Chris Curran - IR Mark Casale - CEO Larry McAlee - CFO.

Doug Harter - Credit Suisse Jack Micenko - SIG Mackenzie Aron - Zelman & Associates Mark DeVries - Barclays Bose George - KBW Mihir Bhatia - Bank of America Rick Shane - JPMorgan Geoffrey Dunn - Dowling & Partners.

Good morning. My name is Amelie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Limited First Quarter 2017 Conference Call. [Operator Instructions] Thank you. Chris Curran, Senior Vice President, please go ahead..

Thank you, Amelie. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO; and Larry McAlee, Chief Financial Officer. Our press release which contains Essent's financial results for the first quarter of 2017 was issued earlier today and is available on our website at essentgroup.com in the Investor section.

Our press release also includes non-GAAP financial measures that may be discussed during today's call. The complete description of these measures and the reconciliations to GAAP may be found in Exhibit L of our press releases.

Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward-looking statements. These statements are based on current expectations, estimates, projections, and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially.

For a discussion of these risks, please review the cautionary language regarding forward-looking statements in today's press release, the risk factors included in our Form 10-K filed with the SEC on February 16, 2017, and any other reports and registration statements filed with the SEC, which are also available on our website.

Now, let me turn the call over to Mark..

Thanks Chris. Good morning everyone and thank you for joining us today. I am pleased to report that Essent had another solid quarter of financial results, portfolio growth, strong credit performance and ongoing expense leverage continue to be the primary drivers of our high quality and growing earnings. As a franchise that invests in U.S.

mortgage credit risk, we are well positioned in growing our short portfolio and generating strong returns. We remained optimistic about our business as the underlying fundamentals of housing are positive and the real estate cycle remains in expansion mode.

Strong demographics such as the millennials entering their peak buying years continue to drive purchase mortgage demand. This combined with the increasing supply of new starter homes leads us to believe that housing will continue to be strong. Now, let me touch on our results.

For the first quarter, we earned $67 million representing a 39% increase from $48 million earned during the first quarter of 2016. On a per diluted share basis, we earned $0.72 for the first quarter of 2017 while also generating a 19% return on average equity.

Our results for the first quarter included a $0.03 per diluted share benefit related to the implementation of a new accounting standard on employee shared based compensation. Our increase in net income continues to be driven by growth in our insurance and force which increased 30% to $88 billion from $68 billion as of March 31, 2016.

This growth drove a 25% increase in net premiums earned to $118 million for the first quarter of 2017 from $94 million for the first quarter a year ago. Finally, our expense ratio for the first quarter decreased to 31% compared to 33% for the first quarter a year ago.

We remain pleased with our insured portfolio's performance; credit guard rails implemented by mortgage lenders and the GSE's post-crisis continue to have a positive impact on our underwriting results and quality assurance reviews. For us this environment is resulting in a high credit quality portfolio.

In fact, we the quarter with a weighted average FICO of 748, less than 6% of that portfolio below 680, and at default rate of 45 basis points. Our balance sheet remains strong with $2 billion of assets and $1.4 billion of equity at March 31. In addition, we grew adjusted book value per share 21% to $15.11 compared to $12.49 as of March 31, 2016.

In Bermuda, we remain pleased with Essent Re's performance. It has become another platform to invest in U.S. mortgage credit risk at returns that are accretive to our franchise. To support Essent Re's ongoing growth, we drew another $25 million on a $200 million credit facility during the first quarter and contributed this amount to Re.

At March 31, 2017 Essent Re has $453 million of equity capital. Turning our attention to Washington, it remains our view that the new administration supports less government versus more and housing finance which we believe is a long-term positive for private mortgage insurance.

Looking forward, our industry can play a larger role in a housing finance system where more private capital can be invested to support housing while also lowering tax payer risk. Now let me turn the call over to Larry..

Thanks Mark and good morning everyone. I will now discuss the results for the quarter in more detail. For the first quarter, we reported net income of $67 million or $0.72 per diluted share. Net income for the quarter is up 6% over the fourth quarter of $63 million and 39% over the first quarter a year ago or $48 million.

Note that this quarter's results reflect the FASBs accounting standards update related to employee share based compensation awards that was effective January 1, 2017. This update requires that excess tax benefits or deficiencies be recorded as a discrete item in the tax provision in the income statement in the quarter they share award best.

Accordingly, we recorded an excess tax benefit of $0.03 per diluted share in the first quarter. Earned premium for the first quarter was $118 million, a slight increase from $117 million in the fourth quarter and an increase of 25% from $94 million for the first quarter of 2016.

The average premium rate for the first quarter was 53 basis points, down compared to 56 basis points for the fourth quarter and first quarters of 2016. The decrease in the average premium rate is due to a lower level of single's cancellation income during the first quarter of 2017.

We remain pleased with the credit performance of our insured portfolio ending the quarter with the default rate of 45 basis points. Our provision for the quarter was $3.7 million compared to $3.9 million for the fourth quarter and $3.7 million for the first quarter a year ago.

The slight decline in our provision this quarter compared to last quarter is primarily driven by reduction in the number of new default, net of cures reported during the quarter, partially offset by the impact of ageing of the default portfolio.

Other underwriting and operating expenses were $36.3 million for the first quarter, and our expense ratio was 30.9%, both slightly higher than $34.8 million and 29.8% respectively for the fourth quarter of 2016.

Note, that this increase in primarily due to an increase in payroll taxes associated with divesting of shares and incentive payments in the first quarter. For the full year 2017, we believe that our first quarter expense level is a reasonable run rate for the remainder of the year.

Income tax expense for the first quarter was calculated using an annualized effective tax rate of 26.8% and was reduced by $3 million of excess tax benefits associated with the new accounting standards update I touched on earlier.

We expect our estimated tax rate for the balance of the year to be 26.8% non-incorporating any impacts of possible Federal Tax Reform. The consolidated balance of cash and investments at March 31, 2017, was $1.7 billion. The cash and investment balance at the holding company was $41 million compared to $47 million as of December 31, 2016.

As Mark noted, earlier during the first quarter we drew an additional $25 million under our revolving credit facility and used the proceeds to make a capital contribution to Essent Re. In addition, we contributed another $5 million to Essent Re for a total of $30 million during the quarter.

As of March 31 we have $125 million outstanding on this facility with $75 million of undrawn capacity. The weighted average interest rate on the amount drawn under the credit facility as of March 31, 2017 was 2.96%. As of March 31, 2017 the combined U.S.

mortgage insurance business statutory capital was $1.2 billion with a risk-to-capital ratio of 14.6:1, compared to 14.7:1 as of December 31, 2016. Finally, Essent Re had GAAP equity of $453 million supporting $4.6 billion of net risk in force. Now, let me turn the call back over to Mark..

Thanks, Larry. In closing, Essent had another strong quarter of financial performance as we've continued growing our high-quality earnings and generating strong returns for our shareholders. We remained positive on housing and believe that the real estate cycle remains in expansion mode.

The Essent franchise is strong and we are well positioned to grow in both the States and Bermuda. We remain optimistic about Essent's prospects and the role of private mortgage insurance in U.S. housing finance. Now, let's turn the call over to your questions.

Operator?.

[Operator Instructions] Your first question comes from the line of Doug Harter from Credit Suisse. Sir, your line is open..

Thanks.

Can you talk about the decline in the premium yield you experienced during the quarter and during that context what you're seeing on premium yield on new insurance written?.

Doug, this is Mark. Yes, I think as Larry said in the script, the premium yield decline for the first quarter was really just a decline of single cancellation income. So to put it in context, so kind of in a bigger picture.

I would say earned premium yield on the portfolio without single's cancellation and even net premium written on kind of new business is right around that 50 basis point mark, maybe a basis point above.

Single's cancellation normalized is 1 or 2 basis points above that, and then when we hit certain quarters and certainly the third and fourth quarter last year kind of during the Brexit refi wave, that could add anywhere, believe it or not, 3 to 6 basis points to that number.

So it's - I wouldn't read too much into it, I think longer term kind of that guidance in terms of that low 50s market is a good way to look at it and more importantly, we grew insurance in $20 billion year-over-year; so I mean picking few basis points - again, I wouldn't get too concerned about that, it's really around the volatility.

But bigger picture kind of 50 - low 50s kind of normalized earned premium yield, it's something for you guys to use as you model out the growth..

And then yes, it looks like the - the greater than 95 has been increasing, does that change that premium yield number much or is that still really small enough, it doesn't really move the needle?.

Yes, it doesn't move it that much. I mean the 95s - we look at it more from a risk standpoint versus kind of a premium; the 97s obviously are little bit riskier, that's mitigated by smaller coverage. But if you take a step back and look at percentage over 90, that's been right around 53%. So some of the 97 really just cannibalize the 95s.

Looking forward, you would expect the 97 to grow a little bit more as RSE [ph] roll out the programs but I wouldn't expect, I would expect the impact on any premium to be minimal, best..

Okay, thank you..

Sure..

Your next question comes from the line of Stefano [ph] from Deutsche Bank. Your line is open..

Thanks. It's a follow-up on that last question just a little bit. I'm sure it won't be the last premium yield question there is. It feels like low 50s is the new guidance. Previously it was more mid-50s was the right way to think about it.

You know, what change in the past quarter or two - and how can you help us think about kind of what that underlying premium yield might be moving forward as the higher priced business rolls off and assuming pricing stays about flat at today's level?.

I think that incorporates kind of the newer business that we've writing over the past year. And also remember, there has been a little bit of a shift in the portfolio as when the industry shifted to the lower DTI; we ended up seeing little bit higher credit quality because of the pricing there.

So the premium yield maybe little bit lower which again is incorporated but we're seeing kind of sustained higher FICOs. So I think still the portfolio is kind of a net high 740. So I wouldn't read too much into it. Mid 50s could be 54. So I think –just be careful not to pass it too finally.

We don't want to be kind of precisely wrong when we think about this stuff. Again kind of, even if you say approximately 50 basis points, think about Essent really is growth in insurance and force. With $88 billion in insurance and force at the end of the quarter, that's up from 68 from the first quarter last year.

Essent's going to follow the growth in housing and as I said in my remarks and as I said on past calls housing continues to be strong, starter homes are continuing to be built and I think we'll follow the fortunes of housing and again if you try to be generally right, if you want to be generally right around our growth in insurance and force, now the premium rate is I think year-over-year we'll continue to have to grow that topline..

Okay. Thank you. Understood. And then I'm thinking about the insurance and force growth and if I calculate it correctly, the new insurance through in market share was around 16% which fills like a new quarterly high water mark for the company.

Again, don't want to make too much around one quarter in understanding there's goal post around all these numbers.

Are there any general feel for where share might be coming from? Is it new customer relationships, more business from existing relationships, market share shaking got appears; any color you can provide around that?.

Yes. Again I mean I think we said in our last quarter, we feel comfortable in that 13 to 15% range and that's really with one, with the merger of with Arch and UG one competitor has left the market. So we're now 106. Again, our long term goal is to grow a high quality insurance and force portfolio.

Our market shares always going to be volatile sometime quarter-to-quarter you know point or two. I don't read too much into it. We're not - it's not a metric where folks are compensated in the company where 75% of my long term incentive is growth in book value per share. So we're really focused on that.

So I wouldn't - again, you have the merger, you have a lot of noise in the industry in terms of something's but again there's not one thing we're trying to pinpoint and on. But I would again focus on kind of a growth in insurance and force and again how it kind of follows housing.

Just again on the premium yield, just one more thing Phil to point out for that I think where Essent's a little different than some of our competitors. There's just lack of reinsurance. So I think there's been a lot of noise in the market around people trying to figure out premium yield.

But I think with ours is pretty straightforward and we've disclosed that our premium yield every quarter since we've been public. So if you go back to 2014 and look at quarter-by-quarter you'll see anywhere from 53 to 58 basis points. So it really hasn't changed that much.

So kind of little surprising that folks are looking at it this quarter, that's fine. But again, big picture, it hasn't changed that much..

And one more question for you; thinking about the big picture and the importance of the growth in book value per share. The messaging to the sales force feels like it's been focused on that and to grow a strong book.

Does that message feel like it's continuing to resonate with the sales force? Has the message then changed at all over the past year or two?.

We haven't changed our message since the day we started the company. And I think one of the things that's important for investors is to realize is everyone in the shareholder is - every employee in the company is a shareholder. We made them shareholders when we went public and we invested in the fourth quarter this year.

So we're clearly focused on the long term which is making sure we have good counterparties. It's sitting down, like lender's making sure we can help them grow. We're not going to be with every lender all the time.

But really, and I'm still out visiting with our customers and visiting with our sales force and they get the same - and I have been telling the same message to customers and again employees since the day we started the company 'think longer term, let's think of ways we can help our clients, grow their business the right way and the reward for that is allocation of mortgage insurance'.

And again as housing grows, our lender grow and Essent grows with it. So there's no need to for our standpoint to overcompensate or compensate solely based on the number of loans that someone is able to insure at the sales person level because it can hurt you down that road in terms of risk.

So this is the culture and this is kind of the game plan that we rolled out. Others are different and that's fine but this is one we're comfortable with and to date it's worked pretty well..

Well, appreciate the color and best of luck in the rest of the year..

Thanks..

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

Hi. Good morning. Guys just wondering if you have the annualized quarterly persistency from the first quarter; obviously big driver at the model and growth in insurance and force? We have the actual annualized but I didn't see the first quarter number right there..

Jack, I would look at in terms of guidance. I would stick to that high 70s. I think that's good guidance kind of going forward for the year. Rates have come down a little bit from where they were kind of in fourth quarter, think 30 or fixed rate today is probably worrying around - we wouldn't expect that to change too much.

For the remainder of the year, I think that high seven is pretty good guidance as you're kind of plug stuffing your models..

Okay. And then on the severities, it's bounced around a bit but the claims have been more constant.

Is that just smaller loans making up a bigger portion of the claims or is there something else in that to consider?.

Hey Jack, it's Larry. Not necessarily really small loans. I think it's the small number of claims that we've experienced relatively. In the last call when we sort of looked at the year-end 16 results, I think we guided you more towards 2015 severity which was in the low 90% range has been a better guide.

So again, I think we're still in an area where our overall claims are relatively low. But we've been kind of probably low to mid 90s as a better long term severity assumption for the business..

Yes. And Jack, it's Mark again. In quarters where the - now the losses are anywhere 3 to $4 million. I wouldn't read too much into any kind of the details to look for trends. Add that with kind of to date incurred loss ratio pretty low; again our book's relatively new. But I just wouldn't read too much into there, differences in severities and stuff.

It's the law of kind of small numbers here..

Okay. Fair enough. Just one more, it looks like the positive development was a bit better this quarter from the back book. Is there anything - obviously the post 9-10 books are pretty pristine.

But is there anything in this quarter that you saw that caused things to even look better?.

Yes I think - Jack, again this is Larry. I think it's really just the number of cures we experienced during the period. If you look at the supplement, in the fourth quarter we had about 861 cures up substantial in the first quarter to a little bit over a 1100. So it's really the level of cure activities that we saw during the quarter.

Nothing unusual other than that..

Which could be a little season?.

That's right..

Okay. Alright. Thanks guys..

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

Great, thanks. Good morning. Can we just talk about Bermuda and given there's now $75 million left on the revolver.

How should we be thinking about potential capital need going forward there given the outlook for the risk sharing and also the strength in the primary market?.

Yes. Hey, Mackenzie its Mark. 75 million on the line, we also have 40 plus million at HoldCo. So I think we're in good shape with capital. As we said before, we do look at the line as kind of a bridge to more permanent capital and it was a way to kind of take advantage of growth opportunities.

So with that in mind I think we're always evaluating ways to kind of take the line out with more permanent forms of capital via debt or equity and I would expect us to continue to look at that as we continue to grow Essent Re which is really a positive sign I think. We said before Essent Re is kind of in capital consumptive mode.

Well, that's code word for growth. So as Essent Re continues to grow both on the third party side and obviously the affiliate's growing just because the core NIW is so much higher. So it's continued growth capital. So we're really pleased.

I think Essent Re is really blossomed into kind of another platform for us to take on mortgage credit risk and for us looking forward, we'll continue to invest in that platform..

Okay. Great, and has there been any developments so far this year just with the GSE is the next line the opportunity is around deeper cover and risk share on the back end.

Is that incremental?.

No. I wouldn't - I think they did the deep MI deal last year and there's another one in the market now I believe. So I think we'll continue to do those once or twice a year and they continue to reinsure via Bermuda the below 80 business and we've done 20 plus deals year-to-date. That business will continue to grow as the market grows.

So as we talked about us following housing, the GSE is obviously follow housing too. So as that market grows, I would expect more business to be reinsured to Bermuda. The other item that consider also - with the GSEs have done a really good job around Bermuda and expanding the number of counterparties.

So we were early to it but they've expanded outside of the group and they continue to really look to build breadth and depth in that market which we look at as a positive. So as they build breadth and depth in the market, they make 10 to want to reinsure more going forward to the reinsurance business.

So again I think based on a really a good job both on the capital market side and obviously on the reinsurance side and we'll continue to benefit from that..

Okay. Thanks for the color and grasp on the quarter..

Thanks..

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

Yes. Thanks.

Had a follow up question on Essent Re; - kind of concern to capital, do you need to first find access to some other forms of more permanent capital before you think about increasing the amount of primary of yours that you reinsured through that?.

No. I think we're pretty comfortable with kind of every sources we have now and again I think we feel like we have pretty good access to the debt markets and to the equity markets. So that's not real, I think we're more focused on growth and not so much focused on supplying the capital. I do think we've been asked this before.

I think we would favor debt or equity versus reinsurance. I think we can more cost effectively finance growth via that versus using reinsurance at this time..

Okay. Got it and then just with the investment portfolio I think you've got about 21% investors immunities here. I'm just giving the prospect of a potential corporate tax cut and income tax cut.

How are you guys thinking about repositioning that? I mean is it already kind of priced for that or is there an opportunity kind of rotate out of the immunities?.

Yes. Again remember the immunities; one of the things on immunities besides the tax situation is the duration of them. So of the bonds, we try to always matching kind of the assets with the liabilities. In terms of our book growth the liabilities tend to extend.

So obviously think through tax reform and would rotate the portfolio accordingly but again tax reform is still, it's still kind of up in the air so to speak. So we'll wait to see to get some more guidance around tax reform before we make any adjustments. But we wouldn't look to - we wouldn't expect hard time to kind of to rotate the portfolio..

Yes, and Mark, its Larry. Just one other thought on that. We think we're really well positioned to reposition the portfolio if need be. First of all, we're generating a significant amount of cash in the insurance companies each quarter.

So we generate almost $80 million of operating cash flow in the first quarter and the portfolio is well added so we have about 17% of the portfolio that matures over the next 24 months.

So because of the cash flow as well as the lathering of the portfolio we think we're really well positioned to take advantage of either movements in relative value of the underlying securities or things like tax reform..

Okay. Thanks..

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

Hey. Good morning. So just wanted to follow up on the capital question; the insurance company, you guys have said you'll be self-funding. The growth there is definitely been strong than I guess that we expected at this point. Insurance and force over 30% still year-over-year.

Do you think given those growth trends you think you might have to revisit the capital needs of the insurance company?.

No. I think we're self-generating but then that's no guarantee. It's really the issue still around Essent Re which the portfolio is younger and also keep in mind as you think through longer term capital needs for Essent Re that as the affiliate business continues to grow, and Essent Re becomes self-generating too.

So this is again - that's why we favored the line of credit in shorter term debt because it really is a bridge and the permanent capital more or less is going to come overtime with cash flow generated from the businesses..

Okay.

And can you just remind us in terms of how much you can see to Essent Re - can it go up to that 50% overtime as Essent Re has capital bills that Essent Re to support them?.

Yes, I think 50% is kind of the number we've talked about before and that's clearly something that's under evaluation.

I think it's a little bit of a holding pattern right now Bose given where we are with tax reform but I think you nailed it in terms of if tax reform wasn't on the table, becomes a little bit about capital optimization and as we self-generate cash we'll be able to continue to move up the quarter share.

But again, given where tax reform is right now, we're kind of on the side lines..

Okay. Great, thanks.].

[Operator Instruction] And your next question comes from the line of Mihir Bhatia from Bank of America. Your line is open..

Good morning and thank you for taking my questions. I was hoping you could talk about the, go back to the prior period result for a - just revisit that for a second.

I guess it's been a pretty consistent trend for pretty much every quarter for the last couple of years and I was just wondering if you could provide more color on just what's driving that and how you think about that on a go forward basis in terms of you just started incorporating that in your expectations for what the provision and reserves are going to look like?.

Yes. Hey, it's Mark. Again, I wouldn't, we're not going deal too much into prior period reserves and the changes. It's just too small of a number and I think again you have to take a step back and look at the bigger picture of where losses are.

I do think the Exhibit G in our stat supplement around incurred loss ratio is really the page you should study as you think about kind of your view on losses to date and the future of losses.

So the earlier books, they're small but you can pretty much call them in terms of where the ratio is going to end up in newer books obviously trending well but again really-really young. It's hard for us to give guidance and we're not going to get into quarter-by-quarter reserve changes. Bigger picture; let's take a look at our portfolio.

It is 748, average cycle and less than 6% of that is below 680. So it's not really a barbell portfolio. Pre-crisis, the MI is run at different stage but the average spike is you know is probably closer to 700. I knew it closed to 40% of that business below 680.

So it's a much different portfolio because of really post-crisis guard rail, QM, enhanced manufacturing at the lender level which has been fantastic. So you're looking at a much different portfolio when you have a borrow with an average spike of that high. We see it in our numbers; they have lower DTIs. They have more reserves.

If there was an event, perhaps job loss that could affect our mortgage payment to better equipped to keep that payments current as they look for future employments.

So again I really would study the portfolio in terms of the credit make-up, average LTD is 92 and then look at the performance to date when you're looking to model reserves going forward at incurred loss ratio is going forward. I think that to me those are two big things you should look at..

Good, okay. Thank you..

Sure..

Your next question comes from the line of Rick Shane from JP Morgan. Your line is open..

Hey, Mark. Thank s for taking my question. Most have been asked and been answered but I just like to sort of dealt into one thing that we should start thinking about a little bit.

Our expectation is with rates rising persistency is yet to go up a bit and if you could just help us think about the inner play for persistency with credit and how we should be thinking about that because I'm assuming that you have a portfolio that is currently a little bit more seasoned all the things we need gone and how that will impact the future defaults?.

Yes. Hey Rick, it's Mark. Pleasure to take your call. I think in terms of rates rising, if they would have to be real sudden for to have a big swing and persistency. So as we said earlier, I think the high 70's is good guidance. And if there is a big swing and persistency, we're probably going to see a production in NIW.

So they are pretty well correlated. So again, I wouldn't in terms of guidance I still think the high 70's is a good proxy. As you think about how the book seasons, - going to have that much of that impact. I really think you have to again get back to kind of the makeup of the portfolio ultimately that's going to drive the credit performance.

And again I think we've, I think the secular change in credit that you've picked up on before and others have clearly picked up on is around the MI's is one much higher credit portfolio that we've seen in the past and two just better manufacturing quality.

I mean I visit lenders down in Texas a few weeks ago and just the ability to enhance income verification, asset verification> I mean these tools didn't even exist 5-6 years ago.

So as lenders continue to use technology, you're seeing more around collateral evaluation although that has ways to go given the complexity on appraisals on housing, but kind of the automated verification of assets and income that reduces the potential for fraud. So it also over time will increase efficiencies for both the lenders and the MI.

So when you kind of look at this the guard rails that we talked about with QM, enhanced manufacturing quality, tough QA by the GSE. GSE's have done a great job around that and the makeup of the portfolio that's really going to drive the ultimate performance and you have to factor in macroeconomic conditions.

I mean that's going to be the big driver and I think what you had in the last downturn unfortunately was a weaker portfolio going into a tsunami of a cycle and the result was where it was. Again we feel pretty comfortable with the portfolio today, we would expect over the next couple years to have a recession.

We never promised on the road show that we would operate the company recession free, so I think that's why you're careful about the portfolio you build, because you know you're going to run into the stormy weather once in a while. And we're obviously constantly on the lookout for that. But again, we're running this company for the longer term.

So we're very - credit kills these businesses and so we're really focused on credit really focused on making sure we put good loans, good counterparties, and lenders into the portfolio. We've been fortunate to grow the portfolio at a nice pace, because again housing has been strong.

And housing continues to be strong and it will continue to grow the portfolio. And again, I think we said this on last call but again folks it bears repeating as at the NIW levels for last year were more than NIW levels from 2009, 2010, and 2011 combined. So these are really strong levels and we are benefiter of that.

In our views housing continues to be strong and as the demand continues to grow for housing, remember the median age for the millennial generation is 25 years old. The average age for the first time home owner is 32. So the demand is going to continue to come over the next few years. The question really is where all these young adults going to live.

And I think there you've seen a nice response by the home builders. I mean the publicly traded home builders that you can follow. You can see they have all rolled out starter home programs, in that $200,000 range our average loan size is right around $229,000 to $230,000. So you can see the supply coming on.

We've seen in some markets, where the supply is super tight so it's been harder for folks to get home. But again that will balance out over time. These are more - this is a secular wave, but again I think looks good for the next 12 to 18 months for us..

Got it, it's 24 hours and earning call but --. I do want to follow up with one other question, which is you talk about the structural changes and I think that that's really important. We have seen other asset classes deterioration in credit quality as there has been a little bit of let's call it mission increase.

Are you seeing any shifts even at the margin that cause, you think the lenders are easing up just a little bit?.

Excellent question and I think in terms of some of the things you've seen in other asset classes.

I had pointed out two things, I think you know but they are repeating is one, we are less bar belled [indiscernible] in a lot of the specialty finance companies and they are anywhere from 15% to 30% of the portfolio below 660 and we're not even close to that. We are only 8% below 680 and I think our below 660 is obviously much lower than that.

Second we're secured. So we are secured assets. I don't think, we're I think it's big differences between us and some of the specialty unsecured guys. But to answer your question, we really haven't seen a lot of - and again I get back to the guard rails. So with QM Rick, it's hard.

It's really hard to the lenders even if they wanted to kind of get outside those guard rails. The GSE's also have pretty restrictive pricing by risk, but their loan level price adjustments below 680 are quite burdensome for the lender that's why you see most of that business go to FHA and we're perfectly fine with that.

I mean we're not trying to get every loan, I think we're focused more on what's the best loan for the borrower. I think below 680, if most of those loans go to FHA, I think that's fine with us. So again, look at the composition of the portfolio and again the rules are pretty strict in mortgage.

And again I think the lenders follow that, because for a lender Rick, a good lender is really going to - the best ones those are out there that I talk to they are focused on process and lowering the origination costs.

They're the ones who win at the end, the guys who try to come up with the next product that's a little riskier, that's kind of playing, those are small stakes, the big guys are the ones who really look for efficiencies and look at the big picture.

There is some more we're never going to be, we're not trying to get every long from every single lender for every borrower and we're trying to be right down the middle..

Great. Thank you, Mark..

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

Thanks. Good morning guys. Larry, first I missed your comment about the outlook for expenses for the year.

Could you just reiterate that please?.

Yes Jeff, we think the first quarter run rate is a pretty reasonable - first quarter expense was a pretty reasonable run rate for the balance of the year..

Call it approximately $145 million Geoff..

Perfect. And then Mark, your comments about additional capital support were clear with regard that equity over reinsurance but.

As you think about longer term risk management do you see your role in your business or in private in general for extra well cat covers?.

Yes, yes we do. I mean we've looked at it and we talked about it. We've talked about it before and I think that's the one place where the industry is always vulnerable if there's a super kind of cat event. I do think I think when you look at stuff like that Geoff.

You have to look at two things; one is what's the probability of an event like that happening over the next five years and then what will the impact of that event be on the portfolio and I think with us two things our view is over the next few years we think an event like that kind of a repeat of 2006 is relatively remote.

I think if we're to see every session we think it would look a lot more like post 911 which by the way housing sail through. But then again, if it's relatively remote and then again with our portfolio being as strong as it is, we feel pretty good again over the next few years.

However, you know from a cat cover standpoint, if we could find it and it could be priced appropriately certainly something we would evaluate. But again, our view with reinsurance and general that we've seen in the market is it's primarily quota share or capital markets base. It's relatively costly versus are cost - rather it's better equity.

So we would certainly look at reinsurance, we felt like it really truly mitigated risk and protected capital, but we're certainly not going to pay for it as an alternative to debt or equity. And I think it complicates the story too quite frankly. I think our access to capital debt and equities both very strong right now.

And again, but again if we do see it and we feel like we can mitigate risk and protect shareholders we certainly evaluate it..

Okay, thanks..

And there are no further questions at this time. I will now turn the call back over to management..

Thank you operator, we would like to thank everyone for participating in today's call and have a great weekend..

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