Essent .(US:ESNT)2022-05-06 20:25Financial Data and Key Metrics Changes - For Q1 2022, the company reported net income of $274 million, up from $136 million a year ago, primarily due to the release of approximately $100 million of COVID reserves [6] - Diluted earnings per share increased to $2.52 from $1.21 a year ago, with an annualized return on average equity of 26% [6] - Book value per share rose to $38.98, a 12% increase from $34.75 a year ago, with an annualized growth rate of 21% since going public in 2013 [12] Business Line Data and Key Metrics Changes - The insurance in force increased by 5% to $207 billion compared to $197 billion a year ago, with a strong credit quality reflected in a weighted average FICO of 746 and a weighted average original LTV of 92% [8] - The net premium earned for Q1 2022 was $215 million, including $12 million from third-party business [17] - The average net premium rate for the U.S. mortgage insurance business decreased by 1 basis point to 39 basis points [17] Market Data and Key Metrics Changes - The company's 12-month persistency rate was 69%, while the 3-month annualized persistency was approximately 80% [9] - The company noted that rising rates and strong home price appreciation are starting to challenge affordability and housing demand, but the structural outlook for the housing market remains positive [7] Company Strategy and Development Direction - The company is focused on a diversified and programmatic reinsurance strategy, with approximately 90% of its portfolio reinsured as of March 31 [10] - The company emphasizes a measured approach to capital management, favoring attractive investments over share repurchases for long-term value creation [14] - A new $250 million share repurchase program was authorized, alongside a 24% increase in dividends, reflecting stability in earnings and cash flow [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of the operating model and the company's role in affordable and sustainable homeownership [25] - The company anticipates that insurance in force will grow throughout the year, supported by strong persistency and embedded home equity [29] - Management acknowledged that while the first quarter's new insurance written was strong, the overall outlook for the year may be tighter than expected due to rising rates and reduced supply [42] Other Important Information - The company reported a trailing 12-month underwriting margin of 93% and operating cash flow of $702 million, indicating a strong financial position [11] - The carrying value of other investment assets on the balance sheet was $213 million, with $82 million of value created from investments [13] Q&A Session Summary Question: Why did Essent not grow in terms of insurance in force this quarter? - Management indicated that pricing has been consistent, leading to a decline in market share, and they are cautious about the current market conditions [28] Question: What is the outlook for rational behavior among mortgage originators? - Management noted that there are good controls in place, and they do not see irrational behavior among competitors [32] Question: How do returns in the CRT market compare to core business returns? - Management stated that returns in the CRT market are better due to an imbalance in the reinsurance market, but they are cautious about allocating all capital to this area [35] Question: What is the outlook for new delinquency formation? - Management indicated that delinquencies have normalized, with strong employment and wage growth contributing to reduced expected losses [39] Question: What is the outlook for the industry’s new insurance written (NIW)? - Management expressed that while the first quarter was strong, achieving upper targets for NIW may be challenging due to rising rates and reduced supply [42]