Essent .(US:ESNT)2021-02-25 16:00Financial Performance - For the year ended December 31, 2020, the company generated new insurance written (NIW) of approximately $107.9 billion, a significant increase from $63.6 billion in 2019 and $47.5 billion in 2018[39]. - As of December 31, 2020, the company had approximately $198.9 billion of insurance in force, indicating strong market presence[39]. - The top ten customers represented approximately 35.8% of the company's NIW on a flow basis for the year ended December 31, 2020[39]. - The significant increase in mortgage market activity in 2020 was largely driven by historically low interest rates due to the COVID-19 pandemic[49]. - The private mortgage insurance industry has more than doubled its share of the total insured market since 2009, indicating significant growth in the sector[53]. - As of December 31, 2020, the total Insurance in Force (IIF) was $198,882,352 thousand, an increase from $164,005,853 thousand in 2019, representing a growth of 21.3%[84]. Market Context - The U.S. residential mortgage market had over $11.5 trillion of debt outstanding as of September 30, 2020, highlighting the scale of the market in which the company operates[46]. - GSEs held or guaranteed approximately $5.3 trillion, or 45.8%, of total U.S. residential mortgage debt outstanding as of September 30, 2020, indicating their significant role in the market[47]. - In 2020, total U.S. residential mortgage origination volume was estimated at $3.57 trillion, consisting of $1.42 trillion in purchase originations and $2.15 trillion in refinancing originations[49]. Risk Management - The COVID-19 pandemic had a material impact on the company's financial results, with over 90% of mortgage loans insured being federally backed by GSEs, leading to potential loss reserves due to forbearance[42]. - The company’s risk across all policies written is approximately 25% of the underlying primary insurance in force, varying between 6% and 35% coverage[65]. - The risk management framework encompasses major risks including mortgage insurance portfolio, investment risk, liquidity risk, and regulatory compliance risk[124]. - The modeling and analytics team analyzes mortgage, financial, economic, and housing data to develop proprietary behavioral models for credit assessment and loss severity trends[130]. Regulatory Environment - The company is in compliance with the revised Private Mortgage Insurer Eligibility Requirements (PMIERs 2.0) as of December 31, 2020[152]. - The Dodd-Frank Act amended TILA and RESPA, significantly impacting business prospects for private mortgage insurers[163]. - The QM Rule establishes that a loan is deemed a qualified mortgage if it meets specific requirements, including a maximum debt-to-income ratio of 43%[168]. - The Dodd-Frank Act requires issuers of asset-backed securities to retain at least 5% of the risk associated with securitized mortgage loans, unless classified as a qualified residential mortgage (QRM)[173]. - Increased regulatory scrutiny could lead to new legal precedents or regulations that may adversely affect the financial condition and operating results of private mortgage insurers[180]. Insurance Operations - The majority of policies written are primary mortgage insurance, which provides protection on individual loans at specified coverage percentages[64]. - The company offers mortgage-related insurance and reinsurance through Essent Re, which reinsures 25% of Essent Guaranty's new insurance written (NIW)[77]. - Approximately 66% of the insurance in force was originated on a delegated basis as of December 31, 2020, compared to 62% as of December 31, 2019[121]. - Approximately 34% of the insurance in force was originated on a non-delegated basis as of December 31, 2020, compared to 38% as of December 31, 2019[121]. Customer and Portfolio Insights - The company maintains a geographically diverse portfolio, with only three states (California, Texas, and Florida) accounting for more than 5% of the IIF as of December 31, 2020[88]. - The top metropolitan statistical area by IIF was Phoenix-Mesa-Chandler, AZ, which accounted for 3.0% of the total IIF in December 2020, up from 2.7% in 2019[93]. - The IIF by FICO score shows that loans with a score of >=760 accounted for 41.5% of the total IIF in both 2020 and 2019, while the segment of 740-759 increased from 17.0% in 2019 to 17.3% in 2020[84]. - The IIF by Loan-to-Value (LTV) ratio indicates that loans with an LTV of 90.01% to 95.00% represented 43.3% of the total IIF in 2020, up from 46.7% in 2019[84]. Investment Strategy - The investment portfolio represented 91.4% of total assets at December 31, 2020, with a focus on preserving capital and generating investment income[143]. - Approximately 86.2% of investments available for sale were managed by external asset managers as of December 31, 2020[146]. - The company has adopted an investment policy that includes specific limits for asset sectors, credit ratings, and eligible investments[144]. Default and Claims - As of December 31, 2020, the number of primary insured loans was 799,893, with 31,469 loans in default, representing a default rate of 3.93%[136]. - The number of COVID-19 classified defaults was 28,922 out of the total defaults as of December 31, 2020[139]. - Historically, mortgage insurers do not receive claim requests until approximately 18 months following a default, with a noted increase in time lag due to foreclosure moratoriums[140]. - The company expects that the forbearance process could favorably affect the frequency of claims ultimately paid[139].