaker 3

Terry, it's Nathan. I think it's a lot easier for us to feel confident providing some guidance on the in force yield. I think the net yield, particularly with the profit commission on our quota share agreements becomes somewhat loss sensitive. So it's harder

Speaker 2

I think harder for us

Speaker 3

to provide a confident level of what the net yields will be in any 1 quarter. But I would say We did have some unique items in the 4th quarter, about 1.9 basis point impact due to the ILN tenders and the quarter share cancellation. That quarter share cancellation will reduce the amount of ceded premium that we would have had in 2024 and beyond. But I think if you look over time with our program, pretty consistent over time, we've been in that kind of maybe and a half to 6.5 basis point range in terms of cedar premium. And then the accelerated earnings on single premiums, which is another volatile component.

Speaker 3

It really hasn't been that way in the last couple of years because rates have been high. There hasn't been a lot of refinance or cancellation activity. So I think there are some sources of variability there in the net yield, but I think we feel good about the in force yield, I think remaining flat again for 2024 as we said.

Speaker 5

Got it. Thanks. That's helpful. And then Any color you can provide on NIW for the quarter was quite a bit lower Q over Q and year over year. Was there any, I guess, Underwriting changes or pricing actions?

Speaker 2

No, nothing really there. This is Tim. I think it's somewhat representative of the size of the market. We're the first to report. I think I lost a little bit of share, but I don't think much and I think we're really happy with the quality of the book that we wrote.

Speaker 2

Nothing from us as far as approach to the market, anything like that. Really happy with the quality of the $11,000,000,000 that we wrote.

Speaker 6

Okay, great. Thank you.

Speaker 7

Sure.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Geoffrey Dunn from Dowling and Partners.

Speaker 7

Thanks. Good morning, guys.

Speaker 6

Good morning, Paul.

Speaker 7

First question, as you look at future underwriter dividends, How do you and the regulator think about minimum surplus levels?

Speaker 3

I'd say that's not a conversation we've had directly partly because I don't think we've approached that level yet. I think we've noted other Wisconsin domicile companies that have much less than the $600,000,000 surplus that MGIC had at the end of 2023. So I think we still have some flexibility to continue to pay dividends if Our capital levels are above our target level as they have been for some time. So with the contingency reserve release coming in as well starting in 2024 and then in 2025. We may not get to the point where we're talking about how little surplus we may have to continue to support dividends at the level that we had in 2023.

Speaker 7

Are you able to give some guidance with respect to your expectations on dividends? I mean, something similar to 2023 going forward?

Speaker 2

I mean, I think if

Speaker 3

you look at what we did in 2022 2020 3, you saw dividend levels that were kind of somewhat in line with the income that we earned as a company. So I think if we continue to generate the financial results that we have, continue to have the capital position that we have, That will continue to support dividends that have been fairly large over the last couple of years. But for us, the starting point is always making sure that we have sufficient capital above our target levels or at our target levels at the operating company. Once that's satisfied, then I think we can start the dividend discussion. But With credit performance the way that it's been over the last 2 years, it supported, I think, The $1,400,000,000 over the last 2 years in dividends from the OpCo, plus another $200,000,000 in intercompany tax settlement.

Speaker 3

There's a lot of cash going to the holding company over the last 2 years. Okay.

Speaker 7

And then my other question is, When you look at the reserve development, we continue to see, I think you noted it was second half twenty twenty one, twenty twenty two. Can you maybe parse that out a little bit more? Is the majority of the development we saw this quarter from 2021? Because I'm assuming as you get into 2022, The equity benefits on claim rates experience probably gets a lot thinner. Do you have any more color there?

Speaker 3

Yes, no, happy to. I think it's actually more from 2022. And I think it's less about the kind of our estimates of say embedded equity on those items. And again, these are notices received in that period, not necessarily loans from that book year vintage. But really it's the strength of the cure activity that we've seen.

Speaker 3

Our initial Ultimate loss expectations have been around 7.5% ultimate claim rate for some time, but actual experience on kind of Closer to fully developed notice quarters from 2021 early 2022, which is much less than that. And really it's that cure activity that is driving the reserve development in those periods versus I think a view of home price appreciation or other factors like that.

Speaker 7

Okay. All right. So just to clarify, these are loans that have been in portfolio then for 9, 12 plus months, not 22 vintage that you're referring to.

Speaker 3

Exactly. When we say that the reserve development came from it's really new notices received in 2022, not from the 2022 vintage. I mean, there's relatively few notices that we have from 2022 or 2023 vintages at this point.

Speaker 4

Okay. Thank you.

Speaker 2

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Eric Hagen from BTIG.

Speaker 8

Hey, thanks. Good morning. I actually wanted to follow-up on that last point you were just making about the cure rate for the portfolio and what you feel like has actually kept that so stable. Are borrowers actually receiving modifications and what's the nature of that modification or the cure and what do you feel like would catalyze the cure rates maybe change from here?

Speaker 3

Eric, it's Nathan. I mean, it's a really good question. I think it's a tough one to know with any specificity just because there's a whole host of reasons. They all I think have been pulling in the direct More favorable credit performance over the last several years, the kind of forbearance and modification programs that are in the market certainly helped The employment rate staying very, very high, unemployment being very low helped. The value of kind of homeownership in the utility of a house In a kind of a work remote or hybrid kind of world, I think has gone up.

Speaker 3

And home price appreciation, even in our part of the market, which is more like the FHFA purchase only index than maybe the Case Shiller 20 City Index has continued to rise in 2022 and 2023 as well. So that I think that combination of factors is really all pulling towards kind of good outcomes for borrowers and ultimately we're going to better than expected credit performance for us.

Speaker 8

Yes, that's definitely helpful. Hey, on the policy towards stock buybacks and capital return in general, I mean, how sensitive would you say it is toward Nationwide unemployment rates and other economic conditions or is it really just sensitive to the unemployment rate or conditions in your own portfolio?

Speaker 3

Eric, I may need you to clarify. We're trying to draw a link between Our share repurchase appetite and the unemployment rate?

Speaker 8

Pretty much, yes. And whether you see that being sensitive to nationwide unemployment rates or does it really just need appear and start appearing in your own portfolio before you maybe change that policy?

Speaker 3

Yes. I'd probably just reiterate, Ultimately, our ability to return capital to shareholders via dividends and share repurchases is about getting the money to the holding company where those activities happen. We already have at the end of the year, we had about $900,000,000 at the holding company. So we have a lot of flexibility even today. But Over time, it will be about getting dividends out of the underwriting company.

Speaker 3

And again, that's about capital levels being above our target levels. And our targets are built on a number of things, but one of them is what's our expectation of future performance and do we need that capital to support increased risk either in the loans that we're insuring or increased risk in the market that we're operating in. We've had periods post COVID where we didn't pay dividends for about a year and a half from MGIC to the holding company because felt like the right thing to do was to retain that capital at MGIC because of the increased uncertainty in the environment there. As long as we still feel like we have capital above our target levels at MGIC, that will fund dividends to the HoldCo. And as Tim said, With our debt capital at our target range right now, the primary purpose of the holding company money above our target levels there for and kind of risk purposes is really to return.

Speaker 8

Yes. That's all really helpful. Thank you, guys.

Speaker 2

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Mihir Bhatia from Bank of America.

Speaker 6

Hey, good morning. Thank you for taking my questions. The first question I had was just on the NIW outlook. I think you mentioned a similar sized NIW market in 2024 and 2023. And Like is that for MTG in particular or was that industry or both I guess?

Speaker 2

So I think we're talking mostly about sort of Mi originations overall, I think we'd expect that the size of the overall market totally and then you think about penetration of those that are insured and then private mortgage insurance, That's probably pretty similar, this coming year in 2024 to what it was in 2023?

Speaker 6

So I guess I am a little curious about that. We look at industry forecast, they generally have originations up, including purchase originations up a little bit year over year, But you also have some refi coming back. And I guess I'm curious as to why you think like why wouldn't be NIW and particularly if you get rate cuts as everyone seems to expect now. Like will the penetration go down? Is there something about the market that's making you feel like MI penetration is going down?

Speaker 6

Because I would have thought it'd be going up given affordability

Speaker 2

Yes. Obviously, when you think about mix and purchase and refi, if we get A little bit more refi the back half of the year. We don't expect that's really going to help. It's probably going to hurt the penetration, right? There'd be more overall originations, but I think ultimately it hurts penetration for us.

Speaker 2

So I don't think there's a lot of pickup from Mi origination of refi in the back half of this year. Just What would be available to refi and what would ultimately refi? Again, I wouldn't paint as a negative view of this year. I think we just think 24% is shaping up to look pretty similar to 2023% overall. Hopefully, there's upside to that.

Speaker 2

But I think overall, I think that's sort of our view. From our perspective, we were a little bit lower on share on average during the course of 23% than we have been historically. So I think we might pick up a little bit there if the returns are appropriate. But an overall Mi origination standpoint, we think it's relatively flat.

Speaker 6

Got it. Thank you. And then switching gears a little bit maybe to the returns point, right? You had a 15% ROE this quarter, pretty similar last quarter 2. And I was wondering, is this as good as it gets?

Speaker 6

I mean, you're guiding to losses going up or sorry, not losses, but delinquency notices going up, which will obviously have an effect on provisions and presumably you don't assume reserve releases In the future, that would suggest ROE would go down prospectively. And I was curious, I did want to get your thoughts on that. Is like the MI business It's a low double digit ROE business from here. Is that like kind of your view or do you have any comments there?

Speaker 2

Yes, I think, Bahir, it's a really valid question, right, because we've benefited from exceptional credit quality, Both in the terms of low new notices, as well as a good amount of reserve releases, as Nathan talked in detail about some of those. And I think we've been saying for actually a number of years that credit is as good as it can get to a large extent, right? And so if you think about normalized through the cycle and How we price the business and think about it, we priced assuming that losses are higher than what we've been experiencing and that's going to continue to be our view on it. So I think that there's been tremendous amount of tailwinds from a credit standpoint. We've continued to be wrong as far as that credit could get a little bit worse.

Speaker 2

And We say get a little bit worse. We still view it as likely better than what people would think sort of historical averages are. So still feel really good about the credit box. But again, I think we just we want to be cautious about how good it's been from a credit standpoint versus What we would view is still a really good credit quality market that would show some losses in it, right? It's not usual to have negative incurred losses quite frankly.

Speaker 2

With that, I think again we talked a little bit at the beginning as far as Originations, we think from a premium standpoint, we said relatively flat as far as the average premium this year. So I think there is a little challenge from an ROE this next year if you don't have the same level of reserve releases, which is quite frankly difficult when you have less raw material and loss reserves. But we think that's still really good return business, high quality exceptional and I think appropriate returns for the risk that we're ultimately taking.

Speaker 6

Right. No, that's fair. Okay. Thank you for taking my questions.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Geoffrey Dunn from Dowling and Partners.

Speaker 7

Thanks. Good morning. Sorry, just a quick follow-up. Can you just review the specifics of your targeted minimum holding company liquidity?

Speaker 3

Jeff, it's Nathan. I mean, what we've talked about is holding back a couple of years for the dividend to protect that For periods where we're not able to pay or don't want to pay dividends from MGIC to the holding company. And then also a few years for interest on outstanding debt. And as that debt comes closer to being Some amount of principal there, but with the debt not coming due now for about, I think it's 4.5 years, August 28, That's not really something that we're thinking much about right now.

Speaker 6

Okay, great. Thank you.

Speaker 3

Thank you.

Operator

Thank you. At this time, there are no further questions. I will now turn the call back over to management for closing remarks.

Speaker 2

Thank you, Gigi. I want to thank everyone for your interest in MGIC and remind you that we'll be participating in the BofA and UBS Financial Services Conferences Later this month. Have a great rest of your week everyone. Thanks.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating.

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