Essent Group Ltd. (NYSE:ESNT) Q4 2019 Earnings Conference Call - Final Transcript

Feb 14, 2020 • 10:00 am ET

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Essent Group Ltd. (NYSE:ESNT) Q4 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Mark A. Casale

value per share, which we believe best demonstrates value to shareholders.

On the business front, we continue to increase our sophistication around originating and distributing mortgage credit risk. We believe that the use of data analytics will be a key differentiator in selecting and pricing credit. Because of this, we continued to refine EssentEDGE to be more selective in shaping and building a profitable mortgage insurance portfolio. Also EssentEDGE provides more flexibility in changing price, especially during a down cycle.

From a risk distribution perspective, we continue to make solid progress in using reinsurance, which we believe has been transformational for a franchise like ours. Our objective in using reinsurance is to mitigate the cyclical boom and bust nature of the MI operating model. As noted earlier, Moody's upgraded our financial strength rating during the quarter to A3. In connection with this upgrade, Moody's analyzed the benefits of reinsurance under severe CCAR stress scenario. The results convey that the stress reduces profitability without depleting capital. In other words, because of reinsurance, the end result was an earnings event and not a capital event.

In January of this year, we closed another Radnor Re insurance-linked note transaction pertaining to NIW from January through August 2019. For this transaction, we obtained $496 million of reinsurance on approximately $38 billion of NIW. To-date, we have successfully closed four ILN transactions, along with two excessive loss transactions with third-party reinsurers. In total, these transactions provide access to $1.8 billion or protection. Including the quota share transaction that became effective in September of 2019, we have over 90% of our mortgage portfolio reinsured as of January 31st, 2020.

At year-end 2019, our balance sheet remains strong with $3.9 billion in assets and $3 billion of GAAP capital. Also our PMIERs excess available assets was $840 million. Based on our balance sheet and strong earnings along with increased confidence in our operating cash flows, our Board has declared a quarterly dividend of $0.16 per share to be paid on March 20th, 2020. We believe that a dividend is a tangible demonstration of the benefits of our buy, manage and distribute operating model. Also, a dividend of this size affords us the opportunity to continue investing in the business and take advantage of other potential growth opportunities.

Now let me turn the call over to Larry.

Executive
Lawrence E. McAlee

Thanks, Mark, and good morning, everyone. I will now discuss our results for the quarter in more detail. Net earned premium for the fourth quarter was $208 million, an increase of 2% over the third quarter of $203 million and an increase of 20% from $173 million in the fourth quarter of 2018. The increase in earned premium over the third quarter was due primarily to a 3% increase in average insurance in force. Persistency declined during the quarter to 77.5% from 82.1% at September 30th, 2019. The average net premium rate for the U.S. mortgage insurance business in the fourth quarter was 49 basis points, which was consistent with the