Essent Group LTD 2026 Q2 Earnings Call

Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO, and David Weinstock, Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Curran, President of Essent Guaranty. Our press release, which contains Essent's financial results for the second quarter of 2026, was issued earlier today and is available on our website at essentgroup.com. Our press release includes non-GAAP financial measures that may be discussed during today's call. A complete description of these measures and the reconciliation to GAAP may be found in Exhibit Q of our press release and in our second quarter 2026 earnings presentation posted on our website. Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward-looking statements.

These statements are based on current expectations, estimates, projections, and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release, the risk factors included in our Form 10-K filed with the SEC on February 18th, 2026, and any other reports and registration statements filed with the SEC, which are also available on our website. Now let me turn the call over to Mark.

Thanks, Phil, and good morning, everyone. Earlier today, we released our second quarter 2026 financial results, which again reflect the benign credit environment, along with the effects of current interest rates on persistency and investment income. Cash generation from our core MI business remains strong, giving us the flexibility to allocate capital between investing in growth across the franchise and returning capital to shareholders. Our buy, manage, and distribute operating model remains a distinct advantage, positioning Essent to produce high-quality earnings across a wide range of economic environments. For the second quarter of 2026, we reported net income of $190 million, or $2.08 per diluted share, which translates to an annualized return on average equity of 13.4%.

As of June 30th, our book value per share was $63.01, and inclusive of our common dividend, it grew nearly 13% over the past year and has compounded approximately 18% annually since our IPO. As a reminder, we believe that success in our business is best measured by growth in book value per share. In our MI business, as of June 30th, our insurance in force was $250 billion, a 1% increase versus a year ago. 12-month persistency was 84%, reflecting the current rate environment and that nearly half of our in-force portfolio has a mortgage rate of 5.5% or lower. We believe that this rate dynamic will support elevated persistency levels while our portfolio growth will remain in a pause as affordability continues to constrain origination volume.

Longer term, we continue to believe that favorable demographics and pent-up demand will be a positive for housing and our MI business when affordability improves. The credit quality of our insurance in-force remains strong with a weighted average credit score of 747 and a weighted average original LTV of 93%. Our portfolio default rate was effectively flat quarter-over-quarter, and we continue to believe that the embedded home equity of our in-force book should mitigate ultimate claims. In addition, 97% of our insurance in force is subject to reinsurance protection, which provides capital relief and reduces tail risk. On title, we continue investing in technology across our platform while onboarding new partners by leveraging the broad relationships within our MI franchise. High interest rates remain a modest headwind near term, and we do not expect title to have any meaningful impact on earnings.

Longer term, our expectations remain the same. Title provides a capital-light opportunity that generates supplemental earnings for our franchise and deepen our lender relationships. Turning to the reinsurance segment, we continue to expect written premium of approximately $320 million for our P&C reinsurance activity in 2026, with roughly half earned this year at a combined ratio in the high 90s. The P&C book is weighted towards casualty and specialty, requiring minimal incremental capital from Essent Re. However, over the near term, mortgage risk and a related MGA business will continue to drive the segment's earnings. Our consolidated cash and investments as of June 30th totaled $6.6 billion, with an annualized aggregate investment yield for the second quarter of 4.9%. Our investment yield this quarter includes income from other invested assets, a portfolio of strategic investments in insurance, specialty finance, and housing that we built over several years.

It's now approximately $450 million or 7% of our total portfolio. Although returns will vary period to period, this portfolio gives us another way to deploy capital outside of our core businesses to generate income and increase book value. We continue to operate from a position of strength with $5.7 billion in GAAP equity, access to $1 billion in excess of loss reinsurance, and $1.1 billion in cash and investments at the holding companies. With a trailing 12-month operating cash flow of $834 million, our franchise remains well-positioned from an earnings, cash flow, and balance sheet perspective. Capital strategy remains a balanced approach that optimizes shareholder returns over the long term while preserving optionality for strategic growth.

Year to date through July 31st, we repurchased nearly 6 million shares for approximately $350 million, and I'm pleased to announce that our board has approved a common dividend of $0.35 for the third quarter of 2026. Now let me turn the call over to Dave.

Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. Second quarter, we earned $2.08 per diluted share compared to $1.82 last quarter and $1.93 in the second quarter a year ago. My comments today are going to focus primarily on the results of our mortgage insurance and reinsurance segments. There's additional information on our corporate and other results in Exhibits D and E of the financial supplement. Our mortgage insurance portfolio ended the second quarter with insurance in force of $249.7 billion, an increase of $1.8 billion from March 31st, and an increase of $2.9 billion, or 1.2%, compared to $246.8 billion at June 30th, 2025. Persistency at June 30th, 2026, was 84% compared to 84.7% at March 31st, 2026. Mortgage insurance premium earned for the second quarter of 2026 was $216 million.

The average base premium rate for the mortgage insurance portfolio for the second quarter was 40 basis points, down one basis point from last quarter, and the average net premium rate was 35 basis points, consistent with last quarter. Our mortgage insurance provision for losses and loss adjustment expenses was $29.4 million in the second quarter of 2026 compared to $37.6 million in the first quarter of 2026 and $15.3 million in the second quarter a year ago. At June 30th, the default rate on the mortgage insurance portfolio was 2.53%, essentially unchanged from March 31st, 2026. Mortgage insurance operating expenses in the second quarter were $31.9 million, and the expense ratio was 14.8%, compared to $37.6 million and 17.4% last quarter and $33.6 million and 15.3% in the second quarter last year.

At June 30th, Essent Guaranty's PMIERs sufficiency ratio was strong at 172%, with $1.5 billion in excess available assets. Turning to our reinsurance segment, net premiums written in the first half of 2026 were $249 million, compared to $31 million in the first half of 2025. Net premiums earned in the first half of 2026 were $73 million, compared to $30 million in the first half of 2025. The increase in premiums reflects the growth in non-mortgage business from our expansion into P&C reinsurance activity. The reinsurance combined ratio was 77.9% in the second quarter of 2026, compared to 69.6% last quarter and 19.4% a year ago. The change in the combined ratio was as expected, reflecting the difference in underwriting performance between the mortgage and non-mortgage lines and the changing business mix of the segment's premiums.

The pre-tax underwriting income for the reinsurance segment predominantly reflects the underwriting results of our GSE and other mortgage risk share business. While the contribution from our P&C activity was not material. Consolidated net investment income increased $2.4 million, or 4%, to $61.6 million in the second quarter of 2026 compared to last quarter, due to an increase in the overall yield of the portfolio. Income from other invested assets was $19.4 million in the second quarter of 2026 compared to $10.2 million last quarter and $4.5 million in the second quarter a year ago. The higher results this quarter are primarily due to increased favorable fair value adjustments. Our holding company liquidity remains strong and includes $500 million of undrawn revolver capacity under our committed credit facility. At June 30th, we had $500 million of senior unsecured notes outstanding, and our debt-to-capital ratio was 8%.

Year to date, Essent Guaranty paid dividends of $115 million to its U.S. holding company. At quarter end, Essent Guaranty's statutory capital was $3.7 billion with a risk-to-capital ratio of 8.5 to one. Note that statutory capital includes $2.7 billion of contingency reserves at June 30th. As of July 1st, Essent Guaranty can pay additional ordinary dividends of $302 million in 2026. During the second quarter, Essent Re paid a dividend of $100 million to Essent Group. Also in the quarter, Essent Group paid cash dividends totaling $31.6 million to shareholders, and we repurchased 3.2 million shares for $191 million. Now let me turn the call back over to Mark.