Essent .(ESNT) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q3 2024, the company reported net income of $176 million, a slight decrease from$ 178 million a year ago, with diluted earnings per share at $1.65 compared to$ 1.66 last year [7][12] - The annualized return on average equity was 13% for the third quarter [7] - Cash and investments as of September 30th were $6.4 billion, with a new money yield of nearly 5% [10] - The annualized yield for investments available for sale increased to 3.8%, up from 3.6% a year ago [10] Business Line Data and Key Metrics Changes - The US mortgage insurance in force was$ 243 billion, reflecting a 2% increase from a year ago [7][12] - Net premiums earned for the third quarter were $249 million, including$ 17.1 million from Essent RE and $17.7 million from title operations [13] - The base average premium rate for the US mortgage insurance portfolio remained at 41 basis points, while the net average premium rate decreased by 1 basis point to 35 basis points [13] Market Data and Key Metrics Changes - The default rate on the US mortgage insurance portfolio was 1.95%, an increase of 24 basis points from the previous quarter [15] - The weighted average FICO score of the insurance in force was 746, with a weighted average original LTV of 93% [7] Company Strategy and Development Direction - The company remains committed to a programmatic reinsurance strategy to diversify capital resources and manage credit risk [9] - The long-term outlook for housing is positive, supported by supply-demand imbalances and favorable demographic trends [6] - The company aims to maintain a conservative balance sheet while optimizing shareholder returns and preserving options for strategic growth opportunities [10][21] Management's Comments on Operating Environment and Future Outlook - Management noted that while higher mortgage rates have reduced overall mortgage originations, the company is less reliant on transaction activity due to its portfolio business model [5] - The company anticipates some noise in the fourth quarter due to the impact of recent hurricanes but expects the ultimate P&L impact to be muted due to policy exclusions for claims related to property damage [8][40] Other Important Information - The company paid a dividend of$ 58 million to its US holding company during the quarter and repurchased 170,000 shares for $9.6 million [20] - The PMIER sufficiency ratio was strong at 186%, with$ 1.7 billion in excess available assets [18] Q&A Session Summary Question: Was there any quantifiable impact on the default rate or new notices this quarter from hurricanes? - Management indicated there was a minimal impact, primarily from Hurricane Beryl, and expects to see more noise in the fourth quarter [23] Question: Are we starting to see the effects of vintage seasoning from larger post-COVID vintages materialize more? - Management confirmed that the portfolio is seasoning, with the average age now at 32 months, and noted the influence of forbearance on defaults [24] Question: Did you make any changes in the claim rate assumptions in the quarter? - No real changes were made in the claim rate assumptions for the quarter [26] Question: Are the loan sizes getting bigger, impacting the provision for new notices? - Yes, the average loan size for the insurance in force is now around $290,000, up from$ 226,000 historically [30] Question: Will you provision for the impact of storms in Q4? - Management has not yet decided on provisioning for the storms and will assess the situation as defaults come in [31] Question: Can you help us think about the timeline around the forbearance process and its impact? - Management explained that the COVID forbearance process ended last November, and they expect less friction in the process moving forward, leading to more normalization in defaults and cures [44]