Essent Group Ltd. Q1 FY2025 earnings call

• Net income for the first quarter of 2025 was $175 million, down from $182 million the prior year. Diluted EPS was $1.69, down from $1.70. Annualized return on average equity was 12%.
• U.S. mortgage insurance in force was $245 billion, up 3% year-over-year, with strong credit quality (weighted average FICO 746, weighted average original LTV 93%) and 86% persistency.
• Mortgage lenders faced lower originations due to higher rates, affordability, and supply issues, but systematic credit guardrails mitigated credit box expansion.
• Consolidated cash and investments were $6.4 billion, new money yield over 5%, annualized investment yield 3.8%.
• Board approved a common dividend of $0.31 for the second quarter of 2025. Repurchased nearly 4 million shares for over $200 million year-to-date through April 30.
• In April, entered into excess of loss transactions for 2025 and 2026 new insurance written, increased ceding percentage of affiliate quota share to 50% effective second quarter, retroactive to January 1, 2025.

The only reportable segment is mortgage insurance. For the first quarter of 2025, U.S. mortgage insurance in force was $245 billion, a 3% increase versus the prior year. Mortgage insurance net premium earned was $234 million. The default rate on the U.S. mortgage insurance portfolio was 2.19% as of March 31, down 8 basis points from December 31, 2024. Mortgage insurance operating expenses in the first quarter were $43.6 million with an expense ratio of 18.7%. Consolidated net investment income increased 3% to $58.2 million in the first quarter.

• Board approved a common dividend of $0.31 for the second quarter of 2025.
• Expect to continue returning capital to shareholders through dividends and share repurchases.
• Estimate other underwriting and operating expenses for mortgage insurance segment to be between $160 million and $165 million for full year 2025.

• Impact of higher interest rates on consumer spending and economic growth.
• Volatility in mortgage originations due to affordability issues and supply constraints.
• Potential impact of tariffs or other events on pricing and business operations if they act as catalysts for changing pricing strategies.

Q: Look, March, April have been unprecedented months in terms of volatility, in terms of some of the behaviors we've seen. When you think about where we are in the affordability cycle for homeownership, particularly for first-time homebuyers, do you think we are potentially reaching an inflection point where things will start to come the way of the consumer a little bit more? Or do you remain a little bit more cautious? And then delving a little bit more deeply into that, are there certain geographies where you are particularly optimistic or particularly cautious? And how do you adjust for that within your rates -- within your rate cards?

A: Mark Casale said he's not sure where the affordability cycle is, but there's pent-up demand with average first-time homeowner age 38. Essent is well-positioned, and growth will renew as incomes catch up. They're more concentrated in areas with population growth, adjusting pricing in certain markets.

Q: Just given all the uncertainty around macro and the headlines around tariffs, I'm just curious to think to get how you're thinking about managing risk overall. And like have you done anything on the pricing underwriting side? And at what point will you do so to kind of adjust for that?

A: Mark said they price through the cycle, not reacting to short-term macro uncertainty. Tariffs could be a catalyst, but no immediate pricing changes yet.

Q: In terms of buybacks, maybe I missed this, but how much of the buybacks occurred in the first quarter versus April?

A: David Weinstock said $157 million of buybacks were in the first quarter, and $61 million in April, totaling 2.8 million shares in Q1 and 1.1 million in April.

Q: I wanted to start actually going back to the comment on pricing and just unit economics in general. I think, Mark, you mentioned you're still happy with new unit economics on NIW. But maybe just like taking a step back, big picture, how have unit economics on new business changed in, call it, the last 2 or 3 years? Obviously, interest rates are up. Sounds like you've done some micro movements around pricing. But overall, the gross premium rate has been in this 40, 41 bps range for 10 quarters. I'm just trying to think about how unit economics have changed, if at all, in the last 2, 3 years between interest rates and your credit expectations or your view on forward credit.

A: Mark said unit economics have been steady, with pricing increased in back half of 2022, and they target 12%-14% range, differentiating between unit economics and core ROE.

Q: Given what you mentioned about the efficiency of the higher seat of Bermuda, can you provide any guidance in terms of how we think about dividend flows from the underwriting companies up to the holdco? Is this something where -- I mean, you've been regular with the Guaranty dividends. Is that something where that probably drops below $50 on a quarterly cadence, or we see more recurring higher dividends out of Essent Re? Anything you can provide us to give us a little framework around that?

A: David Weinstock said they'll continue to see dividends from both entities, subject to environment. Mark added they'll maximize dividends, with more efficiency in moving cash from guarantee to holdco, and special dividends possible if capital can be put to work.