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MGIC Investment Corp  (NYSE:MTG)
Q4 2018 Earnings Conference Call
Jan. 17, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Mary and I will be your conference operator for today. At this time, I would like to welcome everyone to the MGIC Investment Corporation Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

It is now my pleasure to introduce your host for today, Mike Zimmerman, Senior Vice President of Investor Relations. You may begin your conference.

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

Thanks, Mary. 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 fourth quarter of 2018 are Chief Executive Officer, Pat Sinks; Chief Financial Officer, Tim Mattke; and Chief Risk Officer, Steve Mackey. I want to remind all participants that our earnings release of this morning, which may be accessed on MGIC's website which is located at mtg.mgic.com under Newsroom, includes additional information about the company's quarterly results that will -- we will refer to during the call and includes certain non-GAAP financial measures. We have posted on our website a presentation that contains information pertaining to our risk in force and new insurance written and other information we think you will find valuable.

During the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about those factors that could cause actual results to differ materially from those discussed in the call are contained in the Form 8-K that was filed earlier this morning. If the company makes any forward-looking statements, we are not undertaking 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 anytime other than the time of this call or the issuance of the Form 8-K.

At this time, I'd like to turn the call over to Pat.

Patrick Sinks -- Chief Executive Officer

Thanks, Mike, and good morning. I'm pleased to report that we had another strong quarter of financial results and are in an excellent position to continue to serve our customers while creating shareholder value in 2019. In a few minutes Tim will cover the details of the financial results, but before he does, let me make a few comments. The quarterly financial results reflect the very low credit losses of our post-2008 business and the favorable operating environment we are experiencing, especially as it relates to employment, wage growth, and housing demand. The main driver of our future revenue, our insurance in force, grew nearly 8% over the last 12 months ending the quarter at $209.7 billion. The increase was driven by our 2018 new insurance written and the higher annual persistency associated with our prior business.

The business we have written since 2008 has very strong credit characteristics and is expected to generate meaningful returns for shareholders even if we experience a moderate economic downturn in the future. I have previously said that the biggest near-term challenges to the size of the mortgage origination market and therefore the volume of business we will insure are rising interest rates and lack of housing inventory. Well, mortgage rates have actually remained attractive and there is an increasing supply of homes coming to the market. So while many are predicting a slowdown in housing, I remain optimistic because consumers continue to feel confident about their future economic prospects and I feel very good about our ability to serve our customers given our capital strength and position in the market.

Moving on to credit for a moment, performance continues to be outstanding. Our inventory of delinquency notices declined sequentially and year-over-year and is now at a level not seen since the mid 1990s. Further, after adjusting for the impact of the hurricanes of 2017, the number of new delinquency notices received during the quarter declined on a year-over-year basis. The strong credit performance continues to be a tailwind for our financial results. Before I turn it over to Tim, I know many of you have questions about the competitive dynamics within the industry. When it comes to competing in the market, our strategy is fairly straightforward. We want to remain a relevant business partner with our customers in order -- in order to prudently grow insurance in force, generate long-term premium flows, and create book value growth for our shareholders.

Recently, more competitors have introduced pricing engines that use a number -- a greater number of loan-level characteristics to determine premium rates than the traditional rate card. We have also just begun to deploy our own pricing engine called MIQ. MIQ allows a more granular approach to risk-based pricing, which assists in managing risk and shaping the insured portfolio. However, we know that one approach to pricing does not work for all customers. So, customers that prefer to use a rate card approach may continue to do so. In terms of broad market adoption of MIQ, we expect it to be customer-driven but I believe that will increase over the course of 2019.

With that, let me turn it over to Tim.

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Thanks, Pat. In the fourth quarter we earned $157.7 million of net income or $0.43 per diluted share compared to $27.3 million or $0.07 per diluted share in the same period last year. The significant increase reflects the reduction to our deferred tax asset in the fourth quarter of 2017 that resulted from the 2017 Tax Law change. To provide better insight into our operating results and to make year-over-year comparisons of the finance results more meaningful, we disclose adjusted net operating income, a non-GAAP measure. A reconciliation of GAAP net income to adjusted net operating income is included in the body of the press release. In the fourth quarter, our adjusted net operating income per diluted share was roughly flat at $0.42 compared to $0.43 in the fourth quarter of 2017 resulting from increases in some areas and decreases in others.

Premiums earned increased due to higher average insurance in force as well as a higher profit commission from our quota share reinsurance transactions, partly offset by a lower effective premium rate. Additionally, in the fourth quarter of 2017, the 90 million shares associated with the 9% convertible junior subordinated debentures were not included as they were anti-dilutive. The shares are included in the fourth quarter 2018 calculation. Losses incurred were $28 million compared to a negative $31 million for the same period last year. Losses incurred consist of reserves established on new delinquent notices plus changes to previously established loss reserves. During the fourth quarter of 2018, there was a $22 million reduction in losses incurred due to changes in previously established loss reserves before reinsurance compared to a reduction of $103 million in the fourth quarter of 2017.

As we do each quarter, we review the performance of the delinquent inventory to determine what, if any, changes should be made to the estimated claim rate and severity factors of previously received notices. We continue to experience a favorable credit cycle. The positive development was driven by higher than expected cure rates and delinquencies that are aged 12 months or greater. During the quarter, we received 38% fewer new delinquency notices than we did in the same period last year. Much of the decrease was due to the high number of notices we received in the fourth quarter of 2017 that resulted from various hurricanes. The claim rate on new notices received in the fourth quarter of 2018 was approximately 9%, which reflects the current economic environment and anticipated cures and compares to 10% excluding the hurricane impact in the same quarter last year and was flat to the 9% we used last quarter.

New delinquency notices received from the legacy book represent the majority of new notices received in the quarter. The new books account for just 33% of the new delinquency notices, but account for approximately 84% of the risk in force as of December 31st, 2018. The relatively low delinquency activity from the larger more recently written books reflects their high credit quality as well as economic condition. While continuing to diminish in number, we expect that the legacy books will continue to be the primary source of new notice activity in the coming quarters. Reflecting the smaller delinquency inventory, the number of claims received in the quarter declined 22% from the same period last year. Net paid claims in the fourth quarter were $75 million. The effective average premium yield for the fourth quarter of 2018 was 47.3 basis points.

The effective yield was lower sequentially for a variety of reasons, including changes on losses ceded to reinsurers, changes in the recognition of premiums on single premium policies, changes in premium refund accruals. and premiums ceded connected to the recent ILN transaction. While there could be some volatility, we expect that the effective premium yield will trend lower in future periods. This decline is expected mainly because the older books of business written at higher premium rates continue to run off and replace the new books of business written at lower premium rates. Net underwriting and other expenses were $50 million in the fourth quarter of 2018 compared to $44 million in the same period last year. The increase in expenses was primarily due to compensation, including stock-based compensation which reflects the stock price as of the grant date and changes to our non-executive compensation as well as other expenses.

We expect that in 2019, expenses before reinsurance will be flat to 2018. The effective tax rate for the quarter was 19% compared to 89% in the fourth quarter of 2017. The fourth quarter 2017 effective tax rate was materially impacted by the change in the tax code that resulted in a revaluation of our deferred tax assets. We expect that the effective tax rate going forward would be 21% as this quarter included a true-up related to our IRS litigation. As we reported in the press release, during the quarter MGIC paid a $60 million dividend to the holding company and for the full year paid $220 million to the holding company. The dividend payment reflects the fact that MGIC is generating meaningful capital and that we expect to be able to be continuing to do so for the foreseeable future.

We expect the dividend of at least this quarter's level will continue to be paid to the holding company on a quarterly basis subject to the approval of our board. As a reminder, before paying any dividends, we notify the OCI to ensure it does not object to any dividends paid from MGIC. At quarter-end, our consolidated cash and investments totaled $5.3 billion, including $248 million of cash and investments at the holding company. The consolidated investment portfolio had a mix of 78% taxable and 22% tax exempt securities, a pre-tax yield of 3.09%, and has a duration of 4.1 years. Our debt to total capital ratio was approximately 19% at the end of the fourth quarter of 2018. At the end of the fourth quarter, using PMIERs 1.0, MGIC's available assets totaled approximately $4.8 billion resulting in a $1.4 billion excess over the required assets.

If PMIERs 2.0 were effective, the excess would have been $1 billion, a 26% excess over the required assets. Now that PMIERs 2.0, which is effective March 31st, 2019, is finalized, we are in process of determining what level of excess would be appropriate on a going-forward basis. At the end of the fourth quarter, MGIC's statutory capital is $2.6 billion in excess of the state requirement. Next, I want to spend a few minutes discussing our capital position and how we think about allocating capital. We utilized an additional $75 million of the share repurchase authorization in the fourth quarter and repurchased nearly 7 million shares at an average cost of $11.06. For the full year, we repurchased nearly $60 million -- 60 million shares at an average cost of $10.95. We have $25 million remaining under our share repurchase program that does not expire until the end of 2019. I would expect us to continue to be opportunistic in utilizing the remaining authorization.

Regarding the appropriate level of excess to PMIERs, it is difficult to actively manage to a specific target given the regulatory requirements for paying dividend. Some level of excess provides a nice buffer against adverse economic scenarios as well as the potential for additional capital requirements from the GSEs should they occur in the future. When we discuss strategy to allocate and utilize the capital that exists at the writing company, we first estimate how much capital is needed to support the new business that is being written. We have also started to become modestly more active with the GSE risk transfer transactions that require capital support and we expect to remain active in this area provided the returns meet our thresholds. Of course, we are also sending dividends now at a $240 million annual run rate to the holding company.

So when you take a step back and think about the existing uses of capital to new business and existing level of dividends, they account for the substantial majority of capital that's being created annually at the writing company. We do have periodic options to adjust the level of quota share reinsurance we utilize, which could impact the amounts of excess, but the level of reinsurance we have today creates the level of excess we do have plus it also helps with our dividend capacity. In addition, since PMIERs is more restricted than the state capital standards, we believe having an excess not unlike reinsurance is beneficial to our dividend paying discussions with the OCI. We will continue to analyze and discuss with the board the best options to deploy capital that maximizes long-term shareholder value.

Finally, as Pat referenced, if we experience a moderate economic downturn that began today; we'd expect to continue to be profitable, increase book value, and maintain an excess over the PMIERs 2.0 minimum required assets. We arrive at that expectation based on our current internal modeling of the existing book of business that's based on modified 2017 CCAR adverse scenario that make certain assumptions, including among other items, a 10% decline in home prices and an unemployment rising to approximately 7%, and that incorporates our existing quota sharing insurance treaties and insurance like no transactions.

With that, let me turn it back to Pat.

Patrick Sinks -- Chief Executive Officer

Thanks, Tim. Before moving to questions, let me give a quick update on the regulatory and political fronts. Regarding housing finance reform, we remain optimistic about the future role that our company and industry can have, but it continues to be very difficult to gauge what actions may be taken and the timing of any such actions. We continue to be actively engaged on this topic in Washington. A new FHFA Director, Mark Calabria, has been nominated but needs to be confirmed. Meanwhile, Joe Otting of the OCC will be the acting FHFA director. Exactly what will unfold and how the role of the GSEs and private capital play out remains to be seen, but we are encouraged that both Calabria and Otting see the private sector as part of the solution for transferring credit risk away from taxpayers.

Regarding the FHA, we continue to think that it is unlikely that they will reduce their MI premiums and that the primary focus of the FHA is on improving the operational policies and procedures in the reverse mortgage business. With respect to the pilot programs that Freddie and Fannie have introduced, based on our discussions with lenders, the interest in these programs continues to be modest. We will continue to monitor these initiatives, but currently they do not materially change our forecast for NIW or insurance in force growth in 2019. We are aware of the issues that face our company, whether they are legislative, competitive, or credit-related; and are actively working on them.

While we don't know exactly how these issues will or will not impact our future, we do believe that currently we are writing high quality new business in what is expected to be a low loss environment and that this business is being added to a book of business that itself is performing exceptionally well and we are generating significant shareholder value which we expect to continue for some time. Our company and industry offers many solutions and a great value proposition for lenders and consumers to overcome the Number 1 barrier to homeownership, the down payment. And despite a lot of media coverage, to the contrary, mortgage credit is available and remains affordable for many consumers. I believe that our company is well positioned to acquire and manage mortgage credit risk in a variety of forms supported by a robust capital structure that includes our strong balance sheet and, where appropriate, reinsurance treaties and the capital markets.

We accomplished a great deal in 2018. We grew our insurance in force by more than 7%, investment income increased, and in a smaller overall origination mortgage market we wrote nearly 3% more business. We repurchased more than 4% of our common stock outstanding, executed an insurance-linked note transaction that reduces potential future earnings' volatility, decreased our debt ratios, received an A minus rating from A.M. Best for the main operating subsidiaries, and increased dividends to our holding company to $220 million. In 2019 I expect that our insurance in force will continue to grow due to the level of new business we expect to write and strong persistency. Further, I anticipate that the number of new mortgage delinquency notices, claims paid, and delinquency inventory will continue to decline.

I continue to believe that there is a greater role for us to play in providing increased access to credit for consumers and reducing GSE credit risk while generating good returns for shareholders and we remain committed to pursuing those opportunities. That is why when I look ahead, I'm very excited and confident about the future for MGIC.

With that, operator, let's take questions.

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

Mary, we're ready for questions now.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from the line of Chris Gamiatoni from Compass Point. Your line is now open.

Chris Gamiatoni -- Compass Point -- Analyst

Good morning, guys. Thanks for taking my call. Just to clarify on the capital statement. Is it -- is there any reason not to believe that you could buy back at least at the level that you receive dividends from the subsidiary?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Chris, this is Tim. I mean, I think we weigh a number of factors, including what other needs are at the holding company. So, I don't want to say that we would buy at at least that level. Obviously this last year we looked to be opportunistic and we thought we had cash at the holding company to be able to utilize for that. But I wouldn't go as far as saying that we would be able to buy at at least that level. It depends upon price, it depends upon other factors as well.

Chris Gamiatoni -- Compass Point -- Analyst

Okay. And when do you anticipate being able to get normal dividends out of the subsidiary when the constituencies are built back up to a sufficient level?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Yes. I think from a run rate basis, Chris, I mean, part of it is I think the ordinary dividends would be at a lesser level than we have right now. And so there's always that sort of discussion with the regulator as to what part is ordinary, what part would be extraordinary. But I think the way you sort of phrased it, until the constituencies are fully built, there still is some headwind as far as getting ordinary dividends at sort of a good run rate. And so, we still have a few years to go before that's fully built.

Chris Gamiatoni -- Compass Point -- Analyst

Okay. And just to clarify in the statements about profitability in a downturn. Did I hear it right that you were using the CCAR adverse scenario?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Correct, 2017 modified.

Chris Gamiatoni -- Compass Point -- Analyst

And is there any way to give us a sense of does profitability mean you make a dollar or is it like a 3% ROE or any type of level, just very roughly?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

I don't think we're going to give that level of detail.

Chris Gamiatoni -- Compass Point -- Analyst

Okay. All right. That's all the questions I have. Thank you.

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Your next question comes from the line of Randy Binner from B. Riley FBR. Your line is now open.

Randy Binner -- B. Riley FBR -- Analyst

Good morning. Thanks. So I have a question about MIQ and you had mentioned that you're going to continue to offer kind of standard rate card format. So what -- can you kind of break out what percent of your business now is in that new pricing model and then as you look out in the future, kind of what percent of your business do you think would transition to the -- more of that multivariate model than the rate card?

Patrick Sinks -- Chief Executive Officer

This is Pat. We just have rolled it out here in January so it's quite new. So, I don't have any specific numbers relative to percentages. And then as we have consistently said, it all starts with the customer. If customers want it sooner rather than later, we'll be prepared. My sense is it'll be a gradual increase over the course of the year. So we haven't said -- we haven't publicly stated any kind of target by the end of the year, but we will be in the market with it as is everybody else and we will compete.

Randy Binner -- B. Riley FBR -- Analyst

Yes. I mean, I guess -- I mean it's scalable, right, because I think what we've heard from some other writers is that their books pretty rapidly move to the black box pricing from the rate card. So if the demand was from 90% of your counter-parties want to do it, could you hit that goal by the middle of the year or would there be constraints to that?

Patrick Sinks -- Chief Executive Officer

Well, I don't want to put a time frame on when we hit it. I will say again we'll compete. So if the market moves faster because of customers wanting it, we will be in the market.

Randy Binner -- B. Riley FBR -- Analyst

And then on the reserve release, nominally it is a little bit smaller than -- this quarter than it's been in the past couple. Any color you can provide on what action years the reserve release apply to?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Yes, I think most of the -- most of the notice inventory is still out of the OH prior books. So, it's really across those books is where the majority of the reserve release would be from. And as I mentioned, it's really from the 12 months more delinquent is where we saw improvement on a cure rate.

Randy Binner -- B. Riley FBR -- Analyst

Okay, great. Thank you.

Patrick Sinks -- Chief Executive Officer

Thanks.

Operator

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

Philip Stefano -- Deutsche Bank Securities Inc. -- Analyst

Yes, thanks. Good morning. I was hoping you could talk a little bit about the ILN impact on the quarter. Were there any expenses associated with that? Was there any premium yield drag that -- I think it came -- priced late October. So, supposedly there's some more premium drag that's going to come from this. Any ways to think about that?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Yes, Phil. Actually this quarter I can talk about it unlike last quarter. So, we did disclose in the risk factors some amount of premium drag from this. I would say that was a little bit heavy because of some of the initial sort of costs associated with the transaction. So I think from a run rate, it's something less than $10 million for a year that you could think about this costing. It's a very cheap effective cost to capital and so from that standpoint, we feel very good about it. From an expense standpoint, there was a little bit, but nothing, as I mentioned, increase in expenses this year year-over-year. That wasn't really the main reason. So, again we feel like it's another good form of capital for us. We think it is cost effective and also attaches at a nice spot. So, it's a great tool to have.

Philip Stefano -- Deutsche Bank Securities Inc. -- Analyst

Got it. Okay. Second one is what's the free cash flow conversion as a percentage of earnings? How are you guys thinking about this?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Were you talking about free cash flow?

Philip Stefano -- Deutsche Bank Securities Inc. -- Analyst

Yes..

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Percent of earnings. Well, I mean I think -- to me, I guess, we always think of it through the lens of what we have at MGIC and what -- how that turns into PMIERs and what ultimately get to be dividends to the holding company. And so we don't think of it in terms of sort of that everything is all free cash flow because of the restrictions on dividends. But from MGIC's perspective, as I talked a little bit on the opening comments, as we think about dividends to the holding company at basically a $240 million run rate, the amount of capital needed to deploy back into the business to write new business as well as to be able to support some of the other sort of GSE risk share things that we're looking at. That takes up the majority of the sort of the cash flow that we're creating although we are still building in excess to PMIERs as you noticed over the last year. So, that's sort of how I think about where the free cash flow is going right now.

Philip Stefano -- Deutsche Bank Securities Inc. -- Analyst

Got it. Okay. And the last one for you is circling back on MIQ. As we think about the number of factors that are potential for you to use in pricing, do you have a feel for how many factors you're going to be using initially? I mean, thinking about the rate card, at least in mind, as being a two-factor model. How much more information do you think you're going to be gathering and pricing from; is it five, is it six? Not to put a definite number on there, but maybe you can just help us think about the amount of metrics that you're going to be looking at.

Stephen Mackey -- Chief Risk Officer

Yes. So, this is Steve Mackey. So in -- the way we've constructed this, we have, call it, a base pricing grid and then a set of add-ons price adjusters and that base pricing grid is roughly eight factors, which gets you to probably around 70,000 prices -- unique prices. And then with the adjusters, there's four categories of adjusters and those are based on LTV and FICO and that puts the number of price -- unique prices well over 1 million.

Philip Stefano -- Deutsche Bank Securities Inc. -- Analyst

Got it. Thank you.

Operator

Your next question comes from the line of Mark DeVries from Barclays. Your line is now open.

Mark DeVries -- Barclays Capital -- Analyst

Yes, thanks. Tim, could you give us some sense of what impact, if at all, the ILN transaction will have on your ability to request additional dividends from OCI?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Well, Mark, it -- right now we think we're going to get full PMIERs credit for it and from -- we have excess from a state regulatory standpoint. It helps in the discussions for sure and that's one of the things that we factor into is -- into our thought process around all of reinsurance is how much does it help us. Is it a dollar for dollar sort of that we get to take that out by no means, is that the case? But it helps build sort of the overall picture for our regulator, I think, as far as how we are able to -- any sort of downturn were to happen, that we are in a good spot and that they feel very comfortable with the level of dividends.

Mark DeVries -- Barclays Capital -- Analyst

Okay. And is there any color you can give us on where ultimately over the next several years you think that $60 million a quarter dividend could ultimately go to?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

I think that's really, really tough to say. Obviously our earnings are exceeding that right now. But I don't think that we would expect even going back pre-crisis that we're able to get out our full earnings on an annual basis, definitely not a quarterly run rate. So, it's conversations we continue to have with the regulator. As you notice, the rate of increase slowed this year, but we were still able to increase it up to the 60s during the second half of the year. So, there'll be additional conversations that we have and we think we have a good story to tell.

Mark DeVries -- Barclays Capital -- Analyst

Okay. Fair enough. And then are you thinking at all about dividend to shareholders as part of your capital returns?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

It's one of the things that we talk about with our board pretty much every quarter just to talk about it as an option and have done so for a while. I think a number of factors go into that. Obviously we've been executing on share repurchase and have used that as a preferred method currently. And so I'd say there's nothing imminent right now, but it's something that we always talk about as one of our options.

Mark DeVries -- Barclays Capital -- Analyst

Okay. Got it. Is there a valuation in the shares in which you'd be less inclined to buyback your stock? I'm assuming we're not anywhere close to it right now?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Yes. I don't want to get too much into the detail. But we know when we look at it obviously to think that we're hopefully creating shareholder value by buying it back below intrinsic value through a number of different ways to think about that. So again we executed this last year where we thought that was the case and also thought we had the wherewithal to do so at the holding company and going forward that will be sort of the lens that we plan on looking through as well.

Mark DeVries -- Barclays Capital -- Analyst

Okay. Got it. Thank you.

Operator

Your next question comes from the line of Doug Harter from Credit Suisse. Your line is now open.

Douglas Harter -- Credit Suisse -- Analyst

Thanks. Can you talk about the factors or the mix that led to the modest decline in the premium on new insurance written this quarter?

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

Doug, this is Mike. I think versus mix, I mean, it's really more about fully implementing of those price changes from earlier in the year as it kind of rolled through, right? We've made those -- they were effective June, July so you didn't have a full period in the third quarter, now you have a full period in the fourth quarter. So, I'd say it's more driven by those price changes than it was by mix.

Douglas Harter -- Credit Suisse -- Analyst

Got it. So sort of normalizing for that, you would characterize it as relatively flat?

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

Yes. I mean, it's mix dependent, absolutely.

Douglas Harter -- Credit Suisse -- Analyst

Okay. And then I guess as you think about the pricing engine, kind of as you roll that out, is there expected to be any impact on pricing either positive or negative from the rollout of that?

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

This is Mike again. I mean, yes, that's the whole point of going to those types of pricing engines is to more accurately reflect the current conditions and expected conditions going forward up or down.

Douglas Harter -- Credit Suisse -- Analyst

Okay.

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

But it's hard to give you any percentages because it's going to be environment dependent.

Douglas Harter -- Credit Suisse -- Analyst

Understood. Thanks.

Operator

Your next question comes from the line of Bose George from KBW. Your line is now open.

Bose George -- Keefe, Bruyette & Woods -- Analyst

Hey, guys, good morning. So, just actually going back to the question on the premium on NIW. So going forward, is it safe to say that 50 basis points number is a good run rate unless the mix changes so now all the price reductions are kind of fully incorporated in there?

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

Bose, this is Mike. No, again I don't think -- it's going to be mix of environment dependent and how much transitions from rate card over to MIQ and some things of that nature. So as Tim has guided to and we've guided to for a number of quarters and years actually is that the -- more importantly, the effective yield of the overall portfolio we think would continue to trend lower over time.

Bose George -- Keefe, Bruyette & Woods -- Analyst

I mean, I can understand why the effective yield on the insurance in force will trend down. This -- I mean, on the NIW, doesn't it reflect sort of the reduced rates already in that number?

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

Well, for the current period, yes. But we're not going to give -- we can't give and we're not going to give forward guidance relative to where we think premium rates will be in future periods. It's just something that we don't do.

Bose George -- Keefe, Bruyette & Woods -- Analyst

I mean that's fair. But I mean, there's no -- if prices are relatively stable in the market, then there's no reason to think premiums should necessarily decline, right, if the mix is not changing meaningfully.

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

Well, I think the keywords used there, if things are stable, and -- but there could be changes up or down as previous -- somebody asked earlier.

Bose George -- Keefe, Bruyette & Woods -- Analyst

Okay. Fair enough. Thanks. And then actually just in terms of the premium this quarter, can you just quantify was there a benefit to the premium just from the reserve release?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

There was some benefit from the reserve release because we're able to effectively release some return premium accruals. But I would say that was -- it was more modest than it has been in most recent quarters.

Bose George -- Keefe, Bruyette & Woods -- Analyst

Okay. Thanks. And then actually one on the ILNs. Do you foresee doing more of those transactions just as -- you clearly don't need the capital, but just as part of a broader approach to risk management?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Yes. Tim again. I mean, I think our view is it's another form of capital and risk transfer that we can utilize and it's cost effective when we issued it. Capital markets can change, but it's something that us and others in the industry have utilized more so this last year and I think it's safe to assume that if markets are available, that's something we'll consider strongly in the future.

Bose George -- Keefe, Bruyette & Woods -- Analyst

Okay. Thanks. Actually just one more. What's a good tax rate going forward?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Well, I think point to 21% is probably good. We were a little bit off this quarter, but 21% is the right way to think about it moving forward.

Bose George -- Keefe, Bruyette & Woods -- Analyst

Okay. Great. Thanks.

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Your next question comes from the line of Jack Micenko from SIG. Your line is now open.

Jack Micenko -- Susquehanna Financial Group -- Analyst

Good morning. Hey, Tim, can you just maybe get a little more granular on the 2 basis points sequentially. I mean how much of it was mix, how much of it was the release, how much of it was maybe a fall-off on accelerated premium? How do we think about the 2 basis points -- the sort of sum of the parts?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

It was really spread across all those, Jack. From an example for the single premium acceleration, I think our accelerated premium fell from being 6.6 the last couple of quarters down to 5.1 this quarter. So, I think that's like a third of a basis point. When you look at all -- everything is entitled with reinsurance as far as ILN and then change in profit commission, everything, that was probably somewhere closer to a basis point. So you mix all those things together, that I think starts to get us closer to the 2 basis points.

Jack Micenko -- Susquehanna Financial Group -- Analyst

Okay. And then I guess we're at 26% excess now, $1 billion. Under 1.0, you had I think always sort of pointed to a 10% to 15%. Maybe walk us through why -- I mean obviously you're evaluating it, but is 10% to 15% the right number under 20%? Is it -- why could it be lower, why could it be higher? Just help us understand sort of where that may sort of fall in as you think through it?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Yes, Jack. I think it is something we're still looking at. I think it -- I don't know if it's easy or early enough to say if it would be higher or lower at this point. But I think we look at it along with the types of capital we have with the reinsurance and we've talked before that we have the options on some of our quota share to make changes to that if we wanted to. So, I think we'll look at it. But again to a certain extent that we think that it's giving us additional dividend capacity having that excess, that is another factor that we think about as well. So to the extent that we aren't able to get out the same amount of dividend, I think that's when you think us trying to come back a little bit closer to where our targets than before. With PMIERs 2.0, the main change was taking away the premium credit so there weren't a lot of other changes. So, that's one thing that we'll consider when we think about what the right level is going forward.

Jack Micenko -- Susquehanna Financial Group -- Analyst

And then sort of one follow-up to that. I mean, what are you thinking? I mean, obviously you're thinking about some growth and there's this $240 million kind of run rate number out there, but obviously you're assuming there's portfolio growth. Do you have an NIW forecast for '19 for the industry and for your company as well?

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

Yes. Jack, this is Mike. I mean for our company, we're looking at probably flat to last year saw right around $50 billion. Obviously the overall market's going to be a little bit smaller given refis and where the purchase activity is coming in at. So, we'd see about the same levels in '19 versus '18.

Jack Micenko -- Susquehanna Financial Group -- Analyst

All right. Thank you.

Operator

Your next question comes from the line of Geoffrey Dunn from Dowling & Partners. Your line is now open.

Geoffrey M. Dunn -- Dowling & Partners -- Analyst

Thanks. Good morning. Tim, the expense growth book, I think you suggested flat on a gross basis. What changes about '19 after a couple of years of mid to upper single-digit growth?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Jeff, we said that before ceding commission that it would be flat '19 to '18. It's something that we talk about periodically. We like to be focused on expenses, be smart about it. The last few years I think we've had some expenses that we've -- as I mentioned earlier, some things with restricted share that have had things rise up because the stock price was up. We've talked a little bit about investing a little bit more from some of the technology things, things like that. We feel like we're at a good run rate right now that we're able to sort of benefit from some of those things moving forward and particularly on the technology investment. And so I think we took a hard look at it in the environment and think that it's the right thing to sort of try to keep that flat when we look at '19.

Geoffrey M. Dunn -- Dowling & Partners -- Analyst

What's more sustainable long term? Is it something closer to a low single-digit GDP number or mid-single digits? I think I've asked before and suggested that mid-single plus.

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Yes. It's tough to say. I mean, I think -- again, we're going to look at this hard and look at ways to leverage technology moving forward. So, we're focused on '19 and trying to be flat in '19. And if (inaudible) is successful in that, I think we continue to look out past that point. But I don't think we expect to have expense growth rate higher than GDP by any means.

Geoffrey M. Dunn -- Dowling & Partners -- Analyst

Okay. And then your QSR ran through the '18 book I believe. Has that renewal occurred? Have you renewed it? Have you changed the cede level? Can you update us on that front?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Yes. We have renewed it for '19 at similar cede level, I'd say similar structure, and related sort of bells and whistles associated with it.

Geoffrey M. Dunn -- Dowling & Partners -- Analyst

Okay. Then with the ILN market with the -- assuming conditions remain favorable, why renew at a 30% cede rate rather than drop it to 15% or 20% type of thing? I think you've indicated in past calls that you'd consider maybe a blended approach with traditional and capital markets. So given all the options right now, why maintain a 30% on the '19 book?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Yes. I mean that's a good question, Geoff. I mean part of the thought process is we're getting the 30% on the '19 book, which is a forward commitment for us. Any additional ILN we would do, we wouldn't be able to place ILN on that for over a year at this point. We still find the very attractive cost to capital and the fact that we have in our other quota share transactions ability to terminate those early. I think that's where we'd look to sort of trim and sort of right size as opposed to doing it on the forward commitment basis.

Geoffrey M. Dunn -- Dowling & Partners -- Analyst

Okay. And can you remind -- I think you had some sort of termination option recently or am I mis-remembering that.

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Yes. No, I think every six months basically starting at the end of this year, we have the ability on our oldest quota share to be able to terminate if we wanted to. So we did not do that as of the end of this year, but we have another option every six months going forward.

Geoffrey M. Dunn -- Dowling & Partners -- Analyst

Okay. Thanks.

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Sure.

Operator

Your next question comes from the line of Mihir Bhatia from Bank of America. Your line is now open.

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

Hi. Thanks for taking my questions. Just wanted to start with firstly the government shutdown. Well, I was curious if you'll are seeing any impact of that across your portfolio, whether it being maybe people are more -- looking to work more with the private MIs versus the FHAs or seeing delayed closings or just impacts of some of the laid off or not laid off, furloughed workers where you're not -- maybe delinquencies and stuff. And if it extends for longer, what are some of the impacts you might see?

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

Mihir, this is Mike. So, the short answer to the first part of your question is no, we haven't seen any impact to it from the conventional lending world. The IRS is processing their verification of employment and things of that nature. What happens if it extends longer , we'll have to wait and see. Clearly, the number of workers compared to the overall employment base and homeowner base is relatively small. But who knows, we'll see how long it lasts and what implications that has to overall economic conditions and confidence, but nothing as of today.

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

Got it. And then second question is just on going back to MIQ for a second and your roll-out of it. As you roll it out, is there any expense associated with it as in if you need to roll it out faster with all the other companies doing it, would there be higher incremental like maybe expenses? Are there some efficiencies with rolling it out versus the rate card process or is it pretty much the same?

Patrick Sinks -- Chief Executive Officer

This is Pat. It'll be more reallocation of resources. So there might be some increase in expenses on the margin, but nothing material.

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

Got it. And then the other thing I was curious on the pricing itself within MIQ, obviously it's more granular so you're able -- I assume that means some borrowers end up with a little bit maybe higher cost versus the rate card while some have a benefit. But what if you ran your whole NIW like this quarter through it, would you on average end up in the same place, would you end up a little bit better, worse?

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

Mihir, this is Mike. We are not going to make any comments and won't make any comments relative to pricing, what it's been or where it could be in the future.

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

Okay. Fair enough. I think -- I mean, just the last question. Obviously new leadership at the FHFA and I was curious. A couple of years ago, there was a fair amount of stock around deep MI and hoping to do that. New leadership, at least in past, before they assumed their roles had shown I think more openness to private markets taking on some more risk. So I was curious if that is something you see happening or is it just out of the question with the way the government congressional shutdowns and opposing parties being in charge, et cetera?

Patrick Sinks -- Chief Executive Officer

This is Pat. It's difficult to predict for the reasons you said at the end there that it will happen because there's so many moving parts, including political reality. That said, we believe it continues to be a good idea and it's a discussion we want to have with Mr. Calabria and Mr. Otting depending on how it plays out. So it's something we will continue to pursue because we think it's the right thing to do in terms of housing policy, it's the right way of de-risking the GSEs. We think we will have a receptive audience in terms of they're willing to listen, but will it actually translate into action, that remains to be seen.

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

Great. Thanks for taking my questions.

Operator

(Operator Instructions) You have a follow-up question from Bose George from KBW. Your line is now open.

Bose George -- Keefe, Bruyette & Woods -- Analyst

Hey, guys, thanks. Actually just a quick follow up on the ILN. The cost of the ILN this quarter, was that in the NIW premium number that you gave, the 50.2 basis points?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

The cost of the ILN for this quarter would be -- are you talking about -- oh, the 50.2 basis points. That's on a direct basis so that is not included in there.

Bose George -- Keefe, Bruyette & Woods -- Analyst

Okay. And then just to clarify the $10 million run rate annualized cost of the ILN, did you say that was fully in the numbers for this quarter and were there some other expenses as well?

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

I would say it was more heavily weighted this quarter than it would be at a run rate going forward and I'd say it's slightly less than $10 million a year. So if you look at the run rate for this quarter, that would get you above the $10 million. So a little bit of additional cost associated with it in the initial quarter that starts up, but on a run rate going forward, again I think something just shy of $10 million on the premium.

Bose George -- Keefe, Bruyette & Woods -- Analyst

Okay, great. Thanks.

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Sure.

Operator

There are no further questions at this time. You may continue.

Patrick Sinks -- Chief Executive Officer

Okay. This is Pat. Thank you for joining us on the call this morning and your interest in our company. As I said in our -- my summary, we had an outstanding 2018 in terms of managing the business. I thank my 800 coworkers and we are very excited about taking on 2019. Thank you.

Operator

This concludes today's conference call. Thank you all for joining. You may now disconnect.

Duration: 49 minutes

Call participants:

Michael J. Zimmerman -- Senior Vice President of Investor Relations.

Patrick Sinks -- Chief Executive Officer

Timothy J. Mattke -- Executive Vice President and Chief Financial Officer

Chris Gamiatoni -- Compass Point -- Analyst

Randy Binner -- B. Riley FBR -- Analyst

Philip Stefano -- Deutsche Bank Securities Inc. -- Analyst

Stephen Mackey -- Chief Risk Officer

Mark DeVries -- Barclays Capital -- Analyst

Douglas Harter -- Credit Suisse -- Analyst

Bose George -- Keefe, Bruyette & Woods -- Analyst

Jack Micenko -- Susquehanna Financial Group -- Analyst

Geoffrey M. Dunn -- Dowling & Partners -- Analyst

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

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