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Essent Group Ltd. Reports First Quarter 2019 Results

HAMILTON, Bermuda--(BUSINESS WIRE)--

Essent Group Ltd. (ESNT) today reported net income for the quarter ended March 31, 2019 of $127.7 million or $1.30 per diluted share, compared to $111.1 million or $1.13 per diluted share for the quarter ended March 31, 2018. As of March 31, 2019, Essent had insurance in force of $143.2 billion and consolidated stockholders' equity of $2.5 billion.

“We were pleased with our strong financial results for the first quarter as our operating environment remains favorable and credit continues to perform well,” said Mark Casale, Chairman and Chief Executive Officer. “Also, we continue to make solid progress in strengthening our franchise as we successfully rolled out our risk based pricing engine EssentEDGE and reinsured our 2018 NIW. Our outlook on our business and housing remains positive and we continue to believe that we are well positioned to continue growing our company.”

Financial Highlights:

  • Insurance in force as of March 31, 2019 was $143.2 billion, compared to $137.7 billion as of December 31, 2018 and $115.3 billion as of March 31, 2018.
  • New insurance written for the first quarter was $11.0 billion, compared to $11.4 billion in the fourth quarter of 2018 and $9.3 billion in the first quarter of 2018.
  • Net premiums earned for the first quarter were $177.8 million, compared to $173.3 million in the fourth quarter of 2018 and $152.6 million in the first quarter of 2018.
  • The expense ratio for the first quarter was 23.1%, compared to 22.8% in the fourth quarter of 2018 and 25.0% in the first quarter of 2018.
  • The provision for losses and LAE for the first quarter was $7.1 million, compared to a benefit of $1.0 million in the fourth quarter of 2018 and a provision of $5.3 million in the first quarter of 2018. The provision in the fourth quarter of 2018 included a $9.9 million release of the $11.1 million reserve associated with loans identified as related to Hurricanes Harvey and Irma that was established in the fourth quarter of 2017.
  • The percentage of loans in default as of March 31, 2019 was 0.65%, compared to 0.66% as of December 31, 2018 and 0.86% as of March 31, 2018.
  • The combined ratio for the first quarter was 27.1%, compared to 22.2% in the fourth quarter of 2018 and 28.5% in the first quarter of 2018.
  • The consolidated balance of cash and investments at March 31, 2019 was $3.0 billion, including cash and investment balances at Essent Group Ltd. of $73.8 million.
  • The combined risk-to-capital ratio of the U.S. mortgage insurance business, which includes statutory capital for both Essent Guaranty, Inc. and Essent Guaranty of PA, Inc., was 13.5:1 as of March 31, 2019.
  • In February, Essent Guaranty, Inc. obtained $473.2 million of excess of loss reinsurance coverage on mortgage insurance policies written by Essent in 2018. The reinsurance is fully collateralized by ten-year mortgage insurance-linked notes (“ILNs”) issued by Radnor Re 2019-1 Ltd., an unaffiliated special purpose insurer.
  • In a separate transaction, Essent Guaranty, Inc. entered into an excess of loss collateralized reinsurance agreement with a panel of U.S. and global reinsurers which provides additional reinsurance protection of $118.7 million on mortgage insurance policies written by Essent in 2018.

Conference Call

Essent management will hold a conference call at 10:00 AM Eastern time today to discuss its results. The conference call will be broadcast live over the Internet at http://ir.essentgroup.com/investors/webcasts-and-presentations/event-calendar/default.aspx. The call may also be accessed by dialing 833-287-0797 inside the U.S., or 647-689-4456 for international callers, using passcode 7833038 or by referencing Essent.

A replay of the webcast will be available on the Essent website approximately two hours after the live broadcast ends for a period of one year. A replay of the conference call will be available approximately two hours after the call ends for a period of two weeks, using the following dial-in numbers and passcode: 800-585-8367 inside the U.S., or 416-621-4642 for international callers, passcode 7833038.

In addition to the information provided in the company's earnings news release, other statistical and financial information, which may be referred to during the conference call, will be available on Essent's website at http://ir.essentgroup.com/investors/financial-information/quarterly-financial-supplements/default.aspx.

Forward-Looking Statements

This press release may include “forward-looking statements” which are subject to known and unknown risks and uncertainties, many of which may be beyond our control. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," “should,” “expect,” "plan," "anticipate," "believe," “estimate,” “predict,” or "potential" or the negative thereof or variations thereon or similar terminology. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following: changes in or to Fannie Mae and Freddie Mac (the “GSEs”), whether through Federal legislation, restructurings or a shift in business practices; failure to continue to meet the mortgage insurer eligibility requirements of the GSEs; competition for customers; lenders or investors seeking alternatives to private mortgage insurance; an increase in the number of loans insured through Federal government mortgage insurance programs, including those offered by the Federal Housing Administration; decline in new insurance written and franchise value due to loss of a significant customer; decline in the volume of low down payment mortgage originations; the definition of "Qualified Mortgage" reducing the size of the mortgage origination market or creating incentives to use government mortgage insurance programs; the definition of "Qualified Residential Mortgage" reducing the number of low down payment loans or lenders and investors seeking alternatives to private mortgage insurance; the implementation of the Basel III Capital Accord discouraging the use of private mortgage insurance; a decrease in the length of time that insurance policies are in force; uncertainty of loss reserve estimates; deteriorating economic conditions; our non-U.S. operations becoming subject to U.S. Federal income taxation; becoming considered a passive foreign investment company for U.S. Federal income tax purposes; and other risks and factors described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission on February 19, 2019. Any forward-looking information presented herein is made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Non-GAAP Financial Measures

In presenting Essent Group Ltd.’s results, management has included financial measures, including adjusted book value per share, that are not calculated under standards or rules that comprise accounting principles generally accepted in the United States (“GAAP”). Such measures are referred to as “non-GAAP measures.” These non-GAAP measures may be defined or calculated differently by other companies. Management believes these measures allow for a more complete understanding of the underlying business. These measures are used to monitor our results and should not be viewed as a substitute for those determined in accordance with GAAP. Reconciliations of such measures to the most comparable GAAP figures are included in the attached financial supplement in accordance with Regulation G.

About the Company

Essent Group Ltd. (ESNT) is a Bermuda-based holding company (collectively with its subsidiaries, “Essent”) which, through its wholly-owned subsidiary, Essent Guaranty, Inc., offers private mortgage insurance for single-family mortgage loans in the United States. Essent provides private capital to mitigate mortgage credit risk, allowing lenders to make additional mortgage financing available to prospective homeowners. Headquartered in Radnor, Pennsylvania, Essent Guaranty, Inc. is licensed to write mortgage insurance in all 50 states and the District of Columbia, and is approved by Fannie Mae and Freddie Mac. Essent also offers mortgage-related insurance, reinsurance and advisory services through its Bermuda-based subsidiary, Essent Reinsurance Ltd. Additional information regarding Essent may be found at www.essentgroup.com and www.essent.us.

Source: Essent Group Ltd.

     
Essent Group Ltd. and Subsidiaries
Financial Results and Supplemental Information (Unaudited)
Quarter Ended March 31, 2019
 
 
Exhibit A Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Exhibit B Condensed Consolidated Balance Sheets (Unaudited)
Exhibit C Historical Quarterly Data
Exhibit D New Insurance Written
Exhibit E Insurance in Force and Risk in Force
Exhibit F Other Risk in Force
Exhibit G Portfolio Vintage Data
Exhibit H Reinsurance Vintage Data
Exhibit I Portfolio Geographic Data
Exhibit J Defaults, Reserve for Losses and LAE, and Claims
Exhibit K Investments Available for Sale
Exhibit L Insurance Company Capital
Exhibit M Reconciliation of Non-GAAP Financial Measure - Adjusted Book Value per Share
   
Exhibit A
 
Essent Group Ltd. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
 
Three Months Ended March 31,

(In thousands, except per share amounts)

2019 2018
Revenues:
Net premiums written $ 177,644 $ 165,225
Decrease (increase) in unearned premiums 147   (12,667 )
Net premiums earned 177,791 152,558
Net investment income 19,880 13,714
Realized investment gains, net 660 197
Other income 2,195   994  
Total revenues 200,526   167,463  
 
Losses and expenses:
Provision for losses and LAE 7,107 5,309
Other underwriting and operating expenses 41,030 38,124
Interest expense 2,670   2,450  
Total losses and expenses 50,807   45,883  
 
Income before income taxes 149,719 121,580
Income tax expense 21,999   10,511  
Net income $ 127,720   $ 111,069  
 
 
Earnings per share:
Basic $ 1.31 $ 1.14
Diluted 1.30 1.13
 
Weighted average shares outstanding:
Basic 97,595 97,298
Diluted 98,104 97,951
 
Net income $ 127,720 $ 111,069
 
Other comprehensive income (loss):
Change in unrealized appreciation (depreciation) of investments 38,366   (28,750 )
Total other comprehensive income (loss) 38,366   (28,750 )
Comprehensive income $ 166,086   $ 82,319  
 
 
Loss ratio 4.0 % 3.5 %
Expense ratio 23.1   25.0  
Combined ratio 27.1 % 28.5 %
   
Exhibit B
 
Essent Group Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
 
 
March 31, December 31,

(In thousands, except per share amounts)

2019 2018
Assets
Investments
Fixed maturities available for sale, at fair value $ 2,765,267 $ 2,605,666
Short-term investments available for sale, at fair value 210,822   154,400  
Total investments available for sale 2,976,089 2,760,066
Other invested assets 32,735   30,952  
Total investments 3,008,824 2,791,018
Cash 40,489 64,946
Accrued investment income 18,176 17,627
Accounts receivable 38,194 36,881
Deferred policy acquisition costs 15,657 16,049
Property and equipment 17,940 7,629
Prepaid federal income tax 202,385 202,385
Other assets 11,580   13,436  
 
Total assets $ 3,353,245   $ 3,149,971  
 
Liabilities and Stockholders' Equity
Liabilities
Reserve for losses and LAE $ 53,484 $ 49,464
Unearned premium reserve 295,320 295,467
Net deferred tax liability 196,040 172,642
Credit facility borrowings, net of deferred costs 223,807 223,664
Securities purchased payable 22,546 2,041
Other accrued liabilities 34,245   40,976  
Total liabilities 825,442   784,254  
 
Commitments and contingencies
 
Stockholders' Equity
Common shares 1,475 1,472
Additional paid-in capital 1,106,797 1,110,800
Accumulated other comprehensive income (loss) 9,373 (28,993 )
Retained earnings 1,410,158   1,282,438  
Total stockholders' equity 2,527,803   2,365,717  
 
Total liabilities and stockholders' equity $ 3,353,245   $ 3,149,971  
 
Return on average equity (1) 20.9 % 21.7 %

 

(1) The 2019 return on average equity is calculated by dividing annualized year-to-date 2019 net income by average equity. The 2018 return on average equity is calculated by dividing full year 2018 net income by average equity.

        Exhibit C
Essent Group Ltd. and Subsidiaries
Supplemental Information
Historical Quarterly Data
 
 
2019 2018
Selected Income Statement Data March 31 December 31 September 30 June 30 March 31

(In thousands, except per share amounts)

Revenues:
Net premiums written $ 177,644   $ 176,437   $ 175,221   $ 168,404   $ 165,225  
 
Net premiums earned (1) 177,791 173,301 166,675 156,958 152,558
Other revenues (2) 22,735   19,823   18,323   16,810   14,905  
Total revenues 200,526   193,124   184,998   173,768   167,463  
 
Losses and expenses:
Provision for losses and LAE (3) 7,107 (999 ) 5,452 1,813 5,309
Other underwriting and operating expenses 41,030 39,449 36,899 36,428 38,124
Interest expense 2,670   2,611   2,500   2,618   2,450  
Total losses and expenses 50,807   41,061   44,851   40,859   45,883  
 
Income before income taxes 149,719 152,063 140,147 132,909 121,580
Income tax expense (4) 21,999   23,535   24,136   21,154   10,511  
Net income $ 127,720   $ 128,528   $ 116,011   $ 111,755   $ 111,069  
 
Earnings per share:
Basic $ 1.31 $ 1.32 $ 1.19 $ 1.15 $ 1.14
Diluted 1.30 1.31 1.18 1.14 1.13
 
Weighted average shares outstanding:
Basic 97,595 97,450 97,438 97,426 97,298
Diluted 98,104 98,066 98,013 97,866 97,951
 
Other Data:
Loss ratio (5) 4.0 % (0.6 )% 3.3 % 1.2 % 3.5 %
Expense ratio (6) 23.1   22.8   22.1   23.2   25.0  
Combined ratio 27.1 % 22.2 % 25.4 % 24.4 % 28.5 %
 
Return on average equity (annualized) 20.9 % 22.4 % 21.5 % 21.8 % 22.6 %

 

(1) Net premiums earned are net of premiums ceded to third-party reinsurers. Premiums ceded totaled $6,038, $3,731, $3,158, $3,585 and $294 in the three months ended March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively.
 
(2) Certain of our third-party reinsurance agreements contain an embedded derivative as the premium ceded under those agreements will vary based on changes in interest rates. Other revenues for the quarter ended March 31, 2019 includes a $1,424 favorable increase in the fair value of these embedded derivatives.
 
(3) Provision for losses and LAE for the quarter ended December 31, 2018 includes a $9,941 reduction associated with previously identified hurricane-related defaults based on the performance to date and our expectations of the amount of ultimate losses on the remaining delinquencies.
 
(4) Income tax expense for the quarters ended March 31, 2019 and 2018 was reduced by $1,956 and $9,549, respectively, of excess tax benefits associated with the vesting of common shares and common share units during each period. Income tax expense for the quarter ended September 30, 2018 includes $1,450 of expense associated with accrual to return adjustments associated with the completion of the 2017 U.S. federal income tax return.
 
(5) Loss ratio is calculated by dividing the provision for losses and LAE by net premiums earned.
 
(6) Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.
        Exhibit C, continued
Essent Group Ltd. and Subsidiaries
Supplemental Information
Historical Quarterly Data
 
 
2019 2018
Other Data, continued: March 31 December 31 September 30 June 30 March 31

($ in thousands)

 
U.S. Mortgage Insurance Portfolio
Flow:
New insurance written $ 10,945,307 $ 11,408,542 $ 13,913,191 $ 12,850,642 $ 9,336,150
New risk written 2,713,389 2,838,530 3,430,942 3,201,610 2,295,314
 
Bulk:
New insurance written $ 55,002 $ $ $ $
New risk written 6,542
 
Total:
Average gross premium rate (7) 0.50 % 0.50 % 0.51 % 0.52 % 0.52 %
Average net premium rate (8) 0.48 % 0.49 % 0.50 % 0.51 % 0.52 %
New insurance written $ 11,000,309 $ 11,408,542 $ 13,913,191 $ 12,850,642 $ 9,336,150
New risk written $ 2,719,931 $ 2,838,530 $ 3,430,942 $ 3,201,610 $ 2,295,314
Insurance in force (end of period) $ 143,181,641 $ 137,720,786 $ 131,249,957 $ 122,501,246 $ 115,250,949
Gross risk in force (end of period) (9) $ 35,925,830 $ 34,482,448 $ 32,786,194 $ 30,579,106 $ 28,691,561
Risk in force (end of period) $ 34,744,417 $ 33,892,869 $ 32,361,782 $ 30,154,694 $ 28,267,149
Policies in force 629,808 608,135 581,570 546,576 517,215
Weighted average coverage (10) 25.1 % 25.0 % 25.0 % 25.0 % 24.9 %
Annual persistency 85.1 % 84.9 % 84.0 % 83.0 % 83.5 %
 
Loans in default (count) 4,096 4,024 3,538 3,519 4,442
Percentage of loans in default 0.65 % 0.66 % 0.61 % 0.64 % 0.86 %
 
Other Risk in Force
GSE and other risk share (11) $ 771,175 $ 655,384 $ 612,750 $ 592,493 $ 557,692
 
Credit Facility
Borrowings outstanding $ 225,000 $ 225,000 $ 225,000 $ 225,000 $ 265,000
Undrawn committed capacity $ 275,000 $ 275,000 $ 275,000 $ 275,000 $ 110,000
Weighted average interest rate 4.48 %
 
(7) Average gross premium rate is calculated by dividing annualized premiums earned for the U.S. mortgage insurance portfolio, before reductions for premiums ceded under third-party reinsurance, by average insurance in force for the period.
 
(8) Average net premium rate is calculated by dividing annualized net premiums earned for the U.S. mortgage insurance portfolio by average insurance in force for the period.
 
(9) Gross risk in force includes risk ceded under third-party reinsurance.
 
(10) Weighted average coverage is calculated by dividing end of period gross risk in force by end of period insurance in force.
 
(11) GSE and other risk share includes GSE risk share and other reinsurance transactions. Essent Re provides insurance or reinsurance relating to the risk in force on loans in reference pools acquired by Freddie Mac and Fannie Mae.
         
Exhibit D
 
Essent Group Ltd. and Subsidiaries
Supplemental Information
New Insurance Written: Flow
 
 
NIW by Credit Score
Three Months Ended
March 31, 2019 December 31, 2018 March 31, 2018

($ in thousands)

>=760 $ 4,470,503 40.8 % $ 4,737,774 41.5 % $ 3,832,218 41.0 %

740-759

1,912,141 17.5 1,959,523 17.2 1,550,138 16.6

720-739

1,565,613 14.3 1,665,931 14.6 1,339,145 14.3

700-719

1,352,545 12.4 1,349,689 11.8 1,144,900 12.3

680-699

907,969 8.3 875,125 7.7 809,618 8.7
<=679 736,536     6.7   820,500     7.2   660,131     7.1  
Total $ 10,945,307     100.0 % $ 11,408,542     100.0 % $ 9,336,150     100.0 %
 
Weighted average credit score 744 745 744
 
 
 
NIW by LTV
Three Months Ended
March 31, 2019 December 31, 2018 March 31, 2018

($ in thousands)

85.00% and below $ 1,442,833 13.2 % $ 1,384,296 12.1 % $ 1,212,336 13.0 %
85.01% to 90.00% 2,950,348 26.9 3,124,625 27.4 2,708,512 29.0
90.01% to 95.00% 4,659,337 42.6 4,955,729 43.4 4,078,208 43.7
95.01% and above 1,892,789     17.3   1,943,892     17.1   1,337,094     14.3  
Total $ 10,945,307     100.0 % $ 11,408,542     100.0 % $ 9,336,150     100.0 %
 
Weighted average LTV 92 % 92 % 92 %
 
 
 
NIW by Product
Three Months Ended
March 31, 2019 December 31, 2018 March 31, 2018
Single Premium policies 12.3 % 13.5 % 20.3 %
Monthly Premium policies 87.7   86.5   79.7  
100.0 % 100.0 % 100.0 %
 
 
 
NIW by Purchase vs. Refinance
Three Months Ended
March 31, 2019 December 31, 2018 March 31, 2018
Purchase 87.6 % 93.3 % 85.3 %
Refinance 12.4   6.7   14.7  
100.0 % 100.0 % 100.0 %
           
Exhibit E
 
Essent Group Ltd. and Subsidiaries
Supplemental Information
Insurance in Force and Risk in Force
 
 
Portfolio by Credit Score
IIF by FICO score March 31, 2019 December 31, 2018 March 31, 2018

($ in thousands)

>=760 $ 61,191,185 42.7 % $ 59,249,659 43.0 % $ 50,359,464 43.7 %

740-759

23,919,745 16.7 22,843,145 16.6 18,791,203 16.3

720-739

20,728,151 14.5 19,898,885 14.5 16,473,367 14.3

700-719

16,454,730 11.5 15,714,206 11.4 12,857,417 11.2

680-699

11,774,884 8.2 11,299,829 8.2 9,622,067 8.3
<=679 9,112,946     6.4   8,715,062     6.3   7,147,431     6.2  
Total $ 143,181,641     100.0 % $ 137,720,786     100.0 % $ 115,250,949     100.0 %
 
Weighted average credit score 746 746 747
 
Gross RIF by FICO score March 31, 2019 December 31, 2018 March 31, 2018

($ in thousands)

>=760 $ 15,303,364 42.6 % $ 14,789,783 42.9 % $ 12,519,237 43.6 %

740-759

6,012,004 16.7 5,736,432 16.6 4,707,875 16.4

720-739

5,257,051 14.6 5,036,063 14.6 4,142,041 14.5

700-719

4,144,221 11.6 3,943,925 11.4 3,192,804 11.1

680-699

2,974,758 8.3 2,846,297 8.3 2,402,777 8.4
<=679 2,234,432     6.2   2,129,948     6.2   1,726,827     6.0  
Total $ 35,925,830     100.0 % $ 34,482,448     100.0 % $ 28,691,561     100.0 %
 
Portfolio by LTV
IIF by LTV March 31, 2019 December 31, 2018 March 31, 2018

($ in thousands)

85.00% and below $ 15,581,861 10.9 % $ 15,123,578 11.0 % $ 13,371,220 11.6 %
85.01% to 90.00% 42,045,657 29.3 41,020,839 29.8 35,907,759 31.2
90.01% to 95.00% 68,414,122 47.8 66,028,990 47.9 56,367,801 48.9
95.01% and above 17,140,001     12.0   15,547,379     11.3   9,604,169     8.3  
Total $ 143,181,641     100.0 % $ 137,720,786     100.0 % $ 115,250,949     100.0 %
 
Weighted average LTV 92 % 92 % 92 %
 
Gross RIF by LTV March 31, 2019 December 31, 2018 March 31, 2018

($ in thousands)

85.00% and below $ 1,797,794 5.0 % $ 1,741,823 5.1 % $ 1,519,929 5.3 %
85.01% to 90.00% 10,083,981 28.1 9,819,171 28.5 8,543,010 29.8
90.01% to 95.00% 19,605,747 54.6 18,912,421 54.8 16,176,713 56.4
95.01% and above 4,438,308     12.3   4,009,033     11.6   2,451,909     8.5  
Total $ 35,925,830     100.0 % $ 34,482,448     100.0 % $ 28,691,561     100.0 %
 
Portfolio by Loan Amortization Period
IIF by Loan Amortization Period March 31, 2019 December 31, 2018 March 31, 2018

($ in thousands)

FRM 30 years and higher $ 133,725,528 93.4 % $ 128,083,429 93.0 % $ 105,438,023 91.5 %
FRM 20-25 years 2,912,323 2.1 2,965,782 2.2 3,008,292 2.6
FRM 15 years 3,335,714 2.3 3,445,447 2.5 3,746,030 3.2
ARM 5 years and higher 3,208,076     2.2   3,226,128     2.3   3,058,604     2.7  
Total $ 143,181,641     100.0 % $ 137,720,786     100.0 % $ 115,250,949     100.0 %
null
     
Exhibit F