Essent Group Ltd. Common Shares

Thank you, Rob. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO, and David Weinstock, Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Curran, President of Essent Guarantee. Our press release, which contains Essent's financial results for the first quarter of 2024, was issued earlier today and is available on our website at EssentGroup.com. Our press release includes non-GAAP financial measures that may be discussed during today's call. A complete description of these measures and the reconciliation to get may be found in Exhibit O 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 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, 2024, 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. Earlier today, we released our first quarter 2024 financial results. Our results continue to benefit from the favorable credit performance of our insured portfolio, and the impact of higher rates on both persistency and investment earnings. Given the state of the economy and higher rates, we are encouraged by the resilience of housing and the labor market. Over the longer term, our view remains constructive. We believe that improvement in supply, demand, and balances, along with favorable demographics, will continue to support housing growth, which is positive for our franchise. And now for our results. For the first quarter of 2024, we reported net income of $182 million compared to $171 million a year ago. On a diluted per share basis, we earned $1.70 for the first quarter compared to $1.59 a year ago. On an annualized basis, our return on average equity was 14%. As of March 31st, our U.S. mortgage insurance and force was $238 billion a 3% increase versus a year ago. Our 12-month persistency on March 31st was 87%, the same as last quarter, and over 70% of our in-force portfolio has a note rate of 5.5% or lower. We expect that the current level of rates should support elevated persistency throughout 2024. Credit quality of our insurance and force remains strong, with a weighted average FICO of 7.46%, and a weighted average original LTV of 93%. Overall, we remain pleased with the quality of the business that we are writing. Also, we anticipate that embedded home equity within the existing book should mitigate potential claims in the current housing environment. On the mortgage insurance front, we continue to focus on activating new lenders and strengthening our operating infrastructure. This includes enhancing our proprietary scoring engine, S&Edge, by integrating additional data sources. Our lenders benefit from the amount of data that we analyze in delivering our best rate to borrowers while also enabling us to optimize our unit economics. Given the challenging mortgage origination market, we believe that having access to S&Edge is an advantage for lenders and their borrowers. At S&RE, we continue to leverage our mortgage credit and reinsurance expertise in generating earnings for the S& franchise. As of March 31st, Essent Ridge's third-party risk and force was approximately $2.3 billion, up 10% from the first quarter of 2023. Our title operations incurred a pre-tax loss of approximately $4 million in the first quarter, similar to the third quarter and fourth quarter of 2023. With the post-acquisition integration complete, we have begun the build-out of Essent Title, which should enable us to leverage our strong operational infrastructure lender network, and risk analytics. Cash and investments as of March 31st were $5.8 billion, and our new money yield in the first quarter was approximately 5%. The annualized investment yield for the first quarter was 3.7%, up from 3.4% a year ago. New money rates have largely held stable over the past several quarters. We continue to operate from a position of strength with $5.2 billion in gap equity access to $1.4 billion in excess of loss reinsurance, and over $1 billion of available holding company liquidity. With a trailing 12-month mortgage insurance underwriting margin of 76%, our franchise remains well-positioned from an earnings, cash flow, and balance sheet perspective. In the first quarter of 2024, we entered into a quota share transaction with a panel of highly rated reinsurers to provide forward protection for our 2024 business. We are encouraged by the strong interest from the reinsurance market in supporting our program. Looking forward, we will continue executing upon our reinsurance strategy to mitigate earnings volatility during economic cycles while also providing capital relief. During the quarter, we were pleased that S&P upgraded the financial strength ratings of S&G and S&RE to single A-, and that Moody's affirmed S&G's A3 rating and raised its rating outlook to positive. We believe these actions reflect the significant enhancements made by our industry in transforming MI into a sustainable and through-the-cycle franchise. Given our strong financial performance and capital position, we continue to take a measured approach to capital distribution. Our goal is to balance capital deployment opportunities to generate incremental revenues while optimizing capital distributions and shareholder returns. Now let me turn the call over to Dave.

Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the first quarter, we earned $1.70 per diluted share compared to $1.64 last quarter and $1.59 in the first quarter a year ago. Our U.S. mortgage insurance portfolio ended March 31, 2024, with insurance in force of $238.5 billion, essentially flat compared to December 31, and 3% higher compared to the first quarter a year ago. Persistency at March 31st was 86.9%, unchanged from the fourth quarter. Net premium earned for the first quarter, $246 million, and included $17.8 million of premiums earned by Essent Re on our third-party business, and $15.3 million of premiums earned by the title operations. The base average premium rate for the U.S. mortgage insurance portfolio for the first quarter was 41 basis points. And the net average premium rate was 36 basis points for the first quarter, both increasing one basis point from last quarter. Then investment income increased $1.5 million, or 3%, to $52.1 million in the first quarter of 2024 compared to last quarter, due primarily to higher balances and continuing to invest at higher yields than the book yield of our existing portfolio. Other income for the first quarter was $3.7 million compared to $6.4 million last quarter. The largest component of the decrease was the change in fair value of embedded derivatives in certain of our third-party reinsurance agreements. In the first quarter, we recorded a $1.9 million decrease in the fair value of these embedded derivatives compared to a $412,000 increase recorded last quarter. The provision for loss and loss adjustment expenses was $9.9 million in the first quarter, compared to $19.6 million in the fourth quarter of 2023, and a benefit of $180,000 in the first quarter a year ago. At March 31st, the default rate on the U.S. mortgage insurance portfolio was 1.72%, down eight basis points from 1.80% at December 31st, 2023, largely due to favorable cure activity on prior year defaults. Other underwriting and operating expenses in the first quarter were $57.4 million and include $11.8 million of title expenses. Expenses for the first quarter also include title premiums retained by agents of $9.5 million, which were reported separately on our consolidated income statement. Our consolidated expense ratio was 27% this quarter. Our expense ratio excluding title, which is a non-GAAP measure, was 20% this quarter. A description of our expense ratio excluding title and the reconciliation gap may be found in Exhibit O of our press release. We now estimate that other underwriting and operating expenses excluding our title operations will be approximately $185 million for the full year 2024. As Mark noted, our holding company liquidity remains strong and includes $400 million of undrawn revolver capacity under our committed credit facility. On March 31st, we had $425 million of term loan outstanding, with a weighted average interest rate of 7.06%, down from 7.11% at December 31st. At March 31st, 2024, our debt-to-capital ratio was 8%. At March 31st, Essendon Guarantee's PMR sufficiency ratio, excluding the 0.3 COVID factor, remained strong at 170%, with $1.4 billion in excess available assets. During the first quarter, Essendon Guarantee paid a dividend of $45 million to its U.S. holding company. Based on unassigned surplus at March 31st, the U.S. mortgage insurance companies can pay additional ordinary dividends of $331 million in 2024. At quarter end, the combined U.S. mortgage insurance business statutory capital was $3.5 billion, with a risk-to-capital ratio of 10 to 1. Note that statutory capital includes $2.4 billion of contingency reserves at March 31st. Over the last 12 months, the U.S. mortgage insurance business has grown statutory capital by $246 million, while at the same time paying $250 million of dividends to our U.S. holding company. During the first quarter, Essendon repaid a dividend of $37.5 million to Essendon Group. Also in the quarter, Essendon Group paid cash dividends totaling $29.6 million to shareholders, And we repurchased 97,000 shares for $5 million under the authorization approved by our board in October 2023. Now let me turn the call back over to Mark.

Thanks, Dave. In closing, we are pleased with our first quarter results as Essendon continues to generate high-quality earnings while our balance sheet and liquidity remain strong. These results demonstrate the strength of our business model and how Essendon is uniquely positioned within the current macroeconomic environment. With Title now being part of the Essin franchise, I'm very proud of the entire Essin team as we remain focused on providing best-in-class service and value to our mortgage insurance and Title customers. We continue to believe that Essin is well-positioned within the U.S. housing finance as we further our franchise and mission to support affordable and sustainable homeownership. Now let's get to your questions. Operator?

Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Terry Ma from Barclays. Your line is open.

Hi, thanks. Good morning. So your NIW was lower Q over Q, and it looks like you lost a little bit of share. So anything to call out with respect to pricing or just the environment overall?

Hey, Terry. No, not really. I mean, you know, I think you're relatively new to covering us, so it's kind of like a broken record with us. I mean, market share really kind of always ebbs and flows quarter to quarter. I think longer term, our goal is always to be kind of in that 15 to 16 percent share. That's really how you can optimize our unit economics. So certain quarters were a little bit lower. I would note out that our premium, our gross, you know, the gross premium yield has actually risen a bit in the first quarter. Some of that is, you know, from a pricing perspective. Given the small market, it's probably not the time to reach for share. And your rent share anyway, you don't really own it. It's quarter to quarter. But, you know, I think kind of from a unit economic basis with increased yield. And we were probably increasing price a little bit more than others throughout, you know, 2023. That's probably cause for a little bit of lower share, but there's not a big gap between kind of the top share and the lower share in this type of market. So again, just to reiterate, you know, from a unit economic basis, Given the yields that we're writing along with the investment income, the unit economics of the business are quite good right now, and we're pleased with that.

Got it. That makes sense. And then if I look at the rate of increase year-over-year in new notices, it's actually been pretty consistent the last four quarters. So I assume the macro outlook and employment picture stays pretty similar here. Is there anything to think about in how the vintage curve season that can make that rate higher or lower going forward?

Yeah, I can start. I mean, sure, when is the book seasons? And remember, 42%, I believe, of our book is in 2020 and 2021. So peak defaults are usually kind of in that three to five. five-year time frame. So you could see a seasoning and an increase in defaults. Not particularly concerned about that vintage just because of the embedded home equity we have. But yeah, sure, you could certainly see a little bit of an increase. And again, just big picture, Terry, 800,000 loans roughly and 14,000 defaults. So big picture, I think we feel pretty good about credit. And like we said, credit is the number one concern of the franchise. If you look at our forecast and our unit economics, everything's relatively steady, right? I mean, the gross premium yield we talked about, I think we do a real good job with expenses, and investment income's been a tailwind. It's always that credit that has the potential to be the most volatile. We feel better about that given the credit quality of our portfolio and also just the changes in the industry over the past five, six years and our ability to hedge out that risk. So we've really protected the balance sheet. We've always kind of known that we're the most, that's the Achilles heel of the business, so to speak, is credit. So you're looking for ways to strengthen that. One is to write good business, good unit economics, and the other is to make sure you're kind of hedging that risk out in times of stress. which we've seen obviously over the, you know, it's all in 2020 and you see it occasionally.

Got it. That's helpful. And maybe I would just indulge in one more. The cures to new notices ratio was seasonally higher this quarter. As we look out for the rest of the year, should we expect a similar seasonality to play out as we saw in 2023 for that ratio?

Yeah. Hey, Terry. It's Dave Weinstock. You know, in general, I would say that we are starting to see a little bit of return to the normal seasonality pattern that we saw prior to the pandemic. So, in general, specifically in the first and second quarters, you know, and generally through February through April, May timeframe, we generally see more cure activity. And then in the second half of the year, we start to see that wane a little bit and a modest increase in defaults. And we're expecting that pattern to kind of play out in 2024.

Great. Thank you.

Your next question comes from a line of Doug Harder from UBS. Your line is open.

Thanks, and good morning. Mark, you talked about being a little more reserved in the amount of capital you're returning to shareholders for possible organic deployment or other opportunities. Can you just talk about what opportunities you see to maybe increase the pace of capital deployment, just given the strong capital generation you have right now?

Yeah, Doug, it's an interesting question for sure, right? And I would say to give everyone on the phone and investors kind of context, we do have that retain and invest mentality. And I know that's different than some of our peers, and that's good, right? Everyone can be different. And we're obviously generating a lot of capital through the core business as it continues to perform well. quite well. I would say, you know, we have a measured approach. So we're going to look to invest kind of at the numerator. And then in terms of just capital distribution, I think dividends were fairly, you know, we have a pretty good plan around that. We're really, it's kind of tiered to or linked to kind of a yield on our book value per share. So as that grows and it grew you know, 13, 14% last year, and the dividend grew a similar amount. And I think with buybacks, you know, we really have a structured approach to it. And in terms of just being sensitive to valuation, so we bought back less in the first quarter really as a function of the stock price. So, you know, as book value per share grows, you know, the buybacks will grow along with that in terms of just how we structure that 10B buy plan. In terms of opportunities, You know, I think we're very active in looking at things. That doesn't mean we're very active in doing things. I'm a big believer that investments, it's hard work to invest. You don't want to wait around for the banker to give you the book. So, you know, we have, you know, we have a, I would say a very strong team that's growing around both corporate development and our Essent Ventures group. And we look at a lot of things. It's a lot of fund to funds now, but we do have some direct investments. And one of those investments actually led to the title acquisition. It's very difficult to time kind of capital deployment with opportunities, if that makes sense, right? It's not a quarter-to-quarter thing. So, you know, we look at this capital really as a luxury, Doug, not a burden. And we look at this over time, things could happen, and we're ready to pounce on an opportunity. And if we can't, we're going to return it to the shareholders. At the end of the day, you know, our goal is to maximize shareholder value. It's just it's not as easy. It's just not as simple as a quarter to quarter. And I think we like having this excess capital. It could give us an opportunity to grow the franchise. And I think longer term, shareholders are always rewarded by growth. You see it in other businesses. And our ability to allocate, that's going to be a lot of the success of Essent. And I think it's going to be the difference in the industry over the next three to five years. The companies that can allocate capital better then others are probably going to be the winners. And some of that, maybe, you know, some of that could be returning capital to the shareholders and others could be around growth. We're not saying which one we're going to be. We're just saying we're looking at all avenues of it. And we love the position we're in. So I think, you know, kind of leave it at that.

I guess just on, you know, any update on kind of where you are in the progress of title and, you know, whether that can begin to ramp or, you know, become a source of or use of capital?

Yeah, well, in terms of title, I would say, like I said, when we first bought it, it's probably a 12 to 18 month build out. You know, we're nine months into it. I would say it's going well from a build out perspective. We're really starting to, you know, bring over the Essent framework to the title side. So that's leveraging our skills around IT, risk, finance, legal. I could go into all the dirty details of what we're doing, but it's a lot of work. Same thing on the MI side. We started building out MI in 2009. We didn't break even until the fourth quarter of 2012. These things take a long time. I'm encouraged. We're starting to bring in some new talent. We're moving over talent from the MI side. I really feel like the team is starting to gel. That's why we said we're starting to build out of Essent Title. So we'll begin to leverage, you know, our lenders through our, we call it Essent Lender Services, which is really that 50 state title and settlement services business. I mean, really geared more towards refinance, which as you know, you know, the market's down. And then the agency services, which really targets, you know, I would say title agents of, you know, in certain regions, that's relatively small. And in fact, we're actually scaling back agents early on as we start to understand the unit economics of smaller agents versus other agents. And we'll build that out over time, too. So it's probably in the early stages. One of the beauties of it, though, Doug, is it's not big on capital. It's relatively capital light compared to mortgage insurance. And so the investments there are really more around people and technology and infrastructure versus you need to put a lot of capital into the business.

Great. Thank you, Mark.

Again, if you would like to ask a question, press star 1 on your telephone keypad. Your next question comes from the line of Soham Bonsley from BTIG. Your line is open.

Hey, guys. Good morning. Mark, I was looking at your NIW stratification by FICO bucket. And what's interesting to me is like your 760 FICO mix has gone up, call it 500 basis points year over year. yet your base rate, like as you noted, has ticked up slightly. And I know the base rate is on the insurance and fours, but I'm wondering if you've seen, you know, the ability to find pockets of just higher pricing with the use of S and Edge, you know, without maybe taking that incremental risk out there.

Yeah, absolutely. I think we have. I think we're really starting to see S and Edge be a differentiator so we can And just, again, to bring everyone up to speed on it, it's really not a pricing engine. S&Edge is a proprietary scoring engine. So we have kind of the FICO score and we have the edge score, and we're able to see kind of differences. And, you know, obviously for a particular borrower that has a higher edge score than a FICO score, they're going to get a better price than probably where the market's at. So we're going to win that loan and vice versa. So we do see pockets of value, particularly around some of the higher LTVs, even some of the higher DTIs. Some of it is macro-oriented. But we are seeing that. And I think that's good. That's why we said it in the script. I think for all lenders, having S in part of their rotation really is a win for them. And I'll give you a good example. And we had one lender – that we're probably 10% of their business. And they came to us and said, hey, you guys are only 10%. Our other MIs are stepping up and they really have increased share. Like, what are you guys doing? And we were able to go back and point out to them that we were probably the best price around some of the DTIs and LTVs that the other competitors were probably more flat, and I would say static pricing weren't able to take advantage of. And I think once they were educated around that, I think they were quite happy. So, again, we're here. We're always there to give our best price to each borrower. It's not necessarily the lowest price. So if another MI has a different – I would say, you know, a way to, or a liking of a certain segment, that's great. That's great for the borrower. It's great for the lender. Everyone wins. But again, it's early, but I think it's starting to get reflective in some of the things that we're seeing around kind of the, you know, the use of edge. It's on the margin, right? I mean, it's still at the end of the day, your price to the market. So, but we're encouraged by some of the results and we're continuing to to invest in. And as we mentioned in the script, we brought on another credit bureau this year. And what we're seeing there is that with the different credit bureaus, they have different attributes that we may be able to leverage a little bit better to improve edge, potentially even in certain markets. Different credit bureaus have different strengths across different regions. So I'm pretty encouraged by that, too.

Okay, great. And maybe wanted to get your a bit of thoughts on a topic that has not come up in a while, which is M&A. It just seems like we're in a market today where the industry is in excess capital position and limited growth because of just where the origination market is, at least in the medium term. Credit's still pretty good and should be good outside of some big decline in HPA or unemployment. So that capital return seems to be sustainable as well. But I'm curious if there's a case to be made here that there's potentially other parties that might be attracted to this capital and want to sort of redeploy this for a higher, better use long term.

Yeah, it's a good question. I would say there's two ways to look at it, both kind of within the industry consolidation and when you do see kind of a slower market. And just to point out, I don't think it's going to be a slower market for long, Soham. I think when you look at you know, kind of the demographics, especially think around just immigration, right? You know, had almost increased in a population last year of almost 4 million people, over 3 million were new immigrants, right? So they're coming in, they're entering the workforce around construction and hospitality and healthcare. These are all future homeowners. So I think, you know, the industry will continue to grow. So I would look at this kind of time period as a little bit of pause, right? on growth versus, you know, versus, you know, the growth has kind of stopped. So that's one aspect of it. But within the industry, it's a mature industry. And when things, you know, we're not at the, you know, there's still growth, but, you know, there's not as much growth as there probably was, say, five years ago. It's a little bit of consolidation 101, right? You're bringing companies together. You're eliminating a lot of costs. It wouldn't surprise me to see that potentially happen over the next several years, depending on where rates go and where growth goes. And then the other is really someone from outside the industry. And when you think about some of the large P&C players with the changes in the capital model with S&P, there's probably even a little bit more capital arbitrage for them. So for them to come in, and again, what you're seeing quarter after quarter, just the consistent returns, not just by Essendon, but by the whole industry, I would think at one point that would be appealing for a larger player, for an MI. So again, that wouldn't surprise me either to see an MI or even two to be divisions of larger PMC companies down the road. So it takes a while, right? There's still a lot of the history. We'll hear, we'll talk to investors, and they'll talk about the great financial crisis, which, you know, was... 16 years ago. It's a pretty long time ago. And we've been public for, you know, over 10 years, have compounded book value per share, you know, 18%. I think the returns to shareholders have been pretty good. And just consistently, you know, we would hear, you know, you guys haven't really been through a recession. Then we go through 2020, unemployment's, you know, double digits, you know, our default rate shot to 5%, hasn't made money. and did well. Rates go down, NIW is up, insurance and force grows, Essent does well. Rates start to go high, NIW falls, persistency increases, yield increases, Essent does well. That at some point, it takes a while, so that's going to get noticed. It just takes time, and sometimes you have to almost earn your way through it. But over time, I think people will understand kind of the the strengths of the business model and how it's improved so much over the past 10 years, both regulatory with the advent of QM, the changes that the GSEs have made, which have been quite significant with the strengthening of DU and LP, the improvements around QC, the addition of forbearance and how it helps borrowers add in the ability of the industry to change pricing the way we have and able to change pricing almost on a dime. which five years ago with rate cards took six months. And then clearly the introduction of reinsurance that's really kind of hedged out the book. It's a much different model. And again, I think the sustainability and the consistency of the earnings will be noticed longer term by whether outside parties. And we have a core investor base that understands this well. and they've been investors with us for a long time, and they're very content to allow us and watch us grow book value per share quarter after quarter.

Yep, that makes sense. And if I could just one on title, I know there's been a lot of chatter around just title costs and some of these pilots that the GSCs are trying to implement here. I would love to maybe just get your thoughts on the topic and maybe what you're hearing from folks out there. Thank you.

Yeah, that's a timely question, right? We've gotten a lot. We're kind of the newbies on the block there, so I think We do have a unique perspective, though, Soham, given, you know, we've gone through a lot of this with mortgage insurance, especially around the crisis. You know, the mortgage insurers, they don't pay any claims. You know, do we even need the product? The fact that Essent came into the market, I think, helped a lot. Private capital coming in, wanting to take that risk. The industry, by the way, paid over $50 billion of claims. So, again, it was a fact. It was a... it was really an opportunity to educate both regulators and folks around the value of mortgage insurance and how important it was to the national housing finance system. And I think the same way with title insurance. It's such a valuable product, and I think it's misunderstood. And so I think what we're going to try to do, working with counterparts in the industry, is to do a better job of educating people key constituencies on the value of title insurance and how it's used and its role to protect borrowers and help lenders and improve the housing finance system. That being said, I think there is an issue around just the price to the borrowers. In certain states, on the refinance side, the borrower can get a very efficient price. In other states, they can't because of the promulgated state's and some of the challenges they have at the state level, that would be like us charging, you know, 40 basis points and, you know, 38 states and 12 states, we have to charge 100 basis points. And, you know, the borrower loses in that. And I think that's, you know, so I think, you know, the industry, you know, we're always going to put the borrower first. We do it on the MI side. We're going to do it on the title side. And I think that's where the noise is coming from. And I think that's the root cause of the problem. And I think as the industry starts to think through that, and until the industry really tries to solve that problem, there's always going to be workarounds. And so that's why you see AOL and title waivers. Those are workarounds because lenders, and we talk to lenders every day, so we understand it. they're frustrated by it and they're looking for ways to get around it. So I think the title insurance industry longer term has to kind of come to grips to that. And when they do, I think it'll be fine. I think it's a valuable product and I think the industry has a really bright future.

All right. Thanks a lot, Mark.

Your next question comes from the line of Melissa Waddell from JP Morgan. Your line is open.

Good morning. Thanks for taking my question today. I'm on for Rick this morning. I was wondering if you could talk about how you're thinking about the current vintage. I know you referenced sort of the health and the credit metrics of the portfolio. There's a lot of embedded HPA that really is supportive of credit. In this environment, we're seeing lower affordability. It seems like there are fewer tailwinds in terms of employment. Employment will be getting better from here is sort of our base case assumption. But as you look at new business in this environment, What do you think, how much higher risk is embedded in this current vintage, do you think, compared to sort of the rest of the portfolio?

That's a good question. I would say, just big picture, we're pretty comfortable with the new writings. I know, you know, clearly with rates kind of close to 7% and home prices have been quite elevated, Uh, they haven't really grown that much. They've been, they've grown a little, but they've been relatively flattish. I would say our, our, you know, if we're going to pick on vintages, right. I mean, in general, we're talking about, you know, again, like I said, 14,000 defaults, I would say the 2022 vintage is the one we probably look at the most just because that was done almost at the peak of HPA and, uh, And our pricing was the lowest, right? That's when we had talked about we had really low share at the end of 21, early 22. Pricing had really bottomed out and increased materially from that point on. So just from like a unit economics basis, that's probably the one that we'll look at the most. It's actually performing pretty well. But I mean, just from an incurred loss ratio, it's probably a little bit higher overall. I would say with the new book, we're pretty comfortable with the unit economics of the book. Could it be a touch riskier than others? Yes, but also I think we're being compensated for that from a price standpoint.

Okay, understood. The follow-up question is a little bit tangential here, but I would imagine that a fair number of the borrowers that you're insuring would also have some student loans. And I'm just wondering if you're, do you have visibility into that? Are you seeing any impact to credit from either borrowers benefiting from forgiveness or delaying payment? And is that any risk of that being a potential headwind as borrowers begin to repay?

Thanks. We have not seen it as a headwind. And I think we pointed out in a call, I think it was last quarter, that given through S and Edge, we're actually able to kind of differentiate borrowers that have student loans with ones that have identical FICOs, one cohort with student loans, one cohort with personal loans, like the old-fashioned consumer finance. The student loans actually perform better. And that could be a number of different, you'd have to almost guesstimate why, what's causing that. So I think there, from a student loan standpoint, that's probably a good nugget for investors, but in terms of the added burden of repaying student loans, we have not seen that impact.

Thanks, Mark.

Again, if you'd like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from the line of Mihir Bhatia from Bank of America. Your line is open.

Hi, good morning, and thank you for taking my questions. I wanted to follow up a little bit on a couple of the answers you gave, Mark, in terms of just, you know, look, you highlighted Essendon has performed well in a variety of macro market backdrops over the last few years. I think you've also mentioned today and on previous calls that credit is your number one long-term concern. Managing credit is job number one, right? So I guess, like, just trying to understand from an external what can go wrong at Essence from an external perspective? Assuming you're doing everything right internally, I think one of the questions that we get a lot of is, this is such a great operating environment. From an external perspective, things can only get weaker. I think in the earlier question, too, there was the job environment getting weaker. Is that what we should be focusing on, the job environment getting weaker? I'm just trying to understand, what is the big risk from an external perspective for Essence?

Yeah, it's a good question. We've heard this question for 10 years, like what can go wrong? And again, I do think we're clearly levered to unemployment. We never promised on our IPO roadshow to run the company recession-free. I think what we do here is try to plan for, both from a business and a balance sheet perspective, a range of economic scenarios. And as I pointed out earlier, that's just the that's the most volatile is the provision, right? Because it is so levered to unemployment. So, yeah, unemployment goes up. Here's a newsflash. Our provision is going to go up, right? And we saw this in 2020. And, you know, we saw almost a flash flood, so to speak, in terms of, you know, because we saw such a sudden increase in defaults in the second and third quarter. And if you look back on 2020, we still made money. And so I do think at the end of the day, we're built because of all the changes to provide consistent earnings throughout the cycle. That doesn't mean they're always going to go up. There's going to be certain years where they're not going to perform as well because of the provision. But the prevailing view of the MIs, and I would say a dated view, was the companies are going to crumble when there's an issue in the economy. And that's just simply not true. I mean, it's reflected now in our ratings. you know, we're A-rated across the board. So the rating agencies, obviously we go through a lot of stress tests with the rating agencies, whether it's the GFC or different scenarios. And we come out and we don't really deplete any capital. And that's the, in a financial services company, when they deplete capital, there's really not a bottom for your valuation. And I would point to, again, 2020. So, you know, when that hit, and our stock dropped significantly during the March and April timeframe, our ability and the fact that we had reinsurance actually put a floor on the stock. And some smarter investors jumped in, but if you saw, we traded well below book in 2020. I want to say 60-ish percent of book, believe it or not, for a week or two. As we talked to investors, and kind of walked them through how, because no one really cared about the reinsurance until they cared, right? I mean, we were getting questions in February of 20 around growth. And then in March of 20, everyone was worried how losses were going to be. So it just shows you. But as we were able to talk to investors about the reinsurance and how hedged it was, you saw that the stock price started to climb back towards book. We used that because of the uncertainty in the environment. We used that as an opportunity to raise more capital, right? I mean, we're in this business longer term. We're an insurance company. So we took any, you know, we felt like we could get through the great financial crisis given how we were structured. We weren't sure at the time if we could get through a greater financial crisis. And no one knew in April, in May of 2020. So we used that as an opportunity to strengthen our balance sheet. I would argue if we didn't have reinsurance, that would have been very difficult. It would have been very difficult to kind of predict the bottom. We were able to show investors kind of where the losses would be. And so, yeah, I mean, you're going to get those questions. How good can it get? It's pretty good. And I would say we are very pleased with the balance of the business. So when rates are down... what's going to happen when rates go down? Our yield's going to go down a little bit for sure, although higher for longer, longer may be a view. But say our investment yield goes down a little bit, persistency will certainly go down. The book's going to grow. We're going to end up doing a lot more NIW, probably the title side's a little bit more levered to lower rates. And rates are up. And when the rates are up, again, look where the persistency is, the higher investment yield. So I think we're well balanced. I would point out some of the mortgage services are in an equal position if you've seen some of their performance given the strength of their servicing portfolio. So yeah, there's always going to be things that you can point to, but I would say I would point to the balance of the portfolio and not get too caught up in if there is kind of slowness, does that really hurt the company longer term? I don't believe it does.

Got it. No, that's helpful. Interest rate buy downs and other programs that are being put in place to help with affordability, how are you thinking about those? Is that a factor in your pricing or not, I guess, either pricing or in your credit scoring?

Hey, good morning, Mihir. It's Chris. As far as the buy down activity, we're pretty consistent in the first quarter with the first quarter of last year. relative to the amount of buy-downs, and we'll call it the temporary buy-downs that we are seeing. I think from a performance standpoint, even from temporary buy-downs that have reset, we continue to actually be pleased with the overall performance of the temporary buy-downs as compared to our entire portfolio. From a pricing standpoint for us, I mean, don't forget these loans are underwritten to the gross rates. I'll call it to the gross coupon. So from an underwriting perspective, we're comfortable with the production. And then certainly from a pricing perspective, it really goes back to S&Edge and how we leverage the data, the credit data for the borrower themselves versus the rate on the note.

Okay, got it. And then just my last question, mortgage market size for the year, I guess the MI market size, and even, I mean, what are you hearing from originators as we enter this, you know, better housing list? seasonally better housing season here.

Yeah, I mean, I don't think you're going to remember historically, you know, except for certain periods, there's usually a bell curve to origination. So lower in the first and the fourth, and they kind of peak in the second and third. I don't think you're going to see much of a bump this year, just given where rates are and the lack of supply. I would say overall, I think the origination market that we're seeing from Fannie, MBAs, probably a little bit optimistic. And remember, some of that came from, you know, kind of the PAL pivot in the fourth quarter. And now, again, it's back to higher for longer. I think in terms of the NIW market, I would say 250-ish to 275. I see that as kind of the market, you know, for this year, which again, is fine. It just means persistency will probably stay a little bit more elevated, like we said in the script. But yeah, I'm not I would have thought, you know, depending where rates go, maybe later in the year, and it's obviously dependent, you know, kind of on the election and outcome, you're probably going to see more of a normalization in 20 and 25. And 2020 and 2021 were such an anomaly. You're seeing the impact of that on the 22, you know, the 23 and now the 24 kind of origination market.

Got it. Thank you. Thank you for taking my questions. Sure.

Your next question comes from a line of Bose George from KBW. Your line is open.

Hey everyone, good morning. Just have a couple of follow up questions. In terms of your cure rates, you guys in Exhibit K, you give the cumulative cure rate, you know, so back to the March 2023, I guess now is 91% of that is cured. Like, if you roll back further, so say, for example, March 2022, you know, what does that number look like? You know, where does that get to for those earlier loans?

Thank you.

Boze, thanks for the question. We don't have those numbers right at our fingertips, and, you know, probably, you know, Phil could follow up with you and Wei afterwards, but it's going to – You know, as we continue to grow out, we continue to have cure activity from all the vintages of defaults, and so they're going to be higher. They're going to be in the mid to upper 90s, but I don't have those numbers at my fingertips.

Okay. But I guess it's safe to say that they're coming in much better than your initial assumptions, you know, when you set your default to claim rates.

Yeah. So, you know, clearly we make our best estimates, but, you know, based on the favorable prior development we've been having, yeah, I think that's a fair statement.

Okay, great. Actually, that's all I had. Thanks a lot.

You're welcome.

That concludes our question and answer session. I will now turn the call back over to management for closing remarks.

Thanks, everyone, for joining. Nice questions from the analysts. I thought you guys did a great job, and have a great weekend.

This concludes today's conference call. Thank you for your participation.