Adam Pollitzer: So it’s a good question. I’d say the expectations for both frequency and severity, so once – what we tend to see happen is that the incidence of default is tied most directly to unemployment. When borrowers stay stressed because they’ve lost their jobs and importantly, they can’t find reemployment opportunities very quickly, that’s when we might see defaults increase, the number of defaults. The actual reserve that we established against those defaults were the severity assumption but also the frequency assumption comes into play, right? So severity being if this default progresses to a claim payment, which is ultimately a foreclosure or some other means to which the borrower is being removed from their home and were presented with a claim.
How much do we owe? And frequency is, well, what’s the likelihood that that progression itself will happen? The incidence of default tied to primarily to unemployment. Both frequency and severity are more heavily influenced by house price paths. And so generally speaking, we would assume that there’s going to be a reasonably close relationship between house price path and unemployment levels. Because obviously, in a supply-demand-driven environment, demand is tied to gainful employment by many prospective borrowers. But that’s not always the case. If we saw an increase in default activity, but we didn’t see a corresponding stream come through the housing market in terms of house price paths, we wouldn’t necessarily see, I’ll call it, a one-to-one relationship where you have an increase in default that’s carried with a fundamental shift in the reserving assumptions.
Eric Hagen: Right.
Ravi Mallela: And Adam, I think you’ve mentioned this in the past that, you know, it’s important to recognize that we don’t apply sort of blanket assumptions to our reserving process. And so we do a loan level analysis every quarter and these are macro-driven models that allow us to come to a conclusion about our reserving process based on the individual profile of each of our defaulted borrowers.
Eric Hagen: Great. Hi, that’s really helpful. Thank you, guys, very much.
Operator: Your next question comes from Daniel Eisen with Bank of America. Please go ahead.
Daniel Eisen: Hi, good afternoon. Your average portfolio yields continue to increase at a pretty nice clip. Can you just talk about like the dynamic between the yield on new investments versus the overall portfolio yield?
Ravi Mallela: So we’ve seen yields, you know, inflect higher over the last few quarters. And, you know – and so, you know, from that perspective, it’s generally – it’s been generally stable, and it’s had a favorable trend in Q3. And, you know, what we’re seeing with respect to net yield is – it’s been 27 basis points, and our core year yield was 33.9 basis points where both were up modestly. And I think we’re benefiting from both the continued increases in persistency and the rate actions we’ve taken and those cumulative gains we’ve achieved in new business pricing over the last year plus. And it’s balanced somewhat by the high-quality production that we generate and sometimes – and that naturally comes in at sort of a different rate profile.
Adam Pollitzer: Also just to round it out. So we think about yield and the headline word yield across both the premium yield on the in-force portfolio and what it allows us to generate from a premium revenue standpoint. We’ve certainly been inflecting higher there for several quarters now, which is terrific. We also talk about yield in an increasingly focused way in terms of the investment portfolio. And from an investment portfolio standpoint, we’re seeing the same dynamic. The pre-tax book yield on our portfolio was 2.8% and it continues to move higher as lower-yielding maturities runoff, and we’re investing at meaningfully higher new money rates to give you a spread for that delta that you’re focused on, we’re currently seeing new money opportunities at a blended average rate of around 5.5% compared to the 2.8% book yield on the portfolio.
Daniel Eisen: That’s great detail. Thank you. And then you mentioned earlier, you have like a lot of active and constructive conversations with policymakers. I was just curious if you see any like regulatory developments that could materially change the business or like the industry or things are relatively quiet at the moment?
