Essent Group's Q2 2025 Earnings Call: Contradictions in Pricing Strategies, Default Rates, and Home Price Dynamics

Pricing strategy and market dynamics, default rates and economic conditions, persistency by vintage, default rate trends, and home price appreciation and default rates are the key contradictions discussed in Essent Group Ltd.'s latest 2025Q2 earnings call.



Financial Performance and Growth:
- Essent Group Ltd. reported net income of $195 million for Q2 2025, compared to $204 million a year ago, with diluted per share earnings of $1.93 for the second quarter.
- The company's U.S. mortgage insurance in force increased by 3% to $247 billion compared to the previous year.
- This growth was driven by favorable credit performance and higher interest rates impacting persistency and investment income.

Capital Management and Shareholder Returns:
- Essent Group's balance sheet remains strong, with a trailing 12-month operating cash flow of $867 million and statutory capital of $3.7 billion.
- The company approved a common dividend of $0.31 for Q3 2025 and has repurchased nearly 7 million shares for approximately $390 million year-to-date.
- The capital strategy focuses on maintaining a conservative balance sheet and returning capital to shareholders while preserving strategic growth opportunities.

Credit Quality and Defaults:
- Essent's credit quality remains strong, with a weighted average FICO score of 746 and a weighted average original LTV of 93% for its insurance in force.
- New defaults increased by 9% year-over-year, but the default rate decreased to 2.12%, down from 2.19% in the previous quarter.
- The company attributes this to the seasoning pattern of defaults and the embedded equity in its insured portfolio, reducing the probability of loans transitioning from default to claim.

Persistency and Product Strategy:
- Essent's 12-month persistency rate remained unchanged at 86%, with nearly half of its in-force portfolio having a note rate of 5% or lower.
- The company continues to expect elevated persistency due to current mortgage rates and investment income from higher interest rates.
- Essent's product strategy focuses on pricing and managing risk based on MSA levels and market dynamics, particularly in areas with strong income growth and limited housing supply.