Ladies and gentlemen, please stand by. Your conference call will begin shortly. Again, ladies and gentlemen, please stand by. Your conference call will begin momentarily. Thank you for your patience. Good day, and thank you for standing by. Welcome to the MGIC Investment Corporation First Quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone keypad. If you require any further assistance, please press star zero. Please be advised that today's conference is being recorded. I would now like to hand the conference over to the speaker today, Michael Zimmerman, Head of Investor Relations. Please go ahead, sir.
Thanks, Alexander. Good morning, and thank you for joining us this morning and for your interest in MGIC Investment Corporation. Joining me on the call today to discuss the results for the first quarter of 2022 are Chief Executive Officer Tim Mattke and Chief Financial Officer Nathan Colson. I want to remind all participants that our earnings release of last evening, which may be accessed on MGIC's website, which is located at mgic.com, under Newsroom, includes additional information about the company's quarterly results that we will refer to during the call and includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. We have posted on our website a presentation that contains information pertaining to our primary risk in force, new insurance written, reinsurance transactions, and other information which we think you will find valuable.
I also want to remind listeners that from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website that investors and other interested parties may also find valuable. During the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in those forward-looking statements. Additional information about those factors, including COVID-19, that could cause actual results to differ materially from those discussed on the call are contained in the Form 8-K and Form 10-Q that were filed last night. If the company makes any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments.
Further, no interested party should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of the Form 8-K or Form 10-Q. This time, I'd like to turn the call over to our CEO, Tim Mattke.
Thanks, Mike, and good morning, everyone. I'm pleased to report another quarter of strong financial results that reflect the size and credit performance of our insurance in force and the continued resilience of the housing market. I am proud to be part of a team of coworkers that continues to deliver on our business strategies with a goal of creating long-term value for all of our constituents, including shareholders, customers, and coworkers. Over the last 65 years, we have continually adapted to the changing needs of lenders and borrowers, but the goal has always been to help overcome the largest obstacle achieving homeownership, the down payment. After my opening remarks, Nate will provide more detail about our quarterly financial results and capital management activities. Before we open the line for questions, I will wrap up by discussing the current operating environment, including activities related to housing finance policy.
During the quarter, we earned GAAP net income of $175 million, nearly 17% more than in the same period last year. These strong quarterly financial results continue to reflect the improved cure rates on previously reported delinquent loans, as well as the very low levels of losses incurred on new delinquent loans that we have been enjoying for the last several quarters. Although higher inflation and interest rates as well as various geopolitical events, including the Russian invasion of Ukraine, have increased the risk to the economy, to date, we have not seen a material change in the credit performance of our portfolio. I am optimistic that the favorable credit environment we have been experiencing will continue.
Our insurance in force at the end of the first quarter stood at more than $277 million, a 10% increase over a year ago and a 1% increase during the quarter. The quarterly growth in insurance in force reflects the increased persistency rate in the quarter, offset by lower volumes of new insurance written. Consensus mortgage origination forecasts are being revised lower to reflect the increase in mortgage rates we have seen in the last month or so. The revisions primarily reflect refinance transactions to continue to be low for the remainder of 2022, with only modest impact to purchase activity in 2022. Primarily as a result of this, we expect overall market opportunity for new private mortgage insurance will be smaller in 2022 than 2021.
For some context, refis accounted for 20% of our total NIW in 2021 and accounted for under 6% in the first quarter of 2022 and in our current pipeline. With the current and expected level of interest rates putting the majority of loans out of the money from a pure rate perspective, we expect refinances to remain on the low end of the spectrum in 2022. While new business opportunity will be lower in 2022, we expect the new business we write, combined with increasing annual persistency, will result in our insurance in force portfolio continuing to grow, but at a slower pace than last year. Taking a look at the performance of our in-force portfolio, our loss ratio was a negative 8% in the quarter. This result reflects two things.
First, our re-estimation of loss reserves on prior delinquencies resulted in favorable loss reserve development, primarily to reflect better than expected cure rates on loans that became delinquent in the second and third quarters of 2020. Second, the number of new delinquencies in the first quarter was low, reflecting the strong credit performance of our insurance in force. I continue to be encouraged by the current business environment, the quality of new business written, and the low level of new delinquency notices, which has continued through April. We have deliberately constructed a strong and durable capital base to increase our company's long-term value to shareholders while maintaining financial strength and flexibility. We believe that our capital management strategy should provide us the flexibility to deliver on our business strategies regardless of where we are in any given housing cycle.
Reflecting on the strength of our capital base, in the first quarter, we not only deployed capital to support new business, but we also returned a significant amount of capital to our shareholders through the repurchase of 8.5 million shares of common stock for $128 million and the repayment of quarterly common stock dividend of $26 million. Our board also declared an $0.08 per share dividend payable on May 26, 2022. We've also repurchased $57 million of our 9% junior convertible debentures due in 2063, which eliminates approximately 4.4 million potentially dilutive shares. Nathan will go into more detail on these actions in a minute.
To wrap up, while the tragic geopolitical events occurring in Ukraine have added increased risk to the domestic economy that was already contending with higher inflation and interest rates, we believe that our financial strength and capital flexibility, combined with the quality offerings and superior customer service, put us in the best position to achieve success. We believe that the risk-reward equations that the current business conditions offer continues to be attractive, and we are excited about the future. With that, let me turn it over to Nathan.
Thanks, Tim, and good morning. As Tim mentioned, we started 2022 with another quarter of exceptional financial results. In the first quarter, we earned $175 million of net income or $0.54 per diluted share. During the quarter, we generated an annualized return of 14.4% on beginning shareholders' equity. On an adjusted net operating income basis, in the first quarter, we earned $0.60 per diluted share, a 43% increase from the $0.42 per diluted share in the first quarter last year. A detailed reconciliation of GAAP net income to adjusted net operating income can be found in the press release, but the primary difference in the first quarter of 2022 was the loss on debt extinguishment that I will discuss in a minute.
We routinely disclose the amount of book value per share that results from the unrealized gain or loss position of the investment portfolio. While higher interest rates are a long-term positive for the earnings potential of the investment portfolio and for book value growth, in the short term, as a result of the rapid move higher in interest rates over the last several months, book value reflects a negative contribution of $0.39 per share at March 31, 2022, down from a positive contribution of $0.47 per share at December 31, 2021, and $0.53 per share at March 31, 2021. Book value ended the quarter at $14.75, 6% higher than a year ago. During the quarter, total revenues were $295 million, relatively flat with the $298 million last year.
Net premiums earned were $255 million in the quarter, the same as last year. The in-force premium yield was 40.0 basis points in the quarter, down from 40.7 basis points last quarter. We expect the in-force premium yield to continue to decline throughout 2022 at approximately the same pace as we saw in the first quarter as the older policies continue to run off and are replaced with policies that generally have lower premium rates. The net premium yield for the first quarter was 36.9 basis points, down 0.4 basis points in the quarter. On the reinsurance front, as we discussed last quarter, we placed both an additional 15% quota share on our 2022 NIW, bringing the total quota share to 30%, and a 15% quota share on our 2023 NIW.
In April, we also completed another ILN transaction, which covers nearly all of our policies written from June through December of 2021, and is expected to result in approximately $470 million of capital relief under PMIERs. During the quarter, operating expenses were $57 million compared to $51 million for the same period last year. As we discussed last quarter, the majority of the year-over-year increase was a result of investments we are making in our technology and data and analytics infrastructures, which are already paying dividends. We still expect full-year expenses will be in the same $225 million-$230 million range we indicated last quarter. Shifting over to credit. Net losses incurred were -$19 million in the first quarter, compared to $40 million in the first quarter last year.
New delinquency activity remains very low, continuing to account for fewer than 1% of the loans insured at the start of the quarter. In the quarter, we received approximately 10,700 new delinquency notices, which was essentially flat to the number received last quarter and is 18% fewer than the number of notices received in the first quarter of 2021. We are encouraged by the continued resilience of the housing market, favorable employment trends, and the positive credit trends we are experiencing, including the low level of early payment defaults, and believe they are good indicators of near-term credit performance. In the quarter, the estimated claim rate on new delinquency notices was approximately 7.5%, as it has been for the last several quarters.
In the quarter, our re-estimation of loss reserves on prior delinquencies resulted in $56 million of favorable loss reserve development compared to immaterial development in the first quarter of last year. The re-estimation of loss reserves was primarily related to the cure activity on delinquencies received in the second and third quarters of 2020, what we call the peak COVID period. The cure activity has exceeded our expectations, and as a result, we have adjusted our ultimate loss expectations down. We are hearing from servicers that foreclosure activity is beginning to increase as COVID-related moratoriums come to an end, and as a result, we expect claim activity to increase over the next several quarters from the $9 million we reported this quarter. Next, I want to spend a couple of minutes talking about the capital actions we took during the quarter.
During the quarter, the capital levels at MGIC and liquidity levels at the holding company were above our targets. As a result, and consistent with the strategy Tim previously discussed, we repurchased 8.5 million shares, about 3% of the beginning shares outstanding, for $128 million, and we paid an 8 cents per share dividend for a total of $26 million. During the quarter, we also repurchased an additional $57 million in principal amount over 9% junior convertible debentures due in 2063, which eliminated approximately 4.4 million potentially dilutive shares and reduced our annualized interest expense by $5 million. We also repaid MGIC's $155 million Federal Home Loan Bank advance during the quarter. Combining these debt repayments reduced our debt-to-capital ratio to approximately 17% at quarter end.
We expect to continue to de-lever over time and to approach a longer-term debt-to-capital ratio in the low- to mid-teens. At quarter end, our holding company had $409 million of liquidity, and we continued our share repurchase program in April, repurchasing 3 million shares for $40 million, and we repurchased an additional $10 million in principal amount of the debentures. The board also recently declared an 8-cent per share dividend payable on May 26. At quarter end, MGIC had $2.4 billion of available assets in excess of the PMIERs minimum requirements, or a sufficiency ratio of 167%.
MGIC's level of PMIERs excess increased during the quarter due to the strong cash flows from operations, partially offset by the increase in minimum required assets due to its growth of risk in force and the runoff of the PMIERs benefit on existing ILN deals. As we discussed in past quarters, we expect MGIC to continue to pay dividends to our holding company, but not on the quarterly cadence at which they were paid pre-COVID. We did not pay a dividend from MGIC to our holding company in the first quarter. At the end of the first quarter, MGIC's capital level exceeded our target level and was further bolstered by the ILN transaction that closed in April.
Reflecting this robust capital position, we have received approval to pay a $400 million dividend from MGIC, which will enhance the holding company's liquidity position as we continue to execute on our capital management strategy. We continue to believe that our balanced approach to maintaining a strong capital position, including using forward commitment reinsurance treaties, accessing the capital markets for excess of loss reinsurance via ILN transactions, provides flexibility to maximize the long-term value of both the writing company and holding company. This value can be created by writing more primary mortgage insurance, pursuing new business opportunities, retiring debt, paying dividends, or repurchasing stock. With that, let me turn it back to Tim.
Thanks, Nathan. Before moving to questions, let me address a few additional topics. The federal government, through various agencies, including the FHFA, CFPB, and the FHA, continues to focus its housing policy efforts on promoting equitable access to sustainable and affordable housing, mitigating foreclosure and eviction risk for homeowners impacted by COVID-19, and ensuring a successful economic recovery as opposed to making large-scale changes to the housing finance infrastructure. We will continue to advocate for the increased use of private mortgage insurance in the housing finance industry in order to reduce taxpayer exposure to housing while still maintaining a resilient housing finance system. At MGIC, we are focused on providing critical support to the housing market, especially low- and moderate-income and first-time homebuyers. We had a very successful quarter.
We wrote $19 billion of new business through our in-force book, generated $175 million of net income, delivered a 14% return on equity, reduced our leverage ratio, and continued to reduce the number of potentially dilutive shares outstanding. I'm encouraged about the future role that our company and industry can play in housing finance as we are organized solely to provide credit enhancement solutions to lenders, borrowers, and the GSEs in all economic cycles. Our industry offers many solutions and a great value proposition for lenders and consumers to overcome the number one barrier to homeownership, the down payment.
In summary, while there is some potential for increased risk to the economy, the current housing and employment markets remain sound, and we have a book of business that is generating a low level of losses and is supported by a strong and durable capital base with a low debt-to-capital ratio, an investment portfolio of nearly $7 billion, contractual pre-premium flow, and a robust reinsurance program. I am confident in our positioning in this market, and we like the risk/reward equation that the current conditions offer. We have the right team in place, and our commitment and ability to help borrowers achieve their dream of homeownership is as strong as ever.
As is our commitment and ability to deliver competitive offerings and best-in-class service to our customers, and to generate strong returns for our shareholders. With that, operator, let's take questions.
Thank you, sir. At this time, I would like to remind everyone, in order to ask a question, press star one on your telephone keypad. Again, that is star one to ask a question. We have your first question from Mihir Bhatia with Barclays. Your line is open.
Thanks. First I wanted to clarify, Nathan, your commentary on the average premium expectation that it would decline about the same amount as for the rest of the year as it did in 1Q. Are you referencing the, you know, the in-force yield, which was down 70 basis points, the total direct premium, which was, you know, down more like 140, or the net premium yield, which was down only 40 basis points?
Mattke, it's Nathan. I was referencing the direct yield, so the number that went from 40.7 basis points down to 40.
Okay. That, I guess to follow up on that, it seems a little bit more favorable than your commentary on the last call. I think you know, you indicated we might expect to see more like, you know, roughly 100 basis points of pressure a quarter for the full year. Is the outlook improving a little bit relative to kind of what you were seeing last quarter?
I think that there's a couple things at play. I mean, one, there's, you know, less refinance business in the market right now that's happened more quickly than we would've expected. The in-force book is just turning over a little slower. Persistency has come up faster. You know, we did expect persistency to increase, but it's just come up a little bit faster. You know, I would also say that, you know, 0.7 of a basis point versus 1 basis point is, you know, probably within a range that, you know, would've been included in what I would've thought about we guided to before.
You know, I think, you know, whether that ends up being down, you know, 3 basis points for the full year or something in between 3 and 4, I think it's probably, you know, within the range of outcomes that we expect.
Okay, fair enough. Just a question on, you know, your claim severity. It looks like you've been getting the benefits of, you know, the significant HPA. The average claim is down a fair amount year-over-year. And you referenced that there was a favorable development around reserves, I think, related more to the claims rate. Can you just discuss kind of the implications for reserve levels here if we continue to see kind of just the average claim size trend lower?
Sure. I think, you know, what we're seeing right now is the delinquent loans that are being resolved, that are resulting in claims are those that are going generally through a non-foreclosure path. We've kind of always seen better mitigation rates on those things like, you know, deed in lieu of foreclosure or short sales. You know, we do expect that foreclosure activity will pick up and we will start paying more of the percentage option, which has, you know, a severity closer to that 100% level over time. I think we don't think that the most recent activity is reflective of what we expect for the full inventory of delinquent loans.
HPA, I think, has certainly been, you know, a benefit to the industry and to our reserve levels as evidenced by the reserve releases that we've had the last couple quarters. You know, if we continue to see favorable cure activity and home price appreciation, you know, that's something that we'll reflect when we're reestablishing, you know, estimates in future quarters.
Okay, great. Thank you.
We have your next question from Bose George with KBW. Your line's open.
Hey, good morning. Actually, what was your ultimate loss expectation that you're using now for those peak COVID delinquencies?
Hey, Bose. It's Nathan. I think, you know, initially we would've been somewhere around 7%. If you go back to the initial estimates we would've set in the second and third quarters of 2020. I think combined with the development that we had in the fourth quarter of 2021 and now in the first quarter of 2022, I think you're in the maybe 4%-5% range for ultimate losses.
Okay. Great. Thanks. Just the, you know, the profit commission benefit that comes from the reserve release. Can you break that out?
Bose, you may have to follow up on that. I think it does vary by treaty too. You know, I think the benefit there is really as we you know cede less losses, it comes through as increased profit commission. On a net P&L basis, there's really not any impact because we no longer get the benefit of those ceded losses.
Okay. Great. Thanks. Actually one more for me. What's kind of the normalized PMIERs cushion that you're gonna target?
Yeah. Bose, we've talked about kind of targeting a PMIERs excess for a number of reasons that I think are pretty dynamic. You know, we ended the quarter with an excess level that was above our targets, which supported the dividend activity, and that's something that we'll continue to reassess in future periods.
Okay, great. Thanks.
We have your next question from Geoffrey Dunn with Dowling & Partners. Your line's open. Please go ahead.
Thanks. Good morning. Nathan and Tim, I'm curious how you're thinking about your 2023 notes and bigger picture, how you think about debt leverage in the MI model, considering, you know, the significantly increased use of the leverage offered by reinsurance and ILNs. Do you think you wanna look to retire the 2023s, or is it still a business model where you maintain a mid-teens debt to cap?
I'll take that to start, Jeffrey, 'cause Nathan was kind enough to let me speak on this one a little bit, but he can fill in the details. I think your question alludes to something that we've been thinking about for a while, is with some of the leverage you can get from reinsurance, the question is what should we have from a debt leverage standpoint? I think it's fair to say that we've been aiming lower. At least one of the rating agencies has guided sort of sub-15 debt-to-cap ratio, and that's something that we've been focused on. When it comes to the 2023 specifically, that gives us some options to think about, you know, either refinancing, rolling some part of it back, but paying back a chunk of it.
Obviously, as interest rates have moved, we've started to look more closely at that and as the time horizon to when those come due is coming closer. You know, we're thinking about that along with the 63s, which obviously takes out dilutive shares as well, but that's part of the deleverage for paying back the Federal Home Loan Bank. I think that's all our view of generally being lower on a debt leverage basis, recognizing that the reinsurance in our mind is cheaper than the debt leverage and it's at the right level, being it's the insurance company that we can pay the premiums from. It also gives us loss absorption protection, especially in downside sort of stress scenarios. Jeff?
Okay. I don't know if Nathan had a follow-up on that, but that's great. I appreciate it.
Okay. Thanks.
Thank you. We have your next question from Doug Harter with Credit Suisse. Your line is open. Please go ahead.
Thanks. Can you talk about your expectations for investment income? You know, how long the rise in rates we saw in the first quarter kind of takes to meaningfully flow through the portfolio?
Yeah. Sure, Doug. It's Nathan. You know, I think in the same way that the kind of decrease in rates didn't come through the portfolio immediately. You know, we're not gonna see the increase in rates come through immediately as well. I think reinvestment rates for us have been, you know, north of 4% recently, which is, I think, great long term. We've got a portfolio with a, you know, duration of about 4-5 years, so, you know, that's not gonna turn over overnight, certainly. We do generate a lot of positive cash flow, and also a lot of investment income and pay downs and maturities. I think, you know, we're excited about the opportunity to get to reinvest at these market rates.
Can you talk about, you know, kind of how your targeted, you know, returns for the MI business has factored in investment yields and whether this environment potentially, you know, provides upside to that?
Yeah, this is Tim. I think when we try to think about our returns, we try to think about them as not having sort of risk associated with investment yield. We try to strip out sort of investment income, if you will, from that equation overall and just try to look at the risk we're taking associated with the mortgage itself. Not to say that from an overall GAAP basis, it doesn't help us, but I think when we think about how we price the risk, higher interest rates generally don't sort of dictate sort of investment rates don't really dictate the change in pricing philosophy for us on the actual mortgage loans.
Understood. Thank you.
Sure.
I'm showing no further questions at this time. I would now like to turn it back to the management for any closing remarks.
Sure. Thanks, Alexander. Just wanted to take this moment, as we previously announced, Michael Zimmerman plans to retire after 27 impactful years at MGIC. Michael mentioned this morning this is his 77th earnings call. While he'll still be with us for a little while, I want to take some time to recognize him before we welcome Dianna Higgins on our Q2 earnings call. I think I speak for a lot of people at MGIC, both now and those that have preceded me, when I express my gratitude for Michael for his countless contributions to MGIC over that time. Michael's been a trusted confidant for me and for those who came before me.
Mike pretty much saw everything during his time at MGIC and handled each situation with a professionalism that's second to none, and he also found a way to have fun in the process of doing it, so I thank him for that. It's truly been a pleasure for me, and while I'll miss his camaraderie at work, I know the memories and friendship will last past his time at MGIC. Thank you, Mike.
Thanks, Tim. Appreciate that.
With that, everyone, have a great day and appreciate your interest in the company.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.