Essent Group's Q3 2025 Earnings Call: Contradictions Emerge on Default Trends, Severity Rates, and Pricing Strategy

Date of Call: November 7, 2025

Financials Results

• EPS: $1.67 per diluted share, compared to $1.93 last quarter and $1.65 a year ago

Guidance:

• Board approved a common dividend of $0.31 for Q4 2025.
• Board authorized a new $500M share repurchase program through year-end 2027 (ongoing repurchases YTD ~9M shares for >$500M).
• Expect elevated persistency in the near term given current mortgage rate levels.
• Plan to continue upstreaming cash from Essent Guaranty (likely a larger Q4 subsidiary dividend); quota-share reinsurance also aids holdco cash.
• 2025 estimated annual effective tax rate raised to ~16.2% due to withholding; expect mid-teens tax rate going forward.

Business Commentary:

* Earnings and Shareholder Returns:

- Essent Group reported a net income of $164 million for Q3 2025, compared to $176 million a year ago. - Year-to-date return on equity was 13% through the third quarter. - The company repurchased nearly 9 million shares for over $500 million year-to-date and approved a new $500 million share repurchase authorization through year-end 2027. - These actions were supported by the company's strong capital position and earnings performance, indicating confidence in returning capital to shareholders.* Mortgage Insurance In-Force and Persistency: - U.S. Mortgage Insurance in force increased to $249 billion, a 2% rise from the previous year. - Persistency rate remained flat at 86% from the previous quarter. - The stability in persistency and insurance in force was attributed to favorable credit trends and the current interest rate environment, which supports elevated persistency.

• Credit Quality and Provisions:
• The default rate increased modestly to 2.29%, reflecting seasonal trends.
• The provision for losses and loss adjustment expenses was $44.2 million, higher than the previous quarter.

• The credit quality of the insurance in force remained strong, with an average FICO score of 746, contributing to overall stability.

• Capital and Cash Flow Position:

• Consolidated cash and investments totaled $6.6 billion, with an annualized investment yield of 3.9%. - The company's strong cash flow and balance sheet position, including $5.7 billion in GAAP equity, enabled continued returns to shareholders.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "pleased with our third quarter financial results" and "well positioned to navigate a range of scenarios." Highlights: $164M net income, $6.6B cash & investments, $854M 12-month operating cash flow, active capital return (nearly 9M shares repurchased YTD and new $500M authorization; Q4 dividend $0.31).

Q&A:

• Question from Terry Ma (Barclays Bank PLC): Just wanted to start off with credit. New notices were a bit lower than what we had, but the provision on those notices were higher. So any color on kind of just the makeup from a vintage or even geography perspective this quarter?
  Response: Higher provisions mainly reflect larger average loan sizes (~$300k) versus prior; no meaningful geographic or vintage trend and credit remains stable—no current concern.

• Question from Terry Ma (Barclays Bank PLC): The claims amount was higher and also the severity. Anything to call out there, idiosyncratic items or more of a trend?
  Response: Fluctuations are timing/documentation-driven; few claims overall and observed severity remains well below current reserves—no material issue.

• Question from Bose George (Keefe, Bruyette, & Woods, Inc.): Ceded premiums were at the high end of the range—is that a sustainable level or will it bounce depending on reinsurance timing?
  Response: Ceded premiums are seasonal and vary with defaults; the raised quota share to 25% increases volatility but the net economics wash out over time.

• Question from Bose George (Keefe, Bruyette, & Woods, Inc.): What drove the higher tax rate and where do you expect the tax rate to be over the next 12 months given your ceding and distributions?
  Response: Effective tax rate increased from 15.4% to ~16.2% mainly due to withholding on a third-quarter intercompany dividend; expect roughly ~16% (possibly slightly higher) and recommend modeling conservatively.

• Question from Richard Shane (JPMorgan Chase & Co): Severity rates rose to 78% this quarter—long term do you expect this to keep rising or is it asymptotically limited?
  Response: Severity can vary by vintage and timing, but provisions are set conservatively, the book retains embedded HPA and capital cushions, and management does not see a sustained structural upward trend at portfolio level.

• Question from Richard Shane (JPMorgan Chase & Co): Are we approaching normalized returns for the business or could returns revert materially given the long favorable period?
  Response: Normalized losses have historically been low; strong GSE guardrails and improving credit quality support continued attractive returns, with capital and reinsurance positioned for downturns.

• Question from Mihir Bhatia (BofA Securities): With noise about changing credit-score requirements at the GSEs, are you seeing originators try to push more loans through and any evidence of loosening underwriting?
  Response: No material loosening—GSE systems (DU/LP) haven't changed yet, QC/repurchase deter bypassing, and Essent's credit approach is score-agnostic and can handle potential policy shifts.

• Question from Douglas Harter (UBS Investment Bank): Plans to upstream capital from the MI subsidiary—do you plan a larger dividend or to spill capacity into Q4?
  Response: Yes—comfortable upstreaming cash and expect a larger MI subsidiary dividend in Q4; quota-share reinsurance also serves as a mechanism to move cash to the holdco.

• Question from Douglas Harter (UBS Investment Bank): Post-Title acquisition, how do you balance investing in MI versus diversifying into other growth avenues like Title or Essent Re opportunities?
  Response: Title is small and performing in line; MI remains the primary cash engine and focus—company will prioritize share repurchases/dividends unless an acquisition clearly accelerates book-value per share.

Contradiction Point 1

Default and Provision Trends

It involves the interpretation of default and provision trends, which are critical for understanding the financial health of the mortgage insurance business and potential future losses.

Can you provide details on the composition of new notices, including any geographic or vintage trends this quarter? - Terry Ma (Barclays Bank PLC, Research Division)

2025Q3: While loans default and provisions are higher, the overall default rate continues to be low at 0.21%. It's the third consecutive sub-0.3% quarter. - Mark Casale(CEO)

New defaults rose 9% year-over-year. Can you detail their composition and expectations? - Terry Ma (Barclays)

2025Q2: The 0.20% seasonal rate is consistent with the historical norms for March. - Mark Anthony Casale(CEO)

Contradiction Point 2

Severity Rates and Loss Impact

It involves the assessment of severity rates and their impact on losses, which are key factors for maintaining accurate financial forecasts and risk management strategies.

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2025Q3: Severity rates are influenced by embedded home price appreciation and timing of defaults. While there may be fluctuations, the overall impact on losses is low. - Mark Casale(CEO)

How are you determining the sizing of cash flow to the holding company and buybacks? - Douglas Michael Harter (UBS)

2025Q2: Severity has been notably lower, and we believe early losses will be smaller than what was projected. Claims are paid from lower severity. - David Weinstock(CFO)

Contradiction Point 3

Incomes and Home Affordability

This contradiction concerns the company's stance on the affordability cycle and the role of incomes in relation to home prices and interest rates. It highlights differing expectations about the timing and factors that will influence affordability, which is crucial for the company's business model.

Can you break down the composition of new notices and highlight any notable geographic or vintage trends this quarter? - Terry Ma(Barclays)

2025Q3: The current situation is unprecedented, with low income growth and high home prices and rates affecting affordability. We are positioned well due to good unit economics in our insurance portfolio. We expect incomes to catch up before the market improves. - Mark Casale(CEO)

Are we nearing an inflection point where affordability for first-time homebuyers may improve? Are there specific regions where you're particularly optimistic or cautious? - Rick Shane(JPMorgan)

2025Q1: We are positioned well due to good unit economics in our insurance portfolio. We expect incomes to catch up before the market improves. - Mark Casale(CEO)

Contradiction Point 4

Impact of Tariffs on Pricing Strategy

This contradiction pertains to the company's approach to pricing adjustments in response to macroeconomic events such as tariffs. It shows a shift in the company's stance on whether to wait for clear catalysts before making pricing adjustments.

Will the high level of ceded premiums continue, or vary with transaction timing? - Bose George(Keefe, Bruyette, & Woods, Inc.)

2025Q3: We have raised pricing in certain markets, mainly for micro pricing elasticity. On a macro level, we're in a wait-and-see mode regarding tariffs. We price through the cycle, not based on short-term expectations. Significant events like tariffs or COVID can cause pricing changes. Currently, we're not seeing such an event. We remain vigilant but hold off on pricing adjustments until we see a clear catalyst. - Mark Casale(CEO)

How are you managing risk amid macroeconomic uncertainty and tariffs, including any pricing or underwriting adjustments? - Terry Ma(Barclays)

2025Q1: We price through the cycle, not based on short-term expectations. Significant events like tariffs or COVID can cause pricing changes. Currently, we're not seeing such an event. We remain vigilant but hold off on pricing adjustments until we see a clear catalyst. - Mark Casale(CEO)

Contradiction Point 5

Severity Rates and Default Rates

It involves the interpretation and expectations regarding severity rates and default rates, which are crucial for understanding the company's financial health and risk profile.

What is the long-term trend in severity rates, and is the rate approaching an asymptote or has room to increase further? - Richard Shane (JPMorgan Chase & Co, Research Division)

2025Q3: Severity rates are influenced by embedded home price appreciation and timing of defaults. While there may be fluctuations, the overall impact on losses is low. - Mark Casale(CEO)

Is the default rate excluding hurricanes approaching a steady increase despite year-over-year deceleration? - Terry Ma (Barclays)

2024Q4: Too early to call. Average age of the book has increased due to post-COVID conditions. Borrowers outstanding longer will likely lead to some defaults, but it's within expectations. - Mark Casale(CEO)