Essent .(ESNT) - 2021 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION The financial information section provides an overview of the company's financial performance and condition, including unaudited statements and management's analysis Item 1. Financial Statements (Unaudited) The unaudited condensed consolidated financial statements present the financial position, results of operations, and cash flows for Essent Group Ltd. as of September 30, 2021, and for the three and nine months then ended Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity as of September 30, 2021, and December 31, 2020 Condensed Consolidated Balance Sheet Highlights (Unaudited) | (in thousands of USD) | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $5,589,516 | $5,202,724 | | Total Investments | $5,031,267 | $4,654,277 | | Total Liabilities | $1,421,532 | $1,340,091 | | Reserve for losses and LAE | $412,956 | $374,941 | | Total Stockholders' Equity | $4,167,984 | $3,862,633 | Condensed Consolidated Statements of Comprehensive Income This statement details the company's revenues, expenses, and net income for the three and nine months ended September 30, 2021 and 2020 Statement of Comprehensive Income Highlights (Unaudited) | (in thousands of USD, except per share) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $283,536 | $243,038 | $771,594 | $707,955 | | Net Premiums Earned | $218,718 | $222,258 | $655,222 | $640,225 | | (Benefit) Provision for Losses | ($7,483) | $55,280 | $34,490 | $239,220 | | Net Income | $205,353 | $124,536 | $500,796 | $289,439 | | Diluted EPS | $1.84 | $1.11 | $4.47 | $2.77 | Condensed Consolidated Statements of Changes in Stockholders' Equity This statement outlines the changes in the company's stockholders' equity, driven by net income, dividends, and share repurchases - Total stockholders' equity increased to $4.17 billion as of September 30, 2021, from $3.75 billion as of September 30, 2020, driven by net income of $500.8 million for the nine-month period, partially offset by dividends declared ($57.5 million) and treasury stock acquisitions ($94.8 million)[28] Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020 Cash Flow Summary (Unaudited) | (in thousands of USD) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $518,167 | $548,506 | | Net cash used in investing activities | ($403,412) | ($1,083,317) | | Net cash (used in) provided by financing activities | ($151,760) | $582,152 | | Net (decrease) increase in cash | ($37,005) | $47,341 | Notes to Condensed Consolidated Financial Statements The notes provide detailed information on accounting policies, investment portfolio, reinsurance, loss reserves, debt, capital stock, and statutory compliance, including PMIERs Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, including a significant increase in net income, the impact of COVID-19, key performance indicators, liquidity, and regulatory compliance Overview This section provides a high-level summary of the company's insurance in force, new insurance written, reinsurance coverage, and the impact of COVID-19 on default reserving - As of September 30, 2021, Essent had $208.2 billion of insurance in force (IIF), with new insurance written (NIW) at $23.6 billion for Q3 2021 and $67.8 billion for the first nine months of 2021[151] - Essent Re, the company's reinsurance subsidiary, increased its quota share reinsurance coverage of Essent Guaranty's NIW from 25% to 35% effective January 1, 2021[152] - The company reverted to its normal loss reserving methodology for defaults reported after September 30, 2020, as new default credit characteristics trended towards pre-pandemic levels, following a significant increase in new defaults in 2020 due to COVID-19[153] Results of Operations This section analyzes the company's net income, premiums earned, and provision for losses, highlighting the impact of decreased defaults and favorable development from cures - Net income for Q3 2021 was $205.4 million, a significant increase from $124.5 million in Q3 2020, primarily driven by a decrease in the provision for losses and LAE and higher income from other invested assets[194] - Net premiums earned decreased by 2% in Q3 2021 compared to Q3 2020, mainly due to higher ceded premiums under reinsurance agreements, despite an increase in average insurance in force[195] - The provision for losses and LAE was a benefit of $7.5 million in Q3 2021, compared to an expense of $55.3 million in Q3 2020, due to a decrease in new defaults and favorable development from cures[204][212] Default Inventory Trend | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Beginning Default Inventory | 23,504 | 38,068 | | New Defaults | 5,132 | 12,614 | | Cures | (8,862) | (15,135) | | Ending Default Inventory | 19,721 | 35,464 | Liquidity and Capital Resources This section details the company's strong liquidity position, including cash, investments, and compliance with regulatory capital requirements like PMIERs - As of September 30, 2021, the company had substantial liquidity, including $65.8 million in cash, $309.8 million in short-term investments, and $4.6 billion in fixed maturity investments, with holding company net cash and investments totaling $513.0 million[224] - The combined risk-to-capital ratio for U.S. insurance subsidiaries was 10.5 to 1 as of September 30, 2021, significantly below the general maximum permitted ratio of 25.0 to 1[191][240] - Essent Guaranty was in compliance with PMIERs 2.0, with Available Assets of $3.16 billion, which is 162% of its Minimum Required Assets of $1.95 billion as of September 30, 2021[245] Financial Condition This section reviews the company's balance sheet strength, including growth in stockholders' equity and investments, and the quality of its investment portfolio - Stockholders' equity increased to $4.17 billion at September 30, 2021, from $3.86 billion at December 31, 2020, driven by net income, partially offset by dividends and share repurchases[247] - Total investments grew to $5.0 billion as of September 30, 2021, from $4.7 billion at year-end 2020, primarily from investing cash flows from operations[248] Investment Portfolio Quality by Rating (Fair Value) | Rating Category | September 30, 2021 (%) | December 31, 2020 (%) | | :--- | :--- | :--- | | Aaa to A3 (High Grade) | 88.2% | 91.7% | | Baa1 to Baa3 (Investment Grade) | 15.5% | 10.7% | | Below Baa3 | 1.6% | 0.7% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's investment portfolio is primarily exposed to interest rate risk, with an effective duration of 3.8 years as of September 30, 2021 - The primary market risk exposure is to changes in interest rates, which can affect the value of fixed-rate bonds and influence persistency and claim rates[272] - The effective duration of the investments available for sale portfolio was 3.8 years at September 30, 2021, indicating that a 100 basis point change in interest rates would change the portfolio's fair value by approximately 3.8%[276] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective based on an evaluation as of the end of the period[277] - No material changes occurred in the company's internal control over financial reporting during the third quarter of 2021[278] PART II — OTHER INFORMATION This section covers other information including legal proceedings, risk factors, equity security sales, and exhibits Item 1. Legal Proceedings The company reports that it is not currently subject to any material legal proceedings - As of the reporting date, the company is not involved in any material legal proceedings[281] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes have occurred in the company's risk factors since the filing of its 2020 Annual Report on Form 10-K[282] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the company repurchased 1,565,357 common shares under its plan, with $160.8 million remaining available for future repurchases Share Repurchases in Q3 2021 | Period | Total Shares Purchased | Average Price Paid Per Share (USD) | | :--- | :--- | :--- | | July 2021 | 586,169 | $44.10 | | August 2021 | 472,369 | $46.59 | | September 2021 | 506,819 | $45.39 | | Total Q3 | 1,565,357 | N/A | - The share repurchase plan, announced in May 2021, authorized up to $250 million in repurchases, with $160.8 million remaining available under this authorization as of September 30, 2021[284] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including management agreements, CEO/CFO certifications, and financial statements in Inline XBRL - Exhibits filed with the report include CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley) and financial data in Inline XBRL format[286]