Essent Group Ltd. Q4 FY2025 earnings call

• Financial Performance: In 2025, net income was $690 million or $6.90 per diluted share, return on average equity was 12%, and book value per share was $60.31, an increase of 13% from a year ago.
• Credit Trends: Credit quality of insurance in force remains strong with a weighted average FICO of 747 and weighted average original LTV of 93%; portfolio default rate increased modestly; substantial home equity in in-force book mitigates ultimate claims.
• Reinsurance Strategy: 98% of mortgage insurance portfolio was reinsured in 2025; entered quota share with reinsurers for 2027 business; Essent Re effective in deploying capital, earned nearly $80 million in third-party net income in 2025.
• Title Operations: Focused on activations and lender network, but impact on earnings limited unless mortgage rates drop significantly.
• Capital and Liquidity: Consolidated cash and investments totaled $6.6 billion; GAAP equity was $5.8 billion; returned nearly $700 million to shareholders in 2025 via dividends and repurchases; repurchased nearly 10% of shares outstanding in 2025, and board approved 13% increase in quarterly dividend starting 2026.

Mortgage Insurance

• Absolute: Insurance in force was $248 billion as of December 31, 2025; net income for 2025 was $690 million or $6.90 per diluted share; Q4 2025 net income was $155 million or $1.60 per diluted share. Mortgage Insurance net premium earned in Q4 2025 was $213 million. Default rate on Mortgage Insurance portfolio was 2.5% as of Dec 31, 2025, up from 2.29% on Sep 30, 2025.
• Revenue Contribution: Not explicitly stated as a percentage, but it is a key segment.

Reinsurance

• Absolute: Essent Re earned nearly $80 million in third-party net income in 2025; ended 2025 with $2.3 billion in risk; entered quota share reinsurance agreements in Q4 2025 with expected $100 million to $150 million written premium in 2026, with approximately two-thirds to be earned in 2026.

Title

• Absolute: Focused on activations, leveraging lender network, and building transaction management system; unlikely to have substantial impact on earnings unless there is a material decrease in mortgage rates.

• Insurance in Force Growth: Expected to be modest in the near term, within the 1.9% range seen in 2025.
• Premium Rate: Average base premium rate for Mortgage Insurance expected to be approximately 40 basis points in 2026.
• Dividends and Repurchases: Committed to returning capital to shareholders, with a 13% increase in quarterly dividend starting 2026 and continued potential for share repurchases.

• Market Risks: Actual results may differ from forward-looking statements due to risks and uncertainties in the housing market, interest rates, and credit conditions.
• Reinsurance and P&C Risks: Execution of reinsurance strategy and performance of P&C operations subject to market conditions.
• Credit Risks: Default rates could increase if economic conditions deteriorate, impacting ultimate claims.

Q: Good morning. Thanks for taking my question. Maybe just let us start with the decision to enter the Lloyd’s market. I guess, you know, why now? Maybe talk a little bit about the strategy A: That you are doing there, what type of assets you are looking to underwrite, maybe just help us understand what exactly is happening there both strategically and operationally. Thank you.

Q: Your gross premium yield has been 41 basis points for a few quarters. You guided to 40 next year. Is that just kind of a rounding issue or anything tied to market returns?

A: It has been, no. It has been 41 for a while, Bose, and just think about it, it actually was lower than that. And I was actually looking at it the other day. It was lower than that in kind of the 2021–2022 period. And remember, if you think about 2022, when I commented how low pricing was, there was kind of a reversal, and pricing kind of came up in the industry and it kind of rolls through, because remember you are talking about insurance in force. So it is tough for, there is not a lot of transparency for analysts and investors on what the premium yield is upfront. You can kind of sense though, if you look at kind of where gross premium yields were for all the companies two quarters ago, four quarters ago, that will give you a good hint, a leading indicator as to what people are pricing at on the front end. So I would not get too fussed about it. I mean, once the homeowners that are on the sidelines come back and we get kind of that 740–745, 93 LTV, you will see that pricing come back up. And that will work its way into the yield. So it is a way for us to give you guidance to run the models.

Q: You noted that insurance in force growth is likely to be modest. I mean, this year was 1.9% year over year, which is already in the modest camp. So is it going to be, do you think it is going to be sort of below that level or kind of in that range?

A: I think within that range. Again, I do think longer term, I hate to say longer term, but it is longer term that housing will continue to grow. There will be renewed growth, Bose. I mean, the demographics, you know, 4 to 5 million in that age group, kind of 28 to 32, are coming into that homeownership camp every year. But the lack of, you know, given where rates are, the lack of affordability, a little lack of supply, they are just on the sidelines. And when they come off the sidelines, I do not know. But when they do, it is going to be a bigger spike than people think. I just, my crystal ball does not work in those types of increments. I think we are well positioned. So, again, from an Essent perspective, credit is relatively benign still. And as long as credit stays benign, and we can continue to produce the type of cash flow we are producing and really just use that to return to shareholders, we are kind of paid to wait, so we are fine with that. So, again, modest growth. Again, that is a little bit of us trying to guide investors and analysts to what they should expect because the numbers are the numbers, and we would rather kind of underpromise and overdeliver than the reverse.

Q: Can you talk about what you are seeing in your delinquency activity and whether you are seeing any difference across the vintages, especially the vintages that maybe have a little bit less embedded home price appreciation?

A: Yeah. Good question. You know, it is not really. I mean, we have 20,000 defaults. If you break it out by vintage, if you break it out by state, if you break it out by lender, if you break it out by servicer, nothing really stands out. I mean, Florida is a little higher because we had some hurricanes. And I would say that the Florida book is probably our higher premium book, but there is a little bit more risk there. We are fine with that. We love the unit economics in Florida and Texas. But no, it is really, we are always looking for something, but we have not really seen anything. And even the pre-2022 book, and I always like that. We always call it kind of the two books. Right? It is the pre, you know, it goes halfway through 2022 and before is one book and then the newer book, which was at elevated HPA, and higher interest rates. We are not seeing much of a difference there. That is probably a more normal, high LTV MI type portfolio, and we are not seeing anything there too. I mean, you are going to see noise and we still see it with forbearance, which ultimately is a good answer for borrowers, but it does create some noise in terms of the defaults and the ins and outs. Again, roughly 800,000 loans. There are only 20,200 defaults. I think it was 18,000-plus twelve months ago. So it is really, benign is maybe too light of a word, but we are not really too fussed about where defaults are. It comes down to unemployment, Doug. I mean, at some point, if it rains, like, every blade of grass is going to get wet. So we keep our eyes on unemployment. That is where we are always looking for pebbles. It will happen. Something will hit us at some point. We are just not seeing it in the, obviously not seeing it. In fact, the credit coming in has never been better. We are not seeing it, and I know you follow a lot of them too. We do not see it in a lot of consumer finance. We are not seeing it in the cards. FHA is pretty elevated. But other than that, we are very, very happy with the portfolio and the performance of the book. And even then, if default rates do spike at some point, look at where our claim rate is. So the embedded home equity helps a lot. I think our claim rate is probably right around 1% ever to date. So, I mean, there are some good protections. And I think it is a little underappreciated by the community, which is fine. I mean, again, if you look at just where we are at book value, it is all cash. We do not have a lot of debt, and there is not really a lot of credit given for future value of the cash flows. And do not forget, these future cash flows are pretty well hedged. Right? I mean, we own that first loss piece, but the mezz piece is pretty well hedged out. So we have a high degree of confidence in the present value of those future cash flows. Hence, that is why we are buying back shares. That is why we pay a dividend. And if we did not have that confidence, we certainly would not be funneling cash outside the company.