Q2 2025 Essent Group Ltd Earnings Call

Speaker #2: Hello, and thank you for standing by. My name is Perla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Ltd. second quarter earnings call.

Speaker #2: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad.

Speaker #2: If you would like to withdraw your question, please press the star one again. Thank you. I would now like hand the conference over to Phil Stefano, Investor ations DC.

Speaker #2: Go head.

Speaker #3: Thank you, Perla. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO, and David Weinstock, Chief Financial Officer.

Speaker #3: Also on hand for the Q&A portion of the call is Chris Curran, President of Essent Guarantee. Our press release, which contains Essent's financial results for the second quarter of 2025, was issued earlier today and is available on our website at essentgroup.com.

Speaker #3: 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.

Speaker #3: For 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 19th, 2025, and any other reports and registration statements filed with the SEC which are also available on our website.

Speaker #3: Now, let me turn the call over to Mark.

Speaker #4: Thanks, Phil, and good morning, everyone. Earlier today, we released our second quarter 2025 financial results, which continue to benefit from favorable credit performance and the impact of higher interest rates on persistency and investment income.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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 creditworthy borrowers are being qualified for mortgages, as evidenced by the weighted average credit score of our new business.

Speaker #4: Also, the increase in home values has resulted in further embedded equity within our ured portfolio, which provides a level of protection in reducing the probability of loans transitioning from default to claim.

Speaker #4: And now for our results. For the second quarter of 2025, we reported net income of $195 million compared to $204 million a year ago.

Speaker #4: On a diluted per-share basis, we are at $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.

Speaker #4: As of June 30th, our US mortgage insurance enforced was $247 billion, a 3% increase versus a year ago. The credit quality of our insurance enforced remains strong, with a weighted average FICO of 746 and a weighted average original LTV of 93%.

Speaker #4: Our 12-month persistency on June 30th was 86%, flat from last quarter. While nearly half of our enforced portfolio has a note rate of 5% or lower.

Speaker #4: We continue expect that the current level mortgage rates will support elevated persistency in the near term. On the Washington front, our industry continues to play a vital role in supporting a well-functioning and sustainable housing finance system.

Speaker #4: We believe access and affordability will continue to be the primary focus in DC. Essent is supportive and believes that our industry is very effective in enabling home ownership for low-down payment borrowers while also reducing taxpayer risk.

Speaker #4: During the quarter, Essent Re continued writing high-quality GSC risk-share business and earning advisory fees through its MGA business with a panel of reinsurer clients.

Speaker #4: As of June 30th, Essent Re had risk enforced of $2.3 billion for GSC and other risk-share. Essent Re achieves both capital and tax efficiencies through its affiliate quota share with Essent Guarantee and allows us to leverage Essent's credit, expertise beyond primary MI.

Speaker #4: 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.

Speaker #4: We continue to maintain a long-term horizon for this business. Given persistent headwinds of high rates, we do not expect Title to have any material impact on our earnings over the near term.

Speaker #4: Our consolidated cash and investments as of June 30th total $6.4 billion, 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.

Speaker #4: We continue to operate from a position of strength with $5.7 billion in GAAP equity access to $1.4 billion in excess of loss reinsurance. In a PMIRE fficiency ratio of 176%.

Speaker #4: With a trailing 12-month operating cash flow of $867 million, 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 uarantee's insurance financial strength rating to A2, and Essent Group's senior unsecured debt rating to BA2.

Speaker #4: 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 severe stress, and preserve optionality for strategic growth opportunities.

Speaker #4: We continue to believe that success in our business is best measured by growth and book value per share, as we look to optimize returns over the long term.

Speaker #4: In addition, our strong capital position and slowed-down in portfolio growth allow us to be active in returning capital to shareholders. With that in mind, I am pleased to announce our board has approved a common dividend of $0.31 for the third quarter of 2025.

Speaker #4: Further, year-to-date through July 31st, we were purchased nearly $7 million shares for approximately $390 million. Now, let me turn the call over to Dave.

Speaker #5: Thanks, Mark. And good morning, everyone. Let me review our results for the quarter in a little more detail. For the second quarter, we are in 1.93 per diluted share compared to $1.69 last quarter.

Speaker #5: The $1.91 in second quarter a year ago. My comments today are going to focus primarily on the results of our mortgage insurance segment, which aggregates our US mortgage insurance business and the GSC and other mortgage reinsurance business at our subsidiary, Essent Re.

Speaker #5: There's additional information on corporate and other results in Exhibit O of the financial supplement. Our US mortgage insurance portfolio ended the second quarter with insurance enforced of $246.8 billion.

Speaker #5: An increase of $2.1 billion from March 31, and an increase of $6.1 billion or 2.5% compared to $240.7 billion at June 30, 2024. Persistency at June 30, 2025, was 85.8%.

Speaker #5: Essentially unchanged from the first quarter of 2025, mortgage insurance net premium earned for the second quarter of 2025 was $234 million, which included $13.6 million of premiums earned by Essent Re on our third-party business.

Speaker #5: 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.

Speaker #5: Our mortgage insurance provision for losses and loss adjustment expenses was 15.4 million in the second quarter 2025. Compared to $30.7 million in the first quarter 2025, and a benefit of $1.2 million in the second quarter a year ago.

Speaker #5: At June 30th, the default rate on the US mortgage insurance portfolio was 2.12%. Down 7 basis points from 2.19% at March 31st, 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.

Speaker #5: Mortgage insurance operating expenses in the second quarter were 36.3 million, and the expense ratio was 15.5%. Compared 43.6 million, and 18.7% in the first quarter.

Speaker #5: As a reminder, in April, we entered into two excessive loss transactions covering our 2025 and 2026 new insurance written, effective July 1st of each year, with panels of highly rated reinsurers.

Speaker #5: In addition, in April, seating percentage of our affiliate quota share with Essent Re increased from 35% to 50%. Retroactive to NIW starting from January 1st, 2025.

Speaker #5: At June 30th, Essent Guarantee's PMIR sufficiency ratio was strong, at 176%, with $1.6 billion in excess available assets. Consolidated net investment income increased 1.1 million or 2% to 59.3 million in the second quarter 2025, compared last quarter.

Speaker #5: Due primarily to a modest increase in the overall yield of the portfolio. As Mark noted, our total holding company liquidity remains strong and includes $500 million of undrawn revolver capacity, under our committed credit facility.

Speaker #5: At June 30th, we had $500 million of senior unsecured notes outstanding, and our debt-to-capital ratio was 8%. During the second quarter, Essent Guarantee paid a dividend of $65 million to its US holding company.

Speaker #5: As of July 1st, Essent Guarantee can pay additional ordinary dividends of $366 million in 2025. At quarter end, Essent Guarantee's statutory capital was $3.7 billion, with the risk-to-capital ratio of 9.2 to 1.

Speaker #5: Note that statutory capital includes $2.6 billion of contingency reserves as of June 30. During the second quarter, Essent Re paid a dividend of $120 million to Essent Group.

Speaker #5: Also in the quarter, Essent Group paid cash dividends totaling $30.9 million to shareholders, and we repurchased $3 million shares for $171 million. In July 2025, we repurchased $1 million shares for $59 million.

Speaker #5: Now, let me turn the call back over to Mark.

Speaker #4: 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 remain strong.

Speaker #4: 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.

Speaker #4: Our strong earnings and cash flow continue to provide us with an opportunity to balance investing in our and returning capital to shareholders. We believe this approach is in the best long-term interest of Essent and our keholders, while Essent continues to play an integral role in supporting affordable and sustainable home ownership.

Speaker #4: Now, let's get to your questions. Operator?

Speaker #2: Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.

Speaker #2: If you would like to withdraw your question, please press the star one again. And your first question comes from the line of Terry Mao with Barclays.

Speaker #2: Please go head.

Speaker #6: 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 ink about pricing on a go-forward basis?

Speaker #6: And then, secondly, how would you feel about the more recent vintages that the industry has underwritten, which have seen just less home price appreciation overall?

Speaker #4: Good morning, Terry. I ink on home price appreciation, and where do we see home prices going? Well, it really depends, you know, down at the MSA level.

Speaker #4: So, I mean, we have a pretty detailed forward-looking model across all of the MSAs. It puts a lot of, you know, I say the driving factors are clearly month supply, you ow, recent home price appreciation, and job growth, right?

Speaker #4: Those are the kind of three factors if you just kind of boil it down to a local community. You know, and I ink there, yeah, we see home prices going up in certain areas still because of the lack of supply.

Speaker #4: Other areas we think there's going to be some weakening. And we've thought that for a while. And it depends on the extent of it, you ow, 5-ish, 10-ish percent maybe in certain markets.

Speaker #4: 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.

Speaker #4: You know, income growth still at 3 or 4 percent. And then you had a doubling of rates. So that's why you've seen such kind of slowdown in housing, right?

Speaker #4: We're kind of coming out of that. You've heard me say it before, the COVID bubble, so to speak, with low rates and high demand.

Speaker #4: And we're kind of on the second leg of that. So I think coming out of that, you know, 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—you can almost draw the math up as to depending on where your belief is on rates.

Speaker #4: So 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.

Speaker #4: I mean, there's a big issue. There's a big push in DC around affordability as a big push with our lenders. As it should be.

Speaker #4: It's very difficult to get a mortgage, especially when you think of the first-time homebuyer being 38 years old, when historically it's been in the low 30s.

Speaker #4: That tells you right there that rates, right? And that's, and folks are having trouble getting home. So anything to kind of help affordability, that ans HPA going down a little bit, that's fine.

Speaker #4: I look at the embedded equity in our portfolio, I'm not particularly worried. Yeah, you said the recent vintages, I would say, sure, we've always said they're probably more exposed.

Speaker #4: But they're pretty normal, right? So if you think about, you know, historically, Terry, kind of on average, let's say before COVID, and you looked at our portfolio, it was probably 81% to 82% mark to market.

Speaker #4: 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.

Speaker #4: In terms new business, we've always priced ly. So we kind of have little add-ons for we'll call them market of focus. And that, again, has to be it's just HPA rose a lot, put some market of focus for us.

Speaker #4: If there's still underlying strong income growth and kind of lack of supply, that kind of, you know, 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, you know, Cape Corals in the Wall Street Journal, and you should stay away from it.

Speaker #4: The default rates in that area for us are pretty similar to the rest of our portfolio. I want to say it's a touch higher.

Speaker #4: Go to Austin. Our default rates are ally lower than the overall portfolio. So you have to be careful at kind of trying to look at the industry from a 30,000-foot level.

Speaker #4: I think when you look at individual at Essent, you ow, I think continually the returns are there. And obviously, when you think about how what we're doing on the capital side, you know, I think we probably have pretty good sense of where, you ow, our view around credit.

Speaker #6: Got it. Super helpful. And guess maybe on just credit for the quarter, new defaults were up 9% year over year. The pace of increase is kind of decelerated markedly the last few quarters.

Speaker #6: 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?

Speaker #6: Thank you.

Speaker #4: Yeah. I mean, again, new defaults, nothing surprising. I mean, very consistent with 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.

Speaker #4: Around defaults where you see it kind of decrease in the first half of the year. It tends pick up a little bit in the second half of the ar.

Speaker #4: So there's kind of the normal seasoning that folks should be aware of. But it happened last year, and it seemed to catch everyone by surprise that our default seasons.

Speaker #4: And then, you know, now they're kind of, you ow, they decrease in the first half of the year. But I think you'll see that normal seasoning big picture.

Speaker #4: You know, Terry, again, it's, you ow, two-ish, one point, was it 2.12% default, you know, out of roughly 811,000 or 12,000 loans that we have.

Speaker #4: So you know, again, it ebbs and flows a little bit. But I think big picture, given the embedded equity, in the portfolio, you ow, having some of those even if they become defaults transitioning to claim depending the vintage is, you know, it's it's it's it's a it's a probably in the lower probability side.

Speaker #4: So again, I think from a credit standpoint, big picture, you know, we feel pretty good. you know, from that first loss perspective.

Speaker #6: Got it. Thank you.

Speaker #2: And your next question comes from the line of Bruce George, with KBW. Please go head.

Speaker #7: Hey, uys. 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 excess capital which is obviously built quite bit over the last couple of ?

Speaker #4: It's a little bit of both. Both. I I think we've always, you know, I think we kind of have, we are valuation-sensitive around the buyback.

Speaker #4: So we kind of a grid, you ow, that we execute across. And it changes quarter to quarter depending on, you know, where we think credit is.

Speaker #4: Are there any opportunities to invest the cash? It's a pretty high bar, given the returns in the core business. And to your point, as we said before, we have a retained and investment mentality.

Speaker #4: 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.

Speaker #4: we like, you know, where, you know, the valuation is. We think it's really good returns for the shareholder. So it's a good use of proceeds.

Speaker #4: And and kind given, you know, what we did in July, I wouldn't expect that to change for the remainder of the year. You know, I n't be surprised if it doesn't change.

Speaker #4: You know, given what we're looking . And we'll have something else. It's probably going to be in an investor deck we'll out next week.

Speaker #4: around kind of the embedded value of the portfolio. You know, one of our peers did it a couple of years ago and stopped doing it.

Speaker #4: But it's a really interesting kind of slide that I think it's important for analysts and investors to take a look . And if you think , it'll give you some context for how we think about, you know, the company bows.

Speaker #4: I mean, we roughly 5.7 billion of capital that we have today. That's roughly where the stock trades in terms of a ket cap. If you look, it esn't really give any credit meant for the what roughly $245 billion insurance enforced we have.

Speaker #4: 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.

Speaker #4: Take a look at the investment portfolio, six, six and a half billion. You know, yielding close to four. A lot of embedded value in the investment portfolio bows that frankly wasn't there three, four years ago.

Speaker #4: 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 dollars in terms of the stock, in terms of the valuation, additional book value.

Speaker #4: So embedded book value, and that doesn't give us, that doesn't ignore any credit for being a platform or a franchise that's one of six in the country that offers low-down payment borrowers to the top lenders.

Speaker #4: back with the GSCs. So again, just big picture, I don't, it's a slide and I think it's something just for investors be aware of.

Speaker #4: And I think it's something we're going to start thinking through and and discussing with investors. It's pretty true for all of our competitors too.

Speaker #4: So it's not just an Essent-only thing. and I think it deserves a little bit more of a spotlight. So I think when ou put in the context of that, and again, given, where you know the valuation is, we feel comfortable buying shares, healthy amount of shares back at, at these prices.

Speaker #7: So that's great. Very helpful. Thanks. And then just one follow-up on the buybacks. Actually, what was the dollar amount that was spent just during the second quarter?

Speaker #4: Yeah. Hey, I was just Dave Weinstock. So we purchased $3 million shares at $171 million in the second quarter.

Speaker #7: Okay. Great. Thank ou.

Speaker #4: Sure.

Speaker #2: And your next question comes from the line of Doug Harter with UBS. Please go ahead.

Speaker #8: Thanks. And good ning. Mark, just I ess following up on that embedded value in the buyback. You know, how are you inking about, you know, sizing it?

Speaker #8: You know, what are the the the limitations of, you ow, 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, kind of buying back today?

Speaker #4: No, that's a good question. I think there's clearly a limit, right? I an, and we have, you know, we we get cash back to the group two ways.

Speaker #4: you know, obviously through US and holdings, which is the core. So we'll dividend it up from guarantee up to holdings and then have to get it to group.

Speaker #4: Then we invest in re. So, as we've tended to use a little bit more Essent Re recently, it's a little bit more tax-efficient, Doug.

Speaker #4: but there is a limit. So when you think kind of payout type ratios, you know, I think 100 is probably is is kind the max just from kind of how the cash moves through the system.

Speaker #4: Not saying we would do that, but if you're looking at an upper-end just over the net, you know, where it was kind of in the first half of the year, that that's that's a decent level.

Speaker #4: In terms of how we calculate excess capital, we've received many questions over the years. PMIRES is certainly one. But we also look at it from an enterprise framework, right?

Speaker #4: Because we we include Essent Re in there. So kind of look at it like consolidated capital requirements and needs. And we run it through, different stress.

Speaker #4: I would say the 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.

Speaker #4: So, and I think that's important, right? I think you have now another independent party looking at our balance sheet and our risk in a detailed review of the stresses and feels comfortable now that we're at the kind of single-A level.

Speaker #4: I think that's, I think that's good s for investors and clearly for bondholders. We'll also look at it. We'll still run it through the Great Financial Crisis.

Speaker #4: We'll still run that. So we're always looking because, remember, we're that upper tier, Doug, right? We own the first loss. We're comfortable. That's why we don't get too stressed about default rates and first loss.

Speaker #4: That's kind of what signed up for. and it's much more, it's clearly earnings versus versus capital. And then, you know, we hedge out that whole mez piece.

Speaker #4: You know, our exposure is when it comes back to the top. And I ink when we think about what comes back to the top, is the probability that low?

Speaker #4: Sure it is. But, you know, it was low. It's, you ow, low doesn't mean zero. So I think when we look at that environment, we're we're looking to make sure we clearly have enough, more than enough capital from a PMIRE standpoint.

Speaker #4: And remember how procyclical PMIRES is, Doug. So there's a liquidity component of that to the MIs that I'm not sure all investors appreciate.

Speaker #4: So we run it through that. So not capital, clearly P&L, but PMIRES 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.

Speaker #4: An opportunistic. So, we we had that chance in 2020. If you go back, we raised capital. We had plenty of capital. We wrote a lot more business than some of our competitors back then because we had the capital.

Speaker #4: We're still enjoying the cash flows of that today. so so I think it's it's it's it's making sure we're just well-positioned between we say it like a range of economic scenarios.

Speaker #4: So we really don't get caught on our back foot. So again, clearly, you know, 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.

Speaker #4: And bows alluded to it. Some of it is just a buildup that's been over the last couple of years, Doug. You know, we have it and we're fortable and and we're fortunate, you know, and I say this in, you know, yone wants their stock price up, but if you're looking to to buy shares back, you kind of ike the valuation that it's at.

Speaker #4: So I, you know, we're not 're not too, we're too, you know, stressed about that either, so. Hopefully, that gives you a little color.

Speaker #7: Very helpful, Mark. Thank you.

Speaker #2: And your next question comes from the line of Rick Shine with JPMorgan. ase go head.

Speaker #8: Good morning, everybody, and thanks for taking my question. 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.

Speaker #8: The '23 vintage persistency was a little bit lower. That makes sense. Presumably, that is, the cusp of the more slightly seasoned vintages. And so you probably have borrowers there who are trying to take advantage of the refi window.

Speaker #8: the other two vintages that have, persistency a little bit lower sequentially, are 2020 and 2021. I'd like, like to delve in a little bit more on that.

Speaker #8: Is that just natural aging associated with those vintages? Should we expect regardless of rate that the persistency should trend down there? Or is it exogenous factors like borrowers taking seconds and the brokers getting appraisals and allowing borrowers to rescind the PMI?

Speaker #4: Yeah. I an, not to unpack there, ick. I would say, which is 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 you ow 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 85s.

Speaker #4: If you look at our market, if you kind of break our market share between 80 to 85, we may be the lowest in the industry.

Speaker #4: So, ou know, 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?

Speaker #4: And all of a sudden now you're five years into it. You know, especially folks who bought the house then, if their families are bigger, they're, again, rates on all sides.

Speaker #4: You know, they're looking, you know, they could be looking to move up. So that doesn't, that's pretty natural. And that's happened over time as the portfolio seasons.

Speaker #4: I don't ink it's seconds. And I know there's a lot of noise around seconds. I do think seconds in home equities will become continued to increase as they should if someone is kind of locked into the 3% mortgage and they need another bedroom and, you ow, to get the home equity loan in addition makes perfect sense.

Speaker #4: We haven't done it most recently, but I ink the last time we did it, 3% of our portfolio had seconds on it. So it's, it's, I wouldn't, in, back to reading, you ow, big picture articles and assigning it into the MI portfolio.

Speaker #4: A little tougher to stick a second on an 85 or 90 LTV, even if it has built the, you ow, build-in market. It's a of that's going to be on the, you know, traditional, you know, below 80 business for the GSCs.

Speaker #4: So again, I ink it's also interesting, Rick, just to point out again the strength of the business model. We got questions galore. From 2014 to 2020, like especially '18, might have been even in '18 when rates went up, like, "Geez, Mark, how's your portfolio going to perform when rates increase?" You know, at's going to happen to Essent when rates increase?

Speaker #4: And we would say, "Hey, you know what? There's a hedge." You know, NIW is going to go down or persistency should stay elevated. And then clearly in 2022, it was a little bit of that on steroids, right?

Speaker #4: ecause 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.

Speaker #4: I mean, we ran a business where our yields were below 2% for, you know, 10-plus years. And every year we thought the yields go up and they never did.

Speaker #4: And then we woke up one day and now they're at, you know, new money yields at 5. I do think it's a reminder of the strength of the portfolio.

Speaker #4: So and kind of the business model. It's a unique business model. And that where we play in a space that we understand very well, but we're able to take that and insurance form and premium form.

Speaker #4: So there's a building kind cash flow advantage to getting to getting paid first. And now the next question we'll get, and as we should get, is what happens when rates when go down?

Speaker #4: You know, at does that do? And I think it's the thing, Rick. It's going to be persistency is going to lower in certain segments, especially the newer segments, right, where the rates are in the 6s.

Speaker #4: But the renewed NIW is probably going grow the portfolio. So we're, yeah, I just don't know when that's going to be. I ink you would ask me that a couple of ago and we're still not sure.

Speaker #4: The timing of it, a lot of it gets back to that earlier question or comment around affordability. It has to reach kind of that medium level.

Speaker #4: And then I believe, you know, I could be wrong. I've been rong many times before, but do believe there's a pent-up demand for housing.

Speaker #4: And I think it's, and I think, and it's ironic, but the longer this slowdown lasts, the probably the more upside there'll in in in housing in the return to housing and demand.

Speaker #4: Which thing will bode well for the top line for Essent and the whole industry, to be honest.

Speaker #7: Now, it's fair. And there's an interesting comment there, which is you've wrong many times. And I appreciate the humility of that and acknowledge the number of times I've wrong too.

Speaker #7: 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.

Speaker #7: I'm curious and 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.

Speaker #7: 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, you ow, 12 to 18-month duration of their assets, they can recover that very quickly.

Speaker #7: And it made me think of you guys and how long the duration of your portfolio is. Are you willing to, when you see those, have those concerns take the risk of pulling back and knowing that for five years, you will have a cohort that is underrepresentative at the risk of being wrong?

Speaker #4: I think it depends. I wouldn't say we would shy away from lower share. I mean, we've done it in the past. I think we've probably, you know, there's been records where we've been, you know, I think we've been top market share like twice in the quarter in our history, but we've been at the bottom.

Speaker #4: More twice. So we're not afraid to kind of make calls there. A lot of it's pricing. And it's also an interesting thing in our industry.

Speaker #4: There's a lot of, as you know, and that's really the only competitive factor to the industry, Rick. We 't really have a lot of credit competition in the industry.

Speaker #4: And that goes back again to the guardrail setup. I've always called them the credit guardrails, set up with, you know, the qualified mortgage rule, Fannie and Freddie with DU and LP.

Speaker #4: They do such a good job of segmenting risk. They do a great job around QC. We're ind of the beneficiaries of that. As is the industry, there's not a lot of credit competition.

Speaker #4: And I think, you know, we haven't gotten a question. But if you think GSC reform, ike what happens if the GSCs go public? You know, one, I think that that helps us a lot more so than people think because I think it'll bring a lot more liquidity into the space.

Speaker #4: From an investor standpoint, it helped us on the CRT side. Kind of more visibility, probably more risk share, right? Because they're going to start, they'll do the buy management and distribute operating model.

Speaker #4: Again, probably in much greater force and they'll probably expand the market a little bit. And there's good and bad to that. 's good because higher top line.

Speaker #4: The bad is it could introduce some credit competition to the space. And we haven't had that. And I think that's when that's when you're going to ake more calls on higher or lower share, right?

Speaker #4: Right now, you know, yielding in a price, you know, we'll back off a little bit on price, but at the end of the day, if the returns are there, we're still there.

Speaker #4: There's a of volatility around the loss assumptions I think then you're going to see lot more disparity in share. And I think we have an advantage there.

Speaker #4: And I don't think it's an advantage 've been able to leverage much. But you know, when you think about our credit scoring engine, Essent Edge, and this comes in with a lot of the, there's a lot of banter about with the scores, the vantage scores, and the new FICO score and all those sort of things.

Speaker #4: We look at the raw credit bureau. 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.

Speaker #4: And let's say I would use the analogy, Rick, like a fairway. If that fairway starts to widen, all of our lenders will increase their volume.

Speaker #4: As they should. I would do the exact same thing. 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 , I think it's even a bigger advantage for us.

Speaker #4: 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's going to happen, but I ink that's, as we think about, we always think about multiple kind of scenarios and how we would react and position the business, you know, kind of before it happens.

Speaker #7: Got it. Okay. I appreciate it very much. Thank you, guys.

Speaker #4: You're come.

Speaker #2: And once again, if you would like to ask a question, simply press star one on your telephone keypad. Your next question comes from the line of Mihir Batya with Bank of America of the East.

Speaker #2: Go head.

Speaker #9: Hi. Good morning. And thank you for taking my questions. First, I just wanted to actually follow up on the Essent Edge point you just made, Mark.

Speaker #9: Specifically, I guess, you know, Essent Edge, you know, next generation, has been out for a couple of years. Can you just talk a ittle bit about what you've seen so far?

Speaker #9: And I appreciate you saying that, you ow, you haven't I guess from the outside, we haven't really been able to, you know, we can't ally tell given how low default rates are.

Speaker #9: How are these engines different? But maybe just talk a little bit about what you're seeing internally. And are you continuing to invest with Essent Edge, 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?

Speaker #4: Yeah. I would say we haven't made a ton of investment on it over the last 12 months once we got, we got, you know, we did lot to get that second credit bureau in.

Speaker #4: So clearly, with some of the noise around the industry with the tri-merge and things like that, we may, we may make the investment to get, to get the third bureau.

Speaker #4: 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.

Speaker #4: So we're eing more opportunities to use it within, within our IT group and other areas to speed things up the market. And I ink that's, you know, we saw some of the lenders and now some things, which we've been, we've been watching.

Speaker #4: So there's some, there's some things there that we potentially could use to improve it over time, which I don't ow if I necessarily would have said that a year ago.

Yeah, I mean it's it's it's it's been kind of, you know, it's been discussion uh Over The Last 5 Years ever since kind of rates went down it's not very common in the business and and part of it is there, there's, there's clearly friction to it, uh, for sure, I'm here, but a lot of the major services do it, they do notify the borrower so the borrowers are aware of it. Um,

Or they're notified of it. It's it's a small dollars, you know, I think it's, it's, you know, again, you're going to there's, there's work to be done to refinance something that's, you know, 30 to 40 basis points. So, I'm not saying it can't be done. Uh, we don't lose a lot of sleep over it. Uh, and, and I do think that we're in terms of AI it, it'll impact it. I'd be surprised if it didn't, it's also going to make refinancing even, you know, in our lenders, I would say today are brutally efficient in in, in refinancing loans, I think it's going to be even more frictionless, and it's just speak to some of our top lenders and their Investments technology. I think what's the common theme of all this though is, the borrower benefits. So if the borrower, you know, right now the borrower, you know, the me automatically cancels below 80. I think that's a great Rule. And and I think that benefits the borrower. So if there's a Slowdown in rates and borrowers are, you know, locked into their mortgage and their home price.

appreciate significantly, and they're able to, you know, get the appraisal easier and uh

And cancel me, good for them, good for the borrower. And and that means it's a good borrower. So yeah. I don't we don't get too fussed about it, is it? There could be some economic impact to it, but I don't think it's very big so I wouldn't, I wouldn't, we're not going to lose a lot of sleep over it.

And then just effective. Squeeze in 1. Question on just topics. Uh any thoughts on outlook for the year? I think it was a little bit of a downtick. This quarter any call outs there?

Hey me here, it's it's Dave Weinstock, you know, we're I think we feel really good about our guidance. Um, you know, if you look at where we are, uh, for the 6 months, um, I think we're kind of right on track for our 160 to 165, probably towards a little bit towards lower end. But you know on a quarter to quarter basis things can fluctuate, you know based on

Uh, but overall, we're happy with where we are.

All right. Thank you for taking my questions.

You're welcome.

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

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

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

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