foodles started a thread up-board concerning hurricane risk to ESNT. I contacted investor relations regarding this risk and within an hour, I was contacted by them and provided a copy of their standard Master Policy agreement. Listed under Section II “Exclusions or Reductions” is the following paragraph:
K. PHYSICAL DAMAGE
Except as otherwise provided in Section II(N) (Pre-Existing Environmental Impairment), any Claim with respect to which there is Physical Damage to the Property, occurring or manifesting itself for whatever reason, after the date the Company issued the Commitment, and the Physical Damage is the proximate cause of the Default. The Exclusion provided in this Section II(K), however, will not apply if the Property is restored to its condition as of the date the Company issued the Commitment, reasonable wear and tear excepted, prior to the payment of the Insurance Benefit.
In the introduction to Section II, the following was stated (bold added):
Even if a particular Loan satisfies the Eligibility Criteria, the Company shall not be liable for, and the Policy shall not apply to, extend to, or cover Loans described in the Exclusions listed in this Article II, except that if the damage to the Company arising from an Exclusion listed in this Article II can reasonably be quantified, the Company shall reduce the Claim Amount or Insurance Benefit, as appropriate, by the amount of such damage, rather than exclude coverage altogether for the Loan in question.
So as stated by their relations managing director, “To the extent that you see defaults of flood damaged homes, our master policy states that Essent is not liable.”
This gives me confidence in my investment in two ways. First, ESNT will not be materially affected by hurricanes that threaten our gulf coast, or other natural disasters for that matter. Secondly, ESNT was prompt and straightforward about answering a question from a concerned investor.
I am holding onto all of my shares, and may add to my position if they take a big hit.