Essent Group Ltd.

Thank you for standing by and welcome to the Ascent Group Limited Fourth 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 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Chris Curran, Senior Vice President of Senior Relations. Thank you. Please go ahead, sir.

Thank you, Justin. 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 Essence financial results for the fourth quarter and full year 2020, was issued earlier today and is available on our website at Essingroup.com. Our press release also includes non-GAAP financial measures that may be discussed during today's call. The complete description of 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, as subsequently updated through 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, and good morning, everyone. Earlier today, we released our fourth quarter and full year 2020 financial results. While 2020 was a challenging year for our franchise, we are encouraged by our fourth quarter results as defaults related to COVID-19 continue to decrease from the peak experience back in June. For the fourth quarter, we earned $124 million, or $1.10 per diluted share, while for the full year, we earned $413 million, or $3.88 per diluted share. At the outset of the pandemic, it was clear that the U.S. economy and our business were going to be impacted. However, we had limited vision as to the extent of this impact. Now, with almost a year gone by and having more visibility, we believe that the impact of the COVID-19 defaults on our insured portfolio has been contained. As such, for new defaults reported during the fourth quarter, we have reverted to our pre-COVID reserve methodology, and our view remains that the pandemic is an earnings event and not a capital event for Essent. Heading into 2021, our outlook on the economy and our business is increasingly optimistic. Unlike the great financial crisis when housing played a big role in the downturn, during the pandemic, housing has been a bright spot in the economy. Low mortgage rates and strong demand for single-family homes have been the primary drivers of robust mortgage volumes, and we believe that this strength will continue into 2021. On the business front, we continue to refine our risk-based pricing strategies in managing a profitable mortgage insurance portfolio. Since deployment, we view our pricing engine as a risk management tool and not a market share tool. In fact, the pandemic was a catalyst in demonstrating this, as we quickly changed price in response to the weakening economic environment. Looking forward, we remain focused on enhancing our engine through more granular analytics and sophisticated use of data. It's our belief that with the evolving intersection of mortgage finance and technology, we have just scratched the surface in our risk-based pricing capabilities. We continue to be pleased with the high credit quality of our NIW, noting that since the onset of the pandemic, our credit profile has been strong. This is primarily due to the credit tightening by the GSEs and MIs in response to the pandemic, along with an increase in the amount of refi mortgages. For the fourth quarter, our NIW maintained an average FICO of 748 compared to 745 for the fourth quarter a year ago. At December 31st, our balance sheet is strong as we have $3.9 billion of gap equity, robust liquidity, and access to $2 billion of excess of loss reinsurance. All these are the result of our buy, manage, and distribute operating model and other measures taken in 2020 to bolster our financial strength and flexibility. During the year, we raised $440 million of equity, obtained $950 million of XOL reinsurance protection, and increased our credit facility, which provides access to $300 million of undrawn capacity at December 31st. Combined with $728 million of operating cash flow generated in 2020, we increased and enhanced our capital and liquidity resources by over $2.2 billion. From a PMIRES perspective, we remain well-positioned at December 31st. After applying the 0.3 factor for COVID-19 defaults, Essendon guarantees PMIR's sufficiency ratio is strong at 173% with $1.2 billion in excess assets. Excluding the 0.3 factor, our PMIR's sufficiency ratio remains strong at 159% with $1.1 billion in excess assets. Note that the PMIR's excess does not include the $563 million in cash and investments at the holding company. S&Garanty remains the highest rated monoline in our industry at single A by A Invest and A3 and BBB Plus by Moody's and S&P, respectively. Looking forward, our buy, manage, and distribute operating model will continue to enhance our financial strength and flexibility in generating and deploying capital. We have always felt that strong capital levels beget opportunities. Given our long-term focus, we will continue to evaluate ways to optimize capital deployment. Immediate options include taking advantage of growth opportunities in our core primary MI and reinsurance businesses stemming from a favorable housing environment. Furthermore, we will also evaluate opportunities outside of our core. For example, we closely monitor the ongoing intersection of the housing finance, real estate, insurance, and technology sectors. We believe that there will be opportunities to take advantage of this changing landscape by leveraging our mortgage, technology, and operational expertise. Finally, we'll continue to evaluate capital distribution through increased dividends and buybacks. On the Washington front, there's been a recent focus on possible FHA price changes. We believe that a potential 25 basis point reduction in FHA premiums would have a small impact on our industry share of the mortgage insurance market. We also believe that any impacts could be offset by the recent increase in the GSE conforming loan limits and measures taken by the new administration to increase credit access. In summary, 2020 was a good test for our buy, manage, and distribute operating model, and we remain pleased with the strength and confidence it provides in managing the business during stressful cycles. In connection with this confidence, along with our strong capital and liquidity positions, our Board of Directors has approved a quarterly dividend of $0.16 per share to be paid on March 19. Now let me turn the call over to Larry.