Essent Group Ltd. Reports Fourth Quarter & Full Year 2018 Results

Business Wire 8-Feb-2019 6:30 AM

Essent Group Ltd. (NYSE:ESNT) today reported net income for the quarter ended December 31, 2018 of $128.5 million or $1.31 per diluted share, which includes a reduction of $9.9 million, or $.08 per diluted share, of the $11.1 million loss reserve established in the fourth quarter of 2017 for defaulted loans identified as related to Hurricanes Harvey and Irma. For the full year 2018, net income was $467.4 million or $4.77 per diluted share.

"We are pleased with our strong fourth quarter and full year 2018 results as we continued growing our high credit quality and profitable mortgage insurance portfolio," said Mark Casale, Chairman and Chief Executive Officer. "Also during 2018, we successfully piloted our risk based pricing engine, EssentEDGE^TM, and executed in the reinsurance markets. We believe that increased sophistication in the front-end and back-end of our business positions us well to shape our insured portfolio and profitably manage the long tail mortgage credit risk."

Financial Highlights:

• Insurance in force as of December 31, 2018 was $137.7 billion, compared to $131.2 billion as of September 30, 2018 and $110.5 billion as of December 31, 2017.
• New insurance written for the fourth quarter was $11.4 billion, compared to $13.9 billion in the third quarter of 2018 and $11.2 billion in the fourth quarter of 2017.
• Net premiums earned for the fourth quarter were $173.3 million, compared to $166.7 million in the third quarter of 2018 and $148.0 million in the fourth quarter of 2017.
• The expense ratio for the fourth quarter was 22.8%, compared to 22.1% in the third quarter of 2018 and 24.7% in the fourth quarter of 2017.
• The provision for losses and LAE for the fourth quarter was a benefit of $1.0 million, compared to a provision of $5.5 million in the third quarter of 2018 and a provision of $17.5 million in the fourth quarter of 2017. The provision in the fourth quarter of 2018 included a $9.9 million release of the $11.1 million reserve associated with loans identified as related to Hurricanes Harvey and Irma that was established in the fourth quarter of 2017.
• The percentage of loans in default as of December 31, 2018 was 0.66%, compared to 0.61% as of September 30, 2018 and 0.96% as of December 31, 2017.
• The combined ratio for the fourth quarter was 22.2%, compared to 25.4% in the third quarter of 2018 and 36.4% in the fourth quarter of 2017.
• The consolidated balance of cash and investments at December 31, 2018 was $2.9 billion, including cash and investment balances at Essent Group Ltd. of $78.4 million.
• The combined risk-to-capital ratio of the U.S. mortgage insurance business, which includes statutory capital for both Essent Guaranty, Inc. and Essent Guaranty of PA, Inc., was 13.9:1 as of December 31, 2018.
• In December, Essent Guaranty, Inc. entered into an excess of loss ("XOL") reinsurance agreement with a panel of U.S. and global reinsurers for $165.2 million of additional protection on mortgage insurance policies written by Essent in 2017.

Conference Call

Essent management will hold a conference call at 10:00 AM Eastern time today to discuss its results. The conference call will be broadcast live over the Internet at http://ir.essentgroup.com/investors/webcasts-and-presentations/event-calendar/default.aspx. The call may also be accessed by dialing 866-393-4306 inside the U.S., or 734-385-2616 for international callers, using passcode 1164457 or by referencing Essent.

A replay of the webcast will be available on the Essent website approximately two hours after the live broadcast ends for a period of one year. A replay of the conference call will be available approximately two hours after the call ends for a period of two weeks, using the following dial-in numbers and passcode: 855-859-2056 inside the U.S., or 404-537-3406 for international callers, passcode 1164457.

In addition to the information provided in the company's earnings news release, other statistical and financial information, which may be referred to during the conference call, will be available on Essent's website at http://ir.essentgroup.com/investors/financial-information/quarterly-financial-supplements/default.aspx.

Forward-Looking Statements

This press release may include "forward-looking statements" which are subject to known and unknown risks and uncertainties, many of which may be beyond our control. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," or "potential" or the negative thereof or variations thereon or similar terminology. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following: changes in or to Fannie Mae and Freddie Mac (the "GSEs"), whether through Federal legislation, restructurings or a shift in business practices; failure to continue to meet the mortgage insurer eligibility requirements of the GSEs; competition for customers; lenders or investors seeking alternatives to private mortgage insurance; an increase in the number of loans insured through Federal government mortgage insurance programs, including those offered by the Federal Housing Administration; decline in new insurance written and franchise value due to loss of a significant customer; decline in the volume of low down payment mortgage originations; the definition of "Qualified Mortgage" reducing the size of the mortgage origination market or creating incentives to use government mortgage insurance programs; the definition of "Qualified Residential Mortgage" reducing the number of low down payment loans or lenders and investors seeking alternatives to private mortgage insurance; the implementation of the Basel III Capital Accord discouraging the use of private mortgage insurance; a decrease in the length of time that insurance policies are in force; uncertainty of loss reserve estimates; deteriorating economic conditions; our non-U.S. operations becoming subject to U.S. Federal income taxation; becoming considered a passive foreign investment company for U.S. Federal income tax purposes; and other risks and factors described in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission on February 20, 2018. Any forward-looking information presented herein is made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Non-GAAP Financial Measures

In presenting Essent Group Ltd.'s results, management has included financial measures, including adjusted book value per share, that are not calculated under standards or rules that comprise accounting principles generally accepted in the United States ("GAAP"). Such measures are referred to as "non-GAAP measures." These non-GAAP measures may be defined or calculated differently by other companies. Management believes these measures allow for a more complete understanding of the underlying business. These measures are used to monitor our results and should not be viewed as a substitute for those determined in accordance with GAAP. Reconciliations of such measures to the most comparable GAAP figures are included in the attached financial supplement in accordance with Regulation G.

About the Company

Essent Group Ltd. (NYSE:ESNT) is a Bermuda-based holding company (collectively with its subsidiaries, "Essent") which, through its wholly-owned subsidiary, Essent Guaranty, Inc., offers private mortgage insurance for single-family mortgage loans in the United States. Essent provides private capital to mitigate mortgage credit risk, allowing lenders to make additional mortgage financing available to prospective homeowners. Headquartered in Radnor, Pennsylvania, Essent Guaranty, Inc. is licensed to write mortgage insurance in all 50 states and the District of Columbia, and is approved by Fannie Mae and Freddie Mac. Essent also offers mortgage-related insurance, reinsurance and advisory services through its Bermuda-based subsidiary, Essent Reinsurance Ltd. Additional information regarding Essent may be found at www.essentgroup.com and www.essent.us.

Source: Essent Group Ltd.

(1) Net premiums earned are net of premiums ceded to third-party reinsurers beginning in 2018. Premiums ceded totaled $3,731, $3,158, $3,585 and $294 in the three months ended December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively.

(2) Provision for losses and LAE for the quarter ended December 31, 2018 includes a $9.9 million reduction associated with previously identified hurricane-related defaults based on the performance to date and our expectations of the amount of ultimate losses on the remaining delinquencies. Provision for losses and LAE for the quarter ended December 31, 2017 includes an $11.1 million provision associated with defaults identified as related to Hurricanes Harvey and Irma.

(3) Income tax expense for the quarter ended September 30, 2018 includes $1,450 of expense associated with accrual to return adjustments associated with the completion of the 2017 U.S. federal income tax return. Income tax expense for the quarters ended March 31, 2018 and 2017 was reduced by $9,549 and $3,023, respectively, of excess tax benefits associated with the vesting of common shares and common share units during each period.

(4) Income tax expense for the quarter ended December 31, 2017 was reduced by $85,091 of income tax benefit due to the one-time impact of the reduced U.S. corporate income tax rate on the company's net deferred tax liability position.

(5) Loss ratio is calculated by dividing the provision for losses and LAE by net premiums earned.

(6) Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.

(7) Average gross premium rate is calculated by dividing annualized premiums earned for the U.S. mortgage insurance portfolio, before reductions for premiums ceded under third-party reinsurance, by average insurance in force for the period.

(8) Average net premium rate is calculated by dividing annualized net premiums earned for the U.S. mortgage insurance portfolio by average insurance in force for the period.

(9) Gross risk in force includes risk ceded under third-party reinsurance.

(10) Weighted average coverage is calculated by dividing end of period gross risk in force by end of period insurance in force.

(11) GSE and other risk share includes GSE risk share and other reinsurance transactions. Essent Re provides insurance or reinsurance relating to the risk in force on loans in reference pools acquired by Freddie Mac and Fannie Mae, including in connection with Freddie Mac's Agency Credit Insurance Structure ("ACIS") and Fannie Mae's Credit Insurance Risk Transfer ("CIRT") programs.