Open Lending - Earnings Call - Q4 2024
April 1, 2025
Executive Summary
- Q4 2024 results were severely impacted by a negative profit share change in estimate of $81.3M tied to underperformance in 2021–2024 vintages, driving total revenue to $(56.9)M, Adjusted EBITDA to $(73.1)M, and diluted EPS to $(1.21).
- Certified loans were resilient at 26,065 vs 26,263 in Q4 2023 and above prior Q4 guidance (20,000–24,000) despite credit tightening actions; however, profit share adjustments overwhelmed fundamentals.
- Management recorded an $86.1M valuation allowance on deferred tax assets, materially increasing tax expense and net loss to $(144.4)M.
- New CEO Jessica Buss articulated a plan to implement more sophisticated, real-time, insurance-style pricing and underwriting to stabilize profit share economics; pre-market reaction was negative (~−16%), highlighting investor concern but setting expectations for a strategic reset.
What Went Well and What Went Wrong
What Went Well
- Certified loan volume held steady YoY and exceeded Q4 guidance (26,065 vs 20,000–24,000), reflecting continued customer demand and onboarding momentum.
- Strategic progress: signed the third OEM captive finance partnership (pilot ramp in early 2025), expanding distribution and validating the value proposition with large enterprise customers.
- Management outlined concrete pricing and underwriting improvements: “sophisticated, segmented and real-time data-driven pricing” and further enhancements to tools/scorecards to better predict defaults and reduce volatility in profit share revenue.
What Went Wrong
- Profit share change in estimate of $81.3M drove total revenue negative and gross loss of $63.2M; the core drivers were deterioration in 2021–2022 vintages (≈40%), elevated delinquencies/defaults (≈20%), and two risk cohorts (credit builder tradelines and thin positive tradelines) in 2023–2024 (≈40%).
- A valuation allowance on deferred tax assets ($86.1M) materially increased tax expense, pushing net loss to $(144.4)M for the quarter and $(135.0)M for the year.
- Unit economics degraded: profit share per cert on new originations fell to $314 in Q4 vs $501 in Q4 2023; approval rates and mix were tightened to de-risk cohorts, pressuring near-term volumes and profitability.
Transcript
Operator (participant)
Greetings and welcome to the Open Lending fourth quarter and full year 2024 earnings conference call. As a reminder, today's conference call is being recorded. On the call today are Jessica Buss, Chairman of the Board of Directors and Chief Executive Officer, and Chuck Jehl, Interim Chief Financial Officer and a member of the Board of Directors. I'd like to pass the call over to Ryan Gardella, Investor Relations, to read the Safe Harbor statement. Please go ahead.
Ryan Gardella (Chief Investor Relations Officer)
Thank you and appreciate you all joining us. Prior to the start of this call, the company posted the fourth quarter and full year 2024 earnings release and supplemental slides to its Investor Relations website. In the release, you will find the reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call. Before we begin, I would like to remind you that this call may contain estimates and other forward-looking statements that represent the company's view as of today, March 31, 2025. Open Lending disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to today's earnings release and our filings with the SEC for more information concerning factors that cause actual results to differ from those expressed or implied with such statements.
I will pass the call over to Chuck to give an update on our business and financial results for the fourth quarter and full year 2024.
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Thank you and good morning, everyone, and thank you for joining us today. While the automotive lending industry and broader automotive market continue to navigate through challenging market conditions, we continue to focus on taking prudent steps aimed to maximize our future opportunity. Specifically, we are focused on strategic efforts intended to drive new customer acquisitions and certified loan growth from new and existing customers, optimize profitability for our lenders, our insurance carrier partners, and ultimately Open Lending, make targeted investments that are expected to improve the experience of our lender customers and their borrowers. As part of our goal of optimizing profitability, each quarter we review the performance of our active certified loans to identify trends and adjustments we believe are needed to improve performance of our new originations.
For the fourth quarter of 2024, we identified new information that negatively impacted our outlook on the performance of our back book of loans, which has in turn negatively impacted our operating results. In summary, this review led to an $81 million negative change in estimate, or CIE, associated with our profit share revenue contract asset to reflect our expectations of the performance on the approximately 411,000 active certified loans in our portfolio. The negative CIE was a result of further deterioration of our 2021 and 2022 vintages, as well as two additional factors that have negatively impacted performance of our 2023 and 2024 vintages. For fiscal year 2024, we generated 110,652 certified loans, $24 million in revenue, and adjusted EBITDA of $-42.9 million, largely due to our fourth quarter results and the impact of the negative CIE. I recognize these results are disappointing to our shareholders.
They are equally disappointing to me and to the Board. To address this issue, we have implemented corrective actions that are designed to yield improved performance of our new originations while allowing us to continue our mission of serving the underserved, which I'll talk about shortly. First, let me discuss the deterioration of our back book. We continue to see deterioration of our 2021 and 2022 vintages, which combined make up approximately 40% of our active certified loans. These loans were made at the peak of the Manheim Used Vehicle Value Index, or MUVVI, of 257.7 in late 2021. The MUVVI has since declined to 204.1 as of February of 2025. This represents more than 20% decline in used vehicle values over the past three to four years.
This significant decline has caused more consumers who bought used cars in this period to end up with negative equity on their automotive loans, which in turn has increased the likelihood of default on vehicles that are now worth significantly less than their outstanding loan balance. These two vintages are estimated to have accounted for 40% of our total negative change in estimate for the fourth quarter of 2024. The poor performance of these loans in these two vintages is not unique to Open Lending, and in fact, this phenomenon continues to negatively impact all lenders participating in the automotive lending industry. As we have noted previously, we believe macroeconomic conditions also increase the likelihood of future claims from these vintages. Specifically, we are continuing to see elevated claims, and there was an increase in 60-plus-day delinquencies in the fourth quarter of 2024 from these vintages.
Deterioration in these other historical vintages accounted for approximately 20% of the negative change in estimate for the fourth quarter of 2024. In addition to the deterioration of our back book, two cohorts drove incremental underperformance of our 2023 and 2024 vintages. These two cohorts were borrowers with credit builder trade lines and borrowers with fewer positive trade lines. First, credit builder trade lines primarily consist of credit builder cards. Credit builder cards work by allowing consumers to deposit a specific amount of money, often at the discretion of the consumer, into a credit builder account linked to a credit card. The consumer can then spend up to the amount deposited in the account on the card. Though this means that the card issuer is not actually extending credit, monthly payment activity is reported to the credit bureaus, and a history of timely payments can increase the consumer's credit score.
Many of these cards are approved by issuers without a hard credit pull. Moreover, since there is no preset credit limit, high utilization is not reported to the bureaus. While credit builder cards have been available to consumers for many years, they have seen a significant increase in usage over the last couple of years. The increasing use of credit builder products has negatively impacted the lending industry, but the risk profile associated with them is still challenging to assess by industry participants at this time. Through our analysis of the credit builder issuers in our portfolio, we have learned that the credit builder trade lines peaked at around 15% of our originations in the third quarter of 2024. Based on our performance data, borrowers with a credit builder trade line performed twice as poorly as similarly scored borrowers without a credit builder trade line.
In addition to the credit builder trade lines, we saw an impact from borrowers with limited positive trade lines. In the fourth quarter of 2023, we launched our enhanced proprietary Lenders Protection scorecard, known as LP 2.0, and enhanced our underwriting standards. The underwriting enhancements in the scorecard were supported by third-party historical performance data. As we discussed during the earnings call for the third quarter of 2024, following our implementation of LP 2.0, we have seen an increase in positive limited trade lines, or thin files, which do not have a deep credit history. Consistent with our standard practice, we observed six months of aged performance data before considering any underwriting changes. Under this approach, the first reliable data showing deterioration that we saw was with respect to May, June 2024 performance, and we promptly increased our cutoff score based on this data.
For the fourth quarter of 2024, we had sufficient performance data on multiple monthly vintages to identify the negative impact of borrowers with fewer positive trade lines. Combined, adjustments related to borrowers with credit builder trade lines and borrowers with fewer positive trade lines contributed the remaining 40% of our negative profit share change in estimate in the fourth quarter of 2024. As a result, we have taken corrective actions designed to ensure that Open Lending's portfolio does not continue to facilitate the underwriting and insurance of these underperforming loans. In the third and fourth quarters of 2024, we made adjustments to our underwriting rules for borrowers with credit builder trade lines, including negatively impacting their Lenders Protection scores and increasing their premiums to price more appropriately for the risk. The net effect of these underwriting adjustments is a decrease in the approval rate on this cohort.
We anticipate that these actions will reduce the mix of borrowers with credit builder trade lines to under 5% of our fiscal 2025 certified loan volume, compared to approximately 15% of our fiscal 2024 certified loan volume. We also implemented further credit tightening in the first quarter of 2025 on borrowers with limited positive trade lines by increasing the minimum number of positive trade lines needed for an approval. We anticipate that these actions will decrease the mix of borrowers with limited positive trade lines from 10% in 2024 to less than 0.5% in 2025. While we have implemented targeted credit tightening and pricing actions throughout the last 24 months, we anticipate taking further actions to increase pricing and tighten credit.
These actions are intended to help ensure the performance and profitability of our new originations in order to further optimize results for our lenders, our insurance carrier partners, and ultimately Open Lending. We believe, based on the information we have available at this time, that the changes that we have made to date are expected to result in improved performance and results for our new originations. Despite these disappointing financial results, there are many positive areas of strength in our business. Our Lenders Protection program continues to see strong interest from the market, highlighted by 58 new customers signed in 2024, including 13 in the fourth quarter of 2024. We believe that our value proposition is strong, and we also believe that lenders truly value our platform to provide credit to the underserved near and non-prime consumers. Next, I wanted to address our outlook for the first quarter of 2025.
Currently, we expect total certified loans to be between 27,000 and 28,000 in the first quarter of 2025. We plan to provide additional outlook metrics as soon as reasonably practical. Finally, I wanted to address the change in leadership that was announced yesterday evening. The Board of Directors has decided that Open Lending would be best served by making a change at the leadership level at this time. With that in mind, Jessica Buss, who has been serving as the Chairman of the Board, has been named Chief Executive Officer effective immediately. I will support Jessica as Interim Chief Financial Officer during the transition period and will assist in identifying a permanent CFO. Before moving on to our financials in more detail, I'd like to pass the call to Jessica.
Jessica Buss (Chairman of the Board of Directors and CEO)
Thank you, Chuck, for your many contributions to Open Lending. Since joining the company in 2020, Chuck has been a critical part of the management team, leading the company through a challenging and volatile period for Open Lending and the industry. I am looking forward to continuing to work with you as a member of the Board. Thank you, everyone, for joining us here today. I have served on the Board of Open Lending for the past five years and most recently held the title of Chief Executive Officer of Argo Group, a subsidiary of Brookfield Wealth Solutions. I have spent my entire career in the insurance industry, and I intend to bring that experience and expertise to bear on the current challenges and opportunities at Open Lending as we further our legacy of serving the underserved.
In the coming days and weeks, we plan on taking concrete steps to review the overall operations of our business. At a high level, my goal as CEO of Open Lending will be to focus on profitable unit economics, growth, the right rate for individual loans, and a pricing approach that seeks to enhance predictability and reduce volatility for both unit economics and our contract assets. We are moving through a complex macroeconomic environment, and we expect that tariffs and other developments may prolong or exacerbate this environment. Now more than ever, I believe we need a sophisticated, segmented, and real-time data-driven pricing model designed to enhance predictability of the profit share component of revenue. In addition, we intend to continue to enhance and refine our tools and scorecards in an effort to predict the drivers of frequency and severity of defaults.
Further, we will be identifying potential cost efficiencies and process improvements throughout the loan lifecycle that may further streamline our business, as well as planning to focus our future investments on our core Lenders Protection program. Together, I believe this will drive value for our business and all our stakeholders. I look forward to providing more details in the coming weeks and months, as well as getting to know each of you better and hearing your unique perspectives.
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Thank you, Jessica. Now I'd like to provide an update on our financial results for the fourth quarter of 2024. During the fourth quarter of 2024, we facilitated 26,065 certified loans compared to 26,263 certified loans in the fourth quarter of 2023. Total revenue for the fourth quarter of 2024 was $-56.9 million, which includes $81.3 million of the aforementioned ASC 606 negative change in estimate associated with our profit share. To break down total revenues in the fourth quarter of 2024, program fee revenues were $13.7 million, profit share revenue was $-73.2 million, net of the negative change in estimate, and claims administration fees and other revenue was $2.5 million. As a reminder, profit share revenues comprise the expected earned premiums less the expected claims to be paid over the life of the contracts unless the expense is attributable to the program.
The net profit share to us is 72%, and any losses in the net profit share are accrued and carried forward for future profit share calculations. The negative change in estimate during the fourth quarter of 2024 reduced our contract asset and for certain loans caused the cash consideration previously received to be in excess of the expected profit share revenue. The amount of excess funds and the forecasted losses were recorded as an excess profit share receipts liability. Profit share revenue in the fourth quarter of 2024 associated with new originations was $8.2 million, or $314 per certified loan, as compared to $13.2 million, or $501 per certified loan in the fourth quarter of 2023.
The $81.3 million negative profit share change in estimate recorded in the current quarter is associated with cumulative total profit share revenue previously recognized of approximately $410 million for periods dating back to January of 2019, the ASC 606 implementation date, and represents over 411,000 insured enforced loans in the portfolio. Operating expenses were $15.4 million in the fourth quarter of 2024 compared to $17.9 million in the fourth quarter of 2023. Operating expenses decreased 14% year-over-year. Operating loss was $78.6 million in the fourth quarter of 2024 compared to operating loss of $8.3 million in the fourth quarter of 2023. Net loss for the fourth quarter of 2024 was $144.4 million compared to a net loss of $4.8 million in the fourth quarter of 2023.
Given the magnitude of the losses related to the profit share revenue change in estimate for the fourth quarter, we recorded a valuation allowance on all of our deferred tax assets of $86.1 million, which increased our income tax expense. Net loss per share was $1.21 in the fourth quarter of 2024 as compared to a net loss of $0.04 per share in the fourth quarter of 2023. Adjusted EBITDA for the fourth quarter of 2024 was $-73.1 million as compared to $-2.1 million in the fourth quarter of 2023. There is a reconciliation of GAAP to non-GAAP financial measures that can be found at the back of our earnings press release. We exited the fourth quarter with $296.4 million in total assets, of which $243.2 million was unrestricted cash and $15 million in contract assets.
We had $218.3 million in total liabilities, of which $139.7 million was in outstanding debt. While we are disappointed with our results for the quarter and year, we believe we have taken actions that are necessary to better position Open Lending now and in the future. Against an increasingly challenging macroeconomic backdrop, we are also taking concrete steps to tighten our credit standards and increase pricing where needed in an effort to drive revenue and reinvest in our core Lenders Protection program. While we continue to closely monitor our loan portfolio's performance, we have confidence in our model and believe we have an opportunity to regrow our certified loans in the future. I want to personally thank our entire Open Lending team for their dedication to our company, our customers, and our partners. We are all grateful for your diligent work and dedication to our mission.
I would also like to thank Open Lending's customers, partners, investors, and analysts for your business and support over the last five years. We will now take your questions.
Operator (participant)
Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that is star one to register a question at this time. Today's first question is coming from Vincent Caintic of BTIG. Please go ahead.
Vincent Caintic (Managing Director and Specialty Finance Analyst)
Hi, good morning, everyone. Thanks for taking my questions. Jessica, welcome. I look forward to working with you.
Jessica Buss (Chairman of the Board of Directors and CEO)
Thank you.
Vincent Caintic (Managing Director and Specialty Finance Analyst)
Maybe focusing this comment on your perspective, Jessica, with your long insurance company background, if you can give us an overview of what you think from the insurance perspective is going on essentially with Open Lending, maybe broad question. When we look at what's stock price is down 16% pre-market, there's kind of questions on what structurally needs to change, if anything, and what the economics are going to be. Maybe you can talk about your perspective of what happened and what needs to change in order to move the company going forward and if there are any big structural changes need to happen economically. Thank you.
Jessica Buss (Chairman of the Board of Directors and CEO)
Yeah, thanks, Vincent. I appreciate the question. Maybe just to start, if you do not mind, talk a little bit about sort of why I decided to make the change and come here and a little bit about my background. I have been on the Board of Directors for the last five years and have watched the company evolve over time. I think through that process, what we have learned is half of our unit economics really come from our profit share, which is truly an insurance product. I have spent my entire career in the insurance industry and really feel like an insurance-type approach to both pricing, claims, operations would really be beneficial to the foundation that the company has already built.
That is my perspective that I'd like to bring in, is really to focus on profitable unit economics and to enhance the predictability and reduce the volatility, as I said in my comments, around our profit share component. The way that we're going to do that is to build on the already good pricing work that's been done by the team, but to do it in a more sophisticated, segmented, in a real-time basis, bringing performance data forward, segmenting our business, looking at both how we can price on a real-time basis, like an insurance company would price a true insurance product. We would do rate reviews quarterly. We would implement rate increases, but it also includes implementing rate decreases for better-performing loans.
We need to look at each individual loan, price it appropriately, drive in better risks, drive out poorer-performing risks, or get the right adequate rate. I think that's sort of what we've seen. Also, I believe that we can use more feedback data, like a better feedback loop, kind of break down the silos between sort of what we call 606, which in essence is like represents what we call in the insurance world, like the reserving perspective, to say what actually happened and what could we have done from an underwriting or pricing perspective to actually increase the performance or reduce, again, the volatility, the performance of those individual loans like we would do in the insurance world.
I think a good example of that, really, if we want to look backwards, is when we look at the 2021 and 2022 vintages coming off of COVID, and we saw the MUVVI at the highest point when we had very high used car prices. Today, we would have a forward-looking perspective that we would probably likely need to raise rates, right? Because what's going to happen is that people are buying cars at the highest level. When the MUVVI moves down and people begin to default, the severity of those defaults is going to be much larger than we would have priced for. Today, we are starting to think about those things forward-looking instead of just being reactive. I think that's sort of where we ran into some of the problems.
The other, of course, I was on the super thin files, having very tight underwriting guidelines, and again, reviewing on a real-time basis, bringing this performance and delinquency data quicker, collecting the data that we're using on pricing, measuring how we actually perform relative to what we expected on a more real-time basis, again, so we can implement those changes. If you think about sort of our targeted loss ratio and how we can sort of reduce that volatility, we talk about we priced to a 60% loss ratio, and you will see that we've actually confined our current unit economics to a $300, the profit share piece of that. Within that 60% loss ratio, the distribution of results really is somewhere probably between a 20% and a 100% loss ratio, right? Not every loan performs at a 60.
What we want to do is drive more loan volume in the 20%-60% loss ratio business and drive out the higher loss ratio business. We can do that not by just driving rate increases on the worst-performing loans, but actually reducing prices on the better-performing loans. Again, we've got better loans with less risk at the right rate, which is also better for our credit unions and our customers as well.
Vincent Caintic (Managing Director and Specialty Finance Analyst)
Okay. That's super helpful detail, and I'm encouraged by that. Thank you, Jessica. Maybe just to give us some perspective, it sounds like there's a lot of, perhaps, a lot of infrastructure, a lot of things that need to be done. Just how difficult or how much work and how much investment needs to be put in to achieve these things? Just to give us some perspective. Thank you.
Jessica Buss (Chairman of the Board of Directors and CEO)
Yeah. I would say that the infrastructure and the piping and the tools are built. The team has done a great job with scorecard with LP 2.0. Matt Sather, he's joined us as Chief Underwriting Officer. That was a big addition to the company last year, really bringing in sort of the underwriting view. We now have actuaries on staff that are helping on the pricing side. Josh has joined us on the product side. Really what we need to do, again, is sort of bring that all together. We will need to build probably more in-depth data, and we will need to accelerate, as I mentioned, receiving performance and delinquency data into the system and adjusting that. I think sort of the biggest add will be this idea of predictive modeling.
How do we take that data and be better predictors of how ultimate loss costs will perform over time? And then measuring whether we are right or not, and then adjusting that on a real-time basis, again, like in true insurance products. I think it's not as much about true large infrastructure changes as it is about rethinking how we collect data, what data we retain from how we price, and then how we measure how we perform relative to that, and then building predictive models, which again isn't infrastructure. It's more actuarial-type predictive modeling like done in an insurance company. It will take time for that to earn through, right?
I mean, we've taken some corrective actions, as Chuck has mentioned in his comments, with underwriting changes on super thins, and we've taken some rate increases on poor-performing files, and we've taken some rate decreases on thick files where we've actually performed better. Those are good changes. We'll continue to get more and more granular in that approach. Everything earns out over multiple years, right? I think we would expect to see a pretty big lift from the changes that we've already made, and then we'll continue to get better and better, and we'll see better-performing results with hopefully, again, less volatility around adjustment going forward.
Vincent Caintic (Managing Director and Specialty Finance Analyst)
Okay. Thank you very much. Last one from me, and sorry, I'm just getting a lot of these investor questions on it. It's kind of a separate topic, but just trying to understand the remaining exposure from the profit share and the make-whole agreements and so forth. It was very helpful to get the data point that 40% of your active certified loans are from that vintage of 2021, 2022. If I just take the 40% times the 411,000, that's 165,000 certs. If I can understand what's the remaining principal balance and maybe insurance at risk, just so I can understand how much make-whole can be still clawed back and what other remaining exposure there might be. Thank you.
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Yeah. Vincent, as Chuck, if you think about it, you're right on the 40% of the enforced loans and the amount of loans are still in the portfolio. The adjustments we've taken on the change in estimate in fourth quarter and prior quarters, we've virtually taken the unit economics that we had previously booked on those vintages pretty much down all the way down to not zero necessarily, but written down pretty far. It is on a vintage-by-vintage basis. You're asking about principal balance. I mean, I don't have that number right in front of me of what's left outstanding on that. The loans, as you know, amortize more heavily to the front end of the loans from an amortization perspective. That would be something we'd have to get back to you on. I don't have that in front of me.
The amount of the write-down on those vintages has been pretty significant. I mean, the prior adjustments and call it past seven quarters. Of course, with this adjustment in the fourth quarter, because 40% roughly of the $80 million that we took in the quarter was related to the 2021 and 2022 vintages specifically.
Vincent Caintic (Managing Director and Specialty Finance Analyst)
Okay. Got it. I'll get back in and thank you. Thank you, Jessica. Thank you, Chuck.
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Yeah. Thanks, Vincent.
Operator (participant)
Thank you. The next question is coming from John Hecht of Jefferies. Please go ahead.
John Hecht (Managing Director)
Morning, guys. Thanks for taking my questions. Again, congratulations, Jessica. Look forward to working together. The first question I have is the credit builder trade lines and kind of the modifications in dealing with that customer base. How much does this affect your addressable market? Where can you go to offset the loss of that type of customer?
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Yeah. John, this is Chuck. I'll start and Jessica can jump in. As we said in the prepared comments, this was new information, obviously, that we started seeing in, call it, late third quarter and primarily in fourth quarter as we did our analysis. It became a bigger piece of our book throughout 2024. 30% of our 2024 volume was these fewer positive trade lines, as we referred to them. 15% of thin files, and 15% super thin, roughly. This is just the ones that have fewer than three positive trade lines. We've adjusted for that. We took action in, gosh, in late third quarter and then again in the fourth quarter, actually in Q1, to kind of minimize those. We put out an outlook for Q1 of, call it, between 27,000 certs and 28,000.
That is actually up sequentially from where we hit for Q4. The addressable market, it was not a huge piece of our business. We did not like the performance of it. We took corrective action to prevent those loans coming into the portfolio. Do not see it as a huge impact of our go-forward volume.
Jessica Buss (Chairman of the Board of Directors and CEO)
Yeah. I mean, maybe the other thing that I would add is that certainly we are looking to be able to scale the business across all market cycles, but we're looking at quality over quantity right now. I think where we get to with segmented pricing is that we start to attract and replace those super thins with better-performing business from what has historically been our base customer, our credit unions. We'll be able to do that through the pricing mechanism itself because while the super thins will get priced out or even through underwriting rules, we'll be able to write more of the better-quality business by giving those policies, again, a more appropriate rate, which could be rate decreases. We'll be able to actually target to that. We will be optimizing the portfolio with a more targeted approach of what we want to write.
More like being hunters than gatherers of the types of loans that we want in our portfolio.
John Hecht (Managing Director)
Okay. The second question I have is, what do you guys think needs to happen in the market for the OEMs to, I guess, have more flow coming through their channels?
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Yeah. Some of what we've seen in the OEMs is it's kind of across the portfolio. John, it was OEMs and, to a lesser extent, through some of our credit union customers with these credit builder risks as well as these fewer positive trade lines. Some of that was impacted in the tightening actions that we took this year and, excuse me, last year in 2024. We are very excited about signing OEM three, which we put out a release, gosh, a month or so ago now, maybe two months ago. That is in pilot and excited about that new relationship. It is growing across their dealerships. As you know, in the past, we can't mention the name, but very excited about that. I think that'll definitely be helpful in growing the combined OEM business throughout 2025.
John Hecht (Managing Director)
Great. Thanks very much.
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Yeah. Thanks, John.
Operator (participant)
Thank you. The next question is coming from Pete Heckmann of D.A. Davidson. Please go ahead.
Pete Heckmann (Managing Director and Senior Research Analyst)
Morning. Thanks for taking the question. As regards to your insurance carriers, correct me if I'm wrong, but I think you have three insurance carriers that are active currently. How does their capacity compare to maybe the 110,000 loans that you certified in 2024? Continue to have something that's well in excess of that?
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Oh, yeah. I mean, the capacity from our three active carriers is plenty of capacity, Pete, to continue growing the company into the future and at much larger cert levels.
Jessica Buss (Chairman of the Board of Directors and CEO)
Yeah. Maybe to add to that, we've been having ongoing conversations with the carriers. They're very excited about the work that we're doing. They're very pleased with the overall long-term performance of the portfolio. We have no restrictive caps on the amount of capacity. They'd like to do more business with us. I would say that that piece of the ecosystem is very healthy for us.
Pete Heckmann (Managing Director and Senior Research Analyst)
Okay. Great. How do you feel that some of the credit unions that historically participated in direct mail for refinancing, how do you think they're positioning for 2025? Do you think rates need to come down another 50 basis points, or is it more other dynamics that they're looking at?
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Yeah. I think it's more, I mean, refi, I think, was about a little less than 4% in 2024 of our business. We were encouraged late last year thinking we'd have more rate reductions, Pete, but we've all seen that that's kind of slowed and paused a bit. As we've always said, we don't really need rates to necessarily come down. We just needed them to stabilize, which we've seen. It's been more of the credit unions kind of working through their loan-to-share and their capacity issues that they had throughout, call it, 2023 and 2024. We are seeing that improving. Loan-to-share is coming down a bit. Deposit growth, I think, was actually about 4.6% across the credit union business, which, if you recall, their deposit growth got to a low of about 1%-1.5%. That's encouraging.
They're building deposits, which in turn follows with lending and auto. They love the short-term auto paper. We ought to start seeing that benefit as well. That'll cross all channels, including refi.
Pete Heckmann (Managing Director and Senior Research Analyst)
Okay. No guarantees, but certainly the setup appears that refi could be a bit of a recovery in 2023-2025.
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Yeah. I think the consumers and where some of these loans were priced in the past would definitely benefit from an affordability. Yeah, absolutely.
Pete Heckmann (Managing Director and Senior Research Analyst)
All right. Thank you.
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Yeah. Thanks, Pete.
Operator (participant)
Once again, that is star one if you would like to register any questions at this time. The next question is coming from John Davis of Raymond James. Please go ahead.
John Davis (Managing Director)
Hey, good morning, guys. I'll add my congrats, Jessica. I look forward to working with you. Just to touch on the insurance carriers, maybe from a little bit of a different angle, how has their profitability been? It sounds, Jessica, in response to the last question, the relationship is good there. Just curious, are they still making money? Are they seeing losses? Is there any potential risk to the 72% that you guys get to keep? Could there be any downward pressure on that too for the insurance companies to improve their profitability?
Jessica Buss (Chairman of the Board of Directors and CEO)
Yeah. Long-term profitability for the insurance companies has been very strong. Like all market cycles and all products in insurance, there's going to be years where certain products don't perform as well as expected. Certainly in certain vintages, we've seen that. Again, across the Board, performance has been strong. Also, remember that the insurance carriers get to keep 8% off the top. Their combined ratio leverage is very stable as it relates to sort of changes in the loss ratio they experience. Their combined ratios have performed, again, very well over time. There have been a few vintages, of course, where they've been higher than expected, certainly. Again, those relationships are very strong. There has been no discussions about changing the percentage of profit share participation by the insurance carriers or us. We would expect that to continue as it always has.
John Davis (Managing Director)
Okay. No, that's helpful. If I look at the profit share per cert, X, kind of the change in estimate, I think it was roughly $300 in the fourth quarter. It's historically been closer to $500. I guess, Jessica and Chuck, just a couple of thoughts there. Were you over-earning at $500? Is $300 the right way to think about 2025? What do you need to do to get that going closer to historical levels versus the fourth quarter?
Jessica Buss (Chairman of the Board of Directors and CEO)
Yeah. The 300 represents a constrained profit share under the 606 guidelines, which advises that we have to book a constrained profit share where we think that it's more likely than not that there will not be a reversal of the profit share. Historically, the 500 was booked based on a projected 60% loss ratio. If you sort of look at what we've booked in CIE adjustments over the past quarters, that would have taken that $500 down closer to kind of the $300 range. We have taken the corrective actions that we believe will, over time, bring that back to 500, which, again, is really based on a 60% loss ratio target. However, we're not going to reflect that until we see that those actual constraints and underwriting changes have taken effect and that we see an actual improvement in the loan performance.
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Yeah. The only thing I'd add, John, JD, is always under the 606 constraint. It's just based on the recent performance and what we've seen in the back book and that further deterioration we've talked about. Some of these recent cohorts that are not performing just put some further constraint under that's acceptable under the guidance. As Jessica said, those will perform better ultimately, and we'll get back to those unit economics.
Jessica Buss (Chairman of the Board of Directors and CEO)
Yeah. I guess the last part of your question is, what do we need to do? I think that's what we talked about earlier, is that we need to get this real-time sophisticated pricing so that we don't end up in situations where we try to reduce, again, the volatility around the 606 so that we feel more confident in the 60% with less volatility around the performance around that number. We would expect us to continue to price future vintages that would result in something closer to what you've seen as a historical $500 unit economic for profit share.
John Davis (Managing Director)
Okay. It sounds like in the near term, $300± is the right way to think about it until you guys actually start seeing some improvement. Is that fair? Okay. The last one for me, just last one for me on tariffs. Obviously, likely helps credit and used car prices go up. It hurts affordability. Maybe just talk a little bit about how you guys think about, obviously, a lot of moving pieces, and we'll see. At a high level, maybe just give us some comments there.
Jessica Buss (Chairman of the Board of Directors and CEO)
Yeah. I think what we said, and I think I mentioned it in my comments, is that we would expect tariffs to be positive on sort of the back book as it increases collateral prices and then, therefore, would reduce severity on sort of on defaults. I think the question is, if tariffs stay in place, what does that do to the MUVI going forward in terms of used car prices in the long term? As it will likely increase those as sort of new cars become more expensive and used cars become more expensive and become less affordable. We do not want to end up in the same position that we ended up in 2021 and 2022 where we had the height of used car prices and we were not pricing it appropriately.
I think our viewpoint would be if we believe that is going to long-term affect used car prices being overinflated or being at an all-time high, then we will need to adjust pricing to reflect that in our potential severity calculations going forward.
John Davis (Managing Director)
Okay. Appreciate all the color. Thanks, guys.
Jessica Buss (Chairman of the Board of Directors and CEO)
It would be positive on the back book.
John Davis (Managing Director)
Okay. Thanks.
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Thanks, JD.
Operator (participant)
Thank you. Ladies and gentlemen, if there are no further questions, I will now hand the conference over to Jessica for her closing comments.
Jessica Buss (Chairman of the Board of Directors and CEO)
Thank you. We appreciate your interest and support. I would like to, again, thank the team, members of Open Lending, for your hard work and dedication to our company. Thanks and have a great day.
Chuck Jehl (Interim CFO and Member of the Board of Directors)
Thank you.
Operator (participant)
Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.