ESNT 3rd Qtr

ESNT reported for 3rd quarter 2017 last week, and they continue to impress.

Here are the details:

Current Price = $42.32
Current 1YPEG = 0.41

Qtr		1st	2nd	3rd	4th

2013					.22
2014		.18	.23	.29	.33
2015		.38	.41	.44	.48	
2016		.52	.57	.65	.68
2017		.72	.77	.82

YoY Earnings Growth					
2014					50%
2015		111%	78%	52%	45%
2016		37%	39%	48%	42%
2017		38%	35%	26%

Revenue (million $)					
2013					42
2014		48	54	65	73
2015		80	84	92	97
2016		103	108	121	126
2017		128	138	150

YoY Revenue Growth					
2014					74%
2015		67%	56%	42%	33%	
2016		29%	29%	32%	30%
2017		24%	28%	24%

Metrics: Here are links to articles that explain the metrics I use to evaluate ESNT. These metrics can be used to evaluate insurance companies in general:……

Combined Ratio (percent):  Lower is better – 30% is just incredible!
2013		74%	59%	54%	57%
2014		54%	49%	43%	42%
2015		39%	38%	38%	38%
2016		37%	34%	34%	33%
2017		34%	30%	30%

Price to Tangible Book Value:  Ideally < 2.0
2014		4.58	4.41	4.28	3.68
2015		3.68	3.57	3.42	3.29
2016		3.11	2.95	2.82	2.76
2017		2.64	2.49	2.29

Net Premium Growth YoY				
2014		110%	83%	76%	68%
2015		68%	56%	39%	32%
2016		26%	29%	32%	31%
2017		25%	26%	24%

Net Income Growth YoY			
2015		132%	90%	63%	54%
2016		38%	41%	46%	41%
2017		39%	38%	31%

Float (million $)				
2013					106
2014		115	129	147	165
2015		174	190	207	219
2016		228	237	246	248
2017		251	259	277

Return on Float (Quarter)				
2013				1.2%
2014		1.7%	2.4%	2.3%	2.4%
2015		2.5%	2.5%	2.6%	2.5%
2016		2.7%	2.8%	2.8%	3.3%
2017		3.4%	3.6%	3.8%
Return on Float (TTM):  Very good, quite aggressive.
2014			7.5%	8.7%
2015		9.5%	9.6%	9.9%	10.1%
2016		10.3%	10.7%	10.8%	11.6%
2017		12.3%	13.1%	14.1%

(1-Combined ratio)+return on float:  Well run company is around 10-15%!
2015			72%	72%	72%
2016		73%	77%	77%	79%
2017		78%	83%	84%
Divide by P/B:  Greater than market return? P/BV > 2 maybe justified
2015			20%	21%	22%
2016		23%	26%	27%	28%
2017		30%	34%	37%
Potential Return on Float (TTM):  Equities/(fixed income + Cash)
Very aggressive and is worth watching.
2014				29.2	26.0
2015		27.2	20.2	29.1	25.2
2016		23.6	22.9	31.5	24.2
2017		28.3	18.4	18.9
Return on Equity:  Ideally in the mid-teens			
2014			9%	10%	9%
2015		11%	12%	13%	14%
2016		14%	15%	16%	17%
2017		17%	17%	16%


The one thing that might be a slight concern this quarter is that the rate of growth is slowly declining quarter to quarter and year to year, though the actual growth percentages are still very impressive. Having said that, they are doing an incredible job of expanding their NIW and IIF and earning money on their float. They have an unbelievable Combined Ratio of .30, so they are also doing an excellent job of turning new premiums into profit.

I listened to the conference call, and CEO Mark Casale mentioned that, while not liable for any actual damage, the hurricanes may bump up the rate of loan defaults over the next month or two, though they did not expect this to be a significant percentage overall. Rather, it will likely cause some volatility over the next few months.

So, ESNT has put in another very good quarter. The YPEG is still only .41, which is getting higher, but still very reasonable as the share price slowly rises to keep pace with increased earnings. I think it is a reasonable buy in the low 40’s, and any dips into the 30’s would be a great buying opportunity, IMO.



Top Notch IBD growth rankings.

Composite Rating 99 Pass
EPS Rating 97 Pass
RS Rating 83 Pass
Group RS Rating A+ Pass
SMR Rating A Pass
Acc/Dis Rating B Pass

Thanks for the info, Puddin. I don’t subscribe to IBD anymore, but those ratings don’t surprise me considering ESNT’s performance over the last few years. They are a well-managed company, and should provide a nice solid return. IMO biggest threat is another housing financial crisis ala 2007/2008, but I don’t see that happening anytime soon. I am more worried about the ongoing tech bull market. This run is starting to feel a little bubblish to me, but shows no signs of slowing yet.


Hi DT,
Great write up. I remember your posts from earlier and I must say I still don’t understand the crazy good combined ratio. Is this a quasi-monopoly, i.e., only a few companies in the PMI business? It just seems like this is a commodity and someone else would come in and offer just a little better deal and still make handsome profits.

So okay, if I accept that, I then look at the return on float. You list both a quarterly and a trailing twelve months. So am I supposed to read that as they made 3.8% last quarter and 14.1% over the last year on their float? If so, I have to ask what are they investing in? Those returns look like stock market returns which doesn’t seem right for insurance float. A small percentage in the market sure, but a majority? Also, the returns are incredibly consistent and growing. How does that make sense? What am I issuing here. Bonds are paying nothing. If they are taking more risk why aren’t the returns at least showing some variation. Your numbers show a beautifully smooth increasing return quarter by quarter.

Not trying to be a smart aleck but they look like returns Bernie Madoff would be proud of. Overall, I don’t quite understand the numbers with this company. They almost look like they were made up. Perfectly consistent, great returns. As you say, the only downside is growth is shrinking but that looks like consistent absolute growth so as the company gets bigger the percentage shrinks, still a great story.

So why isn’t the stock price higher? Not accusing anyone of anything, it just doesn’t look right. Incredibly consistent, incredibly good insurance writing, and incredibly good investing of float… overall, incredible… and ironically, that is my problem…

(Perhaps my nickname should be doubting Thomas?)

1 Like

Hi Randy,

Sounds like you are indeed more of a DoubtingThomas than I am in this case. ESNT certainly has competition, specifically RDN, MTG, and NMIH to name a few. And I will grant you that these companies are inherently difficult to evaluate and are first in line to get hammered if the housing industry crashes, which tends to happen whenever there is a general financial crisis. Jordan Wathan discusses this in a Foolish interview that can be found here:…

As Jordan points out, these type companies essentially blew up during the Great Depression, in 1987, and then again in 2008. So their ability to make profit with other people’s money is directly tied to whether the cost of housing is going up. If it goes down, and the owners get underwater and walk away, they’re left holding the bag. So that is the greatest risk to these companies. The way I look at it, we just went through the biggest housing crises in many generations, so the chances of that happening anytime soon are remote. Could it happen? Sure. But I think the odds are long, at least in the intermediate term (say 5 to 10 years).

Now as far as ESNT being a ponzi scheme ala Bernie Madoff, I’m not that worried. I am not an expert, but I believe that insurance companies are held to a much higher standard of financial responsibility. Could all the officers be cooking the books and scamming us? I suppose so, but for now I am going with the possibility that while working at RDN, Mark Casale saw an opportunity to start a new PMI company with a clean balance sheet a few years back, took the opportunity to do so, and has been successful at implementing his plan.

I am staying long ESNT for now, and may add to my position if the opportunity arises. I may be wrong, but that is how I read the tea leaves currently.



Hi DT,
I appreciate the response. I think most of what you say makes sense. The only think I still don’t quite get is the investment returns. Very good returns that seem to be doing better every quarter after quarter. Not sure how that is possible unless it is somehow absolute returns on an increasing base. I guess I need to look into it more because I agree with you that it is probably a safe time to invest in the industry since I think it is tougher than ever to get approved for a mortgage these days and it is probably a good time to invest from that perspective.

Good Luck

Hi Randy,

I am not a financial guru by any means, so not sure I fully understand how they generate such good returns either. Looking at their financial statements, they are cumulative though, not annualized. My spread sheet simply sums returns for the last four quarters which is a bit simplistic I suppose. If I sum the earnings over the last four quarters, and then divide by this quarters float, I get 13.2% rather than 14.1% - still very impressive. Thanks for “doubting” my analysis. I plan on digging a little deeper into ESNT’s financials and see if I can understand this better. Maybe an e-mail to investor relations is in order?