Essent .(US:ESNT)2022-02-11 21:19Financial Data and Key Metrics Changes - For Q4 2021, the company reported net income of $181 million, up from $124 million a year ago, with diluted earnings per share of $1.64 compared to $1.10 in Q4 2020 [4][5] - Full-year 2021 net income was $682 million, or $6.11 per diluted share, with a return on average equity of 17% [5][8] - The insurance in force at year-end was $207 billion, a 4% increase from $199 billion at the end of 2020 [5][10] - The average weighted FICO score of the insurance portfolio was 745, with an average loan-to-value (LTV) ratio of 92% [5][8] Business Line Data and Key Metrics Changes - The net earned premium for Q4 2021 was $217 million, including $11.4 million from Essent Re's third-party business [10] - The average net premium rate for the U.S. mortgage insurance business remained unchanged at 40 basis points for Q4 2021 [11] - Persistency increased to 65.4% at the end of Q4 2021, up from 62.2% at the end of Q3 2021 [10] Market Data and Key Metrics Changes - The default rate decreased to 2.16% at year-end 2021, down from 3.93% at the end of 2020 [11][12] - The company has reinsurance coverage on 90% of its portfolio as of December 31, 2021 [5][8] Company Strategy and Development Direction - The company aims to optimize unit economics and generate high-quality earnings while managing capital effectively [4][5] - The introduction of the EssentEDGE pricing engine is expected to enhance competitive advantage through data analysis and machine learning [6][7] - The company is focused on leveraging technology to improve operational efficiency and customer experience [38] Management's Comments on Operating Environment and Future Outlook - Management expressed a positive outlook for the housing market, citing strong demand and low unemployment as supportive factors [4][5] - The company anticipates continued opportunities in the housing finance and technology sectors, despite potential challenges from rising interest rates [36][42] - Management highlighted the importance of credit selection and risk management in navigating a potentially more aggressive lending environment [25][48] Other Important Information - The company returned over one-third of its earnings to shareholders through dividends and share repurchases in 2021 [8][9] - A $0.01 increase in the quarterly dividend was announced, marking a 25% increase from the previous year [9] Q&A Session Summary Question: Comments on competitive environment around pricing - Management noted consistent pricing in Q4 2021, with some market share fluctuations but maintained focus on credit selection rather than market share [18][19] Question: Thoughts on potential consolidation in the industry - Management believes consolidation is likely but requires a catalyst, with credit events being a potential trigger [20] Question: Managing credit risk in a competitive environment - Management emphasized the importance of their risk management tools and the ability to adjust pricing based on credit quality [23][24] Question: Drivers of operating expenses and future growth - Management indicated that personnel costs are a primary driver of expenses, with continued investments in technology and people [28] Question: Dividend versus buyback analysis - Management favors a balanced approach to capital distribution, prioritizing dividends while also considering share repurchases [30] Question: Impact of home price appreciation on affordability - Management acknowledged that rising home prices could affect affordability, particularly in certain markets, but believes core demand will remain strong [42][43] Question: Observations on lending standards in 2022 - Management noted that while lenders may want to loosen standards, GSE regulations act as a guardrail, maintaining credit quality [48][49]