Earnings Call: Q1 2021

May 7, 2021

Good day and thank you for standing by. Welcome to the Essent Group Limited First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host, Chris Curran, Senior Vice President of Investor Relations. Thank you. Please go ahead, sir. Thank you, Katrina. 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 Q1 of 2021, was issued earlier today and is available on our website atessentgroup.com. Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward looking statements. These statements are based on current expectations, estimates, projections and assumptions Call. Please note that these 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 ks filed with the SEC on February 26, 2021 and 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, and good morning, everyone. Earlier today, we reported our Q1 results and are pleased with our financial performance and starting out the year. We believe that these results demonstrate a return to pre COVID-nineteen profitability as default trends continue to normalize. As the economy gains momentum coming out of the pandemic, combined with an already strong housing environment, our outlook is positive. Over the last 12 months, our buy, manage and distribute operating model has served us well in navigating a stressed economic environment. The deployment of our pricing engine EssentEdge and use of reinsurance has been transformational as it allows for better risk selection and it removes the historical boom and bust nature of a franchise like ours. Our performance during COVID demonstrates the strength of our model and deepens our confidence in the economic engine of our business. It It is this confidence that was the primary catalyst in initiating a dividend in 2019 and maintaining one through the pandemic environment. Now let me touch on our results. For the Q1 of 2021, we reported net income of $136,000,000 as compared to $124,000,000 in the Q4 of 2020. Our first quarter results were negatively impacted by a 5 point $7,000,000 discrete tax item associated with state deferred taxes. On a diluted share basis, we earned $1.21 in the first quarter compared to $1.10 in the Q4 of 2020 and our annualized return on average equity was 14%. During the quarter, we were pleased with our insured portfolio's performance. At March 31, our insurance in force was $197,000,000,000 A 19% increase compared to $166,000,000,000 a year ago. The credit quality of our Q1 NIW was strong with a weighted average FICO of 7.47 and a loan to value of 91%. As mentioned, our default trends continue to normalize as our default rate at March 31 was 3.7%. On the business front, we have rolled out the next Iteration of EssentEdge with success and analyzes more data. Specifically, we are applying sophisticated machine learning techniques across increased amounts of data. The machine learning algorithms leverage our cloud platform with the resulting models outperforming traditional approaches. This should give us an edge in managing our portfolio through business cycles. Looking forward, we will continue blending artificial intelligence with more consumer data. We believe that EssentEdge 2.0 will be a key differentiator for us in optimizing our unit economics and risk adjusted returns. At March 31, our balance sheet and capital were strong with over $3,900,000,000 in GAAP equity and access to $2,000,000,000 in excess of loss reinsurance and And over $800,000,000 of available liquidity at the holding company, we are well positioned. Also, Essent Guaranty remains the highest rate of monoline in our industry Single A by A. Invest and A3 and BBB plus by Moody's and S and P respectively. Our strong financial position at March 31 is due to the benefits of our buy, manage and distribute operating model along with the measures that we had taken last year in bolstering our capital levels. As the U. S. Economy reopens, unemployment levels improve and defaults begin to normalize, we now have more visibility on optimizing capital management. Our primary focus continues to be deploying excess capital back into the business to support growth in our core MI and reinsurance businesses, While secondarily, we continue to pay a dividend. Today, I am pleased to announce that our Board has authorized a $250,000,000 stock repurchase plan to be executed by the end of 2022 and approve the $0.01 per share increase in our quarterly dividend of $0.17 Finally, to further leverage our Bermuda platform effective January 1, 2021, we increased the percentage of NIW that Seated under our affiliate quota share from 25% to 35%. Over time, this change is expected to reduce our effective tax rate by 150 basis points to 200 basis points. Now, let me turn the call over to Larry. Thanks, Mark, and good morning, everyone. I will now discuss the results for the quarter in more detail. For the Q1, we earned $1.21 per diluted share compared to $1.10 last quarter and $1.52 in the Q1 a year ago. The weighted average diluted shares outstanding for the Q1 of 2021 Q4 of 2020 was 112,000,000 shares, up from 98,000,000 shares in the Q1 of 2020 due to the impact of our equity offering in May of 2020. Income tax expense for the Q1 was calculated using an estimated annualized effective tax rate of 15.9% before consideration of discrete tax items. As Mark noted, our first quarter results include a $5,700,000 discrete charge to income tax expense to provide deferred taxes for states where Essent pays an income tax in addition to a premium tax. For the balance of 2021, We currently estimate to record income tax expense using a 15.9% effective tax rate. We ended the quarter with insurance in force of $197,000,000,000 a 1% decrease compared to $199,000,000,000 at December 31st and a 19% increase compared to $166,000,000,000 at March 31, 2020. Net earned premium for the Q1 of 2021 was $219,000,000 and includes $11,200,000 of premiums earned by Essent Re on our 3rd party business. The average net premium rate for just the U. S. Mortgage insurance business in the Q1 was 42 basis points, down from 43 basis points in the Q4 of 2020. This decrease in the premium rate compared to the Q1 was principally due to the decline in single premium cancellation income. For the full year 2021, we are estimating that our net earned premium rate will be in the 40 basis points range. The provision for losses and loss adjustment expenses in the Q1 was $32,000,000 compared to $62,000,000 last quarter. The The provision for losses in the Q1 benefited from a decline in new notices of defaults reported and higher level of favorable prior year development compared to the Q4 of 2020. During the Q1, we received 7,422 new default notices, which is down 15% compared to 8,745 defaults reported in the Q4 of 2020. Prior year favorable development was $16,000,000 in the Q1 of 2021 versus $2,000,000 in the 4th quarter. At March 31, our default rate decreased to 3.7% from 3.93% at December 31. Note also that favorable trends continued as our default rate at the end of April was 3.4%. With default trends normalizing, we have decided to discontinue the monthly default reporting that we had initiated post the onset of COVID-nineteen last year and we'll update the markets as part of our quarterly regular cadence. Consistent with the Q4 of 2020, we have reserved for new defaults reported in the Q1 of 2021 using our pre COVID-nineteen reserve methodology. As a reminder, for defaults reported in the second and third quarters of 2020, we provided reserves using a 7% claim rate assumption. This assumption was based on expectations that programs such as the federal stimulus, foreclosure moratoriums and mortgage forbearance may extend default to claim timelines and result in claim rates lower than our historical experience. We have not adjusted these reserves previously Recorded in the 2nd and third quarters of 2020 as they continue to represent our best estimate of the ultimate losses associated with these defaults. Other underwriting and operating expenses in the Q1 were $42,000,000 compared to $37,000,000 in the 4th quarter. The increase in expenses over the 4th quarter is primarily due to an increase in the level of payroll taxes associated with divesting of shares and incentive payments, which historically occurs in our Q1, an increase in professional fees and a reduction in deferred policy acquisition costs. We expect expenses to decline in the Q2 of 2021 compared to the Q1. We continue to estimate that other underwriting and operating expenses will be in the range of 170 to $170,000,000 $170,000,000 to $175,000,000 for the full year 2021. From a PMIERs perspective, after applying the 0.3 factor for COVID-nineteen defaults, Essent Guaranty's PMIERs efficiency ratio was strong at 161 percent with $1,100,000,000 of excess available assets. Excluding the 0.3 factor, Our PMIER sufficiency ratio remained strong at 149 percent with $1,000,000,000 of excess available assets. Now Now let me turn the call back over to Mark. Thanks, Larry. In closing, we were pleased with our performance for the Q1 as we produced strong earnings and generated excess capital. Call. Our buy, manage and distribute model is operating on all cylinders and confidence in our economic engine is high. Combined with a strong housing environment and an improving Economy post COVID, our outlook on our business is positive. Over the last 12 months, the strengths of our operating model were on display as we remain profitable, Raised additional capital and maintained our quarterly dividend through a stressed environment. Now as we return to strong profitability, we are pleased to augment our capital strategy with a share buyback Program. Similar to dividends, repurchasing shares is a tangible demonstration of the benefits of our model in generating capital. It also provides further balance in deploying excess capital between the business and redistribution to shareholders. Finally, we are excited about the progress that we are making EssentEdge 2.0 and its potential to be a game changer in evaluating the price and credit risk. While we are in the early stages of its deployment, Combining AI with large quantities of data is where the world is moving and we want Essent to be at the forefront of this. Now let's get to your questions. Operator? First question, we have Mark DeVries from Barclays. Your line is open. Yes, thanks. There's been a lot of investor focus this quarter just on share shifts. Mark, I know you guys don't focus on market share at all, but I do think it would be helpful just to get your color on what you think might have impacted share this quarter? Hey, Mark. Again, we've talked about In prior quarters, we didn't really know what our share was until the last couple of days. I would say from an Essent standpoint, We continue to focus on insurance in force and that was relatively flat in the Q1 which was relatively flat Last year in the Q1, in fact, I don't think we grew insurance in force to May of last year. So given what we expect to write with new insurance And I think we wrote close to $20,000,000,000 in the Q1. And what we expect to write for the rest of the year, we think we'll grow insurance in force at a healthy clip. So we continue to be focused on that. So we're not again the quarterly market share shifts. There There's a few reasons to get into them, but it ebbs and flows all the time. We've been longer term, our goal is really around that 15% to 16% share mark. And one of the things around EssentEdge 2.0 That we're really excited about. It gives us the chance to optimize the premium around that share, right? We're always going to you're 1 of 6. If you're getting to be 20%, 20% share or more than that or you see large swings, it's price. It's such a price driven business, lowest price wins, whether it's the car And our view is, if you're going to be in that type of environment, you need to be armed with more information. And hence, that's why we started the development of Edge 2.0 a couple of years ago now. And rather than the 3 or 4 factors of the rate card or the 12 to 15 Factors with the first iteration of our engine. We're analyzing over 400 factors and we're using machine learning and we're deploying that Back to the loan officer in 3 seconds. We are seeing across the board ways that we're going to be able to again optimize premiums. If it's a low premium environment or competitive premium environment and we can be better by 2 or 3 basis points, That's a big win from a unit economic standpoint. So again, that's how we look at it. So we don't get caught up in In the chatter of the quarter of who's winning share, who's losing share, that's all it's kind of it's just not important in the grand And as we look forward, we're spending our time making sure that we're building the analytics that are really going Create the winners from the losers in the long run. Credit selection, as I said, is going to be a key differentiator as the business moves. Again, it's going to be it's going to move more towards Geico Progressive or credit card providers like Capital One, they're going to be the winners. So yes, there's still cards today And you can lower your price to the engine, but the strength of the engine longer term, Mark, is it's a risk management tool. And I think that's what we believe in that and that's where we're putting our investment dollars. Okay. That's helpful. On a separate note, as you guys highlighted, you're in a very strong capital position here. Could you just talk about opportunities you're seeing to deploy that Into the business, and then kind of what the implications are, for your new repurchase authorization and how you might expect to use that? Yes, I mean again it was strong capital position at the HoldCo right with over $500,000,000 of cash and of course we have The line of credit, we also are generating significant amount of cash at Guaranty. And in fact, we pulled $100,000,000 dividend out of Guaranty in over the last couple of weeks. So again that process will start too. So I think from a cash point. In terms of redistribution, we have the dividend which we increased and we'll obviously continue to look at that each quarter. The repurchase Is really through the end of 2022. So we could obviously increase that if necessary, but that's really the plan now. And it's kind of think about it, Mark, in terms of longer term given the cash generation of the business, dividends and repurchases Now, which is new for us. It's a way for us to maintain ROEs. So when we see business, maybe if we don't like it at certain unit Maintaining ROEs through this distribution is a good use of capital. In terms of the business, we feel like the Essent Guaranty is actually Pretty good in terms of cash generation, in terms of needing new capital. Essent Re, that could always use capital if we see opportunities. We've written kind of outsized Business over the last half of twenty twenty and in the Q1 of 2021, just given the opportunities we've seen there. It's around It's obviously not as meaningful as guarantee, but it's certainly a use of capital. And as I mentioned on the last call, we'll continue to look And study and analyze ways to leverage the business or leverage Some of the things we do well outside of the core MI, but we're still early in that. But I think that the real story is we have a pretty, I would say, well constructed and and Diversified Capital Management Plan. Okay, great. Thanks for the comments. Next question, we have Doug Harter from Credit Suisse. Your line is open. Thanks. Just wanted to follow-up on the comment you just made, Mark, about being able to pull $100,000,000 out of guarantee. Can you just talk about kind of the approval process and kind of thoughts about kind of how dividend from Guaranty could look in the future? Yes, I mean the approval process is again given some of the haircut or the 0.3 multiplier, we require GSE approval, which we received. And just remember again from our capital position, Doug, we're pretty strong with the PMIERs with and without The multiplier and also just reflect on our balance sheet. We're not that levered. So Our leverage is below 10%. So we're in a pretty strong capital position, which and again, it's reflective in our ratings, which I think the GSEs recognize. So in terms of Going forward, we're not going to speak to it being a regular occurrence, but you can do the math. And when folks think about In terms of just NIW or insurance in force, we're in a really good position. So we think we'll continue to grow insurance But the day we don't Doug, all of a sudden our required assets flatten out and the available assets will keep growing. So it actually increases kind of cash available for shareholders. So it's we're in a very good position. We're either going to Into the businesses to grow, we'll have opportunities to increase distributions to shareholders as again as I noted Increased opportunities to allocate that capital to provide another leg of growth down the road. So we're really pleased just again with The cash flow generation of the business, I believe, is $180,000,000 in the Q1 operating cash flow. So I think from that standpoint, I think there's more good things to come. Great. And then just to clarify that $100,000,000 would be that would add to the 5 Or do you have that of old co cash that you kind of reported in with earnings? It's not. The member was done in the 2nd quarter and it's really going to be a matter of whether we upstream it or not. Remember Essent guarantees a sub of U. S. Holdings, so we may just keep it at U. S. Holdings. Doug, we have 2 holding companies. We have the top tier that Mark referenced earlier. We report that and now we and we also have the U. S. Holding companies. So between the two holding companies, will add the cash at the 2 holding companies. Understood. Thank you. Next question. We have Rick Shane from JPMorgan. Your line is open. Hey, guys. Thanks for taking my questions this morning. When I look back through our model, and Mark, I suspect you will chew this number up when I throw it out I see over since 2010, dollars 67,000,000 of claims paid. You currently have a 4 $110,000,000 reserve. The home price appreciation story is really strong, and I think that that's a fundamental Tailwind both in terms I think that that will fundamentally continue. Do you think that there is A divergence now between reserves and a realistic economic outlook. And how do you think that that resolves over time? Again, it's hard to say that there's a divergence. We would just say, one, we feel pretty good about the 4 100 plus 1,000,000 in reserves because it just adds to our balance sheet strength and it kind of gets to the point we made last year, which was the reserves we took were 2020 event. It was really an earnings event, which got reflected in the provision. Looking forward, it's really going to center around the ultimate performance of the second and third quarter cohorts. Because remember in the Q4 and the Q1, we're now back to the normal reserve. So if you just isolate, let's just look at 2nd quarter cohort. We had 37,000 defaults in that quarter, 70% of them have cured already. However, we assume 93% would cure. So let's give it a few more quarters. I think it's going to take 2, 3 plus quarters. And also Rick, you got to remember just what's going on with forbearance, right? They extended forbearance, back new loans going into the fall are still eligible for forbearance. So until that kind of cleans up, you could see borrowers stay in forbearance for longer period time, which is going to make it hard for us to remove it from the provision. So I think we're levered to the upside, but again, I think it's going to take time for this to play out. Got it. Yes. Look, I hear you on that. I think that that's one of the things that's clear is With forbearance being extended, but when we draw an analog perhaps between what we've seen in auto finance where Collateral values have been so robust. I'm assuming that the severity of loss Given home price appreciation versus the historical reserves really creates Some opportunity as well. Is that the way you guys are looking at it? Well, I mean that's what we did when we set the reserve, right? So we assume Basically 7% would go to claim. Right now 30% of them are still sitting at default. So over time, we expect as they clean up, Yes, a lot of them could end up selling the house without ever having to be foreclosed upon. So yes, again, I think we're favorably levered to that, Rick. But again, we get paid the wait. So it's sitting on the balance sheet, it's strength. We don't feel the need to kind of aggressively kind of forecast That is going to be better than we originally thought. I'm not quite sure we could do it even from an accounting standpoint. We'll let it play out over time. Yes. And Rick, your point is a good one. Just to clarify the 7% claim rate assumption assumes 100% severity. So to the extent that Severity is lower than 100%. It would give us the capacity to pay more claims. Got it. Okay. Thank you guys very much. Sure. Your next question is from Bose George from KBW. Your line is open. Hey, guys. Good morning. Can you talk about the factors that went into the decision to see more premium now to Bermuda? How you set the 35% level, I think of your peers that's Bermuda based 50%, is that a possibility over time? Well, again, it was a first. It was something that we had contemplated last year, Bose, to be honest. But given COVID, it kind of Took a back seat. So we think it's a good first step. It's again, we like to do things in increments. So going from 25 to 35 And focusing just on NIW, I think it helps normalize some of the cash flows throughout the company. Will we look at 50 over time? We possibly could. I would say right now we're very comfortable with 35 and just on NIW. I think if we did anything going forward it would be more looking at the back book and moving it. But that's down the road. I think right now we're very comfortable. And again, as we said over time, it plays into 150 to 200 basis points. It kind of gets back to an Earlier point I made those around unit economics, right? We think a lot about unit economics and quite frankly that's the whole business. So If our new engine or the iteration of it can help us optimize premium, that helps unit economics both in terms of the premium and in managing the credit losses. We're already pretty darn good at managing expenses and that's another again driver of unit economics. Investment yield, which we spent a lot of time on and some of the things we look at can clearly help investment yield and tax. Now the tax rate is another lever. And I think when you put it together, so yes, it's a commodity business on the front end. There's no doubt about it. Probably becoming more of a commodity business given when you see how price can move the needle. So you have to be a lot better at the little things. So once that loan comes in the door, being able to manage up and down unit economics to optimize returns, Again, I think that's what differentiates Essent. Okay. That makes sense. Thanks. And then actually just one more on the tax. Is there Do you see the Biden tax plan that impacts the arrangements with the Bermuda insurance structure? Again, they've been after that, that's been going on. I mean, this is a newer approach to it, but that was a lot During the Obama administration too, we've seen a lot of proposed rules. It's a wait and see game. So again, it's tough to comment on a rule that's Just kind of got floated out there, but certainly something we'll be watching. Okay, great. Thanks. Your next question is from Mihir Bhatia from Bank of America. Your line is open. Hi, thanks for taking my questions. The first question I actually wanted to ask is just wanted to clarify the comments on premium rate. I know you talked about a 2 basis points decline. Just wanted to see if you could get any more color on the cadence. And really what I'm trying to understand is, Are we talking about the exit being below 40? So like the 40 is for the full year, so the exit will be below? Or are we saying 40 is where you end up in Q4. $40,000,000 is where we end up in the Q4. However, I mean, it's going to depend a little bit on the persistency of the book and clearly how much we write in the second And also the shift between purchase and refinance. But I think we're comfortable with that. But there's so many moving parts. I think we'll leave it at that But there's definitely a difference in the premium yields amongst the different players. And I think that's something again that's when we talked about The engine and looking for ways to optimize that premium well, it's very important for investors to understand around premium. So it's easy to give away premium to get NIW. However, it's It's always going to come home the roost in terms of the top line revenue. So that's why we're so focused on making sure we can optimize the premium level And we believe we can do that with our new iteration of the engine. I'd give you an example, right? I mean, And there are 7.60 loans out there right now that have been in forbearance for 9 months. And guess what? That shows up as a 7.60. Our model could tell that they have Payment pattern histories that they're probably not representative of $760,000,000 Well, we're not going to give them the same price as we'd give we would think a more stable $760,000,000 And then on the other end, when you go down the credit spectrum, can we pick off the $720,000,000 that we think is going to perform better than 7.20. Remember, we don't price off FICO anymore. We price off a custom mortgage score that we've developed. It's very proprietary. But again, it's something and we back tested it over the last several years with different sorts of data. So on that 720, we can price a little bit below the market. However, that's going to perform better. So again, this is where when we get into the as you think about the next 2 to 3 years, 5 years, Mihir, and I remember You and I talking about this out in California a couple of years ago. This is really where the business is going. And again, you can give away premium to get yield. I mean to get NIW, it's been done in this business since we started, but it ebbs and flows. You can always rent share for quarter or 2 quarters. But again, we're focused on the longer term drivers of the business. Again, it's all relative to market levels, obviously. But again, we're trying to be a little bit better just around the edges. No, that makes sense And really appreciate those comments. Just one other quick one for me. Just wanted to check if you had any update, I may have missed it for the side, but any update on the NIW, I think you've given like $500,000,000,000 ish market at the last quarter. Any update to that view given a quarter into the year? Yes, I mean, it's I thought the Q1 was pretty strong. So yes, could it be kind of more in the 550 ish? Yes, Certainly, I mean, certainly a strong market. A lot of it's going to be dependent on rates in the second half of the year. If they go up, that'll push refinancings down, but the purchase market as we all know It's incredibly strong. So I think it's a strong very strong NIW market, but just keeping in perspective, the 20 year average is Like $250,000,000,000 So this is a nice market and over the last couple of years, but certainly much higher than it has been previously. Got it. Thank you. Your next question is from Ryan Gilbert from BTIG. Your line is open. Hi, thanks everyone. Good morning. First question is on the favorable development in the losses incurred in the quarter, I think $16,000,000 stepping up $2,000,000 in the Q4 of 2020. Is that $60,000,000 a good run rate going forward? Or was Is there anything one time in nature in the quarter that I should be thinking about? Yes, Ryan, it's Larry responding to that question. I don't think you can assume a run rate as it relates to prior period and prior year development tends to be a little bit more lumpy. But what we saw in the first quarter that contributed to the $16,000,000 was we had favorable cure activity on both the 4th quarter defaults when we moved back to the pre COVID-nineteen reserve methodology and also the defaults that had been reported prior to COVID. So the defaults that were recorded in the Q1 of 2020 and prior periods. So we had good cure activity on those cohorts. And in addition, we're observing some decline in our reserve factors Due to the favorable housing environment and strong credit performance. So a little bit of reserve factors and also continued strong activity in the Q4 and then pre COVID default cohorts. Okay, got it. Thanks for that. And then the April default rate dropping to 3 4% from 3.7%. I think what we've noticed from peers is there's been a really nice pickup in Your activity in April, would you say that's the case for you or is it being is that drop in the default rate being driven by both lower new defaults and also Call. It's really both. And if you look back at the 8 ks that we released in early April, that will be the last month in which we are reporting our default activity on a monthly basis, we'll just be reporting that quarterly going forward. But we saw So an uptick in both the cure activity as well as a reduction in the number of new defaults reported. So continue to see favorable trends in that area. I would point out also though that April tends to be a reasonably good month in terms of the kind of cure and default activity. But we did see A nice decline in default and a pickup in cure activity in April. Okay, great. Thank you. Your next question is from Geoffrey Dunn from Dowling and Partners. Your line is open. Thanks. Good morning. I got a few questions. First, Larry, last quarter when you shifted to the Pre COVID methodology, you had some adverse current period development, I think, to a trend of $18,000,000 because of your Solar cures versus historical trend on the early stage bucket. Did you have that same adverse development this quarter? No, we did not. And Jeff, that adverse development in the Q4 was really due principally to the shift from the COVID-nineteen reserve methodology that sort of fixed 7% claim rate on new defaults versus going back to the model. So That was kind of the anomaly of we went really to a different reserve methodology in the Q4, but we didn't see any significant in fact, we saw some favorable development for the during the current quarter. Okay. Then in terms of moving $100,000,000 to the U. S. HoldCo, I believe that can help on the debt side. What other advantages other than avoiding the excise tax to Bermuda do you get or what other Do you have keeping it there? Is that something where you can do, for example, acquisitions from? Or there are other opportunities outside of debt and M and A? Now you got it. Keeping it at holdings gives us a lot of flexibility around investments. So it's not really about avoiding the excise tax, so to speak. I mean, we're flush with cash at the Holdco. So there's no need to do that, pay the tax Have to kind of downstream it again. So it gives us a lot of flexibility around really around the investments and what we're looking to do on a go forward basis. Okay. Sorry, 2 more. Essent Re, obviously, you can always use capital. You're increasing the seed Have increase in the seed. Is there a plan downstreaming of capital in the next quarter or 2? No, we're actually pretty good with capital there. Hence, and that's in that's we didn't do the back book. There we would have needed to kind of move some capital And we like the idea of just kind of doing a measured approach. But yes, we're pretty good from a capital standpoint there too. Okay. And then last question. Obviously, you recurrently tap the ILN market as do your peers. But one of the things that is very clear is that the benefit under premiums can disappear very quickly As the risk amortizes down and the effective attachment points rise, how do you factor in these varying speeds to your capital management. And then should we see the pace of that benefit erosion slow as refis decline? It's a good question. We certainly we look at the ILNs over kind of a 2 to 4 year forecast that we do. So it's We generally look at it in matching the NIW on a regular basis. So yes, it's certainly something you You kind of have to stay in the market on it to maintain the benefit, but there's a certain benefit that we expect to get. So it's a good point, but I think we're as long as you're continuing to issue, You should be in good shape. It's when you stop is when and we saw that last year where it really created an issue for some. Okay. Thanks. And also, Jeff, just to finalize that, you don't want to become Overreliant on ILN, just to your point around the nature of it. So we look a lot at where we are with and without ILNs just in Your next question is from Phil Stefano from Deutsche Bank. Your line is open. Yes, thanks and good morning. I guess, Mark, I was hoping you could talk to us about the mix of dividends and repurchases. And the repurchases is new, so maybe you could talk about your philosophy around valuation based sensitivity and thinking about is dividends or repurchases the right way to return capital seeing both as a valve to ease the excess capital to maintain returns. Yes, really good question, So around the pricing, it's certainly I mean, if you take a step back, it is a mix, right? You want to we think mixing dividends is cash in hand to investors and obviously repurchases is a little different way to get cash back, maybe a little bit more Tax effective. So we like those. And given in terms of our program, it will be think of it almost as a dollar cost averaging type program. So we'll be in the market on a continuous basis, but when the shares are up, we'll be buying less. And when the shares are down, We'll be buying more and given the volatility day to day in our stock price, we think we'll probably it's probably a good plan. We're not going to make bets, Right. I mean management teams are very poor. I think in terms of predicting valuations up and down. So it'll be more of a 10b5 plan That we'll execute off a matrix and we would expect to look at it every 90 days. So we always could accelerate it In certain instances and we could add to it in certain instances. So I would again, it's going to be a dynamic use of capital management. I don't think we'll jerk the dividend around too much. So repurchases is going to be more of the toggle. And then there's obviously the investment opportunities In the core business, which continue to slow, right, because we continue to get the kind of critical mass. And then there's the investment opportunities outside the core, which again we've just started with our investments in the fund and that's something we'll continue To build and develop over the next several years. Okay. Maybe I'm parsing words too finally, but The reading of the release from my seat says it's to be executed by the end of 2022. I feel like that's In some ways an affirmation that we're going to at least do this. I mean is that like the right way to do that? Yes. So we're going to be in the Probably over the next 30 days. Yes, this is not this isn't a signal. We're actually going to be in the market in 30 days repurchasing shares On a continuous basis through the end of 2022. So if you're building your model, you can almost figure out how many We're going to buy a day and you can work that into a repurchase over the next to the end of next year. That's why we're very Yes, it's not a signal. It's going to happen. We're not going to stop it if prices get too high per se. That That would be actually a good problem to have. So think of it continuous. The change will be and we'll update you guys every quarter. We'll toggle it. Like if we say, oh my God, this is We have more excess capital and we want to increase that and we'll announce that for the market, but it's not a signal. So it's actually it's a program that we intend to Execute upon. Again, it's very consistent with our approach. We like to do kind of slow and study. So the dividends was one aspect of it and we announced it and then we did it and now we're announcing this we're going to do it. Okay. And then switching gears, I wanted to dig into EssentEdge 2.0 a little bit more. You had mentioned that this was a proprietary platform. I tend not to think of insurance companies as tech companies. So maybe you could talk to us about it. Is this being developed in house? Are you leveraging an external provider? What's the real differentiator here that this can't be replicated by the other 5? No, I mean it can certainly be replicated. It just takes time, right? So we started this 2 years ago. We hired and it came out with 1 of our larger banks Started a I think they had 4 MIs and they started the machine deciding which They were going to pick. It used to be kind of the old allocation method. And as soon as we saw it, we're like, wow, this is definitely where the business is going. And then in 2019, we were down meeting with the folks at Optimal Blue and they're a big pricing provider of the MI industry. And prior to that, a loan officer had to decide who they were going to price, Essen or another MI. And generally, a loan officer would have taken, say, 2 or 3 MIs, right? They're not going to run all 6. It takes a lot of time and LOs are focused on making sure the borrower gets into the right loan. Optimum will change that. Their new system starting, I believe, at the end of 2019 delivered all of the MI Pricing back to the loan officer with the 2 best prices highlighted in green. I mean it would be pretty difficult to pick your favorite MI rep They're not in green. That just further solidified our conviction that we needed To get better at using more information to make a decision. So we're giving every lender our best price, not Certainly the lowest price. So the way the model works is yes, so we hired folks from the credit card industry and we got other data sources. And again, we have folks in house that have experience in that and developing LP at one of the GSEs. So we use raw credit data, which again the only folks who use raw credit data are the GSEs. So we use that to deliver And then run through, I believe it's over 400 factors now. And that's really the development of the model that was done all in house. The deployment part of the model is actually interesting. We can now deliver that back to the loan officer in right around 3 seconds. So again, think of that and it's all on the AWS cloud. So again, this has been in development and deployment development over the last, Again, year and a half, probably year and a half, so year and a half, 2 years as we've seriously done and we tested it in the Q4 of last year And we rolled it out to the market in the Q1 this year. It's going to take time. It's actually available today through Ellie Mae. So if a loan officer's Pricing through Ellie Mae and Compass, they can access this price and we have direct integrations with a couple of The larger banks. We'll continue to kind of roll that into the market. It's a difficult market to do it. I mean when some Folks are just using bid cards. They're not it's hard for them to say we're going to use an engine, right? So we have so we about 70% of the industry is using engines and that's really what we'll work. We'll morph those into EssentEdge 2.0 Probably over the next 12 to 15 months, there's a few bigger ones. Again, if more users, I 50% of our production is through Ellie Mae, but it's not that simple. Some of the loan officers price It's really May, some use Optimal Blue. We'll eventually work our way into Optimal Blue. So we're excited about it. So yes, everything can be replicated. So when I say proprietary, it's meaning we build it in house. We didn't go hire a consultant to do it. A lot of the skills here, but I do think it is it's a clue here and I'll give you an example Bill. We've made again 10 different fund investments over the last 3 years. I think we have 4 East Coast funds, 3 Midwest funds and 3 West Coast funds. And like I You've heard me say over the years I'm out visiting clients. So I'm also out visiting these funds and some of the companies within the funds. So we came across a company A couple of years ago that was using like a 1,000 factors and this was probably I think it had to be in 2018 or 2019. And I walked out of that meeting with that company going, the technology exists. It never existed in this industry Remember, we're just pricing through rate cards and one provider had an engine and kudos to them for being first to the market on that. But we looked at it saying how can we exponentially get better than the kind of the 4, 10 or 12 factors. And there was clear evidence that this company could do it. So we knew the technology existed. So again, a lot of it is just spending the time on it and continuing to develop that its proprietary Score. Yes. So it's an Essent risk score. It's not a FICO score. FICO was developed back in 1989, Phil. It's never been approved And it's just not a great indicator of a person's ability to pay their mortgage. So again, I would expect the industry is probably all working on things like So again, this is something we've gotten and maybe their models already have it for all I know, but I mean we're focused on what we can do and We think it's leverageable and that's the thing. We're learning stuff now around consumers ability to pay and we're focused right now on deploying it within with an Essent, but you never know if there's opportunities down the road for other things. Great, great. I look forward to those other things, Mark. Thank you. There are no further questions at this time. Now I'll turn the call back over to management. Well, thanks everyone for joining us today and I hope you have a great weekend. This concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.