ESNT Shareholder/Stockholder Letter Transcript:
2023 Annual Report
To Our Shareholders,
I am pleased to report that Essent delivered strong
financial results in 2023. Strong credit quality and
resilience in housing and labor markets continued
to drive favorable credit performance, while higher
interest rates drove investment income growth and
elevated persistency during the year.
In 2023, we earned $696 million or
for a range of potential economic
of $239 billion and persistency of 87%.
$6.50 per diluted share, compared to
scenarios. Given the strength of our
Given our in-force book has a weighted
net income of $831 million or $7.72 per
balance sheet and our buy, manage
average note rate of 4.4% and nearly
diluted share in 2022, while generating
and distribute operating model, we
75% of the book has a note rate of 5.5%
a 15% return on average equity. As a
believe Essent is well positioned.
or lower, we expect persistency will
reminder, our financial results for 2022
included a loss provision benefit of
$175 million as a result of favorable
development primarily from cures
of defaults from the COVID era. Total
revenues increased by 11% to
$1.1 billion in 2023, attributable to a
5% growth of the mortgage insurance
( MI ) insurance in-force ( IIF ), a
50% increase in net investment income,
and the inclusion of $43 million in title
revenues. Our book value per share
grew by approximately 16%, ending the
year with GAAP Equity of $5.1 billion.
Credit and Interest Rates Two
Drivers of Our Results
Three Transformative Changes to
Despite the broader market s focus
the MI Industry
on interest rates, credit remains the
Our performance continues to reflect
primary driver of our results with the
the strength of our operating model and
franchise being levered to the economy
the transformational changes that our
and housing. The credit quality of
industry has experienced over the last
our IIF continues to be strong, with
decade.
a weighted average FICO of 746, a
weighted average original LTV of 93%,
and a portfolio default rate of 1.80% at
year-end 2023. We are pleased with the
MI underwriting margin in 2023, and
believe that the embedded home equity
Heading into 2024, we remain
in our insured portfolio should continue
constructive on the long-term outlook
to mitigate potential claims.
for housing, as the supply and
demand imbalance and favorable
demographic trends should provide
foundational support to home prices.
While sentiment has improved for
a soft landing on the back of strong
employment and consumer spending,
we continue to manage our business
remain elevated in 2024.
First, regulatory guardrails implemented
after the global financial crisis, such
as the Qualified Mortgage rule, and
robust underwriting and quality
assurance standards of Fannie Mae and
Freddie Mac (collectively the GSEs ),
have significantly improved industry
credit quality and performance. Loss
When it comes to interest rates, as a
mitigation tools such as mortgage
portfolio business, Ml is less beholden
forbearance provide additional buffers
to rate-impacted transaction activity
to homeowners in hardship, preventing
than other sectors within the housing
foreclosures and reducing claims.
ecosystem. Despite a challenging
lending environment in 2023, we wrote
$48 billion of new insurance written
( NIW ) and ended the year with an IIF
Second, broad adoption of risk-based
pricing engines enables mortgage
insurers to not only evaluate and
Capital & Equity ($ millions)
$3,309.5
$4,808.0
$3,243.1
$4,733.4
10.2:1
price long-tail mortgage credit risk
$5,102.6
10.3:1
granularly, but also to rapidly deploy
$3,376.1
10.5:1
$3,207.1
$3,178.2
$4,462.3
$3,128.7
10.3:1
$4,648.9
10.2:1
10.1:1
$4,294.2
$3,062.4
$4,272.0
$3,058.9
$4,215.1
9.9:1
10.2:1
targeted pricing strategies in response
to changes in credit dynamics
with pricing flexibility. We believe
EssentEDGE , our proprietary riskscoring engine powered by machine
Q1 22
Q2 22
Q3 22
Consolidated GAAP Equity
Q4 22
Q1 23
Q2 23
Combined Statutory Capital(1)
Q3 23
Q4 23
Combined Risk to Capital Ratio(1)
(1) Represents combined metrics for the U.S. insurance subsidiaries Essent Guaranty, Inc. and Essent Guaranty of PA, Inc.
$239.1
$238.7
$235.6
$231.5
$227.1
$222.5
$215.9
risk management tool, allowing us to
deliver our best rates to borrowers and
optimize our unit economics and
risk-adjusted returns.
Insurance In Force and New Insurance Written ($ billions)
$206.8
learning technology, is an effective
Third, programmatic use of reinsurance
hedges against risk and mitigates
volatility, making Ml a more stable and
sustainable franchise through the cycle.
Q1 22
Q2 22
New Insurance Written
Q4 22
Q1 23
Q2 23
some form of reinsurance, including
$8.8
$12.5
$13.5
$13.0
Q3 22
$12.9
93% of Essent s IIF is subject to
$17.1
$12.8
$20.1
At year-end 2023, approximately
Q3 23
$1.4 billion of insurance-linked notes
Q4 23
protection, plus additional coverage
Insurance In Force
from quota share ( QS ) reinsurance.
Credit risk transfer to both capital
Net Premiums Earned and Net Income ($ millions)
markets and traditional reinsurers has
26.0%
proven to be a cost-effective way of
21.8%
managing risk and capital.
15.0%
14.9%
14.7%
14.2%
Given our strong balance sheet and
of transformative changes to our
business, S&P Global Ratings raised
$175.4
$178.0
$245.6
$246.8
$172.2
$213.2
profitability, along with the benefits
$211.3
$147.4
$207.3
$178.1
$207.9
$231.8
$212.0
$274.2
13.5%
$170.8
16.6%
$215.3
( ILN ) and excess-of-loss ( XOL )
the long-term financial strength ratings
of our two primary operating entities,
Essent Guaranty and Essent Re, to A-
from BBB+ with a stable outlook in
January 2024. With this upgrade, we
Q1 22
Q2 22
Net Premiums Earned
Q3 22
Q4 22
Net Income
Q1 23
Q2 23
Q3 23
Q4 23
Return on Average Equity (Annualized)
reached a milestone of A- or higher
financial strength ratings by all rating
agencies that cover Essent Guaranty
Additional Financial Highlights For Full Year 2023
Net premiums earned were $916.9M, compared to $842.5 million for 2022
An expense ratio of 24.5%*, compared to 20.4% for 2022
Percentage of U.S. mortgage insurance loans in default were 1.80%, compared
to 1.66% at the end of 2022
A combined ratio of 27.9%, compared to -0.4% for 2022
* Expense ratio is calculated by dividing the sum of other underwriting and operating expenses and premiums retained
by agents by the sum of net premiums earned and settlement services revenue, if applicable.
and Essent Re.
A Measured Approach to Capital
The strength of our operating model
organizations with a focus on children,
Management
provides us with confidence in the
education, health, and housing,
We continue to take a measured
stability of Essent s cash flow and
including multi-year commitments
approach to capital management to
our ability to return earnings to our
to support the Mortgage Bankers
ensure that we always operate from
shareholders in the form of dividends
Association s Open Doors Foundation,
a position of strength, balancing the
and share repurchases. Our Board
the Clarifi Housing Stabilization
need to maintain a strong balance
approved a 12% increase of Essent s
Fund to aid Philadelphia, PA families
sheet, grow our core business, invest
quarterly dividend to $0.28 per share
in housing crisis, and donations to
in our franchise, and return capital
for March 2024. Since we initiated a
support the development of the Main
to shareholders. As a true believer
quarterly dividend of $0.15 per share in
Line Health Behavioral Health Unit
of capital begets opportunity, we
September 2019, 2024 marks the fifth
outside Philadelphia, PA, which opened
maintain the lowest debt-to-capital ratio
consecutive year that we have increased
in early 2022. Responsible corporate
in the industry at 8% and over
our annualized dividend to shareholders.
stewardship is critical to our long-term
$1 billion of total liquidity at the
In 2023, we distributed $106 million
success and doing the right thing is,
holding companies at the end of 2023,
to shareholders as dividends and
and will always be, at the forefront of
including $694 million of net cash
repurchased 1.5 million ESNT shares
our mission.
and investments plus $400 million of
for $66 million. In October 2023, our
undrawn revolving capacity.
Board approved a $250 million share
Along with our core MI business that
continues to have strong operating
returns, Essent Re, our Bermuda-based
repurchase authorization effective at
the start of 2024 that runs through
year-end 2025.
Managing Our Business for
the Long-Term
Our management team and Board
of Directors remain committed to
prudently and profitably writing
reinsurance company, had another
Being a Responsible Corporate Citizen
high-quality business, growing the
strong year of performance in 2023.
The strength of our balance sheet
Essent franchise and generating
In addition to reinsuring our U.S. MI
and operating model allows Essent to
strong returns. We continue to believe
business through a 35% affiliate QS
fulfill our mission to support affordable
that the success of our business is
agreement, Essent Re participates
and sustainable homeownership. We
best measured by growth in book
in risk-share transactions with the
remain committed to helping borrowers
value per share. Since going public in
GSEs and other third parties and
achieve home ownership. We continue
2013, we have achieved a compound
provides fee-based agency services
to believe that Essent and our industry
annual growth rate of 19%.
to reinsurer clients. In July 2023, we
can play a greater role in leveraging
closed on the acquisition of a title
private capital to support a strong and
insurance business for $93 million,
robust housing finance system while
which provides a platform for us to
mitigating taxpayer risk.
leverage our capital, lender network
and risk analytics in an adjacent sector
with a large addressable market. Our
EssentVentures unit has invested
$277 million across venture capital,
private equity, structured credit funds
Thank you for your confidence in us
and for investing in Essent.
In 2023, we published the latest annual
edition of our Sustainability Report and
continued to explore ways to enhance
our overall environmental, social, and
governance (ESG) initiatives.
and direct investments, generating
Our commitment to ESG starts in
$74 million of value ever-to-date.
our communities. Essent and our
employees sponsor national and local
Mark A. Casale
Chairman & CEO
March 2024
Strength In Numbers.
STRONG BALANCE SHEET
EXCEPT WHERE NOTED, DATA AND RATINGS ARE AS OF DECEMBER 31, 2023
FINANCIAL STRENGTH1
Essent Guaranty, Inc.
MOODY S:
A3
Essent Guaranty, Inc. & Essent Reinsurance Ltd.
AM BEST:
A (Excellent) A-
HIGH QUALITY MORTGAGE
INSURANCE PORTFOLIO
$239.1 BILLION
87.1
8.3%
4.6
<680
BY FICO
2.9 Million
homebuyers Essent MI has
helped become successful
homeowners
Combined U.S.
Risk-to-Capital2
10.2:1
ROBUST REINSURANCE PROTECTION
Access to
Excess of Loss
Reinsurance of
$1.4B
REINSURANCE
PROTECTION ON
93%
OF INSURED
PORTFOLIO
PMIERs Credit from
Quota Share
Reinsurance Treaties of
$554M
680-699
700+
HIGH QUALITY PORTFOLIO OF INVESTMENTS
AVAILABLE FOR SALE
Investment Grade
Securities3
15.3%
3
S&P:
Credit Rating of
Aaa to Aa33
4.6
U.S. Government &
Agency Securities or
Money Market Funds
90.00%
BY LTV
5 0.
90.01%-95.00%
95.01%
98%
66%
43%
1%
STRONG CAPITAL & LIQUIDITY
$5.1 BILLION
Of GAAP Equity
$694 MILLION
Cash and Investments at the
Holding Companies
1
$5.7 BILLION
$1.4 BILLION
$400 MILLION
8% DEBT-TO-CAPITAL
RATIO
Consolidated Cash & Investments
Undrawn Credit Facility Capacity
(an Additional Source of Liquidity)
The S&P financial strength rating was upgraded to A- from BBB+ on January 8, 2024.
For more information, visit "Ratings Definitions" in the Ratings section at moodys.com,
the "Rating Methodologies" section at ambest.com and "Understanding Credit Ratings"
at spratings.com.
Excess U.S. PMIERs Capital
The combined U.S. risk-to-capital ratio equals the net risk in force of Essent Guaranty, Inc. and Essent
Guaranty of PA, Inc. divided by the combined statutory capital of these U.S. insurance companies.
3
Based on ratings issued by Moody's, if available. S&P or Fitch rating utilized if Moody's not available.
Percentages exclude money market funds.
2
3/29/2024 Letter Continued (Full PDF)