I have been a reasonably contented investor in Essent (ESNT), a mortgage insurer that has been doing fairly well financially (I wanted at least one position in a financial sector stock given the prospect of a rising interest rate environment - jet fuel for insurers). Today I sold half my position because I’m thinking Essent may have to pay out some funds as a consequence of Harvey and, perhaps, Irma. I tried (not too hard) to determine if Essent insures significant properties in the Gulf Coast, but didn’t find much usable info. I can’t tell if I’m being prudent or paranoid.
I’m in the same boat (very happy with gains so far) but was going through the same thought process because of Harvey and the threat of Irma.
I did find from their 2016 Annual Report (http://s1.q4cdn.com/933873677/files/doc_downloads/Annual%20M…), the following:
Our in force portfolio is geographically diverse. As of December 31, 2016, only three states accounted for greater than 5% of our portfolio and no single metropolitan statistical area accounted for greater than 3% of our portfolio…
Now, unfortunately, the three states are CA (~9.5%), TX (~8.5%), and FL (~6.5%), with Houston being the 5th largest metropolitan area covered, at 2.6%.
So the exposure isn’t large, but I don’t know this industry well enough to estimate how much events like this may affect ESNT, so I’m also considering exiting my position at this time.
Isn’t being paranoid when you are an investor, being prudent??
Thanks for your response, foodles! Quite helpful. The fact that Essent has exposure in TX and FL makes me glad I sold half. Sold profitably at $38, noticed that the share price declined a bit more later in the day. I’ll just watch how things develop. We’re dealing with record-breaking storms so I can’t predict how many homes will ultimately be affected. Houston is an awful mess. Who knows where Irma will end up?
Thanks for bringing this up foodles. As an investor in ESNT, this is a risk I had not thought about until these recent hurricanes. Previously I had assumed that home owner insurance companies carried the risk for natural disasters, and that PMI covered financial defaults. But I suppose that people might simply walk away from their property if the value of their hurricane-damaged property is less than the mortgage, and that would put ESNT on the hook(?). Honestly, I don’t have a clue how this might play out, so I have sent a message to investor relations at ESNT to find out how they view this kind of risk. I’ll post their reply when/if I get any new information. For now, I am holding my shares.