Thank you for your patience. My name is Adam, and I will be your conference operator today. I want to welcome everyone to the Essent Group Limited Third Quarter Earnings Call. I will now hand the call over to Phil Stefano. Please proceed.

Thank you, Adam. 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 third quarter of 2023, was issued earlier today and is available on our website at essentgroup.com. Our press release this quarter 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 our 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 Form 10-K filed with the SEC on February 17, 2023, 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 third quarter 2023 financial results, which continue to benefit from both favorable credit performance and the current interest rate environment. As mentioned last quarter, rising interest rates continue to drive higher investment income and elevated persistency, which has supported our revenue growth this year. As we look ahead, we remain encouraged by the resilience of the housing and labor markets. The housing supply and demand imbalance and favorable demographic trends are expected to provide foundational support to home prices over the longer term. While economic uncertainty remains, we continue to believe the strength of our balance sheet and our Buy, Manage and Distribute operating model should position us well to be prepared for a range of economic scenarios. And now for our results. For the third quarter of 2023, we reported net income of $178 million compared to $178 million a year ago. On a diluted per share basis, we earned $1.66 for the third quarter compared to $1.66 a year ago, and our annualized return on average equity was 15%. As of September 30, our book value per share was $44.98, an increase of 13% from a year ago. As of September 30, our insurance in force was $239 billion, a 7% increase versus a year ago. Our 12-month persistency on September 30 was 87%, and approximately 70% of our in-force portfolio has a note rate of 5% or lower. We expect that the current level of rates should support elevated persistency through the end of this year. As a portfolio business, mortgage insurance is less beholden to transaction activity in other sectors of the housing ecosystem. The credit quality of our insurance in force remains strong, with a weighted average FICO of 746 and a weighted average of original LTV of 93%. Regulatory guardrails, including the qualified mortgage rule and prudential GSE underwriting guidelines, have significantly improved industry credit quality and performance since the global financial crisis. In addition, credit performance should continue to be supported by embedded home price appreciation and implied mark-to-market values, particularly for the 2021 and prior vintages, which represent approximately 60% of the overall book. On the business front, while mortgage lenders remain challenged given the interest rate environment, we continue to focus on activating new accounts. We believe it is very important to identify and activate new customers while also continuing to support our current customers. Year-to-date through October 31, we activated 95 new customers. We take a long-term approach in managing Essent and best positioning our franchise, especially during times like now, as the lender landscape continues to shift and evolve. As of September 30, Essent Re third party year-to-date revenues were approximately $60 million, while third-party risk in force was $2.2 billion. Essent Re continues to leverage our expertise in mortgage credit and the Bermuda platform to deliver complementary earnings to the Essent franchise. Our title and settlement services operation incurred a pretax loss of approximately $4 million in the third quarter. As we continue to work through the title integration, we will be taking a long-term approach to building out the business with a focus on risk controls and operational efficiency. Cash and investments as of September 30 were $5.4 billion. Our new money yield in the third quarter was over 5%, while our annualized investment yield was 3.6% for the third quarter, up from 2.7% a year ago. Net investment income was $47 million in the third quarter, up approximately 44% from the same quarter last year. Higher investment income is another way that our value business is levered to higher rates. Our balance sheet remains strong with $4.8 billion in GAAP equity, access to $1.6 billion in excess of loss reinsurance, and over $1 billion of available holding company liquidity. During the third quarter, we closed on our ninth Radnor Re ILN transaction. The utilization of programmatic reinsurance helps to diversify our capital resources while seeding a meaningful portion of our mezzanine credit risk. With a trailing 12-month operating cash flow of $720 million and a mortgage insurance underwriting margin of 75%, our franchise remains well positioned from an earnings, cash flow, and balance sheet perspective. Our strong financial performance and capital position enable us to take a balanced approach between capital deployment and distribution. Year-to-date through October 31, we repurchased approximately 1.4 million shares for $57 million. I am pleased to announce that our Board has authorized a new $250 million share repurchase program and has approved a common dividend of $0.25. We continue to see our dividend as a meaningful demonstration of the confidence we have in the stability of our cash flows and the strength of our capital position.

Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the third quarter, we earned $1.66 per diluted share compared to $1.61 last quarter and $1.66 in the third quarter a year ago. Net premium earned for the third quarter of 2023 was $247 million and included $16.9 million of premiums earned by Essent Re on our third-party business and $20.6 million of premiums earned by the title operations acquired on July 1. The average base premium rate for the U.S. mortgage insurance portfolio in the third quarter was 40 basis points, consistent with last quarter. The net average premium rate on the U.S. mortgage insurance portfolio was 35 basis points in the third quarter of 2023, up 2 basis points from last quarter, primarily due to the net impact of the successful ILN tender in the second quarter. Ceded premium decreased to $30.3 million in the third quarter compared to $39.5 million in the second quarter due to expenses incurred last quarter related to the tender and lower outstanding insurance-linked notes during the third quarter. Net investment income increased $1.8 million or 4% in the third quarter of 2023 compared to last quarter, due primarily to higher yields on new investments and floating rate securities resetting to higher rates. Other income in the third quarter was $5.6 million compared to $8.1 million last quarter. The largest component of the decrease was the change in the fair value of embedded derivatives in certain of our third-party reinsurance agreements. In the third quarter, we recorded an $898,000 decrease in the fair value of these embedded derivatives compared to a $2.7 million increase recorded last quarter. The provision for loss and loss adjustment expense was $10.8 million in the third quarter of 2023 compared to $1.3 million in the second quarter of 2023 and $4.3 million in the third quarter a year ago. At September 30, the default rate on the U.S. mortgage insurance portfolio was 1.62%, up 10 basis points from 1.52% at June 30, 2023. Other underwriting and operating expenses in the third quarter were $54.8 million and include $13.5 million of title expenses. Expenses for the third quarter also include title premiums retained by agents of $13.2 million, which we are reporting separately in our income statement. Our consolidated expense ratio was 27% this quarter. Our consolidated expense ratio excluding title, which is a non-GAAP measure, was 18% this quarter. A description of our consolidated expense ratio excluding title and the reconciliation to GAAP may be found in Exhibit O of our press release. As a reminder, our consolidated expense ratio was 20% for both the second quarter and third quarter a year ago. As Mark noted, our holding company's liquidity remains strong and includes $400 million of undrawn revolver capacity under our committed credit facility. At September 30, we had $425 million of term loan outstanding with a weighted average interest rate of 7.07%, up from 6.87% at June 30. At September 30, 2023, our debt-to-capital ratio was 8%. During the third quarter, Essent Guaranty paid a dividend of $60 million to its U.S. holding company. Based on unassigned surplus at September 30, the U.S. mortgage insurance companies can pay additional ordinary dividends of $290 million in 2023. At quarter end, the combined U.S. mortgage insurance business statutory capital was $3.3 billion, with a risk-to-capital ratio of 10.3:1. Note that statutory capital includes $2.3 billion of contingency reserves at September 30. Over the last 12 months, the U.S. mortgage insurance business has grown statutory capital by $181 million while at the same time paying $300 million of dividends to its U.S. holding company. During the third quarter, Essent Group paid a cash dividend totaling $26.5 million to shareholders, and we repurchased 102,000 shares for $5 million under the authorization approved by our Board in May 2022.

Thanks, Dave. In closing, Essent continues to generate high-quality earnings while our balance sheet and liquidity remain strong. Higher interest rates, turnover of our investment portfolio, and robust operating cash flows have contributed to strong net investment income growth this year, supporting our revenues and operating returns. Earlier this week, we celebrated the tenth anniversary of Essent's initial public offering on the New York Stock Exchange. Since our IPO, Essent's book value per share has grown at a compound annual growth rate of approximately 19%, and Essent shares have delivered an annualized total return of approximately 12%. And I want to thank our team for their dedication and contribution to Essent's achievement and growth over the last decade. I'd also like to thank our customers and shareholders for your continued support, enabling us to fulfill Essent's mission to promote and serve affordable and sustainable homeownership. Now let's get to your questions. Operator?

Your first question comes from the line of Bose George with KBW.

I wanted to ask just about buybacks. Has your sort of tone or view on buybacks changed over the last year? Just could we see you being a little more active here? Or just any thoughts there would be great.

Bose, it's Mark. When considering buybacks, it's important to look at how we manage capital as a whole. Generally, as I've mentioned before, we prioritize a retain and invest approach. Our focus remains on investing in the core business, and we have consistently invested in Re over the years, as well as in title this year. Our goal is to manage returns over the long term, and to do that, we need to increase the numerator. Given our capital position and growth, we have some excess capital available, and part of managing returns is done primarily through dividends, which we are committed to as a solid demonstration of our strong cash generation. On the topic of repurchases, our approach has become a bit more dynamic recently. Last year, we bought back $250 million over 11 months, which felt a bit fast to me. Moving forward, we're taking a more thoughtful approach. We have a 10b5 plan in place and evaluate our situation every quarter, considering growth opportunities in our core business and potential losses, as well as where we see our portfolio heading. We always want to keep capital available for PMIERs and other needs. Additionally, we consider the current stock price when making decisions. Our focus is on growing book value per share; if we can buy back shares at or below book value, we'll be a bit more aggressive. The situation is fluid, as market conditions change. It's crucial to maintain a strong capital position, especially given the uncertainties in the world over the next 12 to 18 months, with interest rates fluctuating and an upcoming election. In the past, a strong capital position has allowed us to seize opportunities as they arise.

Okay. Great. That's very helpful. And then switching, I wanted to just ask about the proposed changes to the Bermuda tax code. Is that something that could impact you? Just any color there would be great.

Well, it's pretty early, right? I mean, we've seen potential changes come and go over the past 10 years. So it's too early to tell. I would say it's too early to tell. There could be some impact to us, but I don't think it's really material longer-term to kind of the growth of Essent. But again, stay tuned for more.

Your next question comes from the line of Mihir Bhatia with Bank of America.

Maybe to start with on pricing. Obviously, always a big topic for investors. Just how would you characterize the current pricing environment? Anything changed quarter-over-quarter there?

No, I think it's been pretty consistent over the last 6 to 12 months regarding our earned premium yield. We previously mentioned wanting to see new pricing align more closely with our base premium yield, and we have achieved that. The unit economics of the business are solid. However, I want to provide investors with more context about pricing because I believe the changes might not have been fully appreciated. We've discussed the three changes to the business model since the global financial crisis, which include reinsurance that mitigates mezzanine risk, substantial regulatory changes, and the improvements in the mortgage systems that have all positively affected the business. The enhancements in pricing engines have been particularly transformative for the industry, allowing mortgage insurers greater flexibility in pricing for consumers. In the past, when a price change was needed, it required filing in all 50 states, making changes to a single card, and often consulting with two or three major banks that determined pricing based on their limited programming capabilities. This system meant that the lender held significant power. With the new pricing engines, we can now file a range of rates and adjust them more frequently, turning pricing into a risk management tool. Each mortgage insurer can now strategize based on their geographic and financial preferences. This shift benefits both lenders and borrowers. Over the last year, we have raised pricing on twelve occasions in various locations, a process that would have previously allowed only one opportunity to adjust pricing, often constrained by competitive challenges. There's now a form of pricing power for mortgage insurers, which remains beneficial for borrowers as well. Mortgage insurers can shape their portfolios and target specific areas more effectively, much like other insurance companies do.

Got it. I really appreciate that answer. So to take a step back, maybe switching gears a little bit to the title side. I understand you're building that business as a long-term strategy. It's not just about one quarter. As you position that business for long-term success, is the near-term focus on building out the infrastructure for the next few quarters, indicating a period of investment before you start driving revenue growth? Could you discuss your expectations and how you view that business over the next 2 to 4 quarters, especially in terms of the long-term vision?

I think you’re right; this is going to be a long-term process. The acquisition of Title is similar to when we bought the Triad platform in 2009, which provided us with a foundation to build upon. We gained some outstanding employees during that time, and combining the Triad platform team with our existing Essent team laid the groundwork for our success. In 2009, it took us about 18 to 24 months to start raising money, and we didn’t break even until 2012. By the time we went public in 2013, we were well-established, which is what investors saw. This situation will unfold differently since it will be transparent to the public. Building out this type of business requires time and investment. We have a strong team, but to develop the infrastructure similar to Essent, we will need to invest resources. We prioritize risk management and control, evidenced by hiring our Head of Internal Audit before our first salesperson. There are significant risks involved in the Title business that need to be understood, including during processes like searches, curative actions, and funding. Some may underestimate the risks in Title, but we are aware of them. We plan to build this from the ground up patiently while being transparent about our progress. Although we will report quarterly and discuss our developments, we won’t compromise on investment just to show immediate results. This is a company generating substantial cash flows, and allocating some resources to invest in a business like Title is a good risk-return proposition for our shareholders. We will keep you updated on our journey every 90 days.

Your next question comes from the line of Rick Shane with JPMorgan.

I have two questions on two quite different topics. Mark, regarding the Title insurance business, I want to make an analogy. Twenty years ago, when Capital One entered the building depository franchise, they highlighted that scale and efficiency weren't solely dependent on having a national presence but could also be achieved by focusing on specific regions to capture significant market share. How does your team envision the Title expansion? Is your goal to become a national Title Insurance company, or do you plan to focus on regional growth as you develop the business?

Yes, I believe the answer is both. The business involves integrating two separate acquisitions into a single functional organization. We will have the agency services channel focused on title agents, primarily in large states such as Florida, Texas, and parts of the Southeast, Southwest, and Northeast where the premiums are significant. Our plan is to grow this channel, which currently services 200 agents, by hiring skilled salespeople to engage with title agents. This process will take time, similar to our experience on the mortgage insurance side, but we believe that a gradual approach will be effective. The lender services channel is aimed more at centralized refinancing and is designed for a national audience, offering title and settlement services across all 50 states, which represents a valuable opportunity. While we do currently work with lenders, we want to ensure that this channel operates optimally before fully expanding our offerings. In summary, we will have two channels: agency services focused regionally and lender services with a national reach, supported by an operational group.

Got it. Okay. That's helpful. And then the other question, and we've been asking this in a few different ways, but very unique time volumes, particularly concentrated in purchase given the limited supply of existing home stock for sale, particularly concentrated in new home sales. That drives mortgage originations, particularly through builder channels and there tend to be some subsidies there in terms of buydowns. Curious how you're approaching that, in particular, the risk associated with buydowns, whether they are short term or permanent?

Yes, when considering buydowns, it's important to note that they represent about 3% or 4% of our originations, so they aren't very significant. We underwrite them at full rate, similar to how we handle student loans—assuming borrowers will repay the loan. There is some concentration among builders, particularly since there isn't much land available in the Northeast, leading to more activity in the Southwest and Southeast, with a bit in the West. However, we do not see any major concentration issues. The limited supply in the country is a key factor, and it's actually positive that homebuilders are increasing supply, which is beneficial for them long-term. Many of these buyers are first-time homeowners, which is favorable for our mortgage insurance. While concentration is a point of consideration, it is not currently a concern for us. Chris will add some thoughts on this as well.

Rick, when you look at the buy down product, that certainly we're ensuring from the builders, the majority of those buydowns are permanent. So in a way, it is beneficial to, I'll call it, the financial makeup of the borrowers, certainly having additional cash flow for them. So that is certainly a benefit of the permanent nature of these buydowns and certainly by extension that will benefit the credit performance as well.

Got it. Okay. And Mark, I think on a personal level, there are some congratulations in order as well.

Thank you. Yes, that's why we're having the call on Thursday because my daughter is getting married on Saturday. I have the rehearsal dinner tonight. So I was not allowed to have the call tomorrow. So I appreciate some of our competitors. They were very gracious in moving their times. But yes, thank you Rick.

Your next question comes from the line of Eric Hagen with BTIG.

Congratulations, Mark. A quick modeling question upfront. You feel like the ceded premium of 5 basis points is a good way to think about modeling that going into next year?

It's Chris. Yes, I think that's a reasonable range. I mean, really, when you look at our history, that's in that range, so that's reasonable from a modeling perspective.

There are generally two types of risk to consider: borrower risk and asset level risk. Which of these would you say you are more sensitive to at the moment, and how do you account for that in your approach to risk-adjusted returns?

I believe that's an excellent question. Regarding the portfolio, it's primarily about asset risk. You've already underwritten the mortgage, and home prices can change, borrowers may default, and there are severity issues to consider. Therefore, our focus is more on asset risk since that's something we can't control. We feel confident about it because we have 75% mark-to-market and significant embedded home price appreciation. Additionally, we mentioned how persistency benefits us. For new originations, we see higher debt-to-income ratios due to 7% to 8% mortgages, so there's a shift in focus. We don't expect home price appreciation growth; in our view, it will likely remain relatively flat over the next 3 to 4 years, which means there is an increased emphasis on borrower risk.

I will now turn the call back over to management for closing remarks.

I'd like everyone to thanks. Thanks, everyone, for joining us, and have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.