Q1 2024 Essent Group Ltd Earnings Call
Draw your question again prestige Star one. Thank you I'd now like to turn the call over to Phil Stephano Investor Relations you may begin.
Thank you Rob good morning, everyone and welcome to our call. Joining me today are Mark <unk>, Chairman and CEO and David Weinstock, 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 first quarter of 2024 was issued earlier today is available on our website at Essent group Dot com.
Our press release includes non-GAAP financial measures that may be discussed during today's call.
Fleet description of these measures and their reconciliation to GAAP, maybe found in exhibit <unk> of our press release 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.
The 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-K filed with the SEC on February 16th 2024, 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, Phil and good morning, everyone earlier today, we released our first quarter 2024 financial results. Our results continue to benefit from the favorable credit performance of our insured portfolio and the impact of higher rates on both persistency and investment earnings.
Given the state of the economy and higher rates, we are encouraged by the resilience of housing and the labor market.
Over the longer term our view remains constructive we believe that improvement and supply demand imbalances, along with favorable demographics will continue to support housing growth, which is positive for our franchise.
And now for our results for the first quarter of 2024, we reported net income of $182 million compared to $171 million a year ago.
On a diluted per share basis, we earned $1 70 for the first quarter compared to $1 59, a year ago.
On an annualized basis, our return on average equity was 14%.
As of March 31, our U S mortgage insurance in force was $238 billion, a 3% increase versus a year ago. Our 12 month persistency on March 31 was 87% the same as last quarter and over 70% of our enforced portfolio has a note rate of five 5% or lower.
We expect that the current level of rates should support elevated persistency throughout 2024.
Credit quality of our insurance in force remained strong with a weighted average FICO of 746 and a weighted average original LTV of 93% overall, we remain pleased with the quality of the business that we're writing.
So we anticipate that embedded home equity within the existing book should mitigate potential claims in the current housing environment.
On the mortgage insurance front, we continue to focus on activating new lenders and strengthening our operating infrastructure. This includes enhancing our proprietary scoring engine S and edge by integrating additional data sources are lenders benefits in the amount of data that we analyze and delivering our best rate the borrowers while also enabling us to optimize our use.
And economics.
Given a challenging mortgage origination market, we believe that having access to <unk> as an advantage for lenders and borrowers.
And Thats an area, we continue to leverage our mortgage credit and reinsurance expertise and generating earnings for the Essent franchise.
As of March 31st Essent re is third party risk in force was approximately $2 3 billion up 10.
Percent from the first quarter of 2023.
Our title operations incurred a pre tax loss of approximately $4 million in the first quarter similar to the third quarter and fourth quarter of 2023.
Post acquisition integration complete we have begun the build out of Essent title, which should enable us to leverage our strong operational infrastructure lender network and risk analytics.
Yes.
Cash and investments as of March 31 were $5 $8 billion and our new money yield in the first quarter was approximately 5%.
The annualized investment yield for the first quarter was three 7% up from three 4% a year ago.
New money rates have largely held stable over the past several quarters.
We continue to operate from a position of strength with $5 $2 billion in GAAP equity access to $1 $4 billion in excess of loss reinsurance and over $1 billion of available holding company liquidity.
With a trailing 12 month mortgage insurance underwriting margin of 76% our franchise remains well positioned from an earnings cash flow and balance sheet perspective.
In the first quarter of 2024, we entered into a quota share transaction with a panel of highly rated reinsurers to provide forward protection for our 2020 for business.
We are encouraged by the strong interest from the reinsurance market and supporting our program.
Looking forward, we will continue executing upon our reinsurance strategy to mitigate earnings volatility during economic cycles, while also providing capital relief.
During the quarter, we were pleased that S&P upgraded the finance financial strength ratings of Essent Guaranty and Essent re to single a minus and that Moody's affirmed essent guaranty's, a three rating and raised its rating outlook to positive.
We believe these actions reflect the significant enhancements made by our industry and transforming <unk> into a sustainable and through the cycle franchise.
Given our strong financial performance and capital position, we continue to take a measured approach to capital distribution. Our goal is to balanced capital deployment opportunities to generate incremental revenues, while optimizing capital distributions and shareholder returns 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 first quarter, we earned $1 70 per diluted share.
<unk> to $1 64 last quarter and $1 59 in the first quarter a year ago.
Our U S mortgage insurance portfolio ended March 31, 2024 with insurance in force of $238 5 billion.
Essentially flat compared to December 31.
3% higher compared to the first quarter a year ago.
Persistently at March 31 was 86, 9% unchanged from the fourth quarter.
Net premium earned for the first quarter was $246 million and included $17 $8 million of premiums earned by Essent re on our third party business and.
And $15 $3 million of premiums earned by the title operations.
The base average premium rate for the U S mortgage insurance portfolio for the first quarter was 41 basis points.
And the net and the net average premium rate was 36 basis points for the first quarter, both increasing one basis point from last quarter.
Net investment income increased $1 5 million or 3% to $52 1 million in the first quarter of 2024 compared to last quarter due primarily to higher balances and continuing to invest at higher yields in the book yield of our existing portfolio.
Other income for the first quarter was $3 7 million compared to $6 4 million last quarter.
The largest component of the decrease was the change in fair value of embedded derivatives and certain of our third party reinsurance agreements.
In the first quarter, we recorded a $1 $9 million decrease in the fair value of these embedded derivatives compared to a $412000 increase recorded last quarter.
The provision for loss and loss adjustment expenses was $9 9 million in the first quarter.
<unk> to $19 $6 million in the fourth quarter of 2023, and a benefit of $180000 in the first quarter a year ago.
At March 31, the default rate on the U S mortgage insurance portfolio was 172% down eight basis points from 180% at December 31, 2023, largely due to favorable cure activity on prior year defaults.
Other underwriting and operating expenses in the first quarter were $57 4 million and included $11 $8 million of title expenses.
Expenses for the first quarter also include title premiums retained by agents up $9 $5 million, which are reported separately on our consolidated income statement.
Our consolidated expense ratio was 27% this quarter.
Our expense ratio, excluding title, which is a non-GAAP measure was 20% this quarter.
A description of our expense ratio excluding title and the reconciliation of GAAP, maybe found in exhibit one of our press release.
We now estimate that other underwriting and operating expenses, excluding our title operations will be approximately $185 million for the full year 2024.
Okay.
As Mark noted our holding company liquidity remains strong and includes a $400 million of Undrawn revolver capacity under our committed credit facility.
At March 31, we had $425 million of term loan outstanding with a weighted average interest rate of seven 6%.
Down from 711% at December 31.
At March 31, 2020 for our debt to capital ratio was 8%.
At March 31st Essent, Guaranty's, PMA sufficiency ratio, excluding the 0.3 Covid factor remains strong at 170% with $1 $4 billion in excess available assets.
During the first quarter Essent guaranty paid a dividend of <unk> $45 million to its U S holding company.
Based on unassigned surplus at March 31, the U S mortgage insurance companies can pay additional ordinary dividends of $331 million in 2024.
At quarter end, the combined U S mortgage insurance business statutory capital was $3 $5 billion with a risk to capital ratio of 10 to one.
Note that statutory capital includes $2 $4 billion of contingency reserves at March 31.
Over the last 12 months of U S mortgage insurance business has grown statutory capital by $246 million, while at the same time paying $250 million of dividends to our U S holding company.
During the first quarter Essent re paid a dividend of $37 $5 million testing group.
Also in the quarter Essent group paid cash dividends totaling $29 $6 million to shareholders and we repurchased 97000 shares for $5 million under the authorization approved by our board in October 2023.
Now, let me turn the call back over to Mark.
Thanks, Dave and closing we are pleased with our first quarter results as Essent continues to generate high quality earnings while our balance sheet and liquidity remains strong. These results demonstrate the strength of our business model and how <unk> is uniquely positioned within the current macroeconomic environment with.
With title now being part of the Essent franchise I'm very proud of the entire Essent team as we remained focused on providing best in class service and value to our mortgage insurance and title customers. We continue to believe that Essent is well positioned within the U S housing finance as we further our franchise and mission to support affordable and sustainable Homeownership now let's get to your.
<unk> operator.
Thank you we will now begin the question and answer session. If you will.
To ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.
You are called upon to ask your question and our listening via loud speaker on your device. Please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Terry MA from Barclays. Your line is open.
Hi, Thanks, good morning.
<unk> was lower Q over Q and it looks like you lost a little bit of share so anything to call out with respect to pricing or just the environment overall.
Hey, Terry no not really I mean, I think you are relatively new to covering us so.
It's kind of like a brick and a broken record with us I mean market share really kind of always ebbs and flows quarter to quarter.
Longer term our goal is always to be kind of in that 15% to 16% share that's really how you can optimize.
Our unit economics, so certain quarters, where it were a little bit lower I would note that our premium our gross the gross premium yield has actually risen a bit in the first quarter. Some of that is from a pricing perspective, given the small market, it's probably not the time to reach for share and your wrench here anyway, you don't really own it its quarter to quarter.
But I think kind of from a unit economic basis with the increased yield.
And we were probably increasing price a little bit more than others.
Throughout 2023 that's.
That's probably cost for a little bit of lower share, but theres not a big gap between kind of the top share.
And a lower share in this type of market. So again, just to reiterate from a unit economic basis.
Even given the yields that we're riding along with the investment income the unit economics of the business are quite are quite good right now and we're pleased with that.
Got it that makes sense.
And then if I look at the rate of increase year over year and you notice is it's actually been pretty consistent the last four quarters.
I assume the macro outlook and employment picture stays pretty similar is there anything to think about and how those vintage curves season that could make that rate.
Higher or lower going forward.
I can start I mean sure when as the book seasons, and remember, 42% I believe of our book is in 2020 in 2021. So Pete defaults are usually kind of in that three to five year timeframe. So you could see a seasoning and an increase in defaults not particularly concerned.
The advantage just because of the embedded home equity we have but yes sure you could certainly see.
See a little bit of an increase and again, just just big picture Terry 800000 loans roughly.
14000 default so big picture.
I think we feel pretty good about credit and like we said credit is the number one concern of the franchise. If you look at our forecast and our unit economics in.
Everything is relatively steady right I mean, the gross premium yeah, we talked about I think we do a real good job with expenses and investment income has been a tailwind it's always that credit.
That has the potential to be in the most volatile we feel better about that given the credit quality of our portfolio and also just the changes in the industry over the past five six years and our ability to hedge out that risk. So we've really protected the balance sheet. We've always kind of known that was where the most that's the Achilles heel of the business. So to speak is credit so youre.
Looking for ways to strengthen that want us to write good business. Good unit economics and the other is to make sure you're kind of hedging that risk out in case in times of stress.
Which we've seen obviously over the installed in 2020 and you see it occasionally.
Got it that's helpful and maybe I will just indulge one more the tiers to new notices ratio was seasonally higher this quarter as we look out for the rest of the year should we expect a similar seasonality to play out as we saw in 2023 for that ratio.
Yeah, Hey, Terry save livestock.
In General I would say that we are starting to see a little bit of return to the normal seasonality pattern that we saw prior to the pandemic. So in general.
Specifically in the first and second quarters and generally through February through April May timeframe, we generally see more share activity and then in the second half of the year, we start to see that wane, a little bit in a modest increase in defaults and we're expecting.
That pattern to kind of play out in 2024.
Great. Thank you.
Your next question comes from the line of Doug Harter from UBS. Your line is open.
Thanks, and good morning.
Mark you talked about.
Being a little more reserved in the amount of capital you're returning to shareholders for per parcel.
Possible organic deployment or other opportunities can you just talk about what opportunities you see to maybe increase the pace of capital deployment.
Just given the strong capital generation you have right now.
Yeah, Doug it's.
It's an interesting question for sure right and I would say.
To give everyone on the phone and investors kind of context, we do have that retain and investment talent and I know that's different than some of our peers.
That's that's good right at every everyone can be different.
And we're obviously generating a lot of capital through the core business as it continues to perform.
Quite well I would say, we do have we have a measured approach. So we're going to look to.
Invest kind of it's a numerator and.
And then in terms of just capital distribution I think dividends were fairly.
We have a pretty good plan around that were really it's kind of a tiered too.
Links to a kind of a yield on our book value per share so as that grows and it grew.
13, 14% last year and the dividend grew a similar amount and I think with buybacks, we really have a structured approach to it and in terms of just being sensitive to valuation. So we bought back less.
In the first quarter really is a function of the stock price so as book value per share grows.
The buybacks will grow along with that.
In terms of just how we structure that <unk> plan.
In terms of opportunities I think we're very active in looking at things that doesn't mean, we are very active in doing things I'm, a big believer that investments. It's hard work to invest you don't want to wait around for the banker to give you. The book. So we have we have I would say a very strong team that's growing around both corporate development.
On our Essent ventures group and we look at a lot of things. It's a lot of fund of funds now, but we do have some direct investments in one of those investments actually led to the title acquisition. So <unk>.
It's very difficult to time kind of capital deployment with opportunities if that makes sense right. It's on a quarter to quarter thing so.
We look at this capital really as a luxury Doug not a burden and we look at this over time things could happen and we're ready to pounce on an opportunity and if we can't we're going to return it to the shareholders at the end of the day.
Our goal is to maximize shareholder value. It's just it's not us it's just not as simple as a quarter to quarter and I think we like having this excess capital.
It could give us an opportunity to grow the franchise and I think longer term shareholders are always rewarded by growth.
You see it in other businesses and our ability to allocate that is going to be a lot of the success of SME and I think it's going to be the difference in the industry over the next three to five years.
The companies that can allocate capital better than others are probably going to be the winners and some of that maybe some of that could be returning capital to shareholders and others could be around growth were not saying, which one we're going to be we're just saying we're looking at all avenues of it and we love the position. We're at so I think I'll kind of leave it at that.
I guess just on.
Any update on kind of where you are in the progress of title and whether that can begin to ramp or become a source of.
Or use of capital.
Yes.
In terms of title I would say like I said when we first bought this probably a 12 to 18 month build out.
Nine months into it I would say, it's gone well from a build out perspective, we're really starting to.
Bring over the Essent framework to the title side, so thats leveraging our skills around it Rick.
The risk finance legal I mean, I could go into all the dirty details of kind of what we're doing but it's a lot of work right I mean, and it's the same thing on the semi side. We we started building out <unk> in 2009, we didn't break even until the fourth quarter of 2012. So these things take a long time I'm encouraged we're starting to.
Bring in some new talent, we're moving over talent from the Ams side I really feel like we're the team is starting to gel and Thats why we kind of said, we're starting the build out of <unk>.
Entitled So we will begin to leverage our lenders through our we call. It Essent lender services, which is really that 50 state title and settlement services business, I mean really geared more towards refinance which as you know the markets down and then the agency services, which really target.
It's I would say title agents in certain regions, that's relatively small and in fact, we're actually scaling back agents early on as we start to understand the unit economics of smaller agents versus other agents and we will build that out over time too. So it's probably in the early stages.
One of the beauties of it though Doug is it's not big on capital, it's relatively capital light compared to mortgage insurance and so the investments there.
There are really more around people.
And technology and infrastructure versus you need to put a lot of capital into the into the business.
Great. Thank you Mark.
Again, if you'd like to ask a question press star one on your telephone keypad. Your next question comes from the line of Hamed <unk> from BTG. Your line is open.
Hey, guys good morning.
Mark.
I was looking at your <unk> stratification by FICO bucket.
And what's interesting to me is like your 760, FICO mix has gone up call it 500 basis points year over year.
Base rate like as you noted has ticked up slightly and on the base rate is on the insurance in force, but I'm wondering if you've seen the ability to find pockets of just higher pricing with the use of essent edge without maybe taking that incremental risk out there.
Yes, absolutely I think I think we have I think we're really starting to see <unk> be a differentiator. So we can and just again to bring everyone up to speed on it it's really not a pricing engine <unk> is a proprietary scoring engine. So we have kind of the FICO score and we have the H score and we were able to see.
Kind of differences and obviously for a particular borrower that has a higher edge score than a FICO score or theyre going to get a better price than probably where the market's at so we're going to win that loan and vice versa.
So we do see pockets of value, particularly around some of the higher ltvs.
Even some of the higher DTI some of it is macro oriented.
But we are we are seeing that and I think that's good that's why we said it in the script I think for all lenders.
Having asset part of the rotation really is a win for them.
And we gave I'll give you a good example, and we had one lender that were probably 10% of their business and they came to US and said Hey, you guys are only 10% are other Ms are stepping up and they really have increased share like what are you guys. What are you guys doing and we were able to go back and point out to them that we were probably.
The best price around some of the DTI and LTV is that the other the other competitors would probably more flat and I would say static pricing werent able to take advantage of and I think once they were educated around that.
I think they were quite happy so again, we're here, we're always there to give our best price to each borrower, it's not necessarily the lowest price. So if another MA has a different.
I would say.
A way to our liking of a certain segment that's great. That's great for the borrower, it's great for the lender everyone wins, but again, it's early but I think it's starting to get reflective in and some of the things that we're seeing around kind of.
Use of edge, it's on the margin right I mean, it's still at the end of the day you price to the market. So ham.
But we're encouraged by some of the results and we are continuing to.
To invest in and as we mentioned in the script.
We brought on another credit Bureau.
This year.
And what we're seeing there is that with the credit the different credit Bureau, as they have different attributes that were may be able to leverage a little bit better to improve edge potentially even in certain markets and different credit bureaus have different strengths across different regions, so pretty encouraged by that.
Okay, Great and maybe wanted to get your updated thoughts on topics that have not come up in a while which is M&A.
It just seems like we're in a market today, where the industry is an excess capital position and preliminary.
Preliminary growth because of just where the origination market as you can at least medium term credit is still pretty good and should be good outside of some big decline in HPA or unemployment. So at capital return seems to be sustainable as well, but I'm curious if there is a case to be made here that there is potentially other parties that might be attracted to this cap.
<unk> I wanted to sort of redeploy it is for a higher better use long term.
Yes, it's a good question I would say theres two ways to look at it both kind of within the industry consolidation and when you do see kind of a slower market and.
And just to point out I don't think its going to be a slower market for long. So I think when you look at.
Kind of the demographics, especially think around just immigration raising it had almost increase in our population in the last year of almost 4 million people over $3 million.
New immigrants right. So they are coming in they're entering the workforce around construction and hospitality and health care. These are all future homeowners. So I think.
The industry will continue to grow so I would look at this this kind of time period is a little bit of a pause on growth versus.
<unk> versus <unk>.
Growth is kind of stops it so that's one aspect of it but within the industry, it's a mature industry.
And when things were not at the Theres still growth, but there's not as much growth. As you are probably was say five years ago, it's a little bit of consolidation 101, right youre, bringing companies together, you're eliminating a lot of costs. It wouldn't surprise me to see to see that potentially happen over that over the next several years, depending on where rates go in.
Where growth goes and then the other is really is someone from outside the industry and when you think about some of the large P&C players with the changes in the capital model with S&P is probably even a little bit more capital arbitrage for them. So for them to come in and again, what you are seeing quarter after quarter.
Just the consistent returns not just by us and by by the whole industry.
I would think at one point that would be appealing for a larger player for an MRI. So again I Wouldnt surprise me either to see an MRI or even two to be divisions of larger P&C companies down the road. So.
It takes a while right there's still a lot of our history, we'll hear we will talk to investors and not talk about the great financial crisis, which was 16 years ago, It's a pretty long time ago and we've been public.
For over 10 years have compounded book value per share.
18%.
I think the returns to shareholders have been pretty good and just consistently.
We would hear you guys haven't you haven't really been through a recession.
And then we go through 2020, Unemployment's double digits, and our default rates shot to 5% estimate money ended well right rates go down and <unk> up insurance in force grows Essent does well rates start to go high and IW Falls persistency.
Persistency increases yield increases Essent essent does well that at some point it takes a while so hand, that's going to get noticed.
It just takes time and sometimes you have to almost earn your way through it.
But over time, I think people will understand kind of the.
The strengths of the business model in house improved so much.
Over the past 10 years, both regulatory with the advent of QM.
The changes that the Gse's have made which have been quite significant with the strengthening of Du and LP the improvements around QC.
The addition of forbearance and how it helps borrowers.
And kind of the ability of the industry to change pricing the way, we have been able to change pricing almost on a dime, which five years ago with rate cards took six months and then clearly the introduction of reinsurance that's really kind of hedged out the book, it's a much different model and again I think the <unk>.
Sustainability and the consistency of the earnings will be noticed longer term by weather outside parties.
We have certainly we have a core investor base that understands as well and they've been investors with us for a long time and they're very content will allow us and watch us grow book value per share quarter after quarter.
Yes that makes sense and if I could just one on title I know theres been a lot of chatter around titled costs in some of these pilots to the gse's or trying to implement here I would love to maybe just get your thoughts on the topic and maybe what youre hearing from folks out there. Thank you.
Yes.
Timely question right, we've gotten a lot where kind of the movies on the block there. So I think we do have a unique perspective, though so have given.
We've gone through a lot of this with mortgage insurance, especially around the crisis.
The mortgage insurers they don't pay any claims.
Do we even need the products. The fact that essent came into the market I think helped a lot private capital coming in wanting to take that risk the industry by the way paid over $50 billion of claims. So again. It was the fact is it was really an opportunity to educate both regulators and folks around the VAT.
<unk> of mortgage insurance and and how important it was to the National housing finance system and I think the same way with title insurance, it's such a valuable products.
And I think it's misunderstood and so I think what we're going to try to do working with our counterparts in the industry has to do a better job of educating.
<unk>.
Key constituencies on the value of title insurance and <unk> and how it's used and its role to protect borrowers and help lenders and.
And improve the housing finance system that being said there is I think there is an issue around just the price to the borrowers in certain states on the refinance side. The borrower can get a very efficient price and another in other states. They can't because of the promulgated states and some of the challenge.
As they have at the state level that would be like us charging.
40 basis points and 38 states in 12 states, we have to charge a 100 basis points.
The borrower losers in that and.
And I think thats, so I think the industry, we're always going to put the borrower one we do on the Ams side, we're going to do it on the title side and I think thats, where the noises coming from and I think thats the root cause of the problem and I think as the industry starts to think through that and until the industry.
Really tries to solve that problem there is always going to be workarounds.
And so that's why you see.
Well in title title waivers those are workarounds, because lenders because when we talked to lenders every day. So we understand it they are frustrated by it and they are looking for ways to get around it. So I think the title insurance industry longer term has to kind of come to grips to that and when they do.
I think it'll be fine I think it's a valuable product and I think the industry has a really bright future.
Alright, Thanks, a lot mark.
Your next question comes from the line of Melissa Wedel from Jpmorgan. Your line is open.
Good morning, Thanks for taking my question Sam on for Rich This morning.
I was wondering if you could talk about how youre thinking about the current hedge I know you referenced.
And the credit metrics in the portfolio, there's a lot of embedded HPA that really is supportive of credit in this environment, we are seeing lower affordability.
<unk> are a tailwind.
In terms of employment at the employment will be getting better from here is sort of our base case assumption, but.
As you look at new business in this environment.
What do you think how much higher risk is embedded in this current vintage do you think compared to start of the rest of the portfolio.
That's a good question.
I would say just big picture, we're pretty comfortable with the new writings.
No.
Clearly with rates kind of close to 7%.
And home prices have been quite elevated they have.
Haven't really grown that much they've been they've grown a little bit they have been relatively flattish I would say are.
To pick on vintages right I mean in general were talking about again like I said 14000 defaults I would say the 2022 vintages. The one we probably look at the most just because that was done almost at the peak of HPA and.
And our pricing was the lowest rate that's when we had talked about we had really low share at the end of 'twenty. One early 'twenty, two pricing and really bottomed out and increase materially from from that point on so just from a like a unit economics basis, that's probably the one that we'll look at the most.
<unk> performing pretty well, but I mean, just from an incurred loss ratio, it's probably a little bit higher.
I would say with the new book, we're not we're pretty comfortable with the unit economics of the book is it going to be it could it be a touch riskier than others, yes, but also I think we're being we're being compensated for that from a price standpoint. So.
Okay understood.
Follow up question is a little bit tangential here, but I would imagine that fair number.
The borrowers that are insuring would also have some student loans and I'm. Just wondering if you or do you have visibility into that are you seeing any impact to your credit from either borrowers.
Benefiting from forgiveness or delaying payment.
And is that at any risk of not being a potential headwind as borrowers begin to repay.
We have not seen it as a headwind I think we pointed out.
And a call I think it was last quarter that given through <unk>, we're actually able to kind of differentiate borrowers that have student loans with ones that identical psychosis.
One cohort with student loans, so on cohort with personal loans like the old fashion consumer finance the student loans actually performed better.
That could be a number of different you'd have to almost guesstimate y.
What's causing that so I think there.
From a student loan standpoint, that's probably a good nugget for investors, but in terms of like the added burden of repaying student loans, we have not seen that impact.
Thanks Mark.
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 Mihir Bhatia from Bank of America. Your line is open.
Hi, good morning, and thank you for taking my questions.
To follow up a little bit on a couple of the answers you gave month in terms of just look you highlighted <unk> performed well in a variety of macro market backdrops over the last few years.
I think you've also mentioned today and on previous calls that credit is your number one long term consumer and managing credit is job number one right.
So I guess just trying to understand from an X.
What can go wrong in essence from a label from an external perspective, assuming youre doing everything right internally I think one of the questions that we get a lot of is this is such a great operating environment.
From an external perspective things can only get because I think in the earlier question to them.
Jonathan Boehm and getting legal is that what we should be focusing on the job and mom and getting because like I'm just trying to understand what is the big risk from an external perspective for us.
Yes, it's a good question I would.
We've heard this question for 10 years like what can go wrong and again I do think clearly levered to unemployment.
Never promise on our IPO Roadshow to run the company recession free I think what we do here is try to.
Planned for both from a business and a balance sheet perspective, a range of economic scenarios and as I pointed out earlier with the system. That's the most volatile is the provision rate because it is so levered to unemployment. So yes, if unemployment goes up here's a newsflash our provision is going to go up right and we saw this in 2020.
And we saw almost a flash floods so to speak in terms of because we saw such a sudden increase in defaults in the second and third quarter and if you look back on 2020, we still made money and so I do think at the end of the day, we are bill because of all the changes to provide consistent earnings.
Throughout the cycle that doesn't mean, they're always going to go up theres going to be certain years, where theyre not going to perform as well because of the provision, but the prevailing view of the <unk> and I would say a data few was the companies are going to crumble. When there is when there is an issue in the economy and that's just simply not true I mean its reflect.
<unk> now on our ratings.
We're a rated across the board so the rating agencies, obviously, we go through a lot of stress tests.
With the rating agency rating agencies, whether its the GSE or different scenarios and we come out and we don't really deplete any capital in that.
And a financial services company when they deplete capital, there's really not a bottom for your valuation and I would point to again 2020, so when that hit.
And our stock dropped significantly right during the March and April timeframe, our ability and the fact that we had reinsurance actually put a floor on the stock.
And once in some smarter investors jumped in but if you saw we traded well below book in 2020, I want to say 60 ish percent of book I.
Believe it or not for for a week or two as our as we talk to investors.
And kind of walked them through health because no one really cared about the reinsurance until a pig herd alright, I mean, we were getting questions in February of 'twenty around growth and then in March of 'twenty everyone's ward.
What how losses, we're going to do so it just shows you, but as we were able to talk to talk to investors about the reinsurance and how hedged. It was you saw that the stock price started to climb back towards book, we use that because of the uncertainty in the environment, we use that as an opportunity to raise more capital right.
We are in this business longer term or an insurance company. So we took any we felt like we could do.
Get through the great financial crisis, given given how we restructure we werent sure at the time, if we can get through a greater financial crisis and no. One knew in April and May of 2020, So we use that as an opportunity to strengthen our balance sheet I would argue if we didn't have reinsurance that would've been very difficult they would've been very difficult to predict the bottom we were able to share.
Investors kind of what kind of where the losses would be and so yes, I mean youre going to get those questions. How good can it get its pretty good and I would say, it's we are very pleased with the balance of the business. So when rates are down.
What's going to happen when rates go down our yield is going to go down a little bit for sure although higher for longer longer maybe maybe a view, but I'd say our investment yield goes down a little bit persistency will certainly go down the book is going to grow we're going to end up doing a lot more niwa, probably a title sides, a little bit more levered to lower rates and rates are.
Or up and we will.
When the rates are up again look or the persistency is the higher investment yield. So I think we're well balanced I would I would point out some of the mortgage services or in an equal position if you've seen some of their performance given given the strength of their servicing portfolio. So yes. It can always I mean, theres always going to be things.
That you can point to but I would say I would point to the balance of the portfolio and not get too caught up in it.
If there is kind of slowness.
Does that really does that really hurt the company longer term I don't believe it does.
Got it that's helpful.
<unk> and other programs that are being put in place to help with affordability. How are you thinking about those is that a factor in your pricing or not I guess, either pricing or any all credit scoring.
Hey, good morning, Mihir, it's Chris as far as the buy down activity, we're pretty consistent in the first quarter with the first quarter of last year realm.
Relative to the amount of buy downs and we'll call. It the temporary bounce that we're seeing I think from a performance standpoint, even from temporary buy downs that have reset.
We continue to actually be pleased with the overall performance of the temporary buy downs.
As compared to our entire portfolio from a pricing standpoint for us don't forget. These these loans are underwritten to the growth rates.
All up to the gross coupon so from an underwriting perspective, we're comfortable with the production and then certainly from a pricing perspective, it really goes back to Essent edge and how we leverage the data the credit data for the borrower themselves versus the rate on the note.
Okay.
And then just my last question.
Mortgage market size for you I guess, the semi market size and even.
What are you hearing from originators as we had to do this.
Better housing was seasonally better housing season here.
Yes.
I don't think youre going to remember historically, except for certain periods, there's usually a bell curve to origination so lower in the first and the fourth and that kind of peak in the second and third I don't think youre going to see much of it.
A bump this year, just given where rates are and the lack of supply I would say overall I think the origination market that we're seeing from Fannie MBS, probably a little bit optimistic and remember some of that came from kind of a pivot in the fourth quarter and now again, it's back to higher for longer I think in terms of Eni.
W market, let's say $2 50 ish to $2 75, I see that as kind of the market for this year, which again is fine it just means persistency.
We'll probably stay a little bit more elevated like we said in the script, but yes, I'm not I would've thought depending where rates go maybe later in the year and it's obviously dependent kind of on the election of outcome youre, probably going to see more of a normalization in 2020 five and 'twenty 2020 in 2021, or so or such an anomaly.
Youre seeing the impact of that on the 22.
23, and now the 24 kind of.
Origination market.
Got it. Thank you. Thank you for taking my questions sure.
Yes.
Your next question comes from the line of Bose George from <unk>. Your line is open.
Hey, everyone. Good morning, just have a couple of follow up questions.
In terms of your share rates you guys exhibit K youll give the cumulative cure rate.
So back to the March 2023, I guess now is 91% of that is cured. If you rolled back further so say for example March 2022.
Does that number look like where does that get too.
Earlier loans.
Thank you.
Thanks for the question.
Don't have those numbers right at our fingertips and probably.
Phil can follow up with you and way afterwards, but it's going to.
As we continue to grow out we continue to have cure activity from all the vintages.
And so they're going to be higher or are there going to be in the mid to upper <unk> I don't have those numbers at my fingertips.
Okay.
Safe to say that theyre coming in much better than your initial assumptions when you set your default to claim rates.
Yes so.
Clearly, we do or we make our best estimates based on the favorable prior year development, we've been having yes, I think that's a fair I think that's a fair statement.
Okay, great. Thank you that's all I had thanks a lot.
Youre welcome.
That concludes our question and answer session I will now turn the call back over to management for closing remarks.
Thanks, everyone for joining nice questions from the analysts I thought you guys did a great job and have a great weekend.
This concludes today's conference call. Thank you for your participation you.
You may disconnect.
Please wait the conference will begin shortly.
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