Essent .(ESNT) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Essent Group Ltd.'s H1 2025 unaudited financials report $7.22 billion in assets, $370.8 million net income, and strong operating cash flow despite share repurchases Condensed Consolidated Balance Sheets Total assets increased to $7.22 billion, liabilities rose to $1.55 billion, and stockholders' equity slightly increased to $5.67 billion as of June 30, 2025 | (In thousands) | June 30, 2025 (USD) | December 31, 2024 (USD) | | :--- | :--- | :--- | | Total Assets | $7,220,561 | $7,111,649 | | Total Investments | $6,326,360 | $6,180,621 | | Cash | $92,116 | $131,480 | | Total Liabilities | $1,547,713 | $1,507,991 | | Reserve for losses and LAE | $364,749 | $328,866 | | Net deferred tax liability | $427,202 | $392,428 | | Total Stockholders' Equity | $5,672,848 | $5,603,658 | Condensed Consolidated Statements of Comprehensive Income Q2 2025 net income decreased to $195.3 million, and H1 2025 net income was $370.8 million, primarily due to a higher provision for losses | (In thousands, except per share) | Three Months Ended June 30, 2025 (USD) | Three Months Ended June 30, 2024 (USD) | Six Months Ended June 30, 2025 (USD) | Six Months Ended June 30, 2024 (USD) | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $319,143 | $312,942 | $636,701 | $611,299 | | Provision (benefit) for losses and LAE | $17,055 | $(334) | $48,342 | $9,579 | | Net income | $195,339 | $203,609 | $370,772 | $385,328 | | Diluted EPS | $1.93 | $1.91 | $3.62 | $3.61 | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $5.67 billion in H1 2025, driven by $370.8 million net income, partially offset by dividends and share repurchases - Key drivers for the change in stockholders' equity in the first six months of 2025 include: - Net income: +$370.8 million[21] - Dividends declared: -$63.2 million[21] - Cancellation of treasury stock (share repurchases): -$340.2 million[21] Condensed Consolidated Statements of Cash Flows Operating cash flow was $411.1 million in H1 2025, but significant financing activities, including $339.4 million in share repurchases, led to a $39.4 million net cash decrease | (In thousands) | Six Months Ended June 30, 2025 (USD) | Six Months Ended June 30, 2024 (USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $411,104 | $405,626 | | Net cash used in investing activities | $(48,576) | $(255,272) | | Net cash used in financing activities | $(401,892) | $(94,739) | | Net (decrease) increase in cash | $(39,364) | $55,615 | Notes to Condensed Consolidated Financial Statements The notes detail the single mortgage insurance segment, $6.3 billion investment portfolio, extensive reinsurance, and $328.5 million in H1 2025 share repurchases - The company operates in one reportable business segment: Mortgage Insurance, which offers private mortgage insurance and reinsurance for U.S. residential properties[34][125] | Investment Type | Fair Value (June 30, 2025, USD thousands) | % of Total | | :--- | :--- | :--- | | Corporate debt securities | $1,908,167 | 32.0% | | U.S. agency mortgage-backed securities | $1,172,715 | 19.7% | | Asset-backed securities | $796,065 | 13.4% | | Municipal debt securities | $600,618 | 10.0% | | Money market funds | $580,964 | 9.7% | | Other | $909,726 | 15.2% | | Total Investments Available for Sale | $5,966,537 | 100.0% | - The company utilizes both Quota Share (QSR) and Excess of Loss (XOL) reinsurance agreements to manage risk[54][55][56] - As of June 30, 2025, total risk in force (RIF) ceded under QSR agreements was $9.5 billion[54][55][56] - The XOL coverage is provided through both traditional reinsurance panels and insurance-linked notes (Radnor Re Transactions)[54][55][56] - In H1 2025, the company repurchased 5,755,400 common shares at a cost of $328.5 million under its authorized share repurchase plan[82] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses stable mortgage insurance performance with $12.5 billion NIW, strong capital (9.2:1 risk-to-capital), and increased provision for losses due to aging defaults Overview & Current Developments Essent's core mortgage insurance business saw stable $12.5 billion NIW for Q2 2025, with elevated interest rates impacting investment income and persistency - New insurance written (NIW) was approximately $12.5 billion for Q2 2025, consistent with the $12.5 billion from Q2 2024[140] - Elevated mortgage interest rates have reduced home buying and refinance activity, leading to lower NIW and title insurance volumes, but have increased net investment income and the persistency of the mortgage insurance in force[144] Key Performance Indicators Insurance in Force grew to $246.8 billion, with a stable net premium rate of 0.36% and a strong risk-to-capital ratio of 9.2:1 | (In thousands) | End of Q2 2025 (USD) | End of Q2 2024 (USD) | | :--- | :--- | :--- | | Insurance in Force (IIF) | $246,797,619 | $240,669,165 | | Risk in Force (RIF) | $56,811,096 | $55,521,538 | - The average net premium rate for the U.S. mortgage insurance portfolio was stable at 0.36% for both the three and six months ended June 30, 2025 and 2024[187] - The risk-to-capital ratio for Essent Guaranty was 9.2:1 as of June 30, 2025, indicating a strong capital position relative to its net risk in force of $34.0 billion and statutory capital of $3.7 billion[188] Results of Operations Consolidated net income decreased in Q2 2025 to $195.3 million due to a higher provision for losses, partially offset by increased net investment income | (In thousands, except per share) | Q2 2025 (USD) | Q2 2024 (USD) | H1 2025 (USD) | H1 2024 (USD) | | :--- | :--- | :--- | :--- | :--- | | Net Premiums Earned | $248,809 | $251,891 | $494,657 | $497,481 | | Net Investment Income | $59,289 | $56,086 | $117,499 | $108,171 | | Provision (benefit) for losses | $17,055 | $(334) | $48,342 | $9,579 | | Net Income | $195,339 | $203,609 | $370,772 | $385,328 | - The provision for losses increased significantly in Q2 and H1 2025 compared to the same periods in 2024, primarily due to the aging of defaults remaining within the mortgage insurance portfolio, which increased the average reserve per default[196][208] - The Mortgage Insurance segment's combined ratio increased to 22.1% in Q2 2025 from 16.2% in Q2 2024, driven by a higher loss ratio[200] Liquidity and Capital Resources The company maintains strong liquidity with $1.0 billion in cash and investments at the holding company and Essent Guaranty's PMIERs Available Assets at 176% of minimum required - As of June 30, 2025, the holding companies had $1.0 billion in cash and investments, and there was $500 million of available capacity under the Revolving Credit Facility[226] - Essent Guaranty's risk-to-capital ratio was 9.2:1 as of June 30, 2025, with statutory capital of $3.7 billion[247] - The company was in compliance with Private Mortgage Insurer Eligibility Requirements (PMIERs), with Essent Guaranty's Available Assets at $3.7 billion, or 176% of its Minimum Required Assets of $2.1 billion[251] Financial Condition Stockholders' equity increased to $5.7 billion, and the $6.3 billion investment portfolio is primarily high-quality, investment-grade securities - Stockholders' equity increased to $5.7 billion at June 30, 2025, from $5.6 billion at December 31, 2024, driven by net income, partially offset by dividends and share repurchases[254] | Asset Class | Fair Value (June 30, 2025, USD thousands) | Percent | | :--- | :--- | :--- | | Corporate debt securities | $1,908,167 | 32.0% | | U.S. agency mortgage-backed securities | $1,172,715 | 19.7% | | Asset-backed securities | $796,065 | 13.4% | | Total Investments Available for Sale | $5,966,537 | 100.0% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with an investment portfolio effective duration of 4.0 years as of June 30, 2025 - The primary market risk is interest rate risk affecting the investment portfolio's value[265] - The effective duration of the investments available for sale was 4.0 years at June 30, 2025, indicating that a 100 basis point change in interest rates would change the portfolio's fair value by approximately 4.0%[267] Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of June 30, 2025[268] - No material changes to internal control over financial reporting occurred during the quarter[269] PART II. OTHER INFORMATION Legal Proceedings The company is not currently subject to any material legal proceedings - The company is not currently subject to any material legal proceedings[272] Risk Factors There have been no material changes in risk factors from those disclosed in the Annual Report on Form 10-K for 2024 - There have been no material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[273] Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2025, the company repurchased 2,970,779 common shares for $171.3 million, with $318.8 million remaining for future repurchases | Period | Total Shares Purchased | Average Price Paid (USD) | Total Cost (approx., USD) | | :--- | :--- | :--- | :--- | | Q2 2025 | 2,970,779 | $57.66 | $171.3 million | - As of June 30, 2025, $318.8 million remained available for share repurchases under the company's authorized plan[275] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in Inline XBRL format - The exhibits filed with this report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1) and financial data in Inline XBRL format (Exhibit 101)[276]