Essent Group Q1 2025 Earnings Report

Essent Group EPS Results

• Actual EPS: $1.69
• Consensus EPS: $1.66
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: $1.70

Essent Group Revenue Results

• Actual Revenue: $317.56 million
• Expected Revenue: $311.18 million
• Beat/Miss: Beat by +$6.38 million
• YoY Revenue Growth: +6.40%

Essent Group Announcement Details

• Quarter: Q1 2025
• Date: 5/9/2025
• Time: Before Market Opens
• Conference Call Date: Friday, May 9, 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 Q1 2025 Earnings Call Transcript

Key Takeaways

• Net income of $175 million in Q1 (EPS $1.69) with an annualized ROE of 12%, compared to $182 million and $1.70 EPS a year ago.
• Mortgage insurance in force grew 3% year-over-year to $245 billion, with strong credit metrics (average FICO 746, LTV 93%), 86% persistency and a default rate of 2.19%.
• Consolidated cash and investments of $6.4 billion generated a new money yield above 5% and an annualized return of 3.8%, supported by $866 million of annualized operating cash flow.
• Shareholder returns include a Q2 dividend of $0.31 and repurchases of nearly 4 million shares for over $200 million year-to-date as part of a valuation-sensitive buyback strategy.
• Essent’s buy, manage and distribute operating model and strong capital position (GAAP equity $5.7 billion; PMIER sufficiency 172%) underpin management’s constructive long-term outlook on housing demand.

Presentation

[Operator]

and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Limited First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

I would now like to turn the conference over to Phil Stefano, Investor Relations. Please go ahead.

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

Thank you, Regina. Good morning, everyone, and welcome to our call. Joining me today are Mark Casal, Chairman and CEO and David Weinstock, Chief Financial Officer. Also on hand for the Q and A portion of the call is Chris Carron, President of Essent Guaranty. A press release, which contains Essent's financial results for the first quarter of twenty twenty five, was issued earlier today and is available on our website at essentgroup dot com.

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

Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward looking statements in today's press release, the risk factors included in our Form 10 ks filed with the SEC on 02/18/2025, and any other reports and registration statements filed with the SEC, which are also available on our website. Now let me turn the call over to Mark.

[Mark Casale, Chairman and CEO at Essent Group]

Thanks, Phil, and good morning, everyone. Earlier today, we released our first quarter twenty twenty five financial results, which continue to benefit from the impact of higher interest rates on the persistency of our insured portfolio and investment yields. We believe that our buy, manage and distribute operating model uniquely positions us to operate in a variety of economic environments to generate attractive returns for our shareholders. Our outlook over the long constructive as we believe that favorable demographic trends along with current affordability issues are resulting in pent up demand for housing. Even though we anticipate some headwinds to consumer spending and economic growth over the near term given the high credit quality of our insured portfolio and the strength of our operating model, Essent is positioned to navigate this environment.

[Mark Casale, Chairman and CEO at Essent Group]

And now for our results. For the first quarter of twenty twenty five, we reported net income of $175,000,000 compared to $182,000,000 a year ago. On a diluted per share basis, we earned 1.69 for the first quarter compared to $1.7 a year ago. On an annualized basis, our return on average equity was 12% in the quarter. On the mortgage insurance front, lenders continue to be challenged by lower originations due to the impacts of higher rates, affordability and overall lack of supply.

[Mark Casale, Chairman and CEO at Essent Group]

This in turn also impacts the amount of new insurance written that our industry generates. While our industry is competitive in this environment, systematic credit guardrails established by the GSEs continue to mitigate credit box expansion. As such, we remain satisfied with the credit quality and unit economics of our new business. As of March 31, our U. S.

[Mark Casale, Chairman and CEO at Essent Group]

Mortgage insurance in force was $245,000,000,000 a 3% increase versus a year ago. The credit quality of our insurance in force remains strong with a weighted average FICO of seven forty six and a weighted average original LTV of 93%. Our twelve month persistency on March 31 was 86% flat from last quarter, while half of our in force portfolio has a note rate of 5% or lower. We continue to expect that the current level of mortgage rates will support elevated persistency in the near term. Our consolidated cash and investments as of March 31 were $6,400,000,000 and our new money yield in the first quarter remained over 5%.

[Mark Casale, Chairman and CEO at Essent Group]

The annualized investment yield for the first quarter is 3.8%, while new money rates have largely held stable over the past several quarters and remain a tailwind for investment income. We continue to operate from a position of strength with $5,700,000,000 in GAAP equity, access to 1,500,000,000 in excess of loss reinsurance and PMIERs sufficiency ratio of 172%. With a trailing twelve month operating cash flow of $866,000,000 our franchise remains well positioned from an earnings, cash flow and balance sheet perspective. Our capital strategy seeks to balance a conservative balance sheet preserving optionality for strategic growth opportunities and optimizing shareholder returns over the long term. With that in mind, I am pleased to announce that our Board has approved a common dividend of $0.31 for the second quarter of twenty twenty five.

[Mark Casale, Chairman and CEO at Essent Group]

At the same time,

[Mark Casale, Chairman and CEO at Essent Group]

we recognize that our excess capital position and stock valuation present us with an opportunity to be proactive in returning capital to shareholders. As previously discussed,

[Mark Casale, Chairman and CEO at Essent Group]

we are valuation sensitive when it comes to buying back shares believing this strategy will support our long term goal of compounding book value per share growth. Year to date through April 30, we repurchased nearly 4,000,000 shares for over $200,000,000 Now let me turn the call over to Dave.

[David Weinstock, CFO & Senior VP at Essent Group]

Thanks Mark and good morning everyone. Let me review our results for the quarter in a little more detail. For the first quarter, we earned $1.69 per diluted share compared to $1.58 last quarter and $1.7 in the first quarter a year ago. In connection with accounting guidance effective as of year end twenty twenty four, public companies with a single reportable segment are required to disclose results by segment. We have one reportable segment, mortgage insurance, which aggregates our U.

[David Weinstock, CFO & Senior VP at Essent Group]

S. Mortgage insurance business and our GSE and other mortgage reinsurance business at our subsidiary Essent Re. My comments today are going to focus primarily on the mortgage insurance segment results. There's additional information on corporate and other results in the financial supplement in Exhibit O. Our U.

[David Weinstock, CFO & Senior VP at Essent Group]

S. Mortgage insurance portfolio ended the first quarter with insurance in force of $244,700,000,000 an increase of $1,000,000,000 from December 31 and an increase of $6,200,000,000 or 2.6% compared to $238,500,000,000 at 03/31/2024. Persistency at 03/31/2025 was 85.7% unchanged from the fourth quarter. Mortgage insurance net premium earned for the first quarter of twenty twenty five was $234,000,000 and included $15,500,000 of premiums earned by Essent Re on our third party business. The average base premium rate for The U.

[David Weinstock, CFO & Senior VP at Essent Group]

S. Mortgage insurance portfolio for the first quarter was 41 basis points consistent with last quarter. And the average net premium rate was 36 basis points for the first quarter of twenty twenty five, increasing one basis point from last quarter. Our mortgage insurance provision for losses and loss adjustment expenses was $30,700,000 in the first quarter of twenty twenty five compared to $37,300,000 in the fourth quarter of twenty twenty four. As a reminder, our fourth quarter provision included $8,000,000 for defaults that we identified as related to Hurricanes Helene and Milton.

[David Weinstock, CFO & Senior VP at Essent Group]

While we observed a decline in the number of hurricane related defaults in the first quarter due to cure activity, We made no changes in the reserve for hurricane related defaults as this amount continues to be our best estimate of the ultimate lawsuits being incurred for claims associated with those defaults. At March 31, the default rate on The U. S. Mortgage insurance portfolio was 2.19%, down eight basis points from 2.27% at 12/31/2024. Mortgage insurance operating expenses in the first quarter were $43,600,000 and the expense ratio was 18.7% compared to $39,900,000 and 17.5% in the fourth quarter.

[David Weinstock, CFO & Senior VP at Essent Group]

For the full year 2024, operating expenses for the mortgage insurance segment totaled $160,000,000 We estimate that other underwriting and operating expenses for the mortgage insurance segment will be between $160,000,000 and $165,000,000 for the full year 2025. In April, we entered into two excess of loss transactions effective July 1 of each year with panels of highly rated reinsurers to cover our 2025 and 2026 new insurance written. These transactions complement the two quota share transactions closed in the first quarter and we continue to be encouraged by the strong demand from reinsurers for taking mortgage credit risk. In addition, in April, we decided to increase the ceding percentage of our affiliate quota share from 35% to 50% to further leverage our Bermuda platform. This increased session to Essent Re will be effective in the second quarter and will be retroactive to NIW starting from 01/01/2025.

[David Weinstock, CFO & Senior VP at Essent Group]

At March 31, Essent Guaranty's PMIER sufficiency ratio was strong at 172% with $1,500,000,000 in excess available assets. Consolidated net investment income increased $1,700,000 or 3% to $58,200,000 in the first quarter of twenty twenty five compared to last quarter due primarily to a modest increase in overall portfolio yield. As Mark noted, our holding company liquidity remains strong and includes $500,000,000 of undrawn revolver capacity under our committed credit facility. At March 31, we had $500,000,000 of senior unsecured notes outstanding with a debt to capital ratio of 8%. During the first quarter, Essent Guaranty paid a dividend of $65,000,000 to its U.

[David Weinstock, CFO & Senior VP at Essent Group]

S. Holding company. Based on unassigned surplus at March 31, Guaranty can pay additional ordinary dividends of $4.00 $5,000,000 in 2025. At quarter end, Essent Guaranty's statutory capital was $3,600,000,000 with a risk to capital ratio of 9.6 to one. Note that statutory capital includes $2,500,000,000 of contingency reserves at March 31.

[David Weinstock, CFO & Senior VP at Essent Group]

During the first quarter, Essent Re paid a dividend of $100,000,000 to Essent Group. Also in the quarter, Essent Group paid cash dividends totaling $31,700,000 to shareholders, and we repurchased 2,800,000.0 shares for $157,000,000 In April 2025, we repurchased 1,100,000.0 shares for $61,000,000 Now let me turn the call back over to Mark.

[Mark Casale, Chairman and CEO at Essent Group]

Thanks, Dave. In closing, we are pleased with our first quarter financial results as Essent continues to generate high quality earnings while our balance sheet and liquidity remains strong. Our outlook for housing remains constructive over the long term and we believe that Essent is well positioned to navigate the current environment given the strength of our buy, manage and distribute operating model. Our strong earnings and cash flow continue to provide us with an opportunity to balance investing in our business and returning capital to shareholders. We believe this approach is in the best long term interest of Essent and our stakeholders while Essent continues to play an integral role in supporting affordable and sustainable homeownership.

[Mark Casale, Chairman and CEO at Essent Group]

Now let's get to your questions. Operator?

[Operator]

Our first question will come from the line of Rick Shane with JPMorgan. Please go ahead.

[Richard Shane, Analyst at JP Morgan]

Hey guys, thanks for taking my questions this morning. Look, March, April have been unprecedented months in terms of volatility, in terms of some of the behaviors we've seen. When you think about where we are in the affordability cycle for homeownership, particularly for first time homebuyers, do you think we are potentially reaching an inflection point where things will start to come the way of the consumer a little bit more? Or do you remain a little bit more cautious? And then delving a little bit more deeply into that, are there certain geographies where you are particularly optimistic or particularly cautious?

[Richard Shane, Analyst at JP Morgan]

And how do you adjust for that within your rate

[Richard Shane, Analyst at JP Morgan]

cards?

[Mark Casale, Chairman and CEO at Essent Group]

Hey, Rick. Good morning. Thanks for the questions. I think the first one on affordability, I'm not sure where we are in the cycle. And remember, just in context, we've had this anomaly, right?

[Mark Casale, Chairman and CEO at Essent Group]

We had the COVID anomaly with super low rates, you know, and everyone just buying stuff, houses, boats, cars, bicycles. It drove up HPA 40% in some markets, 60% in others. And then boom, in the middle of twenty twenty two rates shot up and in a way just froze people. They call it the golden handcuffs people with 3% mortgage rates. And they stayed elevated rates went up.

[Mark Casale, Chairman and CEO at Essent Group]

And so this has really resulted in affordability because incomes didn't really grow and now you have higher home prices and higher rates. It really has created this second anomaly that we're still in. Fortunately for Essent, we're well positioned for this environment. We saw tailwinds in investment yields and we've seen unprecedented persistency. In addition to still driving business and uniquely Rick, the quality of borrower we're getting in this environment is actually quite good because of the affordability issues.

[Mark Casale, Chairman and CEO at Essent Group]

Only the best kind of qualify. I do think and I said this before, it's so when you think about our insurance in force, it's relatively flattish which drives a lot of what I'll call free cash flow to the bottom line. So again, we're well positioned. But this next cycle will really play out or end when incomes catch up. And I think when incomes catch up, I don't really see rates going anywhere.

[Mark Casale, Chairman and CEO at Essent Group]

I could see pockets of HPA declining, which I think is relatively healthy. But the consumer really is going to have to catch up. And then you're going have life events, right? You're going to have people getting married, more homeownership formation, having more children, death, divorce, all those sort of things that will unlock some supply. But here's a great metric for where I think the market is a little bit stuck.

[Mark Casale, Chairman and CEO at Essent Group]

The average age of the first time homeowner is 38. That tells me there's a lot of pent up demand for housing. So growth in our portfolio will renew. And longer term Rick for Essent and for the other mortgage insurers, we're going to grow the way housing grows in this country and it's always grown. It doesn't always grow in a straight line.

[Mark Casale, Chairman and CEO at Essent Group]

That's why when we say longer term we're constructive that we've been able to kind of wait this period continue to generate strong returns. The only problem I have is I'm not sure when that's going to happen. Don't think it's going to happen this year, but I think we're getting closer to it. I think on your location standpoint, I would say we with our pricing model and remember we have two parts to it. There's the engine the credit engine part of it S and Edge and then we just have the ability to electronically deliver pricing.

[Mark Casale, Chairman and CEO at Essent Group]

That allows us to kind of make a lot numerous pricing changes. We've actually raised pricing in certain markets during the first part of the year really trying to test pricing elasticity where we may have a larger share in certain markets. Generally, we're more concentrated in areas where there's a lot more population growth. If you look at our segment, we tend to like places where people are moving to and jobs are moving to. And so we're more I would say we're a little bit more invested there.

[Mark Casale, Chairman and CEO at Essent Group]

That being said you're always trying to get more price in certain areas and then other places you're backing off. So we look at it that way. And again like I said in the earlier part pockets of HPA decline I do think longer term are healthy for the market.

[Richard Shane, Analyst at JP Morgan]

Got it. No, it's been such an interesting cycle and one of the things that we always talk about on our team is that not every cycle can be unprecedented. I'm hoping that eventually we're going to be right on that. It's been sort of from unprecedented to unprecedented to unprecedented, it's almost exhausting. Thank you for your answers.

[Mark Casale, Chairman and CEO at Essent Group]

You're welcome. Hang in there.

[Operator]

Our next question will come from the line of Terry Ma with Barclays. Please go ahead.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Hey, thank you. Good morning. Mark, I'm just curious, just given all the uncertainty around macro and the headlines around tariffs, I'm just curious to think to get how you're thinking about managing risk overall. And, like, have you done anything on the pricing or underwriting side? And at what point will you do so, to kind of adjust for that?

[Mark Casale, Chairman and CEO at Essent Group]

It's a good question, Terry. I would say we have, like I said earlier, we've raised pricing in the first quarter in certain markets, but that was more micro oriented so to speak around pricing elasticity. I think on a macro standpoint, we're in a little bit of a wait and see with the impact of tariffs. So to give you some kind of background in terms of our pricing, we generally price through the cycle, right, which could mean good environments and bad environments. We don't particularly look and say well we think the next three months could be challenging therefore we're going to change our pricing.

[Mark Casale, Chairman and CEO at Essent Group]

Just like we don't look and say well the market is going to be great for the next six months so let's lower our pricing. So you have to kind of think it through the cycle. I think there's going to need to be a catalyst an event, right? Tariffs could be an event. COVID was an event.

[Mark Casale, Chairman and CEO at Essent Group]

And when COVID was an event, we could see that the economy was going to slow considerably and that our pricing through this cycle was going to have to change. And we along with all the mortgage insurers, we're able to change our pricing very quickly. Again, another advantage for the engine. But right now, we're not seeing it. And we'll we're going have to wait to see how it plays out, right?

[Mark Casale, Chairman and CEO at Essent Group]

I mean, there's obviously a lot of puts and takes. But right now, there's no real changes on the pricing front.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Got it. That's helpful. And then just more broadly speaking, how are you thinking about credit loss expectations? I think you pointed toward a 2% to 3% default rate as still being within expectations last quarter. Is that still the case?

[Mark Casale, Chairman and CEO at Essent Group]

Yeah. Very much so. Right? I mean, I think we're in the lower end of that right now. And we may not hit three depending on where defaults come into the back half of the year.

[Mark Casale, Chairman and CEO at Essent Group]

They tend to increase a little bit more in the back half of the year. And Terry, it's a little bit of just math, right? I mean roughly 800,000 loans and close to 18,000 defaults. You can kind of do the math and see what the percentage is. I would look two things to note there.

[Mark Casale, Chairman and CEO at Essent Group]

One, big picture, we really are we own that first loss piece. We hedge out the mezz and we kind of reattach at the cat. So we don't get too kind of upset or fluxed around this kind of between two and three. And second, we provide the provision when they miss two payments. But depending on the vintage and the build in kind of HPA, they may not necessarily result in a claim.

[Mark Casale, Chairman and CEO at Essent Group]

I mean we provide for that because that's our expectations within our model. But as you've seen in the past people the severity or they end up selling the house and we don't pay a claim. So I wouldn't necessarily jump to a default rate necessarily leading to cash out the door for us. That's really what it comes down to is do we write a check and pay a claim. To date we haven't really done much of that.

[Operator]

Our

[Operator]

next question comes from the line of Bose George with KBW. Please go ahead.

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

Hey guys, good morning. In terms of buybacks, maybe I missed this, but how much of the buybacks occurred in the first quarter versus April?

[David Weinstock, CFO & Senior VP at Essent Group]

Hey Bose, is Dave Weinstock. Dollars one hundred and fifty seven million of the buybacks were in the first quarter. And then we purchased about 1,000,000 shares for actually, we purchased 1,100,000.0 shares for $61,000,000 So it's 2,800,000.0 shares for $157,000,000 in the first quarter and 1,100,000.0 shares for $61,000,000 in April.

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

Okay, great. Thanks a lot. And then just with the comment you made about the new 50% seeding to S and Re. In terms of the tax rate, so I assume the tax rate on the incremental piece goes down over the next few years. And then can you just remind us, in 02/1930, does everything just bounce back to the domestic rate?

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

Or is there some sort of phasing at that point as well?

[David Weinstock, CFO & Senior VP at Essent Group]

Yes. No, Bose, you're right that the incremental will be we currently are as we had talked about in prior calls, we have this limited international presence exemption where we are not paying taxes in Bermuda until 02/1930. But then once that exemption expires and beginning in 02/1930, we would expect to pay the 15% tax on earnings in Bermuda.

[Mark Casale, Chairman and CEO at Essent Group]

And the other thing to note though is just on the change in the affiliate is a little bit of makes it more efficient to move cash from Guaranty to the HoldCo given that where the HoldCo sits in Bermuda. So that was another part of the thinking. It wasn't necessarily to drive a lower tax rate. It could be a little bit lower, but really the efficiency of cash and capital management was a driver there.

[David Weinstock, CFO & Senior VP at Essent Group]

Yes. And just to add on what Mark said, because we're talking about really just the incremental piece on the current year's NIW, it's not going to really have any dramatic impact on this year's effective tax rate.

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

Yes. Yes. Makes sense. Okay. Great.

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

Thanks a lot.

[Operator]

Our next question will come from the line of Maher Bhatia with Bank of America. Please go ahead.

[Mihir Bhatia, Analyst at Bank of America]

Hi. Good morning. Thank you for taking my question. Wanted to start actually going back to comment on pricing and just unit economics in general. I think, Mark, you mentioned you're still happy with new unit economics on NIW.

[Mihir Bhatia, Analyst at Bank of America]

But, Billy, just like, you know, taking a step back, big picture, how have unit economics on new business changed and call it the last two or three years? Obviously, interest rates are up. Sounds like you've done some micro movements around pricing, but overall, the gross premium rate has been in this forty, forty one bps range for ten quarters. Just trying to think about how unit economics have changed, if at all, in the last two, three years between interest rates and your credit expectations or your view on forward credit. Thanks.

[Mark Casale, Chairman and CEO at Essent Group]

Yes. It's a good question. I would say pricing in general have been the unit economics have been pretty steady. I would say they've probably increased in the back half of 2022 when there was a movement. I think we raised pricing in our engines across different MSAs 12 plus times in 2022.

[Mark Casale, Chairman and CEO at Essent Group]

And so you don't necessarily see it on the yield on the book as it moves slower. But I would say in the engine itself, we probably raised pricing 30 ish percent, if not more. So so the overall pricing on NIW increased pretty significantly. And again, there was a little bit more risk, right, because you had higher LTVs and higher DTIs on some of that 2022 business given some of the affordability issues. But I would say in general, the unit economics have been strong.

[Mark Casale, Chairman and CEO at Essent Group]

We kind of target that 12 to 14 ish range. And I would say that's probably on the high end of the range from here. And I think that's it's important for investors to think through that. There's a difference between because if you write good unit economics that eventually will show up in your P and L. And conversely if you write poor unit economics that will show up.

[Mark Casale, Chairman and CEO at Essent Group]

But for investors at Essen it's important to differentiate between the unit economics that we're writing and and kind of the core ROE that's on the balance sheet. The ROE in the balance for the GAAP ROE, there's drivers to that. It's equity and excess capital and so certain things. You almost want to say what's you want to create what's difference between the unit economics and the ROE on the balance sheet. Of course, the ROE that you print and the GAAP is the real ROE, but we're there's some optionality for us in retaining that capital.

[Mark Casale, Chairman and CEO at Essent Group]

And it's a very powerful optionality. And you have to again take a context from a longer term investment, not quarter to quarter, we operate in a cat business. Our catastrophe happens to be a severe economic recession. We do a lot of things. We manage that expected loss very well to the extent we can.

[Mark Casale, Chairman and CEO at Essent Group]

We hedge out a lot of the mezz that we could reattach. And that's why we run all these different stresses. And we as just as a management team and you saw we bought back I would say we bought back more shares in the last four months than we have in the history of Essent. Part of that was we just were valuation sensitive. We saw opportunity.

[Mark Casale, Chairman and CEO at Essent Group]

We think the market kind of is overreacts to certain things and that's fine. Having capital allows us to kind of lean in a little bit when we saw some value. And again, writing unit economics at 12% to 14% when your stock's trading at bookish or even below book, it was a pretty easy decision. But again, longer term, it's important we like the optionality of capital because I think it gives us both opportunities defensive here right if something bad happens. And I was on a call with all of our investors in February of twenty twenty when people were questioning our growth.

[Mark Casale, Chairman and CEO at Essent Group]

And then a month later everyone's wondering if we're going to run out of capital. So and I've seen the movie before. I've managed the mortgage insurer during the great financial crisis. I've been around through the subprime crisis in late '90s. I have a lot of scars and I've seen a lot of this.

[Mark Casale, Chairman and CEO at Essent Group]

So I have a longer term perspective with it. And I just believe capital having that in times of stress will allow us it will be a big advantage for Essent. We'll be able to take advantage of an opportunity versus being defensive. And if that doesn't ever happen, okay, that's not the worst thing. And then conversely, there's strategic opportunities on the growth side.

[Mark Casale, Chairman and CEO at Essent Group]

And again, you haven't heard me say this in a while, but with six mortgage insurers and two large mortgage companies consolidating in a slow market, you guys can kind of think through that consolidation isn't the worst answer for investors, right? If you're thinking of uses of excess capital, putting two large mortgage insurers together is not the worst answer for investors. So we kind of think through a lot of that optionality. And again, I know you asked a pricing question, but I I that's so when you see what's the gaps, Mark, you guys have 14 ish percent unit economics and you're printing 12, you know, what's the difference? It's that optionality of holding the capital.

[Mihir Bhatia, Analyst at Bank of America]

Right. Right. No. It makes sense. That that that makes sense.

[Mihir Bhatia, Analyst at Bank of America]

You're talking about capital allocation. I did wanna touch on the title business. You've owned it for a little bit now. Any changes on your view of the opportunity there? Give us an update on what just what's going on with that business and how you're thinking about it here as interest rates stay higher for longer.

[Mihir Bhatia, Analyst at Bank of America]

Thank you.

[Mark Casale, Chairman and CEO at Essent Group]

Yeah. I it's it's it's interesting. Right? I think when you take a step back at Essent, the issue we have is we're in this pause for growth. In MI, we're very well positioned for it.

[Mark Casale, Chairman and CEO at Essent Group]

Title is a transaction business. It's one of the reasons we're able to purchase it at such a good price, right? It was we were we did it when rates were already up and you could see on the horizon that it was going to be pretty slow. So I don't want to say it's relatively expected. Again, when we think about the business longer term, we do believe it's going to perform a lot like S and Re which is supplemental earnings.

[Mark Casale, Chairman and CEO at Essent Group]

The difference between Essent Re and title is there's really no capital against title. So it's relatively ROE accretive. That being said, we had a lot to do in terms of bringing the unit into Essent. I believe now we're in a good position. We have a good management team.

[Mark Casale, Chairman and CEO at Essent Group]

We have a strong leader, which we didn't have before. And I think we're relatively positioned and we want to be positioned so when rates come down and that means activating more lenders. A lot of things that we did on the MI side and quite frankly we have work to do. We continue to have work to do to sign up lenders and to continue to sign up agents. But I would say with the title again that's building businesses takes time.

[Mark Casale, Chairman and CEO at Essent Group]

And I think I look at this more almost like an investor and I feel like we're doing the right things in title at this time. And and and then in terms of just the management team here, and this is, you know, for investors, I don't I have not spent much time on title, probably in the past six to nine months. It's really been that team is in place, and I think that's why I have, you know, some comfort in in how they're going to perform.

[Mihir Bhatia, Analyst at Bank of America]

Understood. Thank you for taking my questions.

[Operator]

Our next question comes from the line of Jeffrey Dunn with Dowling and Partners. Please go ahead.

[Geoffrey Dunn, Partner at Dowling & Partners]

Thanks. Good morning. Given what you mentioned about the efficiency of the higher ceded Bermuda, can you provide any guidance as to how we think about dividend flows from the underwriting companies up to the HoldCo? Is this something where I mean, you've been regular with the guarantee dividends. Is that something where that probably drops below 50 on a quarterly cadence, and we see more recurring higher dividends out of S and P?

[Geoffrey Dunn, Partner at Dowling & Partners]

Anything you can provide us to give us a little framework around that?

[David Weinstock, CFO & Senior VP at Essent Group]

Hey, Jeff. It's Dave Weinstock. Yeah. I don't know that I would think about the trade offs between necessarily Essent Guaranty and Essent Re. I think we look at both entities, and we try to think about the capital positions for both and the needs of the holding companies.

[David Weinstock, CFO & Senior VP at Essent Group]

So I think we'll continue to see dividends from both entities this year subject to obviously what happens in the environment, right? So right now with where credit is and things like that, you can see the continued kind of pattern that we've you can almost see a little bit of what we did in the first quarter playing out subject to the year playing out based on our expectations and credit kind of staying relatively stable. Yes.

[Mark Casale, Chairman and CEO at Essent Group]

And I think Jeff the way to look at it is we're going to continue maximize the dividends out of both entities, right? I think you can see whatever ordinary dividends we can get out of Guaranty we're getting out in Guaranty. We're kind of pushing as much to HoldCo as we can. The difference is when it goes to U. S.

[Mark Casale, Chairman and CEO at Essent Group]

Holdings we have to run it through different entities from a tax rate to get it to the group. So think of it the more we can just do the reinsurance, it just gets it right to REIT. And then it's a little bit more frictionless getting it to the group. So I don't know how you can model it much differently. I think you'll see it a little bit over time.

[Mark Casale, Chairman and CEO at Essent Group]

It's a little bit of again as you get to be a larger company and some of these things a little bit of sweeping out the corners and trying to be more efficient that way. But it's really not going to change. The bigger decision is, are we going to do a special dividend out of guarantee and that's really the only other way to get capital. At this point, it's not really in the cards, but it's certainly a lever that we could pull if we had the opportunity. We would really need the opportunity to put that capital to work to do that.

[Geoffrey Dunn, Partner at Dowling & Partners]

All right. And I don't want to try to take it too literally, but if you're maximizing dividends, does that mean you're aiming to take another $4.00 $5,000,000 out of Guaranty this year?

[David Weinstock, CFO & Senior VP at Essent Group]

Yes. With what we have left, there are some

[Mark Casale, Chairman and CEO at Essent Group]

Assuming credit stays relatively benign.

[David Weinstock, CFO & Senior VP at Essent Group]

Right. Yes. I think that's a reasonable way to look at it. To Mark's comment, we would think over the balance of the year with credit staying benign that we would try to maximize that. Yes.

[Geoffrey Dunn, Partner at Dowling & Partners]

Okay. Thanks.

[Operator]

That will conclude our question and answer session. I'll turn the call back over to management for any closing comments.

[Mark Casale, Chairman and CEO at Essent Group]

Thanks, everyone, for participating today, and have a great weekend.

[Operator]

Thank you all for joining today's call. You may now disconnect.

Participants

Executives

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

Analysts

• David Weinstock, CFO & Senior VP at Essent Group
• Richard Shane, Analyst at JP Morgan
• Terry Ma, Senior Equity Research Analyst at Barclays
• Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)
• Mihir Bhatia, Analyst at Bank of America
• Geoffrey Dunn, Partner at Dowling & Partners