Essent Prioritizes Returns Over Market Share in Cautious MI Strategy

Date of Call: Feb 13, 2026

Financials Results

• EPS: $1.60 per diluted share for Q4, compared to $1.67 last quarter and $1.58 in Q4 a year ago. Full year 2025: $6.90 per diluted share.

Guidance:

• Average base premium rate for full year 2026 expected to be approximately 40 basis points.
• Operating expenses for mortgage insurance segment expected to be approximately $145 million for full year 2026.
• Annual effective tax rate for 2026 estimated to be approximately 17%, excluding discrete items.

Business Commentary:

Strong Financial Performance:

• Essent Group Ltd. reported net income of $155 million or $1.60 per diluted share for Q4 2025 and $690 million or $6.90 per diluted share for the full year 2025. The company's return on average equity was 12%.
• The strong performance was driven by positive credit trends and the benefit of higher interest rates on both persistency and investment income.

Insurance in Force and Persistency:

• The company's mortgage insurance in force was $248 billion, a 2% increase compared to a year ago. The 12-month persistency was 86%, with roughly 60% of the in-force portfolio having a note rate of 6% or lower.
• Persistency has been relatively flat in recent quarters due to higher mortgage rates and a smaller origination market, leading to modest expectations for earned premium and insurance in force growth in the near term.

Credit Quality and Risk Management:

• The credit quality of Essent's insurance in force remains strong, with a weighted average FICO score of 747 and a weighted average original LTV of 93%. The portfolio default rate increased modestly quarter-over-quarter.
• The substantial home equity embedded in the in-force book is expected to mitigate ultimate claims, providing a buffer against potential defaults.

Reinsurance Strategy and Diversification:

• At the end of 2025, 98% of Essent's mortgage insurance portfolio was subject to some form of reinsurance. The company entered into a quota share transaction with reinsurers for its 2027 business.
• The reinsurance strategy helps manage mezzanine credit risk and diversify capital resources, with Essent Re also expanding into the Lloyd's market to reinsure property and casualty risks.

Sentiment Analysis:

Overall Tone: Positive

• Mark Casale stated: 'Our strong performance this year was driven by positive credit trends and the benefit of higher interest rates...' and 'Our 2025 results demonstrate Essent's resilient financial performance in a challenging housing market. We delivered a strong return on equity and book value per share growth...'

Q&A:

• Question from Mihir Bhatia (BofA Securities): Maybe just -- let's just start with the decision into the Lloyd's market. I guess why now? Maybe talk a little bit about the strategy that you're doing there, what type of assets you're looking to underwrite? Maybe just help us understand what exactly is happening there for both strategically and operationally? Thank you.
  Response: The Lloyd's market entry is a measured expansion for Essent Re, driven by capital efficiency, asset leverage, and diversification benefits; it is not transformational and is being approached with a long-term, learning-oriented mindset.

• Question from Mihir Bhatia (BofA Securities): Got it. That's helpful. Maybe just switching to the MI business for a second. The right I know you don't manage the market share. So I'm not -- it really -- this really is in a market share question. But you look at it in your -- I think, of MIs that have reported so far, you're the only one that's got NIW lower quarter-over-quarter. So is that just a reflection of you not liking the returns in the market? Is there a conscious decision to pull back in certain parts of the market or risk grades or something like, I guess, help us understand what's happening there?
  Response: The decision to optimize unit economics over market share involves prioritizing better returns on capital, with a focus on long-term book value growth rather than short-term share gains; management is comfortable being at the bottom of the market share pack.

• Question from Bose George (Keefe, Bruyette, & Woods): Actually, just a follow-up on that last question. Your gross premium yield has been 41 basis points for a few quarters. You guided to 40% next year. Is that just kind of a rounding issue or anything tied to market returns?
  Response: The slight decrease in guided premium yield reflects the current pricing environment and credit quality, but management expects it to recover as market conditions normalize, emphasizing transparency over precision.

• Question from Bose George (Keefe, Bruyette, & Woods): Okay. Great. That's helpful. And then you noted that insurance-in-force growth is likely to be modest. I mean, this year was 1.9%, looks like year-over-year, which is kind of already in the modest cap. So is it like going to be -- do you think it's going to be sort of below that level or kind of in that range?
  Response: Insurance-in-force growth is expected to remain modest, around the 1.9% level, with potential for renewed growth when affordability improves; the focus is on capital returns rather than aggressive growth.

• Question from Douglas Harter (UBS): Mark, can you talk about what you're seeing in your activity and whether you're seeing any difference across the vintages, especially the vintages that maybe have a little bit less embedded home price appreciation?
  Response: Default activity is consistent across vintages and geographies, with no material differences; credit quality remains strong, and the substantial embedded home equity provides a buffer against potential future claims.

• Question from Richard Shane (JPMorgan Chase & Co): It's interesting. Obviously, I've done this a while and we follow a bunch of different companies. And I'm thinking about comments from two other founder-run businesses that I recall over time. One is in the middle market lending space, and the comment was basically there's no spread for a bad loan. Conversely, if you're making a massively diversified card-type portfolio you're ultimately sort of seeking an efficient frontier. You accept the fact that you're going to have losses. They're not idiosyncratic. It strikes me that you guys sort of try to balance both. But ultimately, your business is an actuarial business. Mark, you've sort of provided this cautious outlook. And I'm curious if you think it is because you can't capture price in the context of what you are concerned about in terms of credit? Is that the right way to think about this?
  Response: The cautious outlook is not a credit call but a strategic choice to optimize unit economics and return capital to shareholders; the long-term incentive is on growing book value per share, not short-term market share or NIW.

• Question from Richard Shane (JPMorgan Chase & Co): Got it. That helps. And just to sort of build on a little bit more pricing hasn't really changed that much, but you're a little bit more cautious. Is there something that you are thinking about specifically in terms of housing credit that shifted. And again, you know our views on the world. So I'm curious sort of how you -- what your credit outlook is here?
  Response: The caution is not based on a credit call but on capital allocation; management is comfortable holding market share and returning capital to shareholders, with the ability to deploy capital more aggressively when market conditions warrant.

Contradiction Point 1

Strategy Regarding Market Share in Mortgage Insurance

The company's stated focus shifts from being comfortable at the bottom of the market share pack to indicating a willingness to take more market share.

Richard Shane (JPMorgan Chase & Co), what are your key takeaways from the earnings report? - Richard Shane (JPMorgan Chase & Co)

2025Q4: The cautious approach... is not a credit call but a capital allocation decision... The company is comfortable being at the bottom of the market share pack if it means optimizing unit economics and returning capital to shareholders. - Mark Casale(CEO)

Is your cautious outlook due to an inability to capture price amid credit concerns? - Douglas Harter (UBS Investment Bank)

2025Q3: The company is not actively pursuing acquisitions or diversification, as it believes its stock is the best value for capital allocation. - Mark Casale(CEO)

Contradiction Point 2

Outlook on Credit Trends and Pricing in the Mortgage Insurance Business

The company's commentary on credit trends shifts from being benign and stable to citing specific, new credit-related pressures.

What is Bose George's question from Keefe, Bruyette, & Woods, Inc.? - Bose George (Keefe, Bruyette, & Woods, Inc.)

2025Q4: The slight guidance reduction from 41 to 40 bps is not a major shift. It reflects some compression in pricing due to improving credit quality (e.g., lower LTVs) in new originations. - Mark Casale(CEO)

Why is there a difference between your current 41 basis points gross premium yield and the 40% guidance for next year—is it due to a rounding difference or market returns? - Richard Shane (JPMorgan Chase & Co)

2025Q3: The current low-loss environment is actually the norm for the modern era... Credit quality remains excellent... The company is confident in its capitalization to navigate volatility. - Mark Casale(CEO)

Contradiction Point 3

Strategic Focus and Capital Allocation

Shift from a balanced market position to explicitly avoiding market share leadership.

What are your thoughts on the recent earnings report? - Mihir Bhatia (BofA Securities)

2025Q4: We would rather return capital to shareholders than engage in a price war for lower-yield loans. ... Long-term, Essent aims to grow book value per share, not necessarily be the market leader. - Mark Casale(CEO)

Is the decision driven by dissatisfaction with market returns or a strategic pullback in specific market areas or risk grades? - Rick Shane (JPMorgan)

2025Q2: The industry currently lacks credit competition, which is a benefit. ... The company is not afraid to make calls on market share, having been at both the top and bottom historically. - Mark Casale(CEO)

Contradiction Point 4

Housing Market and Credit Outlook

Change from a measured, market-specific view to a broad, cautious stance on pricing.

What are your thoughts on JPMorgan Chase & Co's recent earnings? - Richard Shane (JPMorgan Chase & Co)

2025Q4: The cautious approach ... is not a credit call but a capital allocation decision. ... The decision to prioritize shareholder returns over aggressive market share growth is based on the strength of the balance sheet and the opportunity to lean in and capture pricing when the market becomes more fearful. - Mark Casale(CEO)

Have there been specific shifts in housing credit, and what is your current credit outlook? - Terry Ma (Barclays)

2025Q2: Home price outlook varies by MSA ... Some markets may see weakening (5-10% potential in certain areas), which is seen as healthy for affordability. ... The company is not overly concerned about recent vintages. - Mark Casale(CEO)

Contradiction Point 5

Primary Driver of Cautious Financial Guidance

Contradiction on whether the cautious outlook is due to credit concerns or a capital allocation/capital return priority.

What is Richard Shane's role at JPMorgan Chase & Co? - Richard Shane (JPMorgan Chase & Co)

2025Q4: The cautious approach... is not a credit call but a capital allocation decision... The decision to prioritize shareholder returns over aggressive market share growth is based on the strength of the balance sheet. - Mark Casale(CEO)

Is the cautious outlook due to credit concerns impacting pricing? - Terry Ma (Barclays)

2025Q1: A catalyst (like COVID) would be needed for significant pricing changes; currently, no material changes are planned. - Mark Casale(CEO)