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Essent Group Ltd. (ESNT)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 diluted EPS was $1.67 and total revenues were $311.83M; both modestly below Wall Street consensus (EPS $1.77*, revenue $317.1M*) driven by higher loss provision and seasonal default increases, partially offset by strong investment income . Results vs estimates: EPS miss of ~$0.10 and revenue miss of ~$5.3M (S&P Global)*.
  • Mortgage Insurance combined ratio rose to 33.9% (loss ratio 19.1%; expense ratio 14.8%) from 22.1% in Q2, reflecting higher provision for losses as defaults increased to 2.29% vs. 2.12% in Q2 .
  • Capital return accelerated: Board approved a new $500M share repurchase authorization through 2027; YTD through Oct 31, Essent repurchased 8.7M shares for $501M; quarterly dividend of $0.31 maintained .
  • Balance sheet/capital remains strong: PMIERs sufficiency ratio 177% (excess available assets ~$1.60B) and GAAP equity ~$5.74B; Moody’s upgraded IFS to A2 and debt to Baa2 in August; AM Best affirmed FSR A with stable outlook in October .
  • Management raised 2025 annual effective tax rate (ex-discrete) to ~16.2% from ~15.4% due to withholding taxes; near-term EPS impact likely small but persistent unless capital flows change .

What Went Well and What Went Wrong

What Went Well

  • Investment income remained strong: Q3 net investment income of $59.8M (3.89% pre-tax yield), supporting earnings quality amid seasonal loss uptick .
  • Insurance in force expanded: IIF reached $248.8B (+2.4% YoY), with persistency steady at 86% and weighted average FICO ~746, indicating durable portfolio quality and tailwind from rates .
  • Capital return and ratings momentum: New $500M buyback authorization, $501M YTD repurchases, dividend maintained; Moody’s upgrade and AM Best affirmation enhance funding and investor confidence .

Quotes:

  • “Our performance was driven by continued favorable credit trends and the benefits of the current interest rate environment on both portfolio persistency and investment income…” — Mark A. Casale, CEO .
  • “Essent continues to generate high quality earnings, while our balance sheet and liquidity remains strong.” — CEO, prepared remarks .
  • “PMIERs efficiency ratio was strong at 177% with $1,600,000,000 in excess available assets.” — CFO .

What Went Wrong

  • Provision for losses rose: Q3 provision was $44.9M vs $17.1M in Q2 and $30.7M in Q3 2024; default rate increased to 2.29% (seasonal), pressuring combined ratio and driving the modest EPS miss .
  • Revenue/earnings vs Street: Revenues $311.83M and EPS $1.67 were below consensus ($317.1M* and $1.77*), mainly from higher losses and slightly lower net premium rate (35 bps vs 36 bps in Q2) .
  • Effective tax rate step-up: 2025 annual ETR (ex-discrete) raised to ~16.2% from 15.4%, modestly reducing run-rate EPS absent offsetting actions .

Analyst concerns highlighted:

  • Severity trend: Q3 severity 78% vs 67% in Q2; management noted variability and that severity remains below reserve assumptions, but investors watch trajectory amid slowing HPA .
  • Ceded premiums volatility: Higher quota share (25%) and seasonal default/provision dynamics increase ceded premium variability quarter to quarter .

Financial Results

MetricQ3 2024 (oldest)Q2 2025Q3 2025 (newest)
Total Revenues ($USD Millions)$316.58 $319.14 $311.83
Diluted EPS ($)$1.65 $1.93 $1.67
EPS vs Consensus ($)$—$—$1.77* (miss: $0.10)
Revenue vs Consensus ($MM)$—$—$317.1* (miss: $5.3)

Values with * retrieved from S&P Global.

Margins (Mortgage Insurance)Q3 2024 (oldest)Q2 2025Q3 2025 (newest)
Loss Ratio (%)12.9 6.6 19.1
Expense Ratio (%)16.7 15.5 14.8
Combined Ratio (%)29.6 22.1 33.9
Segment Breakdown ($USD Thousands)Q3 2024 (oldest)Q2 2025Q3 2025 (newest)
Mortgage Insurance Revenues$284,401 $289,817 $282,555
Corporate & Other Revenues$32,177 $29,326 $29,275
Consolidated Revenues$316,578 $319,143 $311,830
MI Income Before Tax$216,029 $238,206 $204,202
Corp & Other Loss Before Tax$(8,455) $(7,031) $(5,043)
KPIsQ3 2024 (oldest)Q2 2025Q3 2025 (newest)
New Insurance Written ($MM)$12,513.7 $12,544.7 $12,233.3
Insurance in Force (end, $MM)$242,976.0 $246,797.6 $248,808.3
Default Rate (%)1.95 2.12 2.29
Annual Persistency (%)86.6 85.8 86.0
Net Avg Premium Rate (%)0.35 0.36 0.35
Net Investment Income ($MM)$57.34 $59.29 $59.80
PMIERs Sufficiency Ratio (%)189 176 177

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Effective Tax Rate (annual, ex-discrete)FY 2025~15.4% (prior) ~16.2% Raised
Dividend per ShareQuarterly$0.31 (Q2) $0.31 (Q3) Maintained
Share Repurchase AuthorizationMulti-year$500M (Feb 2025 plan; $260M remaining as of 7/31) New $500M authorization through YE 2027 Raised/Extended
Affiliate Quota Share (to Essent Re)2025–2026 NIW35% ceding prior50% ceding retro to 1/1/2025 Raised
Excess-of-Loss Reinsurance Coverage2025 & 2026 NIWN/A20% of eligible policies effective Jul 1 each year Initiated/Confirmed
OpEx (Company commentary)FY 2025$160–$165M range (Q2) No update in Q3; tracking priorMaintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Credit/defaults & severityQ2: Default rate 2.12%; provision $15.4M; severity 67%; seasonal pattern noted Defaults 2.29%; provision $44.9M; severity 78%; management sees variability; severity below reserving Seasonal uptick; higher severity; within reserves
Persistency & investment incomeQ2: Persistency 86%; NII $59.3M; new money yield ~5% Persistency 86%; NII $59.8M; new money yield ~5%; pre-tax yield 3.89% Stable tailwind
Capital & buybacksQ2: Active buybacks; valuation-sensitive; embedded value discussion New $500M authorization; 8.7M shares repurchased YTD/$501M; continued capital distribution Accelerated return
Tax rateQ2: No specific % disclosed; general commentary Raised ETR to ~16.2% from 15.4% due to withholding taxes Modest headwind
Reinsurance programsQ2: XOL for 2025/2026; quota share increased to 50% Continued use; note ceded premium seasonality and volatility from higher QS Ongoing optimization
Title businessQ2: Long-term horizon; levered to rates; no near-term earnings impact Performing in line; lender focus; incremental expansion Incremental build
Regulatory/underwriting guardrailsQ2: Emphasis on GSE DU/LP QC; limited credit competition FICO changes chatter but systems unchanged; guardrails intact Stable framework
AI/technology (EssentEDGE)Q2: Credit engine aids yield; basis point gains observed Tech efficiency gains; model benefits more as fairway widens; not reliant on FICO Ongoing enhancement

Management Commentary

  • “Our consolidated cash and investments as of September 30 totaled $6.6 billion with an annualized investment yield in the third quarter of 3.9%. Our new money yield in the third quarter was nearly 5%.” — CEO .
  • “At September 30, Essent Guaranty’s PMIERs efficiency ratio was strong at 177% with $1.6 billion in excess available assets.” — CFO .
  • “We have repurchased nearly 9 million shares for over $500 million… and a new $500 million share repurchase authorization that runs through year end 2027.” — CEO .
  • “Average loan size continues to increase… larger loans in default drive larger provisions; no concerning trends by geography.” — CEO (Q&A) .
  • “Severity continues to be well below what we’re reserving at.” — CFO (Q&A) .

Q&A Highlights

  • Defaults/severity: Analysts probed higher severity; management emphasized variability, seasonal dynamics, and reserves conservatism (severity below reserve assumptions) .
  • Ceded premiums and quota share: Questions on ceded premium levels; management flagged seasonality and higher quota share (25%) increasing volatility but broadly offset within economics .
  • Tax rate: Raised to ~16.2% due to withholding taxes on dividend flows; likely modest EPS friction tied to increased capital distributions .
  • Guardrails/credit standards: Despite discussions about FICO changes, GSE systems unchanged; QC repurchases constrain origination expansion; Essent’s credit engine largely score-agnostic .
  • Capital upstreaming and uses: Plan to continue upstreaming dividends from MI subsidiary; buybacks preferred unless valuation shifts, with special dividends a possibility if stock re-rates .

Estimates Context

  • Q3 2025 consensus vs actual: Primary EPS Consensus Mean $1.7719* vs actual $1.67 (miss); Revenue Consensus Mean $317.09M* vs actual $311.83M (miss). Values retrieved from S&P Global.
  • Implications: Slight estimate downtick risk near term given higher loss ratio and ETR step-up; offsetting supports include strong persistency, stable net premium yield, and elevated investment income .

Key Takeaways for Investors

  • Near-term EPS headwind from seasonal losses and higher ETR, but core earnings quality remains supported by persistency and investment income .
  • Capital return is a clear catalyst: new $500M authorization and consistent buybacks should support per-share metrics and book value accretion .
  • Credit quality remains robust; default increases appear seasonal with reserves adequate; watch severity trajectory amid mixed HPA .
  • Reinsurance stack (XOL, ILNs, quota share at 50%) mitigates tail risk and smooths capital requirements; expect ceded premium variability intra-year .
  • PMIERs/ratings strength (Moody’s upgrade; AM Best affirmation) enhances financial flexibility and supports continued distributions .
  • Operational discipline visible in MI expense ratio improvement vs prior year; title remains rate-levered option value with limited near-term P&L impact .
  • Watch items: Default rate severity, net premium rate stability, and potential regulatory changes at GSEs; management indicates guardrails remain firm for now .

Values with * retrieved from S&P Global.