Thank you for standing by. At this time I would like to welcome everyone to today's Essent Group Limited Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Phil Stefano with Investor Relations. Phil, please go ahead.

Thank you, Greg. 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 Guaranty. Our press release, which contains Essent's financial results for the fourth quarter and full year 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 GAAP 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 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 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 fourth quarter and full year 2024 financial results. Strong credit quality and resilience in the housing and labor markets continue to drive credit performance, while interest rates remain a tailwind for persistency and investment income. Although mortgage origination activity remains below historical levels, we anticipate that home buying demand is merely being postponed given the level of rates and affordability. While there is always uncertainty in the economic environment, given the strength of our balance sheet and our Buy, Manage & Distribute operating model, we believe Essent is well positioned for a range of economic scenarios. And now for our results. For the fourth quarter of 2024, we reported net income of $168 million compared to $175 million a year ago. On a diluted per share basis, we earned $1.58 for the fourth quarter compared to $1.64 a year ago. For the full year, we earned $729 million or $6.85 per diluted share, while our return on average equity was 14%. As of December 31, our book value per share was $53.36, an increase of 11% from a year ago. As of December 31st, our US mortgage insurance in force was $244 billion, a 2% increase versus a year ago. Our 12 month persistency on December 31 was 86%, down about 1 point from last quarter, while nearly 60% of our in force portfolio has a note rate of 5.5% or lower. Although persistency has likely peaked, we continue to expect that the current level of mortgage rates will support elevated persistency in the near term. Credit quality of our insurance in force remains strong, with a weighted average FICO of 746 and a weighted average original LTV of 93%. Credit performance in the fourth quarter primarily reflected both…

Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the fourth quarter, we earned $1.58 per diluted share compared to $1.65 last quarter and $1.64 in the fourth quarter a year ago. Our U.S. mortgage insurance portfolio ended 2024 with insurance in force of $243.6 billion, an increase of $669 million from September 30th and an increase of $4.6 billion or 2% compared to $239.1 billion at December 31st, 2023. Persistency at December 31st, 2024 decreased to 85.7% compared to 86.6% at the end of the third quarter. Net premium earned for the fourth quarter 2024 was $244 million and includes $16.2 million of premiums earned by Essent Re on our third party business and $16.6 million of premiums earned by the title operations. The average base premium rate for the U.S. mortgage insurance portfolio for the fourth quarter was 41 basis points and the average net premium rate was 35 basis points in the fourth quarter of 2024, both consistent with last quarter. We expect that the average base premium rate for the full year 2025, will be largely unchanged from the fourth quarter rate of 41 basis points. Consolidated net investment income for full-year 2024 was $222.1 million compared to $186.1 million for the full year 2023, due to growth in the investment portfolio and investing at higher yields than the book yield of our existing portfolio. Net investment income for the fourth quarter was relatively flat to the prior quarter. Credit performance for the fourth quarter was affected by defaults in areas impacted by Hurricanes Helene and Milton. The provision for losses and loss adjustment expense on the U.S. mortgage insurance portfolio was $37.2 million in the fourth quarter of 2024 compared to $29.8 million in…

Thanks, Dave. In closing, we are pleased with our full-year 2024 financial results, which continue to reflect the strength of our franchise. Our high quality portfolio combined with resilience in housing and employment continues to translate to strong credit performance, while our business continues to benefit from the impact of rates on persistency and investment income. Our strong operating performance continues to generate excess capital, which we will approach in a balanced manner by maintaining balance sheet strength, preserving optionality for strategic growth opportunities and optimizing shareholder returns over the longer term. Looking forward, we remain committed to our Buy, Manage and Distribute operating model and believe that Essent remains well positioned to deliver attractive returns for our shareholders. Now let's get to your questions.

Thanks, Mark. [Operator Instructions] Okay, looks like our first question comes from the line of Bose George with KBW. Bose, please go ahead.

Hey, everyone. Good morning. Actually, first on title, is your expectation for 2025 that title results will be similar to '24? And was there anything unusual in title this quarter, just, you know, the provision was up and the OpEx was up?

Hey Bose, good morning. I would say with title for '25, I would expect more of the same. I think we have a cost structure and we had said earlier, right, it would take 12 to 18 months to stand it up. We're right at 18 months. It's relatively well stood up. It's just a matter of -- I kind of look at some of that, you know, partial the cost, the drag is kind of an option cost for refinance to come back and the rates just haven't come back like I said in the script, we're levered to rates, but we did sign-up one pretty large lender last year. So we're really carrying capacity for that lender and there's a cost of that. So I would expect it to be kind of more of the same. Again, longer term, it's a call option and we do believe longer term, it will be supplemental earnings relative to Essent Re and I think we're still -- but we continue to make progress there. But again, I think when rates come down, we should see better results. In the fourth quarter, Bose, it was more around the provision, excess provision that we've normally had and that was really just some of the cleanup from the underwriter that we bought and as some other claims came due. So a little bit of fourth quarter cleanup there.

Okay, great. Thanks. And then actually the hurricane related default count that you gave, the 2,219, was that the default set in the inventory at quarter end or had some of those cured by quarter end?

Yes, they were in there at quarter end. So like we said in the script, I think most of the increase of defaults were the hurricane. So if you take out 2.25 or 2.27 default rate, you take out the default, it is probably closer to 2%.

Okay, great. Thanks.

Sure.

All right. Thank you, Bose. And our next question comes from the line of Terry Ma with Barclays. Terry, please go ahead.

Hey, thank you. Good morning, everyone. Maybe just a follow-up on the defaults. So I kind of strip that the 2,000 or so added new notices in the quarter. New notices are actually down sequentially, which is kind of counter to typical seasonality. So kind of any color on kind of what's going on there?

Hey, Terry, it's Dave Weinstock. Yes, you know, there are some -- clearly some ebbs and flows to the fall patterns. You're right that in general, we do see an uptick in the second half of the year for sure and somewhat a little bit in the fourth quarter. Not -- there wasn't anything that we read into it necessarily. I would say on the whole, as we looked at 2024, in general, 2024's default pattern was a little bit favorable mostly every quarter to prior historical quarters. So I think what we really saw in the fourth quarter was maybe a little bit more of the same.

Got it, got it. Okay. And then if I look at the default rate, ex-hurricanes, kind of the 2% you just quoted. The year-over-year change kind of decelerated compared to last quarter. I'm just curious, have we kind of reached a point with kind of vintage seasoning where you should get -- start to get more of a steady pace of increase for the default rate or is that kind of too early to call right now?

Yes. I think it's too early to call. And I think just big-picture, Terry, I think given the seasoning in the book and just the just the average age of the book, you're looking at historically pre-COVID was 18 months, the book kind of continued to turn over. Because of kind of post-COVID, this kind of second cycle, COVID was the first cycle, right, low rates, tons of origination, a lot of refinancing, portfolio turning over, kind of, in the middle of '22 when rates shot up, we've kind of been frozen and the book has really lengthened out in like 33 months as of 32, 33 months. So you're starting to really -- we're getting that extra year of premiums, which we've enjoyed over the past couple of years. But I think -- just think about it, if the more borrowers are outstanding for longer periods of time, it's kind of natural that a few of them that stick around longer will default. So we're pretty -- it's pretty much in our expectations, but it wouldn't surprise me if the default rate kind of continues to go up somewhat during '25. And I think you're starting -- I don't -- I wouldn't be surprised if the whole industry sees it and you know maybe we're different, but I think when we see it kind of to go up to the 2%-ish or 3% range wouldn't surprise me at all.

Got it. Okay. Helpful. Thank you.

Thank you, Terry.

And our next question comes from the line of Rick Shane with JP Morgan. Rick, please go ahead.

Thanks for taking my questions this morning. Look, there's been some -- a bunch of questions about hurricanes. I suspect we're probably going to get questions next quarter about fires and obviously, there are short-term implications on the model. But I'm curious, Mark, you know, in many of the high cost regions of the country, insurance is now becoming very expensive or not necessarily even available. Two things, first of all, how do you guys monitor whether or not borrowers are in fact insured? And if insurance really becomes increasingly problematic, how do you think about that in terms of pricing for risk and considering affordability?

Yes, that's a -- that's a really good question. It's been a topic recently. It's for a while internally. One, I think if they -- if they have a mortgage, they're required to have homeowners. So if somehow they're dropped, they'll get force placed. So we don't worry about them having the insurance should something happen. So I think we're pretty well covered there. And remember, and you know this, Rick, and I'm sure a lot of others do, we're not really on the hook until the home is repaired. So there's that kind of layer of protection we have. And that's why we've seen historically, a lot of the defaults in the Hurricane regions tend to curate at a pretty high rate. Again, past performance doesn't predict the future, but that's been pretty much the scenario we've had for past hurricanes. In terms of the longer term impact of homeowners insurance, yes, I think it's going to continue to be an issue in certain parts of the country. Just remember when some of the real coastal regions or even where the wildfires are, these are high cost areas, Rick. It's not a lot of mortgage insurance. So we don't really -- we're not that exposed. I think they're the ones that are most susceptible to these significant increases in homeowners. But even for normal folks, you'll see it go from like 600 a year to 1,200, it's significant. It's significant from a borrower perspective. If you kind of like raise above it kind of big picture from an MI perspective, it's like maybe a point in DTI. So it's -- like we think about it a lot, but I'm trying to put it in perspective for investors, that -- the assets and added -- it's an added cost. And I think it just goes in general, Rick, to kind of our theme that with affordability of going up and maybe staying up, the amount of disposable income that borrowers are going to have to use from -- or allocate from mortgages, I just think is going to increase. I mean, you live in California, it's always been that way in California. For 30-years, borrowers have allocated more of their disposable income to housing. Hasn't really been that -- hasn't been that way for the rest of the country. And I just think homeownership rates will continue to stay where they are, kind of in the mid to upper 60s. I think borrowers are going to allocate more of their disposable income. I don't think they're going to have a choice if they want to be homeowners. So hopefully, that gives you a little bit of big picture context.

It does. And again, look, I know you think in five and 10 year horizons. Are you concerned that it has a chilling effect on HPA, which doesn't -- more broadly does impact you guys?

You know I don't -- HPA has gone up so much, Rick, in the past five years that I don't think it's okay for it to pause for a while to be honest. I think again for it to be flattish and allow -- and this kind of gets -- allow kind of incomes to catch up, which is kind of part of my longer term theme for Essent. And I alluded to it earlier in my response to Terry, but there's kind of like three cycles, right? If you just think about recently, we had the COVID cycle, super low rates, lots of origination and it was an anomaly, right? We've never really seen rates come down that quickly and stay that way just in that scene, maybe we saw it kind of in 2003 was probably the last time we saw such significant refinance. And then kind of rates shot up in mid '22. So it's kind of like the new book started, right? So we have high rates, HPA is pretty high. So affordability has been an issue. And it's clearly been an issue for the past up and -- we're still into it. I think once -- and that's been an anomaly, right? We've never seen a housing market. I read last week that typically 4 million borrowers or 4 million people move every year last year was 2.7 million. So we're still kind of in this housing -- I guess it's a rut is a good way to say it, but we're going to come out of it. And when we do and I think how we come out of it is, I don't know if rates come down significantly. I think having HPA remain relatively flattish and allow time for incomes to increase, you're just going to see -- you are going to see it happen naturally, right? Families continue to form, they need to move into bigger houses, people change jobs, more of that natural activity is going to come. And I think when we enter in that cycle, I think you're going to see renewed growth in our business. I really do. I can't predict when that's going to happen. And I don't know if it happens in 2025. I think it takes a while for it to play out. But again, when you think bigger picture for the industry, right, around 1 trillion and half of insurance in force, it wouldn't surprise me and it's really only grown maybe 2% last year, 2% the year before. I think we're in a pause. And I do think when these forces come together, I think it will be a bit of a tailwind for the business.

Got it. Hey, Mark, I always appreciate the answers. Thank you so much.

Welcome.

Thanks, Rick. And our next question comes from the line of Doug Harter with UBS, excuse me. Doug, please go ahead.

Thanks. Mark, you guys increased the dividend, increased the share repurchase. And given what you just said that we might be in kind of a pause for industry insurance in forced growth, how are you thinking about the pacing of capital return in the near-term versus opportunities either in mortgage insurance or elsewhere to deploy capital?

Yes, it's a good question, Doug. And I think there is -- I think we're entering into this year a decent opportunity for us to return capital and become a little bit more capital efficient, right? When you kind of combine the pause and growth, the buildup of capital we've continued to build capital up over the past few years. So even though rates have been high, credit has been benign, persistency has been good and we've had this nice tailwind from investment income. And I think mentioned in the script like $850 million of cash coming in the door. So it's been a strong operating performance and we've really built up capital level. So add that and put into the fact that we feel pretty confident around credit in the shorter term. And I know it's your job and we have to think through kind of default rates and where they're going. We do think again I've alluded to it earlier for them to continue to move up to 3% if they get to that level. It doesn't -- won't surprise me and we won't get super kind of concerned about it. It's kind of well within our expectations and add in kind of our PMIERs cushion, right? And that's the thing that always -- that's our biggest concern, Doug, is kind of the event, right? We are -- and I know a lot of our analysts are specialty finance analysts. But at the end of the day, we really are more of an insurance company. I know specialty is mortgage, but the financial performance in terms of premiums build up, paying claims, it's much more of an insurance company. They don't have a lot of the liquidity risk that a specialty finance company has. You know our liquidity…

Great. Appreciate it, Mark.

Thank you, Doug. And our next question comes from the line of Geoff Dunn with Dowling & Partners. Geoff, please go ahead.

Thanks. Good morning, guys. Dave, just confirm, you said a 15.5% tax rate for this year?

Yes, that was -- that's our current estimate for 2025, yes.

Can you -- I'm surprised at how low it is with the new minimum tax. Can you walk through the mechanics of that and what kind of credits maybe you're assuming to get to that level?

Yes, so -- and actually Geoff, it's actually up a little bit from what our full year was for 2024. To the extent that you're thinking about Bermuda tax, and I know there's been a lot of you know -- there's been some developments there that are potentially coming. And I know there are those -- there are definitely some Bermuda based companies that have recorded an economic transition adjustment. And I think that's being looked at and how much of that can be deductible and the like. To cut through that, we don't have one of those. We didn't record an economic transition adjustment. We have a very limited international presence and there is an international presence exemption related to the Bermuda income tax that really exempts us from tax until 2030. So when you look at that, that's why on the whole, we're basically saying for 2025, we're going to be around the same place we were really in 2024.

Got you, okay. And then do you have the account for the Q3 new notices of hurricane affective notices that came in?

Yes, you know Geoff, we didn't actually -- the hurricanes hit really late in September and beginning of October. We didn't really think any of those defaults that came in the third quarter were hurricane related defaults, really -- we really thought everything was really in the fourth quarter.

Got you. And then lastly, could you repeat the buyback info for the quarter? I just missed that when you ran through the numbers.

Yes, in the quarter, we repurchased -- I got it right here, we repurchased 1.2 million shares for $66 million in the fourth quarter. And in January, we repurchased nearly 1 million shares for $52 million.

Perfect. Thank you.

Sure. Great.

Thanks, Geoff. [Operator Instructions] And our next question comes from the line of Eric Hagen with BTIG. Eric, please go ahead.

Hey, thanks. Good morning, I appreciate you guys taking my question. Right, so it feels like the non-bank lenders are laser focused on bringing down origination and servicing costs, managing their own prepayment risk through strong recapture and a lot of that improvement in cost and scale already seem to be showing up in the refi behavior when rates are dropping? Do you guys have any perspective on how further growth of these non-banks and the lower cost of capital could drive prepay behavior, specifically for the high LTV cohort of borrowers out there? And then how that kind of dynamic maybe traces back to how you guys price risk?

Yes, clearly, it's in kind of our duration assumptions when we think about it. You know when we price risk on the front end. I think it's an interesting point, Eric, it's nice to have you back on the calls. And we -- you are correct in terms of how efficient the larger originators have become on refinancing. And you can imagine maybe even with some of the potential AI tools out there that they could become even more efficient, but they're brutally efficient. They have been for a while. That's the one thing to keep in mind when you -- they have been for a while. And so I think when we think about it, I think it's still rate dependent. I mean so if rates do come down, would we see more kind of MI roll off the books? Absolutely. And again, but I think it will be, as I said earlier, be replaced by rates come down, it -- following up on my answer to Rick, it probably brings in that new cycle a little bit quicker because I think it will unlock a lot of purchase activity too. So I don't know if that exactly answers your question, but I do think kind of if it really is rate dependent for these guys. I know they're brutally efficient, but you still need rates to kind of come down. So -- and we saw that I think that was the example I think we might have talked about it before, but there was kind of that refinance flash in October and we saw -- it's even reflected in our numbers, I think our refinance percentage was 14-ish in the fourth quarter. So it was relatively higher. And we saw a bit on title. We didn't take advantage of it as it wasn't long enough, but I agree with you when it comes, they react very quickly.

Great perspective. I appreciate you guys. Thank you.

Thank you, Eric. And it looks like our final question today comes from the line of Bose George with KBW, he's back. Bose, please go ahead.

Great. Thanks. Just had a couple of modeling related questions. Did you guys give guidance for expenses for 2025?

No, we didn't Bose, because we're moving to the segment reporting, which you guys will see in the K disclosure. So it's going to be more MI and then kind of other segments. So we didn't -- we'll be able to kind of -- once you see the numbers, we'll be able to potentially give you some MI type guidance. But big picture if you were to look at last year's numbers it will be relatively flattish like when you cut through it, but we didn't --- we wanted to wait until the K was out and you guys had a good chance to kind of look through it.

Okay, great. And then actually just one more on the investment portfolio. Like what's the incremental yield versus the current yield and actually just a decline quarter-over-quarter is a little surprising. So kind of what drove that?

Yes. It's -- I know it's a little surprising, but we've really kind of reposition -- we're repositioning the book. So we moved and we've started that in the past, I won't say three or four months. So we're moving out of kind of the shorter term cash back into kind of more ABS and corporate credit. It's kind of back to where we were before kind of moving back to our normal portfolio. So there's a little bit of that rolling off. It was two year treasuries at really high rates kind of rolling off. So I would think -- I would this year, Bose, just in terms of kind of the rate, I think it stays in that same neighborhood longer term as -- depending if the yield curve stays where it is, it wouldn't surprise us to see a bill above 4, but I don't think that's going to happen in 2025.

Okay, great. Thanks a lot.

Sure.

Thanks Bose. And there are no further questions. So I will now hand it back to management for closing remarks.

I'd like to thank everyone for joining us. And again, for the second time in seven years, I'd like to congratulate our Philadelphia Eagles for winning the Super Bowl and have a great weekend and go birds.