ESNT Q3 2026 earnings call transcript, November 6, 2026

Hey, Terry.

It seems to be a popular topic this quarter amongst all the MIs. Not sure why. I would look at it. I think you're focused on the right metric, Terry, because I do think there's not that many things that move the business. Persistency is one of them. So when you're talking about the MIs, you're going to be talking about the MIs. When you think just bigger picture, I know in terms of cancellation, a lot of it is going to be that 2021 book that just simply amortizes off over, it started already, but it's probably going to be peak in like 28, 29. And then when you start thinking about growth, normal growth, kind of consistent with this slow market, I would think of persistency kind of in the 80% range. So it's fairly muted. Clearly lower than we've been. But remember, we've also experienced persistency of 60%, I believe it was, in 2020 and parts of 21. So bigger picture, I really do think you have to focus it there. In terms of like MI cancellation, you know, by, you know, we actually had to look it up, right? I mean, it's not something we track day on and day out. But I mean, it's probably 37,000, you know, in the quarter, you know, 15 and of those was refinance and the other 22 was cancellation. About four or five, maybe, it's real tough with the codes, was borrower initiated. And the rest was just amortization. So, I mean, big picture again, Terry, the process works. It's a good, MI is a really good product. And it's been around for a long time since, you know, really since almost 70 years. It's fairly effectively priced on an average.

$400,000 loan. It's like $1,200 a year. And down payment, we're saving folks probably anywhere from $40,000 to $45,000 or so. And also remember, this is an industry that during the great financial crisis didn't take any tarp. Probably one of the few financial services that didn't. So a lot of credit to some of our peers who managed through that process and an industry that paid $60 plus billion in claims. over the years. So again, good product. I know there's a lot of kind of clearly emphasis on MI cancellation. And clearly you want to make the process. We're always what's best about for the borrower. So if there's ways in the future working with the GSEs and working with FHFA to kind of ease the friction, we're supportive. And we'll work with them to do that.

Hey, Terry.

It's Dave Weinstock. You know, really, I think, you know, when you look at our provision, I think one of the things that's really driving it is that the average loan size is increasing. So when you look, you know, when you look at our supplement, it's just specifically if you look at exhibit M, which kind of looks at reserves per bucket, we're reserving pretty much the same way we always have. Our reserve methodology hasn't changed. The loans that we're insuring have grown. I would say in the past 18 months, they've probably grown from an average of like, you know, $300,000 to now to about $400,000. So that's going to be, you know, what's increasing the loan size and the risk and force, and it's going to increase the dollar of our provision. But overall, I think that's what you're seeing. Yeah, and I mean, Terry, again, I think it's a good question, and I agree with Dave. The severity, just the bigger loans are going to hike the provision up. At the end of the day, it's really going to be about unemployment. So, I mean, a lot of these still have to roll the claim if they do. You know, clearly the pre-22 book has a lot of build-in equity. It's going to be, I would say, the post-22 book is really the more normal. So you're going to see, we're seeing higher severities. That's really the business. I wouldn't really really look at 2021 as the business that was really an anomaly that's starting to work its way out.

Hey, Doug, welcome back.

Nice to have you back on the calls. I would say the competitive market is still pretty similar. We haven't seen much of a change. You know, I think for us, we always do, we probably fall back a lot on the unit economics, and we tend to, you know, look at our earned premium, base premiums a little bit higher than the industry. We focus a little bit on that, and we like to do just, it's a small market, Doug, so we don't really look, you know, we'd love to be, you know, one of six, so a little bit higher on the share. But we're not particularly concerned given the smaller nature of the market, and we're kind of using this opportunity to test a lot of things. We'll test pricing. You know, remember S&Edge, which, you know, is really our credit engine and does help us, and we can get into that a little bit more just in terms of vantage. But, you know, it really helps us kind of, you know, we're really looking at, you know, kind of our estimated claim rate. So we'll look, and we'll test geography. We'll test lenders. We'll test certain tails. So it's working as well as we'd like. I mean, sometimes we know we may sacrifice a little bit of volume for that. But I think longer term, it's, you know, given the small nature of the market, we're not particularly concerned. In terms of the competitive environment, I would look at it as every MI seems to have their own buy box, right? Some like lower LTVs, some like higher credits, some like certain geographies.

Lenders. But I do think it kind of balances out in the end. So I wouldn't read too much into our kind of take on the market because we're a little bit lower. I appreciate that, Mark. Thank you.

Thank you.

if the industry doesn't respond and raise pricing a little bit. I mean, you're talking like a basis point or two. It's not big dollars, but I'd be surprised if the industry doesn't react. I think on the other hand, I do think you may see a larger market. You know, I would believe, especially if there's some inflation, you could see FHA borrowers migrate to conventional, which I think, again, if that's better for the borrower, that's good. So I think net-net, it's probably a positive for the industry, you know, over the next year or two.

The other question I had was just in terms of insurance-enforced growth at current market size, right? I mean, if you think about 80% persistency, you have 50%, I guess, approximately $50 billion running off each year, and IW is running about that same level. Should we expect insurance-enforced to be flat or even down next year? Well, it's hard. It's tough for me to say. Right now, I do say that it has been relatively flat. I mean, we're entering 27, kind of the fifth-plus year of just a flat market. So I think given where rates were, we were able to grow insurance-enforced a little bit over the past few years. I wouldn't be surprised if it flattens out a bit. That being said, me here, I do think we're levered more for the upside. I do. I think when you say that, you know, we're going to be able to grow insurance-enforced a little bit over the past few years. You think about where housing's been relatively stagnant, and we can talk all day long about demographics, but I do believe there's a pent-up demand for housing. And kind of the longer this stays, this kind of slowness hangs around, the larger the snapback will be. So bigger picture, you know, look at a trillion six of industry in force for the whole industry. I wouldn't be surprised to see that grow to two. You know, not next year, but let's say over a certain period of time, again, take our share. So I do think growth will resume. And I don't think, you know, and I don't think a lot of investors see that. And that's fine, right? It's hard in this environment. But I do think we have that kind of growth because housing will come back. It always does. It always resumes. It'll grow in line with GDP. Just you have to think through why it's not growing. And part of it was 2021 was.

Such an anomaly. We literally pulled five, six years worth of growth into one year or two years. Home price is up 50% in two years. It's just not normal. So now what you're seeing more of the normalization. So we're flattening out. We're fortunate as a company that because of the persistency into the nine credit environment, we're still driving, you know, a lot of cash flow to the bottom line. But, you know, some of the other participants, the transaction oriented business. So but I do think we really we kind of get we kind of look at it internally as we're paid to wait and the way we're kind of managing capital over time, because remember, insurance and force, if it doesn't grow, the capital needed to support it doesn't grow. So that becomes, you know, free cash flow, which, again, we've used predominantly the last 18 plus months to repurchase shares, which we think that, you know, right now is a pretty good use of proceeds. You know, for the company. Thank you. Thank you.

Great, great question. I don't know. We don't do it. I mean, we look at it. We price on an unlevered basis. We do not take the reinsurance cost and rotate that back into the front end. And part of it is just how the market works, right? I mean, there's only six participants. So if you use that to lower price, it's easily matched. And I'd be surprised if the other participants use it that way, too, because it's really just reducing premium in the industry. So I think what we would do, the way we look at it, is we'll price for kind of an unlevered return. And anything that is, you know, cheaper, so to speak, on the reinsurance side really benefits for shareholders. So we took that and just lowered price than the shareholders. We don't really, really gain from that. And I think for, you know, reinsurance, we generally have gone two years. We've seen some of the, yeah, we've seen a few participants go three years, which, again, speaks to, one, the demand for reinsurance in MI. There's really not a lot of GSE reinsurance, so we're kind of the only game in town. We like it, and I think we'll continue. We think it's a great tool, but I would remind you that we do like capital, too, all right? I mean, I think reinsurance protects you. In the event of a capital, kind of a lower, call it higher unemployment, more losses, reinsurance clearly protects you. Capital lets you take advantage of those type of situations, and I'll give you the example. It's dated now, but in 2020, and we talked earlier, we were the lowest in market share, but in 2020, we've only been number one in market share twice in our history, and both times were in 2020.

The second and third quarter, when we had... We went out and had raised capital in May. We had a lot of capital. We wrote...I think we had a 20% handle, one, and part of it was because some of the...you know, there wasn't...you know, there wasn't as much capital around the industry, and there was a little bit of a shock event. We took advantage of it. So, again, I think you have to look at it both ways. Reinsurance is a great tool. It's really part of our...you know, when we think about buy, manage, and distribute, it's a key piece of it, but when you think about capital longer term, you also have to work... Don't worry about the tail, right? So when we think about how do we think about excess capital, clearly, you know, insurance and force isn't growing. We have a lot of excess capital. Could we use it for, you know, opportunities outside of the core? Relatively small. We'd love to plow it back into the core business. And then we look and say, how much do we need in an event? So remember, we hold first loss. We really hedge out against the MEZ. You know, we reattach. at the top. So for our business role, and I know you cover the PNC market, a cat event for us is a severe macroeconomic recession. You know, what's the probability of that happening in the next two to five years? Probably pretty low, not zero. So I think we like, we've been through it. I've managed through the GFC. I've been through the subprime crisis of the late 90s. You know, we've seen the movie before. So we like, you know, we think having dry powder to take advantage of an event.

And also when you think about just the, you know, kind of the price of the, it's a call option, right? I mean, so the price of holding on that additional capital, we actually think is relatively cheap versus returning all of it to shareholders. I think for us from a capital return, we're going to be in excess of 100% this year. We bought back 10% of the company last year. Wouldn't be surprised if we're close to that this year. Again, I think we're fortunate in terms of how much capital we're getting. I think we're using most of it to buy back capital because we think that's the best use of funds now, but we're still, you know, we're still retaining a little bit for, we like to have dry powder, you know, either for an opportunity that presents itself on the offensive nature or just being defensive. Thank you. And then if I could just sneak in one more, we're coming up on 1-1 renewals here. Is there any interest in expanding the P&C appetite? And can you discuss your premium expectations there? Yeah, I mean, I think we're clearly in conversations now with Lloyd's around, you know, kind of our funds at Lloyd's commitments. I think there's a few where we'd like to increase our allocation. There's one or two we're going to decline because, you know, they're using 100% fail. There's not a lot of alignment. So, you know, we're not. The key there is to continue to. We've talked about testing. We're continuing to test the market. We like our approach with Lloyd.

It's clearly different than some, but I think it's probably more suits our style. So you could see us grow a little bit, but I wouldn't expect a lot. And then on the, you know, the quota share that we did last year, that actually renews again for another year. And we'll look to do potentially do some other retros or even some direct reinsurance with students. But, you know, we'll see how it goes. We're seeing a lot of the submissions are coming in, but it's really the same unit economics kind of. Framework that we have on the MI side. So we're looking at it. We're building out the infrastructure. But, you know, I'll give you a lot more color in February. It's a little early to tell because we're just starting to see it. But again, lots of capital floating out there. We don't need to kind of push on growth there for the sake of growth. All right.

Thank you for the answers.

Yeah, Boz. It was about 50 million shares. Let me just pull it back up. Yeah. About 51 million shares for a little over $800,000. Okay, great. And then, actually, in terms of the tax rate, it was up a little bit. I got it backwards. Let me correct that. I read it backwards. 802,000 shares for about $51 million makes more sense. Yes. Okay. Great. Thanks. And then on the tax rate, yeah, no worries. Thank you. On the tax rate, what's a good number going forward? It was up a little bit. Is it more flattish going forward? Yeah, I would. I mean, Dave can kick in, but I would think kind of, I would guide a little higher of those. I mean, that's kind of 17-ish, maybe even 18-ish. Just remember the friction costs we have from getting it from the U.S. to Bermuda. So there's a 5% withholding tax, so you can kind of do the weightings. But I'd be a little conservative there if I were you. Okay. Great. And then actually just one more. The other income line item, just to confirm. That's the GSE CRT business, right? No. Actually, other income for MI this quarter, which had a little bit of an increase, you know, as we've disclosed, you know, we have with our ILN transactions, there's a little bit of an accounting nuance there where we have an embedded derivative or the literature says we have an embedded derivative in those ILN transactions. We mark them to market every quarter. We did have a transaction terminate in the third quarter, which released a liability and ultimately, you know, flowed into income. So that's what you're seeing there. We have that disclosed in the financial supplement. Not something you see every quarter at that magnitude, but that's really what you're seeing. Okay, great. And so the CRT stuff goes through the regular premium line? The reinsurance? Yeah, that is correct. That's right. The CRT.

The CRT business and Ray will go through the premium. That's right. Okay. Great. Thanks a lot. Thank you.

Hey, Rick.

I still don't. We don't see really any trends. I mean, the defaults are up, so they're close to 22,000. I do. And we sound like a broken record here. But when the book's 40 months old and these guys have. Been around for a while. Some of them are going to default a little bit more. The newer book, this 23, 24, 25 book, I just think it's not as good as the earlier book. So you're going to see, as Dave said, larger loan sizes. So some of it's coming through that in terms of the provision. But we don't really see it. And we look all the time, right? So you're looking at defaults and you're looking at it. There's a couple of ways you have to look at it clearly by geography, right? Given where home prices. It could be up and down. You're looking at it by lender. You also have to look at it by servicer. And that's something you have to be careful. I think investors have to be cognizant of. If there is a downturn, can the servicer actually collect the payments from the borrower? And that's going to be critical. We're not seeing much. And again, I would always tie it back to unemployment. Unemployment, I think, actually ticked down. So it's 4.1. So as long as the economy stays strong, I wouldn't be surprised to see the book continue. Maybe to normalize, but we don't see any kind of skeletons in the closet whatsoever. Got it. As always, I appreciate the transparency, Mark. Thank you. You're welcome.

Thank you.

Thanks, Rose.

Appreciate it. And then I apologize. I got the October buyback, but missed the quarter's buyback in town.

Yeah, Jeff. So for the quarter, we repurchased about 1.1 million shares for $74 million. That was for the third quarter. Yeah, pretty light in the quarter, Jeff. I wouldn't read too much into it. I think we kind of look at it more on a yearly basis. I think we bought a lot back in the second quarter. And again, I think it's... It's public, but I think we bought back 1 million shares at like 56 bucks in June. You know, someone just had to dump the shares. And I think it was the week that Google was raising their 84 billion and people were looking. So we like to take advantage of those things. And again, if you look at bigger picture, you know, we continue to grow book value per share. We've grown at whatever since the IPO, 17, 18 percent. And the stock. Because it looks like a bad EKG in terms of the performance. It goes up, but it's pretty volatile. And I think our view is we'd like to continue to buy it when it gets, you know, we think cheaper and then probably lighten up a little bit, you know, on the other end. So I wouldn't read too much in quarter to quarter. All right. Thanks.