Essent Group Ltd. (ESNT) Q4 2015 Earnings Report, Transcript and Summary

Good morning. My name is Sean and I will be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Limited Fourth Quarter 2015 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I'll now turn the conference over to Mr. Chris Curran, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning, everyone and welcome to our call. Joining me today are Mark Casale, Chairman and CEO and Larry McAlee, Chief Financial Officer. Our press release, which contains Essent's financial results for the fourth quarter and full year 2015, was issued earlier today and is available on our website at essentgroup.com in the Investors section. Our press release also includes non-GAAP financial measures that may be discussed during today's call. The complete description of these measures and the reconciliation to GAAP may be found in our press release in Exhibit L. 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, 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 27, 2015 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, Chris. Good morning, everyone and thank you for joining us today. I'm pleased to report that Essent had a very successful 2015. During the year, we continued expanding our franchise by growing our customer base, our insurance in force and delivering high quality earnings growth to our shareholders. As we have stated before, Essent's long-term goal is simple. And that is to build a high credit quality and profitable mortgage insurance portfolio. We are optimistic heading into 2016, as the US economy is stable and the underlying fundamentals of housing continue to improve. Favorable affordability and low interest rates along with positive supply and demand dynamics create a solid foundation for housing recovery. In addition, as Millennials enter their peak buying years. We believe home purchase demand will continue to grow over the next three years to five years. Our outlook for the MI sector remains positive. Our industry is stronger than it has been in a long time. As capital levels have increased and profitability is one the rise. With PMIERs now in effect, the industry has clear and sound risk-based capital requirements to service the foundation for adequate claims paying ability. Newly established credit card guardrails including QM and improved quality assurance by the GSEs, lenders and MI's provide additional stability to the overall mortgage market. These changes benefit our industry, policyholders and shareholders. And will enable our industry to continue playing an integral role in US housing finance over the coming years. Now let's turn our attention to asset. For 2015, we increased net income 78% to $157 million from $88 million in 2014. On a per diluted share basis in 2015, we earned $1.72 compared to $1.03 for 2014. Our earnings growth continues to be driven by our insurance in force, which grew 29% in 2015 to $65 billion. In addition, our portfolio's credit performance is excellent. Ending the year with slightly over 1,000 policies in default add up 297,000 policies in force. Our balance sheet remains strong with $1.5 billion in assets and $1.1 billion of equity at year end. Also, we grew adjusted book value per share 18% to $12.01 compared to $10.20 as of end of 2014. As a reminder, senior management's incentive compensation is driven by annual growth rates in book value per share. We believe that book value per share growth is a key metric in demonstrating value to our shareholders. Shifting our attention to the market place. We are encouraged to see the impact that PMIERs are having on the competitive pricing landscape. Unlike historical industry price changes, where rates were reduced across the board. Recent changes have been focused on maintaining return levels across the entire spectrum. With the PMIERs now in place, we believe that industry pricing is naturally evolving within the construct of strong and transparent capital standards. This is why we have strongly supported PMIERs as a long-term positive for our industry. They shine a light on pricing and increase transparency around returns and capital management. At Essent, given our leverageable expense based and our Bermuda platform. We have a competitive advantage around pricing and generating strong returns for our shareholders. Based on the new pricing that we're seeing in the marketplace today. We believe, that we can continue to generate strong earnings and mid-teen returns for our shareholders. Turning our attention to Bermuda, we had a very successful year reinsuring domestic US mortgage risk through both our affiliate quota share and participation in both ASICs and CIRT transactions. Essent Re's platform provides us a unique opportunity to reinsure below 80 LTV loans, which is incremental to our strong above 80 LTV franchise. As of year-end, Essent Re had $2.4 billion of net risk in force and $220 million of GAAP equity. We continue to be pleased with Essent Re's progress, its impact on our company and we look forward to further growth in 2016. Now, let me turn the call over to Larry.

Thanks, Mark and good morning, everyone. For the fourth quarter, we reported net income of $44.5 million or $0.48 per diluted share. This compares to $40.8 million or $0.44 per diluted share for the third quarter, 2015 and $28.9 million or $0.33 per diluted share for the fourth quarter, a year ago. Earned premium for the fourth quarter was $89.4 million, an increase from $83.7 million were 7% over the third quarter and $67.8 million or 32% over the fourth quarter of 2014. The average premium yield for the fourth quarter was 55 basis points, which is in line with last quarter and down slightly from 56 basis points in the fourth quarter of 2014. The provision for losses and loss adjustment expenses for the fourth quarter was $4.2 million, an increase from $3.4 million in the third quarter of 2015 and $3 million in the fourth quarter, a year ago. The provision for the quarter is in line with the increase in the number of defaults claims paid and aging over default inventory. The default rate as of December 31, was 35 basis points as compared to 29 basis points last quarter and 20 basis points at December 31, 2014. Our expense ratio for the fourth quarter was 33.1%, a decrease from 34.3% last quarter and a decrease from 37.8% for the fourth quarter of 2014. For the full year, our expense ratio was 34.6% compared to 43.6% in 2014. Other underwriting and operating expenses for the fourth quarter were $29.6 million compared to $28.7 million last quarter and $25.7 million for the fourth quarter, a year ago. For the full year, other underwriting and operating expenses were $113 million. Looking forward, we believe that for the full year 2016 other underwriting and operating expenses will increase approximately 10% as compared to 2015, with approximately 35% of the increase being driven by premium taxes and equity related compensation. Our effective tax rate for the full year 2015 was 31.1%. As a result of the decline in the annual effective tax rate from 31.5% as of September 30, 2015. The effective tax rate for the fourth quarter was 30.1%. Based on our current forecast, we estimate that for the full year 2016, our effective tax rate will be approximately 29%. As a reminder, our estimated effective tax rate will be dependent on the mix of earnings forecasted to be generated in the United States versus Bermuda. The combined statutory capital of the US mortgage insurance companies at the end of the fourth quarter was $913 million reflecting an increase of $48 million compared to September 30, 2015. This increase was driven by statutory earnings during the quarter. The combined risk to capital ratio of the US mortgage insurance business was 15.2:1 at the end of the year. The consolidated balance of cash and investments at December 31, 2015 was $1.3 billion. The cash and investment balance of the holding company at December 31 was $71 million as compared to $69 million at September 30, 2015. The holding company did not make any capital contribution to the operating subsidiaries in the fourth quarter. Looking forward, we expect statutory earnings will be sufficient to support our forecasted growth in the US mortgage insurance companies. Additionally, we believe that between Essent Re's current capital base, its forecasted earnings and cash available at the holding company. We have sufficient resources to support our projected growth in Essent Re to release the end of 2016. Now, let me turn the call back over to Mark.

Thanks, Larry. In closing, Essent had another strong year of operating performance and providing mortgage insurance and reinsurance solutions to our customers. We are pleased with our earnings growth and mid-teen returns that we're generating to our shareholders. Heading into 2016, our franchise and market position are strong and we remain positive about mortgage insurance, our industry and housing. Now let's turn the call over to your questions. Operator?

[Operator Instructions] your first question comes from the line of Eric Beardsley with Goldman Sachs. Your line is now open.

Just want to follow-up on a remark you made, Mark about having a competitive advantage on pricing and where you've seen the industry go. I guess, can you just elaborate a little bit there. Do you feel like, you're able to price lower than competitors due to the Bermuda tax rate? And also just curious on your thoughts on the industry discounting on the 760 plus FICO business.

Eric, good morning. I didn't mean it that way. We said in the past, we've never led with price. I think the wording really to say, we're best equipped to handle any price movements and in terms of again, not just the Bermuda structure, but our point to our low nominal operating expenses that we have and we've really been able to leverage that operating platform. So finance standpoint, I think we're best equipped and competitive advantage meaning from an investor standpoint and the ability to generate strong returns. In terms of the discounting or the pricing. What we're seeing again is really a transition, started obviously in the fourth quarter. It's a transition with PMIERs out there and kind of really clear and transparent standards around pricing. You're seeing it naturally evolve. So better borrowers are getting, better rates because obviously lower capital is needed against that and vice versa, as you move across the risk spectrum. So it's a natural transition. It's been a little bumpy, as it's played out in the public markets, quite frankly. But used to see it as a natural evolution and again, based on what we're seeing the marketplace today. We feel like, we have the ability to adapt with the pricing in the market and still generate strong returns for our shareholders.

Great, thank you.

Your next question comes from the line of Bose George with KBW. Your line is now open.

Just a follow-up on the new pricing in the market. I mean, do you guys feel like you have to sort of formally, to sort of roll out in your rate card or do you think it's more of an evolutionary process, as you work with your clients and see how they sort of approach this going forward?

It's probably a little bit of both, it's tough to tell, Bose. I think that's why, when we talked about this in the last quarter. We really just were watching, what's going on in the market. We're evaluating it, Rome wasn't built in a day. And I think again, I thought people might have overreacted to the pricing, so these are long-term decisions that we're making. This is, what we own mortgage risk for three, four, five years. So any decisions we make around pricing, we're very thoughtful and we're not going to quick to match anyone. Again and so we're watching the market and I think, we'll - I'll just reiterate what we said earlier. Our ability to adapt and we feel very comfortable with our ability to adapt with the pricing that we're seeing in the market today and still generate strong returns.

Okay, great. Thanks. And then just a couple of the industry as a whole. Do you have any thoughts on industry new insurance written in 2016?

I mean, I think going back 2015 was a very strong year. We're very pleased as purchase mortgage originations continue to grow, penetration grew. So it was a very strong year. Looking at 2016, even though refinance will be a bit down. Although, it may not be given what's going on with the 10-year. We're assuming that refinance is down, that combined with purchase origination growth. We feel like the market will be fairly consistent, same levels that it was last year.

Okay, great and then it's actually one more. The United Guaranty partial IPO, any reason to think that changes anything in terms of market dynamics?

Not really, I mean that's just. To me, it's a matter of, they're getting another source of capital. So they're owned by, they have a parent and they're going to get some capital from the public market. Day in and day out, that should really impact, how they run the business.

Okay, great. Thanks a lot.

Your next question comes from Douglas Harter with Credit Suisse. Your line is now open.

Mark, [indiscernible] of your view on where persistency goes and obviously, could be a little bit fluid kind of given where rates wind up, but big picture. How do you see this persistency trending?

Persistency, I'm sorry. Didn't quite get the beginning of it. I think, fourth quarter was second half of the year was 80% and I think that's a pretty good run rate at least for 2016 from what we're seeing and kind of what we're forecasting with the book.

Okay. And as far as, your credit quality remains good. Where do you think kind of new notices settle out, what's the right way to think about that - the book seasons?

We're not really forecast kind of get down to that level, in terms of new notices. I would just say, we did disclose within the staff [ph] supplement this time incurred loss ratios, by Vintage and as you guys [indiscernible] through that, you'll see they're actually pretty strong, this is what we knew 1,000 policies in default or little bit over 1,000 policies with 297,000 policies in force, we'll generate pretty good incurred loss ratio. So again, I think what we said in the past. The book is still relatively on 17 months season. We're encouraged by kind of the incurred loss ratios to-date. More importantly, Doug and I think this is and I think this is a miss, little maybe not understood quite well. It's just again, how strong the manufacturing quality is. So when you look at our portfolio, you have the guardrails of QM, along with the quality assurance processes by the GSEs, the lenders in MI's and factoring that the book, the average FICO of the book, is much higher than it was pre-crisis. All those things, we get, I think for a pretty good strong credit performance over the coming years. It's tough for us again with such a young book, to kind of getting into the detail around forecast and it's just too early.

And on the quality of the underwriting is, would you see how is it comparable in the 2015 vintages to kind of the earlier vintages.

Yes, very comparable. Again, we look at that more from a QA standpoint. QA scores amongst our lenders have remained strong. And then you also see it in the claim side, we've had a few claims. We have very few claims. The claims we've had, have been death, divorce, job loss, kind of old fashion and traditional reasons default and claim.

Great, thanks. Mark.

And your next question comes from Jack Micenko with SIG. Your line is now open.

Mark, I'm wondering listening to your opening comments and I agree with you, PMIERs should bring comprising discipline. If you have any thoughts on, the quicken monthly bid. I think it was out this week. I think that sort of kicked off a lot of these pricings in terms of year ago, in the singles. Any comments there on, what do you think the impact of that could be?

We don't comment on particular clients or transactions. I would just say, I think the LPMI is actually a good example, Jack. That was the concern of the quarter. A few quarters ago with LPMI and I think, with the implementation of new PMIERs, we've actually seen LPMI pricing go up, across the industry. So I think that's a very good example of the discipline that we're seeing around that. So I would expect again with PMIERs and really the transparency around pricing, that investors will know, what's going on. And I think, investors will really look to invest with companies with higher returns versus lower return. So from that standpoint, people have always tried to discount. Turning it to, Essent. Jack. When we started the company, we started this from scratch back in 2010, we did it in the phase of price engine that was 20% below us. We did it through discounted LPMI, rate sheets. We did it through discounted LPMI bulks. We did it through a number of other things and we've managed to grow the business to $65 billion of insurance in force, our earned premium levels relative to the risk, which we disclosed every quarter are strong and our actual returns are strong. So our ROE for 2015 was 15% and that was on an unlevered basis. So again, we just feel comfortable, in terms of what we see in the market. And Quicken is just an example of one of many things that we see on a day-to-day basis, in terms of pricing, credit or how you're calling a client. And again, I talked about this in the fourth quarter. There's a lot more that goes into our success and our ability to grow this franchise than just price. There's a lot more to our account team, sales group does this fantastic job of calling on customers. It's a manner of, we have a good training group. Our customer service and how we do underwriting turn times. I'm still on the road extensively meeting with our clients, building relationships, really helping our lenders grow their business. And in sometimes on these, at this level it gets reduced to facts that you know versus facts that you don't know. And I would just say, summing them up, we feel very comfortable. There's more into it, this is a long-term business and we don't really change our strategy based on, the new rate card of the day or the new pricing disclosure or kind of chatter in the market. And really gets away from the strong kind of results and not only results that were printed from a financial perspective. But what we see in the portfolio and what we see day-to-day around the yields that are coming in on the business and how the customer base is performing especially around the credit side. The credit side is probably the most important over time, that's performing well. And then even on the pricing, when you add it all up, our own premium yields are still strong and we think again, we think our premium levels related to the risk that we're assuming will continue to be at good levels.

Okay, great and then, looking at the breakdown geographically. You're a little big in Texas, but I'm guessing since inception Texas is been a great housing market, when you guys rolled out. Can you talk about any early signs of anything there? I mean, obviously you talk about 1,000 defaults and that's a remarkable numbers and then, how big is Houston specifically of the 8%?

We don't actually look at, we don't look at risk in force by state. We actually break it out by oil producing MSAs or oil dependent meaning really looking at in terms of the percentage of jobs within the region. So it's actually broader across the country than just there, but it's about little shy of 4% of our insurance in force. If you really look at those MSAs. And what we did there and we talked about this actually in our February call, a year ago. We stressed that portfolio through kind of great recession 20% drop in HPA and the result on our cumulative claim rate is very small, almost negligible from a portfolio standpoint. And I would say that, there's a mitigant to that too, which is low oil prices and low gas prices, really help the rest of other parts of the economy, its consumer or transportation type company. So all in, it's something we're aware of. We obviously haven't seen anything in our portfolio, but it's something we're aware of, we'll monitor it. And as good risk managers do and take it in the context of the whole portfolio, but I do think just on the high level. There's some strong mitigant to that too, so all in we're very comfortable at this juncture.

All right, appreciate the color. Thank you.

Your next question comes from Mackenzie Kelley with Zelman & Associates. Your line is now open.

Mark, I guess just another question on pricing, but more on the delivery side. I know, you've said Essent would obviously be able to adopt to be flexible based on customer preference. So just kind of curious, if you're getting any invitation over the last couple months. Now that we've tread out, haven't met a competitor introducing it to black box system. Are you getting any indication that lenders preferences might be changing and we might see an evolution away from the rate card sooner than you maybe would be have expected?

No, we're not really seeing any evidence in the market from our lender customers. It's an excellent question and I give you the example really on the underwriting side, Mackenzie. We customize our solutions for our customers. So we have a number of customers approximately 40% that prefer to send loans into a non-delegated delivery and we adapt and meet their needs. Others decide deliver through a delegate. We don't dictate those terms to the clients. I think it's really the same thing on pricing and I think it's even a little bit more nuance than black box or rate engines versus rate card. I mean, as the electronic delivery to, which we do today and that could be through encompass, that could be through optimal blow. There's other ways to get rates to our customers and I think, what we do is try to again meet the needs to the customers, but also you want to balance transparency. I mean, transparency is critical in this day and age, with in terms of the regulators what we're seeing with TRID. And if our lender wants transparent rates, we're going to give our lenders transparent rates. So we're going to do, what our client desires and still fit in within regulations and obviously, do what we have to do from a shareholder standpoint. So again, I wouldn't try to get too confused around the delivery options and it's really back to risk-based pricing and I think that's where the evolution is really happening versus kind of in the delivery aspect of it.

Okay, perfect. And just lastly, sorry if I missed it earlier, but was there any expense guidance given for this year and if not, how should we kind of be thinking about the run rate and expenses in 2016?

Yes, there was. We said, approximately 10%, this year and about 35% of that increase is premium taxes and stock-based compensation.

Okay, perfect. Thanks Mark.

And your next question comes from Mark DeVries with Barclays. Your line is now open.

It looks like, your risk capital ratio actually ticked out in the quarter despite some pretty healthy growth in risk. Do you feel like at least in the USMI business you're now at the point where absent some large one-off capital margins transactions? You're generating enough for 10 earnings to sustain whatever kind of growth you'd have?

Yes, Mark we're in fact, Larry referenced that in the script. Self-generating Essent Guaranty. And in fact just to give, everyone an idea of the cash that we're generating, net cash flow from operations for the entire company in 2015 was $220 million. So we feel very comfortable within Essent Guaranty. We said in the past really the slight unknown is really Essent Re and should we have some outsized growth there. I think in Larry's comment, we feel very comfortable with the capital position during this year based kind of on our forecast. But like we said in the past, if there's an opportunity for us to put capital to work, returns that would please our shareholders, we will obviously go out and do that.

Okay, where do you stand with the potential for starting to establish dividend up to the holding company from the US-based writing company?

Yes, we're few years away from that. I mean, that's obviously. The cash is building up in terms of how the state regulations work. It takes a while to kind of work through that. I think we're still considering. We're still in the growth mode, Mark in terms of we're still having a good opportunities to put the capital to work. But obviously overtime, the cash will build up and we'll have the opportunity to look at those sort of things.

And how you're assessing the size of the potential market in 2016 for risk sharing transactions. Do you see any kind of opportunity for material growth there, given what's been outlined and the score card for GSEs?

I think we'll see just broadly speaking. I think you'll see the GSEs continue to increase. Probably in the 10% to 15% range of how much risk we'll continue to share with the private markets. That's obviously both through the cash markets, their cash execution into the multi-line reinsurers. So we see an opportunity within the Bermuda platform to continue to grow that business. In terms of whether it happens on the US side. I think that's a longer term opportunity and I say that in a positive way. I think we've gotten caught up, a little bit on a quarter-to-quarter watch on DPMI [ph] and I think the industry has done a great job, really kind of as I said earlier rebuilding capital, ratings are improving, PMIERs are now in place. All those things had to be done before you can get to that next stage of taking on more risk. And I think, we're working towards that and when you kind of work it back to Essent, Mark. I would look at it two ways. Right, I mean we're kind of micro growth story and a macro growth story. So in the micro side, we're writing a 12% of the market today. We're about 7.5% of the total industry insurance in force. So simple math would tell you that overtime, we'll get to that 12%. So we can grow, without the market growing at all per se in terms of the overall industry insurance in force and then there's the macro part of it. And I think the macro, way things that could cause the pie, when I say the pie the market insurance in force to grow, are clearly, is housing. And as we said in our script. We think housing is going to be stronger, over the next three to five years. Which means, more home demand, more mortgages, more purchase mortgages, more mortgage insurance? So we see that as kind of number one factor that would cause the market to grow. And then obviously DPMI [ph] which is something again it gets thrown around DPMI [ph], but DPMI [ph] which is something again. it gets thrown around, but DPMI [ph] is really just extended coverage and again overtime that's an opportunity and I think that would cause, the industry to grow even further, but again from an Essent standpoint we don't need to do that. We expect the industry to grow, but we believe Essent can continue to grow just based on our place in the industry today.

Okay, got it and just one last thing, on the deep cover MI opportunity. One of the other alternatives, the GSEs are going to be considering obviously are kind of the front end capital markets transactions done by PennyMacs of the world. Have you looked at trying to participate with them and any of those types of transactions that have not been done so far?

Yes, we've evaluated those and I think, there's, that's another potential opportunity as to team up with our lender partners, to help them achieve more of those transactions should they wish to do so. Again, we have an advantage rolled up to our balance sheet, clean; no debt, very strong ratings and lenders, we tend to do very well when lenders decide to keeping on balance sheet. Once they have done and we done very well with that and also whether, if they want to partner with doing some risk share with the GSEs. I think we've had some discussions. We feel very comfortable with our ability to execute that whether it's in the US or through Bermuda structure. We've also said, Essent RE gives us another kind of platform on which to execute our ability to ensure mortgage credit risk. Those again, those are all opportunities and some that we're working on today. But again back to Essent, we don't need a lot of those opportunities for us to do, well. We mentioned earlier, remember on the road show we talked a lot about call options and the call options either get exercised or they expire. We like a lot of the optionality around the business. Again, when you think about more private capital being needed. Again continue kind of secular growth story in housing and we're growing today without any of that stuff. So we feel very, we really like our chances as we continue to move forward.

Okay, great. Thank you.

And your next question comes from the line of Vic Agarwal with Wells Fargo Securities. Your line is now open.

I appreciate your comments around credit and strength of your credit and your book has been very strong. I'm just trying to balance that with what we're seeing in the credit markets with what are spreads. So I guess the question is, how do you gage the expansion and then sort of 95% in greater bucket relative to the credit spreads widening and is that a concerning to the future?

I think that's a tough correlation to make. We've obviously seen credit spreads blow out, more on the corporate side, with companies that have kind of credit exposure, but kind of putting at down to 97 LTVs. We don't do a lot, Vic. I mean, I think the average LTV of our book is in the 92% neighborhood. So I hear you and again it's something we're aware of, right as a risk organization, we're looking at that and I think from the borrower level and given, the level of HPA increase that we had since we originated the book, we feel comfortable with our book. And again as I, is it going to be impacted in certain regions. It obviously could be, I mean I think that's, we didn't expect to operate this company over the next 10 years recession free. But we again, we feel comfortable not only with the book today but also with the control we have on the front end, in the manufacturing of credit quality that you see on the front and getting back to that. We feel like, Essent and the industry in general is better equipped to navigate through some of these credit concerns.

Okay, well I appreciate the comments. Thanks, Mark.

And your next question comes from Sean Dargan with Macquarie. Your line is now open.

Just following up on the train of thought that corporate credit spreads widen. Your HoldCo credit ratings are still below investment grade. Do you have a sense what it would to take get investment grade ratings? I mean, is that something that's possible in 2016.

I think we're more concerned and more focused on credit ratings within the operating entity. So I think we would love to get Essent Re rated, before we would look to, look at the HoldCo rated because that's really, that's the counterparty, that our clients deal with. So I think that's much more important. Again given our capital situation, there's not a capital need for us to go out and enhance the ratings of the HoldCo. It's something overtime, I think that will evolve and as the ratings continue to strengthen within the operating entity, that will be reflected in the HoldCo level, but it's not something we're targeting for 2016. It's a good question, it really is, but it's not - I think we're more concerned and more focused on the operating entity.

Okay, I guess where I was going could your holding company access to that market, with where you're now?

Yes, I mean I don't see why we couldn't access to that market. So given the strong financial performance of the company and the fact that we're not levered at all. And in just strong ratings within the entity. So there is obviously a notching exercise going up to the HoldCo, but given the amount of strong cash flow that we have, that will eventually work its way to HoldCo over time, we would feel comfortable going into the debt markets, if we needed to, but it's little early for that Sean. In terms of 2016, we're pretty comfortable given the self-generating of the cash at Essent Guaranty and plus the cash at HoldCo and the capital we have at Essent Re. so we're in really good shape and that's why from a market standpoint volatility. We're just keeping our heads down and running our business. We don't have any need for capital at this time. So we're really not impacted from that standpoint and I think that's a good thing and I think back, when we issued equity in the fall of 2014, we were asked by a number of investors and analyst, why not raise debt. And I think at the time, our response was, I don't want to reduce our financial flexibility and that's exactly, what would have happen if we issued debt and then right into a situation where we needed capital today. And I think the fact that we chose to. As we always said capital begins opportunities. We're entering this market in the position of strength and we like our opportunities to continue to grow the business the right way of [indiscernible] insurance in force and not have to kind of look over our shoulders as to capital needs.

Got it. And you mentioned notching exercises, there's another company going in the opposite direction and it seems to me that the notching between Genworth's HoldCo credit ratings and USMI Financial strength ratings is pretty widen out risk. And I'm just wondering if you're seeing anything in the marketplace, if Genworth is now, a weakened competitor.

Again, we don't focus on that. I mean, that's, we focus on Essent and our customers. So again, we're keeping our head down. We're not looking a lot of what's going on with Genworth or AIG on the spin. I think we're focused and I think that's why we've continue to be successful. We can only worry about so many things in a day, Sean. And I think our view is, we focus on things that we can control, which is helping our lenders grow their business. My time is much better spent out visiting clients. And looking for ways to help them grow their business and help Essent grow their business and to worry, what's going on with our competitors.

All right, great. Thank you.

And your next question comes from Rick Shane with JP Morgan. Your line is open.

You touched on this little bit, but I would like to get your thoughts. We've seen this very much in the credit cards phase. And I think you're alluding to this in terms of mortgage credit as well. It does not feel, it increasingly appears that what we're seeing in terms of good credit performance is not cyclical, but there has been a structural change that makes the effects of good credit longer lasting. Where do you think, that sort of long-term calibration is in terms of loss rates and again I realize it's still going to be cyclical, but what do you think those sort of long-term impact is. And is that getting reflected already in your coverage ratios?

You're going to hate this answer, it's too early to tell. Just again given the relative, kind of aging of our portfolio. I think you make a good point. We do believe, there's structural changes and we thought that for a while, given again I'll go back. We talked a lot about it on the road show with QM, which we felt was a structural change. And again, just given people history around the mortgage insurance business. Overtime there's been a downturn. The industry has emerged stronger. Back in the 80s, most of the mortgage insurers were regional based and the state requirements around capital were actually quite in terms of reserves was quite small and that got corrected. Going into the 90s, where you had geographic dispersion in the portfolio amongst all the MIs, you had much stronger capital standards at the state level. And it led to 17 straight years of profitability. So I think, that gets lost in people and obviously, the industry. In addition to most financial services, companies went through the great recession that we've had and I think from an industry standpoint, all else being equal, it came out of it okay and I think it gets. I think the reputation of the industry is not warranted in terms, an industry that paid $50 billion for the claims through all that stuff, but again coming out of this downturn. What happened again, strengthening PMIERs, clear transparent capital standards, for the first time ever. So I think that's structural change a long way of QM that you're going to see over the coming years and then, just back to the credit side. We mentioned this in script, but the QA, quality assurance that we're seeing at the GSEs. I think BMI quality assurance has gotten better. Lenders has gotten better. All that bodes well for - to what you say is the structural change. And then add on top of that, the portfolio is a higher FICO than it did. I mean in the downturn probably pre-crisis, the average FICO was closer to 715 and also again jumping back to pricing. In 2007, there wasn't any FICO breaks. Everything was priced the same. So the mortgage insurers were not prepared, enable to price the risk as FICO started to migrate down with the advent of PMIERs and what we're seeing. We actually started seeing risk-based pricing post crisis. And PMIERs is really just a continued transition to that, when you put that up. I think the industry is better positioned from a pricing and credit standpoint than it has in the past. I think your idea around structural change is actually a very good one.

You know I'm a [indiscernible] analyst, not an insurance guy, but I know insurance analyst like to talk about hard market. This yields to me, something and to me a hard market is just pricing recalibrates temporarily, just feel different to me, it does feel structural.

Yes in a mortgage insurance. Most insurance business is hard market, it's really priced and I think in mortgage insurance hard market means credit. Credit standards, credit reality, ultimate driver of success at the end of the day, both kind of micro, how well you underwrite a loan and then macro, how well the economy. Pricing is a component of that, but it's a little misunderstood in mortgage insurance.

Thank you. It was a thoughtful answer, given your initial, it's too early to tell in this thing. I appreciate it.

And there are no further questions at this time. I'll turn the conference back to the Mr. Mark Casale.

Thank you, operator. We would like to thank everyone for participating in today's call on President's Day weekend and enjoy the rest of the weekend. Take care.