ESNT

Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Ltd First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Philip Stefano, Investor Relations. You may begin.

Thank you, Abby. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO; and David Weinstock, Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Curran, President of Essent Guaranty. Our press release, which contains Essent's financial results for the first quarter of 2026, was issued earlier today. It is available on our website at essentgroup.com. Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward-looking statements. These statements are based on current expectations, estimates, projections, and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially.

For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release, the risk factors included in our Form 10-K filed with the SEC on February 18th, 2026, and any other reports and registration statements filed with the SEC, which are also available on our website. Let me turn the call over to Mark.

Thanks, Phil, and good morning everyone. Earlier today, we released our first quarter 2026 financial results, which continue to benefit from favorable credit performance and the impact of interest rates on both persistency and investment income. Our core MI business continues to generate strong cash flow, supporting a balanced approach to capital allocation that funds growth opportunities across our franchise and returns capital to shareholders. For the first quarter of 2026, we reported net income of $172 million or $1.82 per diluted share. On an annualized basis, our return on average equity was 12% year-to-date through the first quarter. As of March 31st, our book value per share was $61.20, an increase of 11% from a year ago.

Our outlook on housing is that it remains in a pause as affordability and higher rates continue to temper purchase and refinance originations. However, we believe that favorable demographics, supply constraints, and increasing pent-up demand will be positive for housing and our MI business when affordability improves. As of March 31st, our mortgage insurance in force was $248 billion, a 1% increase versus a year ago. Twelve-month persistency was 84.7%, reflecting the ongoing impact of the rate environment. Nearly 50% of our in-force portfolio carries a note rate of 5.5% or lower, a dynamic that we believe will support persistency at elevated levels. The credit quality of our insurance in force remains strong, with a weighted average FICO of 747 and a weighted average original LTV of 93%.

Our portfolio default rate was effectively flat quarter-over-quarter, and we continue to believe that the embedded home equity of our in-force book should mitigate ultimate claims. Outward reinsurance in our MI business continues to play an integral role in managing credit risk and capital. During the first quarter of 2026, we entered into an excess of loss transaction with a panel of highly rated reinsurers providing forward protection for our 2027 business. We remain pleased with the execution of our reinsurance strategy, ceding a meaningful portion of our mezzanine credit risk and diversifying our capital sources. On the title front, we continue to transition the business from a standalone operation to an adjacency of our mortgage insurance franchise by leveraging our customer base and providing title solutions.

The coordination between our MI and title teams continues to build momentum in expanding the number of Essent title customers. We note this business is rate sensitive and results will continue to improve as origination volumes recover. On the Essent Re front, we expanded our P&C reinsurance platform in the first quarter. Our Lloyd's program will generate approximately $120 million of written premium in 2026 against a $50 million deposit at returns comparable to our MI business. During the first quarter, we also executed a whole account quota share covering a cedent's casualty and specialty book, which will generate approximately $200 million of written premium in 2026. Combined, we expect that the near-term earnings impact will be immaterial, while over the longer term, growing income and the capital benefits of rating agency diversification will be key drivers in generating shareholder value.

Our consolidated cash and investments as of March 31st totaled $6.6 billion with an annualized aggregate yield for the first quarter of 4.2%. New money yields on our core portfolio in the first quarter were nearly 5%, holding largely stable over the past several quarters. We continue to operate from a position of strength with $5.7 billion in GAAP equity, access to $1.1 billion in excess of loss reinsurance, and $1.1 billion in cash and investments at the holding companies. With a trailing 12-month operating cash flow of $827 million, our franchise remains well-positioned from an earnings, cash flow, and balance sheet perspective. We remain committed to a measured and diversified capital strategy that looks to optimize shareholder returns over the long term while preserving optionality for strategic growth opportunities.

With that in mind, year to date through April 30th, we repurchased approximately 3.5 million shares for over $200 million. Furthermore, I'm pleased to announce that our board has approved a common dividend of $0.35 for the second quarter of 2026. Now let me turn the call over to David.

Thanks, Mark. Good morning, everyone. Let me review our results for the quarter in a little more detail. For the 1st quarter, we earned $1.82 per diluted share compared to $1.60 last quarter and $1.69 in the 1st quarter a year ago. Our consolidated net premium earned and operating expenses each increased from last quarter due to our P&C reinsurance activity, which began effective January 1st. The consolidated provision for losses and loss adjustment expenses also include amounts related to P&C activity. My comments today are gonna focus primarily on our mortgage insurance segment results. There's additional information on our reinsurance segment and corporate and other results in exhibits D, E, and O of the financial supplement.

Our mortgage insurance portfolio ended the first quarter with insurance in force of $247.9 billion, essentially flat compared to December 31st, and an increase of $3.2 billion or 1.3% compared to $244.7 billion at March 31st, 2025. Persistency on March 31st, 2026 was 84.7% compared to 85.7% at December 31st, 2025. Mortgage insurance net premium earned for the first quarter of 2026 was $216 million. The average base premium rate for the mortgage insurance portfolio for the first quarter was 41 basis points, consistent with last quarter, and the average net premium rate was 35 basis points, up 1 basis point from last quarter.

Our mortgage insurance provision for losses and loss adjustment expenses was $37.6 million in the first quarter of 2026 compared to $55.2 million in the fourth quarter of 2025 and $30.7 million in the first quarter a year ago. At March 31st, the default rate on the mortgage insurance portfolio was 2.54%, essentially unchanged from December 31st, 2025. Mortgage insurance operating expenses in the first quarter were $37.6 million, and the expense ratio was 17.4% compared to $34.3 million and 16.1% last quarter and $40.9 million and 18.8% in the first quarter last year.

Consistent with prior years, operating expenses in the first quarter of each year are typically higher due to payroll taxes on incentive compensation as well as higher stock-based compensation expense. At March 31st, Essent Guaranty's PMIERs sufficiency ratio was strong at 174% with $1.6 billion in excess available assets. Turning to our reinsurance segment, net premium earned, provision for losses and loss adjustment expenses, and acquisition costs each increased from last quarter due to the P&C reinsurance activity, which began effective January 1st. Consistent with Mark's comments, the pre-tax earnings for our P&C activity was immaterial for the quarter, and the pre-tax earnings for the reinsurance segment in the first quarter predominantly reflect the underwriting results for our GSE and other mortgage risk share activity.

Consolidated net investment income and our average balance of cash and available-for-sale investments in the first quarter were largely unchanged from last quarter due to the use of operating cash flows to repurchase shares. Income from other invested assets was $10.2 million in the first quarter of 2026 compared to $3.9 million last quarter and $7.4 million in the first quarter a year ago. Higher results this quarter are primarily due to increased favorable fair value adjustments in the quarter. As Mark noted, our total holding company liquidity remains strong and includes $500 million of undrawn revolver capacity under our committed credit facility. At March 31st, we had $500 million of senior unsecured notes outstanding, and our debt-to-capital ratio was 8%.

At quarter end, Essent Guaranty's statutory capital was $3.7 billion with a risk-to-capital ratio of 8.6-1. Note that statutory capital includes $2.6 billion of contingency reserves at March 31st. As of April 1st, Essent Guaranty can pay ordinary dividends of $330 million until in 2026. In April, Essent Guaranty paid its first dividend of 2026 to its U.S. holding company of $50 million. During the first quarter, Essent Re paid a dividend of $100 million to Essent Group. Also in the quarter, Essent Group paid cash dividends totaling $32.6 million to shareholders, and we repurchased 2.6 million shares for $157 million. In April 2026, we repurchased 934,000 shares for $57 million.

Now let me turn the call back over to Mark.

Thanks, Dave. In closing, Essent is a well-capitalized high-quality franchise with a strong and consistent cash flow generation. Our core mortgage insurance business remains well-positioned to serve our lender partners throughout this period of housing market transition, and our reinsurance segment continues to create value by deploying capital efficiently across both mortgage and non-mortgage risk. We remain confident in our ability to grow book value per share, return capital to shareholders, and invest in opportunities that build a stronger franchise for the long term. Now let's get to your questions. Operator?

Thank you. We'll now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star one again. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your questions. Again, it is star one to join the queue. Our first question comes from the line of Bose George with KBW. Your line is open.

Hey, good morning, everyone. Actually, first, can we just talk about just your updated thoughts on what you're seeing in terms of consumer credit? You know, any signs of early signs of weakness on higher gasoline prices? Or is this things you're keeping an eye on?

Hey, Bose, it's Mark. I would say right now we are not seeing any real kind of cracks. You're seeing it a little bit in the lower-end consumer, right? I mean, take a peek at the FHA delinquencies. You know, keep in mind our book, much higher FICO, so kind of 747 average FICO. Average income, $130,000 per household. These are the consumers that are really driving the economy, the upper-end consumer, along with significant AI spending. We're not seeing it. Clearly we look at it. When you think about, like, our defaults have gone up, you know, take a step back and really look at, you know, just the seasoning of the book, Bose. 39 months, I believe the book is seasoned. Peak default is 36-60.

You're seeing there's really a normalization of the credit. We're not really seeing an acceleration of that. Again, it's roughly 20,000 defaults. You know, the book is not really growing in terms of policy. I would say the consumer's looking really good. We're not really even seeing anything if I look at different geographies, if I look at lenders, if you look at servicers, right? That's an important thing to look at when things start to bend a little bit. No, I would say in general, we think the consumer is in good shape. When you mention inflation, again, that's much more likely to hit the lower-end consumer. Certainly something we're watching.

Okay, great. Thanks. Can you just give us an update on competitive trends in the market?

I mean, no real differences in terms of the competitive trends. You're starting to see, you know, just with the lack of affordability, you know, some of the lenders starting to reach a little bit. I think on the MIs, it's a small market, and the books aren't growing. You're starting to see a little reach here and there. You know, there was a bid card that we passed on recently where, you know, we saw a little bit of an extension of credit, and we priced for it, and we didn't get it. You're seeing it a little bit around the edges, but nothing real alarming. You just given the longer this pauses, right?

I mean, this pause started probably back half of 2022, now 2023, 2024, 2025, and now it's into this year. You know, I think the industry has done a good job, to be quite honest, being patient, and thoughtful around this stuff. You know, you're always gonna see a crack here and there. I think from our standpoint, Bose, we look at it, you know, we look at it a little bit differently, you know, in terms of really Oops. We're really focused on the unit economics. When you look at where our NIW was for the quarter versus, you know, the number 1, you know, mortgage insurer, the difference is relatively small. You know, our view is that additional NIW's probably at the lower end of our, of our return hurdles.

We look at other options to allocate that capital. Lloyd's was a good example, right? I mean, the Lloyd's leverage and the returns there are comparable. I'll also point you to, you know, our other invested assets. I mean, we were able to put money to work there in the first quarter that we think will be easily mid-teen returns over the next few years. Again, it's a choice. I think from a competitive standpoint, nothing really alarming. It just, it remains a small market, so it's difficult really to separate much when it's such a small market.

Great. Great. Thanks for the color.

Our next question comes from the line of Terry Ma with Barclays. Your line is open.

Hey, thank you. Good morning. Just wanted to follow up on credit. As we look at, you know, the results of the quarter, like anything to kind of call out new notices were, at least sequentially a little bit more muted compared to the seasonality that you saw the last few years. I guess anything to call out there? As we look out to the rest of the year, we kind of assume normal seasonality holds?

I would expect, again, Terry, as you. This is the thing for investors to focus on, is just again, back to my earlier point of seasoning in a portfolio. Given where it is and peak default being 36-60, you're gonna see defaults continue to increase. Again, I don't think the rate is accelerating per se, but it is a seasoning aspect of it. The thing to keep in mind, though, at the end of the day, Terry, is I think we paid $13 million in claims in the first quarter. Just to try to put this in perspective, roll, you know, going into default, doesn't necessarily mean they're gonna roll the claim. I would, again, nothing big picture, 800,000 policies, 20,000 defaults.

You know, it's normal, given the age, for the defaults to season and start to see the kind of the new notices tick up a little bit.

Great. Just a housekeeping question. I think I missed it in the prepared remarks, but the provision on the reinsurance segment that was related to the net premiums written in the quarter, right? As we kind of look forward, that should, you know, kind of in a sense normalize compared to the past few quarters?

Yeah, it's a big change this quarter, right? Because we wrote, we wrote Lloyd's, which hit in the first quarter. We also wrote the retro quota share, which also was kind of We wrote in the first quarter, but it's back to quarter one. Remember, these are run at more high combined ratios, so you're gonna and you're combining with mortgage, so it's gonna be a little, you know, we can help you offline a little bit on the modeling. But I would You know, the bottom line is it's not, it's not gonna drive a lot of income in 2026, but we do it does set the stage for a little bit down the road. The counter to that is just the mortgage book within Essent Re is not really growing.

We have a pause for growth on the MI side. It's actually the way the GSEs are buying, you know, reinsurance these days. They're moving higher up in the capital structure. They're arming the capital model a bit for sure, so good for them. They're buying higher in the capital structure, so we're getting less rate online, right? Because there's less risk, and they're also really not, they're not reinsuring a lot. I would expect, again, if there's a change around when we think about privatization of the GSEs and they become more normal, in terms of risk share back to where they were, we could see that growth resume again. Right now it's going to be a little bit of the P&C earnings replacing the mortgage earnings over the next few years.

Okay. Got it. Thank you.

Yep.

As a reminder, it is star one if you would like to ask a question. Our next question comes from the line of Geoffrey Dunn with Dowling & Partners. Your line is open.

Thanks. Unfortunately, I think you just said you'd do it offline, but I was going to ask you if you could break down the loss ratio in the reinsurance business between the P&C and the mortgage business.

Yeah, the loss I mean, we'll break it off offline, but high level, the loss ratio on mortgage is basically 0. Most of the losses are flowing through. I think from a modeling perspective, Geoff, I would look at mid to high nineties for the P&C together, right? It's Lloyd's and quota share, to mix it together, it's mostly, I would say the majority of it is specialty and casualty. There's a little property in there from Lloyd's, but it's D&F. It's not property cat. The Lloyd's, you know, the Lloyd's combined ratio will probably be, you know, mid-nineties, but the quota share is probably in the higher nineties. It'll kind of balance out.

The key there is like, you know, and again for a company that writes at 35% combined ratio, we were, you know, it was, it was definitely an adjustment for us to write at those higher levels. There's a different leverage, right? There's a lot more premium leverage within P&C and clearly, you know, when rates went up a couple of years ago, you know, that really the asset leverage in P&C makes a lot more sense. We're fortunate that we have the franchise in Essent Re to do it. Just the way the Essent Re capital model works, Geoffrey, as you know, I mean, I think our AAA excess, you know, that we write to is, you know, something on the order of, you know, $850 million.

For us to write, you know, $200 million is really no additional capital and probably helps us from a, from a capital diversification rate. It's not like we're taking capital from repurchases and putting it into P&C. It's really we're kind of double levering the capital bit within Essent Re, which will be over time accretive to earnings.

That's helpful. Thank you.

Yep.

Our next question comes from the line of Mihir Bhatia with Bank of America. Your line is open.

Hi. Good morning. Thank you for taking my question. I wanted to start by just asking on the cure rate. I know the number of defaults is small, but the cure rate really fell off a cliff this quarter. I don't know if, like, I'm just missing something obvious.

Mihir, it's David Weinstock. Thanks for your question. I don't know that I would have characterized it that way. I mean, I think if you look and we have some good information in the supplement, and you look at our, you know, how much of our, the defaults are curing, you know, it's been pretty consistent quarter after quarter. You know, with one quarter in, you know, when we're in that, you know, 30%-ish range. Actually it was actually higher. Well, I think it's been very consistent, I guess, is what I would say, you know, quarter-over-quarter.

Okay. Okay. Maybe I'll take that up offline.

Yeah. I mean, here I think you may be missing something. Let's take that offline.

Yeah.

Really fall off the cliff. It's actually relatively normal if you go back and look at our past stats.

Right.

We're probably going to have to dig in there with you a bit.

Yeah. No, I appreciate that. Thank you. Just in terms of the reserve releases. I would ask just, you know, given the commentary you had about it being stable, there being some portfolio seasoning mostly, and the way you reserve like your claim rate assumption, like what would have to change for the prior period reserve releases to go down? Like, what are the indicators we should be looking for in the macro that, hey, these things are changing, we need to start thinking that maybe the reserve releases slow down?

Yeah, I mean, I would look at unemployment rate. I mean, at the end of the day, if, you know, as long as we at a 745 FICO average income, what we said earlier, I mean, it's a strong borrower unless they lose their job. You saw that in COVID, Mihir. Again, you know, employment is actually is pretty strong, and I think it'll continue to be strong. We'll continue, you know, just from a consumer standpoint, you know, I don't think much changes that. Also again, remember home prices, home prices are still, there's a lot of embedded equity in the portfolio. Especially between, you know, kind of the pre 2022 book.

Again, or as we said earlier, just because they kind of get or they go into default, doesn't necessarily mean they're gonna roll the claim. Again, back to the $13 million or so that we paid. I would take a step back, and I know you're good at this. I would take a step back and just again, look at the longer term implications of what we're doing, right? The cash flow generation of the company, you know, again, last 12 months, $827 million. That's if you look at just a yield basis of where we are from a book value standpoint, the cash flow returns are pretty high.

We continue to have a lot of excess cash at the holdco, and that's after buying back the amount of shares that we did. We're in a really good position. You know, as we always said, capital, you know, begets opportunities and we feel like we're in a good position. We're starting to allocate that capital a little bit, you know, within Essent Re, you know, other invested assets. That's another place where we can improve in returns and make it a little bit more accretive to the shareholder, title, which we don't talk a lot about, is really, as I mentioned in the script, is really starting to come into its own a bit. Really almost as an adjacency to the MI business.

Lots of, I would say lots of momentum there around the coordination between the MI machine, as I like to call it, and the sales force and the title folks. We've seen some nice customer wins. You know, you gotta stack all that just like we had to do back in the day when we built the MI business. You need rates to, you know, to come down. We're starting to see some green shoots throughout the organization, and that's in a pause. When you take a step back and just think about where the demographics are in this country in terms of first time home buyers, you know, there's 4 million-5 million new home buyers coming, you know, coming into age every year.

That's gonna continue. Look at the chart in our investor deck. It's just a lot of these guys can't afford it. There's an affordability issue. It's not gonna be solved by the government, to be quite honest. It's gonna be solved when there's continued job growth and income growth, which there is. You know, some form of moderation of rates. Then there could be some changes in HPA, right? There's some pockets where there's some weakness and I've said before, I actually think that's healthy. You know, big picture, I think we're in good shape. I would just caution investors to not look at just some of the short-term metrics. They're important. They're always important in terms of defaults and new notices.

Bigger picture, you know, right now this is a pretty well-oiled cash flow machine. We'll see where we go and see how we can allocate that in the future. We're feeling pretty good about, you know, kind of where we're situated today.

Got it. No, that's helpful for sure. I mean, maybe 1 just follow-up on something you said about, you know, just the in the quarter and the title starting to wake. The benefits from title starting to come through. Obviously, we had early in the quarter lower rates. Maybe just talk about what you saw on in the quarter trends, both from a persistency but also from a title perspective. Did you see the benefits of that from lower rates starting to come through?

Okay. You broke up a little bit, but yes, we did. We saw a little, we saw a spike in the fourth quarter. We saw a spike in the first quarter for sure, which we took advantage of and we're better situated to take advantage of. That's another message for investors. As we continue to build scale, we're putting in a new system, very similar to how we did it, you know, back in the MI days. We bought code and now we're implementing it. Again, it's coming in within the information kind of machine, technology machine of Essent. The company we bought outsourced their IT. You know, you don't wave a magic wand and just put something onto your structure overnight.

We're investing in the system. We're patient. You know, I think at the capital we have allows us to do that. I mean, here, just the efficiencies around our expenses allow us to invest. We're starting to see it. The question is, it's more important from the MI standpoint. If refinances spike up, we will see some of that benefit on the title side. I think MI is a bit more important though to understand the rationale. Persistency will decrease, I think the new originations will overwhelm that or mitigate it. Actually it'll help us.

That'll be the signal for renewed growth in the portfolio because what you're gonna see, it's an interesting position to think about here, is go back and look at our pre 22 book, right? I said half of the book is like five and a half below. That's not gonna necessarily refinance. It's gonna be all the post 22 book at the higher rate. We could see this phenomenon where the back book sticks a little bit more and the newer book is the one that starts to refinance, but then it's kind of a renewed growth. Again, something to watch for. I'm not necessarily seeing rates come down this year given, you know, given what's going on with oil prices and inflation.

It's another little tailwind that could happen if there is a movement in rates.

Got it. Thank you. Thanks for taking my question.

You're welcome.

With no further questions, I will now turn the conference back over to management for closing remarks.

I'd like to thank everyone for joining us today, and have a great weekend.

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.