Essent Group Ltd.

Ladies and gentlemen, thank you for standing by and welcome to the Essent Group Limited first quarter 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then 1 on your telephone keypad. Please be advised that today's conference is being recorded. If you require further assistance, please press star 0 on your telephone keypad. I would now like to hand the conference over Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, Ian. Good morning, everyone, and welcome to our call. Joining me today are Mark Cassell, Chairman and CEO, and Larry McAlee, Chief Financial Officer. Our press release, which contains Essend's financial results for the first quarter of 2020, was issued earlier today and is available on our website at EssendGroup.com in the investor section. Our press release also includes non-GAAP financial measures that may be discussed during today's call. These measures and the reconciliation to GAAP may be found in Exhibit M of our press release. 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 18, 2020, 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, Chris. Good morning, everyone, and thank you for joining us. Before getting into our first quarter results, I want to acknowledge that this is a very challenging time for all of us. Our thoughts go out to all the individuals, families, and communities that are most impacted by the COVID-19 pandemic. Essendon is committed to doing its part in helping to slow the spread of the virus. In mid-March, we successfully transitioned our platform to remote status to keep our employees safe and to continue providing best-in-class service to our clients. Now let's turn to our results. For the first quarter, we earned $150 million, or $1.52 per diluted share, compared to $128 million, or $1.30 per diluted share, for the first quarter a year ago. Our annualized return on equity for the quarter was 20%, and we grew adjusted book value per share to $30.89 as of March 31st, 2020. We believe that the strength and sustainability of our buy, manage, and distribute operating model puts Essend in a position of strength during this unprecedented time period. Strong capital and liquidity along with third-party reinsurance provides us confidence in managing our company during this time of uncertainty. While we can never predict the timing of a stress event, we believe our business model is well-suited to navigate this challenging environment. At March 31st, we have $3.1 billion of GAAP capital and access to $1.7 billion of excessive loss reinsurance, and our liquidity is strong. During the quarter, we generated $163 million of operating cash flow and have $280 million of cash and investments at Holdco, after drawing $200 million on our revolver. While we do not have any immediate capital needs in our operating businesses, we believe that drawing on the facility was prudent in light of the worsening economy. As COVID-19 takes its toll on unemployment, we believe that defaults will increase during the second quarter and have a significant impact on our operating earnings. One of the metrics that we are following is the percentage of mortgages in forbearance being reported by Black Knight. Most recently, they reported that 8% of the loans are in forbearance and estimate that this rate could hit 10 to 15% by June 30th, which is consistent with our view. As more information becomes available, we may adjust our expectations. We also believe that factors such as the federal stimulus, foreclosure moratoriums, and forbearance may help borrowers resolve hardships prior to foreclosure or extend traditional default to claim timelines. As such, it is very difficult to predict the exact pattern at which defaults will age or cure, as well as claim rates. We will record our best estimate of the ultimate loss on COVID-19 defaults in the period that they are reported to us. As we receive additional information, we may update these estimates in future periods. From a PMIRES perspective, we will apply the 0.3 factor to the asset requirements for defaulted loans resulting from COVID-19, including those in forbearance. At March 31st, our PMIRES sufficiency ratio is the strongest in the industry at 200%, with $1.2 billion of excess required assets. On the business front, industry NIW has been robust during the first quarter and continued through April for both refi and purchase mortgages. Looking forward, we may see a decrease in purchase volume due to the current environment. However, we will have a better line of sight on this over the coming months. In response to the pandemic and a significant impact on the economy, we began raising premium rates in S&Edge and our custom cards. Looking forward, we will continue to develop and deploy pricing strategies based on the evolving economic environment. Finally, our Board of Directors approved a quarterly dividend of $0.16 per share to be paid on June 12th. We will evaluate future dividends as we continue to navigate the economic environment. Our buy, manage, and distribute operating model provides us confidence in managing our business, even though things could be challenging over the near term. Since the founding of Essent, we have built and managed this business for the long term, and we will continue to do so. Now let me turn the call over to Larry.