Essent Group Ltd. Reports First Quarter 2019 Results

HAMILTON, Bermuda–(BUSINESS WIRE)–Essent Group Ltd. (NYSE: ESNT) today reported net income for the quarter
ended March 31, 2019 of $127.7 million or $1.30 per diluted share,
compared to $111.1 million or $1.13 per diluted share for the quarter
ended March 31, 2018. As of March 31, 2019, Essent had insurance in
force of $143.2 billion and consolidated stockholders’ equity of $2.5
billion.


“We were pleased with our strong financial results for the first quarter
as our operating environment remains favorable and credit continues to
perform well,” said Mark Casale, Chairman and Chief Executive Officer.
“Also, we continue to make solid progress in strengthening our franchise
as we successfully rolled out our risk based pricing engine EssentEDGE
and reinsured our 2018 NIW. Our outlook on our business and housing
remains positive and we continue to believe that we are well positioned
to continue growing our company.”


Financial Highlights:


Insurance in force as of March 31, 2019 was $143.2 billion, compared
to $137.7 billion as of December 31, 2018 and $115.3 billion as of
March 31, 2018.


New insurance written for the first quarter was $11.0 billion,
compared to $11.4 billion in the fourth quarter of 2018 and $9.3
billion in the first quarter of 2018.


Net premiums earned for the first quarter were $177.8 million,
compared to $173.3 million in the fourth quarter of 2018 and $152.6
million in the first quarter of 2018.


The expense ratio for the first quarter was 23.1%, compared to 22.8%
in the fourth quarter of 2018 and 25.0% in the first quarter of 2018.


The provision for losses and LAE for the first quarter was $7.1
million, compared to a benefit of $1.0 million in the fourth quarter
of 2018 and a provision of $5.3 million in the first quarter of 2018.
The provision in the fourth quarter of 2018 included a $9.9 million
release of the $11.1 million reserve associated with loans identified
as related to Hurricanes Harvey and Irma that was established in the
fourth quarter of 2017.


The percentage of loans in default as of March 31, 2019 was 0.65%,
compared to 0.66% as of December 31, 2018 and 0.86% as of March 31,
2018.


The combined ratio for the first quarter was 27.1%, compared to 22.2%
in the fourth quarter of 2018 and 28.5% in the first quarter of 2018.


The consolidated balance of cash and investments at March 31, 2019 was
$3.0 billion, including cash and investment balances at Essent Group
Ltd. of $73.8 million.


The combined risk-to-capital ratio of the U.S. mortgage insurance
business, which includes statutory capital for both Essent Guaranty,
Inc. and Essent Guaranty of PA, Inc., was 13.5:1 as of March 31, 2019.


In February, Essent Guaranty, Inc. obtained $473.2 million of excess
of loss reinsurance coverage on mortgage insurance policies written by
Essent in 2018. The reinsurance is fully collateralized by ten-year
mortgage insurance-linked notes (“ILNs”) issued by Radnor Re 2019-1
Ltd., an unaffiliated special purpose insurer.


In a separate transaction, Essent Guaranty, Inc. entered into an
excess of loss collateralized reinsurance agreement with a panel of
U.S. and global reinsurers which provides additional reinsurance
protection of $118.7 million on mortgage insurance policies written by
Essent in 2018.


Conference Call


Essent management will hold a conference call at 10:00 AM Eastern time
today to discuss its results. The conference call will be broadcast live
over the Internet at
The call may also be accessed by dialing 833-287-0797 inside the U.S.,
or 647-689-4456 for international callers, using passcode 7833038 or by
referencing Essent.


A replay of the webcast will be available on the Essent website
approximately two hours after the live broadcast ends for a period of
one year. A replay of the conference call will be available
approximately two hours after the call ends for a period of two weeks,
using the following dial-in numbers and passcode: 800-585-8367 inside
the U.S., or 416-621-4642 for international callers, passcode 7833038.


In addition to the information provided in the company’s earnings news
release, other statistical and financial information, which may be
referred to during the conference call, will be available on Essent’s
website at


Forward-Looking Statements


This press release may include “forward-looking statements” which are
subject to known and unknown risks and uncertainties, many of which may
be beyond our control. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as “may,”
“will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“predict,” or “potential” or the negative thereof or variations thereon
or similar terminology. Actual events, results and outcomes may differ
materially from our expectations due to a variety of known and unknown
risks, uncertainties and other factors. Although it is not possible to
identify all of these risks and factors, they include, among others, the
following: changes in or to Fannie Mae and Freddie Mac (the “GSEs”),
whether through Federal legislation, restructurings or a shift in
business practices; failure to continue to meet the mortgage insurer
eligibility requirements of the GSEs; competition for customers; lenders
or investors seeking alternatives to private mortgage insurance; an
increase in the number of loans insured through Federal government
mortgage insurance programs, including those offered by the Federal
Housing Administration; decline in new insurance written and franchise
value due to loss of a significant customer; decline in the volume of
low down payment mortgage originations; the definition of “Qualified
Mortgage” reducing the size of the mortgage origination market or
creating incentives to use government mortgage insurance programs; the
definition of “Qualified Residential Mortgage” reducing the number of
low down payment loans or lenders and investors seeking alternatives to
private mortgage insurance; the implementation of the Basel III Capital
Accord discouraging the use of private mortgage insurance; a decrease in
the length of time that insurance policies are in force; uncertainty of
loss reserve estimates; deteriorating economic conditions; our non-U.S.
operations becoming subject to U.S. Federal income taxation; becoming
considered a passive foreign investment company for U.S. Federal income
tax purposes; and other risks and factors described in Part I, Item 1A
“Risk Factors” of our Annual Report on Form 10-K for the year ended
December 31, 2018 filed with the Securities and Exchange Commission on
February 19, 2019. Any forward-looking information presented herein is
made only as of the date of this press release, and we do not undertake
any obligation to update or revise any forward-looking information to
reflect changes in assumptions, the occurrence of unanticipated events,
or otherwise.


Non-GAAP Financial Measures


In presenting Essent Group Ltd.’s results, management has included
financial measures, including adjusted book value per share, that are
not calculated under standards or rules that comprise accounting
principles generally accepted in the United States (“GAAP”). Such
measures are referred to as “non-GAAP measures.” These non-GAAP measures
may be defined or calculated differently by other companies. Management
believes these measures allow for a more complete understanding of the
underlying business. These measures are used to monitor our results and
should not be viewed as a substitute for those determined in accordance
with GAAP. Reconciliations of such measures to the most comparable GAAP
figures are included in the attached financial supplement in accordance
with Regulation G.


About the Company


Essent Group Ltd. (NYSE: ESNT) is a Bermuda-based holding company
(collectively with its subsidiaries, “Essent”) which, through its
wholly-owned subsidiary, Essent Guaranty, Inc., offers private mortgage
insurance for single-family mortgage loans in the United States. Essent
provides private capital to mitigate mortgage credit risk, allowing
lenders to make additional mortgage financing available to prospective
homeowners. Headquartered in Radnor, Pennsylvania, Essent Guaranty, Inc.
is licensed to write mortgage insurance in all 50 states and the
District of Columbia, and is approved by Fannie Mae and Freddie Mac.
Essent also offers mortgage-related insurance, reinsurance and advisory
services through its Bermuda-based subsidiary, Essent Reinsurance Ltd.
Additional information regarding Essent may be found at www.essentgroup.com
and www.essent.us.


Source: Essent Group Ltd.




 


 


 




Essent Group Ltd. and Subsidiaries


Financial Results and Supplemental Information (Unaudited)


Quarter Ended March 31, 2019










 










 


Exhibit A








Condensed Consolidated Statements of Comprehensive Income (Unaudited)


Exhibit B








Condensed Consolidated Balance Sheets (Unaudited)


Exhibit C








Historical Quarterly Data


Exhibit D








New Insurance Written


Exhibit E








Insurance in Force and Risk in Force


Exhibit F








Other Risk in Force


Exhibit G








Portfolio Vintage Data


Exhibit H








Reinsurance Vintage Data


Exhibit I








Portfolio Geographic Data


Exhibit J








Defaults, Reserve for Losses and LAE, and Claims


Exhibit K








Investments Available for Sale


Exhibit L








Insurance Company Capital


Exhibit M








Reconciliation of Non-GAAP Financial Measure – Adjusted Book Value
per Share




 




 












Exhibit A










 


Essent Group Ltd. and Subsidiaries


Condensed Consolidated Statements of Comprehensive Income
(Unaudited)










 










 






Three Months Ended March 31,


(In thousands, except per share amounts)




2019




2018


Revenues:










Net premiums written




$


177,644






$


165,225




Decrease (increase) in unearned premiums




147


 




(12,667


)


Net premiums earned




177,791






152,558




Net investment income




19,880






13,714




Realized investment gains, net




660






197




Other income




2,195


 




994


 


Total revenues




200,526


 




167,463


 










 


Losses and expenses:










Provision for losses and LAE




7,107






5,309




Other underwriting and operating expenses




41,030






38,124




Interest expense




2,670


 




2,450


 


Total losses and expenses




50,807


 




45,883


 










 


Income before income taxes




149,719






121,580




Income tax expense




21,999


 




10,511


 


Net income




$


127,720


 




$


111,069


 










 










 


Earnings per share:










Basic




$


1.31






$


1.14




Diluted




1.30






1.13












 


Weighted average shares outstanding:










Basic




97,595






97,298




Diluted




98,104






97,951












 


Net income




$


127,720






$


111,069












 


Other comprehensive income (loss):










Change in unrealized appreciation (depreciation) of investments




38,366


 




(28,750


)


Total other comprehensive income (loss)




38,366


 




(28,750


)


Comprehensive income




$


166,086


 




$


82,319


 










 










 


Loss ratio




4.0


%




3.5


%


Expense ratio




23.1


 




25.0


 


Combined ratio




27.1


%




28.5


%




 




 












Exhibit B










 


Essent Group Ltd. and Subsidiaries


Condensed Consolidated Balance Sheets (Unaudited)










 


 






March 31,




December 31,


(In thousands, except per share amounts)




2019




2018


Assets










Investments










Fixed maturities available for sale, at fair value




$


2,765,267






$


2,605,666




Short-term investments available for sale, at fair value




210,822


 




154,400


 


Total investments available for sale




2,976,089






2,760,066




Other invested assets




32,735


 




30,952


 


Total investments




3,008,824






2,791,018




Cash




40,489






64,946




Accrued investment income




18,176






17,627




Accounts receivable




38,194






36,881




Deferred policy acquisition costs




15,657






16,049




Property and equipment




17,940






7,629




Prepaid federal income tax




202,385






202,385




Other assets




11,580


 




13,436


 










 


Total assets




$


3,353,245


 




$


3,149,971


 










 


Liabilities and Stockholders’ Equity










Liabilities










Reserve for losses and LAE




$


53,484






$


49,464




Unearned premium reserve




295,320






295,467




Net deferred tax liability




196,040






172,642




Credit facility borrowings, net of deferred costs




223,807






223,664




Securities purchased payable




22,546






2,041




Other accrued liabilities




34,245


 




40,976


 


Total liabilities




825,442


 




784,254


 










 


Commitments and contingencies


















 


Stockholders’ Equity










Common shares




1,475






1,472




Additional paid-in capital




1,106,797






1,110,800




Accumulated other comprehensive income (loss)




9,373






(28,993


)


Retained earnings




1,410,158


 




1,282,438


 


Total stockholders’ equity




2,527,803


 




2,365,717


 










 


Total liabilities and stockholders’ equity




$


3,353,245


 




$


3,149,971


 










 


Return on average equity (1)




20.9


%




21.7


%


 


(1) The 2019 return on average equity is calculated by
dividing annualized year-to-date 2019 net income by average
equity. The 2018 return on average equity is calculated by
dividing full year 2018 net income by average equity.




 




 




 




 


Exhibit C


Essent Group Ltd. and Subsidiaries


Supplemental Information


Historical Quarterly Data




















 
























 






2019




2018


Selected Income Statement Data




March 31




December 31




September 30




June 30




March 31


(In thousands, except per share amounts)






















Revenues:






















Net premiums written




$


177,644


 




$


176,437


 




$


175,221


 




$


168,404


 




$


165,225


 






















 


Net premiums earned (1)




177,791






173,301






166,675






156,958






152,558




Other revenues (2)




22,735


 




19,823


 




18,323


 




16,810


 




14,905


 


Total revenues




200,526


 




193,124


 




184,998


 




173,768


 




167,463


 






















 


Losses and expenses:






















Provision for losses and LAE (3)




7,107






(999


)




5,452






1,813






5,309




Other underwriting and operating expenses




41,030






39,449






36,899






36,428






38,124




Interest expense




2,670


 




2,611


 




2,500


 




2,618


 




2,450


 


Total losses and expenses




50,807


 




41,061


 




44,851


 




40,859


 




45,883


 






















 


Income before income taxes




149,719






152,063






140,147






132,909






121,580




Income tax expense (4)




21,999


 




23,535


 




24,136


 




21,154


 




10,511


 


Net income




$


127,720


 




$


128,528


 




$


116,011


 




$


111,755


 




$


111,069


 






















 


Earnings per share:






















Basic




$


1.31






$


1.32






$


1.19






$


1.15






$


1.14




Diluted




1.30






1.31






1.18






1.14






1.13
























 


Weighted average shares outstanding:






















Basic




97,595






97,450






97,438






97,426






97,298




Diluted




98,104






98,066






98,013






97,866






97,951
























 


Other Data:






















Loss ratio (5)




4.0


%




(0.6


)%




3.3


%




1.2


%




3.5


%


Expense ratio (6)




23.1


 




22.8


 




22.1


 




23.2


 




25.0


 


Combined ratio




27.1


%




22.2


%




25.4


%




24.4


%




28.5


%






















 


Return on average equity (annualized)




20.9


%




22.4


%




21.5


%




21.8


%




22.6


%






 


















(1) Net premiums earned are net of premiums ceded to
third-party reinsurers. Premiums ceded totaled $6,038, $3,731,
$3,158, $3,585 and $294 in the three months ended March 31, 2019,
December 31, 2018, September 30, 2018, June 30, 2018 and March 31,
2018, respectively.


 


(2) Certain of our third-party reinsurance agreements contain
an embedded derivative as the premium ceded under those agreements
will vary based on changes in interest rates. Other revenues for the
quarter ended March 31, 2019 includes a $1,424 favorable increase in
the fair value of these embedded derivatives.


 


(3) Provision for losses and LAE for the quarter ended
December 31, 2018 includes a $9,941 reduction associated with
previously identified hurricane-related defaults based on the
performance to date and our expectations of the amount of ultimate
losses on the remaining delinquencies.


 


(4) Income tax expense for the quarters ended March 31, 2019
and 2018 was reduced by $1,956 and $9,549, respectively, of excess
tax benefits associated with the vesting of common shares and common
share units during each period. Income tax expense for the quarter
ended September 30, 2018 includes $1,450 of expense associated with
accrual to return adjustments associated with the completion of the
2017 U.S. federal income tax return.


 


(5) Loss ratio is calculated by dividing the provision for
losses and LAE by net premiums earned.


 


(6) Expense ratio is calculated by dividing other
underwriting and operating expenses by net premiums earned.




 




 




 




 


Exhibit C, continued


Essent Group Ltd. and Subsidiaries


Supplemental Information


Historical Quarterly Data




















 
























 






2019




2018


Other Data, continued:




March 31




December 31




September 30




June 30




March 31


($ in thousands)










































 


U.S. Mortgage Insurance Portfolio


















Flow:






















New insurance written




$


10,945,307






$


11,408,542






$


13,913,191






$


12,850,642






$


9,336,150




New risk written




2,713,389






2,838,530






3,430,942






3,201,610






2,295,314
























 


Bulk:






















New insurance written




$


55,002






$


—






$


—






$


—






$


—




New risk written




6,542






—






—






—






—
























 


Total:






















Average gross premium rate (7)




0.50


%




0.50


%




0.51


%




0.52


%




0.52


%


Average net premium rate (8)




0.48


%




0.49


%




0.50


%




0.51


%




0.52


%


New insurance written




$


11,000,309






$


11,408,542






$


13,913,191






$


12,850,642






$


9,336,150




New risk written