Essent Group Q4 2024 Earnings Report

Essent Group EPS Results

• Actual EPS: $1.58
• Consensus EPS: $1.67
• Beat/Miss: Missed by -$0.09
• One Year Ago EPS: $1.64

Essent Group Revenue Results

• Actual Revenue: $315.00 million
• Expected Revenue: $313.88 million
• Beat/Miss: Beat by +$1.12 million
• YoY Revenue Growth: +6.00%

Essent Group Announcement Details

• Quarter: Q4 2024
• Date: 2/14/2025
• Time: Before Market Opens
• Conference Call Date: Friday, February 14, 2025
• Conference Call Time: 10:00AM ET

Essent Group (NYSE:ESNT), through its subsidiaries, provides private mortgage insurance and reinsurance for mortgages secured by residential properties located in the United States. Its mortgage insurance products include primary, pool, and master policy. The company also provides information technology maintenance and development services; customer support-related services; underwriting consulting; and contract underwriting services, as well as risk management products and title insurance and settlement services. It serves the originators of residential mortgage loans, such as regulated depository institutions, mortgage banks, credit unions, and other lenders. Essent Group Ltd. was incorporated in 2008 and is based in Hamilton, Bermuda.

Essent Group Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Thank you for standing by. At this time, I would like to welcome everyone to today's Essent Group Limited Fourth Quarter Earnings Call. All lines have been placed

[Operator]

on mute to prevent any background noise. After speaking, there will be a question and answer session. Thank you. I would

[Operator]

now like to turn the call over to Phil Spano with

[Operator]

Investor Relations. Phil, please go ahead.

[Philip Stefano, Vice President, Investor Relations at Essent Group]

Thank you, Greg. Good morning, everyone, and welcome to our call. Joining me today are Mark Cassell, Chairman and CEO and David Weinstock, Chief Financial Officer.

[Philip Stefano, Vice President, Investor Relations at Essent Group]

Also on hand to the Q and A portion of the call is Chris Curran, President of Essent Parent Key. Our press release, which contains Essent's financial results for the fourth quarter and full year 2024, was issued earlier today and is available on our website at essentgroup.com. Our press release includes non GAAP financial measures that may be discussed during today's call. A complete description of these measures and the reconciliation to GAAP may be found in Exhibit O of our press release. Prior to getting started, I would like to remind participants that today's discussions are being recorded and we'll include to you some forward looking statements.

[Philip Stefano, Vice President, Investor Relations at Essent Group]

These statements are based on current expectations, estimates, projections and assumptions and are subject to risks and uncertainties, which may cause actual results to differ materially.

[Philip Stefano, Vice President, Investor Relations at Essent Group]

For a discussion of these risks and uncertainties, please review cautionary language regarding forward looking statements in today's press release, the risk factors included in our Form 10 K filed with

[Philip Stefano, Vice President, Investor Relations at Essent Group]

the SEC on 02/16/2024,

[Philip Stefano, Vice President, Investor Relations at Essent Group]

and any other reports and registration statements filed with the SEC, which are also available

[Philip Stefano, Vice President, Investor Relations at Essent Group]

on our website. Now, let's turn the call over to Mike.

[Mark Casale, Chairman and CEO at Essent Group]

Thanks, Phil, and good morning, everyone. Earlier today, we released our fourth quarter and full year twenty twenty four financial results. Strong credit quality and resilience in the housing and labor markets continue to drive credit performance.

[Mark Casale, Chairman and CEO at Essent Group]

Full interest rates remain a tailwind for persistency in investment income. Although mortgage origination activity remains below historical levels, the anticipated home buying demand is barely being postponed given the level of rates and affordability. While there is always uncertainty in the economic environment, given the strength of our balance sheet and our buy, manage and distribute operating model, we believe Essence is well positioned for a range of economic scenarios. And now for our results. For the fourth quarter of twenty twenty four, we reported net income of $168,000,000 compared to $175,000,000 a year ago.

[Mark Casale, Chairman and CEO at Essent Group]

On a diluted per share basis, we are in $1.68 for the fourth quarter compared to $1.64 a year ago. For full year, we earned $729,000,000 or $6.85 per diluted share, while our return on average equity was 14%. As of December 31, our book value per share was $63.36 an increase of 11% from a year ago. As of December 31, our U. S.

[Mark Casale, Chairman and CEO at Essent Group]

Mortgage insurance in force was $224,000,000,000 a 2% increase versus a year ago. Our twelve month persistency on December 31 was 86% and about one point from last quarter, while nearly 60% of our in force portfolio has a no rate of 5.5% or lower. Although, consistency has likely peaked, we continue to expect that the current level of mortgage rates will support a qualitative consistency in the near term. Credit quality for insurance unfortunately remains strong with a weighted average cycle of seven forty six and a weighted average original LTV of 93%. Credit performance in the fourth quarter primarily reflected both the aging of our portfolio and the typical seasonality of the fourth quarter.

[Mark Casale, Chairman and CEO at Essent Group]

Note, however, that current performance for the fourth quarter was impacted by approximately 2,000 defaults in areas affected by hurricanes, Harleen and Milton. In addition, we are monitoring the potential impact of defaults from the California wildfires. We will discuss the calls and reserves in more detail in a few moments. On mortgage insurance front, our industry remains competitive and strong credit guardrails have been in place, driven by the underpinnings established by the PSEs after the global financial crisis. These guardrails combined with our SNH credit engine enable us to selectively grow our high credit quality assurance reports while generating strong returns.

[Mark Casale, Chairman and CEO at Essent Group]

We are pleased with our position in the marketplace and the unit economics that we are achieving on new business. As a reminder, we priced for new business assuming a combined ratio of roughly 35 to 45%. In the first quarter of twenty twenty five, we entered into two quarters of our transactions with a panel of highly rated reinsurers forward protection for our 2025 and 2026 business. We are pleased with the strong execution and we're committed to a programmatic reinsurance strategy, which helps to diversify our capital resources while seeking a meaningful portion of our mezzanine credit risk. At year end 2024, approximately 97% of our portfolio is covered by some form of reinsurance.

[Mark Casale, Chairman and CEO at Essent Group]

S and RE had another strong year of performance, right in high quality GSE to repair business, while leveraging its fee based MGA services. Essenre ended the year with annual third party revenues of approximately $80,000,000 while our third party risk in force was $2,200,000,000 Since 2018, Essenre has earned over $450,000,000 of net income from a third party business and it contributed approximately $300,000,000 to SNC value. The title operations incurred a pretax loss of approximately $21,000,000 from the prior year prior to project corporate allocations. We continue to maintain a long term view for this business. However, given it is leveraged rates, we do not expect title will have any material impact on earnings in the near term.

[Mark Casale, Chairman and CEO at Essent Group]

Cash and investments as of December 31 was $6,300,000 and our new money yield in the fourth quarter remained over 5%. For the full year 2024, our investment yield was 3.7% compared to 3.5% in 2023. Net investment income was $222,000,000 in 2024, up nearly 20% in 2023. As of December 31, the carrying value of other invested assets is $3.00 $4,000,000 and ever to date these investments have created $81,000,000 of value. As of December 31, we are in a position of strength with 5,600,000,000 in capital equity, access to $1,600,000,000 in excess of loss reinsurance, a Schmiedauer's efficiency ratio of 178%, and full year 2024 operating cash flow of $852,000,000 our franchise remains well positioned from an earnings, cash flow and balance sheet perspective.

[Mark Casale, Chairman and CEO at Essent Group]

As a result of our strong financial performance and capital position, I am pleased to announce the Board has improved an 11% increase in our quarterly dividend of $0.31 per share. At the same time, our Board also approved a $500,000,000 share repurchase authorization that runs through year end 2026. Now, let me turn the call over to Peter.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the fourth quarter, we earned $1.58 per diluted share compared to $1.65 last quarter and $1.64 in the first quarter a year ago. Our U. S.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Mortgage insurance portfolio ended 2024 with insurance in force of $243,600,000 an increase of $669,000,000 from September 30 and an increase of $2,600,000 from 2% compared to $239,100,000 at 12/31/2023. Persistence at December 2024, decreased to 85.7% compared to 86.2% at the end of the third quarter. Net premium earned for the fourth quarter twenty twenty four was $244,000,000 that includes $16,200,000 of premiums earned significantly on our third party business and $16,600,000 of premiums earned by the panel operations. The average base premium rate for The U. S.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Mortgage insurance portfolio for the fourth quarter was 41 basis points. The average net premium rate is 35 basis points in the fourth quarter of twenty twenty four, both consistent with last quarter. We expect that the average lease premium rate for the full year of 2025 will be largely unchanged from the fourth quarter rate of 41 basis points. Updated net investment income for full year 2024 was $222,100,000 compared to $186,100,000 for the full year 2020 due to growth in the investment portfolio and investing at higher yields than the purchasing portfolio. Net investment income for the fourth quarter was relatively flat to the prior quarter.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Credit performance for the fourth quarter was affected by default in areas impacted by Hurricane Killeen and Milton. The provision for losses and loss adjustment expense from The U. S. Mortgage insurance portfolio was $37,200,000 in the fourth quarter of twenty twenty four compared to $29,800,000 in the third quarter of twenty twenty four and $19,000,000 in the fourth quarter a year ago. During the fourth quarter, total deposits increased by 2,533, which includes 2,119 defaults that we identified as hurricane related defaults.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Based on prior industry experience, we expect the ultimate number of hurricane related defaults that will result in claims will be less than the defaulted claim experience of non hurricane related defaults. The provision for losses on these hurricane defaults does reflect a higher termite assumption than the estimates used on non hurricane defaults. Provision for losses in the fourth quarter include $8,000,000 pertaining to the hurricane defaults, representing our best estimate of the ultimate loss incurred for claims associated with these defaults. Looking forward, we will continue to gather information on this population of the falls and update our reserves if needed. At December 31, the halt rate on The U.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

S. Mortgage insurance portfolio was 27%, up 32 basis points from 1.95 as of February 2024. For the full year 2024, we recorded a net division on The U. S. Mortgage insurance portfolio of approximately $75,000,000 with higher defaults reflecting aging of the portfolio and the impact of the hurricanes.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Other underwriting and operating expenses in the fourth quarter were $71,000,000 and includes $26,700,000 of total title expenses, of which $8,500,000 of payments received by agents. Our consolidated expense ratio was 28.7% this quarter. Exposed ratio excluding title, which is a non GAAP measure, was 19.4% this quarter. The description of our expense ratio excluding title and reconciliation of GAAP should be found in the exhibit of our press release. Consolidated effective tax rate for full year 2024 was 14.7% and including the impact of $2,000,000 of favorable discrete tax items.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

In 2025, we estimate that the annual effective tax rate would be approximately 15.5% excluding the impact of any discrete items. As Mark noted, our holding company liquidity remains strong and includes $500,000,000 of undrawn revolver capacity under our continued credit facility. At December 31, we had $500,000,000 of senior unsecured notes outstanding and our debt to capital ratio was 8%. At December 31, SG and A team's senior efficiency ratio was strong at one hundred and twenty eight percent and $1,600,000 in excess available assets. Quadren has the guarantee set to the capital of $3,600,000 with a risk to capital ratio of 9.8:one.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Capital includes $2,500,000 of contingency reserves at December 31. During the full year 2024, Essent guaranteed paid dividends of $165,000,000 to its U. S. Holding company. As of January 1, Essent guaranteed to pay quarterly dividends of $397,000,000 in 2025.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Quarter end, Essent Guaranty SPA, which provided reinsurance to Essent Guaranty on certain policies originated prior to April 2019, entered into a commutation of release agreement under which costs and outs any risk in force, we needed tax FDIC guarantee. SG and GUARANCE CA events rendered its insurance license effective 12/31/2024, freeing up $93,000,000 of cash and investments at FCRA and CPA as liquidity to The U. S. Holding company. As a result, there were no dividends from the insurance subsidiary to The U.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

S. Holding company during the fourth quarter of twenty twenty four. During the fourth quarter, Essent repaid a dividend of $87,500,000 to Essent Group. Also in the quarter, Essent Group paid cash dividends totaling $29,400,000 to shareholders and we repurchased 1,200,000.0 shares for $66,000,000 on the new deposit and approved by our Board in October 2023. In January 2025, we repurchased 21,000,000 shares for $52,000,000 taking advantage of the volatility in Essent's share price.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

As we have previously discussed, we are patient and value sensitive when it comes to buying cash shares, believing this strategy will support our long term goal of compounding free share growth over time. Now, let me turn the call back over to Martin.

[Mark Casale, Chairman and CEO at Essent Group]

Thanks,

[Mark Casale, Chairman and CEO at Essent Group]

Dave. In closing, we are pleased with our full year 2024 financial results, which continue to reflect the strength of our franchise. Our high quality portfolio combined with resilience in housing and employment continues to translate to strong credit performance, while our business continues to focus on the impact of rates on persistency and investment income. Our strong operating performance continues to generate excess capital, which we will approach in a balanced manner by maintaining balance sheet strength, preserving optionality for strategic growth opportunities and optimizing shareholder returns over the longer term. Looking forward, we remain committed to our client management and distribute operating model and believe that Hessian remains well positioned to deliver attractive returns for our shareholders.

[Mark Casale, Chairman and CEO at Essent Group]

Now, let's get to your questions.

[Operator]

Okay. It looks like our first question comes from

[Operator]

the line of Bose George with JEW. Bose, please go ahead.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey, everyone. Good morning. If you first on title, is your expectation for '20 expectation for 2025 that title results would be two twenty four and is there anything unusual in title this quarter just the provision without the OpEx close-up?

[Mark Casale, Chairman and CEO at Essent Group]

April, good morning. I would

[Mark Casale, Chairman and CEO at Essent Group]

say with title for '25, I would expect more of the same. So I think we have a cost structure and we said earlier, right, it would take twelve to eighteen months to stand it up. We're right at eighteen months. It's relatively well stood up. It's just a matter of I kind of look at some of that partial cost, the drag is kind of an option cost for refinance to come back.

[Mark Casale, Chairman and CEO at Essent Group]

And the rates haven't come back. And like I said in the script, we're levered to rates. We did sign up one pretty large lender last year. So we're really carrying capacity for that lender and there's a cost to that. So I would expect it to be kind of more of the same in longer term.

[Mark Casale, Chairman and CEO at Essent Group]

Is a call option. And we do believe longer term it will be supplemental turning to our cabinetry and adding Brazil. But we continue to make progress there. But again, I think when rates come down, we should see better results in the fourth quarter. So it was more around the provision, excess provision that we've normally had and that was really just some of the cleanup on the underwriter that we bought and some of the claims came due.

[Mark Casale, Chairman and CEO at Essent Group]

So a little bit of fourth quarter cleanup there.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. Thanks. And then actually the hurricane related to call counts that you gave the 2019, was that the default that's in the inventory, those inventory at quarter end or had some of those cured by quarter end?

[Mark Casale, Chairman and CEO at Essent Group]

They were in there at quarter end. So like we said in the speech, I think most of the increase of defaults were the hurricanes. So if you take out 2.25% or 2.27% of the call rate you take out of the calls, it's probably closer to 2%.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. Thanks.

[Mark Casale, Chairman and CEO at Essent Group]

Sure.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

All right.

[Mark Casale, Chairman and CEO at Essent Group]

Thanks, Rose.

[Operator]

And our next question comes from

[Operator]

the line of Terry Ma with Barclays. Terry, please go ahead.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Hey, Stacy. Good morning, everyone.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Maybe just a follow-up on the disclosure.

[Terry Ma, Senior Equity Research Analyst at Barclays]

I kind of script that the 2,000 or so out of new notices in the quarter, new notices are actually down sequentially, which is kind of counter the delinquencies now. If you hold any color on

[Terry Ma, Senior Equity Research Analyst at Barclays]

kind of what's going on there?

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Hey, Terry, it's Steve Weinstock.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

There are some push to add some close to the call patterns. You're right that in general, we do see an uptick in the second half year for sure and somewhat a little bit in the fourth quarter. There wasn't anything that we've read into necessarily.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

I would say on the whole, as we look at 2024,

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

in general, twenty twenty four's default pattern was a little bit favorable mostly every quarter to prior historical quarter. So I think what we really saw in the fourth quarter was maybe a little bit more of the same.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Got it. Okay. And then, if I look at the default rate kind of ex hurricanes, kind of the key percentage of users quoted, year over year change kind of decelerated compared to last quarter.

[Terry Ma, Senior Equity Research Analyst at Barclays]

I'm just curious, have you kind of reached the point with kind of the seasonings where you should get start to get more of a steady pace of increase for the default rate or is that kind of too early to call right now?

[Mark Casale, Chairman and CEO at Essent Group]

Yes, I think it's too early to call. And I think just the big picture, Terry, I think given the seasoning with the bulk, just the average age of the bulk, can you look mad? Historically, post COVID was 18, kind of continued to turn over because of kind of post COVID, it's kind of second cycle COVID was the first cycle, right? Slow rates, tons of origination, lot of refinancing, portfolio turnover, kind of in the middle of 'twenty two when the rates shot up. We've kind of been frozen, and we've really went to nine thirty three months as of 'thirty two, 'thirty '3 months.

[Mark Casale, Chairman and CEO at Essent Group]

So you're starting to really we're getting that extra year of premiums, which we've enjoyed over the past couple of years. But I think just about it, the more borrowers are outstanding for longer periods of time, it's kind of natural that a few of them that's been around longer will default. It's pretty much in our expectations, but it wouldn't surprise me if the default rate kind of continues to go up somewhat toward 25%. And I think you're starting to see I wouldn't be surprised the whole industry sees it and I know maybe we're different. I think when we see it kind of go up to where your 6% range couldn't surprise me at all.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Got it.

[Mark Casale, Chairman and CEO at Essent Group]

Thank you, Gerry.

[Operator]

And our next question comes from

[Operator]

the line of Rick Shane with KeyBancorp. Please go ahead.

[Richard Shane, Analyst at JP Morgan]

Thanks for taking my questions this morning. Look, there's been some questions about hurricanes. I suspect we're probably going to get questions next quarter about peers.

[Richard Shane, Analyst at JP Morgan]

And obviously, there are short term implications on the model. But I'm curious, Mark, in many of the high cost regions of the country, insurance is now becoming very expensive or not necessarily even available. Two things. First of all, how

[Richard Shane, Analyst at JP Morgan]

do you guys monitor whether

[Richard Shane, Analyst at JP Morgan]

or not borrowers are in fact insured? And if insurance really becomes increasingly problematic, how do you think about that in terms of pricing for risk and considering the quarterly?

[Mark Casale, Chairman and CEO at Essent Group]

Yes, that's a really good question. It's been a topic recently for a while internally. One, I think if they are a mortgage, they are required to have homeowners. So, if somehow they're dropped, they'll get forced placed. So we don't worry about them having the insurance should something happen.

[Mark Casale, Chairman and CEO at Essent Group]

So I think we're pretty well covered there. And remember, and you know this, Rick, and I'm sure a lot of others do, we're not really on the hook until the home is repaired. So there's that kind of layer of protection we have. And that's why we've seen historically a lot of the defaults in the hurricane regions tend to cure at a pretty high rate and past performance of the future that's been pretty much scenario we've had for past hurricanes. In terms of the longer term impact of homeowners insurance, I think it's a contingency issue in certain parts of the country.

[Mark Casale, Chairman and CEO at Essent Group]

Just remember, in some of the real coastal regions or even where the wildfires are, these are high cost areas with not a lot of mortgage insurance. So we don't really we're not exposed to any other ones that are most susceptible to these significant increases in homeowners. Even for normal folks, you'll see it go from like 600 a year to 1,200, it's significant, significant from a borrower perspective. If you kind of like raise above it and kind of get picture from an MI perspective, maybe a point in BCI. So we think about it a lot, but trying to put it in perspective for investors that, yes, it's an added cost.

[Mark Casale, Chairman and CEO at Essent Group]

And I think it just goes in general, Rick, to kind of our team that with affordability going up, but it can maybe staying up. The amount of disposable income that borrowers are going to have to use from allocate for mortgages, I just think it's going to increase. I mean, you live in California, it's always been that way in California. For thirty years, borrowers have allocated more of their disposable income to housing. I think really been that tech hasn't been that way for the rest of the country.

[Mark Casale, Chairman and CEO at Essent Group]

And I just think where homeownership rates continue to stay where they are kind of in the mid to upper 60s, I think borrowers are going to allocate more of their disposable income. I don't think they have a choice as they want to be homeowners. So hopefully that takes a little bit of a big picture of

[Mark Casale, Chairman and CEO at Essent Group]

context.

[Richard Shane, Analyst at JP Morgan]

It does. And again, look, I know you see five to ten year horizons. Are you concerned that it has a chilling effect on HPA, which doesn't more broadly doesn't impact you guys?

[Mark Casale, Chairman and CEO at Essent Group]

HPA has gone up so much, Rick, in the past five years that I don't think it's okay for it to pause for a while, to be honest. I think again, it could be flattish and allow and this is when it gets to allow kind of comes to catch up, which is kind of part of my longer term team for Essent. And I lose to it earlier, my response to Terry, it was kind of like three cycles, right? If you just read about recently, we had the COVID cycle, super low rates, lots of origination, and it was an anomaly, right? We never really seen rates come down that quickly and stay that way.

[Mark Casale, Chairman and CEO at Essent Group]

Just in that scenario, we saw it kind of in 02/2003, it was probably the last time we saw such significant refinance and then kind of rates shot up in mid 'twenty two. So it's kind of like the new product started, right? So we have high rates, HVAs is pretty high. So affordability has been an issue. It's clearly been an issue for the past, but then push still into it.

[Mark Casale, Chairman and CEO at Essent Group]

Once and that's been an anomaly, right, we've never seen a housing market. I read last week that typically 4,000,000 borrowers or 4,000,000 people move every year. Last year it was 2.7. So we're still kind of in this housing, I guess it's a rut is a good way to say it. We're going to come out of it and when we do.

[Mark Casale, Chairman and CEO at Essent Group]

And I think how we come out of it is, I don't know if rates come down significantly. I think having HPA remain relatively flattish and allow time for income to increase, you're just going to see it happen naturally, right? Families continue to form, they need to move into bigger houses, people change jobs. More of that natural activity is going to come. And I think when we enter in that cycle, I think you're going to see renewed growth in our business.

[Mark Casale, Chairman and CEO at Essent Group]

I really do. I can't predict when that's going to happen. I don't know if it happens in 2025. I think it's a lot of play out. But again, when you see your picture heavy industry right around one point five trillion dollars of insurance imports, it wouldn't surprise me and it's really only grown 2% last year, 2% the year before.

[Mark Casale, Chairman and CEO at Essent Group]

I think we're in a pause. And I do think when these forces come together, I think it will be a bit of a tailwind for the business.

[Richard Shane, Analyst at JP Morgan]

Got it. Hey, Mark.

[Richard Shane, Analyst at JP Morgan]

I always appreciate the answers. Thank you so much.

[Mark Casale, Chairman and CEO at Essent Group]

You're welcome. Thanks, Rick.

[Operator]

And our next question comes from

[Operator]

the line of Doug Harter with UBS. Doug, please go ahead.

[Douglas Harter, Equity Research Analyst at UBS Group]

Hi. You guys increased the dividend, increased the share repurchase. Given what you just said that we might be in kind of pause for industry insurance

[Douglas Harter, Equity Research Analyst at UBS Group]

and source growth, how are you thinking about the

[Douglas Harter, Equity Research Analyst at UBS Group]

pacing of the path forward in linear term versus opportunities either in mortgage and transfer capital?

[Mark Casale, Chairman and CEO at Essent Group]

It's a good question, Doug. And the answer is, I think we're entering into this year a decent opportunity for us to return capital and become a little bit more capital efficient, right. When you kind of combine the pause in growth to fill up the capital, we continue to build capital off of the test a few years. So even though it's been high, credit is benign, persistency has been good and we've had this nice tailwind from investment income and I can't mention in the script like $850,000,000 of cash coming in the door. So it's been a strong operating performance and we really above capital level.

[Mark Casale, Chairman and CEO at Essent Group]

So add that then and put into the fact that we feel pretty confident around credit in the shorter term. And I know it's your job and that's what we have to think through kind of the pulp rates and where they're going. We do think again, I've alluded to it earlier for them to continue to move up to 3% to 10% if you get to that level. It doesn't most surprise me and we won't get super concerned about it kind of well within our expectations and add in kind of our key mod's cushion, right? And that's something that always is our biggest concern.

[Mark Casale, Chairman and CEO at Essent Group]

So I'll just kind of that would be the event. We are and I know a lot of our analysts are specialty finance analysts, but at the end of the day, we really are more of an insurance company. I know our specialty is mortgage, but the financial performance in terms of premiums build off, paying claims, it's much more of an insurance company. They don't have a lot of liquidity risk that especially a company has. And our liquidity risk, if anything, is kind of in the PMIERs calculation in terms of the pros of locality.

[Mark Casale, Chairman and CEO at Essent Group]

Our business is really a catch business in a way, our catastrophe happens to be a macro a severe macroeconomic recession, right? That's what we that's the thing that we think about the most. We don't worry about the kind of ins and outs of a normal recession or soft landing. It's really that big event. They don't happen that often, but when they do, they're significant, right?

[Mark Casale, Chairman and CEO at Essent Group]

It happened in the MI business back in the early 80s with some regional events and super high rates that really crumbled a lot of the MIs back then. It certainly happened during the great financial crisis, peak, had a crisis and COVID, but it happened to be relatively short. And we run and we talked about this before we run our test, our stress test through a GSE stress test. The Moody's S4 is becoming more kind of, I would say, commonly looked at amongst those in the industry. I think when we kind of go when we run our numbers through that, we feel pretty good.

[Mark Casale, Chairman and CEO at Essent Group]

So we feel like that's kind of when we think about what's the right TMARS capital sufficiency ratio. A lot of that is run into the stress and making sure we have it. So we feel good there. And then when you add in kind of the capital, just the HoldCo, and you know, you've heard me before, take a valuation of investment opportunities. We just haven't seen anything that we'd like in terms of the investment.

[Mark Casale, Chairman and CEO at Essent Group]

So when you put all that together, it is for us to return capital, I think it's a time it's a good time for us to do it, right? We have and we've talked about the numerator and the denominator, the numerator again to the pause and the pause is across the business. It's not just in the core business. Clearly, we alluded to the title as more it's smaller much smaller, but it's rate sensitive. And we're seeing a little bit of pause even with an S and G REITs and that's kind of a lack of GSE issuance.

[Mark Casale, Chairman and CEO at Essent Group]

So when you add all that up for us to and again, take the advantage really, as Dave alluded to, we're price sensitive on the repurchases, which is just a fantastic opportunity kind of post our November call. So we'll continue again to we have like a grid that will continue to execute. And don't forget that we have the central dividend as a tool. We haven't used it yet, but again, I think that's always out there. And I think our goal is to get the growth of credit per share, but we also want to make sure we have strong ROEs and you don't want the capital, too much capital to create a drag.

[Mark Casale, Chairman and CEO at Essent Group]

I mean, I know this is it's a high class problem for us to have, but I do think you'll see a little bit more of that activity in 2025.

[Operator]

And our next question comes from the line of

[Operator]

Jeff Dunn with Dowling and Partners.

[Operator]

Jeff, please go ahead.

[Geoffrey Dunn, Partner at Dowling & Partners]

Dave, just to confirm, did you say that 18.5% tax rate for this year?

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Yes. That was our estimate, 2.5, yes.

[Geoffrey Dunn, Partner at Dowling & Partners]

I'm surprised at how low it is with the new minimum tax. Can you walk through the mechanics of that and what kind of credit maybe you're assuming fits that level?

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Yes. So and actually, Jeff, a little bit from what our full year was for 2024. To expect that you're thinking about Bermuda tax, and I know there's been a lot of there's been some developments there that are potentially coming and there are definitely some Bermuda state companies that have recorded an economic transition adjustment. And I think that's being looked at and how much of that is possible and the like. We have proved that we don't have one of those.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

We can record an economic transition adjustment. We have a very limited international presence and there is an international presence exemption related to the dividend income tax that really exempts us from tax that's close to 30%.

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

When you look at that, FY, on the whole, we're just

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

the same for 2025. We're going to be around the same things we're really in 2024.

[Geoffrey Dunn, Partner at Dowling & Partners]

Got you. Okay. And then do you have the count for the Q3 new notices of hurricane affected notices that came in?

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Yes, Jeff, we didn't actually the hurricane hit really late in September and October. We didn't really keep any of those. The calls that came in, in the third quarter were hurricane related defaults. Really thought everything was really in the fourth quarter.

[Geoffrey Dunn, Partner at Dowling & Partners]

Got you.

[Geoffrey Dunn, Partner at Dowling & Partners]

And then last, could you repeat the buyback info for the quarter I just missed?

[David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group]

Yes. In the quarter, we repurchased got it right here. We repurchased 1,200,000.0 shares for $56,000,000 in the fourth quarter. And in January, we repurchased nearly 1,000,000 shares for $52,000,000 And our next question comes from the

[Operator]

line of Eric Hagen with BTRG.

[Eric Hagen, Managing Director at BTIG]

Hi, thanks. Good morning.

[Eric Hagen, Managing Director at BTIG]

I appreciate you guys taking my question.

[Eric Hagen, Managing Director at BTIG]

All right. So it feels like the non bank lenders are laser focused on taking down origination and servicing costs, managing their own prepayment risk through strong recapturing a lot of that improvement in costs and sale already seem to be showing up in the recent behavior when rates are dropping. Do you guys have any perspective on how further growth would be non banks and the lower cost of the previous figures specifically for the ILPD cohort of borrowers out there? And then how that kind of

[Eric Hagen, Managing Director at BTIG]

dynamic maybe fixes how you guys price stress?

[Mark Casale, Chairman and CEO at Essent Group]

Yes, clearly, that's kind of reiteration assumptions when we think about it, when we focus on the front end. I think it's an interesting point. Eric, you can have you back on the calls. And you are correct in terms of how efficient the larger originators have become on refinancing.

[Mark Casale, Chairman and CEO at Essent Group]

And you can imagine maybe even with some of the potential AI tools out there that they can become even more efficient, they have been for a while. That's the one thing to keep in mind when you they have been for a while. And so I think when we think about, I think, story dependent, I mean, so if rates do come down, could we see more kind of MI roll off books? Absolutely. And again, I think it will be, as I said earlier, being replaced by rates come down, following up on my answer to Rich, probably brings in that new cycle a little bit quicker.

[Mark Casale, Chairman and CEO at Essent Group]

It's going to unlock a lot of purchase activity too. So I don't know if that's exactly answered your question, but I do think kind of it really is not dependent to these guys. I know there's so many rates kind of coming out. So and we saw that. I think that was the example.

[Mark Casale, Chairman and CEO at Essent Group]

I think we might have talked about it before. It was kind of that refinance flash in October and we saw you can see them reflected in our numbers, the refinance percentage was 14 ish in the fourth quarter. That was true. It was relatively higher. We saw a bit on title.

[Mark Casale, Chairman and CEO at Essent Group]

We didn't take advantage of it. It wasn't long enough. I agree with you when it comes. I think that very quickly.

[Operator]

And it

[Operator]

looks like our final question today comes from the line of Bose George with CFO. He's back. Bose, please go ahead.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Good. Thanks. I just thought I was just wondering about the question.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Is that your guidance for expenses for 2025?

[Mark Casale, Chairman and CEO at Essent Group]

No, we didn't, Bose, because we're moving to the segment reporting, which you guys will see in the paid disclosure. So it's going to be more MI and then kind of other segments. So we didn't we'll be able to kind of once you see the numbers, we'll be able to potentially give you some MI. So big picture, if

[Mark Casale, Chairman and CEO at Essent Group]

you were to look

[Mark Casale, Chairman and CEO at Essent Group]

at last year's numbers, it will be relatively flattish, but just temporarily, we didn't we wanted to wait until the day was out and you guys had a good chance to kind of look through it.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. And then, if you just one more on the incentive portfolio, What's the incremental yield versus the current yield? And actually, is it just a decline quarter of a quarter? Is it a little surprising? So kind of what goes up?

[Mark Casale, Chairman and CEO at Essent Group]

Yes. It's a little surprising, but we really kind of we're repositioning the talk. So we moved and we started that in the past, I want to say, three to four months. So we're moving out of kind of the shorter term cash back into kind of more ADS and corporate credit kind of back to where we were before kind of moving back to our normal portfolio. So there's a little bit of that rolling off.

[Mark Casale, Chairman and CEO at Essent Group]

It was two year treasuries at really high rates kind of rolling off. So I would think this year post just in terms of kind of the rate that stays in that same neighborhood. Longer term, depending if the yield curve stays where it is, it wouldn't surprise us to see if they'll look forward. I don't think that's going to happen in 2020.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. Thanks.

[Operator]

And there are no further questions. So I will now hand it back to management for closing remarks.

[Mark Casale, Chairman and CEO at Essent Group]

I'd like to thank everyone for joining us. And again for the second time in seven years, I'd like to congratulate our Philadelphia Eagles for winning the Super Bowl and have a great weekend and go

Participants

Executives

• Philip Stefano, Vice President, Investor Relations
• Mark Casale, Chairman and CEO

Analysts

• David Weinstock, Senior Vice President, Chief Financial Officer at Essent Group
• Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)
• Terry Ma, Senior Equity Research Analyst at Barclays
• Richard Shane, Analyst at JP Morgan
• Douglas Harter, Equity Research Analyst at UBS Group
• Geoffrey Dunn, Partner at Dowling & Partners
• Eric Hagen, Managing Director at BTIG