Q4 2023 NMI Holdings Inc Earnings Call
Participants
John Swenson; VP, IR & Treasury; NMI Holdings, Inc.
Brad Shuster; Executive Chairman and Chairman of the Board; NMI Holdings, Inc.
Adam Pollitzer; President & CEO; NMI Holdings, Inc.
Ravi Mallela; EVP & CFO; NMI Holdings, Inc.
Terry Ma; Analyst; Barclays
Doug Harter; Analyst; NMI Holdings, Inc.
Arren Cyganovich; Analyst; Citigroup Inc.
Bose George; Analyst; KBW
Mihir Bhatia; Analyst; BofA Securities, Inc.
Rich Shane; Analyst; JP Morgan
Mark Hughes; Analyst; Truist Securities
Eric Hagen; Analyst; KPMG
Presentation
Operator
Good afternoon and welcome to the NMI Holdings Fourth Quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You may press star, then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to John Swenson of management. Please go ahead.
John Swenson
Thank you, Gary. Good afternoon and welcome to the 2023 fourth quarter conference call for National Airlines. I'm John Swenson, Vice President of Investor Relations and Treasury from us on the call today are Brad Shuster, Executive Chairman, Adam Pulitzer, President and Chief Executive Officer, Ravi Narula, Chief Financial Officer, and Nick real Neto, our controller financial results for the quarter were released after the close today. The press release may be accessed on NMI's website located at National MI.com under the Investors tab from the course of this call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our regulatory filings with the SEC. If and to the extent the company makes forward-looking statements. We do not undertake any obligation to update those statements in the future in light of subsequent developments further, nor should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also note that on this call, we may refer to certain non-GAAP measures in today's press release and on our website. We provided a reconciliation of these measures to the most comparable measures under GAAP.
Now I'll turn the call over to Brad.
Brad Shuster
Thank you, John, and good afternoon, everyone. I'm pleased to report that in the fourth quarter, National MI again delivered standout operating performance, continued growth in our insured portfolio and record financial results, capping a year of tremendous success. We closed 2023 with $40.5 billion of total NIW volume and a record $197 billion of high quality, high performing primary insurance-in-force. We delivered broad success in customer development, continue to innovate in the reinsurance market and once again achieved industry-leading credit performance.
In 2023, we generated record GAAP net income of $322.1 million, up 10% compared to 2020 to record diluted earnings per share of $3.84, up 13% compared to 2022 and delivered an 18.2% return on equity.
Looking ahead, I'm excited at the opportunity we have to continue to build on our success as we plan for 2024. We'll continue to focus on our people, our talented, innovative and dedicated and will continue to invest in our culture with a focus on collaboration performance and impact will continue to differentiate with our customers. The mortgage market is connected and evolving and will continue for work to continue to stand out with our focus on customer service value added engagement and technology leadership. We'll continue to prioritize discipline and risk responsibility as we grow our insured portfolio, working to write a large volume of high quality, high return business under the protective umbrella of our comprehensive credit risk management framework, and we'll continue to focus on building value for our shareholders, growing earnings, compounding book value, delivering strong mid 10s returns and prudently distributing excess capital.
With that, let me turn it over to Adam.
Adam Pollitzer
Thank you, Brad, and good afternoon. Everyone. National MI continued to outperform in the fourth quarter, delivering significant new business production, consistent growth in our insured portfolio and record financial results. We generated $8.9 billion of NIW volume and ended the period with a record $197 billion of high quality, high performing primary insurance in force.
Total revenue in the fourth quarter was a record $151.4 million, and we delivered GAAP net income of $83.4 million and an 18% return on equity. Overall, we had an exceptionally strong quarter and closed 2023 in a position of real strength. We generated $40.5 billion of NIW volume during the year and exited with $197 billion of Primary insurance-in-force.
Our portfolio is the fastest-growing highest quality and best performing in the MI industry and has enormous embedded value. We now have nearly 630,000 policies outstanding and it helped a record number of borrowers gain access to housing at a time when they needed us most. We enjoyed continued momentum and growth in our customer franchise, activating 70 new lenders in 2023 and ending the year with over 1,500 active accounts.
We continued to innovate and find success and broad support in the capital and reinsurance market. We completed four new reinsurance transactions during the year further extending our comprehensive credit risk transfer program, and we continue to efficiently return capital and drive value for shareholders. With our upsized share repurchase program, we were once again recognized as a great place to work our eight consecutive award, which we view as a reflection of our unique corporate culture and a testament to the hard work and dedication of our talented team, and we achieved record full year financial results, generating $579 million of total revenue, up 11% compared to 2022, $322 million of GAAP net income up 10% compared to 2022, $3.84 of diluted earnings per share, up 13% compared to 2022 and an 18.2% ROA.
As we begin 2024. We're encouraged by both the broad resiliency that we've seen in the macro environment and housing market and by the continued opportunity and disciplines that we see across the private MI industry. The housing market has been strong. House prices have reached new highs. Declining rates have spurred incremental activity and underlying strength in the labor market and the recent rally in equity markets have worked to both bolster household balance sheets and drive increasing confidence for prospective buyers. The mortgage insurance market environment remains constructive as well.
Total MI industry NIW volume was an estimated $285 billion in 2023, with the market demonstrating real strength despite the headwind of rising rates through much of the year. Our lender customers and their borrowers continue to rely on us in size for critical down-payments support. And we expect that the private MI market will remain just as strong in 2024 with long-term secular trends continuing to drive an attractive new business opportunity. The MI pricing environment remains stable and balanced as well, allowing us to fully unfairly support lenders and their borrowers, while at the same time appropriately protect risk adjusted returns and our ability to deliver long-term value for our shareholders and credit performance continues to track with underwriting discipline across the mortgage market and existing borrowers well situated with strong credit profiles, record levels of home equity and for most fixed monthly payments at historically low note rates.
As we look ahead, we're confident the macro environment remains resilient. The private MI market opportunity is compelling, and we are well positioned to continue to lead with impact and deliver value for our people, our customers and their borrowers and our shareholders. We have a strong customer franchise, a talented team driving us forward every day, an exceptionally high quality book covered by a comprehensive set of risk transfer solutions and a robust balance sheet supported by the significant earnings power of our platform with debt. I'll turn it over to Ravi.
Ravi Mallela
Thank you, Adam. We delivered record financial results in the fourth quarter with significant new business production, strong growth in our high-quality insured portfolio and record top line performance. Favorable credit experience continued expense efficiency and record EPS. Total revenue in the fourth quarter was a record $151.4 million. Gaap net income was $83.4 million or a record $1.1 per diluted share and our return on equity was 18%.
We generated $8.9 billion of NIW and our primary insurance in force grew to $197 billion, up 1% from the end of the third quarter and 7% compared to the fourth quarter of 2022. 12-month persistency was 86.1% in the fourth quarter compared to 86.2% in the third quarter. Persistency remains well above historical trends and continues to serve as an important driver of the growth and embedded value of our insured portfolio.
Net premiums earned in the fourth quarter were a record $132.9 million compared to $130.1 million in the third quarter. We earned $983,000 from the cancellation of single premium policies in the fourth quarter compared to $864,000 in the third quarter. Net yield for the quarter was 27 basis points and core yield, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings was 34 basis points, both unchanged from the third quarter.
Investment income was $18.2 million in the fourth quarter compared to $17.9 million in the third quarter. Total revenue was a record $151.4 million in the fourth quarter, up 2% compared to the third quarter and 14% compared to the fourth quarter of 2022. Underwriting and operating expenses were $29.7 million in the fourth quarter compared to $27.7 million in the third quarter. Our expense ratio was 22.4% compared to 21.3% in the third quarter.
We had 5,099 defaults as of December 31st compared to 4,594 as of September 30th, and our default rate was 81 basis points at quarter end. Claims expense in the fourth quarter was $8.2 million compared to $4.8 million in the third quarter. Interest expense in the quarter was $8.1 million. Net income was $83.4 million or a record $1.1 per diluted share, up 1% compared to $1 per diluted share in the third quarter and 17% compared to $0.86 per diluted share in the fourth quarter of 2022.
Total cash and investments were $2.5 billion at quarter end, including $114 million of cash and investments at the holding company. Shareholders' equity as of December 31st was $1.9 billion and book value per share was $23.81. Book value per share, excluding the impact of net unrealized gains and losses on the investment portfolio was $25.54, up 4% compared to the third quarter and 17% compared to the fourth quarter of last year.
In the fourth quarter, we repurchased $31.5 million of common stock, retiring 1.1 million shares at an average price of $27.60. As of December 31st, we had $177 million have repurchased capacity remaining under our existing program. At quarter end, we reported total available assets under PMIERs of $2.7 billion and risk-based required assets of [$1.5]. Excess available assets were $1.2 billion.
In January, we entered into a new quota share reinsurance treaty and a new excess of loss reinsurance agreement, which together will provide forward flow coverage to comprehensive risk protection for our 2024 new business production production at an estimated 5% pretax cost of capital reinsurance remains a core pillar of our credit risk management strategy and an efficient source of growth capital for our business. And we're pleased to have achieved such favorable outcomes in both the quota-share and XOL markets in January, we also saw significant upward movement in our insurer, financial strength and holding company credit ratings from all three major agencies receiving upgrades from Moody's and S&P and strong investment grade debut ratings from Fitch. We're pleased that each of the agencies has recognized the continued strength of our counterparty profile, uniquely high-quality insured portfolio, best-in-class credit performance, robust balance sheet and consistently strong financial results with their announcement. Overall, we had we delivered standout financial results during the fourth quarter with consistent growth in our high-quality insured portfolio and record top line performance. Favorable credit experience and continued expense efficiency, driving significant profitability, record EPS and strong returns.
With that, let me turn it back to Adam.
Thank you, Ravi.
Adam Pollitzer
Overall, we had a terrific quarter capping a record year in which we delivered broad success and customer development continued to innovate in the reinsurance market once again achieved industry-leading credit performance and generated exceptionally strong financial results with record profitability, significant growth in book value per share and an 18.2% return on equity.
Looking ahead, we're confident in our ability to continue to lead with impact and deliver value for our people, our customers and their borrowers and our shareholders.
Thank you for joining us today, and I'll now ask the operator to come back on.
So we can take your questions.
Question and Answer Session
Operator
We will now begin the question and answer session to ask a question. You may press star then one on your telephone keypad. If you're using a speakerphone please pick up your handset before pressing the key. To withdraw your question, please press star then two. At this time we will pause momentarily to assemble our roster. The first question is from Terry Ma with Barclays. Please go ahead.
Terry Ma
A Thanks. Good afternoon. So I'm just curious, as we look forward and more of the 2021 and 2020 through 2023 vintages season and reach peak wells. Is there a way to think about the trajectory of the default rate or even a normalized loss ratio?
Adam Pollitzer
Look, I mean, when we look at our claims expense in particular, we had a $8.2 million claims expense in Q4 and a 6.2% loss ratio. And we had a nice uptick in defaults, 5,099 and our default rate went up a little bit to 81 basis points. And I think, you know, we see a little bit of an upward trend in the quarter, but we're really encouraged by the quality and credit performance in our portfolio.
But maybe the look-forward here, Terry, we've talked about it a little while the default population, we expected it to increase because frankly, there's just natural growth and seasoning of the portfolio, in particular the books. You know that you had mentioned the 2020 2021 and 2022 books, so coming into a period of normal loss occurrence. But really the performance has been strong, and we're really encouraged by it.
Just looking ahead at what's happened.
Terry Ma
Got it. Okay. And then just on the persistency ratio, it's been flat for the past couple of quarters. Has we reached kind of like a natural plateau here? And is that sustainable going forward? Or is there something that may serve as a catalyst to bring that lower?
Adam Pollitzer
Yes, maybe take out, but still, obviously, we were 86.1% in the quarter. And again, right, we're well above historical norms and strong persistency is helping us to drive continued growth and embedded value in the insured portfolio. We expect that our persistency will remain well above historical trends as we progress through 2024. But as you said, we don't expect that it will increase from here and we'll likely see some natural trending off of the current peak as we run through the year.
Terry Ma
Got it.
Okay.
That's it for me.
Thank you.
Operator
The next question is from Doug Harter with UBS.
Please go ahead.
Doug Harter
Thanks. And can you talk about your outlook for capital return in 2024, kind of given the strong level of PMIERs and relatively consistent credit quality?
Ravi Mallela
Sure. Look, we're delighted with what we've achieved on our repurchase program thus far, retiring $148 million and returned $148 million of capital. And if you looked at it. Actually the where we've executed the weighted average price-to-book for execution since we launched the program in February of 22 is 1.01 times. We're really delighted with with that execution, we're focused we have $177 million of runway remaining under our existing authorization. That runs through year end 2025. And we're focused on prosecuting that opportunity. We expect that will be in the market will always depend on where valuation is and what we see immediately in front of us. But on a roughly ratable basis through the equity of the program.
Doug Harter
And I guess, how are you thinking about on the dividend as one of the the tools and the returning capital?
Ravi Mallela
Yes. Look, again, right now, we're most focused on the repurchase program and deploying the remaining capacity. We really see repurchase as a way for shareholders to directly participate in the significant value that we're creating and importantly, right by releasing capital, whether it's in dividend or repurchase format, we're trying to maintain the right funding balance, right, optimizing between equity, debt, reinsurance usage and importantly, supporting EPS and ROE outcomes. And we're really pleased with what we've achieved and the execution we have under the repurchase program for now, that is our primary focus. We like the flexibility that our repurchase program affords us. But as we continue to perform and grow the dividend stream that we can extract from our primary operating company, we may have an ability to introduce a common dividend over time. But for right now, we're focused on repurchase and the opportunity we have under the existing authorization.
Arren Cyganovich
Great.
Thank them.
Operator
The next question is from Arren Cyganovich with Citi. Please go ahead.
Arren Cyganovich
Thanks for your core premium yields been pretty stable here. What are your thoughts into 2024? Do you expect to see more stability on the premium side?
Adam Pollitzer
Yes, Aaron, you know, we've been seeing our yield inflect higher over the last several quarters. And I think in this quarter we've seen continued strength and core yield, you know, we expect it to remain generally stable and strong. Look, I mean, persistency has helped certainly and the rate actions we've taken over the last year and a half have also helped us with a providing a stable sort of yield environment. But as always, you know, when you want to think about it where it's always impacted by reinsurance execution loss experience because profit commission moves with changes in ceded claims expenses. And we'll just have to see with from a loss perspective how the macroeconomic environment evolves. But we generally think it will remain stable and strong.
Yes, that's the key. As Ravi said, it's yes, core yield we expect will be generally stable through the course of the year. And that's a real positive for us, we'll see potentially some fluctuation in the net yield really based on reinsurance execution and then claims experience, which is counterintuitive.
How does claims experience impact net premium revenue and net yield, but it's because of that the profit commission dynamic with our quota shares.
Arren Cyganovich
Got it.
John Swenson
That's helpful. And then to follow up, maybe on the point of the reinsurance costs into the claims? Are those are those trending? Are you seeing any kind of increase in that? And then just quickly, did you did you say how much if there was a reserve release in this quarter.
Ravi Mallela
Look where you know, maybe just touching on reinsurance, look, we're free we're really pleased that we just placed our forward flow of quota share and excess of loss treaties look provides us with comprehensive risk protection for our 2024 and IW. production. And so we really have no other immediate execution needs and look, we'll look for opportunities to further refine and enhance as we achieve and innovate when we see opportunities in the marketplace. But when you think about the new quota share and the extra wells they're going to come on with an incremental amount of costs. But really we think a lot of that will be offset by amortization of our existing reinsurance deal So net-net, you know, some pretty pretty flat in terms of the impacts.
Adam Pollitzer
In terms of the run through for profit commission and reserve.
We have been in the quarter we had $8.2 million claims expense in the quarter, which is obviously often serve as our claims expenses growing on a net basis. What that means is in almost all scenarios we've also increased the session through under the reinsurance programs and so that will have weighed on profit commission in the quarter. In the quarter, we reported in the press release the exhibits cite included a $17.3 million provision for current year results, offset by $9.8 million our release related to prior years.
Thank you.
Operator
The next question is from Bose George with KBW. Please go ahead.
Bose George
And when Good afternoon, I wanted to go back to credit. First, a reasonably large percentage of your claims are being settled without payment are those generally more seasoned loans with more equity or any other way to sort of categorize those?
Adam Pollitzer
No, that's exactly right. Ultimately, we sit behind both the the borrower's downpayment appreciated equity on a property. And in the event that we have a claim that progresses or default that progresses to claim where there is significant embedded equity for effectively able to harvest after disease, our exposure, and that's what drives that. It's really about the appreciated equity position of borrowers to stay in default status multiple and progressed through the quarter.
Bose George
Okay, great. Thanks. And then you incurred losses on the 2022 vintages. It's 20.9%. I know your claim activity is very limited there. But do you have an early read for the actual current claim rate versus the assumptions you are making when you build as you built that provision?
Adam Pollitzer
Yes, let me let me touch on two of one. Obviously, the incurred loss ratio that's reported in Italy in our K and it's in the release, it really relates to two items. The reason that it stands out relative to other vintages and that we disclosed what is the math behind the calculation itself? What that number represents is a cumulative incurred loss ratio that we tally. And so it's cumulative claims expense divided by cumulative net premiums earned because our 2022 book is newer, it has accumulated fewer years of premium revenue than earlier book years, which it will over time, but it can skew the presentation in, I'll call it the period immediately after or soon after that production period has ended on June second, it does relate back to some dynamics with that particular book year as we're seeing defaults begin to emerge in that book year, which is natural. It happens with all vintages as they season. They are coming through with less embedded equity than defaults from earlier book years and for natural reasons, right, borrowers to purchase their homes in 2022 didn't benefit from the record COVID HPA rally that those from earlier book years did. And that contributes to some increase in model loss expectations for that book relative to others and also to our loss picks as those defaults are coming through.
Overall, though, what I would say is that our 2022 book year is exceptionally high quality. If you look at the contours of the pool, and we're really encouraged by how it's performing well, it's performing worse than earlier vintages, really because of the equity dynamic, it's performing exceptionally well against our original modeled expectations.
Bose George
Okay. That's great. And if it continues to if it performs better than expectations. I mean, eventually that loss ratio declines, right. I guess your views release reserves to reflect that. Is that how that plays out over time?
Adam Pollitzer
Yes, those and obviously we'll have to see where that trend over time, yes.
Bose George
Okay, great. Thanks.
Operator
Your next question is from here Bisha with Bank of America. Please go ahead.
Mihir Bhatia
Good afternoon. Thank you for taking my questions. Wanted to start with I think you mentioned you had 1,500 active accounts. How much of the market does that cover? And is there a segment of the market where you have an opportunity to grow where we are maybe underrepresented?
Adam Pollitzer
Yes, it's a good question. So the roughly 1,500 active accounts that we have represent give us, we estimate access to about 95% or so of the addressable market, which for all intents and purposes is the entire market. There's always going to be a couple of accounts that are large in size that we tried really hard and were not able to access in the near term. And there's going to be a bunch of smaller accounts that we also but 95% access when we look at it, that's really a fully representative and access across the entirety of the market. There are some this is a very, very small number of larger accounts that have the potential to be needle movers. And we're trying our sales team is out there every day looking to continue to build relationships and help us gain access into those accounts and that could come on over time.
The other one, though, as we look at it from a growth standpoint, it's not just and whitespace, what are new accounts that we could access, but it's doing more with our existing customers, how do we bring them value? How do we bring that thought leadership? How do we prove ourselves as their best and most prioritized counterparty and how do we capture more and more of their wallet share every period that we roll forward. And that's a big focus for us.
Mihir Bhatia
Got it.
Thank you. Up in terms of the expense ratio, maybe the slight pickup this quarter, anything to call out there and just if you can share your expense outlook for next year, whether in dollar terms or ratios?
Right?
Ravi Mallela
Sure.
I mean, look, we're always focused on managing with discipline and efficiency, and we're pleased to have delivered a 22.4% expense ratio is in line with our long-run expectations around being in that low to mid 20s expense ratio area and look at supportive of an 18% are we. And so, you know, from a comparative basis, we also feel really good. We have the lowest expense base by a wide margin and the lowest expense ratio and so we're thinking about the quarter in particular, there were certain local non income tax related items, yet incentive-based compensation items that came through and small movement sort of up and down across a range of categories that really led to the quarter-over-quarter difference and look where we're happy about wherever we've how we've done and we don't typically provide expense guidance, but maybe I'll highlight a few items, but first, we manage the business again with discipline and efficiency. We're pleased with how we do, how Q4 develops. And as we look out, we do expect to see some growth in net operating expenses from a dollar perspective as we continue to invest in people and systems. But really as we progress through the year, we're really pleased where we are right now.
Adam Pollitzer
It's well said, Robbie, the one other item I would note, just as we get into Q1, we always we actually see a little bit of a seasonal dynamic in expenses. Typically, the one item that comes through with consistency in the first quarter is we get a pickup usually related to the reset of payroll taxes and our flanker contribution and then some increases in for one k. contributions that generally happened at the start of the year.
Mihir Bhatia
Got it. That's helpful. And then just my last question, I think in in response to Doug's questions about the dividend, you had mentioned up being able to extract dividends from the primary operating company. Can you just remind us where you are with that? Are you able to do that today? Are you still like building more like from this because of the statutory capital rules? And are there a little difference?
Adam Pollitzer
I think yes, I'll just I don't want to prejudice to increase the our ability to extract dividends. So we are able to take out ordinary course dividends from animal feed today in 2023, we had $98 million of ordinary course dividend capacity. We extracted $98 million in May of 2023 based on our performance through the course of the year in 2023 and where our balance sheet sits at the end of the year, we have $96 million of ordinary course dividend capacity available to us as to extract from it. It might be in 2024. And so what we're looking at as we think about planning the prospect of incremental capital distributions, the form of those distributions there's a range of items that go into it outside of just what can we take out of the OpCo. But one of those items that we're focused on is making sure we maintain that strong pipeline and over time, see a growth.
Mihir Bhatia
And if that's helpful, thank you so much for taking my questions.
Operator
The next question is from Rick Shane with JPMorgan.
Please go ahead.
Rich Shane
Thanks, guys, for taking my questions. Most have actually been asked and answered, but I wanted to talk a little bit on about the seasoning of the '22 vintage versus the '21 on vintage and the '20 vintage, if you sort of compare them on a static basis after 18 months of seasoning on Adam, is you stated on the default rate is up, call it 25 basis points, maybe [83 or 84 versus 58] on on a static pool basis for the '21. I'm curious if one of the other factors here is that you think that '22 vintage borrowers are overly reliant on the possibility of being able to refinance. It's sort of the classic buy the house rent the mortgage.
And do you think that borrowers in that cohort may have looked at interest rates said, yes, they're really high, but I know they're going to be lower and now we're stuck.
Adam Pollitzer
Yes, Rick. So your read of the data is right. And your question is a terrific one outlook. And I will reiterate, though, our 2022 book is performing really well. If you look at the underlying on Tore's side, it is high quality. Just like the rest of the portfolio, we apply the same rigor to risk selection and mix in shaping our 2022 production. As we've always done, we also importantly, source comprehensive reinsurance protection for our 2022 vintage production. Again, just as we have always done. So there's really no notable differences that you could observe in the underlying borrowers from a borrower, a loan level, a geographic or a product risk attribute standpoint, the one key difference that we do expect will come to come through is coming through already is just the difference in the embedded equity positions.
Your question about are they are different cohort of borrowers that were perhaps I'm more reliant on expectations that they could refinance alone. It's one of the real reasons that we find Rate GPS to be so powerful because that dynamic is coming through the market. It's actually come through in a more pronounced way, not in 2022, but in 2023. And where we see that expressed is the increase anywhere in any given period in 2023, about 5% to 10% of the market we estimate was from a product profile standpoint with temporary buy-down product. These are loans with really introductory teaser rates that will automatically after a year. And then again, after two years, typically see their rates move higher unless the borrower was able to refinance. That is an area of emerging risks that we observed very early on in 2023, late 2022. And so we price for that, and we are actively managing the mix of temporary buy-down product that comes through. We have nearly none of that business coming to our portfolio, and we're sitting well behind where the market is anywhere from 5% to 10%, depending really on and how interest rates started in late '22 and through the course of 2023. So yes, that is something that will impact the 2022, late '22 and 2023 production broadly for the high LTV market. That's not really going to be a contributor for us because we took steps early on to make sure that we were managing the flow that was coming.
Rich Shane
Got it.
Okay.
Very, very helpful.
And again, yes, recognizing that we are trying to glean trends off of very, very small numbers. So it is in I want to be careful about that. So I appreciate the answer.
Operator
Next question is from Mark Hughes with Truist Securities. Please go ahead.
Mark Hughes
Yes, thank you. Good afternoon. Adam, you talked about the private and my marketing just strong in 2024. Is that kind of your view of the opportunity for us new insurance written?
Adam Pollitzer
Yes. I mean, maybe overall, look, we and we expect that '24 is going to be similar to '23, right? As we look at it '23 was a very strong year where long-term secular drivers of demand and activity continue to come through where we have resiliency in house prices that not only support credit but higher house prices also mean incrementally larger loan sizes. And since our ratable exposure is the size of the loan, not the number of units, higher priced homes with higher loan sizes are also help helpful. And then given that interest rates, we have some movement, but they're still sitting at or above 7%. We see affordability constraints driving an increasing number of borrowers towards the private MI market for down payment support. And so this year, we tell you the market was right about $285 billion. We expect a similarly attractive market environment in '24. And then really, we may have, I think, some upside potential if if we see moderation in rates and that has that could potentially spur some incremental activity and then your net investment income, which give the new money yield in the quarter.
Mark Hughes
And generally speaking, do you think that's going to continue to trend up.
Ravi Mallela
And mark on, you know, really what we're seeing in terms of new money opportunities, we're seeing a blended average rate of around 5%. And then, you know, I think maybe it's just worthwhile to talk a little bit about Q4. It's our Q4 and I developed sort of exactly how we expected it with growth in the quarter coming serve in a more muted way because of our purchase of tax and loss bonds early in October. And if you remember, these are IRS instruments that allow us to take a deduction for our contingency reserve and deferred cash taxes, but there are non-interest bearing securities and that had an impact on our NII trend from Q3 to Q4, we purchased about $80 million of those tax and loss bonds, which means we redirected about $80 million of short-term liquidity. It actually has been generating investment income in Q3, but didn't in Q4. And so if you look from the quarter to quarter basis, you see sort of not as much of an increase in terms of net and net investment income. But really our NI has benefited both from the growing size of our investment portfolio and increasing yields that we've been able to capture on new investments. And we expect those trends to continue. I mean, we're generating significant operating cash flows every day, stress consistent and significant growth in our asset base. And, you know, with the current interest rate environment, it presents us with an attractive opportunity to capture new money rates that are above our portfolio.
Adam Pollitzer
And look, this is a really nice tailwind for us as we look forward and think about performance for every dollar of incremental net investment income plus straight to the bottom line. There's almost no marginal cost associated with it. De minimus amounts to a third party management cost to every dollar really flows straight to the bottom line. And given the leverage that we have from an asset invested asset to equity standpoint, every 100 basis points of improvement in our portfolio yield, that dollar for dollar isn't just pretax, it means we will see roughly 100 basis points of ROE improvement as well. So every point of portfolio yield improvement is a point of ROE support and that's a terrific one as we look forward, given the new money rates there that we're capture now in the portfolio.
Mark Hughes
Appreciate it. Thank you.
Operator
The next question is from Eric Hagen with KPMG. Please go ahead.
Eric Hagen
There.
Was that big ag is up only in the NIW that was written for the industry last year. And how much variability would you say there was within that, but the lower volume in the first place like like if you wanted to take materially more or even less risk to that, would you say that opportunity was even available in the NIW that was written for the industry last year and at lower and lower interest rates and higher growth for the industry overall, do you feel like the credit profile would actually take on more range, if you will.
Adam Pollitzer
Yes. Look, I mean, risk is real writing even in generally buoyant markets, there are real distinctions between borrowers between loans between geographies. And so it is a going up. We are very actively managing the mix of risk that's coming through across a range of borrower loan level product and geographic risk attributes and all of those are interconnected. We would expect that they'll still be opportunity to want to continue do that and not just uptick. There's going to be a real need I'd do that in 2024, even if the market is the same size and the profile of the risk pool coming through is identical. There's a pretty broad dispersion of risk coming into the market and we need to stay proactive in our stance towards managing that.
Eric Hagen
Okay.
That's interesting.
Going back to the expenses for a second, is there a way to quantify the amount of operating leverage you feel like is embedded in the business.
But if you feel like you have an estimate for how much more insurance you can bring into the portfolio, the corresponding increase in expenses would be or is there just how to think about that?
And then how do you feel like the operating leverage actually translates to lower costs maybe in the reinsurance market variables achieved?
Adam Pollitzer
Yes, absolutely. Well, we have an operating leverage. Look, obviously, there's always going to be certain variable costs that we incur. And Robbie talked about continuing to invest in our people and our systems. But by and large, our business is really a fixed cost model. And so there's significant significant ability to continue to scale the portfolio without needing to make wholesale changes to our expense profile. That's been the case for quite some time and continues to be the case. Now we have 238 employees for working hard and they're committed every day. We don't see a need to dramatically change our our footprint from a headcount standpoint for our overall system profile at a $200 billion portfolio, even if we were to have a $300 billion insured portfolio or larger. And so there's always going to be on some operating leverage that positive operating leverage that's embedded there.
I think as we look forward, though, and we've signaled for that for a while now that our long-term targets are to deliver a low to mid 20% expense ratio. We are fully there today, right with the absolute lowest expense footprint in the industry and at or near the lowest expense ratio. And it's still our goal to manage our business with discipline and maintain that leadership as to where that operating leverage and portfolio growth relative to expense discipline will lead our expense ratio over time.
The right now, we're still focused on maintaining that, that long term low to mid 20s as a target that we think will allow us to ultimately support the return objectives that we have for our business, strong mid-teens in terms of reinsurance and the impact from operating leverage, there's really not there's not a direct link between our operating expense profile and the outcomes that we achieve in the reinsurance market. But there is a critical link that we talked about during Investor Day and that we introduced and talked about on our last earnings call. And it's the fact that because we are so disciplined from an operating expense standpoint, it really gives us our unique flexibility to be far more selective from a risk-taking standpoint than others in the market, right? It's the strategic value. It's very clear all the time lower expenses for an industry leading expense base, smallest footprint in the industry by a wide margin. There's a financial impact that's easy to see. But the strategic value we think is often overlooked, and it's the strategic value that feeds directly into our risk management approach.
Right because with an expense advantage, we simply don't need to write higher concentrations of higher risk, higher yielding business to cover our operating base. We could achieve the return objectives that we have for our business, really best-in-class returns while also taking the most proactive and disciplined stance towards managing our mix of business. And so while it's not direct because our expense advantage feeds directly into our risk management strategy. It's the risk management, right? Our credit discipline, the profile of our production that does yield differentiated outcomes in the reinsurance market. So they're connected and expense to ultimately allows us to do things that in the end help us achieve better outcomes in the reinsurance market. But it's not a direct sort of reiterate one for one.
Eric Hagen
It's tough, appreciate it.
Operator
Your next question is a follow-up from Bose George with KBW. Please go ahead.
Bose George
Yes, thanks. Just a quick follow-up. The revenue you made a comment about net interest income and the impact of I think the bonds there was a tax benefit, I guess in some of the bonds. The tax rate was a little lower than usual Is that kind of the offset the investment income and it was then go up as much and the tax rate was lower?
Ravi Mallela
Both?
They're actually unrelated items, but Tom, you know, the tax rate going down in the quarter was really some really a benefit that really came through it of exercising certain stock options in the period, and it was a little bit offset by some by [162] limitations during the period. But the tax really the change in the tax rate quarter over quarter didn't really have anything to do with net investment income give us to.
Adam Pollitzer
So tax and loss bonds are purely as statutory items. They don't impact tax rate. They don't impact our GAAP ETR at all. It's just instead of paying cash taxes. We've purchased what are known as tax and loss bonds with an instrument that's uniquely available to MI companies, and it's valuable from a cash tax standpoint and a regulatory capital standpoint, it has no impact other than the fact that's the main effect from lost bonds. It's completely separate from the tax expense and our effective tax rate in any period. So.
Eric Hagen
Okay, great.
That's helpful. Thank you.
Operator
This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
Adam Pollitzer
So thank you again for joining us. We'll be participating in the Bank of America Insurance and Financial Services Conference on February 22nd, and the RBC Financial Institutions Conference on March fifth, we look forward to speaking with you again to.
Operator
The conference has now concluded.
Thank you for attending today's presentation. You may now disconnect.
