Essent .(US:ESNT)2021-08-06 21:27Financial Data and Key Metrics Changes - For Q2 2021, the company reported net income of $160 million, up from $136 million in the previous quarter, with diluted earnings per share increasing to $1.42 from $1.21 [7][13] - The annualized return on average equity for Q2 was 16%, and insurance in force reached $204 billion, a 17% increase from $175 billion a year ago [7][14] - The default rate decreased to 2.96% from 3.7% in the previous quarter and 5.19% a year ago, indicating improved credit performance [7][14] Business Line Data and Key Metrics Changes - Net earned premium for Q2 2021 was $217 million, including $13.3 million from Essent Re on third-party business, with the average net premium rate for U.S. mortgage insurance at 41 basis points, down from 42 basis points in Q1 [14] - Persistency increased to 58.3% from 56.1% in the previous quarter, reflecting a positive trend in customer retention [14] Market Data and Key Metrics Changes - The company noted strong millennial demand and historically low interest rates as positive factors for the housing market, which supports the business outlook [6] - The company’s PMIER sufficiency ratio was strong at 174%, with $1.3 billion in excess available assets, indicating a solid capital position [19] Company Strategy and Development Direction - The company is focused on optimizing unit economics and investing in technology, including migrating its platform to the cloud to enhance data processing and analysis capabilities [8][9] - The next generation of EssentEDGE technology is being developed to combine AI with large data sets for better pricing and credit risk management [6][20] Management's Comments on Operating Environment and Future Outlook - Management expressed a positive outlook on the business, citing strong underlying fundamentals in housing and the effectiveness of their operating model [5][20] - The company is cautious about the impact of refinancing on persistency but believes the purchase market will remain strong due to millennial demand [28][29] Other Important Information - The Board approved a dividend increase to $0.18 per share and the company repurchased approximately 400,000 shares for a total of $18 million as of June 30 [11][12] - The company’s operating margin for the first half of the year was 73%, with $340 million in operating cash flow generated [10] Q&A Session Summary Question: Where are you seeing the most attractive places to deploy your excess capital today? - Management indicated a measured approach to capital allocation, focusing on strategic investments and returning capital to shareholders through dividends and buybacks [21][22] Question: What percentage of the business is still coming from the rate card? - Approximately 70% of the business is coming through the pricing engine, with ongoing discussions to integrate with larger lenders to enhance competitiveness [24][25] Question: How much of a tailwind on expense ratio can be expected as persistency increases? - Management noted that lower new insurance written (NIW) could lead to significant savings in underwriting costs, improving overall economics [33] Question: Any early read on how EssentEDGE is performing in terms of picking credit quality? - Management emphasized that the focus is on optimizing premium levels rather than just improving credit quality, with expectations of better unit economics over time [45][46] Question: How do you see the overall market share evolving? - The company noted an increase in purchase share from 62% to 82%, indicating potential for overall market penetration to increase as the market shifts towards purchases rather than refinances [50][51]