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MGIC Investment Corp  (NYSE:MTG)
Q1 2019 Earnings Call
April 23, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Sedaris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the MGIC Investment Corporation First Quarter Earnings Conference 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. Mr. Mike Zimmerman, Senior Vice President of Investor Relations. You may begin your conference.

Michael J. Zimmerman -- Investor Relations

Thanks, Sedaris. 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 first quarter of 2019 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 our website which is located at mtg.mgic.com under Newsroom, includes additional information about the Company's quarterly results that 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 primary 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 on 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 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 Sinks.

Pat Sinks -- Chief Executive Officer

Thanks Mike and good morning. I'm pleased to report that we're off to a great start for the year, as our financial results demonstrate. Our balance sheet is strong and continuing to improve as evidenced by the increase in book value per share, compared to year-end 2018. We are maintaining our focus on the long term success of the Company and we are in an excellent position to continue to serve our customers, while creating shareholder value.

In a few minutes Tim will cover the details of the financial results, but before he does let me make a few comments. Main driver of our future revenue, our insurance in force grew by 7% over the last 12-months, ending the quarter at $211.4 billion. The increase was driven by the higher annual persistency on the existing book and the level of new insurance written. The size of the mortgage origination market generally has the largest impact on the volume of business we will insure. I would characterize the overall mortgage origination market as healthy, despite the volatility in mortgage rates and they remain attractive, and while the supply of homes available for sale is tight, there is a strong demand for homes. So while we may not see a surge in purchase originations, we expect it to remain steady.

As a result, I remain optimistic about our ability to grow the insurance in force because we have a compelling business proposition for our customers and consumers continue to feel confident about their future economic prospects. I feel very confident about our ability to serve our customers given our capital strength and position in the markets. The quarterly financial results reflect the very low credit losses our post 2008 business is producing and the favorable operating environment we are experiencing, especially as it relates to employment, wage growth and housing fundamentals.

Our inventory of delinquency notices continues to decline and is at a level not seen in more than 20 years and that number -- and the number of new delinquency notices received during the quarter declined. The strong credit performance continues to be a tailwind for our financial results. Existing insurance in force has very strong credit characteristics and is expected to generate meaningful returns for shareholders.

Before I turn it over to Tim, I want to remind you that our business objective is straightforward. We strive to be a relevant business partner with our customers in order to prudently grow insurance in force, generate long term premium flows and create book value growth for our shareholders. One way we are executing on that objective is to offer competitive products and services while maintaining a sharp focus on risk adjusted returns on capital and expenses. We deployed our new pricing engine called MiQ early in the first quarter. As more customers adopt MiQ, its more granular approach to risk-based pricing will assist us in managing the risk and expected return profile of the insured portfolio. We expect it will also allow us to continue to be a relevant business partner with our customers.

However, we know that one approach to delivering price does not work for all customers. So we will continue to work with customers to deliver competitive options that meet our return thresholds in a manner that works best for all involved. That said, I continue to believe that the adoption rate of pricing engines like MiQ will increase over the course of time.

With that, let me turn it over to Tim.

Tim Mattke -- Executive Vice President and Chief Financial Officer

Thanks, Pat. In the first quarter, we earned $151.9 million of net income or $0.42 per diluted share compared to $143.6 million or $0.38 per diluted share in the same period last year. In the first quarter, on an annualized basis, we generated a 17% return on beginning shareholders' equity. Premiums earned increased compared to the same period last year due to higher average insurance in force, as well as, a higher profit commission from our quota share reinsurance transaction, partly offset by the effect of lower premium rates.

Losses incurred consist of reserves established on new delinquent notices plus changes to previously established loss reserves. Total losses incurred were $39.1 million compared to $23.9 million for the same period last year. We have been disclosing for some time that third parties have made claims against us concerning some of our past insurance claim decisions. The increase in total losses incurred reflects a pre-tax charge of $23.5 million related to the probable loss related to litigation of our claims paying practices that we have previously disclosed. These matters are part of a confidential arbitration process, so we won't comment on the specifics, but we look forward to putting this behind us.

Separate from this charge that impact the losses incurred, there was a $31 million reduction of losses incurred due to changes in previously established loss reserves before reinsurance, which is similar to the amount we experienced in the first quarter of 2018. 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 two years or less.

During the quarter, we received 7% fewer new delinquency notices that we did in the same period last year. The rate of improvement on a year-over-year basis reflects the strong credit performance on business written beginning in 2009 and the fact that the remaining 2008 prior books which is the source of the majority of our new notices received continues to be a smaller and smaller portion of our overall portfolio.

The 2009 and Forward Books account for just 35% of the new delinquency notices but account for approximately 84% of the risk in force as of March 31, 2019. The claim rate on new notices received in the first quarter of 2019 was approximately 8%, which reflects the current economic environment and anticipated cures and was lower than the 9% claim rate we used in the first quarter of 2018. 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.

Net pay claims in the first quarter were $57 million while the number of claims received in the quarter declined by 30% from the same period last year. This activity reflects the continued decline of the delinquency inventory. The effect of average premium yield for the first quarter of 2019 was 47.4 basis points, effectively flat year-over-year and sequentially. The effective yield reflects changes in losses ceded to reinsurers, changes in the recognition of premiums on single premium policies, changes in premium refund accruals and the levels of premium ceded to the various reinsurance transactions we have in place. 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 $48.4 million in the first quarter of 2019, compared to $48.7 million in the same period last year. We continue to expect that in 2019 expenses before reinsurance will be flat to 2018. The effective tax rate for the quarter was 20.4% up marginally from the first quarter of 2018, as we had more taxable investments than we did a year ago.

During the quarter, MGIC paid a $70 million dividend to the holding company. The dividend payment reflects the fact that MGIC is generating meaningful capital and we expect to be able to continue 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 dividend payments from MGIC. At quarter-end, our consolidated cash and investments totaled $5.6 billion including $299 million of cash and investments at the holding company. Investment income increased year-over-year as a result of a larger investment portfolio and higher yield. The consolidated investment portfolio had a mix of 79% taxable and 21% tax exempt securities, a pre-tax yield of 3.16%, and has a duration of 4.0 years.

Our debt to total capital ratio was approximately 18% at the end of the first quarter of 2019. At the end of the first quarter, MGIC's statutory capital is $2.7 billion in excess of state requirement. At the end of the first quarter, MGIC's available assets total approximately $4.5 billion resulting in a $1.1 billion excess over the required assets. Regarding the appropriate level of excess to PMIERs, it's difficult to actually manage to a specific target given the regulatory requirements for paying dividends. 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, and excess to minimum PMIERs requirement also positions us to take advantage of new business opportunities should they occur.

As forecast change about the timing and severity of a recession, investors have been trying to determine what impact there would be to our earnings power if we are to experience a moderate economic downturn. If such a downturn began today, we would expect to continue to be able to generate double digit after tax returns and continue to increase book value. We arrived at that expectation based on our current internal modeling of the existing book of business that is based on a modified 2017 CCAR adverse scenario to make certain assumption, including among other items, a 10% decline in home prices and unemployment rising to approximately 7% and that incorporates our existing quota share reinsurance treaties and insurance like no transaction.

Finally, I want to spend a few minutes discussing our capital position and how we think about allocating capital. First, I would say that when you take a step back and look at the uses of the annual amount of capital that's being generated, to do business we expect to write and the existing level of dividends MGIC is paying, the substantial majority of capital that's being created is accounted for.

As a reminder in 2018, we repurchased nearly 16 million shares or 4% of our shares outstanding 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. Additionally, the Board recently authorized additional $200 million share repurchase program that runs through the end of 2020.

I would expect us to continue to be opportunistic in utilizing the remaining 2018 and new 2019 authorization. When deciding when to repurchase shares, we consider a number of factors including our internal valuation using discounted cash flows as well as market based metrics like price-to-book and price-to-earnings ratios, but also recognize that historically, our share price has been volatile. 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 that the returns meet our threshold. Of course, we're also sending dividends now at $280 million annual run rate to the holding company.

We do have periodic options to adjust the level of quota share reinsurance we utilize, which could impact the amount of excess, but the level of reinsurance we have today creates a level of excess we do have. While there could be no impact on our first quarter financial results, we did give notice to the reinsurers of the 2015 quarter share transaction that we are exercising our option to terminate that treaty, which in turn allowed us to renegotiate a new treaty that effectively reduces the percent ceded on that block of business from 30% to 15%. The new treaty will be effective starting June 30th, 2019 and is expected to reduce our PMIERs excess by approximately $200 million and will be modestly accretive to earnings beginning in the third quarter of this year.

The transaction while agreed to with our reinsurance partners still needs to receive GSE approval, which we expect to receive. So we will continue to analyze and discuss with the Board the best options to deploy capital that maximizes long term shareholder value.

With that, let me turn it back to Pat.

Pat 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 recently been sworn in and he has appointed Adolfo Marzol as his Principal Advisor.

Director Calabria has a great deal of knowledge about housing policy and Mr. Marzol has a great deal of expertise in all the mortgage market functions on a day-to-day basis. Recently, President Trump directed the US Treasury Department to develop a plan as soon as practical for administrative and legislative reforms for the housing finance system. With such reforms aimed at reducing taxpayer risk, expanding the private sector's role, modernizing the government housing programs and achieving sustainable home ownership.

Exactly what will unfold and how the role of the GSE's, FHA and private capital play out remains to be seen, but we are encouraged that Director Calabria and the team he is assembling see the private sector as part of the solution for transferring credit risk away from taxpayers. Regarding the FHA, we continue to think it is unlikely that it will reduce its MI premiums and that the primary focus by the FHA is on improving its operational policies and procedures.

Our Company, and our industry offers many solutions and a great value proposition for lenders and consumers to overcome the number one barrier to homeownership, the down payment. 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.

I will close my comments where I started. We are off to a strong start in 2019. We grow our insurance in force by more than 7%, investment income increased, credit losses continue to improve, expenses are being held in check, and we increased the quarterly dividend to our holding company. We are writing high quality new business in what is expected to be a low loss environment has been added to an existing book of business that is performing exceptionally well and we are generating significant shareholder value. That is why when I look ahead, I'm very excited and confident about the future of MGIC.

With that operator, let's take questions.

Questions and Answers:

Operator

(Operator Instructions) And your first question comes from Douglas Harter from Credit Suisse.

Douglas Harter -- Credit Suisse -- Analyst

Thanks. On the reinsurance treaty that you renegotiated, which vintages does that cover, and is there any change to kind of your use of reinsurance on new insurance written?

Tim Mattke -- Executive Vice President and Chief Financial Officer

Sure, Doug. This is Tim. The way to think of it is, that covered business that was 2016 and prior. So it was the largest outstanding treaty, but it covered vintages all the way back through crisis era as well. So, we had -- we're getting $400 million of premium credit and we're going to cut it effectively in half from a 30% quota share down to 15% quota share, which we think is the right thing to do sort of at this point with those vintages. And again I think it's a way to demonstrate sort of the flexibility that the reinsurance allowed us to do and appreciate the help of our reinsurance partners in that.

Douglas Harter -- Credit Suisse -- Analyst

And then I guess on the 2017 and later vintages, I guess when would you have the next option to kind of revisit that treaty? And I guess how are you thinking or how are you thinking about that and kind of, is there a point of delineation on the 2016, before just kind of when the treaties came up?

Tim Mattke -- Executive Vice President and Chief Financial Officer

It's really just more when the treaties came up, what we had in there. I think we're still a couple of years out from anything on the '17 being able to be -- to be looked at. But again, I think we try to think ahead and think about when we might want flexibility associated and there's been good seasoning associated with those books of business to look at that. So continue to use the traditional reinsurance markets, continue to look at the insurance like develop (ph) markets as well as an effective way to lay off capital and manage our risk.

Douglas Harter -- Credit Suisse -- Analyst

Thank you.

Tim Mattke -- Executive Vice President and Chief Financial Officer

Sure.

Operator

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

Geoffrey Dunn -- Dowling & Partners -- Analyst

Thanks. Good morning. Tim, first question, with respect to that QSR adjustment how much risk is currently associated with the '06 -- or the '16 and prior?

Tim Mattke -- Executive Vice President and Chief Financial Officer

I have to look at that Geoff. I mean, effectively it's a 30% quota share. So I think from our supplement you know, if you look at that for most of those vintages, I'd say, you know, post '11, it seems 30% of the risk is going into that. If you start talk about the risk associated with the '08 and prior, I'd say, it was only a select portion of that. So, I'd say, a good way of sort of approximating that is, to look at the supplement that assume 30% with anything sort of post-crisis and pre-crisis, it's a smaller amount.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Okay. And then also this quarter there was a jump up in the NIW subject to reinsurance. Does the '19 quota have any kind of different restrictions on business or is it a broader pool of business that's eligible for the QSR?

Tim Mattke -- Executive Vice President and Chief Financial Officer

We were able to negotiate some changes in cap to certain risk characteristics that, you know, when we look at first quarter business that compared to the fourth quarter last year, that some of those caps might have been impacting how much was ceded. So it was really along those lines.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Okay. And then just, a number question. The accelerated single premiums in the quarter?

Tim Mattke -- Executive Vice President and Chief Financial Officer

Accelerated single premiums in the quarter was just under $6 million.

Geoffrey Dunn -- Dowling & Partners -- Analyst

And then last question. What is your ILN strategy with respect to frequency. Is this something where you think you're going to come to market once a year? Are you going to try to come twice a year and wrap each half year of book. How are you approaching that?

Tim Mattke -- Executive Vice President and Chief Financial Officer

Yeah Geoff, I mean, it's -- again this is Tim. It's a good question, I think obviously, we do think we're going to be somewhat programmatic with it. It's one of those things where we have a quota share in place. We have taken to account sort of building up a reasonable amount of risk that we can cede off and that, a bond that can be sold through that. So I think there is basically a play -- interplay between getting the appropriate size of securities that can be sold and sort of timing, it is close to sort of when the business has been written as possible.

Geoffrey Dunn -- Dowling & Partners -- Analyst

So sticking with kind of an annual run rate or is it just up in the air?

Tim Mattke -- Executive Vice President and Chief Financial Officer

I think, you know, annual is probably the way to think about it. I mean, it could potentially be quicker than that, but again with our 30% quota share in place and how long it takes depending upon the volume business we write, I think annual is the right way to think about it, as opposed to anything that's more frequent than that.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Okay, great. Thank you.

Tim Mattke -- Executive Vice President and Chief Financial Officer

Sure.

Operator

Your next question comes from Randy Binner with B. Riley FBR.

Randy Binner -- Friedman, Billings, Ramsey -- Analyst

Hey, good morning, thanks. I'd like to ask a question on the claims paying related litigation. Can you just elaborate a little bit more on what the issue was there and if this amount you've put aside would settle that litigation from your perspective?

Michael J. Zimmerman -- Investor Relations

Yeah, Randy this is Mike. I mean, so the issue is just that -- is the questioning our claims paying decisions in the past where we did not set (inaudible) or denials or other issues along that front. So it's just had to play off of those decisions and their questioning the legitimacy of those. So that's the issue that surround it, that surround it, several years ago, this settlements with Countrywide and others along those same lines with it. So, the -- that's the issue with it. Sorry, the second part of your question on that was?

Randy Binner -- Friedman, Billings, Ramsey -- Analyst

Well, I guess so, I mean, so this is a camp -- this is a class action. Is that right?

Michael J. Zimmerman -- Investor Relations

No. No, it's not a class action. Individual servicer that's questioning the claims.

Randy Binner -- Friedman, Billings, Ramsey -- Analyst

So, it's with one servicer, so would you view this as a resolution of that litigation or would this still...

Michael J. Zimmerman -- Investor Relations

Well, it's not resolved yet. So, we -- we're at a point where we can make a probable and estimatable charge, that we took the charge at this point and we hope to be able to resolve it, it's going to be behind us.

Randy Binner -- Friedman, Billings, Ramsey -- Analyst

And it's all...

Michael J. Zimmerman -- Investor Relations

It's not done. The life (ph) long time, right. I mean, so that unlike the IRS litigation, these things can linger for long periods of time.

Randy Binner -- Friedman, Billings, Ramsey -- Analyst

It's all on legacy claims though from the crisis years, yeah?

Michael J. Zimmerman -- Investor Relations

That's correct.

Randy Binner -- Friedman, Billings, Ramsey -- Analyst

And then on, just on MiQ, I think, when we had this last call, it was quite new, and I'm just curious now that a quarter is gone by, do you have kind of -- kind of a feel for the kind of the take up rate and the feedback you're getting on that from your distributors?

Pat Sinks -- Chief Executive Officer

This is Pat. Yeah, it's been in the market now for a little more than 90 days. We're learning as we go. We have a number of customers signed up, some are already using it, some are just hooking up to technology. I would call it just kind of a steady increase in the amount of business we're doing there. It continues to be one of a number of options, we have not pushed it on our customers rather we've relied on their desire to how fast they want to go. So we still have the premium rate card in the market. We do forward commitments on occasion. So it's just one solution if you will, but it's progressing as pretty much as we had expected, we're learning as we go. But I still expect that by the end of this year, it will be the dominant way of doing business.

Randy Binner -- Friedman, Billings, Ramsey -- Analyst

The MiQ, so that the MiQ by the end of the year will be the majority like over 80%, is that kind of rough number?

Pat Sinks -- Chief Executive Officer

I wouldn't go so far as to say 80%, I mean, we haven't disclosed anything on that. But yes, it will be the majority, that's for sure.

Randy Binner -- Friedman, Billings, Ramsey -- Analyst

Okay, thank you.

Operator

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

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

Hi guys, good morning. Just going back to the quota share, did you give a number for the net premiums that were ceded under that in the first quarter?

Michael J. Zimmerman -- Investor Relations

Yeah, Bose. This is Mike. In the press release put out there, so, (inaudible) the premium ceded -- 28 million of ceded premiums written and earned in the quarter.

Tim Mattke -- Executive Vice President and Chief Financial Officer

That and Bose, just for clarity, that's related to all of the reinsurance transactions, quota share reinsurance not just for this particular treaty that we have given notification to terminate and effectively to come up with a new agreement on.

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

Okay. And actually roughly how much of that is the QSR? Is this treaty just trying to think about what the number is they'll come into earnings, since starting in the third quarter?

Tim Mattke -- Executive Vice President and Chief Financial Officer

Well, I think there's a couple of things to think about there as, we're still going to have it in place in the third quarter. And it's just going to be reduced from 30 to 15. So, that run rate is going to go down, we were able to reduce the cost a little bit. So, as we said in the comments, I'd say mildly accretive to earnings, but it's not something that I would view as significant.

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

Okay, great, thanks. And then, actually just going back to the -- your comments on capital, you've got this $280 million annualized that's going to the holding company and you already have whatever $300-ish million there. In terms of the capital that's the $280 million that's going there, is it safe to think about that capital is sort of available to be returned to shareholders so that could be used for buybacks and maybe something more than that, but at least that level could be used, could be returned?

Michael J. Zimmerman -- Investor Relations

Yeah, I mean, I think we've talked about before that we want to make sure we have sort of two or three times interest carry at the holding company. We're still ways off from the next debt that's due which is 2023. So, you think about three times, it's $180 million so we do have an excess there and then you think about the run rate. With the amount of shares that we repurchased last year, I think right around $175 million. I think, we feel like we had the flexibility to do that and that's the current dividend run rate of the holding company. I think we have that available, and so I think that's in line with what you're saying, but we're going to be -- look to be opportunistic with that quite frankly and which is what we, I think demonstrated over the last year.

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

Okay, great. Thanks.

Michael J. Zimmerman -- Investor Relations

Sure.

Operator

Your next question comes from Jack Micenko from SIG.

Jack Micenko -- Susquehanna -- Analyst

Hi, good morning everybody. I'm wondering if you have the average coupon rate on the insurance in force book. And I ask, because I think persistency came in a bit better than expected with the moving rates in the first quarter and we've gotten some investor concerns around. Is there a risk to refi and that persistency really pulling back, but obviously rates would have to go through sort of the prior level for that to really happen in size. I'm just curious, if you had a rough number for us to think about on where the -- where the portfolio is being on a rate basis?

Michael J. Zimmerman -- Investor Relations

Hey Jack, it's Mike. So the short answer is no, right, (inaudible) what's the weighted average coupon is, but I mean, I think if you look at each vintage year, in the 30 year mortgage rate that's been delivered to Freddie and Fannie, now, that would be the proxy for us, but I don't have a calculated weighted average coupon, but certainly where the increase in rates really was that second part of '18, right. I mean so, that would be the book that probably most likely to be exposed.

Jack Micenko -- Susquehanna -- Analyst

Yeah.

Michael J. Zimmerman -- Investor Relations

-- but it's a pretty small segment.

Jack Micenko -- Susquehanna -- Analyst

Okay. And then you know, and the NIW, the 95 LTVs moved up about 300 basis points in terms of mix. Is that strategy and the impact of more adoption of dynamic pricing or is that more what the market's given you relative to maybe some of the competitive landscape, with some of the government programs?

Michael J. Zimmerman -- Investor Relations

I say all the above. The latter part of your answer. It's difficult for us to say it's just because of MiQ or just market dynamics and the mix during this period of time.

Jack Micenko -- Susquehanna -- Analyst

Okay. Thank you very much.

Operator

Your next question comes from the line of Mackenzie Aron from Zelman & Associates.

Mackenzie Aron -- Zelman & Associates -- Analyst

Thanks. Good morning. The first question around the severity, they're continuing to trend lower. Can you just talk a little bit about what's driving that and can we expect to see that benefit continue now that varies around 44,000.

Tim Mattke -- Executive Vice President and Chief Financial Officer

Yeah, Mackenzie It's Tim. I think obviously this quarter we saw the average claim paid come down, I think historically sometimes that sort of bounced around a little bit. So I think we're hopeful that trend continues. I think it's safe to say when you look at sort of where the default inventory is now, there's a little bit less out of some of the states that were judicial where it just took a long time. And so, some of the costs of how long it was in the delinquent inventory added on to the severity.

And I think that with home price appreciation obviously that's been beneficial to. I think it's a good trend, but again it's the drop in the quarter. I'd say it's -- we'll look to see another quarter to see if that persists at that sort of level. But again very happy with sort of where the trends have gone from the severity standpoint.

Mackenzie Aron -- Zelman & Associates -- Analyst

Okay, great. And then similarly on the claims rate. Is there a floor that we should be thinking about as the legacy continue to roll off and we see that benefit in the claim rate trending lower. Obviously, it's a hard number to peg, but anything we should be thinking about that would kind of offset the downward trend.

Michael J. Zimmerman -- Investor Relations

Mackenzie, just to be clear, are you talking about the claim rate on new notices or the claim rate in -- in new notices?

Mackenzie Aron -- Zelman & Associates -- Analyst

Yeah.

Michael J. Zimmerman -- Investor Relations

Yeah, I mean 8% for the quarter is this probably as low as I can remember. Keep in mind the first quarter on a seasonal basis normally is a little bit lower than the annual rate for the year. But again, I think we've been very happy with the credit trends and again with the reserve release we had this quarter things have continued to perform better than what we have been putting it on say a year ago. So we reflected that. We're talking about a floor, I think, we've talked about in the past, I didn't see it getting much below 8% to 9% and it's hard to see it necessarily doing so for any prolonged period of time. But again, we're obviously experiencing a good environment right now and good credit quality of the portfolio.

Mackenzie Aron -- Zelman & Associates -- Analyst

Okay, that's helpful. And if I could just ask one more Pat, just a bigger picture question on the competitive environment. Now, that the industry is pretty well along and rolling out the black boxes, what are you seeing just from the competitive standpoint compared to about a year ago when things were more heated?

Pat Sinks -- Chief Executive Officer

Well, I think the -- our understanding is that everybody all six MIs are in the market with their form of risk-based pricing and some are obviously further along. They've adopted it sooner than the rest of us did. So we're trying to kind of feel our way through that. Thus far, I wouldn't say there's been any major surprises, but we're monitoring as we go. And I think, it remains competitive, there's nothing different about that, we're just going about it in a different way with a different pricing mechanism.

Mackenzie Aron -- Zelman & Associates -- Analyst

Okay. That's helpful. Thank you.

Operator

Your next question comes from the line of Chris Gamiatoni from Compass Point.

Chris Gamiatoni -- Compass Point -- Analyst

Hey, good morning everyone.

Michael J. Zimmerman -- Investor Relations

Good morning.

Chris Gamiatoni -- Compass Point -- Analyst

Could you help me think about when you do find your stock attractive for opportunistic. If I just look today, your buyback for stock implies a 12% to 13% risk free return and holding the cash of the holding company seems to probably earn something much lower than that. So I'm just trying to figure out what's that deterministic point for you?

Tim Mattke -- Executive Vice President and Chief Financial Officer

Hey, Chris this is Tim. Obviously, we're not going to give out the exact spot. All I can do is point to what we purchased back at historically and I think we gave a little bit more color as far as some of the metrics we look at, which is discounted cash flow as well as some market indicators as far as price-to-book and price-to-earnings. And there are definite trade-offs there. I think we're aware of sort of what goes on, in from a marketplace. But it's one of those things where we just continue to look at it, have discussions with our Board about where we think appropriate levels are. We feel like we're pretty disciplined in sort of the methodology of looking at it, and again, I think are hoping to be opportunistic when the opportunity presents itself, but recognizing also that we're trying to return capital to shareholders if we can't deploy it.

Chris Gamiatoni -- Compass Point -- Analyst

Okay. And I appreciate the comments about difficulty in managing the excess capital at the subsidiary level and pulling back, I guess $200 million of credit for the QSR. Has there been any thoughts or discussions about a special dividend of larger nature, post PMIERs 2.0 and the availability of ILN market?

Tim Mattke -- Executive Vice President and Chief Financial Officer

Yeah, Chris, I think, we have conversations with our regulator on a pretty routine basis sometimes more in depth probably on annual or semi-annual basis about sort of where we think we can go with dividend. I would tell you that we haven't had any in-depth conversation about sort of a larger special, but we do have conversations with them regularly about how does reinsurance traditional in the ILNs impact their view on dividend capacity, where do we think that can go to. And again, so we're very happy that the regulator approved the increase to $70 million a quarter this year, but obviously that's not our full earnings run rate. But again, continue to have that dialog and I would say that, we'll continue to explore not only quarterly but could there be other dividends. But at this point, there's nothing imminent and nothing really to discuss in detail as in the quarterly.

Chris Gamiatoni -- Compass Point -- Analyst

Okay. And just one little one. The new premium yield on new business dropped 1 basis points quarter-over-quarter. Was there anything material in that or is that mix related?

Michael J. Zimmerman -- Investor Relations

Chris, this is Mike. Mix related (inaudible) we've been discussing for a period of time right with the new premium rates that were in effect last year. The older book falling off, or that's on the yield, but new premium rates were effective last year. Now, that's going to result in a lower premium rate, so mix related, but nothing other than that.

Chris Gamiatoni -- Compass Point -- Analyst

Okay. Thank you.

Operator

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

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

Hi, thank you and good morning. A couple of just quick questions, first just staying with just the capital return. Was there something in Q1 that, I don't know (inaudible) were doing maybe the reinsurance or something, where you weren't able to be active for some reason with capital returns or repurchases.

Tim Mattke -- Executive Vice President and Chief Financial Officer

Mihir, this is Tim. No, no there is nothing specific to preclude just for being active with share purchases.

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

Okay. And you all didn't do any in Q1. Is that right?

Tim Mattke -- Executive Vice President and Chief Financial Officer

Correct.

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

Correct. Okay. And then just wanted to understand that the -- I think in your disclosure your talked -- there's footnote about changing the way DTI is calculated. What was the driver of that and I guess and what is the impact that you all expect from that change?

Michael J. Zimmerman -- Investor Relations

Yeah, Mihir, this is Mike. So that happened last year really where it conformed with what market practices. So we're calculating it, we're using the -- for pricing and eligibility. It's being -- it's excluded out for. So it's really conforming to market practices, was the driver before and that was the change.

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

Okay. Now that's helpful. And then just on the premium rate, obviously, I think just following up, with the impact of MiQ, do you expect that to moderate that drop, accelerated or no change. I think the expectation is that average premium rate will continue to decline a little bit just from as the new stuff and the lower pricing works its way. But and like with MiQ, obviously it's more granular pricing and it's not just the rate card. So, I was just wondering will that help moderate that downward trend or not really?

Michael J. Zimmerman -- Investor Relations

So Mihir, it's Mike. It's difficult to say. It's going to be mix dependent on the business that comes in. And obviously the pricing -- because it's a dynamic pricing tool at the same time, and how much of it comes through MiQ versus other ways of delivering price. So, it's still one that we just -- we'll continue to watch as it comes through, but it's difficult to say, and will definitively trend one way or the other.

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

And sorry, just one last question, staying on that, just following up, when you all priced up, the returns are pretty similar across all the buckets, right. I mean, that's the idea behind this dynamic pricing is -- or you know more granular.

Michael J. Zimmerman -- Investor Relations

Yeah, correct. (inaudible) this is Mike, we haven't changed our return criteria, correct.

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

Okay, great. Thank you. That's all my questions.

Michael J. Zimmerman -- Investor Relations

Thanks.

Operator

Your final question comes from Phil Stefano from Deutsche Bank.

Philip Stefano -- Deutsche Bank -- Analyst

Yeah, thanks and good morning. In thinking about new notices, it feels like some of your peers have started to talk about the inflection and an uptick in new notices coming through. Obviously, we got the 7% improvement year-over-year in first quarter '19. I guess thinking long run, how should we think about the inflection that's probably going to come at some point as this legacy book burns off and we have this normalized rate moving forward of the new business post crisis?

Michael J. Zimmerman -- Investor Relations

Phil, it's Mike again. I can't speak obviously to the competitors statements of what they are experiencing, but clearly our focus is a little bit -- it's more mature, and stable from that side of it versus, for others it might be growing. So I guess that could be one possible reason they see a higher rate. About two-thirds of our notices are still coming from the older book, a third coming -- a little more than third coming from the newer book in very low loss rates. So, (inaudible).

Stephen Mackey -- Executive Vice President, Chief Risk Officer

Yeah, this is Steve. I would just say, as the legacy book continues to roll off, we're going to be looking more at the economic fundamentals that drive mortgage performance. And you know where we stand today there's outstanding economic fundamentals that drive mortgage performance. We've got a very tight labor market, we've got wage -- solid wage growth, we've got home price appreciation. So all of those bode well for the performance of the post crisis vintages. And you know as long as those trends stay in line, I would expect to see continued strong performance from our post crisis book vintages.

Philip Stefano -- Deutsche Bank -- Analyst

Maybe trying to get to the same point but from a different perspective, assuming or looking at just the post crisis book of business, is there a percentage of loans in force that you'd expect to be new defaults on a quarterly basis or is there a way to think about kind of what normalized looks like from that perspective?

Michael J. Zimmerman -- Investor Relations

So, Phil, this is Mike. I mean, so clearly we model that out, it seems like a lot of time (ph), you know, looking at that and doing forecast. We don't -- we're not prepared to tell you we expect -- or why was that because that then leads into, to a certain extent, some forward guidance relative to earnings and losses incurred with that and we don't do forward guidance.

But historically, I would say, if you look back at long periods of time, you go back to the '90s and so on, you'd see 1%, 1.5% of our portfolio, current performance portfolio role is delinquent, in any given quarter, then you apply to cure rate. Whether that range is still appropriate given the comments that Steve made relative to the outstanding credit characteristics and the economic environment we're in, does it trend lower than that, you know, does it stay in that range. That's something that we continue to watch and monitor at the same time. That's why we say we continue to see -- expect strong performance, but is there normalized levels. I mean, we have a very different mix of business today than we do from the historic side of it as well. So, it's difficult to say.

Philip Stefano -- Deutsche Bank -- Analyst

Got it, all right. You can't blame us for trying. I appreciate the help Mike.

Michael J. Zimmerman -- Investor Relations

No problem.

Operator

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

Geoffrey Dunn -- Dowling & Partners -- Analyst

Thanks. Tim just one follow up with respect to the incidence assumption. Last year you had, I think about a 50 basis point uptick on the incidence assumption into the second quarter. And you've always cautioned us that the back half of the year, you could see upticks depending on what the experience is. With you now down to 8% is that a level you think can be sustained. Do we still think about seasonal pressure as the year go on potentially? And with what you're seeing, what do you think is the prospect for it to go potentially even lower?

Tim Mattke -- Executive Vice President and Chief Financial Officer

Geoff, again, a good memory on that. I mean, from a seasonal standpoint, there's always going to be a view that the first quarter claim rate should be lower based upon sort of just history of what you've seen. So I would say that I would still expect that seasonally that you would expect the first quarter to be better than sort of the remainder of the year. That being said, obviously the claim rate that we've estimated over the last couple of years has continued to trend lower. So it's hard to say that it wouldn't be at that level going forward, but based upon what we know now and based up on knowing sort of the history around seasonality our expectation is that it wouldn't be at 8% next quarter, for example.

But again we will look at it, in the second quarter based on the information we have then, taking into account sort of the trends and the seasonality we've seen historically.

Geoffrey Dunn -- Dowling & Partners -- Analyst

And given how the book is performing, the potential drop below 8%.

Tim Mattke -- Executive Vice President and Chief Financial Officer

I think it's tough to tell. I think with where we are right now, we feel comfortable that 8% is the right level for this quarter. But it's difficult to say, if it goes below that or if it goes back up next quarter.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Okay. Thanks.

Tim Mattke -- Executive Vice President and Chief Financial Officer

Sure.

Operator

There are no other questions from the phone.

Pat Sinks -- Chief Executive Officer

Okay. This is Pat. Again the year is off to a great start. We're very pleased. Thank you for your interest in our Company and have a great day.

Operator

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

Duration: 45 minutes

Call participants:

Michael J. Zimmerman -- Investor Relations

Pat Sinks -- Chief Executive Officer

Tim Mattke -- Executive Vice President and Chief Financial Officer

Douglas Harter -- Credit Suisse -- Analyst

Geoffrey Dunn -- Dowling & Partners -- Analyst

Randy Binner -- Friedman, Billings, Ramsey -- Analyst

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

Jack Micenko -- Susquehanna -- Analyst

Mackenzie Aron -- Zelman & Associates -- Analyst

Chris Gamiatoni -- Compass Point -- Analyst

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

Philip Stefano -- Deutsche Bank -- Analyst

Stephen Mackey -- Executive Vice President, Chief Risk Officer

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