Essent Group Q2 2025 Earnings Report

Essent Group EPS Results

• Actual EPS: $1.93
• Consensus EPS: $1.68
• Beat/Miss: Beat by +$0.25
• One Year Ago EPS: $1.91

Essent Group Revenue Results

• Actual Revenue: $319.14 million
• Expected Revenue: $317.46 million
• Beat/Miss: Beat by +$1.68 million
• YoY Revenue Growth: +2.00%

Essent Group Announcement Details

• Quarter: Q2 2025
• Date: 8/8/2025
• Time: Before Market Opens
• Conference Call Date: Friday, August 8, 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 Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: We reported strong Q2 results with net income of $195 M, EPS of $1.93, a 14% annualized ROE, 3% growth in insurance-in-force to $247 B, and robust credit metrics (Wtd. FICO 746, LTV 93%, 86% persistency).
• Positive Sentiment: Our balance sheet and liquidity remain solid with $6.4 B of cash and investments, $5.7 B in GAAP equity, $1.4 B of excess loss reinsurance, a 176% PMIER sufficiency ratio, and recent Moody’s upgrades (Guaranty IFS to A2, senior debt to Baa2).
• Positive Sentiment: We continue returning capital with a $0.31 quarterly dividend and nearly 7 M shares repurchased YTD (~$390 M), including $171 M in Q2, reflecting confidence in our valuation and cash flow generation.
• Positive Sentiment: Favorable macro trends include elevated mortgage rates supporting persistency and investment income (3.9% yield, ~5% new money), a Q2 default rate decline to 2.12%, and increased embedded equity cushioning portfolio risk.
• Neutral Sentiment: Segment updates show Essent Re growing its GSE and risk-share book to $2.3 B in force for diversification, while Essent Title expands market presence but is not expected to materially impact near-term earnings.

Presentation

[Operator]

Hello, and thank you for standing by. My name is Pryla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Limited Second Quarter Earnings 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]

Question speakers' there Thank you. I would now like to hand the conference over to Phil Stefano, Investor Relations. Please go ahead.

[Philip Stefano, VP - IR at Essent Group]

Thank you, Pryla. 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 Curran, President of Essent Guaranty. Our press release, which contains Essent's financial results for the 2025, was issued earlier today and is available on our website at essentgroup.com.

[Philip Stefano, VP - IR 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 02/19/2025, 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, Founder, Chairman & CEO at Essent Group]

Thanks, Bill, good morning, everyone. Earlier today, we released our second quarter twenty twenty five financial results, which continue to benefit from favorable credit performance and the impact of higher interest rates on persistency and investment income. Our second quarter performance demonstrates the strength of our business model in the current macroeconomic environment. We believe that our buy, manage and distribute operating model uniquely positions Essent within a range of economic scenarios to generate high quality earnings. Our outlook on housing remains constructive over the longer term as we believe that demographics will continue to drive demand and provide home price support.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Over the last several years, demand has exceeded supply resulting in meaningful home price appreciation and affordability challenges. A byproduct of these affordability issues is that higher credit worthy borrowers are being qualified for mortgages as evidenced by the weighted average credit score of our new business. Also the increase in home value has resulted in further embedded equity within our insured portfolio, which provides a level of protection in reducing the probability of loans transitioning from default to claim. And now for our results. For the 2025, we reported net income of $195,000,000 compared to $2.00 $4,000,000 a year ago.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

On a diluted per share basis, we earned $1.93 for the second quarter compared to $1.91 a year ago. On an annualized basis, our return on average equity was 14% in the quarter. As of June 30, our U. S. Mortgage insurance in force was $247,000,000,000 a 3% increase versus a year ago.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

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 June 30 was 86% flat from last quarter, while nearly 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. On the Washington industry continues to play a vital role in supporting a well functioning and sustainable housing finance system. We believe that access and affordability will continue to be the primary focus in D.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

C. Essent is supportive and believes that our industry is very effective in enabling homeownership for low down payment borrowers while also reducing taxpayer risk. During the quarter, Essent Re continued writing high quality GSE risk share business and earning advisory fees through its MGA business with a panel of reinsurer clients. As of June 30, Essent Re had risk in force of $2,300,000,000 for GSE and other risk share. Essent Re achieves both capital and tax efficiencies through its affiliate quota share with Essent Guaranty and allows us to leverage Essent's credit expertise beyond primary MI.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

It also provides a valuable platform for potential long term growth and diversification of the Essent franchise. Essent Title remains focused on expanding our client base footprint and production capabilities in key markets. We continue to maintain a long term horizon for this business and given persistent headwinds of high rates, we do not expect title to have any material impact on our earnings over the near term. Our consolidated cash and investments as of June 30 totaled $6,400,000,000 with an annualized investment yield in the second quarter of 3.9%. Our new money yield in the second quarter was nearly 5% holding largely stable over the past several quarters.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

We continue to operate from a position of strength with $5,700,000,000 in GAAP equity, access to $1,400,000,000 in excess of loss reinsurance and a PMIER sufficiency ratio of 176% With a trailing twelve month operating cash flow of $867,000,000 our franchise remains well positioned from an earnings, cash flow and balance sheet perspective. Earlier this week, we were pleased that Moody's upgraded Essent Guaranty's insurance financial strength rating to A2 and Essent Group's senior unsecured debt rating to Baa2. We believe these actions reflect our consistent strong results, high quality insured portfolio, financial flexibility and the benefits of our comprehensive reinsurance program. Our capital strategy is to maintain a conservative balance sheet, withstand a severe stress and preserve optionality for strategic growth opportunities. We continue to believe that success in our business is best measured by growth in book value per share as we look to optimize returns over the long term.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

In addition, our strong capital position and slowdown in portfolio growth allows us to be active in returning capital to shareholders. With that in mind, I am pleased to announce that our Board has approved a common dividend of $0.31 for the 2025. Further, year to date through July 31, we repurchased nearly 7,000,000 shares for approximately $390,000,000 Now let me turn the call over to Dave.

[David Weinstock, CFO & SVP at Essent Group]

Thanks Mark and good morning everyone. Let me review our results for the quarter in a little more detail. For the second quarter, we earned $1.93 per diluted share compared to $1.69 last quarter and $1.91 in the second quarter a year ago. My comments today are going to focus primarily on the results of our mortgage insurance segment, which aggregates our U. S.

[David Weinstock, CFO & SVP at Essent Group]

Mortgage insurance business and the GSE and other mortgage reinsurance business at our subsidiary Essent Re. There's additional information on corporate and other results in Exhibit O of the financial supplement. Our U. S. Mortgage insurance portfolio ended the the second quarter with insurance in force of $246,800,000,000 an increase of $2,100,000,000 from March 31 and an increase of $6,100,000,000 or 2.5% compared to $240,700,000,000 at 06/30/2024.

[David Weinstock, CFO & SVP at Essent Group]

Persistency at 06/30/2025 was 85.8%, essentially unchanged from the 2025. Mortgage insurance net premium earned for the 2025 was $234,000,000 and included $13,600,000 of premiums earned by Essent Re on our third party business. The average base premium rate for The U. S. Mortgage insurance portfolio for the second quarter was 41 basis points and the net average premium rate was 36 basis points, both consistent with last quarter.

[David Weinstock, CFO & SVP at Essent Group]

Our mortgage insurance provision for losses and loss adjustment expenses was $15,400,000 in the 2025 compared to $30,700,000 in the 2025 and a benefit of $1,200,000 in the second quarter a year ago. At June 30, the default rate on The U. S. Mortgage insurance portfolio was 2.12%, down seven basis points from 2.19% at 03/31/2025. While we continue to observe a decline in the number of defaults associated with Hurricanes Helene and Milton during the second quarter due to cure activity, we made no changes to the reserve for hurricane related defaults as this amount continues to be our best estimate of ultimate losses to be incurred for claims associated with those defaults.

[David Weinstock, CFO & SVP at Essent Group]

Mortgage insurance operating expenses in the second quarter were $36,300,000 and the expense ratio was 15.5% compared to $43,600,000 and 18.7% in the first quarter. As a reminder, in April, we entered into two excess of loss transactions covering our twenty twenty five and 2026 new insurance written effective July 1 of each year with panels of highly rated reinsurance. In addition, in April, seating percentage of our affiliate quota share with Essent Re increased from 35% to 50% retroactive to NIW starting from 01/01/2025. At June 30, Essent Guaranty's PMIER sufficiency ratio was strong at 176% with $1,600,000,000 in excess available assets. Consolidated net investment income increased $1,100,000 or 2% to $59,300,000 in the 2025 compared to last quarter due primarily to a modest increase in the overall yield of the portfolio.

[David Weinstock, CFO & SVP at Essent Group]

As Mark noted, our total holding company liquidity remains strong and includes $500,000,000 of undrawn revolver capacity under our committed credit facility. At June 30, we had $500,000,000 of senior unsecured notes outstanding and our debt to capital ratio was 8%. During the second quarter, Essent Guaranty paid a dividend of $65,000,000 to its U. S. Holding company.

[David Weinstock, CFO & SVP at Essent Group]

As of July 1, Essent Guaranty can pay additional ordinary dividends of $366,000,000 in 2025. At quarter end, Essent Guaranty's statutory capital was $3,700,000,000 with a risk to capital ratio of 9.2 to one. Note that statutory capital includes $2,600,000,000 of contingency reserves at June 30. During the second quarter, Essent Re paid a dividend of $120,000,000 to Essent Group. Also in the quarter, Essent Group paid cash dividends totaling $30,900,000 to shareholders and we repurchased 3,000,000 shares for $171,000,000 In July 2025, we repurchased 1,000,000 shares for $59,000,000 Now let me turn the call back over to Mark.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Thanks, Dave. In closing, we are pleased with our second 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 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. Now let's get to your questions. Operator?

[Operator]

Thank you. We will now begin the question and answer session. And your first question comes from the line of Terry Ma with Barclays. Please go ahead.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Hey, thank you. Good morning. I wanted to ask about home prices and your expectations going forward. To the extent home prices kind of trend negative, how do you think about pricing And then second, how would you feel about the more recent vintages that the industry has underwritten, which has seen just less home price appreciation overall?

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Good morning, Terry. I think on home price appreciation, where do we see home prices going? Well, it really depends down at the MSA level. So I mean we have a pretty detailed forward looking model across all of the MSAs. Puts a lot of I would say the driving factors are clearly month supply, recent home price appreciation and job growth, right?

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Those are kind of three factors if you just kind of boil it down to a local community. And I think there, yes, we see home prices going up in certain areas still because of the lack of supply. Other areas, we think there's going be some weakening. And we thought that for a while. And it depends on the extent of it, five ish, 10 ish percent maybe in certain markets.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

I think when we take a step back, that's actually pretty good. It's healthy. Some of the markets have really increased rapidly, I think almost a 50% increase over a few year period. Income growth still at 34% and then you had a doubling of rates. So that's why you've seen such kind of slowdown in housing, right?

[Mark Casale, Founder, Chairman & CEO at Essent Group]

We're kind of coming out of that. You've heard me say it before the COVID bubble so to speak with low rates high demand. And we're kind of on the second leg of that. So I think coming out of that, if you think of just affordability when it becomes kind of normalized again, you're going to need a mix of job growth, HPA kind of flattening out or decreasing in certain areas and clearly a little bit of relief on rates, right? And that's and you can almost draw the math up as to depending on where your belief is on rates.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

I think again, I think so for in certain markets for home prices to come down, I think that's healthy for borrowers. You heard me say it in the script. I mean there's a big issue. There's a big push in D. C.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Around affordability. There's a big push with our lenders as it should be. It's very difficult to get a mortgage and especially when you think of the first time homebuyer is 38 years old and historically it's in the low 30s. That tells you right there that folks are having trouble getting home. So anything to kind of help affordability and if that means HPA is going down a little bit that's fine.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

I look at the embedded equity in our portfolio. I'm not particularly worried. Yes, you said the recent vintages. I would say sure that we've always said they're probably more exposed, but they're pretty normal, right? So if you think about historically Terry kind of on average kind of let's say before COVID and you looked at our portfolio it was probably 8182% mark to market.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

It's below that today. So assuming it gets back to that level that's the normal business. So we're not particularly concerned kind of around that. In terms of new business, we always price differently. So we kind of have little add ons for what we'll call market of focus.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

And that again has to be it's not just HPA. Rose a lot puts a market of focus for us. If there's still underlying strong income growth and kind of lack of supply that kind of we'll probably like that market. And if you just think about all of our markets in general, if you go down to the MSA level and you'll hear about Cape Coral's in The Wall Street Journal and you should stay away from it. The default rates in that area for us are pretty similar to the rest of our portfolio.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

I want to say it's a touch higher. Go to Austin, our default rate is actually lower than the overall portfolio. So you have to be careful in kind of trying to look at the industry from a 30,000 foot level. I think when you look at individually at Essent, I think continually the returns are there. And obviously when you think about how what we're doing on the capital side, I think we probably have a pretty good sense of where our our view around credit.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Got it. Super helpful. And I guess maybe on just credit for the quarter. New defaults were up 9% year over year. The pace of increase has kind of decelerated markedly the last few quarters.

[Terry Ma, Senior Equity Research Analyst at Barclays]

It seems like it's pretty consistent across the MIs that I cover. So I guess any color on the makeup of new defaults that you've seen the last quarter or two? And I guess what's the outlook there? Thank you.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Yes. Mean, again, new defaults, nothing surprising. I mean, consistent with our other quarters. And just again from an investor standpoint you just have to understand that's really this we're starting to get back to probably the normal seasoning pattern around defaults where you see it kind of decrease in the first half of the year and tends to pick up a little bit in the second half of the year. So there's kind of a normal seasoning that folks should be aware of.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

But it happened last year and it seemed to catch everyone by surprise that our default seasons and then now they're kind they decrease in the first half of the year. But I think you'll see that normal seasoning. Big picture, Terry, again it's two ish, one point was it 2.12% default out of roughly $811,000 or $12,000 loans that we have. So again, it ebbs and flows a little bit. But I think big picture given the embedded equity in the portfolio having some of those even if they become the false transitioning the claim depending on the vintage is it's probably in a lower probability side. So again, I think from a credit standpoint, big picture, we feel pretty good from that first loss perspective.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Got it. Thank you.

[Operator]

And your next question comes from the line of Bruce George with KBW. Please go ahead.

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

Hey, guys. Good morning. On the buybacks, would you characterize the pace of your buybacks this year as opportunistic? Or is there any change in how you're thinking about excess capital which is obviously built quite a bit over the last couple of years?

[Mark Casale, Founder, Chairman & CEO at Essent Group]

It's a little bit of both Bose. I think we've always I think we kind of have we are valuation sensitive around the buyback. So we kind of have a grid that we execute across. And it changes quarter to quarter depending where we think credit is, are there any opportunities to invest the cash, pretty high bar given the returns in the core business. And to your point, we said before we have a retained and invest mentality.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Well, we haven't really invested anything in a couple of years, so we've retained a lot. So it's a little bit of we have a lot of buildup of excess capital. We like where the valuation is. We think it's really good returns for the shareholders. So it's a good use of proceeds.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

And kind of given what we did in July, I wouldn't expect that to change for the remainder of the year. I wouldn't be surprised if it doesn't change given what we're looking at. And we'll have something else. It's probably going to be in an investor deck we'll put out next week around kind of the embedded value of the portfolio. One of our peers did it a couple of years ago and stopped doing it, but it's a really interesting kind of slide that I think it's important for analysts and investors to take a look at.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

And if you think about it will give you some context for how we think about the company, Bose. I mean, roughly 5,700,000,000 of capital that we have today. That's roughly where the stock trades in terms of a market cap. If you look it doesn't really give any credit meant for the roughly $245,000,000,000 insurance in force we have and that earns 40 basis points in yield. And you can kind of predict or you can assume a certain combined ratio over four to five years discounted back.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Take a look at the investment portfolio dollars 6,000,000,000, 6,500,000,000.0, yielding close to 4,000,000,000 A lot of embedded value in the investment portfolio of those that frankly wasn't there three, four years ago. So when you look at that number, you can be and you can pick whatever discount rate that you like. It's probably $15 to $20 in terms of stock, in terms of the valuation additional book value. So embedded book value. And that doesn't give us that doesn't that ignores any credit for being a platform or franchise that's one of six in the country that offers low down payment borrowers to the top lenders back with the GSEs.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

So again, just big picture, I don't it's a slide and I think it's something just for investors to be aware of. And I think it's something we're going to start thinking through and discussing with investors. It's pretty true for all of our competitors too. So it's not just an Essent only thing. And I think it deserves a little bit more of a spotlight.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

So I think when you put in the context of that and again given where the valuation is, we feel comfortable buying shares healthy amount of shares back at these prices.

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

That's great. Very helpful. Thanks. And then just one follow-up on the buybacks. What was the dollar amount that was spent just during the second quarter?

[David Weinstock, CFO & SVP at Essent Group]

Hey, Bo. This is Dave Weinstock. So we repurchased 3,000,000 shares at $171,000,000 in the second quarter.

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

Okay, great. Thank you.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Sure.

[Operator]

And your next question comes from the line of Doug Harter with UBS. Please go ahead.

[Douglas Harter, Equity Research Analyst at UBS Group]

Thanks and good morning. Mark, just I guess following up on that embedded value in the buyback, how are you thinking about sizing it? What are the limitations of you know, kind of cash flow up to the up to the holding company? You know, and and just how do you think about, you know, holding back for opportunities that, you know, may or may not present themselves versus, you know, kinda buying back today?

[Mark Casale, Founder, Chairman & CEO at Essent Group]

No. It's a good question. I think there's clearly a limit, right? I mean, and we have we get cash back to the group two ways, obviously, through U. S.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

And Holdings, which is the core. So we'll dividend it up from guarantee of the holdings and have to get it to group. Then we have S Re. So we've tended to use a little bit more S and Re recently. It's a little bit more tax efficient, Doug.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

But there is a limit. So when you think about kind of payout type ratios, I think 100 is probably is kind of the max just from kind of how the cash moves through the system. Not saying we would do that, but if you're looking at an upper end just over the net where it was kind of in the first half of the year, that's a decent level. In terms of how we calculate excess capital, we've gotten many questions over the years. PMIERs is certainly one.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

But we also look at it from an enterprise framework, right, because we include Essent Re in there. So we kind of look at it like consolidated capital requirements and needs. And we run it through different stress. I would say the Moody's S4 stress is one and the constant severity model that they use. Moody's obviously looked at both of those during the upgrade.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

So and I think that's important, right? So I think you have now another independent party looking at our balance sheet and our risk and detailed review of the stresses and feels comfortable now that we're at kind of single A level. I think that's good news for investors and clearly for bondholders. We'll also look at it. We're still running through the great financial crisis.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

We'll still run that. So you're always looking because remember we're that upper tier Doug, right? We own the first loss. We're very comfortable. That's why we don't get too stressed about default rates and the first loss.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

That's kind of what we signed up for. And it's much more it's clearly earnings versus capital. And then we hedge out that whole mezz piece. Our exposure is when it comes back to the top. And I think when we think about what comes back to the top, is the probability that low?

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Sure it is. But it was low low doesn't mean zero. So I think when we look at that environment, we're looking to make sure we clearly have enough more than enough capital from a PMIER standpoint. And remember how procyclical PMIERs is Doug. So there's a liquidity component of that to the MIs that I'm not sure all investors appreciate.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

So we run it through that. So not just capital, clearly P and L, but PMIERs too. So we want to make sure we have enough capital not to just withstand that, but basically to be maybe use it as an opportunity and opportunistic. So we had that chance in 2020. If you go back, we raised capital.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

We had plenty of capital. We wrote a lot more business than some of our competitors back then because we had the capital. We're still enjoying the cash flows of that today. So I think it's making sure we're just well positioned between we say like a range of economic scenarios, so we really don't get caught on our back foot. So again, clearly with the buybacks in the first half of the year, we feel comfortable around that scenario and still have the capital to return to shareholders.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

And Bose alluded to it. Some of it is just a buildup that's been over the last couple of years Doug. We have it and we're comfortable and we're fortunate and I say this and everyone wants their stock price up. If you're looking to buy shares back you kind of like the valuation that it's at. So we're not too stressed about that either. So hopefully that gives you a little color.

[Douglas Harter, Equity Research Analyst at UBS Group]

Very helpful, Mark. Thank you.

[Operator]

And your next question comes from the line of Rick Shine with JPMorgan.

[Richard Shane, Analyst at JP Morgan]

Hey, I'd like to dig in a little bit on the persistency. When we look at the persistency by vintage, there is some dispersion. The '23 vintage persistency was a little bit lower. That makes sense. Presumably, that is the cuspiest of the slightly seasoned vintages.

[Richard Shane, Analyst at JP Morgan]

And so you probably have borrowers there who are trying to take advantage of the refi window. The other two vintages that have persistency a little bit lower sequentially are 2020 and 2021. I'd like to delve in a little bit more on that. Is that just natural aging associated with those vintages? Should we expect regardless of rate that the persistency should trend down there?

[Richard Shane, Analyst at JP Morgan]

Or is it exogenous factors like borrowers taking seconds and the brokers you know, getting appraisals and and allowing borrowers to, within the the PMI.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Yeah. I mean, a lot to unpack there, Rick. I would say, which is a typical one of your insightful questions. I think when we think about persistency, a little bit of it depends on you didn't bring this up, but our persistency tends to be a little bit higher because we don't really place a lot in the lower kind of half of the high LTV like the 80 to 85. If you look at our if you kind of break our market share between 80 to 85, we may be the lowest in the industry. So having a bit of a higher LTV which clearly comes with more risk also helps a bit on the persistency side. I think on the earlier books 2021, I just think they're seasoning, right? And all of sudden now you're five years into it, especially folks who bought the house then, if their families are bigger, again, rates on all side, they're looking they could be looking to move up.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

So that doesn't that's pretty natural and that's happened over time as the portfolio seasons. I don't think it's seconds and I know there's a lot of noise around seconds. I do think seconds in home equities will become continue to increase as they should if someone is kind of locked into the 3% mortgage and they need another bedroom they get the home equity loan and in addition makes perfect sense. We haven't done it most recently, but I think the last time we did it 3% of our portfolio had seconds on it. So it's I wouldn't again back to reading big picture articles and assigning it into the MI portfolio.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

A little tougher to stick a second on an 85 or 90 LTV even if it has built in market. It's a lot of that's going to be on the traditional below 80 business for the GSE. So again, I think it is also interesting, Rick, just to point out again the strength of the business model. We got questions galore from 2014 to 2020 like especially 2018, might have been even in 2018 when rates went up like, geez Mark, how is your portfolio going to perform when rates increase? What's going to happen to asset when rates increase?

[Mark Casale, Founder, Chairman & CEO at Essent Group]

And we would say, hey, you know what, there's a hedge. NIW is going to go down, but persistency should stay elevated. And then clearly in 2022, it was a little bit of that on steroids, right, because we had that we got the lock in with a 3% rate and we got the added tailwind with investment income, which quite frankly we never saw coming. I mean, ran a business where our yields were below 2% for ten plus years. And every year we thought the yields would go up and they never did.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

And then we woke up one day and now they're at new money yields at five. I do think it's a reminder of the strength of the portfolio. So and kind of the business model. It's a unique business model in that we're we play in a space that we understand very well, but we're able to take that in insurance form and premium form. So there's a building kind of cash flow advantage to getting paid first.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

And now the next question we'll get as we should get is what happens when rates go down? What does that do? And I think it's the same thing Rick. It's going to be persistency is going to be lower in certain segments especially the newer segments right where that rates are in the 6s. But the renewed NIW is probably going to grow the portfolio.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

So we're I just don't know when that's going to be. I think you had asked me that a couple of years ago and we're still not sure the timing of it. A lot of gets back to that earlier question or comment around affordability. It has to reach kind of that medium level. And then I believe, I could be wrong, I've been wrong many times before, but I do believe there's a pent up demand for housing.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

And I think it's I think and it's ironic, but the longer this slowdown lasts, probably the more upside there'll be in housing between the return to housing and demand, which I think will bode well for the top line for Essent and the whole industry to be honest.

[Richard Shane, Analyst at JP Morgan]

No, it's fair. There's an interesting comment there, is you've been wrong many times. I appreciate the humility of that and acknowledge the number of times I've been wrong too. But I would argue that you built this portfolio not for being right, but actually for being wrong. And that's part of what you constructed here.

[Richard Shane, Analyst at JP Morgan]

I'm curious, this question is driven by something we saw earlier in the week. We have another company we follow that makes very, very short duration loans. And they are, because of that and the short term uncertainty, pulling back from originations. And if they miss a window of six months, given the twelve to eighteen month duration of their assets, they can recover that very quickly. And it made me think of you guys and how long the duration of your portfolio is.

[Richard Shane, Analyst at JP Morgan]

Are you willing to, when you see those have those concerns, take the risk of pulling back and knowing that for five years, will have a cohort that is underrepresented at the risk of being wrong?

[Mark Casale, Founder, Chairman & CEO at Essent Group]

I think it depends. I wouldn't say we wouldn't shy away from lower share, and we've done it in the past. I think we we probably you know, we we there's been records where we've been, you know, I think we've been top market share, like, twice in a quarter in our history, but we've been at the bottom more than twice. So we're not afraid to kind of make calls there. A lot of it's around pricing.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

And and it's also an interesting thing in our industry. There's a lot of, as you know and that's really the only competitive factor to the industry, Rick. We don't really have a lot of credit competition in the industry. And that goes back again to the guardrail setup. We've always called them the credit guardrails setup with the qualified mortgage rule, Fannie and Freddie with DU and LP.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

They did such a good job of segmenting risk. They do a great job around QC. We're kind of the beneficiaries of that as is the industry. There's not a lot of credit competition. And I think we haven't gotten a question.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

But if you think about GSE reform, like what happens if the GSEs go public? One, I think that helps us a lot more so than people think because I think it will bring a lot more liquidity into the space from an investor standpoint. It helped us on the CRT side kind of more visibility, probably more share, right, because they're going to start they'll do the buy, manage and distribute operating model, again, probably in much greater force. And they'll probably expand the market a little bit. And there's good and bad to that.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

It's good because higher top line. The bad is it could introduce some credit competition to the space and we haven't had that. And I think that's when you're going to make more calls on higher or lower share. Right now yielding price, we'll back off a little bit on price by the end of the day. If the returns are there, we're still there.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

If there's a lot of volatility around the loss assumptions, I think then you're going to see a lot more disparity in share. And we have an advantage there. And I don't think it's an advantage we've been able to leverage much. But when you think about our credit scoring engine as an edge and this comes in with a lot of there's been a lot of banter about with the scores, the Vantage scores and the new FICO score and all those sort of things. We look at the Royal Credit Bureau.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

So we're almost agnostic to the score. And we can and we use two bureaus, so we can we don't even need necessarily the third to be able to kind of triangulate and get the right price. If there's a lot of disparity in the market and let's say, I will use the analogy, Rick, of like a fairway. If that fairway starts to widen, all of our lenders will increase their volume, as they should. I would do the exact same thing.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

I think then when we look at our ability to discern between kind of a good 700 and a bad 700 and again if there's a lot of different scores flying around, I think it's even a bigger advantage for us. So again that may just that advantage may have us decide not to do some of the business versus to do the business. So again, not saying that market is going to happen, but I think that's as we think about we always think about multiple kind of scenarios and how we would react and position business kind of before it happens.

[Richard Shane, Analyst at JP Morgan]

Got it. Okay. I appreciate it very much. Thank you, guys.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

You're welcome.

[Operator]

Your next question comes from the line of Mihir Bhatia with Bank of America. Please go ahead.

[Mihir Bhatia, Analyst at Bank of America]

Hi. Good morning, and thank you for taking my questions. First, I just wanted to actually follow-up on the EssentEDGE point you just made, Mark. Specifically, I guess, EssentEDGE in the next generation has been out for a couple of years. Can you just talk a little bit about what you've seen so far?

[Mihir Bhatia, Analyst at Bank of America]

And I appreciate you saying that, you know, you haven't I guess, the outside, we haven't really been able to you know, we can't really tell given how low default rates are, how these engines are different. But maybe just talk a little bit about what you're seeing internally, and are you continuing to invest with us in there as adding, you know, or is it more just a matter of now we're getting all this data and it's just waiting for the fairway to widen as you mentioned?

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Yeah. I would say we we haven't made a ton of investment on it over the last twelve months once we got we got you know, we did a lot to get that second credit bureau in. So, clearly, with some of the noise around the industry with with with the TriMerge and things like that, may make the investment to get the third bureau clearly. And I've gone the whole call without saying AI, which seems to be the banter for most companies, not our industry, but others. The technology there has increased so much just even over the last six months.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

So we're seeing more opportunities to use it within our IT group and other areas to speed things up to market. I think that's you saw some of the lenders announce some things which we've been watching. So there's some things there that we potentially could use to improve it over time, which I don't know if I necessarily would have said that a year ago. I thought we felt pretty comfortable with it a year ago. And you're right.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

So I think you're going to need some disparity in credit for it to really shine. The one way for people to look at it today for investors to look at it today, Migir, is look at our earned premium yield, right? Our earned premium yield is higher than the rest of the industry. And what does that tell you? And our defaults are relatively the same.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

It says we're able to get a little bit extra yield, okay? What's a basis point or two? Two basis points on $245,000,000,000 adds up. So I would I think there, if you're from the outside looking in, that's probably the most that's probably the best evidence of kind of the success of how the credit engine works. And again, remember, it's just a credit engine.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

We'll use that then to kind of create price using an old kind of fashion yield analysis. In there, the price is a little bit you know, you're testing pricing elasticity in certain markets where you you can get a little bit more price. So think of it more as a, you know, as a way to get value for an individual loan.

[Mihir Bhatia, Analyst at Bank of America]

No. That is helpful, and it's certainly something we see in the data. You mentioned AI. And I my second question actually does relate to AI, but almost like from a little bit of a threat to your business and maybe not a threat, actually. I was trying to understand the implications.

[Mihir Bhatia, Analyst at Bank of America]

But, specifically, I'm talking about, today, borrowers getting an appraisal and canceling MI. My understanding is that is not super common. But as more and more data moves to the crowd, fintechs in a way trying to build these personal finance recommendations, do you worry about that becoming something that becomes more common where borrowers ask to go get an appraisal and cancel MI from existing policies, how would that something like that impact your business and returns?

[Mark Casale, Founder, Chairman & CEO at Essent Group]

Yeah. I mean, it's it's it's it's been kind of you know, it's been discussion, over the last five years ever since kind of rates went down. It's not very common in the business. And and part of it is that there's there's clearly friction to it, for sure, Mihir, but a lot of the major servicers do it. They do notify the borrowers.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

So the borrowers are aware of it, or they're notified of it. It's just small dollars. Think it's again, you're going to there's work to be done to refinance something that's 30 to 40 basis points. So I'm not saying it can't be done. We don't lose a lot of sleep over it.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

And I do think that in terms of AI, it will impact it. I'd be surprised if it didn't. It's also going to make refinancings even in our lenders, I would say today are brutally efficient in refinancing loans. I think it's going to be even more frictionless. And if you speak to some of our top lenders and their investments technology, think what's the common theme of all this though is the borrower benefits.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

So if the borrower right now the borrower the MI automatically cancels below 80, I think that's a great rule. And I think that benefits the borrower. So if there's a slowdown in rates and borrowers are locked into their mortgage and their home price appreciates significantly and they're able to get the appraisal easier and cancel MI. Good for them. Good for the borrower.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

And and that means it's a good borrower. So yeah. I know we don't get too fussed about it. There could be some economic impact to it, but I I don't think it's very big. So I wouldn't I wouldn't we're not gonna lose a lot of sleep over it.

[Mihir Bhatia, Analyst at Bank of America]

Got it. And then just if I could squeeze in one question on just OpEx. Any thoughts on outlook for the year? I think there was a little bit of a downtick this quarter. Any call outs there?

[David Weinstock, CFO & SVP at Essent Group]

Mihir. It's Dave Weinstock. We're I think we feel really good about our guidance. If you look at where we are for the six months, I think we're kind of right on track for our 160,000,000 to 165,000,000 probably towards a little bit towards the lower end. But on a quarter to quarter basis, things can fluctuate based on production volumes, staffing levels, things like that. But overall, we're happy with where we are.

[Operator]

And I'm showing no further questions at this time. I would like to turn it back to the management for any closing remarks.

[Mark Casale, Founder, Chairman & CEO at Essent Group]

I'd like to thank everyone for their time today and enjoy the rest of your summer.

[Operator]

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you for attending. You may now disconnect.

Participants

Executives

• Philip Stefano, VP - IR
• Mark Casale, Founder, Chairman & CEO

Analysts

• David Weinstock, CFO & SVP at Essent Group
• Terry Ma, Senior Equity Research Analyst at Barclays
• Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)
• Douglas Harter, Equity Research Analyst at UBS Group
• Richard Shane, Analyst at JP Morgan
• Mihir Bhatia, Analyst at Bank of America