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
Earnings
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%
Revenue
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:

http://www.investopedia.com/articles/investing/082813/how-va…

http://seekingalpha.com/article/3280525-how-to-find-a-great-…

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.

**Summary**

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.

DT