Good morning, everyone. We're ready to get started. Well, welcome again to NMI Holdings Investor Day 2022 version. We've been doing this now for eight years, since 2015. Feels really good to be here again. All but one of those we have been live and in person with you. Some of you we only see once a year in person, and it is really good to reconnect live. Note that today's presentation is being delivered in person in New York and simulcast on the web at nmiholdingsinvestorday.gcs-web.com. For those of you joining remotely, presentation materials have been made available online alongside the webcast and on our website.
We will host a Q&A session following today's formal presentations, and our webcast audience will have an opportunity to submit questions through the Q&A window on the webcast page. Also note a replay of today's meeting will be available on our website at nationalmi.com. Want to remind you, we'll be making forward-looking statements during the presentation today. During the course of this 2022 Investor Day discussion, 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 today can be found on page 89 of this presentation and on our website or through our filings with the SEC, which are also on our website.
If and to the extent we make forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no interested party should rely on the fact that the guidance of such statements is current at any time other than the time of this presentation. Also note we will refer to certain non-GAAP measures and provide a reconciliation to the most comparable measures under GAAP on pages 87 and 88 of this presentation and on the Investor Relations section of our website. I should reintroduce myself. I'm John Swenson. I feel like you all should know me now. We've got a great set of presentations for you.
Really excited to share with you what we've been doing at the company, how we're getting ready for events that are unfolding, and I think we've got a great morning for you. I will introduce Brad Shuster.
Well, thank you, John, and good morning everyone here in the room with us in New York and all of you also joining us online. I'd just like to reiterate my excitement to be able to meet with you and tell the story 'cause we're just very excited about what we've been able to achieve as a company and how we're positioned to have a lot of success going forward. Just reviewing the agenda, I'll kind of set the stage with some opening remarks in a moment. You'll hear from our President and CEO, Adam Pollitzer, who will provide a broad market overview and discuss some of the actions we're taking to position ourselves well for the evolving macro environment, and then share his thoughts about the opportunity that lies ahead.
Following Adam, Norm Fitzgerald, our Chief Sales Officer, will drill down into the development of our customer franchise, the success we've had there, and then what Norm sees for the future opportunity, which is significant indeed. Following that, Rob Smith, our Chief Risk Officer, will drill down into our insurance portfolio and provide detail around that and some remarks on the strength of the borrowers that comprise our portfolio, as well as the actions that we've taken recently to position ourselves well for the evolving environment. Ravi Mallela, our Chief Financial Officer, will review the substantial track record of success we've delivered over the last 10 years.
He'll go into a deep discussion of our financial position as well as our capital planning and capital position, as well as long-term opportunities to do more there. Following that, we will have a Q&A session, which is always, I think, one of the best parts of this particular meeting 'cause we can be responsive to what's on your mind, and we look forward to that. I will just get right into it. Here you see a slide of our executive team. I'd just like to say at the outset, I'm really proud of this team. We are stronger now than we've ever been as a company, and it's because of the talent that you see here in front of you.
In addition to those that you will be hearing from this morning, Bill Leatherberry, our General Counsel and the Head of our Government Relations efforts, is here in the room, as well as Mohammad Yousaf, our EVP of Operations and Information Technology. I encourage you to talk with the entire team at the break or after the program, engage and get to know them 'cause I think you will be impressed. Okay. In terms of the themes for today, I'm just gonna kinda give you a high-level overview, but then each of the subsequent presenters will drill down more, and so you'll hear a lot about these themes.
Number one, we had our 10 year anniversary fairly recently, and we're really proud of the success we've had and the track record, and we will review that with you and tell you why we think that sets us a strong foundation for how we're gonna move forward as a company. Just because of where we are in terms of the development of the macro environment, we will spend a fair amount of time today talking about the steps we've taken since day one to position ourselves for the coming environment. Also of some very specific things we've done recently to make sure that we are a durable and successful company, regardless of the macro developments.
Finally, we wanna share with you our thoughts about the exceptional opportunity that we believe lies ahead to continue to grow our high-quality insurance in force portfolio, to continue to generate strong financial returns, and to continue to create value for our shareholders over long term. Since founding the company, we have focused on creating value for our customers, our borrowers, our employees, and our shareholders. That focus still drives the company today, 10 years later. At our core, we're about creating access to homeownership, and we think that's a very important social mission, and it's something that we take very seriously at National MI. We're here to support our customers and their borrowers, and we have built a strong and reliable counterparty.
We're here to pay claims across all market cycles, and we think we've achieved that and we've done it well through our approach to managing risk, developing technology, and our people. Our people are invested in our customers' success and in turn, in our company's success. We've built a broad franchise with over 1,400 active customers. We've built a high-quality insurance in force portfolio. We've delivered exceptionally strong financial performance. You're all familiar with the strong mid-teens return on equity we've been generating. We've built a durable business that's positioned well for the long term. Drilling down a little bit on the last 10 years, the success we've had results from, first and foremost, from our people and our culture. We have the best talent in the private mortgage insurance industry.
Our employee base is a little over 240 employees, and all the success we've had traces back to their talent and their efforts. At NMI, we consider our culture to be a competitive advantage, and we think there's evidence of that because this year, for the seventh consecutive year, we were recognized as a Great Place to Work, which is based on what our employees say about what it's like to work at our company. You'll hear a lot more about this from Norm Fitzgerald, but we've had a dramatic expansion of our customer base. Lenders continue to respond to our core value proposition. In the past year, we've added roughly 100 new active customers, so there's still a lot of opportunity ahead and we're excited about that. We're very proud of the portfolio we've built.
It's both the growth and the quality of the portfolio. We're now at the end of the third quarter. We were just under $180 billion of insurance in force, roughly a 25% growth year-over-year. Given the interest rate environment that I'm sure you're all aware of, that's gonna have an impact on the origination market, and we expect NIW to be smaller in 2023 relative to 2022. However, you're also, I'm sure, aware of the effect that interest rates will have on our persistency, which has been rising and extends the duration of that $180 billion of insurance in force and increases the embedded value in that portfolio. That extension is flowing through to premium revenue. It's a very powerful driver of financial results to come.
Finally, the success we've had with our culture and our people, development of our customer franchise, building the high-quality insurance portfolio, the establishment of our comprehensive credit risk management framework, which you'll hear a lot more about, the discipline we've applied both to expenses and to capital management, it has translated into strong financial performance, and so we'll drill down on that and give you much more detail. We've generated consistent mid-teens returns even during the COVID pandemic, which we believe demonstrates the stability and resiliency of our franchise to perform across all market cycles. No secret to any of you, we're in a growing environment of macroeconomic uncertainty. The most impactful as we sit today is the effect of interest rates on the origination market.
And, and they've risen so rapidly that it's, uh, it's had the effect of having, uh, housing prices hit their peak, and we're starting to see declines on a national basis. But we'll go into more detail on this, we do not see this as, uh, indicating a repeat of the financial crisis, and we'll go into more detail on that on the next page. So I've been in the mortgage insurance business nearly thirty years, and I've seen the industry go through a variety of market cycles. Uh, uh, but the one thing I would note, today's industry is transformed from the industry that entered the financial crisis, uh, over 10 years ago. Um, and, uh, NMI is, has been a part of that transformation since our, uh, formation ten years ago. The environment since we formed has been one of responsible underwriting.
The regulatory guidelines that were put into place following the financial crisis have been successful in keeping the products out in the market just limited to those that are successful and will cause homeowners to be successful. The things that led up to the financial crisis just aren't present in the market. When we look at our portfolio, our borrowers are in a strong position. Majority of them have 30 year fixed rate loans with low rates. They have strong credit profiles. They have significant equity in their home. We expect resilience out of our borrowers, even in the event of a downturn. Since day one, we've sought to build a durable franchise in a risk-responsible fashion. We established our comprehensive credit risk management framework, and we've built a high-quality portfolio of insurance in force.
In addition to that, we've secured reinsurance protection on nearly the entirety of all the business we've written in our existence. We have a solid balance sheet with a substantial PMIERs excess. With the macro environment changing ahead, we are taking swift action to address emerging risks. We are changing our policy pricing, we are managing our mix of business, both with respect to risk cohorts and geographies, and we continue to secure additional reinsurance to further strengthen our PMIERs position. Now let's move on from the macro focus on the near term and talk a little bit more about what we see going forward. As I said earlier, we expect NIW to be smaller next year relative to 2022. However, we believe the American dream of homeownership is still alive.
When rates normalize and affordability improves, buyers will return to the housing market. The secular drivers that were part of our investment thesis when we formed the company about the aging of the millennial generation into the age where they will want to become homeowners, along with new trends coming from the work at home environment, the social pull of housing, and the rent versus buy calculus, are things that we expect to continue to drive demand for housing going forward. If you look at the resources of that future home buying generation, we believe that they're gonna need our support more than ever. Just wrapping up, we're proud of the success we've had over the last 10 years. We've built a strong and growing customer franchise.
We've built on a solid foundation of our comprehensive credit risk management framework. We've generated strong returns and book value growth. From, from day one and in recent times, we've taken action to manage the flow of risk and enhance our reinsurance protection. We're operating with a very significant PMIERs excess, and we believe we're extremely well-positioned to continue to invest in our employees, support our customers and borrowers, and deliver for our shareholders, no matter how the macro environment develops. And now I'm really pleased to introduce our President and Chief Executive Officer, Adam Pollitzer.
Great. Well, thank you, Brad, and good morning, everyone. I'm delighted to be here with you today and appreciate your continued interest in National MI.
Over the next several pages, I'll share a perspective about our strategic outlook, both in the near term, given the rapidly evolving market environment, and over the long term, where we see a tremendous opportunity to lead with impact and build value by continuing to invest in our people, supporting our customers and their borrowers, and delivering through the cycle growth and returns for our shareholders. 2022, as Brad noted, marks our 10 year anniversary as a company. We were formed in 2012 with a goal to provide a differentiated commitment and standard of service, and a clear vision as to how we should engage in the market to drive value for borrowers, our lender customers, our employees, our shareholders, and other important stakeholders. We've had tremendous success over the past 10 years.
We've helped over 1.5 million borrowers gain access to mortgage credit and opened the door to affordable and sustainable homeownership in communities across the country. We've established a national customer franchise with a foundation of partnership, trust, and innovation. We've built a talented and dedicated team who drive our success every day. We've developed a comprehensive credit risk management framework spanning individual risk underwriting, granular risk selection, and pricing through Rate GPS, and the comprehensive use of reinsurance. We've built a large, high-quality, and high-performing insured portfolio with significant embedded value. We've delivered consistently strong financial results. Turning forward, corporate culture as a competitive advantage. We believe that the quality of our team and the culture that we've established are key competitive advantages. We've built a talented, dedicated group and have established a culture of collaboration, integrity, and performance where our employees feel energized and valued.
Our success over the past 10 years traces directly to their hard work and dedication. We have 246 employees, by far the smallest headcount in the mortgage insurance industry. While we're small in footprint, our team is big in impact. We lead with a clear organizational mission, values, and purpose. Our mission is to help people gain access to housing and support them as they build value and community for themselves and their families. Our values are anchored around partnership, service, integrity, and excellence. Our purpose is to serve our customers with distinction, security, and success, and to optimize the long-term benefit we provide to shareholders and other stakeholders. Corporate sustainability is one of the ways we put purpose into action. We've always focused on building our business in a sustainable way, with discipline and risk responsibility at the core.
In doing so, we've built National MI into a market leader and have positioned the company to serve our stakeholders with consistency across both strong markets and more challenging environments. Our products provide borrowers with the support they need to access mortgage credit, and in doing so, we again help to open the door to affordable and sustainable homeownership in communities across the country. We're passionate about our work and proud of the support we provide and impact we have in the market every day. Now we, just as all of you, see developing risks in the macro environment and believe that persistent inflation, the aggressive pace of Fed tightening, rapidly rising rates, declining consumer confidence, and heightened global risk all tally to a likely recession in 2023. Candidly, we've already begun to see an impact in the U.S. housing market.
Mortgage rates are at a 20 year high, straining affordability for many prospective buyers and driving existing homeowners to reevaluate planned moves, which in turn has weighed on purchase origination activity and M.I. industry NIW. There's new tension in the negotiation between buyers and sellers across many markets, and house prices have begun to trend down sequentially from their pandemic peaks. As rates have spiked and the prospect of a recession has grown, the potential for further house price declines through 2023 has also increased. While the labor market currently stands as a bright spot, we would expect unemployment to rise and an increasing number of households to face stress with the onset of a recessionary downturn. As we plan for 2023, we think there's a much higher likelihood that growth will slow rather than accelerate. I'm talking the market, not NMI, the market.
That unemployment will increase from here as opposed to decrease, and that consumer fundamentals will soften as opposed to strengthen. At the same time, I stand in front of you today with confidence because of the work that we've done from day one to secure our performance across all market cycles. We've earned the trust and partnership of our customers with our focus on service, value-added engagement, and technology leadership. We've prioritized discipline and risk responsibility as we've grown our in-force book, building an exceptionally high-quality insured portfolio. We've led with innovation in the risk transfer markets, securing comprehensive reinsurance coverage on nearly all of the policies we've ever originated. We've established a strong balance sheet with a conservative investment portfolio, robust liquidity profile, and sizable regulatory capital buffer, all supported by the significant earnings power of our franchise.
We've been proactive, taking decisive action as the market has evolved around us. We've built National MI to perform through all market cycles, and the discipline with which we've managed our business across the board is valuable as we navigate today's evolving macro environment. Our philosophy all along has been that in order to get full benefit from risk management strategies when times are tough, you need to have implemented them when times were good. This can be seen most specifically and most importantly in our comprehensive credit risk management strategy. There is no bigger long-term driver of our success than credit performance and how well we manage risk in our insured portfolio. How we manage credit risk stands out. Our approach spans three foundational pillars. One, individual risk underwriting.
Losses happen at an individual policy level, and the more information we have about each of the loans we insure, the better off we are. Two, the use of Rate GPS, our proprietary engine, which allows us to fully price for the risk we're taking on a granular basis, and also to price away the risks that we don't want in our portfolio. Three, an expansive reinsurance program which covers nearly all of the risk we've ever written as a company and helps to backstop our credit exposure in periods of broader uncertainty or volatility. I'll expand on some of those points. We have an exceptionally high-quality insured portfolio by design. As an insurance company, we take risks. That is our purpose.
Taking this risk responsibly, reviewing it, and understanding it in detail, being selective as to what we ultimately put on our books, and establishing appropriate concentration guidelines is critical. We use Rate GPS amongst other tools and strategies to directly express our risk appetite, drive our mix, and shape our insured portfolio, as you can see here, to great effect. There's a natural cause and effect that comes with portfolio quality. Our focus on and prioritization of credit discipline and the quality of our insured portfolio drives our credit experience. Here we share a reference to highlight the strength of our relative performance in a period of stress on the left at the onset of the COVID pandemic, and in a constructive environment on the right as of the most recent reporting on September 30th. Our expectation, again, is that a recession will develop in 2023.
I certainly hope we're wrong and that the Fed is successful in engineering a soft landing. At this point, we're planning for the worst and hoping for the best. With a recession, we would expect that an increasing number of households will face stress of some magnitude and that our default experience will grow from where it stands at an incredibly low level today. Our existing borrowers, however, are well-positioned to successfully weather a downturn. As we tally here, they have strong credit profiles, record levels of embedded home equity, and sustainable fixed payment obligations at record low mortgage rates. Not only are our existing borrowers well-positioned to withstand a market turn, but we've also led with innovation in the risk transfer markets and have secured comprehensive reinsurance coverage on nearly all of the policies we've ever originated.
Our reinsurance program and the transfer of risk exposure that we've achieved provides further protection to our financial performance and balance sheet against adverse credit losses in periods of stress. Equally important, it provides us with an efficient and elastic source of regulatory capital funding. Later in today's presentation, Rob and Ravi will each share a severe stress case view, highlighting our expected claims exposure, earnings profile, and funding position under a repeat of the 2008 financial crisis. I'll tell you, it's quite an encouraging view, in part because of how our reinsurance program serves to minimize our loss exposure and support our PMIERs position through stress. Our balance sheet and the strength of our funding position provides us with great confidence as we look at the evolving market landscape.
We have today a conservative investment portfolio, robust liquidity profile, and sizable regulatory capital buffer, all supported by the significant earnings power of our franchise. Our balance sheet strength provides us with the wherewithal to continue to invest in our employees, support our customers and their borrowers, and deliver for our shareholders no matter how the macroeconomic environment develops. We've done a tremendous amount from day one to ensure our performance across all market cycles. This is an environment where it's incumbent upon us to do even more to prepare for a period of stress, and we've done just that, taking proactive and decisive steps to further bolster our business as a pricing, risk selection, and reinsurance matter.
On price, while we are still leaning in to fully and fairly support our lender customers and the borrowers we serve, we've had to make changes and ladder rates higher with the emergence of increased macro volatility. We use price to cover loss costs, and as the macro environment has evolved, we need and have captured incremental price to ensure we maintain rate adequacy. On risk, we have for some time now stood at the forefront of the M.I. industry in terms of the quality of our production and the discipline with which we've managed our mix, and we've continued to prudently manage our exposure in the current environment, defining our risk appetite and incrementally refining our mix with a view as to the risk cohorts, loans, and geographies that would be most impacted by a potential downturn.
On reinsurance, we've worked to quickly secure additional coverage and bolster our PMIERs position, successfully closing four deals since May and five in total this year. Now, one of the reasons that we value Investor Day is because it provides us with the ability to share a longer-term view with more depth and detail than we can on our typical quarterly calls. Despite the near-term macro noise, we still see a tremendous opportunity to engage with impact and drive value over the long term. Looking forward, we do expect the macro environment will grow more challenging, with implications for the housing market in the near term. The reality is that things never stay bad for as long as we might fear they will.
Over time, the macro environment will stabilize, the housing market will grow, core demographic drivers will remain, mortgage origination volume will rebound, and borrowers will need down payment support. The private mortgage insurance NIW opportunity will be large, very large, and the opportunity that we have at National MI to build long-term value remains clear. We've achieved tremendous success with our people, our customer franchise, our portfolio, and our financial performance over the last 10 years. While it's helpful and fun for us to tally this success and reflect on the strategy that's allowed us to deliver so consistently, it's far more important for us to be focused on the future and building towards our next 10 years of standout performance. The private mortgage insurance market will be large, valuable, and hold significant opportunity. Looking ahead, I'm confident in our ability to continue to perform and drive value.
Going forward, our people will remain a priority and our culture a competitive advantage. We'll continue to win with customers and expand our engagement across the market with the leadership of our sales team, our unique value proposition of certainty and service, our differentiation through consultative selling, and our I.T. and operational platform advantage. We'll maintain the discipline and risk-responsible posture that's served us and our credit performance so well as we continue to grow our high-quality insured portfolio. We'll find ways to further maximize our operating efficiency, and the significant embedded earnings power of our franchise and sophistication with which we manage our balance sheet will put us in a position to both deploy capital to drive growth and provide our shareholders with direct value participation through capital returns. We're excited as we look out over the long term.
When taken together, the significant market opportunity ahead and our success and strategy to build for the long term, we see a clear path to drive significant growth in our high-quality insured portfolio. The private MI industry overall has a significant trajectory, and as we continue to execute, we expect to capture an increasing portion of this growing market as we have done consistently thus far. Now, we like this chart. We use it a lot. You'll see it a few times today, and we've shared versions of it in many of our past Investor Day discussions. We call it the Blue Mountain of Value, and I see it as a visual representation of the exceptional opportunity we have to deliver long-term growth, profitability, and value for shareholders.
Over the past five years, we've compounded book value per share at twenty percent annually, a terrific achievement that highlights the consistency and significance of our success to date. And looking forward, as we illustrate here, we see a significant long-term opportunity to continue driving value for our shareholders. Taken all together, the success we've had with customers, our technology leadership, the growth, scale, and performance of our high-quality insured portfolio, our comprehensive risk management framework, our operating efficiency, and our funding profile, we are a premium franchise that has consistently outperformed across all key metrics for our shareholders. To wrap up, our base case expectation is for a recession to develop in 2023 with expanding impact on the housing market.
We expect origination volume in private MI industry NIW will decline from 2022 levels, and that default experience and claims expense will grow with house price pressure and increasing unemployment. Two things give us confidence as we look forward. One, we've taken steps from day one to ensure our performance across all market cycles. While that doesn't mean that we'll necessarily execute on our long-term strong mid-teen return goals in the heart of a recession, obviously, it does mean that we expect to deliver strong performance and profitability even as the macro environment evolves around us. Two, a near-term recession doesn't diminish the tremendous opportunity we see in the private MI market and our confidence in how National MI is positioned to continue to execute and drive value for our people, our customers, and their borrowers, and our shareholders.
I'm delighted that I get to now introduce Norm Fitzgerald, our Chief Sales Officer. Norm.
All right. Good morning, everybody. Thanks for being here in person or online. I'm really excited. I'm excited to be here in New York. I'm excited to be in this hotel, and I am excited to be here at Investor Day. I love tradition, and I love what we've built here. As Chief Sales Officer, I'm very proud of what we've accomplished as a sales team and as a company over the past 10 years. I am especially gratified to see what our team has accomplished this year as we entered a new normal in the post-COVID environment. I'm excited to take you through the results that we've achieved, provide examples of how we add value for our customers, and how we have positioned ourselves for success in the future.
I'll also share what we see as a digital transformation in the mortgage industry, as well as how our leadership in this area has uniquely positioned us going forward. We have a great team and a very strong customer platform. We can access and effectively engage with every lender in the country, both digitally and in person. Three years ago, when we gave this presentation before COVID, we had a sales force of 75 people. Since then, we have intentionally and effectively streamlined our team by over 40%. As you heard earlier, we are stronger than we have ever been. We are few, but we are mighty. As Adam said, we are big in impact. Our account coverage and access to the market has never been better than it is today.
We can do this with fewer people, and we can do it well because we have a strong team. A strong team that has been trained to use powerful digital tools that have allowed us to amplify our voice. Today, we reach more customers more strategically and proficiently than ever before. I'm proud of our team, and I'm grateful to be able to say that I really know every person on our team of 44. In many cases, I know their families. That's because I've had the honor to recruit, train, and lead this group for over eight years. We have cogently built our team with strong and resilient people who represent the honest founding culture and values that both Brad and Adam referenced earlier. We have people at every level who are willing to roll up their sleeves and get the job done.
They care about each other, and they're committed to NMI's success. I believe that we have the best sales force in the M.I. industry, and our success is clear in the record growth of our account base and our NIW production year after year. Before I start this, I'm gonna say, speaking of talent, I will say that I am proud to recognize two of the very best that we have. Some of you had a chance to meet them earlier. I recognize Norm Krumpschmid, Senior Vice President of Field Sales, and Cheri McCarthy's back with us again this year, Regional Managing Director of the Northeast. These two represent everything that's good about what we do. They're not just talented salespeople. They are great human beings, and they make my job easy. Well, not that easy, Adam.
As you can see, our team has been incredibly effective activating new accounts and building our customer base. Our account expansion has been fundamental in helping us grow our high-quality insurance in force in a sustainable and balanced way. We are not reliant on any single customer or even a small group of accounts. We've grown our base every year, and today we have no single lender representing more than 5% of our overall business. You'll see here that over the past three years, we have continued to increase our active accounts, reaching a new record of 1,409 as of the end of third quarter. The honest truth is, all of our active accounts were hard-earned. They all started with the word no, or at best, maybe. That's why we need a strong team. Our talented sales team has been able to persevere.
With boundless professionalism and enthusiasm, we've been able to change that narrative to yes. Over 1,400 times, and we aren't done. Our team can do this, and we have been successful in retaining and building with only the best of the best. This allows me to be strategic in keeping our sales headcount flat, and even in some cases, continuing to streamline whenever and wherever we can, because having talented and ambitious people using the right digital tools and training make this possible. Now, I keep referring to active accounts. What does that mean? It means one, we've got a master policy approved. We are integrated with the customer operationally and within their I.T. systems, and we have received our first commitment. Simple, but far from easy.
Now, of course, step one is getting a master policy approved, and this is a really big undertaking, but we have a lot of experience, and as you can see, we've become very adept at it. Step two is getting integrated within all points of our customer I.T. systems, origination, operations, and servicing. This step is absolutely crucial because this is how they see us, and this is how we see them. We aren't ready to receive a customer's business until we are turned on in their system. In today's world, being fully integrated in the system and being rooted in the customer's entire process, front-end to back-end, is essential to sustained success. Keeping all lines of communication open is paramount to our mission of remaining active and growing. In order to win business, we must meet customers where they work.
Today, that most often means remotely and digitally. We have been winning. Over the past six years, we have activated 678 new accounts. Year-to-date, we have activated 97 new accounts, including 23 of the top 600 lenders in the country, providing access to about $11 billion of additional NIW opportunity for us to earn. Because of our success in account growth, we now have an incredibly diverse customer base. In the third quarter, we generated NIW from a record number of unique accounts. Our objective is to continue on that path. I can tell you that that's my team's primary objective. Our team has built lasting and solid relationships, and we ceaselessly work to nurture and develop both existing and prospective accounts. I can tell you, we appreciate every partner, and we treat them with respect.
Just like the 44 people on our sales team, we have been here to welcome all 1,409 customers, and we know them all. We are consistent with what we offer. We treat every account equally, regardless of volume, size, or even when they started with us. This is the best part of our job, and we will celebrate number 410 just as exuberantly as we did number one so many years ago. I get this question a lot. Why do we win? The answer is simple. It depends. We are good students. We do our homework. Our experienced team of professionals are well-known and respected in their areas. We really know and understand our accounts and prospects. We know that every customer situation is different. It always starts with building relationships and trust and delivering value.
Now, for one customer, it may be about our post-close underwriting validation program and accelerated rescission relief. For another, it may be about our ability to seamlessly integrate into their loan origination system. For many or most, it comes at the end of a long process of due diligence, counterparty review, and executive-level engagement, and a willingness to expand their options. Now, I can say as a general matter, that more of our conversations with customers are about what the industry refers to as the digital roadmap. We are and we have been a thought leader on this subject and have technical credibility because of our modern I.T. platform, our transformational I.T. and operations leadership, and Rate GPS. This leadership has become a big differentiator for NMI, and our team is leveraging it to broaden our footprint in the market.
We have offered an innovative customer training platform for years, and part of our continued success has been quickly shifting and refreshing what we offer to address an evolving set of customer needs. Our training platform has expanded to educating customers about this digital roadmap and to enhance the digital client experience to help them build their business. We are a well-established player now, and we've earned an equal seat at the table, and we are always in conversations with our customers to ensure that we stay there. Again, I want to emphasize that the digital experience begins and continues with personal relationships. Digitization helps efficiently get our best people and products in front of more people. It's our ability to capture that moment to drive our value-adds, like our service, our culture, and our people, that matters most.
It keeps customers engaged, and it keeps them coming back for more. Our team's excitement and level of commitment to our customers absolutely remains the most critical component of why we win. The best part is, even with all this success, we're not done yet. We have a significant opportunity to grow. We've been persistent on activating and building our relationships with the top 600 lenders in the country. As you see here, these accounts represent more than 90% of the NIW opportunity in our industry. They're not our sole focus because, of course, all 1,400 of our customers are important to us. We love our balance. However, this is a group that we can focus on most efficiently and with the greatest potential payback over time. These are our target growth accounts, and we are positioned well.
We have over 500 active relationships among the top 600. I can tell you that our entire company has helped drive significant penetration with this impactful and very large base. Everyone at every level in this company is willing to lend a hand. We surround sound our accounts at all critical points of contact, and we celebrate as a team every day. I hear this a lot. When we activate an account, our team often uses the term, "It takes a village," and it does, and that is the NMI culture that we've been talking about. The advantage of today's world is that with our digital engagement approach, we can now reach this account base and opportunity more expediently than ever before. What's invigorating for us is that we are closely engaged with nearly 100 prospective accounts.
An additional fifteen and a half billion of new NIW opportunity for us to compete for. You'll see here that 61 already have an approved master policy and are simply working on activation, or in other words, step one complete. These accounts are at step two that I spoke of earlier, working on connectivity and integration. We are laser-focused and have detailed engagement plans to get to step three, which is activation. Once activated, we responsibly board new clients and make sure their experience is the best that it can be. Digitization works efficiently, but you have to be proficient at connecting all the dots, and we are. You hear this a lot. The mortgage industry is becoming more and more digital.
It's the edge that lenders need to win because those who can handle more volume with shorter lead times at the lowest cost have a competitive advantage in today's market. Our customers are continuously compressing the mortgage cycle. Prospective borrowers are applying online. Credit checks and FICO scores are being processed instantaneously. MI quotes are pulled and priced electronically. Loan documentation is uploaded to secure lender portals, all with essentially no human touch. This technology shift is driving efficiency and flexibility for our customers and for NMI. The trend is also expanding our new business opportunity. Technology disrupts lender habits and legacy relationships. We win if we can help the lender do it faster, more efficiently, and with greater precision. We are a technology-forward company and have pivoted to a smart digital engagement model quickly and seamlessly, which is driving both new account growth and wallet share gains.
Last year, I talked to this group about the social distancing and the work-from-home dynamic driven by COVID, which quickly accelerated the adoption of the digital roadmap and forced a shift in everyone's habits from how they work to where they work and so on. NMI's sales team continues to be at the forefront, educating our clients when they need it. Our entire industry was forced to embrace and implement new technologies to face the challenges that COVID restrictions demanded. What many discovered is that it works, and it works well. We have found that many people actually prefer working remotely and have proven to be more productive. The one thing that we know for sure is that business will never be the same again.
This is powerful for National MI because this digital trend allows us to expand our reach and engage across far more customer points of contact than was ever possible before. What we call amplifying our voice or a force multiplier. This is why we are able to remain the smallest and most productive sales team in the industry. Things continue to change fast, and we are fortunate to have a talented team that is excited to grow and evolve with the needs of the market. In summary, we have been incredibly successful, driven by a great team with a differentiated message and value proposition. I joined this company more than eight years ago because I love a challenge, and I love to build things.
My years at NMI have been incredibly rewarding, and I am as excited today about our opportunity and our potential as I was on my own day one. I'm grateful for all the relationships and partnerships that we've built internally and externally. 'Cause for me, it's always been about the people. It's about our customers, our employees, and our culture. Now our team will continue to focus on the top 600 account activations using our entire team and strategic engagement to continue our success in penetrating these high-potential accounts. We have an advantage with our digital literacy when it comes to seamlessly connecting with customers wherever they are and winning their business. We are dedicated to driving all of this with sales force efficiency and excellence.
With this combination, the best people and the best platform and the best culture, we are excited about what we have been able to accomplish in this market and the opportunity that lies ahead for us. I wanna thank you all for your time and attention. We're gonna take a 10 minute break now, and then Rob Smith will come back and discuss risk management. Thank you for your time.
We're ready to get rolling again. I'll invite Rob Smith up to the stage to kick us off for the second half.
All right. Hi there. Thank you all for taking the time to attend our presentation. I gotta get used to the clicker here. Okay. As in previous years, I'll be going through our risk management framework to describe how we select, underwrite, and distribute risk. I will follow with some detail on how our emphasis on risk management has worked for us to date. Finally, I'll provide some perspective on the current economic environment and actions we are taking to position our insured portfolio going forward. History has shown that mortgage credit losses have a long tail in their distribution, and adverse loss events have a long duration, making strong risk management particularly important in the MI industry. Decisions made today can have lasting impacts far into the future, as the experience of the Great Recession has shown.
Because of these characteristics of our industry, we've instituted a comprehensive risk management framework designed to reduce the volatility of our results by mitigating the losses we would experience during adverse events. Now, this program exists within a tight regulatory framework put in place in the aftermath of the Great Recession. It remains in place to this day. As I will discuss, the success of our approach is evidenced by our strong performance to date, and I believe will continue to be demonstrated as we move through the current economic environment. Now I'll discuss more specifics of our approach towards managing the risk in our insurance portfolio. There are three main pillars in our risk management approach. We start with extensive individual risk underwriting, which helps us understand the quality of the underwriting performed by our origination partners and helps us course-correct defects in underwriting processes.
Rate GPS, our risk-based pricing engine, allows us to price for loan scenarios at a level that we feel is appropriate given the risk of each individual scenario. Finally, we have an extensive reinsurance program that provides us with protection should credit losses become elevated. One constant since we started writing business is the quality of the risk we have insured. In today's environment, there's practically no product risk. Nearly all our insured loans are fixed-rate mortgages. The borrowers taking out these mortgages are fully documented for income, assets, and employment. We operate across the country, resulting in a well-diversified geographic mix. As you can see, we are very disciplined in the origination attributes of the loans we insure. We feel loans with multiple high-risk attributes or layered risk, if you will, require pricing at commensurately higher levels. As a result, we don't often insure these loans.
One major advantage of today's MI industry versus the pre-Great Recession industry is risk-based pricing. It's a powerful tool to help industry participants price risk appropriately given the economic environment. While use of black box pricing is not quite universal in the industry, we place a particular emphasis on it, and as a result, the overwhelming majority of our business is through risk-based pricing. This enables us to charge appropriate premiums for the risk presented to us, and given our belief that higher risk requires commensurately higher returns, the end result is a risk profile that diverges from the industry. This higher credit quality focus has led to better credit performance, as we can see on this slide. Okay.
Now for those macroeconomic events that generate more severe losses, we have reinsurance, which generally attaches anywhere from first loss in the case of quota share to low working layer losses for our ILNs and XOLs. Because reinsurance covers losses all the way through stress scenarios, it provides capital relief in addition to loss relief. As you can see on the slide, we have a variety of reinsurance coverages in place. Our approach is to buy as much coverage as we can in as timely manner as we can based on pricing and availability. This slide shows a simplified example of the impact of reinsurance.
I won't go through all the details line by line, but as you can see, the volatility mitigating effects of reinsurance in an economic scenario such as that laid out by the Federal Reserve in the annual CCAR stress test, which approximately is meant to replicate a rerun of the Great Recession. The availability, flexibility, and extensiveness of the reinsurance available today is another significant development for the MI industry as compared to practices in the past. Now we'll talk about the current economic environment. The U.S. economy has recently experienced the highest inflation since the early 1980s. Inflation in and of itself creates economic stress as workers' real wages decline. In response to this inflation, the Federal Reserve has been raising interest rates aggressively in an attempt to reduce it. This response has led to rising mortgage rates, which has strained housing affordability.
Put simply, given constant mortgage underwriting criteria such as we have today, when mortgage payments rise much faster than wages, fewer borrowers can qualify for a mortgage, which puts pressure on demand. This reduced demand, even with still tight supply, has led to decreasing house prices. If inflation proves to be sticky, monetary tightening will eventually lead to increasing unemployment. House prices have already begun to decline, with the Case-Shiller index showing a decline of roughly 1.5% from the peak, and other less lagged data indicating prices are down roughly 3% from the peak achieved in the April to May timeframe. With decreased affordability hampering demand, most expectations are that house prices will continue to decline in the near term.
As long as inflation remains elevated, higher rates will not only slow activity in the housing market, but other areas of the economy as well, which will lead to job losses. We are seeing some signs of this already, with some high-profile layoffs in industries like tech and transportation. Although our current default rate remains low, having recovered significantly as the COVID forbearance loans have cured, we do expect some deterioration in mortgage performance ahead. How are we thinking this environment will impact our performance? Let's take a look. For our existing book of business, we have insured loans with extremely high credit quality, as I've reviewed in previous slides. As pointed out, with a fixed-rate mortgage, much of the existing book has locked in an attractive rate, which creates an incentive for borrowers to stay in their home.
Most importantly, these borrowers have built a lot of equity, not only from house price appreciation, but also from the fast amortization that comes with low rates, where more of the monthly mortgage payment goes to pay down principal. While the average LTV at origination in the M.I. industry tends to trend around 92%, we estimate the average LTV in our portfolio today is 75% on a mark-to-market basis. Even modest declines in house prices will leave most borrowers with sufficient equity to provide an incentive and ability to avoid default. The relative stability of the U.S. economy during this period of rising rates compared to other economies can be tied directly to the prevalence of the fixed-rate mortgage. Mortgage debt payments as a percent of disposable income are still near 40 year lows.
With fixed-rate mortgages, borrowers avoid roughly 1/3 the exposure to inflation as measured in the Consumer Price Index. As wages increase faster during inflationary times, the borrower's financial situation actually improves. Combined with a large equity cushion, the fixed-rate borrowers underlying our insured mortgages are expected to perform well. In summary, our existing portfolio is extremely well-positioned. However, as we look forward, risk is evolving, and it is important that we take the appropriate steps to address these risks while continuing to support the market. As the economic situation unfolded this year, we implemented a series of price increases across both loan-level risk attributes and geographic factors. Price increases have varied depending on the loan-level attributes and our view on house price path in different geographies.
With the general approach being that loan scenarios with a higher component of loss in their pricing saw higher increases. Going forward, we'll continue to assess the economic environment as it develops and then make appropriate price changes. As I showed earlier, this emphasis on pricing for risk-adjusted returns leads to differentiation risk profile as compared to the rest of the industry. The other action we continue to take is to purchase extensive reinsurance coverage. We had and took the opportunity in late 2021 to purchase quota share coverage for two years through the end of 2023 at attractive terms. For our excess of loss coverage, we switched from the ILN market, which faced disruption starting earlier in the year, to traditional excess of loss coverage from the reinsurance market.
As we show on the slide, over the past year, we have closed five reinsurance transactions and covered our NIW with both quota share and XOL through our Q3 2022 production. Sorry, 2022. In conclusion, risk management is at the core of what we do, comes through in the performance of our insured book to date, and informs our actions in this economic environment. We believe we are well-positioned for whatever this environment brings because of what we've done since we started this company and the tools we have in place today. I'll now turn you over to Ravi, who will walk through our financial outlook.
Thank you, Rob, and good morning, everyone. In my section, I plan to cover details on our outstanding financial profile, our strong positioning relative to the potential economic stress that may emerge next year, and discuss the exceptional long-term opportunity to continue to drive strong returns and growth in book value. Starting with our top-line results, we have strong revenue growth and high returns. Two components of a return profile that don't always come together. At National MI, we've delivered both for an extended period of time. It starts at the top, significant growth in our insurance in force, driving revenue growth. We've been disciplined in managing risk and expenses, driving our underwriting margin, and this, in turn, is driving our bottom line. 20% compounded annual growth in net income over the last three years.
We've been efficient managers of capital, averaging over 17% return on equity over that time, and we've achieved strong compounded growth in book value per share, up 18% over the last three years. We've been performing at a high level for an extended period of time, building with discipline, consistency, and visibility. We're proud of what we have achieved and of the value that we've created. This gives us a strong foundation and confidence as we enter our next phase of growth and value creation. Our ability to generate strong mid-teens ROE is based on the quality and size of our insurance in force, higher persistency from the sizable insured portfolio underwritten during a period of low rates, our commitment to expense management, building a low-cost, efficient capital structure, and the strides we've made in these areas over the last few years.
We generate a strong mid-teens ROE because that's our focus day to day, quarter to quarter, year after year, doing all the things I've mentioned on the prior slide and doing them well. Another virtue of our financial model is low volatility. In the second quarter of 2020, when we saw a significant spike in our defaults related to COVID, and dramatically increased our reserves, we achieved an 11% ROE. That is a very high floor. For us, volatility comes from claims expense. We need to manage the flow of risk into the portfolio, which we do. We individually underwrite the vast majority of loans that we insure, and we spend real dollars to reinsure our portfolio, all to manage volatility, and ultimately, to allow us to achieve consistent returns.
It's what we call positioning for through-the-cycle performance, and I'll be talking more about that in a few later slides. Broadly speaking, we have outperformed, and we have confidence in our ability to deliver strong results through all market cycles. Our ability to deliver financial success is also driven by how we are positioned to navigate the evolving macro environment. We're seeing the economic backdrop soften, and as mentioned before, we expect a smaller mortgage origination market in 2023. We can already see weakness in the housing market that could be expressed in increased claims experience as we move through next year.
We're well-positioned for what comes because of everything we've done since our founding, the things Brad, Adam, and Rob have shared with you, and because of the actions we've taken most recently to control the risk we're bringing into the portfolio, increase pricing across the board, and layering on additional reinsurance protection to protect the balance sheet and bolster our PMIERs excess position. Now, let me spend some time on providing some insight into where our confidence comes from. Since inception, we've been focused on growing a high-quality insured portfolio in building comprehensive credit risk management framework and innovating in the capital markets to build a strong regulatory capital position and a long funding runway. We've taken steps from inception and recently done even more to position ourselves for the evolving risk environment.
Through Rate GPS, our proprietary pricing engine, we've been able to increase rates broadly and quickly in response. We've also made targeted changes to manage our mix of specific higher-risk cohorts and geographies. We've completed five reinsurance deals in 2022 alone, building an excess PMIERs position of $1.2 billion, which provides us with funding strength and loss absorption capability to perform well through the cycle. Since inception, we've been building a risk-responsible, durable business. The most recent steps we've taken provide us with further confidence in our ability to perform well through all cycles. Our high-quality book of business continues to stand out in a positive way relative to the industry. Since day one, we've prioritized discipline and risk responsibility as we've grown our in-force book, building an exceptional high-quality insured portfolio.
And our reinsurance program covers nearly all of the risks we've ever written as a company and essentially ring-fences our exposure in periods of broad uncertainty and volatility. Ninety-seven percent of our one hundred and seventy-nine billion insurance in force is covered by a form of reinsurance and credit risk transfer. We have quota share coverage on all of our production through the end of 2023. And this year, we accelerated the pace of reinsurance and reduced the cycle time between transactions. Accelerating the pace minimizes our warehouse exposure and limits the credit risk retained in our high-quality insured portfolio. And this is extremely valuable during a period of increased macro volatility. Our overall program has low attachment points, providing us with significant coverage at an efficient lifetime weighted average pre-tax cost of capital of about five percent.
We have a solid foundation today with a strong liquidity and capital position and broad protection from our comprehensive reinsurance program. Our investment portfolio is comprised of high-quality fixed income assets with nearly all of the portfolio investment grade or higher. We've have continued access to funding across the capital markets and reinsurance spectrum. We've done an enormous amount of work to innovate and optimize our funding profile. Our strong balance sheet and capital position provides us with financial flexibility to absorb the impact of a potential downturn and at the same time, support and fund high-quality NIW production. Now I'd like to share a perspective on pressure testing our portfolio and our overall business. We've built our business to operate with a very high ceiling when market conditions are favorable, and more importantly, deliver a very high floor under stress.
We use the stress test as a part of our credit risk framework to assess potential outcomes. The stress backdrop we use is a downturn similar in severity to the 2008 financial crisis, known as the CCAR Severely Adverse Scenario. When we model the impact of stress, the impact is actually far from stressful. On this slide, we illustrate the impact of the CCAR Severely Adverse Scenario on our financial performance over a five year period. In every year of the stress period, we have positive net income, and that includes the periods where we experience the most stress. Our return on equity increases every year, and we continue to build book value per share.
For NMI, a stress test similar in severity to the 2008 financial crisis is an earnings event, not a capital event. We would quickly see a rebound in profitability over time. Here we illustrate the corresponding impact of the same stress test on capital. We assume no access to the risk transfer and reinsurance markets during the five year period. This is a very conservative assumption. I would also note, we assume no further benefit from forbearance programs in this analysis. Through the five year period, we maintain a significant excess position. Under extremely conservative assumptions and a repeat of the 2008 financial crisis, we continue to generate strong positive earnings, grow book value, and remain in a PMIERs excess position through the five-year period.
Overall, our comprehensive credit risk management framework, our industry-leading high-quality insured portfolio, our comprehensive reinsurance coverage give us confidence that we will perform well through stress, and at the same time, continue to support our lenders. It's truly an impressive result, and it gives us confidence in the actions we've taken to navigate and outperform regardless of how the economy evolves. I'd like to turn attention to the long-term opportunity ahead of us. For NMI, we feel the exceptional opportunity remains intact. Because of our standout success, and because of our strong capital position and the pressure testing we've done on our performance, we feel confident that we'll be able to deliver significant shareholder value over the long term. As Adam mentioned, in 2023, we do expect a smaller purchase origination market. Over time, the market will recover. Housing demand will expand again.
The exceptional opportunity for growth in the private mortgage insurance market will rebound, and the NIW opportunity will again be driven by secular forces we've talked about earlier today. We continue to see a significant growth opportunity in the private M.I. industry, and we're well-positioned to continue to deliver high-quality NIW in the long run. We have an opportunity to add new customers as we always have, but also to benefit from a market where drivers will catalyze additional growth over time. The value of persistency is something we talk about often. We're happy to talk about it again today. Our growth opportunity starts with our insurance in force, now at $179 billion. It's sizable, with increasing levels of persistency.
Our insurance in force will continue to grow as we return to a normalized economic environment, and the benefit of long-term persistency will drive additional lifetime premium revenue and embedded portfolio value. Since the beginning of 2022, we estimate that the expected life of our portfolio has extended by approximately 0.7 years or eight months. At current net premium yields, we would expect to generate well over $300 million of incremental premium revenue over the life of the portfolio. Our portfolio has significant embedded value, and with increasing persistency and extension, that embedded value is increasing. Higher rates also bring additional benefits, and I'm excited to talk about our investment portfolio, a topic we haven't touched on in a while. With rising rates, we have a sizable opportunity to enhance our earnings stream.
Our high-quality investment portfolio stands to gain from increasing portfolio balances and the deployment of cash flow generated from operations into significantly higher new money rates. Investment returns in a rising rate environment will generate additional earnings support, which is especially important during a period of macroeconomic softening. We're delighted to include investment income as a significant driver of our performance going forward. Our high-quality book of business continues to stand out in a positive way relative to the industry. The confidence we have in performing well during both normalized periods and stress environments is grounded and informed by our results. Our peak COVID default rate was 50% lower than our nearest competitor, and in a normalized environment, our current default rates are less than half our closest competitor.
As we look ahead, having a high-quality portfolio that has outperformed during both stress and normalized environments provides us with confidence to take advantage of the long-term opportunity ahead of us. Disciplined efficiency in the scalability of our platform has always been a primary focus, and that still remains the case today. Efficiency is at the heart of driving our long-term opportunity. We have only 246 employees and incurred $126 million in adjusted operating expenses during the last 12 months. At September 30th, we have by far the smallest headcount and expense base in the MI industry. Going forward, we do not need to add significant headcount or make sizable corporate investments to support growth. Our platform is modern, it's scalable, and a driver of real operating leverage.
We've made consistent gains, and our expense ratio now sits at a record low 22.9%. Adam and I have shared versions of this chart in our materials today, and we've shared versions of it in past Investor Day discussions. It's a visual representation of the exceptional opportunity to deliver significant growth and value, and how we're positioned to deliver for shareholders. Our profit potential is significant and is driven by the size and credit quality of our insured portfolio, the embedded value of the portfolio through higher persistency, consistency of credit quality, and disciplined expense management that allows us to efficiently scale our operations. Again, the road ahead is bright, and we see an even bigger opportunity to grow book value per share.
I'll highlight here on the page. Even under CCAR stress, as you can see by the right line on the page, we continue to build a sizable amount of book value through a stress period. Adam spoke to you a year ago talking about our pathway to capital distribution and the guideposts we look for when mapping out our progress. We pegged the completion of these activities in the 2022-2023 timeframe. Since last year, we've made terrific progress. We delivered record financial performance. We built our high-quality insurance in force to $179 billion. We executed in the reinsurance market to add additional PMIERs funding and expanded our dividend funding capacity at the operating company. We have talked about these guideposts last year, and we've been able to accelerate the pace of these activities.
In February, we were proud to announce our $125 million two-year share repurchase program, and we've made considerable progress on the program so far. We all recognize that the pathway to distribution sits against a backdrop of the prevailing economic environment. We consider that when we think about how we execute our capital distribution over time. As we look forward, and when the market stabilizes, which it will, we're committed to providing our shareholders with direct opportunity to participate in the value we're creating through distributions. Now, over the long term, we expect to be able to consistently distribute capital to shareholders in the form of repurchases and eventually dividends. Right now, we have a repurchase program that runs through the end of 2023, and we plan to execute through its expiry.
We will be more managed through the immediate term as the economic environment develops around us. We look at the work we've done in 2022, and we feel we're in a terrific position to execute our plans to date. We've covered a lot of information here. We delivered significant financial success, taking distinct and decisive steps to perform across all market cycles, and are well-positioned to capture the opportunity ahead. Now, I will turn it back to Adam for concluding remarks. Thank you, Ravi. You've heard a terrific set of presentations today from our senior team, outlining for you the great work we've done over the last 10 years, acknowledging some of the headwinds posed by the macro environment in the near term, and highlighting the exceptional opportunity we see over the long term to drive continued growth, returns, and value for our shareholders.
I appreciate you taking the time to join us this morning and for your continued interest in National MI. We'll now take a five-minute break to set up for Q&A.
We'll respond from there. If the team is ready, go ahead. Where's the first question? There's one in the back.
Thanks. Good morning. Geoffrey Dunn with Dowling & Partners. Two questions. First, Ravi, with page 73 in terms of the CCAR impact on capital. You know, outside looking in, it's hard to project how delinquencies will react to various economic conditions. Can you put some numbers around delinquency growth for that chart in the first two years and how that translates into your confidence of PMIERs asset cushion?
Yeah, I can do that. Thanks for the question, Jeff, and it's nice to meet you in person for the first time. You know, one of the things with the respect to the CCAR severely adverse scenario is not only the question about how defaults occur and the size and quantity of the defaults, but how actually claims results unfold over the course of the period. You notice that we put together a five-year projection there. It's, one, to recognize that the process in going from default to claims can be a pretty long period of time. When you see the CCAR scenario, it's a combination of, one, seeing defaults and what level of defaults occur, and how those defaults sort of progress over time and how that impacts capital.
Let me touch on a couple of things that we did with the stress test that we ran to answer your question. One, defaults we saw during peak COVID time, our peak default levels were 3.78%. You know, that's an economy that shut down with unemployment levels, you know, well past 10%. Right now at a 3.7% unemployment rate, and we expect unemployment to go up over time. We see a pretty sizable and serious amount of defaults that populate the five-year period. What we did with respect to the stress test is to really push defaults and claims forward into the experience.
What you're seeing in the first couple of years is a pretty significant hit to defaults and claims expenses occurring earlier than we would typically see it unfold over the five-year period. The first couple of years are extremely severe for us, and we show that from a stress testing perspective, we perform really well. To your point, maintain an excess capital position throughout the period.
Okay. As a follow-up with respect to your expenses, other than inflationary pressures across the various lines, what are the future areas of expense growth? Really trying to get at, do you possess kind of a more modern expense model for the MI business that can, you know, potentially allow for a kinda newly defined normalized expense ratio upon scale?
Well, we're certainly excited about having a 22.9% expense ratio. It's a record for us. You know, we've talked about our long-term goal of being, you know, low to mid 20%, and we're happy to achieve that now. I think with respect to our underlying platform and our ability to scale operating leverage, you know, we feel very good about the fact that we have a modern scalable platform, and that allows us to grow insurance in force over time and help us with managing, you know, overall expenses. Look, you know, we are gonna spend more. We're gonna spend on our people. We're gonna make sure that our technology is up to date in delivering services for customers.
Maybe absolute levels of expenses might increase, but we're really focused on making sure our ratio continues to stay down over time and looking for opportunities to continue to impact that number in particular.
Great. Next question.
Yeah. Morning.
Okay, go ahead.
I got the microphone.
Okay.
Yeah, I'm sorry. Oh, morning. Mark Hughes with Truist. Ravi, did you give a specific ROE minimum in that adverse scenario? I think in times past, you've suggested that you know kind of where the bottom would be. Do you have an update for that?
You know, look, every sort of stress test is different. Every sort of macroeconomic environment is different. It's hard to give, you know, a lower end of the scale. I think we've proven out that over the course of history, recent history with respect to COVID, we delivered an 11% ROE during that period of time, and we're really proud of it. It's hard to say that the next downturn, whatever that looks like, will either be more severe or less severe, but we're happy with the experience we've had in the past and where we are right now.
Yeah. Go ahead.
Just one more. We're not gonna provide what the lower bound will be under a repeat of the financial crisis. I think most importantly and what we focus on is we expect to be profitable in all years through a repeat of the financial crisis over the five-year view we've presented. As Ravi had said in his remarks, it's an earnings event. We'll see a depletion in earnings. It's not a capital event. We don't experience loss under a repeat.
Adam, you had suggested you should be able to continue to take share over time, you know, with very good visibility across the industry around competitors' pricing. They see yours, you see theirs. How do you take share in that environment?
Yeah. Mark, just to clarify, we didn't make any reference to taking share per se. What I referenced for us taking share is share of a larger and larger pie of insurance in force in the industry. We do expect that the pace of growth we achieve in our insurance in force will run ahead of where the rest of the industry is. Over time, it's not about taking market share. We do not manage the market share. There's not a single dollar of executive compensation for anybody on this team, including Norm and his sales team, that's tied to the achievement of a market share goal. We need to make sure we're prudently managing our risk exposure and being risk-focused as a first priority.
Over time, right, over time, we do expect that we will capture a larger slice of a growing insurance in force position for the industry. That's real exciting for us. That's something that will drive value.
Thanks. Doug Harter from Credit Suisse. You showed the chart a couple times of the lowest delinquency rate in the industry. Can you just talk about kind of the yield give up, you know, kind of to accomplish that and kind of how you view risk-reward and stability of those returns, you know, kind of at the better credit quality versus, you know, taking a little more risk?
Yeah, Doug, one, I appreciate the question. I appreciate the connection of default experience to yield. Usually, we get a question about yield in isolation, and it obviously doesn't live in isolation. It really is a function of the decisions we make about the credit profile. We have found value for some time now in focusing on higher quality risk cohorts, positioning our portfolio to stand out in a meaningful way, and it comes through in our default experience.
As to the trade-off explicitly, we can't tell you because we haven't built our portfolio with more risk, and so we don't know. It comes through in a multitude of ways, right? Being and focusing on higher quality risk yields better credit outcomes. We also think that it yields differentiated outcomes in the reinsurance market. If you look at the cost of our deals, the placements that we've achieved in terms of the timing of those deals and also the attachment points, right? Attachment points matter because effectively it's the deductible. The lower our attachment point, the lower our retained risk exposure. That all stands ahead and that all traces to the quality of our portfolio. At the end of the day, yield, credit experience, ultimately, we can distill all of these and measure them by our ROE.
We've delivered consistently strong ROEs, 15%+. We just delivered a 20% ROE in the third quarter. I can't tell you what would our yield have been or what would credit performance be and what's the trade-off. We're really happy with the decisions that we've made.
Thanks.
Gregory.
Great. Thanks. Bose George from KBW. Actually, start the question for Norm. You noted that the sales team is down to 45 from, I guess you could 75. Was that cost-driven, efficiency-driven, and how does that compare to some of your peers in terms of size?
I'll start with the first part of it. It was efficiency driven. When we first started, we had to make a shift on this, we actually called our team or we used the terminology unit bombers, right? We gone out and we got units. We went desk to desk, running around as much as we could, you know, with that big team. At that point, I think we estimated we probably made about 100 visits a day. We shifted from that a few years back. You know, the efficiencies of risk-based pricing and so on have changed our mindset. We don't chase units. We don't chase share. We manage accounts, and we keep them open and keep access to them, availability.
Wish it was that, you know, easier than that. Because of that, the amount of visits and the amount of meetings that we have to have face-to-face have limited, and the people on our team can cover much larger areas. Give you an example, just 'cause he's here. Norm Krumpschmid is a couple rows up from you. He started the company as an account manager covering Michigan. He got moved into a managing director position after that, and he replaced himself with one account manager who covered Michigan. That was basically the way that things were run or are run in the industry. We expanded that as people, through attrition, you know, as people left for different reasons.
That individual now covers Michigan, Ohio, Indiana, Kentucky, and West Virginia, and is as productive, if not more productive today than he was before. When we look at his production, we look at his production based off of accounts managed and access. When you look at those people from going from 75 to 44, look at his names and faces behind all those, but the individuals that are on that list of 44 are the people that have been able to pivot and be able to understand the entire process. With that being said, that was done for efficiency.
Okay. Great. Thanks. Actually just wanted to follow up on Jeff's question just on the CCAR. In terms of the delinquency number, is that something you know, sort of want to specify, or is it just to say it's below what the sort of the levels you hit during COVID?
Uh, it's a good question, Bose. And so we're not gonna provide a specific delinquency rate at peak. What I would say is two things: It meaningfully exceeds the peak delinquency that we saw, um, at, uh, at the onset of the pandemic, that three point seven eight percent. It meaningfully exceeds that level. The other one for us is we don't wanna know just how do we perform in a defined period of stress. We also often will look to say, "Well, what breaks the system?" Right? What is the level of stress that we could actually absorb before we start to feel and see more strain emerge, either as a profitability matter or from a, um, a capital, uh, matter and a regulatory sufficiency standpoint.
When we look at it, obviously, the view that Ravi shared is one where the scale of those charts is deliberate, where we are very comfortable in how our PMIERs position will hold over a five-year view under a repeat of the stress scenario or 2008 financial crisis. We then say, "Well, how much more? What would it take?" It's not to say it's a 2x event, but when we look at it, we could comfortably absorb a 75% increase in default experience above what we would expect to happen under a repeat of the 2008 financial crisis and still maintain PMIERs sufficiency at all points. It gets thinner, right? If you have a stress event that's 75% greater in severity for our default experience to be expected, our PMIERs position would get thinner.
That's the level of support that we see just based on the excess capital position we have today. How our reinsurance program works, it's elastic, right? As PMIERs strain increases, our reinsurance structures absorb a large chunk of that increase.
Okay.
Thanks. Mark DeVries from Barclays. Had a question about the risk-based pricing movements you've been doing. I think multiple speakers alluded to the fact that you can price, you know, either more fully or even to avoid certain types of risk characteristics and geographies. Just interested in hearing more about how you're accomplishing that and more specifically around geography. Are you able to drill down to, like, the MSA level to avoid areas where there's much greater risk of significant price corrections?
Yeah, I can answer that. Yeah, we track a little over 950 different MSAs. Certainly, the larger MSAs constitute most of the business. You know, I think the top 20 are about half the business. We can drill down a lot more than that. We have the ability in the system to make adjustments on any of those 950 MSAs up or down. Recently it's been up in price, but yeah, we have a lot of flexibility. I mean, again, as I said, it's a really great tool. I mean, we mentioned that house prices are starting to decline and are expected to further decline by most estimates. It's not even across the country/
Some areas a little more overbought than others. Supply is easier to add in certain areas. Demand is falling more than others, and we'll see different outcomes. Part of our challenge is to try to predict where those outcomes are going to land and price appropriately. The good thing is we have the tool to do that. We can make changes very quickly in our system. Again, our technology platform is really good. Yeah, we feel really good about our ability to respond. We're busy doing that these days. Yeah, we have a lot of granularity.
Okay. Have a related question for Norm. It's more about, you know, what are the conversations like with your customers now that you're pricing for greater risk? I mean, you've historically always been more conservative, and I'm assuming you're maintaining that stance as the whole industry reprices higher. It's probably less of a problem where your customers have all the business they can do, but now when they're slowing to close loans, is it getting, you know, a little bit harder with those customers to sustain wallet share?
I think the best way I can answer that, you know, you're right. When there was an overflow of business, just getting somebody's time and their attention was difficult. That was one of the biggest challenges that we had. I wish it was as easy, you know, when we get to that step two that we were talking about, when you get into somebody's system to just activate them, and it doesn't just happen. You have to change habits. The conversations that we're having with people now, and what I've been telling the team, what we see is they're facing some significant challenges. Where are they gonna get their business? How are they gonna be able to get things done?
We've been leaning a lot more on education and helping them, you know, just try to figure ways out to generate business. That's where the conversations have come from. We rarely, believe it or not, talk about price. Service was of utmost because before, you know, to be able to push as many loans through the system, they would talk about SLAs and turn times. Of course, that, you know, everything is running really quickly now. It's a lot about how do we get it done? Can you help us be able to figure out different ways to find business and make introductions to some of the things that we've talked about?
We've gone a long way with our ability from a digital aspect, so we do introduce a lot of vendors and different people to them that might be able to provide solutions for them next year that will help them grow.
Thanks. I'm Eric Hagen with BTIG. Can you talk about how you're using costs in the reinsurance market to drive or inform your pricing? You guys talked about targeting loans with fewer risk layers. Does that affect pricing in the reinsurance market, too? You can talk about that. Thank you.
Maybe I'll start, and then Rob can weigh in as well. Eric, it's a good question. I think one piece to note, we never price in the primary market based on the outcomes that we achieve in the secondary market. We like the reinsurance protection that we're able to achieve. We're pleased with the execution that we've been able to yield over the last few years. As Ravi mentioned, we view our reinsurance program as providing us with roughly a 5% pre-tax cost of capital at this point. Obviously, reinsurance costs are moving higher, but they're moving higher for the same reasons that we're looking to increase premium rates on the primary side.
They're moving higher because risk is increasing in the system, and we use price just as the reinsurers do to account for that increased risk and make sure that they're maintaining rate adequacy. It doesn't directly inform the decisions that we make on the primary side. If our reinsurance costs were still as low as they had been, let's say, at best levels in late 2021, we would still wanna manage our primary pricing because of the risk that we see developing in the environment. They're disconnected, but they're driven by the same reason.
I think all of us in this room, all of us that, you know, you could talk to externally, have a view that something is developing that will be of consequence next year, and that it will ripple through the housing market in a certain way, and that necessitates a price increase.
Roland Meyer, RBC. I was wondering in a more normal recession scenario, what is the lag between the rise in the unemployment rate and your default emergence, and how far into recession would you expect your default levels to peak?
Well, maybe I'll start, and also Rob could weigh in. You know, it's interesting. One of the things that we've seen over the last several years, I would say, is the compression of cycle times for the emergence of outcomes. Sort of long-winded way of saying things happen quicker than they used to, right? Things can tend to deteriorate quicker. Solutions are brought to bear quicker. The speed with which I would say cycles correct themselves also seems to be happening quicker. There's no standard timeframe. When we're looking at it, we don't expect that we'll have a significant amount.
Of actual claims payments in the immediate term, but we think that default experience, the initial default experience that will drive those ultimate claim outcomes will begin to emerge fairly quickly.
Yeah, I'll just add, it's reflected a lot in the information that Ravi shared and mentioned earlier. You know, generally, when you have a downturn, within the first couple of years you'll start to see the default emergence. To Adam's point, claims paid can lag, especially when you get events like that. You'll get foreclosure moratoriums and things like that. You'll see the defaults emerge fairly quickly.
Mark Dwelle with RBC. Two questions. One, first, just building on the question before related to the reinsurance environment, I know from following P&C Insurance that reinsurers are considerably more capital constrained. Are you seeing any element of the pricing that you're seeing on the mortgage side resulting from not the increased risk environment that you talked about, but rather their own capital constraints?
Yeah. Not necessarily capital constraints per se, but I'd say every business goes through a planning cycle, and part of planning is to figure out how much aggregate for reinsurers they wanna deploy against a particular liability class. Given the heavy utilization of reinsurance capacity this year by the M.I. industry, certainly we've been active, but also by the GSEs as they're putting out some of their CRT programs into the reinsurance market. It's been consuming a lot of aggregate. It's not that the reinsurers are capital constrained, but they've budgeted for a certain amount of aggregate to be deployed against the M.I. industry and mortgage risk this year, and that's hitting some limits. That dynamic eases as we get into next year because budgets get refreshed for a new calendar year.
We're not expecting, I would say, to see capital pull back, and we're expecting that early next year we'll see more aggregate that's available to provide cover for the industry. It doesn't necessarily mean that pricing will change, but there'll be more aggregate available is our expectation.
Thanks. Second question, this is a little bit different. Throughout this credit cycle, we've seen banks basically behave fairly responsibly in terms of their credit terms and conditions. With the tools that you guys now have available, you know, through your pricing mechanisms and other things, are you in a position that if you were to see bank credit quality deteriorate at the origination level, that you'd be able to, in a timely manner, pull back your own demand and capacity to kind of respond to weakening underwriting standards, let's say?
Yeah. I mean, again, we have a very flexible system, and we're always adding risk attributes to it as we see fit. I will say, though, you know, I kind of alluded to this in my presentation. The underwriting standards remain very responsible, I'd say. I wouldn't say tight is the right word. You know, most of our business goes to Fannie and Freddie, and we talk to them quite a bit. I have a regular call with the Chief Risk Officers of those companies, and, you know, they're very focused on managing risk as well. They have a lot of incredible tools to give credit where it's due. Some of the tools they put in place post-Great Recession are really good.
They're not really, you know, looking to expand the box here. We keep a close eye on it. You know, we're always monitoring what's coming into our portfolio. You know, again, haven't seen anything alarming at all. Certainly we have the ability to respond if we do see something.
Mark, the other one, I think if we look back at past periods, you tend to see credit expand and underwriting standards deteriorate while things are, I'll call it, still broadly good from a macro standpoint, right? Usually, we have a sort of phase where everything is great. Volume is significant, credit standards are tight, borrowers are performing well. We shift from a great phase into a good phase. In the good phase, I think people hope that just with a little bit of a change, you can keep things great. If you just relax standards but there's a rationale behind it, we're still in a generally healthy macro environment, there's a belief that you can accommodate a bit of expansion. We typically then will see a bad phase emerge.
What turns out in the bad phase is that what you thought was good, in fact, was bad as well, and that's where problems develop. The speed with which this cycle has changed, where we went from great to, you know, a somewhat challenging environment almost overnight, I think interrupts the potential for some of the more significant credit expansion and perhaps underwriting deterioration. That, along with the tools that GSEs have, the fact there are just so many more guardrails in the system today. The speed with which the environment has changed, I think also interrupts the potential that we'll see underwriting deterioration.
Front here.
Thank you. Bill Dezellem with Tieton Capital. I'm actually gonna follow up on the lenders from a point of ignorance. Have they actually tightened their underwriting standards because it is so well known or believed that we're going to see more difficult credit environment? If that's the case, what is the implication for you all?
Bill, I think it's important to note the overwhelming majority of the loans that we insure are sold to the GSEs and ultimately guaranteed by them. For our lender customers, what they're really focused on is making sure that they're originating loans that are conforming with GSE standards and are saleable or transferable. We haven't seen them tighten their underwriting standards per se because the GSEs haven't done that. By the same token, they've also not relaxed their standards because the GSEs haven't either.
All right. My second question is, in the presentation you had referenced the persistency should lead to, or you're assuming it'll lead to a 0.7 year increase in the average life. Given that interest rates have more than doubled, that seems really conservative to me, that only three-quarters of a year. Can you provide a little more feedback on that, please?
Yes. It's two things. One, there is an automatic cancellation dynamic underpinning our policies. Our loans automatically cancel under HPA, Homeowners Protection Act, when they amortize, not appreciate, but when they amortize to a 78% scheduled LTV. The pace at which loans amortize is higher and faster the lower the note rate. More of your monthly payment goes towards principal amortization, the lower your note rate. That's one aspect. There will always be turnover in the portfolio and cancellation just because of the automatic cancellation of a 78% scheduled LTV. The other piece is turnover and refinancing doesn't go to zero, right? Even though we're in an environment where persistency is meaningfully higher and obviously nobody's refinancing for rate term benefit in this environment, there's still life events that drive people to need to either move or refinance their loan.
There's death, there's divorce, there's job loss, there's, you know, new jobs that are taken. All of those two items together are what still has us seeing cancellation in the portfolio and that change in the expected life. It is significant, right? 0.7 years on, you know, a portfolio that had a rough, you know, sub four-year expected duration. I mean, we're looking at 25% increase in the expected life of those policies, which is quite dramatic.
I'm aware that many solid growth companies don't pay dividend, but I was wondering, looking ahead for the next few years, under what conditions can dividends be expected, maybe ahead of the repurchase of stock?
Well, we've laid out a pretty specific set of goals that we're trying to achieve. We've been very successful over the past year in achieving those goals, and we're moving down a path in the long term to eventually get there. The first step in that process was to execute our share repurchase program that we announced in February, which runs through the course of the end of 2023. We're excited to complete that. We also think about capital with respect to the existing macroeconomic backdrop. Really, that informs the pace and the thought process and how we wanna do capital distributions. In the long run, we see it as a part of our future. We're making significant progress along the way to achieve all the things we need to do internally to get ready for that.
We have to incorporate the macroeconomic backdrop and how we think about it. We've got to complete our share repurchase program and feel good about that, and we're gonna do that by the end of 2023. In the long term, you know, we are looking to distribute capital to shareholders through repurchases and dividends at some point in time.
Other questions?
A couple more questions. First of all, Norm, you had referenced the increasing of wallet share. Would you talk in a bit more detail how you accomplish that? Is increasing wallet share more important to growing the business than turning on, I guess, the additional 90 or so of the 600?
That's a great question. Now, I'll start with increasing wallet share from zero is goal one, right? We have to get them active. It might even answer the question that we had before in the same way. Everything that I have our team do is just to make sure that our accounts remain active, open and looking and willing to choose us when they want to. Every account is different as far as how much flexibility and how efficient that they are in that. I actually try not to focus specifically on wallet share. We need enough wallet share to make sure that we're relevant in the account, whatever that might mean to them.
For us, our job is to keep it open so that we can, as a team, remain flexible on where and how and what we wanna get. That could change, you know, daily. Does that answer your question?
Well, as much as the subjective question allows, right?
Yeah. Yeah. Right.
Is gaining wallet share or adding wallet share, is that a bigger component of future growth than activating new accounts? How do you think about that split?
I think with the accounts that we have, right, when we go in, like, planning sessions, when we go in for next year, it's a lot easier to look ahead to see what you've had and what you wanna try and maintain. You know, you always have to make assumptions that you're wrong, like things are not gonna change even though we keep saying they change all the time. When you're planning, you're trying to say, okay, well, this is where we are today, and I wanna go backwards from where we are within this.
Then those accounts that we talked about, you know, the sixty-one or so I, uh, that we're trying to activate, will certainly be able to provide us growth over that and also be able to gi-give us more flexibility because we're seeing a lot of mergers and acquisitions and closures and, um, we're positioned well, much better than we, than we were before. One, that's why we focus so hard on not having any single account that we're heavily dependent on. And on the other hand, we've got such a breadth of accounts that if there is, we keep seeing I think we have-- we've been impacted by about forty accounts, um, so far this year that have been, uh, been through that. But, you know, we've added a hundred and fifty-three, uh, so we're certainly trying to keep pace with that.
Great. Thank you. The other question is relative to reinsurance next year. You know, with the assumption that you all have laid out that volumes will be down next year, how do you think about reinsurance any differently than when volumes are high? Provide some perspective on that, if you would, please.
Yeah, maybe I'll get us started here. One, we already have locked in a quota share treaty to cover 20% of our production for next year. It's the two year treaty that Rob referenced earlier. We locked that in place contractually in September of 2021. When terms are available to us that we like, we obviously wanna secure that coverage for as long as possible. We feel good about that, right? Not being out in the market today, looking to secure quota share coverage for next year is valuable. The terms that are achievable today won't look like what we have in place for next year. Beyond that, look, we have found a lot of value as a risk management matter and as a capital efficiency matter to securing reinsurance on a consistent basis.
And Robbie used the term warehouse risk. The quicker we can compress the cycle time between transactions on an excess of loss or an ILN basis, the quicker we come off risk in a meaningful way. And, um, we're gonna continue to be active next year, whether that's on the same quarterly cadence that we've had most recently, whether it's on a six-month cadence. It'll depend really on how volume does come in and where we see, um, you know, what we see as optimal execution next year. But we're gonna look to put in place the same comprehensive reinsurance coverage that we have thus far on the production that we write for next year.
Brad, our online questions have been answered.
Okay. All right.
You can cut it off.
Great. I'll just wrap it up then. Thank you very much for joining us today. We really appreciate the opportunity to showcase the strength and depth of this management team, and we really enjoy talking about the success we've had to date. More importantly, though, how we're positioning to continue that success going forward and how excited we are about the opportunity to down the road. We hope you'll stay engaged with National MI, and thank you again for coming.