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Essent Group Ltd. Reports Fourth Quarter & Full Year 2018 Results

HAMILTON, Bermuda--(BUSINESS WIRE)--

Essent Group Ltd. (ESNT) today reported net income for the quarter ended December 31, 2018 of $128.5 million or $1.31 per diluted share, which includes a reduction of $9.9 million, or $.08 per diluted share, of the $11.1 million loss reserve established in the fourth quarter of 2017 for defaulted loans identified as related to Hurricanes Harvey and Irma. For the full year 2018, net income was $467.4 million or $4.77 per diluted share.

“We are pleased with our strong fourth quarter and full year 2018 results as we continued growing our high credit quality and profitable mortgage insurance portfolio,” said Mark Casale, Chairman and Chief Executive Officer. “Also during 2018, we successfully piloted our risk based pricing engine, EssentEDGETM, and executed in the reinsurance markets. We believe that increased sophistication in the front-end and back-end of our business positions us well to shape our insured portfolio and profitably manage the long tail mortgage credit risk.”

Financial Highlights:

  • Insurance in force as of December 31, 2018 was $137.7 billion, compared to $131.2 billion as of September 30, 2018 and $110.5 billion as of December 31, 2017.
  • New insurance written for the fourth quarter was $11.4 billion, compared to $13.9 billion in the third quarter of 2018 and $11.2 billion in the fourth quarter of 2017.
  • Net premiums earned for the fourth quarter were $173.3 million, compared to $166.7 million in the third quarter of 2018 and $148.0 million in the fourth quarter of 2017.
  • The expense ratio for the fourth quarter was 22.8%, compared to 22.1% in the third quarter of 2018 and 24.7% in the fourth quarter of 2017.
  • The provision for losses and LAE for the fourth quarter was a benefit of $1.0 million, compared to a provision of $5.5 million in the third quarter of 2018 and a provision of $17.5 million in the fourth quarter of 2017. 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 December 31, 2018 was 0.66%, compared to 0.61% as of September 30, 2018 and 0.96% as of December 31, 2017.
  • The combined ratio for the fourth quarter was 22.2%, compared to 25.4% in the third quarter of 2018 and 36.4% in the fourth quarter of 2017.
  • The consolidated balance of cash and investments at December 31, 2018 was $2.9 billion, including cash and investment balances at Essent Group Ltd. of $78.4 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 13.9:1 as of December 31, 2018.
  • In December, Essent Guaranty, Inc. entered into an excess of loss (“XOL”) reinsurance agreement with a panel of U.S. and global reinsurers for $165.2 million of additional protection on mortgage insurance policies written by Essent in 2017.

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 866-393-4306 inside the U.S., or 734-385-2616 for international callers, using passcode 1164457 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: 855-859-2056 inside the U.S., or 404-537-3406 for international callers, passcode 1164457.

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, 2017 filed with the Securities and Exchange Commission on February 20, 2018. 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 and Year Ended December 31, 2018
 
 
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 Portfolio Geographic Data
Exhibit I Defaults, Reserve for Losses and LAE, and Claims
Exhibit J Investments Available for Sale
Exhibit K Insurance Company Capital
Exhibit L 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 December 31, Year Ended December 31,

(In thousands, except per share amounts)

2018 2017 2018 2017
Revenues:
Net premiums written $ 176,437 $ 161,771 $ 685,287 $ 570,186
Increase in unearned premiums   (3,136 )   (13,795 )   (35,795 )   (40,056 )
Net premiums earned 173,301 147,976 649,492 530,130
Net investment income 18,597 11,765 64,091 40,226
Realized investment gains, net 158 252 1,318 2,015
Other income   1,068     1,117     4,452     4,140  
Total revenues   193,124     161,110     719,353     576,511  
 
Losses and expenses:
Provision for losses and LAE (999 ) 17,456 11,575 27,232
Other underwriting and operating expenses 39,449 36,480 150,900 145,533
Interest expense   2,611     1,817     10,179     5,178  
Total losses and expenses   41,061     55,753     172,654     177,943  
 
Income before income taxes 152,063 105,357 546,699 398,568
Income tax expense (benefit)   23,535     (57,281 )   79,336     18,821  
Net income $ 128,528   $ 162,638   $ 467,363   $ 379,747  
 
 
Earnings per share:
Basic $ 1.32 $ 1.69 $ 4.80 $ 4.07
Diluted 1.31 1.65 4.77 3.99
 
Weighted average shares outstanding:
Basic 97,450 96,429 97,403 93,330
Diluted 98,066 98,497 97,974 95,211
 
Net income $ 128,528 $ 162,638 $ 467,363 $ 379,747
 
Other comprehensive income (loss):
Change in unrealized appreciation (depreciation) of investments   18,456     (7,230 )   (25,741 )   8,068  
Total other comprehensive income (loss)   18,456     (7,230 )   (25,741 )   8,068  
Comprehensive income $ 146,984   $ 155,408   $ 441,622   $ 387,815  
 
 
Loss ratio (0.6 )% 11.8 % 1.8 % 5.1 %
Expense ratio   22.8     24.7     23.2     27.5  
Combined ratio   22.2 %   36.4 %   25.0 %   32.6 %
 
       
Exhibit B
 
Essent Group Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
 
 
December 31, December 31,

(In thousands, except per share amounts)

2018 2017
Assets
Investments
Fixed maturities available for sale, at fair value $ 2,605,666 $ 1,992,371
Short-term investments available for sale, at fair value   154,400     312,694  
Total investments available for sale 2,760,066 2,305,065
Other invested assets   30,952     500  
Total investments 2,791,018 2,305,565
Cash 64,946 43,524
Accrued investment income 17,627 12,807
Accounts receivable 36,881 29,752
Deferred policy acquisition costs 16,049 15,354
Property and equipment 7,629 6,979
Prepaid federal income tax 202,385 252,157
Other assets   13,436     8,230  
 
Total assets $ 3,149,971   $ 2,674,368  
 
Liabilities and Stockholders' Equity
Liabilities
Reserve for losses and LAE $ 49,464 $ 46,850
Unearned premium reserve 295,467 259,672
Net deferred tax liability 172,642 127,636
Credit facility borrowings, net of deferred costs 223,664 248,591
Securities purchased payable 2,041 14,999
Other accrued liabilities   40,976     36,184  
Total liabilities   784,254     733,932  
 
Commitments and contingencies
 
Stockholders' Equity
Common shares 1,472 1,476
Additional paid-in capital 1,110,800 1,127,137
Accumulated other comprehensive loss (28,993 ) (3,252 )
Retained earnings   1,282,438     815,075  
Total stockholders' equity   2,365,717     1,940,436  
 
Total liabilities and stockholders' equity $ 3,149,971   $ 2,674,368  
 
Return on average equity 21.7 % 23.1 %
 
                           
Exhibit C
Essent Group Ltd. and Subsidiaries
Supplemental Information
Historical Quarterly Data
   
 
2018 2017
Selected Income Statement Data December 31 September 30 June 30 March 31 December 31 September 30 June 30 March 31

(In thousands, except per share amounts)

Revenues:
Net premiums written $ 176,437   $ 175,221   $ 168,404   $ 165,225   $ 161,771   $ 155,055   $ 134,063   $ 119,297  
 
Net premiums earned (1) 173,301 166,675 156,958 152,558 147,976 137,940 126,563 117,651
Other revenues   19,823     18,323     16,810     14,905     13,134     12,263     11,043     9,941  
Total revenues   193,124     184,998     173,768     167,463     161,110     150,203     137,606     127,592  
 
Losses and expenses:
Provision for losses and LAE (2) (999 ) 5,452 1,813 5,309 17,456 4,313 1,770 3,693
Other underwriting and operating expenses 39,449 36,899 36,428 38,124 36,480 37,035 35,686 36,332
Interest expense   2,611     2,500     2,618     2,450     1,817     1,456     1,189     716  
Total losses and expenses   41,061     44,851     40,859     45,883     55,753     42,804     38,645     40,741  
 
Income before income taxes 152,063 140,147 132,909 121,580 105,357 107,399 98,961 86,851
Income tax expense (benefit) (3) (4)   23,535     24,136     21,154     10,511     (57,281 )   29,006     26,843     20,253  
Net income $ 128,528   $ 116,011   $ 111,755   $ 111,069   $ 162,638   $ 78,393   $ 72,118   $ 66,598  
 
Earnings per share:
Basic $ 1.32 $ 1.19 $ 1.15 $ 1.14 $ 1.69 $ 0.83 $ 0.79 $ 0.73
Diluted 1.31 1.18 1.14 1.13 1.65 0.82 0.77 0.72
 
Weighted average shares outstanding:
Basic 97,450 97,438 97,426 97,298 96,429 94,185 91,381 91,258
Diluted 98,066 98,013 97,866 97,951 98,497 96,094 93,162 93,023
 
Other Data:
Loss ratio (5) (0.6 )% 3.3 % 1.2 % 3.5 % 11.8 % 3.1 % 1.4 % 3.1 %
Expense ratio (6)   22.8     22.1     23.2     25.0     24.7     26.8     28.2     30.9  
Combined ratio   22.2 %   25.4 %   24.4 %   28.5 %   36.4 %   30.0 %   29.6 %   34.0 %
 
Return on average equity (annualized) 22.4 % 21.5 % 21.8 % 22.6 % 35.0 % 19.1 % 19.8 % 19.3 %
 

(1) Net premiums earned are net of premiums ceded to third-party reinsurers beginning in 2018. Premiums ceded totaled $3,731, $3,158, $3,585 and $294 in the three months ended December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively.

(2) Provision for losses and LAE for the quarter ended December 31, 2018 includes a $9.9 million 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. Provision for losses and LAE for the quarter ended December 31, 2017 includes an $11.1 million provision associated with defaults identified as related to Hurricanes Harvey and Irma.

(3) 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. Income tax expense for the quarters ended March 31, 2018 and 2017 was reduced by $9,549 and $3,023, respectively, of excess tax benefits associated with the vesting of common shares and common share units during each period.

(4) Income tax expense for the quarter ended December 31, 2017 was reduced by $85,091 of income tax benefit due to the one-time impact of the reduced U.S. corporate income tax rate on the company's net deferred tax liability position.

(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
   
 
2018 2017
Other Data, continued: December 31 September 30 June 30 March 31 December 31 September 30 June 30 March 31

($ in thousands)

 
U.S. Mortgage Insurance Portfolio
Flow:
New insurance written $ 11,408,542 $ 13,913,191 $ 12,850,642 $ 9,336,150 $ 11,234,855 $ 13,221,038 $ 11,368,276 $ 8,034,153
New risk written 2,838,530 3,430,942 3,201,610 2,295,314 2,737,008 3,228,603 2,786,501 1,929,832
 
Bulk:
New insurance written $ $ $ $ $ $ $ $
New risk written
 
Total:
Average gross premium rate (7) 0.50 % 0.51 % 0.52 % 0.52 % 0.53 % 0.53 % 0.53 % 0.53 %
Average net premium rate (8) 0.49 % 0.50 % 0.51 % 0.52 % 0.53 % 0.53 % 0.53 % 0.53 %
New insurance written $ 11,408,542 $ 13,913,191 $ 12,850,642 $ 9,336,150 $ 11,234,855 $ 13,221,038 $ 11,368,276 $ 8,034,153
New risk written $ 2,838,530 $ 3,430,942 $ 3,201,610 $ 2,295,314 $ 2,737,008 $ 3,228,603 $ 2,786,501 $ 1,929,832
Insurance in force (end of period) $ 137,720,786 $ 131,249,957 $ 122,501,246 $ 115,250,949 $ 110,461,950 $ 103,936,307 $ 95,494,390 $ 87,993,227
Gross risk in force (end of period) (9) $ 34,482,448 $ 32,786,194 $ 30,579,106 $ 28,691,561 $ 27,443,985 $ 25,807,358 $ 23,665,045 $ 21,801,667
Risk in force (end of period) $ 33,892,869 $ 32,361,782 $ 30,154,694 $ 28,267,149 $ 27,443,985 $ 25,807,358 $ 23,665,045 $ 21,801,667
Policies in force 608,135 581,570 546,576 517,215 496,477 467,483 430,585 397,650
Weighted average coverage (10) 25.0 % 25.0 % 25.0 % 24.9 % 24.8 % 24.8 % 24.8 % 24.8 %
Annual persistency 84.9 % 84.0 % 83.0 % 83.5 % 83.9 % 82.1 % 80.1 % 78.2 %
 
Loans in default (count) 4,024 3,538 3,519 4,442 4,783 2,153 1,776 1,777
Percentage of loans in default 0.66 % 0.61 % 0.64 % 0.86 % 0.96 % 0.46 % 0.41 % 0.45 %
 
Other Risk in Force
GSE and other risk share (11) $ 655,384 $ 612,750 $ 592,493 $ 557,692 $ 538,944 $ 501,485 $ 479,762 $ 436,991
 
Credit Facility
Borrowings outstanding $ 225,000 $ 225,000 $ 225,000 $ 265,000 $ 250,000 $ 175,000 $ 175,000 $ 125,000
Undrawn committed capacity $ 275,000 $ 275,000 $ 275,000 $ 110,000 $ 125,000 $ 200,000 $ 200,000 $ 75,000
Weighted average interest rate 4.43 %
 

(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, including in connection with Freddie Mac's Agency Credit Insurance Structure ("ACIS") and Fannie Mae's Credit Insurance Risk Transfer ("CIRT") programs.

...
                           
Exhibit D
   
Essent Group Ltd. and Subsidiaries
Supplemental Information
New Insurance Written: Flow
 
 
NIW by Credit Score
Three Months Ended Year Ended
December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017

($ in thousands)

>=760

$ 4,737,774 41.5 % $ 4,551,775 40.5 % $ 19,903,369 41.9 % $ 18,455,482 42.1 %

740-759

1,959,523 17.2 1,793,713 16.0 8,076,182 17.0 6,851,174 15.6

720-739

1,665,931 14.6 1,644,956 14.6 6,875,823 14.5 6,223,802 14.2

700-719

1,349,689 11.8 1,378,170 12.3 5,715,076 12.0 5,228,590 11.9

680-699

875,125 7.7 1,024,440 9.1 3,722,490 7.8 3,843,164 8.8

<=679

  820,500       7.2     841,801       7.5     3,215,585       6.8     3,256,110       7.4  

Total

$ 11,408,542       100.0 % $ 11,234,855       100.0 % $ 47,508,525       100.0 % $ 43,858,322       100.0 %
 
Weighted average credit score 745 743 745 744
 
 
 
NIW by LTV
Three Months Ended Year Ended
December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017

($ in thousands)

85.00% and below $ 1,384,296 12.1 % $ 1,532,008 13.6 % $ 5,731,894 12.1 % $ 5,839,270 13.3 %
85.01% to 90.00% 3,124,625 27.4 3,286,879 29.3 13,227,075 27.8 13,072,845 29.8
90.01% to 95.00% 4,955,729 43.4 4,845,713 43.1 20,579,615 43.3 19,301,353 44.0
95.01% and above   1,943,892       17.1     1,570,255       14.0     7,969,941       16.8     5,644,854       12.9  
Total $ 11,408,542       100.0 % $ 11,234,855       100.0 % $ 47,508,525       100.0 % $ 43,858,322       100.0 %
 
Weighted average LTV 92 % 92 % 92 % 92 %
 
 
 
NIW by Product
Three Months Ended Year Ended
December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Single Premium policies 13.5 % 19.0 % 15.3 % 16.3 %
Monthly Premium policies 86.5   81.0   84.7   83.7  
100.0 % 100.0 % 100.0 % 100.0 %
 
 
 
NIW by Purchase vs. Refinance
Three Months Ended Year Ended
December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Purchase 93.3 % 84.4 % 91.8 % 85.2 %
Refinance 6.7   15.6   8.2   14.8  
100.0 % 100.0 % 100.0 % 100.0 %