Essent Group Ltd. (ESNT) Q3 2016 Earnings Report, Transcript and Summary

Good morning. My name is Rachel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Limited Third Quarter 2016 Earnings 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. Chris Curran, Senior Vice President, Investor Relations. You may begin, sir.

Thank you, Rachel. 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 third quarter of 2016 was issued earlier today and is available on our website at essentgroup.com in the Investor 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 reconciliations to GAAP may be found in an Exhibit L in our press releases for both the third and second quarters of 2016, as well as on our website. 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 29, 2016, 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 am pleased to report that Essent had another strong quarter of financial performance, as the underlying fundamentals of our business remain solid. Portfolio growth, strong credit performance and a leverageable expense base continue to be the primary drivers of our high quality and growing earnings. As a franchise that invests in U.S. mortgage credit risk, we are well-positioned in growing our insured portfolio and generating strong returns. We remain positive on housing as low rates, affordability and supply demand imbalances continue to support our view that the real estate cycle remains strongly in expansion. We also believe that favorable demographics such as the millennial starting to reach their peak home buyers will continue to increase demand for purchase mortgages. Since our franchise is weighted towards first time home buyers and purchase mortgages, we remain optimistic about our prospects. As investors in mortgage credit risk we continue to believe that Essent and our industry are well-positioned given today’s strong credit environment and that industry pricing appear stable. Credit guardrails such as QM and improved quality assurances by the GSEs, lenders and MIs have strengthened loan underwriting processes and the quality of loans being originated. On the pricing front, the industry is now evaluating the context of the PMIREs, which shine a light on pricing and increase transparency around returns and capital management. From our standpoint, we view the PMIREs as pricing guardrails which are long-term positive for our industry, policyholders and shareholders. Now, let me touch on our strong results. For the third quarter, net income increased by 44% to $60 million, as compared to $41 million for the third quarter a year ago. On a per diluted share basis we earned $0.65 for the third quarter, compared to $0.44 for the third quarter a year ago. Our annualized return on average equity for the nine months periods ended September 30, 2016 was 17.6%. Our earnings growth continues to be driven primarily by our insurance in force, which grew 25% to $78 billion from September 30th a year ago. In addition, we continue to leverage our expense base and our portfolio credit performance remain strong, ending the quarter with the default ratio of 41 basis points and a weighted FICO of 749. Our combined ratio for the quarter was 34.1%. Our balance sheet remains strong, with over $1.8 billion in total assets and over $1.3 billion of equity at September 30th. Also, we grew adjusted book value per share 21% on an annualized basis to $13.76 compared to $13.08 at June 30th. In Bermuda, we remain pleased with Essent Re growth as it continues to reinsure Essent Guaranty through the affiliate quota share and participating in the ACIS and CIRT transactions. In fact, Essent Re’s growth during 2016 is stronger than expected, primarily as a result of strong NIW levels in the core business. Because of this, during the third quarter we drew $50 million under our $200 million credit facility contribute this amount to Essent Re. Finally, on the Washington front, USMI remains engaged with FHFA and the GSEs on frontend and deep MI risk share opportunities. Now that the PMIREs are in place and the industry continues to generate capital, we believe that private mortgage insurance should play a larger role in supporting our wealth functioning and housing finance system. As an entity based industry connected to thousands of lenders in subject to robust oversight through state regulation and the PMIREs, we believe the private MI can be further leverage within the future of GSE risk share. We look forward to continuing our dialogue with FHFA and the GSEs on this topic. Now, let me turn the call over to Larry.

Thanks, Mark, and good morning, everyone. For the third quarter, we reported net income of $60 million, or $0.65 per diluted share. Net income for the quarter is up 14% over the second quarter of 2016 and 46% over the third quarter a year ago. Net income in the third quarter 2016 includes a $2 million favorable valuation adjustment for approximately $0.02 per diluted share associated with amending certain Freddie Mac ACIS contracts that previously been accounted for us derivatives. This favorable valuation adjustment is included in other income and our income statement in the third quarter. As a result of the amendment, these contracts, as well as all other current GSE risk share transactions are now accounted for as insurance contracts. Earned premium for the second quarter was $111 million, an increase from $101 million or 10% over the second quarter, and an increase from $84 million or 32% over the third quarter of 2015. The average premium rate of the U.S. mortgage insurance business for the third quarter was 58 basis points, compared to 57 basis points for the second quarter and 55 basis points for the third quarter a year ago. Consistent with last quarter, the increase in the premium yield for the third quarter was primarily due to higher level of single premium cancellation income. Having ended the quarter with the default ratio of 41 basis points, the related provision for losses and loss adjustment expenses for the third quarter was $5 million. This reflected an increase from $3 million in the second quarter of 2016 and from $3.4 million in the third quarter a year ago. Other underwriting and operating expenses were $32.8 million for the third quarter, resulting in an expense ratio of 29.6%, as compared to 31.2% in the second quarter and 34.3% for the third quarter of 2015. Our effective tax rate for the third quarter was 28.4% and for the nine months ended September 30, 2016, is 28.8%, which represents our current estimate of the annual effective tax rate for the full year 2016. The consolidated balance of cash and investments at September 30, 2016, was $1.6 billion. The cash and investment balance at the holding company was $45 million, compared to $42 million as of June 30, 2016. As Mark touched on earlier during the third quarter we drew $50 million under our revolving credit facility and used the proceeds to make a capital contribution to Essent Re to support the ongoing growth of our Bermuda business. The interest rate on the amount drawn under the credit facility at September 30, 2016, was 2.52% with remaining undrawn capacity of $150 million. As of September 30, 2016, the combined U.S. mortgage insurance business statutory capital was $1.1 billion with a risk-to-capital ratio of 14.8 to 1, flat as compared to June 30, 2016. Finally, Essent Re had GAAP equity of $343 million supporting $3.7 billion of net risk in force as of September 30, 2016. Now, let me turn the call back over to Mark.

Thanks Larry. In closing, Essent had another strong quarter of financial performance as we continue to generate high quality earnings growth and strong returns. The current housing and mortgage environment is positive for our franchise as industry NIW levels are robust and credit quality is excellent. We believe the real estate cycle remains in expansion mode and that Essent is well-positioned to continue growing its franchise both here in the states and in Bermuda. We remain optimistic about Essent prospects and the role of private mortgage insurance in U.S. housing finance. Now, let’s turn the call over to your questions. Operator?

[Operator Instructions] Our first question comes from the line of Douglas Harter with Credit Suisse. Your line is open.

Thanks. Can you talk a little a bit about the premium rate this quarter, it’s actually been turning up the past could of quarters, how much of that is tied to single premium and/or how much or what is the underlying rate?

Hey Doug. It’s Mark. I think, we said this in past quarters, but I would look for the kind of ongoing premium yield to be closer to kind of the mid 50%’s. So the increase in the third quarter, the increase in the second quarter is really probably a little bit fast determinations then kind of we forecasted. But 55% earned premium yield on kind of $78 billion portfolio, it’s a pretty good run rate for you guys to use going forward.

Great. That’s helpful. And then on the prior period reserve release this quarter? Can you just talk about kind of what change or what were the drivers behind that?

Yeah. Hey Doug, it’s Larry. That’s somewhat normal for Essent and if you look at sort of prior quarters you see that, it’s really favorable development and it’s driven by kind of two items, we will have some cures associated with default that were in the portfolio at the end of the year. And in addition as we settle claims we have settle claims at below what we might have expected, so you will our year-to-date severity was about 75 basis -- 75% which was pretty favorable. So, those are kind of the items. But, again, you have seen kind of historical favorable development in prior period. So it’s relatively normal for our experience.

And then, I guess, given that’s been somewhat consistent with the past, at some point to that sort of factoring to your expectation on the current period and the expected losses is lower in the current period or I guess, how should we think about that mix going forward?

Yeah. Doug, really good question. We typically look at our reserve factors and we update them every period based on recent experience. So we continue to see some favorable experience, but it something we visit and adjust every quarter.

Great. Thank you, guys.

Your next question comes from the line of Jack Micenko with Susquehanna. Your line is open.

Hi. Good morning, guys. Mark, growth has been better. You drew down the revolver a little bit this quarter. Just curious, I was thinking about capital, I know the revolver pricing appears to be in line with reinsurance cost to capital. But what do you think about the debt raise or do you think about debt raise or can you upsize the revolver. What -- how do think about capital from here going forward?

Yeah. I think, in terms of the revolver, yes, we could certainly look to upsize that, the cost is, as you noticed is very attractive at 2.5%. I think our view on capital right now is really growth capital. So would we -- we probably want to draw down on the line a little bit more over the coming quarters, should we need it, and again, we are using it to in case the growth is a little bit larger or faster than we thought. But should we draw down, I mean, we would look probably to replace it with more permanent forms of capital and it could be debt or it could be equity. I mean, I think, we always judge that based on where the market is, we probably then meet the line of credit as dry powder so to speak. So, again, I think, we have a lot of flexibility with capital at the current time, we have $40 million of cash at the hold co. We have excess capital within Essent Guaranty at this time and we have $150 million remaining still on the line. So we feel pretty very comfortable with our capital position right now.

And then, can Essent Re do more than the percentage they are doing now on reinsurance, has there anything limiting that?

No. There is nothing limiting it at the current time, right, I mean, our view is 25% we are very comfortable with that percentage, but it is something we would evaluate, continue to evaluate to increase that overtime.

Okay. Just one last one, any market share movement notable in the quarter given the M&A announcement?

No. I mean, the deal hasn’t even close and I think it’s going to close to fourth quarter or first quarter of next year. So, no, we didn’t see any specific changes, too early to note in my view. I think, that’s something that will play out, Jack, it’s not a quarter-by-quarter. We are going to play out over the next kind of 12 months to 18 months.

Got it. Thank you.

Your next question comes from the line of Mark DeVries with Barclays. Your line is open.

Yeah. Thanks. I have a question on the other income line that came in higher than what we expected, is that mainly the revenues from your Essent Re business that falls in that line?

Yeah. Hey, Mark, it’s Larry. This quarter in particular it relates to the change in accounting associated with the Essent Re contracts with Freddie Mac that had been accounted for us derivatives. So over the last couple years as we have written those contracts, the majority of our contracts were insurance accounting, but the first four ones were derivatives. And change in the fair value of that will flow through other income. During this quarter we amended those contracts, so that they are now accounted for us insurance contracts going forward and we had a $2 million favorable valuation adjustment associated with the change in those contracts and the accounting for those contracts to insurance contract this quarter. So going forward you will see a smaller and more stable number in our other income. You will see all of the Essent Re business revenues been reflected in earned premium.

Okay. Great. That’s helpful. And then, turning back to the topic of market share, by estimate it looks like you gained share in the quarter. Mark, is that a product of doing anything in particular or could it be, is there a mix shift benefit for you guys, I assume, you little bit move weight the large issuers, because you now actually kind of started those, you built the business and then maybe the larger issuers are seeing little more the refi volumes, so your share takes up a little bit when you see refi activity?

No. That’s not really the case, in fact, I would say, we probably grown our regional clients more so than a larger clients. Now we started off with the larger clients and as we continue to increase customers and increase the penetration of those customers, I think, that’s where we are seeing little bit more the pickup. The market share is tough to gauge. We said we are kind of in that 12% plus range, and in fact, I wouldn’t even know what our market share was until last couple days. So I mean, we -- it is hard for us to kind of gauge based on that, I think, our view was, we continue just to be focus out servicing our customers, making sure we could do a good job for them, help them grow their business the right way. The reward for that generally share and I think we are just comfortable with number of customers we have. The result of it share. But we don’t read too much into quarter-by-quarter change.

Okay. So you are still with some of your newer customers you still in a phase of kind of ramping up with them so you could see some natural share gains just from that?

Yeah. I think, it’s natural to assume as we add customers and continue to get to know them. I mean, some of our competitors, they have been around for years, they have great relationships, so it takes a long time and I think we have been pretty open about that. So our view is we are patience with it. We love to get new customers, but we want to make sure we service our existing ones, as well as we can and then longer term, again the next few years we would continue to kind of increase kind of the breadth and depth of the customers and that help -- that’s really what’s leads to kind of our continued growth in insurance in force, which really the alternative drive, right. I mean, that’s where it all kind of comes out in the wash and I think we have -- I am pretty pleased with the result there.

Okay. Great. Thank you.

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

Thank you. Good morning and congrats on the quarter. Mark, can you just talk a little bit about your thoughts on the recent Fannie, Freddie risk sharing pilots kind of thinking about the next year, I think that opportunities going to evolve and maybe any comparison you can make in the economics to, of those pilots to the back end transaction [inaudible] (19:41) involved in?

Yeah. Hey, Mackenzie. I think the economics are fairly similar, they are both -- both of the pilots are really, backend, meaning the risk is, they are done on a forward basis, so we will see -- you wouldn’t see that volume come through until kind of the fourth quarter and the first quarter in next year, but the structure of that are very similar to the ACIS and CIRT transactions. So I would say the economics are fairly similar. In terms of kind of what to expect with risk share kind of over the coming quarters and years. I think, we have been consistent, I think, the GSEs have done a really good job of kind of sharing risk with private capital, they do mostly to the capital markets. They stock and as of 70% to 80% of it, the other 20% plus the multi lines, with these two pilots they are actually expanding that to deal with USMIs or the mono line MI companies. So I think that’s a very positive sign. I think the GSEs are really working with us on that. And I think, our view is, that will continue to grow and we eventually that has a chance to grow into kind of frontend at the lender level. It’s kind of natural evolution. As I noted in my comments, we are connected to thousands of lenders. We go down 67 LTV today, for us to go down kind of the 50 is not that big of statutory pragmatic and operationally efficient to that and as entities, entity base solutions, we are regulated by all 50 states, we are regulated by FHFA and GSEs through PMIREs, which as you know is a lot more than just capital. So we feel like the model in itself can be further leveraged and this will happen over time. Again, there is not a ratio to this and I caution folks to look at kind of quarter-by-quarter. I would say the GSEs, they have some concerns and they are validate concerns, and we will continue to work through. But longer term, we own and we manage mortgage credit risk. That’s what we do for our leaving. And our view is the capital markets as good as they are and cash execution is excellent, it’s levered and it’s not always going to be there. I think the past has shown that when -- credit market start to soften and capital markets guys so the first ones to the doors and we won’t be, I mean, I think, we’ll have a capital and I think PMIREs are especially is going to make sure, the MIs have capital kind of through the cycle, and again, I just think we will play, we have a good opportunity to play a larger role over time and time will tell.

Okay. Perfect. Thanks Mark.

Sure.

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

Hey. Good morning. Thanks for taking my question. Mark, I think, in the past you said the ACIS’ market opportunity were somewhere in the $6 million to $8 million levels, is that sort of what you are looking at for ’17 as well?

Are you talking about the reinsurance?

Yes.

Yes. Yes. I think we are seeing that grow kind of $4 million to $6 million last year, less than $4 million last year, $4 million to $6 million this year and I think, again, it’s really going to follow the overall. There’s two components to it, Vic, it’s how big is mortgage originations, we will say, obviously, continuing to grow in our view, our housing as they will continue to grow over the next few years, so that’s one part of it, so it will naturally grow just based on that and the second thing is if the GSEs and FHFA decide to share more of this. So I think there is two components bode pretty well for kind of I would say increasingly sharing risk with the private markets.

Okay. And I think, Larry, you have talked about the severities earlier, that continue to trend down where, is that primarily a function of HPA or are there other factors are going on in there?

In terms, Vic, just clarify the question?

I think you are talking about severities earlier, so just curious the downward movement in severity is that primarily due to function of HPA or are there other factors in there?

Okay. I think, I would probably attribute more that to the lower level of defaults and claims that we pay today, so we are still on a very small base. So I think individual claim payments can have more of an impact. But -- so I think it’s difficult to draw conclusion, we would expect severity on average to be higher -- higher than we’ve experienced to-date. But, overall, I think, we are very benefit to the current environment, but we just caution the fact that it is still relatively early and we have a very small amount of claim payment at this point in time.

Hey, Vic, it’s Mark. And I think, Doug, had an earlier question just around losses. I would really focus you guys more on the incurred loss ratios. I think we have some pretty good disclosure now in the stat supplement by Vintage and I think Vintage has always tell the story over time. And if you look at the 2013 Vintage which is probably half way through its life incurred loss ratio is relatively, I mean, it’s very small close to 3%, probably in the next 12 months you will be able to kind of call that Vintage and we able to kind of really have a good sense of where it’s ultimately going to turn out, and I think, longer term that’s going to drive the loss ratios around the business. So it’s I would just caution you and I know you guys have -- do your model and we can certainly appreciate that, but don’t get too caught up in the ins and outs of kind of defaults and losses in severity. It’s very early in the book and I think you want to kind of think of the bigger picture, which is really more housing going and kind of just the overall, just from a credit standpoint, credit standpoint, here is that really trying to add-on, I mean, our average portfolio is 749 and that’s a portfolio that pre-crisis Freddie Mac, high LTV, average FICO was something along the time of 705 and we don’t have a barbell portfolio. Our portfolio is 5% below 680 and I think pre-crisis some of the incumbence there, it was -- that’s below 680 was something along the lines of 40% -- 35% to 40%. So these are big differences in portfolio and you marry that with QM, so 40% of the business written during the crisis is not even eligible anymore. And then, gain, layer on top of that, really the excellent job that the GSEs have done and lender, the manufacturing quality that we see, so QA has been excellent. The GSEs have done a good job in terms of the QC and what they are doing and some of the kind of the guidelines and how they are looking at. So you put all that together. We think the portfolio is poised in a kind of continue to do well. So that’s just give you some color how we look at it from our view, from our seats versus. Again, the detail is obviously extremely important, but I wouldn’t try to read too much into it over the near-term.

Okay. Well, I appreciate the comments and congrats on the good quarter.

Thanks.

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

Hey, Mark. Thanks for taking my question. I am going to delve a little bit into something you said not to focus on too, but in terms of credit, you talk about loss severities, you talked about the low delinquency rates. One we are seeing in other asset classes there is a little bit movement in cure rates or role rates, is there anything that you are seeing in the portfolio that we should be aware of?

At this time again given the low level of defaults and the low number of claims that we pay today, I would say, we haven’t, we’ve made very little change around role rate assumption. So it’s a very good question. So we -- I have noticed in other asset class, but they are also shorter duration asset classes. I think with us, kind of we really look at it and just to refresh everyone’s memory, it’s really a waterfall approach, so we kind of have a certain for 30, 60, 90, 120 plus we have kind of the certain percentage or probability that we think will go to claim. There hasn’t been much movement on that and that’s obviously something that can change during different economic cycles, but we to-date in our history we have not really seen much material change.

Got it. Hey, in an observation and maybe a chance to give you a little bit of an open ended question. Essentially three year till today since you guys have gone public, I think, it’s three years and five days, where do you think you are versus where you set out to be and why sort of the pluses and minuses over those three years?

That’s a good question, little reflection time from, thanks Rick. In a Halloween three years ago we went public. I would say in terms of the expectations, I think, we are right on line, I think we are pleasantly surprise with the growth in Essent RE. I think when we went public, GSE risk share had really just started. Again, I think, hats off to the GSEs for the way they have managed that process, we have obviously, given us an opportunity to participate that in Essent Re. So we are very, very pleased on that, very pleasant surprise. We talked about that on our road show is being a call option and I think that’s one has been exercise kind of very successfully. In terms of the credit we continue to be, I don’t want to say surprise there, I think, we are, I think, we knew the credit was going to potentially be good given the credit kind of profile on the underwriting characteristics that’s performed really according to expectations and I would say we are very pleased with kind of our market presence. We have always kind of really focused on working with our customers and helping them do well, and let the results speak for themselves. So we haven’t really try to buy or rent share, is I would like to call it, on the singles business, because that kind of, I can kind of go up and down and I think that consistency, it bodes well for us, it bode well for us within investors, with the rating agencies, with our employees, and more importantly, with our customers. They know where we stand and we are not kind of -- I had a client told me recently that we have been telling them the same story since we started the company and I first started calling on them like seven years ago, and I think, we take a lot of pride in that and the consistency. Our turnover rate, I think, our retention rate for employees is something along the lines of 98%. I think, we take a lot of pride in that. We have excellent employee base. I would say, the employees to-date continue to empress us and I think just building that culture. I think it’s bodes well for the future, we’ve said today everything we do today will show off in results in 12 months to 18 months. So we are very pleased with our results today. But once we hang up the phone, we are out trying to build the business for the longer terms. So good, we’ve reflect on, I think, we are very fortunate, and again, given the current environment, I think, we will continue to work with our customers and hopefully provide them value, which will allow us them to provide value to our shareholders.

Terrific. Thank you very much.

Your next question comes from the line of [ph] Nikhil Bhatia (31:15) with Bank of America. Your line is open. Your line is open.

Hi. Good morning and congratulations on a good quarter and three years as public and good performance instead. I just wondering if you could talk little bit about the expense ratio and your expense base. Just trying to get the feel for how much of the increase this quarter was driven just by a larger market and operating leverage that I imagine next quarter from the seasonal slowdown that might be a little bit of uptick there? But just looking into 2017, how you feel about the expense base and just trying to get a feel for the fixed versus variables piece of that base?

Yeah. Hey, yes, that’s a good question. I would say, I think, we focus on the nominal costs. I think the expense ratio is quite frankly simply a calculation, so we don’t or really, I think, our nominal expense base is relatively low, it ticked up a little bit this year to speak, there isn’t variables cost around underwriting, remember we underwrite over 50% of the business upfront with non-validated. So more NIW means more underwriters, which we are pleased to do, because that give us a chance to service our customers. So that’s always a little bit of the variable. Our headcount has been relatively steady over the past kind of six months to 12 months, but we are always looking for ways to add talent or invest in areas where we think we can strengthen the franchise. So, too early to call kind of 2017 expenses, but again I would focus more on what you think the expenses going to be this year, you can add a certain percentage to that and remember it’s going to grow, there is a certain amount of the nominal expenses that just grow because of premium taxes and we pay percentage of our premiums on that. So, again, we will continue, I think, over the foreseeable future to see the revenue growth outpace the expenses and longer term I think we are still very comfortable with that kind of 40% combine ratio guidance that we given folks, I think, we are 34% for the quarter. So, obviously, we are little bit lower. But you would expense -- you would expect, I am sorry, to have the expense leverage to continue to improve as the expense ratio goes down and then at the book seasons, the loss ratio go up, exactly where losses goes it’s a little hard to predict, that’s why we think the 40% is still pretty good guidance.

Great. Thanks. And then, just, quickly on the just price competition, it feels like its dive down from where we were early in the year especially on the borrow period. What are you guys seeing on the single lender paid side and also is my, I guess, intention that has dive down a little bit lately, what you’re seeing to do?

No. it’s -- I think, it’s a good impression, actually there’s a couple things going on, one, the borrow period is clearly settled down and I think there was a lot pricing reconfiguration starting late last year and settling out this year with kind of the newer cards, the result of the premium change really wasn’t that much. But at least it’s settled and it’s very clear, I mean, it still one kind of maybe two rate engines out there that little turn into one. But I think the pricing kind of annoys I would call it versus competition on the BPMI side is really dive down and on the LPMI side, I think, it’s always been, it’s always been competitive, it’s always -- that’s always a kind of a lever that an MI can use to kind of get some transient share with the lender, because to put some dollars in the lender pocket. That’s kind of dive -- that hasn’t really dive down much. I would just say, given the reconfiguration of the cards with better pricing in the higher FICOs, we have actually seen a lot, not a lot, but a percentage of the business shift towards borrower paid. So I think the overall level of singles in the industry probably was in the 30%’s, the last year and the change in pricing really kind of I think it’s into the lower to mid-20%’s at this point. So it’s a pretty decent move and I think you’ve seen our singles percentage go down somewhat. I think we have seen it with others in the industry. So it’s, LPMI still kind of that rent a share tool, it just probably not as, I think, investors also see through it pretty well right now. I think the profitability amongst the borrower paid versus the lender paid is pretty clear for folks who understand the business and I think investors and analyst understands the community has done a great job of kind of calling it out and kind of understanding the all-in profitability. So that’s how we run the business. So, yeah, I think, the pricing, it’s really has gotten back down to now the pricing becomes kind of less of an issue, we have seen a lot, just continue to focus on the things that really drive the business quite frankly. I mean we talk a lot about pricing on this call, on lot of the earnings calls, but 80% of the business is calling the clients and showing up, making sure you can supply, do good training or help underwriting, good turn times on underwriting, find an underwriter in the market, we have a lot of our lender customers were at incredible volumes through the third quarter and we are really scrambling underwriter. So if there’s an opportunity for us or other MI to help them find an underwriter, I think, that’s always considered valuable. So there’s a lot different ways to add value and to get and to earn the business in the field. When I say the field meaning down the low kind of the national level that has really nothing to with price day in and day out, have a lot to do with, again, visibility and hard work, and we’d like to say still other and I think that’s, we focus on that. And I think that’s why you see our share being relatively consistent and I think we’re -- I think we are actually, would we like it to be bigger and with customers that we love, of course. But, I think, given kind of what we think in terms of returns, targets and where we want to run the business in our view on credit, we are very comfortable with our lender base and the growth in our portfolio.

Great. Thank you and congratulations again.

[Operator Instructions] You next question comes from the line Geoffrey Dunn with Dowling & Partners. Your line is open.

Thanks. Good morning, guys.

Hi, Geoff.

My actual question is actually kind of a follow up to that, this quarter you’ve seen six out of the seven players have pretty notable decline in this singles next and I am curious is it being driven by the MI’s or is there a decline in single demand from the lenders or the non-banks, what is changing this pretty quickly?

Yeah. Its -- I think you have to go to the borrower level. I think the borrower and the loan officer level at the higher FICOs, I think, the execution in a lot of -- in some of [inaudible] (38:34) is just better for the borrower paid. And remember once loan officer see good execution they will continue to go to it. If they were kind of brought up on singles and that’s really the only execution they know, they may go to that. So, again, I think, that change in the cards kind of sparks the -- I would say a welcome surprise in terms of where they kind of the pricing is and I think once it gets down to the borrower level and we always look, Geoff, at the end of the day that should drive everything. The one thing that we always say to our lenders and ask to our lenders is put your borrows in good loans and if you do, we want to work with you and we want to be your partner and if you don’t we probably don’t want to work with you and we don’t really care how much MI you produce on a quarterly or annual basis. So our view on LPMI always was, Geoff, understand it’s discounted relative to borrower paid. We’re well aware of that. But our view is, if that’s the best, if that’s the best loan to the borrower and so be it. I think what you are seeing now that’s really driving. I don’t think lenders have demanded in any less. And again, I think, the analyst community gets on the MIs around kind of discipline and LPMI. I think to some of that, but at some point is really getting driven by the lenders versus the MIs and I think the lenders are driving it, because it’s getting down to the [ph] LO (39:50) on the borrower level.

Got you. Okay.

It’s been…

Second question.

It’s a nice benefit of the pricing change.

Right. Second question, I know you’ve been able to explain the difference between your [ph] 25 C (40:02) and ours is 50, just kind of figure that’s the way it is. Today, I think you alluded to the to the possibility of increasing that 25% of over time. What is to happen to make that change or what approval you need or decisions you have make, what moves that up?

Yeah. It’s a very simple answer, really comes down to capital and we said before, Essent Re any capital that’s going to need is really growth capital and for us to increase to C would require probably more downstream, move capital from the hold co and that capital has to come from somewhere, it’s not going to come from Essent Guaranty. So it’s something we continuously evaluate and really comes down to capital optimization. And I think, again, that’s why, there is the potential that we could do it in the future, the timing of which is a little uncertain just because of just kind of how we think of the capital.

So we are on call option part two.

Yes. Call option part two, well said Geoff.

Great. Thanks.

There are no further questions at this time. I turn the call back over to the presenters.

Okay. Thank you, Operator. We would like to thank everyone for participating in today’s call and enjoy your weekends.

This concludes today’s conference call. You may now disconnect.