MGIC Investment Corp

NYSE:MTG

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the MGIC Investment Corporation First Quarter 2023 Earnings Call. [Operator Instructions].

I will now turn the conference over to Dianna Higgins, Head of Investor Relations. Please go ahead.

[Dianna Higgins, SVP, IR]

Thank you, Joel. Good morning, and welcome, everyone. Thank you for your interest in MGIC Investment Corporation. Joining me on the call today to discuss our results for the fourth quarter are Tim Mattke, Chief Executive Officer; and Nathan Colson, Chief Financial Officer.

Our press release, which contains MGIC's fourth quarter financial results was issued yesterday and is available on our website at mtg.mgic.com under Newsroom, includes additional information about our quarterly results that we will refer to during the call today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures.

In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk in force and other information you may find valuable. As a reminder, from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website.

Before getting started today, I want to remind everyone that during the course of this call, we may make comments about our expectations of the future. Our actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results to differ materially from those discussed on the call today are contained in our 8-K and 10-Q that were also filed yesterday.

If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. No one should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or issuance of our 8-K and 10-Q.

With that, I now have the pleasure to turn the call over to Tim.

[Timothy Mattke, CEO & Director]

Thanks, Diana. Good morning, everyone. We had a good start to 2023, delivering solid financial results for the first quarter. We remain focused on executing our business strategies for financial strength and flexibility and strong risk management in furtherance of our long term success of the company. We're in an excellent position to serve our customers with quality offerings and solutions while creating shareholder value.

In the quarter we earned $155 million in net income, or $0.53 per share and produced an annualized 13.3% return on equity. The main driver of our revenue, our insurance in force grew by 5.4% year-over-year, ending the quarter at $292 billion. The year-over-year growth in insurance in force, despite lower volumes of new insurance written, reflects an increased persistency rate as the level of refinance activity in the market remains very low.

Annual persistency increased 82% at the end of the quarter, up from 67% a year ago. In the quarter we wrote $8 billion of NIW. We expect our level of NIW in the first quarter is a reflection of a smaller NI origination market, but also reflective of our market position as we took actions in the third and fourth quarters last year, intended to address our views of the risks and uncertainties that I discussed during last quarters call. Specifically, last quarter we explained that we expected our Q4 market share to likely decrease by a couple percentage points from the prior quarter. When the industry [indiscernible] last quarter that was indeed the case.

We also mentioned on our last call that our Q1 2023 market share will likely see a larger relative decline from Q4 2022. We continue to believe this is the case. We recognize that the loss of market share was due to potential trade off as the team achieved the returns we believed reflective of the risks and the environment where interest rates spiked, affordability was stretched and home prices were expected to fall from their peak.

As a reminder, the time between taking actions and the resulting NIW is not immediate as pricing leads NIW by a month or two on average. So what you're seeing Q1 NIW is primarily a reflection of our views of risk return from late last year. While we won't comment on our current market position given competitive consideration, in recent months, our views of the market risk return began to gradually improve. As a result, we expect to report our market share in the second quarter will be higher, reflecting this gradual improvement.

Consensus mortgage origination forecasts revised while our interest rates remaining elevated and continued affordability challenges. Although the overall NI origination market opportunity is smaller this year, we expect that with our new business we write combined with higher persistency, our insurance in force portfolio will remain relatively flat this year. While the affordability issues and high interest rates have put downward pressure on home prices, the home price declines seen in the last six months or so have been more modest than many had forecasted. I'm cautiously optimistic that home price trends will continue normalizing and believe that a gradual normalization of home prices is healthy for the housing market and overall economy.

Taking a look at the credit performance on our insurance portfolio, our inventory of delinquency notices and our delinquency rates continue to be at historic lows. The credit performance of the 2020 and later books, which makes up approximately 81% of our risk in force remain strong. We continue to be encouraged by the positive credit trends we are experiencing on our existing insurance portfolio.

Our loss ratio was 3% in the quarter. This reflects reserves established on the new delinquencies reported to us in the quarter, offset by our re-estimation of ultimate loss delinquencies reported to us in prior quarters, which resulted in a favorable loss reserve development again this quarter.

In the quarter, we deploy capital to support of new business and continue to return meaningful share of capital to our shareholders, through stock repurchases and common stock dividends. During the quarter, we purchased 5.8 million shares of common stock for $78 million and we paid a quarterly $0.10 per common stock dividend share for $30 million. In April we repurchased additional 1.7 million shares of common stock for a total of $24 million and the Board authorized an additional $500 million share repurchase program, and a $0.10 per share common stock dividend to be paid on May 25.

For the last couple of years, we've been discussing our capital management strategy, which centers on maintaining financial strength and flexibility to both the holding company to create long term value for shareholders, and the operating company to protect our policyholders. We routinely assess and evaluate the level of capital at both companies, -- the level of capital that we retain for future deployment versus the return to shareholders to position both companies to achieve success in varying environments, both in the near term and long term.

To that end, earlier this week, MGIC paid a $300 million dividend to the holding company. The dividend enhances the liquidity position of the holding company and enhances the financial flexibility of the company overall. Our capital management strategy also includes a comprehensive reinsurance program, which reduces the volatility of losses in changing economic environment. It provides diversification and flexibility of sources of capital. At the end of the first quarter, approximately 85% of our risk in force was covered to some extent by reinsurance transactions. And approximately 98% of the risk in force related to the 2020 through 2022 book was covered to some extent by reinsurance transactions.

With that, let me turn it over to Nathan.

[Nathaniel Colson, EVP & CFO]

Thanks, Tim and good morning. As Tim mentioned, we had another strong quarter. We earned $155 million in net income, or $0.53 per diluted share, compared to $0.54 per diluted share during the first quarter last year. Adjusted net operating income was $0.54 per diluted share, compared to $0.60 last year. A detailed reconciliation of GAAP net income to adjusted net operating income can be found in our earnings release.

The results for the first quarter were reflective of continued strong credit performance, which has led to favorable loss reserve development and resulted in a 3% loss ratio this quarter. Net losses incurred were $6 million in the first quarter compared to negative $19 million in the first quarter last year. Our review and re-estimation of ultimate losses on prior delinquencies resulted in $41 million of favorable loss reserve development, compared to $56 million of favorable loss reserve development during the first quarter last year. The favorable development in the quarter was related to new delinquencies from 2021 and prior.

It's curious on those delinquency groups continue to exceed our expectations, we've continued to make favorable adjustments to our ultimate loss expectations. In the quarter, our delinquency inventory decreased by 6% to 24,800 loans, compared to an increase of 2% last quarter. In the quarter we received 11,300 new delinquency notices, compared to 11,900 last quarter, and 10,700 in the first quarter last year. Historically, the first quarter was seasonally good for credit performance. So what we saw in the quarter may be a reversion to seasonal trends that were largely disrupted starting in March 2020 with the onset of the COVID 19 pandemic.

During the quarter total revenues were $284 million, compared to $295 million for the same period last year. Net premiums earned were $242 million in the quarter compared to $255 million for the same period last year. The decrease in net premium earned is primarily due to a decrease in accelerated single premium cancellation, an increase in ceded premiums and a decrease in our premium yield offset somewhat by growth in our insurance in force.

The in force premium yield was 38.7 basis points in the quarter, down two-tenths of a basis point from last quarter. The in-force portfolio yield reflects the premium rates in effect on our insurance in force, and has been declining for some time. But the pace of decline has been slowing in recent quarters. As I mentioned on the call last quarter, we continue to expect the in force premium yields to remain relatively flat during 2023.

Book value per share increased 4.7% during the quarter to $16.57. The unrealized losses in the investment portfolio narrowed by approximately $100 million, which benefited the growth in book value per share in the quarter. Despite the headwinds from increased unrealized losses due to changes in interest rates, and paying our quarterly shareholder dividend. Book value per share increased more than 12% compared to a year ago, due to our strong results and accretive share repurchases.

While higher interest rates are a headwind for book value per share in the short term, higher interest rates are a long term positive for the earnings potential of the investment portfolio. And that is coming through in the results. The book yield on the investment portfolio ended the quarter at 3.2% up 20 basis points in the first quarter and up 60 basis points from a year ago. Sequentially investment income was up $3 million in the quarter and up $11 million from the first quarter last year.

Assuming a similar interest rate environment, we expect the book yield on the investment portfolio will continue to increase during the year and approach 3.5% by the end of 2023, as reinvestment rates remain significantly higher than the current book yield. Operating expenses in the quarter were $73 million down from $74 million last quarter and up from $57 million in the first quarter last year. The increase in operating expenses during the first quarter compared to last year was due in large part to $8 million in pension settlement charges this quarter, compared to zero in the first quarter last year.

Going forward, we expect to incur settlement charges more often, because as we previously announced we froze our pension plan effective December 31, 2022. However, the level of those charges should be significantly lower for the remainder of 2023. We continue to expect full year operating expenses will be down modestly in 2003 to the range of $235 million to $245 million, the same range we provided in February.

Turning to our capital management activities, during the first quarter the capital levels of MGIC and liquidity levels of the holding company continued to be above our targets consistent with our capital strategy. During the second quarter we received approval and paid a $300 million dividend from MGIC to the holding company and our Board approved an additional $500 million share repurchase authorization, which expires on June 30, 2025. The additional share repurchase authorization reflects our strong capital position and outlook for continuing to generate excess capital at the operating company and to pay dividends to the holding company.

In the first quarter, we repurchased 5.8 million outstanding shares of common stock for $78 million and we paid a $0.10 per share quarterly dividend to shareholders. The holding company ended the quarter with cash investments of $582 million. In April, our Board authorized the $0.10 per share quarterly common stock dividend payable on May 25. And we repurchased an additional 1.7 million shares for $24 million. Our recent share repurchase activity levels reflect both caution towards the increased uncertainty in the current environment, as well as the strong mortgage credit performance and financial results we continue to experience, and recent share price valuation levels that we believe are very attractive to generate long term value for remaining Shareholders.

With that, I'll turn it back over to Tim.

[Timothy Mattke, CEO & Director]

Thanks, Nathan. A few additional comments before we open it up for questions. We have been asked about the impact of FHA's 30 basis point decrease in MI premium rates and the GSE's LLPA pricing adjustment, each announced during the first quarter. We operate in a very competitive and dynamic marketplace where several factors drive consumer behaviors, and mortgage product preferences, cost being one of the most important of those factors. With multiple moving parts to fully understand how these changes will impact our NSW volume. We'll continue to monitor, evaluate and alter our approach to the market as needed.

Lastly, in April, the GSE published updated equitable housing finance plans. Plan seeks to advance equity and housing finance over a three year period include potential changes to the GSE's business practices and policies. We welcome the opportunity to engage with the GSE and other industry stakeholders to responsibly expand access to homeownership. We will continue to advocate for the increased use of private mortgage insurance in housing finance.

In closing, we had another successful quarter and a great start to New Year. I'm optimistic that the favorable credit and employment trends we have been experiencing, as well as the resiliency of the housing market will continue. We are comfortable with our market position and continue to believe that we are well situated to navigate the current environment's uncertainties, and deliver on our business strategies.

With that, Operator, let's take questions.

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Bose George of KBW. Your line is now open.

[Bose George, KBW]

Everyone, good morning. Actually, first question just on the expense guidance. Does that range include the $8 million for this year, or should we sort of add that to that range that you provided?

[Nathaniel Colson, EVP & CFO]

Hey, Bose, it's Nathan. The full year guidance will be inclusive of the settlement charges that we incurred in the first quarter.

[Bose George, KBW]

Okay, great. Thanks. And then just in terms of your -- when you think about the leverage going forward, is the debt to capital range where it is now, which is historically fairly low, kind of the run rate that you want to keep it at?

[Nathaniel Colson, EVP & CFO]

Yes. Bose it's Nathan again. We've said as we've delivered over the last year or two, we've said that our target debt to capital ratio in kind of normal times is in the low to mid teens. And I think right now we're approximately 12%. So we're in a very comfortable range for us and don't foresee any meaningful increase in leverage in the near term.

[Bose George, KBW]

Okay, great. Thanks a lot.

[Nathaniel Colson, EVP & CFO]

Thanks, Bose.

[Operator]

Thank you. Please stand by for our next question. Our next question comes from the line of Mark DeVries of Barclays. Your line is now open.

[Mark DeVries, Barclays Bank]

Yeah, thanks. I had a follow up questions on Tim, some of your comments around market share. Just kind of wondering, I think you mentioned that the risk reward has gotten, a little more favorable from your perspective. You expect share to kind of increase in 2Q. Just wondering what's changed. Has the market -- one of your competitors commented on kind of a hardening market and pricing moving up? Has the market kind of come back to you, kind of maybe price increases you made earlier that caused the share to fall off, or are there other kind of changes that have got you more attractive to the risk reward?

[Timothy Mattke, CEO & Director]

Mark, it's a good question. I appreciate it. As I said in the comments, we made majority of our changes, really in the late third quarter, early fourth quarter pricing last year, which we thought was reflective of the market. The way I look at things, I don't think much has deteriorated since then. So I think it can be a combination of both, right, the market maybe moving a little bit more towards this. I've heard the other comments too. I think we've observed some of that.

I think we're also getting a little bit more comfortable with what's out there, right? And it's been pretty orderly. And I think some of the stresses that we might have been concerned about six months ago, while still a possibility, it seems like a pretty orderly, sort of falling out of HPA, which feels good as well. So I think, again, we made most of our actions early on. I think that hurt us from a volume standpoint, for this quarter in particular. But I think this pricing in the market seems more constructive now, which is a good thing for us to be able to get the returns we want, which we have to stay disciplined on.

[Mark DeVries, Barclays Bank]

Okay, got it. And my next question has to do with the expense ratio. I think, unless I'm interpreting it wrong, Nathan, the guidance around total OpEx would still have you probably close to a mid-20s expense ratio, which is still, pretty materially above where it had been for a long time kind of pre-pandemic. Can you just talk about, one, am I kind of interpreting that correctly. And two, kind of what's changed to make the expense ratio higher?

[Nathaniel Colson, EVP & CFO]

Yes, Nathan. I think a couple things, for the 2023 expense ratio, I think you're kind of interpreting that correctly. I think we do end up in the kind of 24, 25 26 range depending on what happens with net premiums, which again, is somewhat dependent on losses due to the profit commission dynamics there. So it's hard to peg down specifically from an expense ratio standpoint. But it has drifted up over time, a lot of that over the last few years, as we've talked about at the time, is making significant investments in our platform. I think we've done a lot of those things that have really helped us understand the market better, helped us, continue to serve customers better. But clearly expenses are -- continued to be a focus for us, and efficiency going forward will be is -- and will continue to be a big focus for us.

So I don't think mid-20s, where we made land this year, I don't think that's as low as the expense ratio can go. And that's something that we're obviously focused on everyday here.

[Mark DeVries, Barclays Bank]

Okay, got it. Thank you.

[Nathaniel Colson, EVP & CFO]

Thanks.

[Operator]

Thank you, Please stand by for our next question. Our next question comes from the line of Juliana Bellona [ph] from Compass Point. Your line is now open.

[Unidentified Analyst]

Thanks, first of all great quarter. And thanks for taking my questions. Kind of following up on a similar topic on the expense side, if I look at kind of what's implied by reiterating the guidance after being high in the first quarter is kind of $57.5 million per quarter on average, which actually is more of a $230 million run rate, kind of for the balance of the air. And I'm curious about the right way to think of that, acknowledging that you mentioned, there might be some additional pension settlement related costs that could flow through. Is that kind of where the new base is that you'll be growing from? Or how should I think about the cadence of that going forward?

[Nathaniel Colson, EVP & CFO]

This is Nathan, I do think we did expect some higher first quarter expenses. We did expect some level of settlement charges. The actual was higher than we were expecting. There's also some other things that just happened in the first quarter, that drive kind of Q1 expenses a little bit higher, things like payroll taxes and other things that are just higher in the first quarter. So I think the full year guidance is probably the right way to think about the full year run rate. But the quarterly numbers will have some variability to them. And I think this year in particular, but even going forward, maybe a little skewed to Q1 being higher than some of the other quarters.

[Unidentified Analyst]

That makes sense. And obviously, you been very active on the capital return front. When we look forward, when it comes to the buyback, it appears to you, if you're thinking about, the merits of increasing your cushion from an accessible -- reported assets, or if you are comfortable, where kind of your current cushion sits, at the moment, in terms of, thinking about capital levels at the insurance company level?

[Nathaniel Colson, EVP & CFO]

Yeah. So we ended, we ended the first quarter with a $2.4 billion excess to P. Meyers [ph]. You know, we felt like that was above our targets that ultimately prompted requesting and receiving approval and paying the $300 million dividend from MGIC to the holding company. The operating company continues to generate significant amounts of capital. So that's something that we've really had to actively manage, but where we were post dividend which is on a pro forma basis $2.1 billion at the end of the first quarter, that's still obviously a very comfortable level for us.

So we've been consistently above our target levels and using large dividends from the operating company to the holding company to manage that. But again, that's driven off of the strong financial results and credit performance that we've seen. So we are taking this on a quarter by quarter basis to evaluate what we think the right things to do are capitalized. To-date, credit performance has remained very, very strong, and the results have been strong, and that's afforded us opportunities, like we have to return capital to shareholders and to continue to pay dividends to the holding company.

[Unidentified Analyst]

That's great. Thanks for taking my questions. I will jump back in the queue.

[Nathaniel Colson, EVP & CFO]

Thanks.

[Operator]

Thank you so much. Please standby for our next question. Our next question comes from the line of Mihir Bhatia from Bank of America.

[Mihir Bhatia, Bank of America Merrill Lynch]

Hi, good morning. Thank you for taking my question. I want to go back to the questions around expenses. I am a little curious as to you know, what -- can you remind us of like, exactly what changed last year. And the reason I ask that is think you had a three, four years of expenses around, call it $190 million up to $200 million. And then last year, you jumped up to this $235 million, $240 million range, which it sounds like it'd be again, from going forward from your from the comments last time. So I'm just trying to understand what changed that mpg, because such a big step up on a go forward basis.

[Nathaniel Colson, EVP & CFO]

Mihir, it's Nathan. I kind of put you to probably three things. One, and we kind of went through this last quarter and at various times last year, but we did incur significant, I think, if my memory serves me about $25 million for the full year, and pension related costs and settlement charges last year, which increased the expense level last year.

The other thing, in our long term incentive plan, the financial performance in 2021, 2022, particularly on an ROE basis, was very, very strong. And that has led to, additional expense under our performance base long term performance based comp plans, which has added to that a little bit versus years like 2020, with COVID, and increased losses, there were the performance based compensation expense was much lower as a result of performance that that was, while still generating, I believe 10% or at least that year, not at the level that we've experienced subsequent to that.

And then I think the third is one that we started talking about as early as 2019, which is just making continued investments in our infrastructure, in our data and analytics and in our ability to kind of perform well and be in the right positions in this market. So I think the combination of those things has led to an increase in expense last year, a little bit this year. But I think one of those things is really due to the high performance that we've had from an ROE standpoint, if we do have periods that are more, as expected, some of that would just naturally be less as well.

[Mihir Bhatia, Bank of America Merrill Lynch]

Okay, and then maybe just switching gears a little bit to your comments about just the risk reward. Obviously, as you mentioned, the pricing environment has gotten better, but maybe on the credit side, just wanted to get your view. Are there any specific pockets or areas or particular issues that you're concerned about on the credit side? Just trying to understand, like, where you are on the credit side today versus maybe three months ago, six months ago? Thank you.

[Timothy Mattke, CEO & Director]

I would say nothing really on the on the credit side when I think about, you know, sort of from an underwriting characteristic standpoint. I think other than if you think about the individual borrower, FICO, LTV where they are, I think we feel comfortable with those dynamics. If you think about these -- I think the enhanced risk that we saw sort of Q3, Q4 last year was likelihood of home prices declining, which creates an environment for higher likelihood of losses, especially if unemployment were to spike up.

I think the other thing you see and this gets a little bit into credit but more into the affordability issue is DTI right. That DTI is are more stretched than they were before. I think we feel really comfortable with the profile of what we're seeing and obviously, we have the ability to price for DTI as well. So that makes us feel comfortable from a return standpoint. So yeah, while you'll see a little bit higher DTI, obviously, as a percent of our volume this year, compared to say a year ago, before interest rates rose, we feel generally comfortable in the sort of where we're at, and especially the risk return we can achieve being able to price for those characteristics.

[Mihir Bhatia, Bank of America Merrill Lynch]

This is my last question, insurance in force, you expect insurance inflows to increase this year just sitting where you are today and thinking about your NIW versus persistency? Or do you think like there's -- I guess, what are your expectations of insurance in force for this year? Thank you.

[Timothy Mattke, CEO & Director]

Yeah, I think I'd reiterate, I think what we said probably on our last call, which we think is pretty much going to be flat for the year. So I know a little bit down quarter-over-quarter this quarter. But I think as we think about just normal seasonality within housing, and I think we believe continued persistency being sort of at a strong level, we say we're still believe we're going to be flat year-over-year.

[Mihir Bhatia, Bank of America Merrill Lynch]

Thank you.

[Operator]

Thank you so much. [Operator Instructions] Our next question comes from the line of Eric Hagen from BTIG. Your line is now open.

[Eric Hagen, BTIG]

Hi, thanks. Good morning. A couple questions here. The legacy book isn't huge, but it is a chunk of the delinquency pipeline. Can you talk about how much you're reserving for in the legacy book at this point? Maybe how the mark to market LTV compares to some of the newer issue loans and the severities that you're expecting now? Whether anything has shifted at all. Then the second question is, do you feel like there's any like a threshold for costs in the reinsurance market, which should maybe look to change the risk profile you target or, or even how you reserve for credit, based on what you see in that market? Thank you.

[Nathaniel Colson, EVP & CFO]

Eric, it's Nathan. On the first question relative to the legacy book. I mean, you're correct, that it's a very small portion of the risk in force at this point. But it does make up a disproportionate amount of the new delinquencies that we receive, and the delinquency inventory. I think the one characteristic that kind of cohort of loans has particularly in our new delinquencies, and in our delinquent inventory, is that most of them have been delinquent six times or more.

We disclosed in our supplemental information, the statistics about new notices received in the quarter, and the percent that were previously delinquent. And on the '08 or I'm sorry, '08, and prior about 97% of those delinquencies have been delinquent before. And then a lot of those have been delinquent, 5, 10, 15 times over that long period of time. So what we have observed out of groups like that, is that they actually have a much lower propensity to ultimately result in a claim, and that we see a lot of churn from the delinquent, back to current, back to delinquent out of that group.

So I think -- we think about reserving factors at a cohort level for notice quarters that were received, so not separate factors for those types of loans. But I would say, the key characteristic, there is just that we see a lot of those -- a lot of those items coming into the delinquency inventory, and then coming out a month or two later and then coming back in a month or two after that.

But our experience is that results in a very low likelihood of claim for any one delinquency. So it wouldn't result in a necessarily a higher claim rate expectation on those items, just because they are from those vintages.

[Eric Hagen, BTIG]

That's really helpful. Yeah, go ahead. Thank you.

[Nathaniel Colson, EVP & CFO]

I' was going to say relative to the question on reinsurance costs, I think we have done reinsurance deals where we thought the cost of capital, at least the cost of P Meyers Capital was very, very low, sub 4%. We've done deals where, that cost was somewhat higher. So I think we're comfortable transacting in a range of cost bands there.

What's happened, I think, in the island market is just the availability there. We did a deal last year, but subsequent deals, it seems at least observing were more difficult to transact. The traditional reinsurance market has continued to be very active, and I think still provides pricing that we would find attractive for deals. So that's obviously an area where we've placed a 25% quota share covering our 2023 business, and continue to have dialogue with that market around, other risk transfer opportunities there.

So the bright line level, I'm not sure that could give you good guidance on that. But just to say that levels right now in the reinsurance market, I think still look pretty attractive.

[Eric Hagen, BTIG]

Great. Thank you guys very much.

[Nathaniel Colson, EVP & CFO]

Thanks, Eric.

[Operator]

Thank you, Please stand by for our next question. Our next question comes from the line of Geoff Dunn of Dowling and Partners. Your line is now open.

[Geoffrey Dunn, Dowling & Partners Securities]

Thanks. Good morning. Tim, I don't remember when it was exactly. But I think it's been at least a couple years ago, when the company guided that we should expect a couple years of increased expenses for tech spend. And I'm wondering, based on the conversations we're having now about expenses, is that partly because that program or that effort proved more expensive for longer or yielded higher recurring expense than maybe you thought at the beginning of that effort? Or are we talking about kind of more broadly spread higher expenses across the company?

[Timothy Mattke, CEO & Director]

Jeff, it's Tim. It's a good question. I mean, obviously, there's some inflation from -- the biggest part of our costs are our people, and obviously with demand for talent, and us making sure that we retain the best and the brightest to be able to serve our customers. That's something that probably has been not a favorable headwind or not a favorable tailwind for us last few years. From an actual investment standpoint, I think we tried to stay disciplined in what we want to have there. I would say it's safe to say that it's normally, I think, higher than where we thought we might have to be to invest in some of the analytical capabilities to continue to progress and to really feel like we understand the market, and to really be able to organize the data the way we think we can fully leverage it.

I don't think it's a step function. I don't view it as something that -- that means that it's going to be in perpetuity. But I do think, compared to the comments maybe a couple years ago, there's continuous investment, easy to make. At the level that we're at right now, or level, we were sort of last -- coming into the year, not necessarily that and that's one of the things that as we think about the rest of the year, where I think we're going to be ultimately a little bit lower than we were coming into the year. But it is safe to say that there's a tail there to that investment. And I think in this operating environment we're always going to feel some need to invest in the platform.

[Geoffrey Dunn, Dowling & Partners Securities]

So I think, at least my thought process was we might kind of have a cliff recovery, when you first announced that after a couple of years, it sounds like it's kind of a trickle improvement, as efficiencies are gained, some expenses decline, but not a return to that original absolute original relative level. Because…

[Timothy Mattke, CEO & Director]

I think that's fair. I mean, I'll tell you, being in this business myself for since 2006, and the company being around since 66 years, I think efficiency is something we always have to be focused on. First and foremost, we have to serve our customers, but we have to do it in the most efficient way. I can tell you that it's something that we talk about as a management team, making sure that we are thoughtful about that. But I don't anticipate a step down, not in the near future here. But it is something that I would say that we're focused on.

[Geoffrey Dunn, Dowling & Partners Securities]

All right, thanks.

[Operator]

All right. Thank you so much. Please stand by while we compile the Q&A roster. [Operator Instructions] At this time, I would like to turn it back to Tim Mattke for closing remarks.

[Timothy Mattke, CEO & Director]

Thank you, Joe. I want to thank everyone for your interest in MGIC and remind you that we'll be participating in a Panel Discussion at Mortgage Finance at the BTIG Housing Conference on Monday, May 8. I look forward to talking to all of you in the near future. Hope you have a great rest of your week.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.