Hurricane risk to ESNT

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:

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.



Thanks for doing that research, DT, appreciate that, all good info! And nice to see the company responding quickly to investor questions.

It does not really seem that ESNT’s stock price has been affected yet by hurricane Harvey’s damage in TX, or the threat of potentially significant damage from Irma in FL. Yesterday’s decline seemed to just be with the whole market being concerned with our friends in N Korea, and maybe a drop in sympathy with another insurer that was going to be hit by Harvey damage (I forget who, I just saw the headline yesterday).

I’m still weighing whether to lighten and/or possibly take all profits currently on hopes/fears of a pullback if/when this one gets taken down with other insurers if Irma also ends up causing significant damage and affecting earnings over time.

I know, very short term thinking, and not my usual style, but I have learned from this board that selling at the first sign of trouble (even if just perceived) can save a lot of paper losses, and potentially get you back in at better prices.