ESNT 1st qtr 2017 review

Note: Price sensitive numbers (like P/BV) are based on Friday’s close.

ESNT reported for 1st qtr 2017 last week, and while they look good to me, Mr. Market has been unimpressed, giving the shares a 10% haircut over the last few weeks. The more I think about this stock, I think it’s fortunes are closely tied to the expanding housing market. As long as companies like LGIH continue to grow and sell new houses, the market for private mortgage insurance will grow right along with the them. ESNT has demonstrated its ability to take advantage of the opportunities in this market – so far.

Here are the numbers:

Current 1YPEG = 0.33

Qtr		1st	2nd	3rd	4th

2013					.22
2014		.18	.23	.29	.33
2015		.38	.41	.44	.48	
2016		.52	.57	.65	.68
2017		.72

YoY Earnings Growth					
2014					50%
2015		111%	78%	52%	45%
2016		37%	39%	48%	42%
2017		38%

2013					42
2014		48	54	65	73
2015		80	84	92	97
2016		103	108	121	126
2017		128

YoY Revenue Growth					
2014					74%
2015		67%	56%	42%	33%	
2016		29%	29%	32%	30%
2017		24%

Combined Ratio (percent)
2013		73.8	58.7	54.1	57.0
2014		54.4	48.9	42.9	42.3
2015		39.3	37.6	38.4	37.8
2016		37.2	34.1	34.1	33.1
2017		34.0

A very good quarter, but the growth rate has continued to gradually slow. Combined Ratio rose just a bit to 34.0% but is still incredible. 1YPEG is at .33 for share price of $35.93 essentially unchanged from last quarter.

Here are links to articles that explain the metrics I am calculating, and can be used to value insurance companies in general:……

First quarter 2017 updates:

Metric 1: Price to Book Tangible Book Value
Rule of thumb is P/B should be less than 2.0 for a value. At a share price of $35.93, ESNT has P/B of 2.37 based on 2016 4th qtr numbers. A little on the high side, but not bad, and has been slowly dropping during the last year.

Metric 2: Premium Growth
For 2017 1st quarter it is 25%.

Metric 3: Net Income Growth
YoY net income growth was 39%, again slight gradual slowing but very good.

Metric 4: Combined Ratio
The lower the better for this metric that measures how well an insurance company turns sold premiums into profit. This quarter is at 34%, and they have held this metric to under 35% during the last year, which is just ridiculously good for an insurance company.

Metric 5: Float Calculations
Float for this quarter was $251 mil and they had 8 mil return on investment for 3.2%, or annualized at about 12.8%. (1 – combined ratio) + return on float came in at 78.3%. Finally, taking the last step for float calcs and dividing by P/B gives 33.1% based on 1st qtr numbers, far better than the market.

Metric 6: Potential Return on Float: Equities / (Fixed Income + Cash)
For ESNT, this ratio is at 28.3 for 1st qtr 2017 - aggressive.

Metric 7: Return on Equity
ESNT ROE was 17.1%. Since an ROE in the mid teens is considered ideal for a well-run insurance company, ESNT passes this metric easily.

ESNT turned in another very good quarter. Share price has held steady in the mid $30’s over the last quarter, and YPEG is still very reasonable at 0.33. I think that as long as the economy and housing market keeps doing well, ESNT will continue to grow and the stock will do well.



Thanks DT!

If you graph your metrics, this is one of the most consistent stocks I own, will continue building out the position.

Hi DT,
So I’ll bite here. I went online and looked at quarterly earnings growth and it is ridiculously consistent and strong growth. The combined ratio for an insurance company in the mid thirties is ridiculously good as well.

Something seems wrong here. Too good to be true. Why isn’t there any insurance companies competing for their business. My mind wanders off to Bernie Madoff. It is hard to have such consistent growth for like 16 quarters in a row. No jumps, no drops, nothing but consistent mid thirties percent growth…

What gives here? What am I missing?


Hi Randy,

I don’t think ESNT is too good to be true. I think it is simply a well run company, with top notch officers who are competing successfully in a growing industry. Here is an article written about ESNT and the industry a few months back on Seeking Alpha:…

One thing that it does have going for it is that they started after the 2007-2009 financial crisis, so do not have any excess baggage from that. Mark Casale, the CEO was at Radian during that time, and I think he saw an opportunity to start fresh and took it.

Interesting question,though. When is good, too good? So far, I haven’t found any red flags that point to nefarious activities.

BTW,Warren Buffet has done quite well investing in well-run insurance companies over the years:-)



Hi DT,
It is an interesting question. When is good, too good? I don’t have the answer, but I also have never seen an insurance company with both those type of combined ratios on top of huge and consistent growth rates? Why isnt there any competitors taking more business. Do they have a product nobody else offers. Where does their moat come from?..

I guess without doing any real work, which I might have to do, my gut is saying they are offering insurance at prices that others do not think is a good investment. I don’t know this and I don’t want to mislead anyone as to my expertise, but really 30% combined ratios? That means they pay out less than 1/3 of premiums they take in? So I guess the question is what is their insurance cycle? How long before they payout on defaults? Are they estimating payout and have underestimated the failure rate? Sometimes the law of large numbers applies, a small change in the default rate could change the 30% combined ratio to 130%.

Again, I don’t have the details and am not suggesting I do. It just seems too good. Why aren’t other insurance companies competing for their business at 50% combined ratio prices and taking business? If there ever was a commodity, insurance is it. It is usually cutthroat and 90% combined ratios are something to celebrate. This just seems too good to be true and makes me want to take a pass.

What am I missing?

Sorry, I just don’t get it. Like somebody selling paperclips and selling at huge margins, something just doesn’t seem right.

1 Like