Essent Group Ltd. (ESNT) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance with a 13% increase in book value per share and significant shareholder returns, including a 10% reduction in shares outstanding. Despite some concerns raised in the Q&A, such as lower NIW and stable gross premium yield, the company's strategic focus on long-term value and capital efficiency, including entering the Lloyd's market, supports a positive outlook. The optimistic guidance and robust financial health are likely to result in a positive stock price movement over the next two weeks.
Key Financial Performance
Net Income (Q4 2025) $155 million or $1.60 per diluted share, compared to $1.58 in Q4 2024. The increase is attributed to positive credit trends and higher interest rates.
Net Income (Full Year 2025) $690 million or $6.90 per diluted share, with a return on average equity of 12%. This reflects strong performance driven by credit trends and higher interest rates.
Book Value Per Share $60.31 as of December 31, 2025, a 13% increase year-over-year. The growth is due to strong earnings and share repurchases.
Mortgage Insurance in Force $248 billion as of December 31, 2025, a 2% increase year-over-year. Growth is attributed to higher persistency rates and a smaller origination market.
12-Month Persistency 86% as of December 31, 2025, relatively flat year-over-year due to higher mortgage rates and a smaller origination market.
Default Rate 2.5% as of December 31, 2025, up from 2.29% in Q3 2025. The increase is due to normal seasonality and portfolio aging.
Essent Re Net Income $80 million for 2025, driven by effective capital deployment and reinsurance agreements.
Consolidated Cash and Investments $6.6 billion as of December 31, 2025, with a yield of 3.9%. New money yields were nearly 5%.
Operating Cash Flow $856 million for 2025, reflecting strong earnings and cash flow generation.
Shareholder Returns $700 million returned in 2025 through dividends and repurchases, including a 10% reduction in shares outstanding.
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Operating Highlights
Essent Re expansion into Lloyd's market: Essent Re entered into quota share reinsurance agreements backed by funds at Lloyd's to reinsure certain property and casualty risks. These agreements are effective in Q1 2026, with expected written premium of $100 million to $150 million, approximately 2/3 to be earned in 2026.
Mortgage insurance in force: Increased to $248 billion as of December 31, 2025, a 2% increase year-over-year.
Persistency rate: Persistency rate was 86% as of December 31, 2025, reflecting higher mortgage rates and a smaller origination market.
Reinsurance strategy: 98% of the mortgage insurance portfolio was subject to reinsurance, with a new quota share transaction providing forward protection for 2027 business.
Essent Re performance: Generated $80 million in third-party net income in 2025 and ended the year with $2.3 billion in risk.
Capital management: Returned nearly $700 million to shareholders in 2025 through dividends and repurchases, repurchasing nearly 10% of shares outstanding at the end of 2024.
Dividend increase: Board approved a 13% increase in quarterly dividend to $0.35 per share starting Q1 2026.
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Risk or Challenges
Persistency and Insurance in Force Growth: Persistency has been relatively flat due to higher mortgage rates and a smaller origination market, leading to modest growth in earned premium and insurance in force over the near term.
Portfolio Default Rate: The default rate on the mortgage insurance portfolio increased to 2.5%, reflecting normal seasonality and the aging of the insurance in force portfolio.
Provision for Losses: The provision for losses and loss adjustment expenses increased to $55.2 million in Q4 2025, up from $44.2 million in Q3 2025, driven by higher defaults due to portfolio seasoning.
Title Operations: Title operations are unlikely to have a substantial impact on earnings unless there is a material decrease in mortgage rates, as it is primarily a centralized refinance platform.
Economic and Housing Market Conditions: The challenging housing market and higher mortgage rates are impacting persistency, origination volumes, and the overall growth of the business.
Operating Expenses: Operating expenses for the Mortgage Insurance segment increased to $34.3 million in Q4 2025, with expectations of further increases in 2026.
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Guidance & Outlook
Near-term earned premium and insurance in force growth: Expected to be modest due to higher mortgage rates and a smaller origination market.
Claims mitigation: Substantial home equity embedded in the in-force book is expected to mitigate ultimate claims.
Reinsurance agreements: Essent Re entered into quota share reinsurance agreements effective in Q1 2026, expecting $100 million to $150 million of written premium, with approximately two-thirds to be earned in 2026.
P&C reinsurance opportunity: Property and casualty reinsurance is expected to be an ongoing opportunity to generate supplemental earnings for Essent Re.
Title operations impact: Unlikely to have a substantial impact on earnings unless there is a material decrease in mortgage rates.
Operating expenses for mortgage insurance segment: Expected to be approximately $145 million for the full year 2026.
Average base premium rate for mortgage insurance: Projected to be approximately 40 basis points for the full year 2026.
Effective tax rate: Estimated to be approximately 17% for 2026, excluding discrete items.
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Shareholder Return Plan
Dividend Increase: The Board approved a 13% increase in the quarterly dividend to $0.35 per share starting in Q1 2026.
Dividends Paid: Essent Group paid cash dividends totaling $29.5 million to shareholders in Q4 2025.
Share Repurchase Program: In 2025, Essent Group repurchased nearly 10% of its shares outstanding at the end of 2024, amounting to $700 million returned to shareholders through dividends and repurchases.
Q4 2025 Share Repurchase: Repurchased 2 million shares for $125 million in Q4 2025.
January 2026 Share Repurchase: Repurchased 713,000 shares for $44 million in January 2026.
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Key Q&A
Q:Why did the company decide to enter the Lloyd's market now, and what is the strategy behind it?
A:The decision to enter the Lloyd's market has been in process for a while as part of Essent Re's expansion. The company sees Lloyd's as a capital-efficient way to diversify and grow. They are putting $50 million of FAL on S&R's balance sheet without requiring additional capital. The focus is on well-diversified insurance lines, avoiding property catastrophe due to volatility. The approach is measured and not transformational, aiming for long-term supplemental earnings and book value growth.
Q:Why was the company's NIW lower quarter-over-quarter compared to other MIs?
A:The company does not focus on market share but rather on optimizing unit economics. They made some adjustments earlier in the year, such as cutting tails due to tariffs. The price/volume trade-off in better credits was not favorable, so they prioritized returning capital to shareholders over writing low-premium loans. The company emphasizes long-term value over short-term market share.
Q:Why has the gross premium yield been stable at 41 basis points, and what is the outlook?
A:The gross premium yield has been stable due to pricing adjustments made in 2022 and the high credit quality of recent loans. While pricing has compressed slightly due to better credit quality, the company expects pricing to rise when homeowners return to the market. The guidance for 40 basis points is to help analysts model expectations.
Q:What is the outlook for insurance-in-force growth?
A:The company expects modest growth in insurance-in-force, similar to the 1.9% growth seen this year. Long-term growth is anticipated due to favorable demographics, but current challenges like affordability and supply constraints are keeping potential homeowners on the sidelines. The company is focused on maintaining credit quality and returning cash to shareholders in the meantime.
Q:Are there any differences in activity or performance across vintages, especially those with less home price appreciation?
A:No significant differences have been observed across vintages, states, lenders, or servicers. Defaults remain low, and the portfolio is performing well. The company monitors unemployment as a key risk factor but is confident in the portfolio's resilience due to embedded home equity and low claim rates.
Q:What is the company's approach to pricing and market share in the current environment?
A:The company prioritizes optimizing unit economics over market share. They are cautious about pricing and prefer to return capital to shareholders rather than compete aggressively on price. The focus is on long-term growth in book value per share, supported by a strong balance sheet and liquidity advantages.
Q:Is the company making a credit call with its cautious outlook?
A:No, the cautious outlook is not a credit call. The company is optimizing capital allocation, balancing between returning capital to shareholders and writing new business. They are comfortable with their current market position and do not see significant credit risks in the portfolio.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer to Mihir Bhatia's question about the lower NIW quarter-over-quarter. While they explained their focus on unit economics and shareholder returns, they did not provide specific details on why their NIW was lower compared to peers. Additionally, the response to Rick Shane's question about pricing and credit outlook was somewhat vague, emphasizing long-term strategy without addressing specific concerns about housing credit or pricing changes.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Corporate result
Essent Group
Essent Guaranty
Essent expansion
Essent platform
Essent quota
Essent title
Exhibits supplement
FICO average
Group Limited
Guaranty PMIERs
Guaranty dividend
Instructions Investor
Insurance segment
Limited Instructions
Lloyd market
Lloyd property
Mortgage Insurance
PC opportunity
PC reinsurance
Relations discussion
SEC Vice
activation lender
addition Essent
aging insurance
agreement
decrease
dividend Essent
front
insurance portfolio
item
party reinsurance
portfolio default
rate mortgage
reinsurance segment
repurchase
risk capital
segment information
tax rate
ESNT Transcript
Essent Group Ltd. (ESNT) Q4 2025 Earnings Call Transcript
Positive2-13
The earnings call highlights strong financial performance with a 13% increase in book value per share and significant shareholder returns, including a 10% reduction in shares outstanding. Despite some concerns raised in the Q&A, such as lower NIW and stable gross premium yield, the company's strategic focus on long-term value and capital efficiency, including entering the Lloyd's market, supports a positive outlook. The optimistic guidance and robust financial health are likely to result in a positive stock price movement over the next two weeks.
Essent Group Ltd. (ESNT) Q3 2025 Earnings Call Transcript
Unknown11-7
The earnings call reveals stable financial performance with a slight increase in EPS and a stable ROE. However, there are concerns about increased provisions for losses and a higher default rate. The Q&A section indicates some analyst concerns over unclear management responses and potential volatility in ceded premiums. Despite a positive outlook on housing and strategic capital management, the lack of significant catalysts or strong guidance suggests a neutral stock price movement. The company's focus on maintaining a conservative balance sheet and strategic growth opportunities further supports a neutral sentiment.
Essent Group Ltd. (ESNT) Q2 2025 Earnings Call Transcript
Positive8-8
The earnings call highlights strong financial performance, including high operating cash flow and a low debt-to-capital ratio. The Q&A session reveals confidence in the credit outlook and a proactive buyback strategy, suggesting management's belief in undervaluation. Despite some uncertainties in home price trends, the overall sentiment is positive due to operational efficiencies, strong capital position, and strategic shareholder returns.
Essent Group Ltd. (NYSE:ESNT) Q1 2025 Earnings Call Transcript
Unknown5-10
The earnings call presents a mixed picture. Positive aspects include a dividend increase and significant share repurchases, which typically boost stock prices. However, financial performance shows a slight decline in net income and EPS, coupled with operational challenges like affordability issues and competitive pressures. The Q&A section reveals management's uncertainty about market conditions and reluctance to provide specific guidance, which could be concerning for investors. Overall, these factors balance out, leading to a neutral sentiment, with stock price movement likely staying within a -2% to 2% range.
ESNT Report
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