Essent Group Ltd. (NYSE:ESNT) Q2 2025 Earnings Call Transcript

Essent Group Ltd. (NYSE:ESNT) Q2 2025 Earnings Call Transcript August 8, 2025

Essent Group Ltd. beats earnings expectations. Reported EPS is $1.93, expectations were $1.68.

Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Ltd. Second Quarter Earnings Call. [Operator Instructions]. Thank you. I would now like to hand the conference over to Phil Stefano, Investor Relations speak. Please go ahead.

Philip Michael Stefano: Thank you, Bella. 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 second quarter of 2025 was issued earlier today and is available on our website at essentgroup.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 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 19, 2025, 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.

Mark Anthony Casale: Thanks, Phil, and good morning, everyone. Earlier today, we released our second quarter 2025 financial results which continue to benefit from favorable credit performance and the impact of higher interest rates on persistency and investment income. Our second quarter performance demonstrates the strength of our business model and the current macroeconomic environment. We believe that our buy, manage and distribute operating model uniquely positions Essent within a range of economic scenarios to generate high-quality earnings. Our outlook on housing remains constructive over the longer term as we believe that demographics will continue to drive demand and provide home price support. Over the last several years, demand has exceeded supply resulting in meaningful home price appreciation and affordability challenges.

A byproduct that these affordability issues is that higher creditworthy borrowers are being qualified for mortgages, as evidenced by the weighted average credit score of our new business. Also, the increase in home values has resulted in further embedded equity within our insured portfolio, which provides a level of protection and reducing the probability of loans transitioning from default to claim. And now for our results. For the second quarter of 2025, we reported net income of $195 million compared to $204 million a year ago. On a diluted per share basis, we earned $1.93 for the second quarter compared to $1.91 a year ago. On an annualized basis, our return on average equity was 14% in the quarter. As of June 30, our U.S. mortgage insurance in force was $247 billion, a 3% increase versus a year ago.

The credit quality of our insurance in force remains strong, with a weighted average FICO of 746 and a weighted average original LTV of 93%. Our 12-month persistency on June 30 was 86%, flat from last quarter. While nearly half of our in-force portfolio has a note rate of 5% or lower, we continue to expect that the current level of mortgage rates will support elevated persistency in the near term. On the Washington front, our industry continues to play a vital role in supporting a well-functioning and sustainable housing finance system. We believe that access and affordability will continue to be the primary focus in D.C. Essent is supportive and believes that our industry is very effective in enabling homeownership for low down payment borrowers while also reducing taxpayer risk.

During the quarter, Essent Re continued writing high-quality GSE risk share business and earning advisory fees through its MGA business with a panel of reinsurer clients. As of June 30, Essent Re had risk in force of $2.3 billion for GSE and other risk share. Essent Re achieves both capital and tax efficiencies through its affiliate quota share with Essent Guaranty and allows us to leverage Essent’s credit expertise beyond primary MI. It also provides a valuable platform for potential long-term growth and diversification of the Essent franchise. Essent Title remains focused on expanding our client base footprint and production capabilities in key markets. We continue to maintain a long-term horizon for this business and given persistent headwinds of higher rates, we do not expect Title to have any material impact on our earnings over the near term.

Our consolidated cash and investments as of June 30 totaled $6.4 billion, with an annualized investment yield in the second quarter of 3.9%. Our new money yield in the second quarter was nearly 5%, holding largely stable over the past several quarters. We continue to operate from a position of strength with $5.7 billion in GAAP equity, access to $1.4 billion in excess of loss reinsurance and a PMIER efficiency ratio of 176%. With a trailing 12-month operating cash flow of $867 million, our franchise remains well positioned from an earnings, cash flow and balance sheet perspective. Earlier this week, we were pleased that Moody’s upgraded Essent Guaranty’s insurance financial strength rating to A2 and Essent Group’s senior unsecured debt rating to Baa2.

We believe these actions reflect our consistent strong results, high-quality insured portfolio, financial flexibility and the benefits of our comprehensive reinsurance program. Our capital strategy is to maintain a conservative balance sheet, withstand a severe stress and preserve optionality for strategic growth opportunities. We continue to believe that success in our business is best measured by growth in book value per share as we look to optimize returns over the long term. In addition, our strong capital position and slowdown in portfolio growth allows us to be active in returning capital to shareholders. With that in mind, I am pleased to announce that our Board has approved a common dividend of $0.31 for the third quarter of 2025. Further, year-to-date through July 31, we repurchased nearly 7 million shares for approximately $390 million.

Now let me turn the call over to Dave.

David Bruce Weinstock: Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the second quarter, we earned $1.93 per diluted share compared to $1.69 last quarter of $1.91 in the second quarter a year ago. My comments today are going to focus primarily on the results of our Mortgage Insurance segment which aggregates our U.S. mortgage insurance business and the GSE and other mortgage reinsurance business at our subsidiary, Essent Re. There’s additional information or in corporate and other results an exhibit of the financial supplement. Our U.S. mortgage insurance portfolio ended the second quarter with insurance in force of $246.8 billion, an increase of $2.1 billion from March 31 and an increase of $6.1 billion or 2.5% compared to $240.7 billion at June 30, 2024.

Persistency at June 30, 2025, was 85.8% and essentially unchanged from the first quarter of 2025. Mortgage Insurance net premium earned for the second quarter of 2025 was $234 million and included $13.6 million of premiums earned by Essent Re on our third-party business. The average base premium rate for the U.S. mortgage insurance portfolio for the second quarter was 41 basis points at the net average premium rate was 36 basis points, both consistent with last quarter. Our mortgage insurance provision for losses and loss adjustment expenses was $15.4 million in the second quarter of 2025 compared to $30.7 million in the first quarter of 2025 and a benefit of $1.2 million in the second quarter a year ago. At June 30, the default rate on the U.S. mortgage insurance portfolio was 2.12%, down 7 basis points from 2.19% at March 31, 2025.

While we continue to observe a decline in the number of defaults associated with Hurricanes Helene and Milton during the second quarter due to cure activity, we made no changes to the reserve for hurricane-related defaults as this amount continues to be our best estimate of ultimate losses to be incurred for claims associated with those defaults. Mortgage Insurance operating expenses in the second quarter were $36.3 million and the expense ratio was 15.5% compared to $43.6 million and 18.7% in the first quarter. As a reminder, in April, we entered into 2 excess of loss transactions covering our 2025 and 2026 new insurance written, effective July 1 of each year with panels of highly rated reinsurers. In addition, in April, ceding percentage of our affiliate quota share with Essent Re increased from 35% to 50%, retroactive to NIW starting from January 1, 2025.

At June 30, Essent Guaranty’s PMIERs efficiency ratio was strong at 176%, with $1.6 billion in excess available assets. Consolidated net investment income increased $1.1 million or 2% to $59.3 million in the second quarter of 2025 compared to last quarter due primarily to a modest increase in the overall yield of the portfolio. As Mark noted, our total holding company liquidity remains strong and includes $500 million of undrawn revolver capacity under our committed credit facility. At June 30, we had $500 million of senior unsecured notes outstanding and our debt-to-capital ratio was 8%. During the second quarter, Essent Guaranty paid a dividend of $65 million to its U.S. holding company. As of July 1, Essent Guaranty can pay additional ordinary dividends of $366 million in 2025.

At quarter end, Essent Guaranty’s statutory capital was $3.7 billion, with the capital ratio of 9.2:1. Those of statutory capital includes $2.6 million of contingency reserves at June 30. During the second quarter, Essent Re paid a dividend of $120 million to Essent Group. Also in the quarter, Essent Group paid cash dividends totaling $3.9 to shareholders, and we repurchased 3 million shares for $171 million. In July 2025, we repurchased 1 million shares for $59 million. Now let me turn the call back over to Mark.

Mark Anthony Casale: Thanks, Dave. In closing, we are pleased with our second quarter financial results as Essent continues to generate high-quality earnings while our balance sheet and liquidity remains strong. Our outlook for housing remains constructive over the long term, and we believe Essent is well positioned to navigate the current environment given the strength of our buy, manage and distribute operating model. Our strong earnings and cash flow continue to provide us with an opportunity to balance investing in our business and returning capital to shareholders. We believe this approach is in the best long-term interest of Essent and our stakeholders, while Essent continues to play an integral role in supporting affordable and sustainable homeownership. Now let’s get to your questions. Operator?

Q&A Session

Operator: [Operator Instructions] And your first question comes from the line of Terry Ma with Barclays.

Terry Ma: I wanted to ask about home prices and your expectations going forward. To the extent home prices kind of trend negative, how do you think about pricing on a go-forward basis? And then second, how would you feel about the more recent vintages that the industry is underwritten, which has seen just less home price appreciation overall?

Mark Anthony Casale: I think on home price appreciation — where do we see home prices going? Well, it really depends down at the MSA level. So I mean, we have a pretty detailed forward-looking model across all of the MSAs. Puts a lot of — I would say the driving factors are clearly month supply, recent home price appreciation and job growth, right? Those are kind of 3 factors, if you just kind of boil it down to a local community. And I think there, yes, we see home prices going up in certain areas still because of the lack of supply. Other areas, we think there’s going to be some weakening, and we’ve thought that for a while, and it depends on the extent of it 5-ish, 10-ish percent maybe in certain markets. I think when we take a step back, that’s actually pretty good.

It’s healthy. Some of the markets have really increased rapidly, I think almost a 50% increase over a few year period. Income growth still at 3%, 4%. And then you had a doubling of rate — that’s why you’ve seen such kind of slowdown in housing, right? We’re kind of coming out of that. You’ve heard me say it before the COVID bubble, so to speak, with low rates and high demand. And we’re kind of on the second leg of that. So I think coming out of that, if you think of just affordability when it becomes kind of normalized again, you’re going to need a mix of job growth, HPA kind of flattening out or decreasing in certain areas and clearly, a little bit of relief on rates, right? And that’s — and you can almost draw the math up is depending on where your belief is on rates.

So I think, again, I think in certain markets for home prices to come down, I think that’s healthy for borrowers. You heard me say it in the script. I mean there’s a big issue. There’s a big push in D.C. around affordability, there’s a big push with our lenders as it should be. It’s very difficult to get a mortgage. And especially when you think of the first time home buyer is 38 years old when historically, it’s in the low 30s. That tells you right there that folks are having trouble getting home. So anything that kind of help affordability, if that means HPA is going down a little bit. That’s fine. I look at the embedded equity in our portfolio. I’m not particularly worried. Yes, you said the recent vintages. I would say, sure that we’ve always said they’re probably more exposed but they’re pretty normal, right?

So if you think about historically, Terry, kind of on average, kind of, let’s say, before COVID and you looked at our portfolio, it was probably 81-ish, 82% mark-to-market. It’s below that today. So assuming it gets back to that level, that’s the normal business. So we’re not particularly concerned kind of around that. In terms of new business, we’ve always priced differently. So we kind of have little add-ons for what we’ll call a market of focus. And that, again, has to be — it’s not just HPA rose a lot, puts a market of focus for us. If there’s still underlying strong income growth and kind of lack of supply, that kind of — we’ll probably like that market. And if you just think about all of our markets in general, if you go down to the MSA level, and you’ll hear about Cape Carol is in The Wall Street Journal and you should stay away from it.

The default rates in that area for us are pretty similar to the rest of our portfolio. I want to say it’s a touch higher. Go to Austin, our default rate is actually lower than the overall portfolio. So you have to be careful at kind of trying to look at the industry from a 30,000-foot level. I think when you look at individual Essent, I think, continually the returns are there. And obviously, when you think about how — what we’re doing on the capital side, I think we’re probably a pretty good sense of where our view around credit.

Terry Ma: Got it. Super helpful. And I guess maybe on just credit for the quarter. New defaults were up 9% year-over-year. The pace of increase has kind of decelerated markedly in the last few quarters. It seems like it’s pretty consistent across the MIs that I cover. So I guess any color on the makeup of new defaults that you’ve seen in the last quarter or 2? And I guess, what’s the outlook there?

Mark Anthony Casale: Yes. I mean, again, new defaults, nothing surprising. I mean, very consistent with other quarters. And just again, from an investor standpoint, you just have to understand that’s really the — we’re starting to get back to probably the normal seasoning pattern around the faults where you see it kind of decrease in the first half of the year and tends to pick up a little bit in the second half of the year. So there’s kind of the normal seasoning that folks should be aware of, but it happened last year and it seemed to catch everyone by surprise that our default seasons. And then now they’re kind of — they decreased in the first half of the year. But I think you’ll see that normal seasoning big picture. You know, Terry, again, it’s 2-ish point was at 2.12% default out of roughly 811,000 or 812,000 loans that we have.

So again, it ebbs and flows a little bit, but I think big picture, given the embedded equity in the portfolio, having some of those even if they become defaults transitioning, the claim depending on the vintage, it’s probably in a lower probability side. So again, I think from a credit standpoint, picture, we feel pretty good from that first loss perspective.

Operator: And your next question comes from the line of Bose George with KBW.

Bose Thomas George: On the buybacks, would you characterize the pace of your buybacks this year as opportunistic? Or is there any change in how you’re thinking about excess capital, which is obviously built quite a bit over the last couple of years?

Mark Anthony Casale: It’s a little bit of both, Bose. I think we’ve always — I think we kind of have — we are valuation sensitive around the buyback. So we kind of have a grid that we execute across. And it changes quarter-to-quarter depending on where we think credit is. Are there any opportunities to invest the cash? Pretty high bar given the returns in the core business. And to your point, we said before we have a retained and invest mentality. Well, we haven’t really invested anything in a couple of years. So we’ve retained a lot. So it’s a little bit of — we have a lot of buildup of excess capital. We like where the valuation is. We think it’s really good returns to the shareholders. So it’s a good use of proceeds and kind of given what we did in July.

I wouldn’t expect that to change for the remainder of the year. I wouldn’t be surprised if it doesn’t change, given what we’re looking at and we’ll have something else. It’s probably going to be in an investor deck, we’ll put out next week around kind of the embedded value of the portfolio. One of our peers did it a couple of years ago and stopped doing it, but it’s a really interesting kind of slide that I think it’s important for analysts and investors to take a look at. And if you think about — it will give you some context for how we think about the company, Bose. I mean with roughly $5.7 billion of capital that we have today, that’s roughly where the stock trades in terms of a market cap. If you look — it doesn’t really give any credit meant for the what — roughly $245 billion insurance in force we have, earns 40 basis points in yield, and you can kind of predict or you can assume a certain combined ratio over 4 to 5 years, discounted back.

Take a look at the investment portfolio, $6 billion, $6.5 billion yielding, close to $4 million, a lot of embedded value in the investment portfolio, Bose, that frankly wasn’t there 3, 4 years ago. So when you look at that number, you can be — and you can pick whatever discount rate that you like, it’s probably $15 to $20 in terms of stock, in terms of the valuation, additional book value. So embedded book value, and that doesn’t give us — that ignores any credit for being a platform or a franchise. It’s one of 6 in the country that offers low down payment borrowers to the top lenders back to the GSEs. So again, just big picture. I don’t — it’s a slide, and I think it’s something just for investors to be aware of. And I think it’s something we’re going to start thinking through and discussing with investors, it’s pretty true for all of our competitors too.

So it’s not just an Essent only thing. And I think it deserves a little bit more of a spotlight. So I think when you put in the context of that, and again, given where the valuation is, we feel comfortable buying shares, a healthy amount of shares back at these prices.

Bose Thomas George: That’s great. Very helpful. And then just one follow-up on the buybacks. So what was the dollar amount that was spent just during the second quarter?

David Bruce Weinstock: Bose, it’s Dave Weinstock. So we purchased 3 million shares at $171 million in the second quarter.

Operator: And your next question comes from the line of Doug Harter with UBS.

Douglas Michael Harter: Mark, just I guess following up on that embedded value and the buyback. How are you thinking about sizing it, what are the limitations of kind of cash flow up to the holding company? And just how do you think about holding back for opportunities that may or may not present themselves versus kind of buying back today?

Mark Anthony Casale: No, it’s a good question. I think there’s clearly a limit, right? I mean — and we have — we get cash back to the group 2 ways, obviously, through U.S. and holdings, which is the core. So we’ll dividend it up from Guaranty, up to holdings and we have to get it to Group then we have Essent Re. So as we tended to use a little bit more Essent Re recently, it’s a little bit more tax efficient, Doug. But there is a limit. So when you think about kind of payout type ratios, I think 100 is probably — is kind of the max just from kind of how the cash moves through the system, not saying we would do that. But if you’re looking at an upper end, just over the — where it was kind of in the first half of the year, that’s a decent level.

In terms of how we calculate excess capital, we’ve gotten many questions over the years. PMIERs is certainly one. But we also look at it from an enterprise framework, right, because we include Essent Re in there. So we kind of look at it like consolidated capital requirements and needs. And we run it through different stress. I would say the Moody’s S4 stress is one and the constant severity model that they use Moody’s obviously looked at both of those during the upgrade. So — and I think that’s important, right? So I think you have now another independent party looking at our balance sheet and our risk and detailed review of the stresses, that feels comfortable now that we’re at the kind of single A level. I think it’s good news for investors and clearly for bondholders.

We’ll also look at it, we’ll still run it through the great financial crisis. We’ll still run that. So you’re always looking — because remember, we’re that upper tier, Doug, right? We own the first loss. We’re very comfortable. I hope I won’t get too stressed about default rates and the first loss. That’s kind of what we signed up for. And it’s much more — it’s clearly earnings versus capital. And then we hedge out that whole mezz piece. Our exposure is when it comes back to the top. And I think when we think about what comes back to the top, is the probability of that low — sure, it is. But it was low. It’s low. Low doesn’t mean 0. So I think when we look at that environment, we’re looking to make sure we clearly have enough more, than enough capital from a PMIER standpoint.

And remember how procyclical PMIERs is, Doug. So there’s a liquidity component of that to the MIs that I’m not sure all investors appreciate. So we run it through that. So not just capital, clearly, P&L, but PMIERs too. So we want to make sure we have enough capital not to just withstand that, but basically to be — maybe use it as an opportunity, an opportunistic. So we had that chance in 2020. If you go back, we raised capital, we have plenty of capital. We wrote a lot more business than some of our competitors back then because we had the capital. We’re still enjoying the cash flows of that today. So I think it’s making sure we’re just well positioned between, we say, like a range of economic scenarios. So we really don’t get caught on our back foot.

So again, clearly, with the buybacks in the first half of the year, we feel comfortable around that scenario and still have the capital to return to shareholders. And those alluded to it, some of it is just the buildup that’s been over the last couple of years, Doug. We have it, and we’re comfortable and we’re fortunate, and I say this, everyone wants their stock price up, but if you’re looking to buy shares back, you kind of like the valuation that is at. So we’re not too stressed about that either. So hopefully, that gives you a little color.

Operator: And your next question comes from the line of Rick Shane with JPMorgan.

Richard Barry Shane: I’d like to dig in a little bit on the persistency. When we look at the persistency by vintage, there is some dispersion. The ’23 vintage persistency was a little bit lower. That makes sense. Presumably, that is the copious of the slightly seasoned vintages. And so you probably have borrowers there who are trying to take advantage of the refi window. The other 2 vintages that have persistency a little bit lower sequentially are 2020 and 2021. I’d like to delve in a little bit more on that. Is that just natural aging associated with those vintages? Should we expect regardless of rate that the persistency should trend down there? Or is it exogenous factors like borrowers taking seconds and the brokers getting appraisals and allowing borrowers to — within the PMI?

Mark Anthony Casale: I mean a lot to unpack there, Rick. I would say, which is a typical one of your insightful questions. I think when we think about persistency, a little bit of it depends on — you didn’t bring this up, but our persistency tends to be a little bit higher because we don’t really place a lot in the lower kind of half of the high LTV like the 80% to 85%. If you look at our — if you kind of break our market share between 80%, 85%, we may be the lowest in the industry. So having a bit of a higher LTV, which clearly comes with more risk, also helps a bit on the persistency side. I think on the earlier books 2021, I just think they’re seasoning, right? And all of a sudden now, you’re 5 years into it. Especially folks who bought the house then, if their families are bigger, they’re again, rates on all side.

They’re looking — they could be looking to move up. So that doesn’t — that’s pretty natural, and that’s happened over time as the portfolio seasons. I don’t think it’s seconds, and I know there’s a lot of noise around second. I do think seconds in home equities will become continue to increase as they should. If someone is kind of locked into the 3% mortgage and they need another bedroom and they get the home equity loan and in addition, it makes perfect sense. We haven’t done it most recently, but I think the last time we did it, 3% of our portfolio had seconds on it. So it’s — I wouldn’t, again, back to reading big picture articles and assigning it into the MI portfolio. Little tougher to stick a second on an 85% or 90% LTV, even if it has built in market.

It’s — a lot of it’s going to be on a traditional below 80 business for the GSE. So again, I think — it’s also interesting, Rick, just to point out, again, the strength of the business model. We got questions galore from 2014 to 2020, like — especially ’18, it might have been even in ’18 when rates went out like, “Geez, Mark, how is your portfolio going to perform when rates increase? What’s going to happen to Essent when rates increase?” And we would say, “Hey, you do what there’s a hedge, NIW is going to go down or persistency should stay elevated.” And then clearly, in 2022, it was a little bit of that on steroids, right? Because we got to lock in with a 3% rate, and we got the added tailwind with investment income, which, quite frankly, we never saw coming.

I mean we run a business where our yields were below 2% for 10-plus years. And every year, we thought the yields would go up and they never did. And then we woke up 1 day and now they’re at new money yields at 5. I do think it’s a reminder of the strength of the portfolio. So — and kind of the business model. It’s a unique business model and that we’re — we play in a space that we understand very well, but we’re able to take that in insurance form in premium form, so there’s a building kind of cash flow advantage to getting paid first. And now the next question we’ll get as we should get is what happens when rates with go down, what does that do? And I think it’s the same thing, Rick. It’s going to be — persistency is going to be lower in certain segments, especially the newer segments, right, where the rates are in the 6s, but the renewed NIW is probably going to grow the portfolio.

So we’re — I just don’t know when that’s going to be. I think you had asked me that a couple of years ago, and we’re still not sure. The timing of it, a lot of it gets backed to that earlier question or comment around affordability. It has to reach kind of that medium level. And then I believe — I could be wrong. I’ve been wrong many times before, but I do believe there’s a pent-up demand for housing. And I think it’s — I think — and it’s ironic, but the longer this slowdown lasts probably the more upside they’ll be in housing — in the return to housing and demand, which I think will bode well for the top line for Essent and the whole industry, to be honest.

Richard Barry Shane: No. It’s fair. And there’s an interesting comment there, which is you’ve been wrong many times. And I appreciate the humility of that and acknowledge the number of times I’ve been wrong, too. But I would argue that you’ve built this portfolio not for being right, but actually for being wrong and that’s part of what you constructed here. I’m curious and this question’s driven by something we saw earlier in the week. We have another company we followed that makes very, very short-duration loans. And they are, because of that and the short-term uncertainty, pulling back from originations. And if they miss a window of 6 months, given the 12- to 18-month duration of their assets, they can recover that very quickly.

And it made me think of you guys and how long the duration of your portfolio is are you willing to — when you see those — have those concerns take the risk of pulling back and knowing that for 5 years, you will have a cohort that is underrepresentative at the risk of being wrong?

Mark Anthony Casale: I think it depends. I wouldn’t say we wouldn’t shy away from lower share, and we’ve done it in the past. I think we probably we — there’s been records where we’ve been — I think we’ve been top market share like twice in a quarter in our history, but we’ve been at the bottom more than twice. So we’re not afraid to kind of make calls there. A lot of it is around pricing. And it’s also an interesting thing in our industry, there’s a lot of, as you know, and that’s really the only competitive factor to the industry, Rick. We don’t really have a lot of credit competition in the industry, and that goes back again to the guardrail set up. We’ve always called them the credit guardrails set up with the qualified mortgage rule, Fannie and Freddie with DU and LP, they did such a good job of segmenting risk.

They do a great job around QC. We’re kind of the beneficiaries of that as is the industry, there’s not a lot of credit competition. And I think we haven’t gotten a question, but if you think about GSE reform, like what happens if the GSEs go public? One, I think that helps us a lot more so than people think because I think it will bring a lot more liquidity into the space from an investor standpoint. It helped us on the CRT side kind of more visibility probably more share, right, because they’re going to start — they’re going to — they’ll do the buy managed and distributed operating model, again, probably in much greater force and they’ll probably expand the market a little bit. And there’s good and bad to that. It’s good because higher top line.

The bad is it could introduce some credit competition to the space, and we haven’t had that. And I think that’s when you’re going to make more calls on higher or lower share. Right now, yielding — if price — we’ll back off a little bit on price, but at the end of the day, if the returns are there, we’re still there. There’s a lot of volatility around the loss assumptions. I think then you’re going to see a lot more disparity in share and we have an advantage there. And I don’t think it’s an advantage we’ve been able to leverage much, but when you think about our credit scoring engine, EssentEDGE, and this comes in with a lot of — there’s been a lot of banter about with the scores, the vantage scores and the new FICO score and all those sort of things.

We look at the roll credit bureau. So we’re almost agnostic to the score. And we can — and we use 2 bureaus, so we can — we don’t even need necessarily the third to be able to kind of triangulate and get the right price. There’s a lot of disparity in the market, and let’s say, we use the analogy, Rick, of like a fairway, if that fairway starts to widen, all of our lenders will increase their volume. As they should. I would do the exact same thing. I think then when we look at our ability to discern between kind of a good 700 and a bad 700. And again, if there’s a lot of difference scores flying around, I think it’s even a bigger advantage for us. So again, that advantage may have us decide not to do some of the business versus to do the business.

So again, not saying that market is going to happen, but I think that’s — as we think about — we always think about multiple kind of scenarios and how we would react and position the business kind of before it happens.

Operator: [Operator Instructions] Your next question comes from the line of Mihir Bhatia with Bank of America.

Mihir Bhatia: First, I just wanted to actually follow up on the EssentEDGE point you just made, Mark. Specifically, I guess, EssentEDGE next generation has been out for a couple of years. Can you just talk a little bit about what you’ve seen so far? I appreciate you saying that you haven’t — I guess from the outside, we haven’t really been able to — we can’t really tell given how low default rates are how these engines are different. But maybe just talk a little bit about what you’re seeing internally? And are you continuing to invest with EssentEDGE adding? Or is it more just a matter of now we’re getting all these data and it’s just waiting for the fairway as you mentioned?

Mark Anthony Casale: Yes. I would say we haven’t made a ton of investment on it over the last 12 months once we got — we did a lot to get that second credit bureau. And so clearly, with some of the noise around the industry with the tri-merge and things like that, we may make the investment to get to get the third bureau. Clearly, and I’ve gone the whole call without saying AI, which seems to be the banter for most companies, not in our industry, but others. The technology there has increased so much, just even over the last 6 months. So we’re seeing more opportunities to use it within our IT group and other areas to speed things up to market. And I think that’s — we saw some of the lenders announced some things, which we’ve been watching.

So there’s some things there that we potentially could use to improve it over time, which I don’t know if I necessarily would have said that a year ago. I know we felt pretty comfortable with it a year ago. And you’re right, so I think you’re going to need some disparity in credit for it to really shine. The one way for people to look at it today for investors to look at it today, I mean, here is looking at our earned premium yield, right? Our earned premium yield is higher than the rest of the industry. And what does that tell you and our defaults are relatively the same as we’re able to get a little bit extra yield, okay? What’s a basis point or 2? 2 basis points on $245 billion adds up. So I would — I think there — if you’re from the outside looking in, that’s probably the — that’s probably the best evidence of kind of the success of how the credit engine works.

And again, remember, it’s just a credit engine. We’ll use that then to kind of create price using an old kind of fashion yield analysis. And Mihir, the price is a little bit — you’re testing pricing elasticity in certain markets where you can get a little bit more price. So think of it more as a way to get value for an individual loan.

Mihir Bhatia: No, that is helpful and it’s certainly something we see in the data. You mentioned AI. And my second question actually does relate to AI, but almost like from a little bit of a threat to your business? And maybe not a threat. I was trying to understand the implications. But specifically, I’m talking about today, borrowers getting an appraisal and canceling MI. My understanding is that is not super common. But as more and more data moves to the crowd, fintechs in a way of trying to build these personal finance recommendations, do you worry about that becoming something that becomes more common ask to go get an appraisal and cancel MI from existing policies? How would that — something like that impact your business and returns?

Mark Anthony Casale: Yes. I mean it’s been kind of — it’s been a discussion over the last 5 years ever since kind of rates went down. It’s not very common in the business. And part of it is there’s clearly friction to it, for sure, Mihir, but a lot of the major servicers do — they do notify the borrowers. So the borrowers are aware of it or they’re notified of it. It’s just small dollars. I think it’s — again, you’re going to — there’s work to be done to refinance something that’s 30 to 40 basis points. So I’m not saying it can’t be done. We don’t lose a lot of sleep over it. And I do think that we’re — in terms of AI, it will impact. I’d be surprised if it didn’t. It’s also going to make refinancings even in our lenders, I would say, today are brutally efficient and in refinancing loans.

I think it’s going to be even more frictionless. And as you speak to some of our top lenders and their investments technology, I think what’s the common theme of all this, though, is the borrower benefits. So if the borrower — right now, the borrower — the MI automatically cancels below 80, I think that’s a great rule and I think that benefits the borrower. So if there’s a slowdown in rates and borrowers are locked into their mortgage and their home price appreciates significantly, and they’re able to get the appraisal easier and cancel MI, good for them. Good for the borrower and that means it’s a good borrower. So yes, we don’t get too fussed about it. There could be some economic impact to it, but I don’t think it’s very big. So I wouldn’t — we’re not going to lose a lot of sleep over it.

Mihir Bhatia: Got it. And then just if I could squeeze in one question on just OpEx. Any thoughts on outlook for the year? I think there was a little bit of a downtick this quarter? Any call outs there?

David Bruce Weinstock: Mihir, it’s Dave Weinstock. We’re — I think we feel really good about our guidance. If you look at where we are for the 6 months, we think we’re kind of right on track for our 160 to 165 probably towards — a little bit towards the lower end. But on a quarter-to-quarter basis, things can fluctuate based on production volumes, staffing levels, things like that. So — but overall, we’re happy with where we are.

Operator: And I’m showing no further questions at this time. I would like to turn it back to the management for any closing remarks.

Mark Anthony Casale: I’d like to thank everyone for their time today and enjoy the rest of your summer.

Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for attending. You may now disconnect.