Q4 2022 Essent Group Ltd Earnings Call
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You sell Stephano, Vice President Investor Relations you May begin your conference.
Thank you Rob good morning, everyone and welcome to our call. Joining me today are Mark <unk>, Chairman and CEO and David Weinstock Interim Chief Financial Officer also on hand for the Q&A portion of the call is Chris Curran President of Essent Guaranty, Our press release, which contains essence financial results for the fourth quarter and full year 2022 was issued.
Earlier today and is available on our website at Essent group Dot com.
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.
You the cautionary language regarding forward looking statements in today's press release the risk factors included in our Form 10-K filed with the SEC on February 16th 2022, 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.
Thanks, Bill and good morning, everyone earlier today, we released our fourth quarter and full year 2022 financial results are strong performance, which reflects the earnings power of our business benefited from better than expected credit performance, along with increased persistency and investment income as a result of higher rates.
These results demonstrate the strength of our economic engine and generating high quality earnings.
Heading into 2023, we remain confident in our buy manage and distribute operating model. Despite some economic uncertainty our franchises levered to the economy and housing we continue to manage the business considering a range of scenarios as to the economy. The consumer has shown resilience and unemployment has been relatively stable with regards to <unk>.
Housing we remain constructive over the longer term as we continue to believe that low inventory and demographic demographic driven demand should support home prices and.
And now for our results.
The fourth quarter of 2022, we reported net income of $147 million as compared to $181 million a year ago.
On a diluted per share basis, we earned $1 37 for the fourth quarter compared to $1 64, a year ago had a full year, we earned $831 million or $7 72 per diluted share while our return on average equity was 19%.
At December 31, our insurance in force was 227 billion.
10% increase compared to a year ago, our 12 month persistency on December 31 was 82% and a weighted average note rate of our book is approximately three 8%.
While there has been some relief to affordability pressures since rates peaked last November recent mortgage rates should continue to translate to an elevated level of persistency.
At the same time, the credit quality of our insurance in force remained strong with a weighted average FICO of 746 on a weighted average original LTV of 92%.
On the business front, we activated 150, new customers in 2022, as we continue to drive lender penetration and growing the Essent franchise. In addition, based on expected credit normalization, we increased rates during the year, our pricing engine <unk> enables us to efficiently raise rates and targeting adequate risk.
Adjusted returns and pricing long tail mortgage credit risk and.
And we believe that edge is mutually beneficial delivering our best price to borrowers, while helping to optimize our unit economics.
Our Bermuda based reinsurance entity Essent re had another strong year of performance, writing high quality and profitable GSE risk share business and continuing to provide fee based MGA services to our reinsurance clients.
As mentioned last quarter. The current environment is providing <unk> with improved pricing and opportunities to move up in a structure to optimize returns.
<unk> ended the year with third party annual revenues of approximately $69 million and third party risk in force of approximately $2 billion.
Since 2014, Essent re has earned over $275 million of net income from its third party business.
As in ventures, our strategic investment unit was formed to enhanced financial returns, while gaining insights to improve our core business ever to date. These investments have created $85 million of value of which $64 million have been returned as realized proceeds as of December 31, the carrying value of other invested assets is 250.
$8 million.
It was through these efforts and Essent ventures that we identified our planned titled transaction title insurance is a natural complement to our mortgage insurance business with relatively stable underwriting performance and efficient capital requirements. This acquisition adds a team of six entitled professionals to Essent and provides a platform to leverage our capital position.
Our lender network and operational expertise and a well established adjacent sector.
Cash and investments as of December 31 were $5 billion and the annualized investment yield for the fourth quarter was 3%.
For the full year of 2022, our investment yield was two 6% compared to 2% in 2021 as a reminder for every one point increase in the investment yield there is roughly one point increase in ROE.
Yes.
As of December 31, we are in a position of strength with $4 $5 billion in GAAP equity access to $2 5 billion in excess of loss reinsurance and over $1 billion of available holding company liquidity.
With our full year 2022, operating cash flow of $589 million, our franchise remains well positioned from an earnings cash flow and balance sheet perspective.
At year end 2022, approximately 98% of our portfolio is reinsured in the fourth quarter, we closed a quota share transaction with the panel highly rated reinsurers to provide forward protection for our 2023 business. We will look to continue executing upon our diversified and programmatic reinsurance strategy that mitigates earnings volatility.
<unk> from economic cycles and provides capital release.
In 2022, we returned nearly one quarter of our earnings to shareholders in the form of dividends and share repurchases. We remain committed to a balanced approach between capital distribution of capital deployment, including investing $100 million for our planned title acquisition that I previously mentioned.
Further given our strong financial performance during the year I am pleased to announce that our board has approved a <unk> <unk> per share increase in our common dividend of <unk> 25.
Moving forward, we will review our common dividend annually as we continue to believe that maintaining and steadily increasing dividends as a meaningful demonstration of the confidence we have in the stability of our cash flows and the strength of our operating model now let me turn the call over to Dave.
Thanks, Mark and good morning, everyone. Let me review our results for the quarter and a little more detail.
For the fourth quarter, we earned $1 37 per diluted share compared to $1 66 last quarter and $1 64 in the fourth quarter a year ago.
We ended 2022 with insurance in force of $227 1 billion.
An increase of $4 $5 billion from September 30th and an increase of $19 $9 billion or 10% compared to $207 2 billion.
At December 31, 2021.
Persistency at December 31, 2022 increased to 82, 1% compared to 77, 9% at the end of the third quarter.
Net premiums earned for the fourth quarter of 2022 with $207 million and included $14 $6 million of premiums earned by Essent re on our third party business.
For full year 2022, our net earned premium rate for the U S mortgage insurance business was 37 basis points.
The average net premium rate in the fourth quarter was 34 basis points, a decrease of one basis point from the third quarter.
We expect that net the net earned premium rate for the full year 2023 will be largely unchanged from the fourth quarter rate of 34 basis points.
Net investment income increased $5 2 million or 16% in the fourth quarter of 2022 compared to last quarter due primarily to yields on new investments and floating rate securities resetting the higher rates.
Other income in the fourth quarter includes a $6 5 million loss due to a decrease in the fair value of embedded derivatives and certain of our third party reinsurance agreements, which compares to a $5 $2 million gain on the valuation of embedded derivatives last quarter.
The provision for loss and loss adjustment expenses was $4 1 million in the fourth quarter of 2022 compared to $3 excuse me $4 3 million in the third quarter and a benefit of $3 4 million in the fourth quarter a year ago.
At December 31, the default rate was 166% up 11 basis points from 155% at September 30th largely due to traditional default seasonality.
For the full year 2022, we recorded a net benefit of approximately $175 million due largely to cure activity on defaults reported in the second and third quarters of 2020.
Other underwriting and operating expenses in the fourth quarter were $46 9 million up $4 $8 million from the third quarter largely due to an increase in professional fees the.
The expense ratio was 20% for the full year 2022, and compares to 19% in 2021.
We estimate that the other underwriting and operating expenses will be approximately $175 million for the full year 2023, excluding any expenses associated with the announced title business acquisition and related transaction costs.
The effective tax rate for full year 2022, including discrete items was 15, 9%.
For 2023, we estimate that the annual effective tax rate will be approximately 15, 5%, excluding the impact of any discrete items.
Yes.
During the fourth quarter, Essent, Essent group paid a cash dividend totaling $24 $6 million to shareholders.
Also in the quarter Essent guaranty paid a dividend of <unk> $55 million and Essent Guaranty FPA paid a dividend of $5 million to the U S holding company.
As of January one 2023.
The U S mortgage insurance companies can pay ordinary dividends of $318 million in 2023.
As of quarter end, the combined U S mortgage insurance business statutory capital was $3 2 billion with the risk to capital ratio of 10, 2% to one.
Note that statutory capital includes $2 1 billion of contingency reserves as of December 31, 2022.
Over the last 12 months the U S mortgage insurance business has grown statutory capital by $226 million, while at the same time paying $320 million of dividends to our U S holding company.
As a reminder, <unk> has a credit facility with committed capacity of $825 million.
Borrowings under the credit facility accrue interest at a floating rate tied to a short term index.
As of December 31, we had $425 million of term loan outstanding with a weighted average interest rate of six 2%.
Up from 439% at September 30th.
Our credit facility also has $400 million of Undrawn revolver capacity that provides an additional source of liquidity for the company.
At December 31, our debt to capital ratio was eight 7%.
Also at December 31, Essent Guaranty's, <unk> sufficiency ratio was strong at 174% with $1 4 billion in excess available assets excluding.
Excluding the 0.3 Covid factor the <unk> sufficiency ratio remained strong at 165% with $1 3 billion in excess available assets.
Now, let me turn the call back over to Mark.
Thanks, Dave and closing we are pleased with our fourth quarter and full year 2022 financial results, which reflect our focus on optimizing unit economics to generate high quality earnings and strong returns.
Looking through the one time tailwind of Covid Reserve development on earnings the underlying results for 2022 were solid the high credit quality of our portfolio and strong employment drove credit performance and higher interest rates benefited the persistency of our in force book and investment income.
Our strong operating performance continues to generate excess capital, which we will deploy in a balanced manner between investment in growing our franchise and distribution to our shareholders. We believe this measured approach is in the best long term interest of Essent and our stakeholders now let's get to your questions operator.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
First question comes from the line of Mark Devries from Barclays. Your line is open.
Yes. Thanks.
I was hoping to get some some color if you can provide any on the title acquisition.
What's your expectations are for earnings contribution.
And how you think about investing in that business and growing it from here.
Yes, Mark I would take a step back I think our I would say shorter term I.
I am not going to project any kind of earnings around this over over a period of time and we'll obviously update everyone every quarter I would we look at this.
Very similar to the platform, we bought off of triad back in 2009, and really it was like our ticket into the mortgage insurance business and we see similar parallels with.
The acquisition of both <unk> and <unk> there are good platforms.
Really strong talented people.
Relatively small obviously in terms of the industry and we look at first off we're going to invest continue to invest in the infrastructure in both put more capital into.
The underwriter try to improve the ratings.
And invest in people and then look for ways, where we can provide some synergies clearly a lot of synergies just in terms of back office right in terms of finance and legal and some of those things which were.
We have a pretty good handle on and then over time in terms of our technology platform and digging in on the operational side to look for ways to grow. So it's settled Walter wriston, saying a control profitability growth. So we're going to look at it over this is like a three 510 year plan market is not something we're going to.
Come out of the gate with earnings it's a new industry for us.
As an industry, we understand well because it's an adjacent sector but.
But we're going to take our time.
Going to continue to.
Apply kind of that hard work and operational expertise to it and I think over time, we will be able to grow it but it's definitely from our standpoint Big picture, it's complimentary to the Ams business. So the business has credit risk our regulatory risk operational risk titles more operational risk.
Our regulatory risk and kind of capital and credit are on the lower end so longer term we can.
It's very complementary there is clearly some overlap with lenders, but its youre looking at as.
As we look to grow right and you've heard me say over the years, we want to grow asset we love the mortgage insurance business.
And we've grown it and we think we can continue to grow as housing grows but the pond is only <unk> <unk>. So when you look at title with annualized revenues in the $20 billion to $25 billion.
Kind of range.
It's a big market and our view is it's something for us to as we look at that next phase of Sn and building other operating engines. We thought this was a good path to go into.
Okay. That's helpful.
And I know I think in the past Marc you've also expressed interest she thought about diversification in consumer credit related businesses is that something that's still kind of on the table or are you going to be really focused on both continuing to execute within the business and building out the new title venture yes.
Yes, I would say for the foreseeable future, we're going to be digging into title a lot. So not that thats off the table remember we really have when you think about the core business. We have essent re which continues to grow title is kind of our third kind of area I would say around the consumer credit and Anna.
<unk> most likely if we were to make an investment there would be via the ventures group right. So that's kind of teed up to do direct investments, but I would say for the foreseeable future.
We're going to be pretty focused on the title.
Okay makes sense.
Thanks.
Your next question comes from the line of Rick Shane from Jpmorgan. Your line is open.
Thanks for taking my questions. This morning, just really one thing.
You recently completed the negotiation of your 2023 quota share agreement.
Agreement.
I'm curious in your conversations.
With the panel of reinsurers.
How investors in the space.
Looking at the outlook for 'twenty three do you think that it is.
Sure.
Coherent with euro of user connect in line with your views.
And how do you feel about pricing.
Yes, I mean thats.
I think in speaking with the reinsurers and we actually had.
One of the large brokers in the office.
And our last three or four weeks to kind of give us a deep dive just on on that market or at least an update on that we feel pretty good about the market and I would say, it's all about the sustainability of reinsurance Rick dose with reinsurers and with the capital markets. The pricing is going to ebb and flow right. So we've paid a.
Little bit higher pricing on those over the past 12 months, but if you think of the three or four years before that we have had excellent pricing. So it's really the sustainability in those markets is going to remain open I think we feel pretty confident on both the reinsurer market. It's really now even though they've had hardening on.
On different parts of the business.
They clearly look at mortgage is is kind of counter cyclical to that and good diversification and what happens with these reinsurers. They continue to invest in teams it becomes like another business line.
So we believe its pretty sustainable and again the pricing is going to go up and down depending on the market or their views on credit just like we have our views on the front end. So again I think the pricing is adequate.
Sustainability is very good and just just to throw in there.
On the Essent re side, we've been kind of we've been fortunate to we've been able to capitalize on that increased pricing. So we wrote.
Most business that we've had in ever in 2022, and we were able to move up the capital structure. So we're able to get more premium for less risk, which is always a nice.
A nice trade off.
And then just finally, just in terms of reinsurance Rick.
Just think if you think we're five years into this programmatic reinsurance and it's still around it caused a little bit during COVID-19, but it came back.
Last year tons of uncertainty around where rates were in the economy. There is still uncertainty, but I would say, it's not as heightened as it was in that October and November timeframe, when inflation was kind of running rampant.
About reinsurance done so, let's let's work backwards. So I would say we're here five years from now and now we're 10 years into programmatic reinsurance.
I think it's I think it sends a strong signal and I've been saying this for a while the reinsurance has fundamentally changed the mortgage insurance business. It was always a buy and hold kind of model, where Sn and others. We had an uncapped liability on our balance sheet and that is no more <unk>.
98% of the book is reinsured sure we pay for it but we've taken that capital volatility of waste in the business and I know we're viewed in the market more like a specialty finance company kind of boom and bust, but I think over time I think that's going to change I think we're going to be viewed more like a specialty insurance company or specialty just happens to be.
Mortgage and housing.
And not having that and of course, those specialty insurance businesses have ebbs and flows but <unk>.
You had a lot higher than specialty finance companies because of the sustainability of their cash flow. So again, we have to prove it out we're five years into it we're not going anywhere and we'll continue to do it I will continue to grow the business and we'll let the chips fall, where they may but we feel pretty good.
Around how thats starting to shape up.
Okay.
Specialty finance analyst <unk> enjoyed covering the company.
The market can do what it wants but I'm going to still continue to look at.
As a specialty finance company.
There.
<unk> is a real time feedback loop with pricing in that market and its not just ethane is participating.
You have alluded to a harder market.
Again.
And I'm, assuming that you are seeing that ease.
Leaving its way through into the competitive environment in terms of pricing for you in that there is continued pricing power.
Yes, I mean, I guess if you.
Look at just the reinsurance side just to put it in context in.
In general we pay four to five basis points of our premium for reinsurance. So in the last year. It has gone up a point, maybe a little bit more right. We've raised pricing on their front end more than that so again, if you think about again, just the sustainability of the reinsurance and put it in context of the premium.
We charge, we still think it's a pretty good value.
Got it thank you very much sir.
Your next question comes from the line of Mihir Bhatia from Bank of America. Your line is open.
Good morning, and thank you for taking my questions.
I wanted to start on the insurance side.
Just I understand your net premium rate guidance is flat, but I did want to ask about the inflows based premium rates that you report on slide 16. This seems to be a real stabilization. There. Some of your competitors have talked about increasing premiums on new business. So should we expect that these premium rate to maybe start blending higher and then.
It's like really insurance costs that are driving the net premium rate to be flat.
I think thats I don't know that I wouldn't necessarily say, they're going to turn up.
But in terms of have they bottomed, we feel like we're getting pretty close to the bottom if they haven't already bottoms. So yeah that base premium rate of around 40.
When you think about that business on the new insurance written and we're getting pretty close so there's there's and then obviously then it does.
It does have the chance to go up from there.
I think let me here the other point of this is just the value of the pricing engine drive.
And then.
In terms of our ability and the industry's ability to kind of price adequately for the risk. So we saw we saw on COVID-19.
Where things were unclear on the industry was able to kind of pivot and change the pricing and then clearly the pricing in our view kind of bottomed out last year and that probably first quarter may be near the end of it and that was reflected in our share as we talked about this on the calls we started increasing price.
<unk>, others have increased pricing and that continues today and in the short Theres. A couple of reasons for that was a few reasons for that a little bit of a reinsurance costs that we alluded to.
My answer to Rick second clearly is kind of some of the clouds, forming around the economy I will say most importantly, though mihir, it's the normalization of credit right. So this.
It is below 1% default rate our view is all the time, it's been more like two to three and if youre going to have adequate returns at a 2% to 3% claim rate the pricing needs to come up and we're obviously not the only ones to see that so it's come up we think it could continue to rise.
And we'll raise pricing, we're expecting a raise pricing again in.
In the first quarter of 2003 and.
It keeps going up you're going to see new premium levels that we haven't seen since 2018, So it's really moving in the right direction.
But in the context of the borrower, it's still very efficient right. I mean, you are talking about we charge almost less than half of where the Gse's chart. So I think from a pricing to the borrower, it's very efficient and it actually helps our counterparties and our stakeholders because you have to adequately price for this long tail risk.
<unk>.
And our view is we're doing it clearly our competitors are doing and I think that's probably one of the more important points for investors to grasp out of this quarter is kind of it's kind of not just the stabilization of pricing.
But kind of where pricing has the potential to go but also just the ease of using the engines and the way, it's able to kind of help us target adequate returns. It's something we said five years ago four years ago. When we started the engines that it was more of a risk tools than a market share tool and I really think thats starting to play out across the industry.
Alright got it that makes sense and thank you for that we would agree about back the premium conversations and certainly being quite encouraging this quarter.
Maybe just turning to the deal and I understand you don't want to talk about short term like one <unk> is what you are seeing in terms of financial benefits our targets or anything.
At this early stage, but maybe like you mentioned there is a long term play for you three years five years down. The line. How are you going to be judging success of a deal after deal from a financial standpoint, do you think it's like 20% or 40%.
Total profit flows the combined <unk> group or.
Is it a much slower longer deal than that where it is.
Just build up that kind of momentum like how are you thinking about like give us at least a long build something about how youre thinking about.
Judging the success of this.
Yes, it's a fair question right I would say again I would go to and we're going to be disclosing separately right. I mean, just given the revenues of the title business relative to the revenues of the semi business. It would most likely be a separate segment. So this is going to play out for everyone and as you know we're going to be pretty transparent.
I'd say, we really look at returns at the end of the day. So we have these core return targets of 12% to 15 in the core business, we have it within Essent re and we remind you when essent re we break it out I think folks are going to be pleasantly surprised as to kind of the returns of the business and just you saw it and it's in the script.
Looking at.
Almost $70 million of revenues and expenses assigned to that for sure. But there is also investment income. So there is it's a good business. It has its rate within that 12% to 15% return profile. The ventures, which is it's not really a business is but it certainly is a unit that we manage.
Separately that also has returned targets. So we've had we've returned we've had pretty good return on that initial investment I believe the IRR since inception is 17%. So its right again within that 12% to 15% target and I think with title.
To be the same thing, it's a little bit capital light. So the returns should be higher in terms of the growth.
We're going to have it's going to be business as an iterative process. So we're going to get in there. We have two and these are really two businesses right you have the ASIC business, which is almost like a wholesale.
It's an underwriter, but it attracts title agents, it's relatively small.
200 title agents that they have so we're going to as we look at and say, it's going to be how can we how can we grow their base of title agents. How can we activate new agents how can we build out a larger sales force how can we scale some of those things how can we use our capital debt to make from.
Our ratings percent perspective to make it more attractive for salespeople to come work for us and for agents that want to use us alright, what offerings can we invest in to make that attractive on the BB&T side I mean, there really.
Top 10 player on.
With lenders really around centralized refinancings, which is clearly.
<unk> been down.
But again can we can we sign up new lenders leveraging our lender network, we'll see we believe we can.
And can we help strengthen their operations. So they can take on more business right. I mean, it's not just signing lenders out we didn't we we we really took a step back building the Ams business and made sure. The operations were very Chris So we could take on business. So when.
We were competing with very large and established competitors. So when we first signed up lenders we had to make sure. They had a really good experience or are they willing to come back and this is all before you guys saw in the public market. So this will play out a little bit publicly.
It's the same game plan so we.
We're going to go in and take this kind of a step at a time and build it brick by brick and we're fortunate here that the platforms are a little bit more established right. We didn't have any salespeople and I think when we first started we had approximately zero lenders signed up. So there are obviously further ahead and we believe that with it's almost.
Our partnership we believe we love the kind of.
The experience and the talent that we're getting in both organizations and combining that with Sn.
Can we can we help scale that so longer term.
We never thought Essent would be this big.
When we first started.
The business and wrote the business plan, we thought if we could get to 10% share we would do really well and that was in a much smaller market. So some of it is going to depend on the size of the market. The size of house prices. So as house prices go up title insurance premiums go up.
We know we're I think antique as the 15th largest so we're we're far maybe half a point of share. So it's timing. So we're going to get in there and again, it's three 510 years and so I don't want to put a number on it but we certainly would expect supplemental income.
We don't do things not to make money.
So.
Whether where that where that ends up over the long term, we'll find out we're just trying to caution people on the short term that we're not trying to come out of the gate to show you.
Earnings will always sacrifice early on investment.
Certainly don't want to lose money, but.
I think longer the prize is longer term in growing the business.
Got it.
Great.
During low as you.
Finally, close the acquisition.
Soft providing more detailed thank you.
Youre welcome.
And again, if you would like to ask a question Press Star then the number one on your telephone keypad. Your next question comes from the line of Bose George from Keefe Bruyette <unk> Woods. Your line is open.
Yes. Good morning. Thank you just one more on the title.
You think about sort of the long term trajectory do you think it's more driven by M&A or organic or you just have to.
How does the competition there.
Yes.
It's too early to tell I think we're always going to favor organic growth.
That's how we build essent the title industry has different dynamics. However, so we're we're well aware of both there is an opportunity to use our balance sheet I would say from a we have a pretty large.
Capital position, but we're not going to be in the business of just buying title agents left and right. I think we're going to we can eventually get to the point, where we're acquisitive, but we really want to understand the operations of both and the potential to grow them organically and theres going to be a limit to that but it's kind of baby steps.
So first.
Close on the transaction right and Thats, probably not going to be to the third quarter and then really think through how do we.
Strengthen the infrastructure of both businesses.
Then then look for ways to grow organically and my guess is wind up doing both youll grow organically and youll complement that.
With acquisitions, but that's down the road.
Okay, great. Thanks, and then just in terms of.
Financing it can use cash with the insurance company.
For buying title insurers.
I'm, sorry could you repeat that.
Is it funded good holdco cash or.
Is it possible to <unk>.
Title insurers that the.
At the insurance company itself. Good question now this will be the acquisition will be at <unk> U S holdings. So just to remind everyone. Essent U S Holdings is a sub of Essent group and Essent Guaranty is under <unk> and U S Holdings. So these will this will be a sister company to Essent guaranty, so different parts of the capital for sure Okay great.
Thanks, and then just one last one.
<unk> expenses for next year and I didn't know if you said that but did you give guidance for what we should expect for Opex for next year.
We're right around $175 million, but that does not include title.
So it's just that the semi business and obviously will include title upon the close and will add to that but so it's pretty much business as usual.
In terms of expenses.
Little noise in the fourth quarter.
Due to the deal and there'll be a little noise with some of the transaction costs, but in terms of the core business, we feel pretty good about that number.
Okay, great. Thanks.
Your next question comes from the line of Geoffrey Dunn from Dowling <unk> Partners. Your line is open.
Thanks, Good morning.
<unk> good morning, looking at the credit this quarter, a little bit in terms of the current period provision.
Development.
The average provision there is up a bit. So I was just curious did you change your claim rate at all.
As many of the early stage delinquencies.
Add a little bit more detail.
Yes, Jeff it's stabilized stock.
On the whole.
We haven't really made any significant changes we have a model an actuarial model that we feel really good about.
I think we've talked about in the past that our expectations on early claims is somewhere in that 8% to 9% range.
And if you look at where our reserves are at December 31, we're at 8% for those early delinquencies, so really nothing significant there as.
As it relates to.
What came in in the fourth quarter.
So probably the largest geography on average loan size.
Yes, I think Thats fair.
Yes, I think Thats fair a fair assessment.
Okay, and then Mark you brought up the cash flow for 2002 in your prepared remarks.
Obviously, one of the things that is helping that as well.
Industry doesn't really have any old claims.
I was expecting a COVID-19 once forbearance plan started enrollment.
We have a jump in bold claims as you could proceed with wells, but it sounds like that hasnt been happening.
So is that something that we're just waiting for the spike to happen.
Embedded equity really taken that spike out of.
Out of the recovery and this is just going to gradually move up as you'll notice inventory buildup.
Yes, I think thats actually a good assessment of it.
Jeff.
One most of the most of the guys in forbearance originally in Covid cured.
Some times they tiered because they sold the house and we can see that now with our technology you can see on one of your defaulted loans as listing and we could see like where it was at where we have it marked at and where they're selling it at so in that market. They were able to kind of get out of that which we had we had assumed was going to be part of it and I think it's the same thing here just the embedded.
Equity in the Mark to market that we have on the book has really helped that and then in terms of just.
I'm not sure and this is longer term, but the forbearance and the tool that it is with the Gse's I actually think that's going to be a common occurrence around events clearly it happened with that happens with hurricanes. It happens happened with Covid. So other significant recessions I would not be surprised it is.
A very effective tool.
Of keeping borrowers in their homes.
Allowing the work it out right.
In the post crisis, we had half an hour, but theyre. The milk was kind of already spilled on the floor and it was a way to help mitigate that with COVID-19 right out of the gate.
The Gse's, we're extremely responsive as really a smart move I mean, it hurt us right because we had to we had to post reserves for it and in terms of people were defaulting because they were allowed to.
But longer term keeping borrowers in their home is really good for everyone, except maybe for those who live in a default type world and things like that so I think it's a common tool and I think it's going to I think it's a real benefit to the industry that is maybe a little bit underappreciated.
Okay, great. Thank you.
Awesome.
And there are no further questions at this time I will turn the call back over to management for some final closing remarks.
To thank everyone for.
For calling in today and their interest in Essent and have a great weekend.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
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