ESNT Reconsidered

Investment Analysis Clubs Saul’s Investing Discussions
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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.

Any thoughts?

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Putnid,

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.

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Isn’t being paranoid when you are an investor, being prudent??

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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 again!

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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.

DT