Good afternoon, ladies and gentlemen, welcome to the NMI Holdings, Inc. fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session. Instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. I would now like to turn the conference over to your host, Mr. John Swenson of Management. Please go ahead, sir. Thank you, operator. Good afternoon, welcome to the 2020 fourth quarter conference call for National MI. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Bradley Shuster, Executive Chairman, Claudia Merkle, CEO, Adam Pollitzer, our Chief Financial Officer, and Julie Norberg, our Controller. Financial results for the quarter were released after the close today. The press release may be accessed on NMI's website located at nationalmi.com under the Investors tab. During the course of this call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our regulatory filings with the SEC. If and to the extent the company makes forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also note that on this call we refer to certain non-GAAP measures. In today's press release and on our website, we have provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brad. Thank you, John, and good afternoon, everyone. The fourth quarter capped a year of remarkable challenge, resiliency, and reward for National MI. In 2020, we successfully navigated through the unprecedented stress of the COVID pandemic, fully supporting our customers and their borrowers at a time when they and the overall housing market needed us most. During the year, we wrote a record $62.7 billion of NIW, helping over 250,000 borrowers gain access to housing and establish a safe, secure environment in which to shelter through the pandemic. We closed the year with $111 billion of high-quality, high-performing primary insurance in force. Our decision to prioritize risk responsibility from day one and establish a comprehensive credit risk management framework spanning individual risk underwriting, Rate GPS pricing, and our innovative reinsurance program proved invaluable. Credit performance in our in-force portfolio continues to trend in an encouraging direction, and we are increasingly optimistic as we look forward, given the quality of our underlying book, potential for additional stimulus support for borrowers, and sustained resiliency of the housing market. We generated $171.6 million of full-year GAAP net income in 2020, delivering strong profitability that was consistent with our result in 2019, despite absorbing the significant impact of the COVID pandemic through the year. Our adjusted net income was $173.6 million, and we exited the year with a 15.2% fourth-quarter adjusted return on equity. Policy efforts played an important and stabilizing role during the year. Forbearance, foreclosure moratorium, and other assistance programs are helping to bridge borrowers past this point of acute stress and ensure they are able to remain in their homes and resume their lives with limited interruption once the pandemic has passed. We applaud these efforts and note the recent extension of the forbearance and foreclosure timelines announced by the FHFA. Homeownership is essential, more so today than ever before. People need shelter in order to shelter in place, and allowing borrowers who, through no fault of their own, are facing real strain to stay in their homes and avoid foreclosure is the right social policy. It will also help speed the ultimate pace of economic recovery. We expect the housing market will be an area of focus for the Biden administration and new congressional leadership. It has been a bright spot in the wake of the pandemic, expanding access to all the benefits that homeownership provides, a safe environment to shelter from the virus, an ability to establish a community identity, and an equitable opportunity for long-term wealth creation in a manner that appropriately guards against systemic risk is more important than ever before. While it is difficult to predict the hierarchy of political priorities and specific changes that may come, we believe there will be continued recognition of the value that private mortgage insurance offers, providing borrowers with down payment support and equal access to mortgage credit while also placing private capital in front of the taxpayer to absorb risk and loss in a downturn. Overall, I'm delighted with what we achieved last year and how effectively we were able to navigate through the COVID crisis. I'm optimistic about our opportunity to continue to build value for our employees, for borrowers, for our customers, and for our shareholders in 2021. With that, let me turn it over to Claudia. Thank you, Brad. Remarkable is an apt description for 2020. It was a remarkably challenging and remarkably rewarding year. Our transition to a remote work environment was seamless. Our team connected and found innovative ways to advance our customer engagement. Our decision to prioritize discipline and responsible risk selection in every aspect of our business was validated by the strong credit performance of our in-force portfolio. We achieved standout execution in the capital reinsurance markets. Our operating platform scaled effectively, readily supporting a massive increase in our new business volume. The strong performance of our team and business through the duration of the COVID pandemic continued in the fourth quarter. GAAP net income was $48.3 million, or $0.56 per diluted share. Adjusted net income was $50.8 million, or $0.59 per diluted share. GAAP return on equity was 14.4% for the quarter. Adjusted ROE was 15.2%. The new business environment remains exceptionally strong. COVID has driven a shift in behavior and fueled a record level of purchase demand. Shelter-in-place directives are reinforcing the importance of the home, driving increased interest from both first-time buyers and existing homeowners looking to move up for more space. Record low mortgage rates have provided added fuel, increasing affordability and drawing additional buyers to the market. Against this backdrop, we generated record NIW of $19.8 billion, up 7% from the third quarter and 66% compared to the fourth quarter of 2019. We didn't see any of the seasonal slowdown that typically emerges in the fourth quarter. Volume was consistently strong through the period, and the momentum in our production has carried into the beginning of 2021. Our volume is at record levels, and the value of our new business production is equally strong. Our record NIW is matched by continued pricing discipline, stringent underwriting standards, and attractive risk-adjusted returns on new business flow. Overall, this continues to be a uniquely valuable new business environment, one where National MI is well-situated to help lenders and deliver important solution for borrowers. In the fourth quarter, we activated 27 new lenders. For the full year 2020, we activated 101 lenders, including eight from the top 200. We are now doing business with a broadly diverse group of nearly 1,200 high-quality originators. Our customers are evolving, in many respects, the COVID pandemic has accelerated changes that were already underway. Lenders are prioritizing technology to drive improvements in the consumer experience and streamline their business processes. As they do, their expectations for their mortgage insurance partners are evolving. They expect us to offer technology-enabled solutions, to have embedded connectivity with third-party origination systems and point-of-sale platforms, and to support their drive for process efficiency. In this context, Rate GPS and the broader technology lead that we enjoy provide a key advantage. We are meeting our customers' needs remotely, and our sales team is finding innovative ways to deepen our existing relationships and attract new customers every day. Our activation pipeline is healthy, and we expect to continue expanding our customer franchise in 2021. We built our company to perform across all market cycles, and everything we have done to build a durable and profitable business, recruiting and retaining great talent, establishing the right culture, engaging with customers in a consultative way, and managing risk expenses and capital, positioned us to lead through the COVID pandemic. The strength of our position coming into this stress allowed us to remain fully customer-focused throughout. We have been consistent with our sales message, our price delivery through Rate GPS, and our focus on risk management. We achieved a tremendous amount in 2020, growing our franchise, our NIW volume, our high-quality insured portfolio, and our balance sheet. We absorbed the brunt of the COVID pandemic and delivered significant profitability and strong mid-teen returns throughout. As we look ahead in 2021, we expect the housing market will remain robust with sustained demand and house price appreciation. We expect mortgage insurance market conditions will remain favorable with strong NIW volume and equally constructive pricing and risk dynamics. We see a clear path to continue doing what we do best, responsibly deploying capital to support our customers and drive value. With that, I'll turn it over to Adam. Thank you, Claudia. We delivered strong financial results in the fourth quarter against the backdrop of continued resiliency in the housing market. We generated $19.8 billion of NIW in the fourth quarter and reported primary insurance in force of $111.3 billion at December 31st. Net premiums earned were $100.7 million, adjusted net income was $50.8 million, or $0.59 per diluted share, and adjusted return on equity was 15.2%. Total NIW of $19.8 billion included $17.8 billion of monthly production. Purchase originations accounted for 66% of our volume in the quarter. As Claudia mentioned, the new business environment remains exceptionally strong. We're achieving record volume, strong risk-adjusted returns on new production, and because of the record low note rates on our current flow, we expect this business will be the most persistent we've ever originated. Taken together, the volume, value, and stickiness of our new business production are driving growth in the embedded value of our insured portfolio and will serve to seed our future financial results. Primary insurance in force was $111.3 billion, compared to $104.5 billion at the end of the third quarter. While record low interest rates have helped spur exceptionally strong new business volume and contributed to the resiliency of the overall housing market, they have also continued to drive an elevated level of refinancing activity and portfolio turnover. Twelve-month persistency in our primary portfolio was 56% as of December 31st. We expect persistency will remain low in the near term given the outlook for interest rates. Over time, however, we expect portfolio turnover will slow and persistency will rebound as the business we're writing in the current rate environment stays on our books for an extended period. Net premiums earned in the fourth quarter were $100.7 million, including $11.7 million from the cancellation of single premium policies. Reported yield for the quarter was 37.3 basis points, compared to 38.9 basis points in the third quarter, primarily reflecting an increased ceded premium impact from our most recent ILNs. Investment income was $8.4 million in the fourth quarter, compared to $8.3 million in the third quarter. Underwriting and operating expenses were $35 million, compared to $34 million in the third quarter, reflecting in part the strong growth in our NIW volume period to period. Expenses in the fourth quarter also included $1.7 million of costs incurred in connection with our fifth ILN offering in October. Excluding ILN-related costs, adjusted underwriting and operating expenses were $33.3 million. Our GAAP expense ratio was 34.7%, and our adjusted expense ratio was 33% for the fourth quarter. We had 12,209 defaults in our primary portfolio at December 31st, compared to 13,765 at September 30th. Our default rate declined to 3.1% from 3.6% during the period. Our default population has now declined every month since August. The number of loans in our portfolio that have missed at least one payment but not progressed to the default status, the strongest leading indicator of our near-term credit performance, is at its lowest level since April. These favorable trends continued in January, with our default population declining to 11,905 and our default rate declining to 2.9% at January 31st. At quarter end, 19,464 or 4.9% of the loans in our primary portfolio were enrolled in a forbearance program compared to 24,809 loans or 6.5% of our portfolio at September 30th. Looking forward, while an acceleration in the path of the virus could exacerbate current issues and contribute to additional macro dislocation, we're optimistic that we will see continued improvement in our credit performance as impacted borrowers benefit from a rebounding economy, an extended forbearance timeline, additional stimulus support, broad resiliency in the housing market, and accelerating house price appreciation. We're also hopeful that the broad distribution and administration of new vaccines will allow for a return to normalcy in the near term and further solidify our credit outlook. Claims expense was $3.5 million in the fourth quarter, down from $15.7 million in the third quarter. We reevaluate the assumptions underpinning our reserve analysis every quarter. Our reserve position at December 31st reflects our most current views and balances the beneficial impact forbearance programs and other forms of borrower assistance are expected to have on our ultimate claims experience with a conservative view of the path of house price appreciation and other macroeconomic factors going forward. We'll continue to assess our underlying assumptions and reserve position as we progress through 2021, considering, among other factors, the performance of our existing borrowers, the availability of additional stimulus support, the underlying resiliency of the housing market, and the path of house price appreciation to determine whether further changes to our reserving assumptions and reserve position are necessary during the year. Interest expense in the quarter was $7.9 million, and we recorded a $1.4 million loss from the change in the fair value of our warrant liability during the period. GAAP net income for the quarter was $48.3 million or $0.56 per diluted share. Adjusted net income, which excludes periodic transaction costs, warrant fair value changes, and net realized investment gains and losses, was $50.8 million or $0.59 per diluted share. Up 26% compared to $40.4 million or $0.47 per diluted share in the third quarter. In January, we announced that we entered into a new quota share reinsurance agreement covering 22.5% of our new business production in 2021. We estimate that the treaty carries a pre-tax cost of capital of approximately 6%, roughly equivalent to what we've been achieving prior to the onset of the COVID pandemic. The new quota share agreement capped a year of standout success in the capital and reinsurance markets. We completed seven deals providing over $1.3 billion of growth capital. Our success in the capital and reinsurance market highlights the confidence that investors have in our disciplined approach and the strength of our funding profile, and comprehensive and uniquely expansive nature of our reinsurance program provides us with an expanded ability to support our lenders and their borrowers going forward. Total cash and investments were $1.9 billion at quarter end, including $72 million of cash and investments at the holding company. Shareholders' equity at the end of the fourth quarter was $1.4 billion, equal to $16.08 per share, up 18% from $13.61 per share at the end of 2019. We have $400 million of outstanding senior notes and our $110 million revolver remains undrawn and fully available. At quarter end, we reported total available assets under PMIERs of $1.8 billion and risk-based required assets of $984 million. Excess available assets were $766 million. Overall, we delivered strong results for the quarter with a record volume and value of new business production and encouraging credit performance in our in-force portfolio, driving significant profitability and a strong mid-teens return. Looking forward, we're optimistic about the pace of economic recovery, prospects for the normalization of day-to-day activity, resiliency of the housing market, and MI sector opportunity. We believe that we are well-positioned and expect that the growing size and attractive credit profile of our insured portfolio, along with our broadly disciplined approach to risk management, expenses, and capital, will continue to drive our performance. With that, let me turn it back to Claudia. Thanks, Adam. COVID has brought into sharp focus the important role that National MI and the broader private mortgage insurance industry play in supporting a healthy and functioning housing finance system that works for borrowers, lenders, and taxpayers across all market cycles. Our performance in the fourth quarter, with record NIW volume and primary insurance in force, significant profitability, and strong mid-teens return, capped a remarkable year. We came into the pandemic in a position of strength, bolstered by the conservatism with which we have managed our business and continue to provide support, lead with innovation, and build value at all points through the year. Looking ahead, we believe we are well-positioned to continue to win with customers, drive growth in our high-quality insured portfolio, maintain the right risk-return balance, and deliver strong results for our shareholders. Thank you for joining us today. I'll now ask the operator to come back on so we can take your questions. Thank you. At this time, I would like to inform everyone, in order to ask a question, please press star one on your telephone keypad. Again, that is star one to ask a question. We have your first question from Mark DeVries from Barclays. Your line is open. Yeah, thank you. You've obviously built a pretty large excess capital position, and it's looking like the worst case scenario we've been bracing for won't come to pass. As you've indicated, you're pretty optimistic about the outlook for continued improvement in credit. Could you just talk about how you're thinking about deploying all the excess capital here? Sure. Mark, our goal is to deploy the capital in support of growth in our business. That's our expectation as we look forward in the near term. Over the long term, we'll have greater focus on opportunities for distribution and thinking about the right balance of capital, out over several years. In the near term, it's really geared around deploying that capital in support of borrowers in this market. The NIW opportunity, as Claudia mentioned, continues in a meaningful way as we've started 2021. The return potential on new business production, the expectations around stickiness and performance, given the profile of the borrowers who are coming through now, is quite significant. That's our primary focus, is using that capital to support growth at this point. Okay. Just on that return potential, I think the industry obviously raised pricing as a result of the anticipated stress from the pandemic. It looks like credit's holding up much better, and yet it seems like pricing is kind of holding. What should we expect for the returns on the business you guys have written in 2020? Yeah. I'd say when we price, right, we price obviously not just for a base case outcome, but we price to account for the range of potential volatile paths that the market might take and that risk might take. The increase in pricing certainly reflected an increase in perceived macro risk and risk in a base case environment. It was also to acknowledge that there was a much greater, what I'll call, dispersion of potential outcomes, greater volatility in those outcomes that we might see ahead. It's still really early, right? We're now just in February 15th. It's too early to be able to tell if the returns on the business that we've generated over the last year will meaningfully differ, either positive or negative, from the price expectation. When we price our business, our goal is to achieve an appropriate risk-adjusted return that generally centers around a strong mid-teens risk-adjusted return. That's still our expectation for the performance of the business that we generated last year. Okay. Is it safe to say that at least based on what you're observing, that credit may be performing better and that maybe returns could come in towards the higher end of the range of potential outcomes? It's too early to tell. I think you're spot on, though. If credit ends up performing better than the priced expectation, the returns will be far better than what we had originally anticipated. We knew pretty early on that the credit environment, in terms of the profile of new borrowers that were coming through, had shifted meaningfully stronger. That also does factor into what our original loss expectations were. Right now, we're still expecting that the performance will be in line with those priced expectations. Okay, got it. Thank you. We have your next question from Rick Shane from JPMorgan. Your line is open. Hey, guys. Thanks for taking my questions this morning, or this afternoon. One of the things that we've heard related to our coverage of the mortgage rates is some conversation about early signs of burnout in terms of refi activity. When you guys are looking at the NMI reports, are you seeing that in any way? Are there any leading indicators that suggest that persistency may be reaching inflection? It's a good question, Rick. We're not necessarily seeing that come through in the data that, and performance of the portfolio day to day. Remember, our persistency dynamic, though, is a little bit different. It's not measuring, I'll call it, the turn in the portfolio day in and day out. The 12-month persistency stat that we provide, the 56% that we reported for the fourth quarter, is really a 12-month look back. For us, that's what percentage of the business that was on our books as of 12/31/2019 was there as of 12/31/2020. Our persistency dynamic we expect will improve as we progress through this year, even if the pace of turnover in those, what I'll call them, earlier book years doesn't slow down, simply because we'll be bringing on amounts of production that we generated in 2020 in the lower note rate environment into the calculus. Our dynamic will be a little bit different, even if we don't see a slowdown in the rate of turnover in some pockets of the portfolio. Got it. I understand that math, and I appreciate why you guys look at it that way. When we look at it on a sort of a quarterly basis, and obviously the 2016 and 2017, and to a lesser the 2018 vintages are burning off relatively fast, and that makes sense given where the coupons are. Are you, on a monthly basis, seeing any inflection there? No. Candidly, when we've looked at it, so when we've modeled out where our persistency is going, we've made the assumption, same way we would do if we're trying to forecast value or stock price, that yesterday's performance is the best indicator of tomorrow's performance. We've assumed that persistency rates will continue, and the turnover rates on those chunks of the portfolio that are ripest for refinancing will continue at the exact same pace that we've seen in most recent periods. The turnover in December was generally consistent with the turnover in November, which was generally consistent with the turnover in October, all at a very accelerated rate. Got it. Hey, Adam, thank you very much. Welcome. We have your next question from Doug Harter from Credit Suisse. Your line is open. Thanks. Can you guys just talk about how you're thinking about your capital level? Your PMIERs excess is quite strong. How much do you think you need to support growth in the coming year, versus do you think you might be in a position to think about capital return? Yeah. Great question. We certainly, right now, the capital that we have is there. It gives us, one, an ability to obviously prosecute what's a tremendously attractive new business opportunity and really lean in to support our lenders and their borrowers, which is what we've been doing. We do have expectations that we will be deploying the excess capital that we have now through the course of the year. Obviously, we'll continue to replenish excess capital as we're generating earnings and equitizing our balance sheet every day. We do have expectations that we'll continue to be active in the ILN market through the course of the year. For 2021, we don't have any plans to be a capital distributor. I think over the long term, we'll need to see, one, what our profitability is, how much equity we're generating in excess capital, we're generating organically, what the size of the new business opportunity is as we get further out, down the road, and also how credit is performing. This is a tremendously strong and resilient environment from a housing market standpoint. We'll want to see how all of those items develop beyond this year, to really calibrate our plans for capital management and potential capital distribution. Great. Thank you, Adam. We have your next question from Randy Binner from B. Riley. Your line's open. Hi, good evening. Yeah, could you all address, if there's one topic I've spent the most time talking about with clients on MIs is the hypothetical concern around FHA mortgage insurance price cuts. It's something we've talked about a lot over time, and it's probably a reasonable thing to think about with a new administration. Now that we're kind of in a forum where you can talk more broadly, I'd just like to hear your perspective on that issue. Yeah, sure, Randy. It's a good question, and it's an important one. Broadly speaking, we price to achieve what we believe are appropriate risk-adjusted returns, and our view on appropriate risk-adjusted returns isn't influenced by FHA pricing. It's also important to recognize that the private MI market, and NMI in particular, we operate at a different point on the risk spectrum than where the FHA sits. This bifurcation of the market, where certain borrowers are best served by the private market execution and others by the public market, that's grown even more since COVID with a further shift in the quality. If an FHA rate cut were to come through, we expect that the significant majority of the borrowers we serve today will continue to find their best execution in the private market. Thank you for that. The follow-up would be, you mentioned there's been a change since COVID, but even thinking back to maybe 2015, how much different is the overlap of the PMI versus the FHA market now versus then? Yeah. The overlap, you mean as far as the credit scenario? I would say there's less overlap today than 2015, obviously, with the credit shift. I don't have any exact numbers there, Randy. Certainly it is morph more and more to higher quality coming into the private sector. All right. I'll leave it there. Thank you. Sure. We have your next question from Bose George from KBW. Your line's open. Hey. Good afternoon. The first question, Brad referred to that three-month FHFA extension for borrowers who are in forbearance by February 28th. Could you clarify your understanding of the deadline for new GSE forbearances? The announcement last week did not seem to directly address that. Yeah. It's an interesting point, Bose. I'll call it, there's a favorable dynamic there that's not perfectly overlapped with some of the other programs. Our understanding and read of last week's announcement is that any borrower who enters a GSE forbearance program by February 28th will have up to 15 months to run under that program, obviously, depending on their hardship and the conversations they have with servicers. That after February 28th, borrowers can still access forbearance if they have a GSE-backed loan for an indeterminate amount of time. There's no end date on when they can access. If you access after February 28th, instead of having 15 months to run, you will have 12 months to run on that forbearance program. Okay. That makes sense. Actually, yeah, that was our understanding as well, so that's good to hear. Switching over to premiums. In terms of premiums, is there a way to think about how much downward pressure is left just on the core margin, especially in light of the business that you're doing, which is obviously extremely high quality? Yeah. Okay. I would say that, I want to give you a general steer. It's going to fluctuate, in every period, obviously, based on the volume that we have, the risk profile of that production, importantly, the persistency, and also our loss experience because it impacts our profit commission. When we price, what we're really pricing to achieve is bottom-line results, bottom-line growth and that strong mid-teens return. Through the year, to try to give you a general steer without specific guidance, we do expect that our net yield will trend down from our Q4 level as we progress through 2021, given the continued pace of turnover in the in-force portfolio, and really the difference in the risk profile and rates on our current production versus that which is running off. We also expect to pick up some additional ceded premium costs through the course of the year to the extent we're active in the ILN market. We do expect to see some continued movement on the yield side through the year. Okay, great. That's helpful. Thanks. Actually, just a quick one on credit. I don't think you gave the default to claim assumption, if not, we get that. Actually just on the paid claims currently, since foreclosures are on hold, I'm just curious what effect you think there is on paid claims? Hey, Bose, I'm sorry. I heard the first part of the question, so I'll answer it, but then I'll ask you to repeat the second part. I'm not sure if our line broke up or yours did, but the claim rate assumption on new notices in the fourth quarter was approximately 7%, which is consistent with the claim rate assumption that we've made on new notices in both the second and the third quarter. Would you mind repeating the second part of your question, though? Yeah, sure. Yes. I was just curious what was triggering paid claims currently. It's obviously a small number, but just given that there's a foreclosure moratorium, just curious how a loan gets to a paid claim status. Yeah. The overwhelming majority of loans that are in default that progress to claim progress through the foreclosure process. That's the process by which the servicer and lender takes title. There are other mechanisms for the servicer to take title to the property. It could be a short sale, it could be something called a deed in lieu, and we saw very, very limited amounts of activity on those two pieces, which are really what I would say is, those are not imposed on the borrower. Those are done in coordination with the borrower as part of their own workout process and the thinking of what lies ahead after exiting from a home that may not be sustainable for them. Okay, great. Thanks. We have your next question from Jack Micenko from SIG. Your line is open. Hi, good afternoon, everybody. First question. We've talked about pricing, and I know the industry raised prices pretty prudently at the beginning of the onset of the pandemic. It sounds like it was maybe sort of a 10%, sort of on average across the board, certainly maybe higher at different buckets. What's your perspective on where pricing stands there? Are we kind of flat? Have we held that level? Has the industry come in a bit on price from that initial move three, four quarters ago? Yeah. Jack, in terms of, I'll call it how much higher is pricing today, so to speak, we've been protective of the rate increases that we had put in place following the onset of the COVID pandemic and are still achieving pricing that is higher today than it was prior to the onset, to the outbreak of the virus. We think that's appropriate, right? As I mentioned earlier, pricing isn't just about pricing for the base case, but it's pricing for the dispersion of potential outcomes that might develop. We're still early days, right? I think we're all hopeful. We're all feeling better. We're seeing vaccines rolling out. We're seeing the resilience of the housing market, the strength, or at least the rebound in the macro environment. There's still a lot of uncertainty that lies ahead. For us, we've been protective of those rate increases in a way that we think is both appropriate, but also highly supportive of borrowers. If you look at where mortgage note rates are today and where our pricing is, we don't believe that there's a single borrower out there who isn't able to access credit because of the cost of MI coverage. We've been really working to find that balance, and that balance for us is really much the same as it was since the early onset of the COVID pandemic. Okay, got it. Thinking about your model, you tend to skew towards the higher end on FICO and the lower end on LTV. Looking at your NIW chart this quarter, though, it does seem like you've maybe taken on a little bit more of a risk appetite, and I'm just curious if that was something where you saw the returns relatively attractive in the context of the prior question around pricing or if you've become, Claudia, you both were pretty optimistic in your prepared comments on the outlook. Just thinking through the thought process behind some of that shift we saw in NIW this quarter? Yeah. It's by design, Jack. It's a good point to note. At the outset of the pandemic, we looked to broadly rein in what for us had already been really a low level of production in certain higher risk cohorts, that below 680 FICO, greater than 45 DTI, and the 97 LTV volume. Through the course of the pandemic, what's become clear is that borrowers who are facing stress are dealing with income issues, not equity issues. That comes through in a notable difference beyond what we would have already expected based on historical data in loss expectations for high LTV borrowers versus high DTI and lower FICO borrowers. As the macro environment has recovered, as the housing market has demonstrated such significant resiliency, we've had an opportunity to, by design, prudently layer in some additional risk into our production and our portfolio. In doing that, the natural spot is with a modest amount of additional high LTV volume. I would note that overall, the risk profile on our new production is still dramatically lower today than it was pre-COVID. Our concentration of 97 LTV loans now looks to be roughly in line with the rest of the industry, certainly not above it. Most importantly, we remain just as focused on managing layered risk, of which I think we had in the quarter something like 10 basis points of layered risk concentration in our production, which was the same as in the third quarter. It was by design. It's based on some dynamics that we're observing as the pandemic moves on and as we have greater clarity around its impact on the housing market. It's an area we're still going to be cautious. We don't want to have an outsized concentration, certainly. All right, great. Thanks. Thanks, Jack. We have your next question from Giuliano Bologna from Compass Point. Your line is open. Thanks for taking my questions. I guess continuing on a similar topic that's come up a few times, but with a little bit of a different angle. When we think about the overlap that you currently have with FHA. One of the things that has come up in a few different conversations that I've been having is the impact of a potential $15,000 first-time homebuyer credit. What I was trying to get a sense of was when we think about the overlap and where your businesses overlap, is it more so on the scale of lower FICO or is it more so on the scale of higher LTVs that push people out of your market? That could obviously have an LTV benefit to a lot of people that are currently predisposed to be in more of an FHA bucket from a cost perspective and might push them towards PMI in some cases. Obviously, the funnel moves both ways. I'd be curious how that overlap might impact the industry. Yeah. That's one where I would say there's not a lot of information around how it would work mechanically in the public domain, also how long. That program, perhaps different from some others, is typically implemented for a specified window. Both how it's actually structured mechanically, how you get cash to borrowers upfront, and how long the program is in effect for will impact that. I think your instinct, though, is right, that it's not all just a negative. Broadly speaking, there were some questions earlier about possibility of FHA rate actions, now about the $15,000 tax credit. Our view is that all of these programs are really designed to increase access to housing for segments of the market that haven't yet been able to take advantage of and access the benefits of housing thus far. It's really designed to bring more buyers into the market with new demand and new origination dollars. Some of that, there may be a little bit of a reallocation of a pie for those borrowers who are already in the market between our market and perhaps not needing MI support broadly between the FHA now looking as though they have a better profile with a lower LTV coming into our market. The biggest piece for us is we think all of these programs and support that's offered for new buyers will really just expand the pie. It's not just going to be a reallocation of the pie. To give you a sense, our average loan size that we're insuring at this point is roughly $300,000. $15,000 is 5%. That 5%, when our weighted average LTV at origination is 92, doesn't move that borrower out of the private MI market. What it might do is obviously change their risk profile. As you noted, it could drag some buyers who would otherwise be shifted to the FHA with perhaps a higher LTV profile into a credit profile where they can be best served by the private market. That makes a lot of sense. I really appreciate it. I'll jump back in the queue. We have your next question from Ryan Gilbert from BTIG. Your line's open. Hi. Thanks, everyone. First question just on NIW. I think you mentioned in the prepared remarks that you haven't seen a seasonal slowdown in demand, and that's carried into January. I guess, is it fair to say that dollar volume of NIW in one Q21's tracking consistent with the fourth quarter of 2020? We've continued to see really strong application volume midway through the quarter. It's still a little early to tell how Q1 will unfold and how much of that seasonal slowdown ultimately comes through. You're right, we haven't seen it so far. Remember too, the drivers of the demand that we've seen post-COVID are not seasonal in nature. The emotional drive towards homeownership and the increased affordability tied to low rates should persist regardless of the weather. We'll see. This is an unprecedented environment, and it may yield a stronger origination both in Q1 and beyond than we would otherwise typically have. We feel really strong about our momentum and positive about our future with our record volume that we delivered in the fourth quarter. Okay, great. Just thinking about the refi component of NIW, another really strong quarter in 4Q 2020. Has there been any change in 2021 in your ability to capture stronger refi volume, or has that been also pretty consistent with 2020? That one I'm going to defer on. I don't have our breakdown. We were 66% purchase, so 34% refi in Q4. I don't have the breakdown at my fingertips, but broadly speaking, we're having success in the market supporting our borrowers. We expect and suspect that our borrowers are equally busy from a refi sampling as they are from a purchase standpoint. We'll provide those splits when we get to our first quarter call. The momentum is there. Okay, great. Thanks very much. Welcome. We have your next question from Mark Hughes from Truist. Your line's open. Yeah, thank you. Good afternoon. Adam, another way to approach the capital situation. Is there a way to say what sort of growth you could support internally with the internally generated capital with your quota share and ILN support? What kind of growth would you need in order to start to eat into that excess capital? Yeah. It's a good thought. As a theoretical matter, we could support 100% of our needs in that fashion because that would be all of our excess today, plus an assumption that everything we're producing is going to go through a reinsurance transaction. For us, obviously, not necessarily 100% of our business goes through where we make that assumption at all times. We have to obviously keep a prudential amount of excess. We also have to be able to warehouse the production that we are generating until we get to that point of distribution with our next ILN, and that's a more difficult one to calibrate. I think it's fair to say that for us this year, we have every expectation that we'll be able to deploy our excess in support of borrowers, in support of our customers, and really ultimately in a way that helps to seed our future financial results by generating significant additional growth in our insured portfolio. As we get out beyond 2021, some of those dynamics around distribution versus deployment versus organic generation and what we can harvest from the market may come into more acute focus, but that's not going to be our opportunity in 2021. Your opportunity to deploy much or all of that excess, you think you can do that in 12 months? I'll give you a sense. I don't have the numbers at my fingertips, but our PMIERs charge on our production in the fourth quarter was a little over 5.5%. We wrote $19.8 billion of NIW, and we had, at the time, roughly a 20% quota share agreement in place, a 21% quota share agreement in place. I'd want to do the math, if you just took the fourth quarter and rolled that forward as a constant amount of production with a roughly equivalent PMIERs charge, you could get to a timeline. I think that puts us on a pathway of consuming that amount of excess over something like a 10-month period or so. We could do a bit more math on it and a little bit more analysis and come back to you. No, it's good. Very helpful. Thank you. You mentioned that your losses are predicated, you think, on a conservative home price appreciation number. Can you share what that is? We'll share what the specific number is. It's not a constant. For us, assumptions about house prices and the path they take because losses develop even on the current default population develop over time. Suffice it to say, what I'll call it, quite a muted number, well below long-term historical averages in terms of what we tend to see on an annual basis for house price growth nationally. Right, which would be well below current home price appreciation. Yes. Presumably. That's right. Okay. Thank you very much. We have your next question from Phil Stefano from Deutsche Bank. Your line's open. Yeah, thanks, good afternoon. Adam, I think in your prepared remarks, you had talked about the percentage of your total inventory of policies in force that were in forbearance. I was hoping you could drill down to the extent that you could and talk about the proportions of the default inventory that were in forbearance. I think at your November investor day, you had a slide in there that indicated only about 1% of the loans that were exiting forbearance were doing so in a stress scenario. If you have any updated thoughts on how that's kind of changed in the four or five months since that slide was presented, I'd appreciate it. Sure. Of the 12,209 defaults that we recorded, the default population at the end of December, I've got to get you the exact number. It was, I think, 11,200, roughly, were in forbearance. There's another chunk of that remaining 1,000 or so that we suspect are in forbearance, but the way the reporting comes into us from servicers isn't quite as precise. Out of an abundance of caution, we scope that out. We're looking right now at something over 90% in terms of the default population that's in forbearance. The largest chunk of those that are not in forbearance are what I'll call them the pre-COVID defaults. Those that were in the default tally from the end of last year, early this year, that having stewarded out, but haven't necessarily accessed forbearance to the same degree that the post-COVID stressed borrowers have. Phil, if you wouldn't mind just repeating the second part of the question. Yeah. The investor day, there was the 1% of people who were exiting forbearance in a stress scenario. Does it feel like that number has shifted at all? Or is that generally, people when they exit forbearance, they're doing so not in a stressed environment? Yes. I want to be a bit careful. I want to go back and look at that slide. The overwhelming majority of borrowers that are exiting forbearance continue to exit forbearance back into performing status and not progressing towards a claim at this point. The split in terms of how borrowers are exiting from forbearance, many continue, actually, the majority continue to simply make up for all of the missed payments thus far. Another chunk, the next largest cohort, would be those who are taking advantage of the payment deferral option that the GSE has introduced in May. Got it. Okay. The last one I have for you, I think it was Adam that had talked about the revised assumptions during the quarter when setting reserves. The 7% incidence rate assumption feels like it's relatively a constant, I guess what you're trying to point to with these revised assumptions is the favorable development that we saw in the quarter. I guess I was hoping you could just talk to me about, look, is it as simple as home price appreciation and the expectation of vaccinations and economic development that we're going to slowly start to release some of this pool of reserves, or is there anything else that's maybe not as simplistic? Yes. We didn't release reserves on any COVID-related defaults that we've identified in the portfolio. The prior year development that came through of roughly $2.2 million in the quarter relates entirely to the pre-COVID default population. That population we've continued to reserve all along, exactly as we had done prior to the outset of the pandemic. What I mean there is, as those defaults age or cure, we're making corresponding adjustments to our carried reserves. As house prices develop, it's the latest actual appreciation that comes into our analysis. That pre-COVID population declined from 883 defaults as September 30th to 795 at December 31st. The reason that we had that $2.2 million of favorable prior year development is because of the decline in the count alongside the strength in HPA, not that we are forecasting, but the strength in HPA that we've actually seen over the last several months has driven the release. We haven't released reserves, even as cures have come through in a meaningful way, for any of the COVID-related defaults that we've already reserved for, say, in the second and third quarter. Okay, good. Thank you. We have your next question from Geoffrey Dunn from Dowling & Partners. Your line's open. Thanks. Good evening. Got a few questions for you. First, was there any IBNR development in the current period provision this quarter? No, our IBNR factor was constant from the third quarter to the fourth quarter. Any movement in the case reserves would've prompted a modest movement in the IBNR, but nothing like the changes that we noted from the second to the third quarter. Okay. Based on the average provision, it looks like your severity factor dropped significantly. I'm backing into maybe about $35,000 relative to maybe north of $50 last quarter. Is that math correct, and can you explain the change? It isn't. We'll talk offline, but our average severity factor on new defaults in Q3 was about 77%. In Q4, it was about 74%. There's some movement, and that movement traces one, to just what was the LTV on the loans that happened to go into default during the course of the quarter, as well as the strength of the HPA environment. Not again, that we're forecasting, but the HPA environment that we've actually seen develop over the last three months. Jeff, happy to work with you offline, just to make sure that we're seeing the same analysis you are and helping you understand it. What I'd say is more broadly, when we look at severity factors, one of the things that we're most comforted by is obviously the level of equity that's embedded, not just in the overall portfolio, but specifically in the default population. At the end of the year, 94% of our default population had at least 10% equity, on an estimated basis, our estimate of the current LTV. 75% had at least 15% equity underpinning their mortgage. That obviously goes a long way towards bolstering that borrower's performance, and in the event that they do progress a claim from providing us with some amount and an ability to curtail our claims exposure as a severity matter. Okay. As you think about the incidence assumption, my assumption has been that the incidence rates would go up at all the MIs as the percent of forbearance loans with the new delinquencies coming in, goes down. If that is the trend in the coming year and there's no macro change on your part, is it fair that that incidence assumption go up, or are there other things we need to consider as we look at that outlook? This is one where I do want to highlight, we're very happy to talk about the claim rate assumption, what we call a frequency factor internally, in the aggregate. That's not how we develop it. We don't just apply a blanket 7% assumption for all new notices that come in in a particular quarter or whatever the claim rate we would be disclosing at that point. It's very much developed based on the individual profile of the loan, the borrower, and expectations for performance on a modeled basis. Every single one of those 2,589 new defaults that came through in the quarter went through our risk model, got its own frequency factor, and it just happens to be that the average continues to run at 7%. Where that number trends in the future will depend greatly on both the macro environments in which we're incurring new defaults, but also the underlying risk profile of those defaulted borrowers. Okay. Last question. I think you mentioned the average PMIERs asset charge on NIW in Q4 is about five and a half. Roughly speaking, what's the average charge on runoff or canceled business? Jeff, I don't have it at my fingertips. Happy to come back to you with it. The charge on our production prior to the onset of COVID, from a new business standpoint, in the fourth quarter of 2019, was running at about 6.1%. The carry charge on that in-force portfolio, even though it was originated with higher risk characteristics and so therefore a higher risk charge, will itself have benefited from seasoning credit. Sorry, I don't have it at my fingertips, but happy to come back to you with it. Okay, great. Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to management. Please continue. Thank you again for joining us. We will be participating in virtual investor conferences hosted by Credit Suisse on February 25th, AFA on March 1st, and RBC on March 9th. We will also be participating in a JPMorgan Fixed Income conference on March 2nd. We look forward to speaking with you at one of these events and hope all of you are staying safe and healthy. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.