Essent Group Ltd. Q3 FY2025 earnings call

• The business has shown resilience with net income of $164 million in Q3 2025 compared to $176 million a year ago. Diluted EPS was $1.67 for Q3 2025 vs $1.65 a year ago.
• Year-to-date return on equity through the third quarter was 13% on an annualized basis.
• U.S. Mortgage Insurance in force was $249 billion as of September 30, 2025, a 2% increase vs year ago. Persistency was 86%.
• Consolidated cash and investments totaled $6.6 billion as of September 30, with an annualized investment yield of 3.9% in Q3. New money yield was nearly 5%.
• Repurchased nearly 9 million shares for over $500 million YTD through October 31. Board approved $0.31 common dividend for Q4 2025 and a new $500 million share repurchase authorization through year-end 2027.

For the third quarter of 2025, the Mortgage Insurance segment was a key focus. The U.S. Mortgage Insurance in force was $249 billion as of September 30, 2025, representing a 2% increase versus the prior year. Mortgage Insurance net premium earned for the third quarter was $232 million. The provision for losses and loss adjustment expenses was $44.2 million in the third quarter of 2025. The default rate on the U.S. Mortgage Insurance portfolio was 2.29% as of September 30, 2025. Persistency on September 30 was 86%, flat from the last quarter. The U.S. Mortgage Insurance portfolio had a weighted average FICO of 746 and a weighted average original LTV of 93%.

• Management expects current mortgage rate levels to support elevated persistency in the near term.
• Board approved $0.31 dividend for Q4 2025 and a $500 million share repurchase authorization running through year-end 2027.
• Year-to-date, nearly 9 million shares have been repurchased for over $500 million.

• Credit trends and macroeconomic scenarios could materially impact results.
• Tax friction from distributing capital back to shareholders may affect the effective tax rate.
• Potential changes in GSE underwriting standards could impact the credit quality of the mortgage insurance portfolio.

Q: Just wanted to start off with credit. New notices were a bit lower than what we had, but the provision on those notices were higher. So any color on kind of just the makeup from a vintage or even geography perspective this quarter?

A: Yes. Mark noted that average loan size continues to increase, with the average loan size close to $300,000, and larger loans going into default would result in a larger provision. No major concerns on geography or trends at current time.

Q: First, just on the ceded premiums, it was kind of the high end of the range. Is that a good level going forward? Or does that just bounce around depending on the timing of when you're doing the reinsurance transactions?

A: Dave responded that ceded premiums will bounce around a bit based on default and provision activity, being seasonal with an uptick in the second half of the year. Mark added that the quota share was raised to 25% this year, causing more volatility but it washes out in the overall model.

Q: I'm looking at Exhibit K and one trend that is pretty consistent is the increase in severity rates, and that makes sense given slowing home price appreciation and vintage mix. It was 78% this quarter. I'm curious, long-term where you think that could go? Are we sort of asymptotically approaching the limit there? Or are we -- should we expect that to continue to rise?

A: Mark stated that there's nothing extraordinary to point out, with provisions being actuarial-based and relatively conservative. The embedded home price appreciation in the book is a factor, but the business is focused on severe macroeconomic recessions as the main catastrophe risk, and they are well-capitalized for such scenarios.

Q: I actually want to follow up on Rick's last question there about just about the guardrails, around underwriting currently. I think there was news yesterday about Fannie removing the minimum credit score requirements. There's been some noise out of Washington about trying to do -- play a more active role in housing or lower increased housing demand, if you will. And I was just wondering from your seat, are you seeing any signs of that? Are originators trying to get more stuff underneath, gets more stuff approved that maybe wouldn't have been -- they wouldn't have tried a couple of years ago. Just wondering what that looks like.

A: Mark responded that the GSEs haven't changed their systems yet, so lenders can't get around the GSEs' sophisticated underwriting systems. Lenders are focused on lowering origination costs, and the business is not worried about immediate changes in underwriting standards as the GSEs' quality control is robust.

Q: Can you talk about your plans to upstream capital from the MI subsidiary? It sounds like you have a lot of capacity left for the year. Do you plan to kind of spill that over or do a large dividend in the fourth quarter?

A: Mark said it's consistent with dividends, likely a bit larger in the fourth quarter. They feel comfortable upstreaming cash from Essent Guaranty to U.S. Holdings, with quota share reinsurance also helping get cash to the holdco.