Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Limited Fourth Quarter 2023 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. Thank you. I would now like to turn the call over to Phil Stefano, Investor Relations. Please go ahead.

Thank you, Eric. 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 2023, 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 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 fourth quarter and full year 2023 financial results. Strong credit quality and resilience in the housing and labor markets continue to drive favorable credit performance, while higher interest rates drove investment income growth and elevated persistency during the year. Heading into 2024, we remain constructive on a long-term outlook for housing as the supply and demand imbalance and favorable demographic trends should provide foundational support to home prices. Even though sentiment has improved for a soft landing on the back of strong employment and consumer spending, we continue to manage our business for a range of economic scenarios. Given the strength of our balance sheet and our Buy, Manage and Distribute operating model, we believe Essent is well positioned. And now for our results. For the fourth quarter of 2023, we reported net income of $175 million, compared to $147 million a year ago. On a diluted per share basis, we earned $1.64 for the fourth quarter, compared to $1.37 a year ago. For the full year, we earned $696 million or $6.50 per diluted share, while our return on average equity was 15%. As of December 31st, our book value per share was $47.87, an increase of 16% from a year ago. As of December 31st, our U.S. Mortgage Insurance In-Force was $239 billion, a 5% increase versus a year ago. Our 12-month persistency on December 31st was 87%, and nearly 75% of our In-Force portfolio has a note rate of 5.5% or lower. Despite the recent shift lower in rates, we expect persistency will remain elevated in 2024. 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%. Regulatory guardrails implemented after the global financial crisis have significantly improved industry credit quality and performance, while embedded home equity in our insurance portfolio should mitigate potential claims. During 2023, in light of higher mortgage rates and lower mortgage origination volume, we continued to focus on supporting our customers while expanding our franchise. Despite the challenging environment, we successfully activated 108 new customers and continue to leverage EssentEDGE to optimize our unit economics and deliver our best rates to borrowers. Our Bermuda-based reinsurance entity, Essent Re, had another strong year of performance, writing high-quality GSE risk share business and expanding its fee-based MGA services. Essent Re ended the year with annual third-party revenues of approximately $80 million, while our third-party Risk In-Force was $2.2 billion. Our title operations incurred a pre-tax loss of approximately $4 million in the fourth quarter, similar to last quarter. We remain focused on integrating title while implementing risk controls and improving operational efficiency. The Essent Ventures team continues to invest in funds, gaining insights to improve our core business while enhancing financial returns. As of December 31st, the carrying value of other invested assets is $277 million, and to date, these investments have created $74 million of value. Cash and investments as of December 31st were $5.7 billion, and our new money yield in the fourth quarter remained over 5%. For the full year of 2023, our investment yield was 3.5%, compared to 2.6% in 2022. Net investment income was $186 million in 2023, up approximately 50% from 2022. New money yields in our investment portfolio continue to run ahead of our book yields, which should contribute to future revenue growth. As of December 31st, we are in a position of strength with $5.1 billion in GAAP equity, access to $1.4 billion in excess of loss reinsurance, and over $1 billion of available holding company liquidity. With a full year 2023 operating cash flow of $763 million and a mortgage insurance underwriting margin of 77%, our franchise remains well positioned from an earnings, cash flow, and balance sheet perspective. As evidence of this, in January, S&P upgraded the financial strength ratings of our two primary operating entities, Essent Guaranty and Essent Re to single A-minus. With this upgrade, we reached a milestone of single A-minus or higher financial strength ratings by all rating agencies that cover Essent Guaranty and Essent Re. During the year, we continued to execute our diversified and programmatic reinsurance strategy while retiring the majority of two-season Radnor Re ILN deals that no longer provided economic or regulatory capital credit. In the fourth quarter, we closed an excess of loss reinsurance transaction covering our 2023 NIW. At year-end 2023, approximately 93% of our portfolio is reinsured. Our strong financial performance and capital position enable us to take a measured approach between capital retention, investment, and distribution. In 2023, we repurchased approximately 1.5 million shares for $66 million. Further, I’m pleased to announce that our Board has approved a 12% increase in our quarterly dividend to $0.28 per share. Looking forward, we will continue to review our common dividend annually. We believe paying a dividend is a meaningful demonstration of the confidence we have in the stability of our cash flows and the strength of our operating model. Now, let me turn the call over to Dave.

Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the fourth quarter, we earned $1.64 per diluted share, compared to $1.66 last quarter and $1.37 in the fourth quarter a year ago. Our U.S. Mortgage Insurance Portfolio ended 2023 with Insurance In-Force of $239.1 billion, an increase of $417 million from September 30th, and an increase of $12 billion or 5% compared to $227.1 billion at December 31, 2022. Persistency at December 31, 2023, increased to 86.9%, compared to 86.6% at the end of the third quarter. The net premium yield for fourth quarter 2023, excuse me, net premiums earned for fourth quarter 2023 was $246 million and included $17.2 million of premiums earned by Essent Re on our third-party business and $17.4 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 40 basis points and the net average premium rate was 35 basis points in the fourth quarter of 2023, with both consistent to last quarter. We expect that the average base premium rate for the full year 2024 will be largely unchanged from the fourth quarter rate of 40 basis points. Net income increased $3.5 million or 7% in the fourth quarter of 2023 compared to last quarter, due primarily to an increase in yields on new investments and higher yields on cash and equivalents. Other income in the fourth quarter was $6.4 million, compared to $5.6 million last quarter. The largest component of the increase was the change in fair value of embedded derivatives in certain of our third-party reinsurance agreements. In the fourth quarter, we recorded a $412,000 increase in the fair value of these embedded derivatives, compared to an $898,000 decrease recorded last quarter. The provision for loss and loss adjustment expenses was $19.6 million in the fourth quarter of 2023, compared to $10.8 million in the third quarter of 2023 and $4.1 million in the fourth quarter a year ago. At December 31st, the default rate on the U.S. Mortgage Insurance Portfolio was 1.8%, up 18 basis points from 1.62% at September 30, 2023. For the full year 2023, we recorded a net provision of approximately $32 million as the increase in new defaults was materially offset by favorable reserve development from strong cure activity. Other underwriting and operating expenses in the fourth quarter were $55.2 million and included $11.6 million of title expenses. Expenses for the fourth quarter also included title premiums retained by agents of $11.5 million, which are reported separately on our consolidated income statement. Our consolidated expense ratio was 27% this quarter. Our consolidated expense ratio excluding title, which is a non-GAAP measure, was 19% 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. We estimate that other underwriting and operating expenses excluding title operations will be approximately $180 million for the full year 2024. The effective tax rate for the full year 2023 was 15.4%. Income tax expense for the fourth quarter includes a $2.7 million net benefit associated with the recognition of a deferred tax asset for unrealized losses on the investment portfolios of Essent Group and Essent Re upon the enactment of the Bermuda Corporate Income Tax. For 2024, we estimate that the annual effective tax rate will be approximately 15.5%, excluding the impact of any discreet items. As Mark noted, our holding company liquidity remains strong and includes $400 million of undrawn revolver capacity under our committed credit facility. At December 31st, we had $425 million of term loan outstanding with a weighted average interest rate of 7.11%, up from 7.07% at September 30th. At December 31st, 2023, our debt-to-capital ratio was 8%. At December 31st, Essent Guaranty’s PMIERs sufficiency ratio was strong at 170%, with $1.4 billion in excess available assets. Excluding the 0.3 COVID factor, the PMIERs sufficiency ratio remains strong at 165%, with $1.3 billion in excess available assets. At quarter end, the combined U.S. Mortgage Insurance business statutory capital was $3.4 billion, with a risk-to-capital ratio of 10.2 to 1. Note that statutory capital includes $2.3 billion of contingency reserves at December 31st. Over the last 12 months, the U.S. Mortgage Insurance business has grown statutory capital by $198 million. During the fourth quarter and full year 2023, Essent Guaranty paid dividends of $55 million and $295 million, respectively, to its U.S. holding company. For 2024, the U.S. Mortgage Insurance companies can pay ordinary dividends of $304 million. During the fourth quarter, Essent Re paid a dividend of $60 million to Essent Group. Also in the quarter, Essent Group paid cash dividends totaling $26.4 million to shareholders and we repurchased 302,000 shares for $15 million under the authorization approved by our Board in May 2022. Now let me turn the call back over to Mark.

Thanks, Dave. In closing, we are pleased with our fourth quarter and full year 2023 financial results, which continue to reflect the strength of our operating model. Our high credit quality portfolio, combined with resilience in housing and employment, continues to translate to strong credit performance, while our franchise benefited from the impact of higher rates on investment income and persistency. Our strong operating performance continues to generate excess capital, which we will approach in a measured manner between retention, investment, and distribution to our 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 home ownership. Now let’s get to your questions. Operator?

Your first question comes from the line of Rick Shane with JPMorgan. Please go ahead.

Hey, Mark. Thanks for taking my questions and I appreciate your enthusiasm for taking the questions this morning. I suspect it’s from my peers, not from me, that you’re so excited that you want to hear the questions.

You were first on the list. Got us excited.

Oh! There you go. That’s a rough day, Mark. So it’s a kind of a high-level question. I was on a call yesterday where the theme of the call was rates higher for longer and we’re clearly at a crossroads, and I don’t think anybody really knows what’s going to happen. One of the things that I’m really wrestling with is when I think of Essent and when I think of the sector, what are the scenarios that you think are the best and what are the scenarios that you think are the worst? I mean, it can’t be a heads I win, tails I win scenario. What do you worry about and what’s the ideal path forward from here?

Taking a step back, while rates get a lot of attention, credit is really what drives our long-term performance. If you project our business over the next three to five years, effective management of real expenses is crucial, and you can see how the Insurance In-Force is expected to grow compared to the industry. Investment income will fluctuate based on rate changes, but it's the provisions where we see the most volatility. Looking ahead to 2024, it's challenging to predict the direction of rates. There was a consensus that rates would remain high until the Fed's comments in December led to speculation about declining rates. From Essent's standpoint, we're well positioned and likely to benefit if rates decrease. About 45% of our holdings are from the 2021 vintage, which is just over 3%, so they aren't going anywhere quickly. If rates do fall, New Insurance Written (NIW) could increase; however, I'm not certain the persistency will decrease in the expected manner due to the unique lock-in effect of that portfolio. Conversely, if rates remain elevated, yields will stay strong, cash flow will persist, and the persistency of our book will also remain high. A key point for investors is that we're continuously increasing our book value per share. For context, our investment income grew by $60 million year-over-year, which is comparable to a $20 billion increase in Insurance In-Force, reflecting different growth avenues for Essent beyond just Insurance In-Force. While it's not a scenario where we win either way, my main concern continues to be credit. I'm not particularly worried about rates since I believe things will balance out; credit remains our focus. As long as employment remains robust, we should be in a good position entering 2024.

Got it. Okay. Very helpful. Thanks, Mark.

Sure.

Your next question comes from the line of Bose George with KBW. Please go ahead.

Good morning, everyone. This is Alex speaking on behalf of Bose. I wanted to understand why the cure rate of 28% was lower this quarter. It appears to have decreased from 90% in the fourth quarter of last year to 62% in the third quarter. Is there a specific reason for such a sharp decline this quarter?

No, Alex. I would advise investors not to focus too much on new default rates, cure rates, or percentage growth. As a broader perspective, we currently have 14,000 defaults out of 820,000 policies, and our default levels have been fairly stable. There's a lot of fluctuation in defaults and claims, particularly on the default side due to the influence of forbearance. The frictionless forbearance ended just a month ago, which is why we're seeing an increase in defaults. There are some strategic defaulters benefiting from an extended year of forbearance before curing. Therefore, the relationship between cure rates and default rates is quite noisy. With the recent changes in forbearance requirements, I anticipate things will stabilize over the next 12 to 18 months. Ultimately, the key takeaway for investors is that the absolute number of defaults and even the default rate remain relatively low. It stands at 1.8 at the end of the fourth quarter, compared to 1.6 from the previous quarter, indicating that our credit performance is still strong.

Got it. That makes sense. And then maybe just one more. I’m wondering if you could provide any updated color on pricing in the industry. I know you mentioned earlier that you all expect the base premium to be stable over the course of the year. But in the event, the economy does have a soft landing and remains strong. Is there any chance we see some downside pressure on premiums or not really?

I don’t expect that to happen. The flexibility of the pricing engines has shifted a lot of pricing power to the industry from the lenders. In the past, lenders had significant control through bidding or allocating based on other services. Now, pricing is really focused on offering the best rate to each borrower. All the mortgage insurers have identified their target areas, and we can observe many movements in pricing and percentages across the industry. This gives everyone a good understanding of the market. We set our prices according to unit economics, which had hit a low point in early 2022. Since then, pricing has improved, and we typically aim for returns around 12% to 15% on a unit economic basis, with current returns likely closer to the upper end. It’s looking strong, and I believe it’s reasonably priced considering the risks involved. In a smaller market, we notice relatively consistent pricing. If the market experiences a soft landing and begins to grow, I don’t anticipate significant changes in pricing. In reality, it’s rarely a topic of discussion at the lender level anymore because they are focused on other priorities. This shift allows Essent and the rest of the industry to price based on risk, providing our best rates to borrowers, and it has somewhat simplified our perspective on pricing.

Great. Thanks for taking the questions, Mark. Appreciate it.

Sure.

The next question comes from Doug Harter with UBS. Please go ahead.

Thanks, Mark. Kind of hearing what you said about the risk of reading too much into kind of one quarter, but can you talk about how kind of the recent vintages are performing and how delinquencies and those trends are performing versus kind of more historical vintages?

There's a lot of background noise regarding forbearance. We’re seeing that early payment defaults have increased post-COVID compared to pre-COVID, which we attribute primarily to forbearance since many of these cases are resolving without claims. This situation causes some distortion in the numbers related to the ease of forbearance. However, it’s important to highlight that our Insurance In-Force average FICO score is 746, which is a strong credit score. To provide some historical context, if we look back from 1990 to 2023, apart from the 2005 to 2007 vintage, losses on GSE mortgages have generally been below 100 basis points. This perspective is crucial as we manage our operations. Following the crisis, improvements like Qualified Mortgages (QM), enhanced models, and robust quality control emerged, along with forbearance and better capital standards for the mortgage insurance industry. We focus on traditional GSE mortgages, which is a stable and straightforward business, and we appreciate that aspect. While assessing performance through quarter-to-quarter trends can be somewhat specialized, our core competency lies in mortgage insurance. Our operations are fundamentally portfolio-based, influenced by the overall stability of credit quality. Additionally, we have hedged a significant portion of our credit exposure, providing further protective measures. Looking at the bigger picture, as previously mentioned, we achieved over $700 million in operating cash flow. The main challenge for the mortgage insurance industry in the coming years won’t be portfolio performance or growth; rather, it will be how we allocate capital. There’s a significant amount of capital being generated, and the differing allocation strategies across various mortgage insurers will likely determine long-term success from an investment standpoint. I hope this provides some clarity.

I appreciate it, Mark. Thank you.

I’ll now turn the call back over to management for closing remarks. Please go ahead.

Yeah. Thank you everyone for your time today and have a great weekend.

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