Essent Group Ltd.

good day and welcome to the Essence second quarter 2022 earnings conference call. Please note today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number one again. Thank you. At this time, I would like to turn the conference over to Phil Stefano, Vice President of Investor Relations. Mr. Stefano, you may begin your conference.

Thank you, Erica. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO, and David Weinstock, Interim Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Curran, President and Investment Guarantee. Our press release, which contains Essence financial results for the second quarter of 2022, was issued earlier today and is available on our website at EssenceGroup.com. 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 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 16, 2022, 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. Today, we released our quarterly financial results, which continue to reflect the favorable credit performance of our in-force portfolio. For the second quarter of 2022, we reported net income of $232 million as compared to $160 million a year ago. Similar to last quarter, our results benefited from the release of COVID reserves associated with defaults from the second and third quarters of 2020. On a diluted per share basis, we earned $2.16 for the second quarter compared to $1.42 a year ago. and our annualized return on average equity was 22%. From a macro standpoint, our long-term structural outlook for the housing market is positive, despite near-term headwinds. Rising rates in response to inflation and home price appreciation have pressured affordability, resulting in a slowdown in housing activity and mortgage production. However, the undersupply of housing and a strong labor market should continue to support home prices and credit performance in the short term. Longer term, we believe that demographic trends are favorable and should continue to bolster housing demand. At June 30th, our insurance and force was $216 billion, a 6% increase compared to $204 billion a year ago. The credit quality of our insurance and force remains strong, with a weighted average FICO of 746 and a weighted average original LTV of 92%. Strong home price appreciation in recent years has enabled the accumulation of embedded home equity for a material portion of our book. While home price growth will likely moderate going forward, this embedded value should mitigate the risk of future claims on our enforced book. Our 12-month persistency at June 30th was 73%, while the three-month annualized persistency was 82%. The weighted average note rate of our book is in the mid-3% range, while 81% of our insurance in force is comprised of 2020 and later vintages. Our in-force portfolio remains well-positioned after the recent rise in rates, with higher rates translating to higher persistency. We continue to execute upon our diversified and programmatic reinsurance strategy. In the second quarter, we closed an excess of loss forward transaction to cover an additional 20% of our 2022 NIW. Combined with our 20% quota share transaction from the first quarter, 40% of our current-year business is covered with forward reinsurance protection. As of June 30th, approximately 98% of our portfolio is reinsured. Our reinsurance entity, S&RE, continues to write profitable GSE business and support our MGA clients. As of June 30th, annual run rate revenues are approximately $60 million, while our third-party risk and force was nearly $2 million. We remain pleased with Essentree's performance and its contribution to the profitability of our franchise. Cash and investments as of June 30th were nearly $5 billion, and the investment yield for the second quarter of 2022 was 2.5%, up from 2.1% in the first quarter. The recent rise in rates is providing some tailwinds for our investment portfolio, as yields in the second quarter on new money approximated 4%. We continue to operate from a position of strength with $4.3 billion in gap equity, access to $2.6 billion in excess of loss reinsurance, and approximately $1 billion of available liquidity. With a trailing 12-month operating cash flow of $613 million, our franchise remains well-positioned from an earnings, cash flow, and balance sheet perspective. As of June 30th, our book value per share was $39.67, an increase of 9% from $36.32 a year ago. We remain committed to managing capital for the long term, taking a measured approach to maintain strength in our balance sheet. Given our financial performance during the second quarter, I'm pleased to announce that our board has approved a one cent per share increase in our dividend at 22 cents. We continue to believe that dividends are a meaningful demonstration of the confidence we have in the stability of our earnings and cash flow as a result of our buy, manage, and distribute operating model. Now, let me turn the call over to Dave.