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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by and welcome to the Essent Group Limited Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to your host today, Chris Curran, Senior Vice President of Investor Relations. Please go ahead, Chris.
Thank you, Julie. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO; and Larry McAlee, Chief Financial Officer.
Our press release, which contains Essent's financial results for the third quarter 2019 was issued earlier today and is available on our website at essentgroup.com in the Investors section.
Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release, the risk factors included in our Form 10-K filed with the SEC on February 19, 2019, and any other reports and registration statements filed with the SEC, which are also available on our website.
Now let me turn the call over to Mark.
Thanks, Chris. Good morning, everyone, and thank you for joining us. Earlier today, Essent reported another strong quarter of financial results as the operating environment remains favorable, and credit continues to perform well.
For the quarter, we grew net income 25% year-over-year to $145 million or $1.47 per diluted share. Our results continue to be driven by our insurance in force, which grew 23% to $161 billion. In addition, our annualized return on average equity for the quarter was 21%.
Post quarter-end, Moody's upgraded our financial strength rating to A3. We believe that this upgrade is a validation of the strength and sustainability of our buy, manage and distribute operating model.
On the business front, our outlook remains positive. So secular housing trends and demographics are providing strong underpinnings for home ownership, affordable mortgage rates, low unemployment, and the millennials buying homes continue to drive mortgage demand and industry NIW.
On the risk origination side of our business, we continue to enhance EssentEDGE, which provides the capability to be more selective in pricing and shaping our portfolio. We believe that credit selection will be a key differentiator in our industry as the use of these engines evolves.
Also, given that pricing engines are being integrated into lender's best execution technologies, EssentEDGE gives us the flexibility to efficiently change price during times of stress.
On the risk distribution side, we continue to strengthen our reinsurance strategy by entering into a third-party quota-share program with a panel of reinsurers. This quota-share adds capacity to our existing use of ILN and XOL reinsurance, which in the aggregate reduces earnings volatility and then protects capital in stress environments. We believe that the use of reinsurance is a long-term positive for policyholders, shareholders and employees.
On the capital front, our balance sheet remains strong with $3.7 billion in assets and $2.9 billion of GAAP capital. At the end of the third quarter, we had 65% of our book reinsured and access to $1.8 billion of reinsurance. When combined with our GAAP capital, we have $4.7 billion supporting $41 billion of risk.
Based on our strong capital position and our confidence in the sustainability of our cash flows, our Board has declared a quarterly dividend of $0.15 per share to be paid on December 16, 2019. We believe that a dividend is a tangible demonstration of the benefits of our buy, manage and distribute operating model. Also a dividend of this size, affords us the opportunity to continue investing in the business and take advantage of other potential growth opportunities.
Finally, on the Washington front, we are encouraged by the recent actions of FHFA and treasury and the progress that they are making and trying to strengthen the future of housing finance. While the end result is not clear, we remain confident that Essent and our industry will continue playing an integral role in a well functioning and robust housing finance system.
Now let me turn the call over to Larry.
Thanks, Mark, and good morning, everyone. I will now discuss our results for the quarter in more detail. Net earned premium for the third quarter was $203 million, an increase of 8% over the second quarter of $188 million, and an increase of 22% from $167 million in the third quarter of 2018.
The increase in earned premium over the second quarter was due primarily to a 6% increase in average insurance in force as well as an increase in single premium policy cancellation income to $14.6 million from $8.8 million in the second quarter. Persistency declined during the quarter to 82.1% from 84.8% at June 30, 2019.
The average net premium rate for the U.S. mortgage insurance business in the third quarter was 49 basis points, which was consistent with the second quarter of 2019. Note that this rate excludes premiums earned by Essent Re on our GSE risk share transactions.
The favorable impact of singles cancellation income on the net premium rate for the third quarter was partially offset by an increase in premium ceded to $10.3 million from $8.4 million in the second quarter of 2019.
Investment income excluding realized gains was $21.1 million in the third quarter of 2019, compared to $20.6 million in the second quarter, and $16.6 million in the third quarter a year-ago. The increase in investment income over the second quarter of 2019 is due to a modest increase in the balance of our investments. Realized gains on the sale of investments were $1.2 million in the third quarter of 2019.
We recorded a loss of $760,000 in the third quarter compared to a gain of $1.2 million in the second quarter for the change in fair value of embedded derivatives associated with the insurance-linked note transactions. This loss is included in other income and our consolidated statements of comprehensive income.
Our provision for losses and loss adjustment expenses was $10 million in the third quarter, compared to $5 million in the second quarter of 2019, and $5 million in the third quarter a year-ago. The default rate on the entire portfolio increased 9 basis points from June 30, 2019 to 75 basis points as of September 30.
Other underwriting and operating expenses were $41.6 million for the third quarter of 2019, compared to $41.5 million in the second quarter, and $36.9 million in the third quarter a year-ago. Our expense ratio declined to 20.4% in the quarter, compared to 22% in the second quarter, and 22.1% in the third quarter a year-ago.
The consolidated balance of cash and investments at September 30, 2019 was $3.4 billion. The cash investment balance at the holding company was $98 million. In August, Essent repaid a $40 million dividend to our holding company, Essent Group Limited, which paid its inaugural cash dividend of $14.7 million to shareholders in September.
As of September 30, 2019, the combined U.S. mortgage insurance business statutory capital was $2.2 billion with the risk to capital ratio was 13.4:1. The risk to capital ratio reflects a reduction in risk in force of $1.8 billion for reinsurance coverage in place.
Also Essent Guaranty's available assets exceeded its minimum required assets as computed under PMIERs by $818 million. Finally, at the end of the third quarter, Essent Re had GAAP equity of $908 million, supporting $10 billion of net risk in force.
Now let me turn the call back over to Mark.
Thanks, Larry. In closing, Essent had another strong quarter as the operating and credit environments were favorable and we remain pleased with the progress in transitioning our operating model. The combination of EssentEDGE on the front-end and reinsurance in the back-end is a key enhancement in continuing to build and manage a profitable mortgage insurance portfolio. Looking forward, Essent is well positioned and we remain positive about our business and prospects.
Now let's get to your questions. Operator?
[Operator Instructions] Our first question comes from Mihir Bhatia with Bank of America Merrill Lynch. Please go ahead. Your line is open.
Hi, and thanks for taking my questions. Good morning. Let me just start with market share. I know you don't manage the market share, but clearly, there was some shift. So maybe you could just help us – maybe just give us a little bit of context here. Were there pockets where you chose to pull back? Was it just the normal ebb and flow of the market in your view?
And then also just I guess relatedly overall at this stage, is your growth being driven by adding customers or growing wallet share with existing customers or just more housing market dependent when we think about market share and just growth prospectively?
Yes. I mean I would take a step back. I do think a lot of the growth in the industry is being driven by housing, right. We follow the fortune of housing. And we said for a while that demographics really have provided a nice tailwind.
So high tide lifts all boats, so to speak. And I think that's important for investors to understand is that we are in. I would say a secular uptrend. And I think with Essent, really the story I mean here is a secular growth story without a lot of the cyclicality that we've had in the past.
So in terms of growth, it's really driven by insurance in force, right. We said that's going to be gaining I think $18 billion of NIW. We grew insurance in force 23%, kind of year-over-year net income up 25%.
So I think in terms of our market presence, I've always said, look, we're going to be kind of in that mid-teens, and it ebbs and flows quarter-to-quarter. There's a bunch of different things that could drive that that I don't think it's worth getting into because I think you missed the big picture with – from taking a step back in terms of where – how quickly the insurance in force continues to grow.
And again, that's really a function of just how big the market is. And when the market gets to be this big, there doesn't share is never – we've said it's never been a huge metric and I think it becomes less so, when the market is big. It's really going to be around unit economics and making sure we understand price.
So there's a chance really to keep that premium level high and you don't have to go chase NIW, so to speak. So all-in-all, I think we couldn't be more pleased with the situation in terms of customers, and we've added a lot. I think we still added 50, 60 this year. So we continue to add them, but they're on the smaller side. I think most of the bigger guys were in with. So I would say the growth longer-term at Essent is really going to be driven by the industry growth.
Fair enough. And then switching maybe a little bit on like just the Moody's upgrade. I was just wondering, does it have any near-term implications that we should think about in terms of that? Clearly, obviously a positive overall, but just trying to understand if there's any near-term implications? And then if you can remind us if you have any specific targets in terms of just managing your capital expenditure?
Yes. In terms of tangible, I think it helps on our line a little bit, lowers the cost a little bit. I think it helps us qualitatively with the GSEs and clearly some of the larger lenders.
If we were ever to issue, we don't have an issuer rating yet at the HoldCo, but my guess now with this rating would be investment grade at the HoldCo, which is significant so forever in the market to issue senior debt. There's probably 25 to 50 basis points decrease in rates because of that. So I think that's a good thing to have.
Taking a step back though, I think the significance of the Moody's is really the validation here at the model that we're transitioning to. And again, I'm going to sound like a broken record, but the industry was always boom and bust.
And we are before year highs over the last few years. We're transitioning into a real insurance company, almost a specialty insurance company in terms just because of the specialty being the mortgage expertise we have.
And I believe investors will – I said it I think a year-ago that the rating agencies would start to recognize it and they did. We're also rated A at A.M. Best, and I think investors over time will learn to appreciate just the cash flow generation of these enterprises, and in the fact that we're able to mitigate a lot of this risk.
Part of the Moody's ratings process and this is interesting as we went through a CCAR scenario, Moody's gave us the CCAR assumptions, which is – it's a five-year projection of the P&L balance sheet and shareholder's equity. It's down 25 HPA over the first couple of years. There is no access to reinsurance on a go forward basis.
And I think NIW is cut in half. The claim rates are relatively high, especially on the 2019 book because it's a newer book, not to the extent where they were in the great recession just because the credit quality is better. But the key output here was we earned money for the whole five years.
So we had trough ROEs probably in the mid-single digits, but we continue to add the book value. And I think that's a pretty strong output. And I think in the past recession, the MIs depleted book value at a very large rate. And whenever you deplete book value, it's tough to have a floor on market value.
And again, I think this exercise really proved to us and I think it will – obviously to Moody's too, that there's a lot of strength in this model, a lot of strength in terms of the reinsurance. So I think that it was reflected in the A3 rating, but I think that's a pretty strong – it's a pretty strong validation.
Certainly, and I think we appreciate your comments on especially the CCAR scenario type of modeling and what the business would look like. I guess just one last question. In terms of just your investment income with the Fed shifting towards rate cuts, again just what's your outlook for investment income? Is the growth in the portfolio going to offset a lot of that rate pressure if you will, and then relatedly with the ILNs…?
Yes. The portfolio will continue. The investment portfolio will continue to grow just because of the cash we're generating. The yields should stay kind of in that mid-2s range. But just because of the growth in the portfolio, you should see the investment income continue to grow, maybe not to the level if rates were higher, but still growing at a nice pace.
Did the ILN help you on that? Yes. Sorry, just to be – sorry. Go ahead, Larry.
The ILNs do not help us on – I mean we can get lower rates.
Like into the strategy I was thinking more.
Yes. Now it doesn't really – it doesn't come into play. I think we managed.
Okay.
We're managing the investment portfolio. We continue to manage it pretty conservatively. And I think that's the point of an insurance company, right. I mean, highly rated, very liquid to be able to pay your claims. You could argue that we could take more risk in any investment portfolio because we're reinsuring the insurance portfolio, but given where the yields are, I really don't think that's the place to do it. What we have done, and I'll point to this, it's on the balance sheet. We have about approximately $75 million of other invested assets.
And what we've done there is we strategically invested that in – I want to say eight to 10 different funds. Some are technology funds that are – and some are private equity funds, all pretty much related to housing and real estate.
Small dollars relative to our overall investment portfolio, but the idea is to gain access into insight. So is there a technology within these funds or one of the smaller companies in the funds that can help us price risk better? Could it help us underwrite more efficiently is one of the funds that we invest in is access to single family rental, which we believe is a – it's really the replacement for non-QM in the market.
And really it plays to the lower FICO and we do – and again, we believe in demographics and this is a way – another way to play the growth, obviously on the rental side, but we're a big fans of that industry.
So again, it just gives you a taste of how we think of the investment portfolio. It's a way for us to continue to look for growth opportunities, right. I mentioned in the script that we're trying to continue to reinvest in ways to find growth. These are small bets that allow us to potentially take a larger bet down the road, but it's a nice, I would think, process in organized way to look at growth opportunities.
Thank you for taking my questions.
You're welcome.
Our next question comes from Sam Choe with Credit Suisse. Please go ahead. Your line is open.
Hi guys. I'm on for Doug today. So the NOD increase this quarter was quite substantial. And I know that's partly due to the seasoning of the recent vintages, but since I have you guys online, I was wondering if there was a particular bucket in the portfolio that contributed to this or it's just generally spread out?
No, it's still. I mean, some of it's just general seasoning of the portfolio and yes, there's no geography or particular like LTV or DTI and that's pretty – it's pretty straight across. The one thing I would add is, and this is important. Post-crisis, we've seen this, that most of our claims are still due to job loss, debt, divorce, all the normal default parameters that you would expect that MI has to pay. I mean, that's what we're here to do.
We're not seeing any of the thing that you saw back in the past. So some of this, yes, and that's why when we point to losses, clearly the default rate at 75 basis points is an extraordinarily low rate. If the economy starts to soften, and unemployment goes up, you would start to see that rate rise. And I think that's pretty normal. And I think we would expect that.
I think when we've been public now for six years, we've been fortunate that we've – we participated in a growing economy. But I don't think we ever thought or promised that we would run at recession-free. So again, that's part of – over time if unemployment rises, losses could particularly – we always said 2% to 3% claim rate and we've been well below that.
So I'd expect that to revert to the norm over time. And it's also another reason why we have the reinsurance, because we're fine with that 2% to 3% normal rate, when it gets evolved. The volatility above that is what really impacts capital.
Great. And one more from me. I mean the progress on the expense ratio front has been good. And I just want to go back to like what you guys have been doing operationally on that front and where do you see that trending in the immediate term?
I think the ratio it really is just a mathematical output, right. I mean, it's really – we really focus on nominal expenses. I think the ratio has come down a little bit more because of just the growth in the portfolio and the premiums. But really focus on the nominal and we spend a lot of time on it, to be honest. I think that's – we've always said, the best risk companies are the best cost managers. I think we've done a good job. We can always do better.
And if I look at it – we look at our nominal expenses relative to our competition, and I would urge everyone to do the same. I think we do pretty well and we constantly look at expenses. I still sign checks over a certain amount. Larry and I still work together on that. And that's a culture that came from a group of individuals that started the company and wrote checks in this business.
Again, that's different from others in the industry that inherited or came on as leaders of the organization. We started – it's not good or bad. It's just that's how our culture is. And I think expenses is – when you get into a market of this size and a commodity like product like MI, don't be fooled as to someone has better customer relationships or better products and services. It's all about managing your capital, managing your expenses, making sure you protect the tail. It's all about blocking and tackling.
And the growth as – in response to Mihir's question earlier is really going to be come from housing and the growth in that market, which we obviously think is better than expected, but we're pleased with it.
Okay. That's it for me. Thank you.
Our next question comes from Phil Stefano with Deutsche Bank. Please go ahead. Your line is open.
Yes. Thanks and good morning. Probably more so than market share, we've been focused on risk adjusted returns, and I was wondering if the view of risk adjusted returns has changed at all, now that you have some more time with EssentEDGE under your belt, has that helped to form your idea of what the returns feel like in the business? And then you talked, Mark, about the ability to increase pricing in a downturn. Has there been any tweaks to pricing as the lessons about returns have come through?
Yes. Really, good questions, Phil. I would say, we continue to test EssentEDGE around the pricing elasticity. And we have anywhere six to seven different pricing kind of tests in the market and we've switched them on and off. I would say it's very sensitive to price changes based on what we can tell. So yes, there's certain pockets where we think you can either get more premium relative to what's in the market and other places where we don't think you're particularly getting paid for it.
But I would say, and we've been asked before around price competition and stability. We're not seeing a lot of change even with these pricing models, as you see the output. They're aggregating right around kind of the mean. I mean, let's face it. It's 7.45 FICO and 90 LTV. You're not going to – there's not – it shouldn't be that much pricing volatility.
I think in – as the years go on, the next few years still, I think the answer is going to be, can you get more data to better understand and estimate default. That's something we're working on and I wouldn't be surprised if all the MIs are investing in ways to become more sophisticated around pricing.
I said before, I do believe the industry will go more towards kind of the GEICO and Progressive model where there's going to be risks and pricing and pockets or geographies that certain MIs like and some don't. Again, very consistent with my specialty insurance team, that's what insurance companies do.
What mortgage companies tend to do is, more volume and that's okay for a mortgage company to think that way because a lot of the times they're selling off the risk, and if you're selling off the risks, more is better. When you're holding the risk on your balance sheet and you have to manage it for a long time, more is not necessarily better and you have to make sure it's priced.
But to your answer, really just about unit economic returns at the beginning, they're pretty stable. I mean we're not – and when we look at unit economic returns, we kind of do it full tax rate without the benefit of reinsurance. We're trying to just – and then obviously the reinsurance to Bermuda and some of the ILNs provides a little bit of a lift, but I don't think you want to rely on that.
I think it's more around the unit economics kind of in the core business straight up. And we're still pretty pleased with them and we haven't seen a lot of change just in premium rates or estimated losses really over the past kind of 15 to 18 months.
Got it. Okay. Maybe to take this in a little different direction. Did the industry – the MIs are becoming smarter and there's more of an emphasis on data and analysis. The times that you have into the originators is probably tighter than it was under a risk-based pricing model than a rate card. Are the systems that the industry and I guess yourself in particular have sophisticated enough to deal with this…
Yes. That’s a good question. Yes, I would say right now – I would say the answer is probably no, in the industry. I think there’s going to be some investment because you're going to have to – and I think the technologies out there that allows you to – because you really have to – right now, we've said this before, we kind of priced on 12 to 15 factors.
So when an a loan officer is sitting in and putting in those 10 factors into Optimal Blue or Ellie Mae or they're imported in, and they come to Essent and get a price. If you're going to rely on other factors, you're going to have to be able to do that and then get it back to the point of sale in a relatively fast fashion.
So there's really two components to it. It's the modeling and the analytics to be able to estimate default better or separate different FICOs in more granular and other types of things. They still kind of get it back to the customer less than a second.
So I mean I think there's investments in it. I'm not sure that was great as you think they were. 10 years ago, it might've been – it might have cost a fortune with older cobalt-based systems. Now the systems are very modular. A lot of things you can move onto the cloud and do it much quicker. The tools are much better, will enable us, and I think I would say the same thing for the rest of the industry to build these type of tools.
And I think what the result is going to be. It's going to – you're going to see a pretty well-disciplined industry because remember we talked about this before. The engine is a risk management tool. So it gives you the ability to change price and we've tested some increase in pricing. It's never going to work that well in a market where credit is so good. I mean it's really one way pricing, it’s going to go when credit is this good. You're going to need a little bit of a scare.
The other thing you've got to keep in mind with pricing, Phil, is capital. And right now we're at PMIERs 2.0, don't be surprised, right, PMIERs 3.0 could come. We're still waiting on CCF to be finalized. So I think even when you think about unit economic returns, you really have to think through potentially different capital requirements.
And we said from the beginning, PMIERs is a great discipline, strong capital standards or a great pricing discipline for the industry. But the other thing you have to think about is just in terms of how you manage capital and making sure you have enough, because you're always looking at different scenarios, right. It's easy to say, right now, the economy is growing, credit is good, housing is going, let's get more share.
Let's buyback shares because we have excess capital. I think you have to look at multiple potential outputs. And for someone like me who's lived through a few cycles, I think we look for potential paths where things could go one way or the other.
I think our view is corporately and with support of the board is if there's going to be a time of stress, I'm going in – and I'm going in with strength. I'm not going in with weakness, and I've lived that life before, and I think with Essent given we're all shareholders. We're going to be very, very cautious and conservative how we manage our capital.
Got it. Thanks, guys. And [indiscernible] holds up for you.
Thanks.
Our next question comes from Bose George with KBW. Please go ahead. Your line is open.
Hey, guys. Good morning. I wanted to ask about the decision to use quota-share reinsurance, the drivers there and just how you balance that with use of ILN?
Yes. Sure, Bose. I think we've been very pleased with the ILNs. With the capital markets, extremely pleased. We have a lot of breadth and depth with the investors. It's a smart investor base, a really kind of a good second set of eyes with us in terms of the credit.
We've been pleased with the XOL that we've done with the reinsures. This is really just another tool. So I think quota-share is something we haven't utilized in the past and we like it. One, you're in a little deeper with the reinsurance partner, so it allows us to leverage bigger balance sheets, which we like.
And we get the go-forward part of the equation, which we haven't really been able to do yet. And again, as we think through looking forward, the ability to reinsure going forward, with really strong partners. We're really pleased with the panel. We thought that was a good addition to our reinsurance kind of portfolio so to speak.
Okay. And from a return standpoint, if you look at it that way, sort of what's – are they sort of equally as efficient in terms of the returns you generate using the kind of reinsurance?
Yes. I mean there's – obviously the parts that there's also a moving parts there, but I would say we're still kind of in that 4 to 5 basis point range when you think of the cost – the premium cost of all these transactions. And again, I think that's important for people to understand as we continue to hedge out the portfolio when it grows. It's a significant investment on our standpoint.
So if we got to, let's use example, $200 billion of insurance in force, 4 to 5 basis points, we're saving $100 million off the topline. We think that investment, that return on that investment actually is very high. But I think that's something for – I think that's an important point for investors to understand that we're not trying to grow as fast as we can. If we were, we wouldn't obviously spend the money on that.
We're really about risk adjusted return, sustainability of cash flows, everything that kind of real insurance companies do, and not that kind of boom and bust, which was really the MIs of the past because we didn't have access to the tools.
So I think you've seen Essent. I think we've been very aggressive in the use of them because we believe in this model and I believe – the others in the industry have been pretty good users of it too. I really do think it changes how investors will begin to look at the industry over the next few years.
Okay. Makes sense. Actually – and one other small question. Just on the other income line item, is that just the GSE we are sharing and curious where that was down this quarter versus the last couple?
Yes, Bose, this is Larry. No in other income the GSE risk premiums are interim premium. And we made that comment in the script just to clarify. So we're in premium includes our primary earned premiums on the U.S. business as well as GSE premiums.
What's in another income are some service fees and some underwriting fees, and what's impacted that during the quarter is that we took a loss of $760,000 associated with the embedded derivatives in our ILN transaction. So that contributes to the decline in other income quarter-over-quarter, the gain in the second quarter was about $1.2 million.
Okay, great. Thanks.
Our next question comes from Mackenzie Aron with Zelman & Associates. Please go ahead. Your line is open.
Thanks. Good morning. Just a quick question on the premium yield, can you quantify what the single premium benefit was this quarter and then how we should be thinking about the yield heading into next year with the QSR in place?
Yes, the premium impact was pretty – it was probably the largest we've ever had and it was over 3 basis points. So it was a big number. I mean we'll not disclose that number. I think it was 14. So it's a pretty big number.
Going forward, Mackenzie, I do think the premium rate will continue to decline. I think it's important as you model the stuff out to understand that and it's really driving is the reinsurance more so than the premium compression.
I think the premium compression, its there, right. I mean, we had a big drop in premiums with the new rate cards earlier last year that's working its way through. It's not as significant as maybe – as people may believe, but I do think the – premium is a big number and that's why I highlighted. Potentially it could be up to a much larger amount as the portfolio grows.
I think that's important for you guys to kind of model out, so it's 49 this quarter. It'll definitely trend lower over the next year – couple two or three years. I mean, it'll be on a quarterly basis. It's not a cliff, it's just a – it's a slow, steady drop. And it's important for investors to understand that.
Great. Thank you.
Next question comes from Jack Micenko with SIG. Please go ahead. Your line is open.
Hey. Good morning, guys. First question, wondering about your appetite for the GSE risk share business going forward, I mean, the flow business has been so strong. The size of the market has been surprisingly strong. Does your appetite change there given the strength in the core as we think about risk adjusted returns and that sort of thing?
No, not really. I mean, they're managed separately and it’s different risks there. I think we're very – I think when you just take a step back with Bermuda and the whole, it's been pretty successful. It's another platform to invest in their risk.
We're up to close to $850 million of risk in force. We have a pretty steady share with that amongst other reinsurers. So we like the returns. We still have actually given the performances as performed better than we would have even estimated at the time of origination.
What I like about it, Jack is, there is some optionality there. Again, as you know, there's always perception risk and real risk. I think given our position in Bermuda, there was a headline scare.
I think some of the reinsurers maybe more prone to headline scares than others. And if there's a little reduction in capacity and we still like the risk as we're a lot closer to it. There's some optionality for us to take some outsized share in a quarter or two. Very similar to how we look at it in the U.S. business. It's a little different, right. I mean, it's very efficient there.
So I think we liked the business there. And if we could do more at certain returns, we certainly would. It depends really where you're playing in a structure too. I mean there's lower in the structure, which is a little riskier to go higher up in the structure. The returns are a little bit less, but obviously, a lot less volatility. So I think we're - again, pleased with it and we wouldn't necessarily given our capital position need to kind of allocate capital from one to the other.
Okay. And then taking things to more of a higher level, a couple of weeks ago, a large title insurer talked about looking at acquisitions in the insurance area and in housing and really was looking to maybe diversify away from the transactional side of the business to something more I think steady.
Obviously that got us thinking about MI. You've talked about M&A in the past. Just curious what your thoughts are around the combination of maybe a title and MI together. Are there obvious pros or cons that you could think of or strategic reasons why that would or wouldn't make sense?
Yes, I don't think there's any strategic reason at all to be honest. I mean, there are different call points at the customers, different decision makers. The businesses are pretty correlated in terms of originations. So I think you have to be – we've always looked at title and in past 20 years, I've looked at it. It’s a very good business, but I think it's pretty similar to MI.
I wouldn't necessarily look at that from an Essent perspective as something that we would be potentially a part of. I think we would look longer term to either be a consolidator on the MI side, should the opportunity arise or longer term, we're probably a better fit within a larger P&C organization of a large multi-line, not the title industry. The players that are very – some of the bigger guys are really strong and I don't see quite the fit just because of the core.
Appreciate the thoughts.
Next question comes from Chris Gamaitoni with Compass Point. Please go ahead. Your line is open.
Good morning, everyone. Most of my questions have been answered. Just want to start from a high-level. As you go into the kind of the end of the year board planning, what are your corporate priorities heading into next year?
I think that's a good question, Chris. I think it's more of the same. I think we've had corporate goals really to get more sophisticated around risk origination, which is really [indiscernible] the engine and then continue to build out the breadth and depth of our reinsurance program.
So I think it's going to be – there's going to be a big focus on both of those. And I think we're going to continue to look at ways to be more efficient. So I think we're going to continue to look at that as the business changes. What are the implications both on the front-end and the back-end and continue to look at that.
But I would say the risk origination side around the engine and trying to incorporate more pieces of data and so forth and get it to the point of sale will be a big kind of corporate goal for the team in addition to continuing to kind of build out the reinsurance.
Perfect. Thanks so much everyone.
Next question comes from Rick Shane with JPMorgan. Please go ahead. Your line is open.
Hey guys. Thanks for taking my questions this morning. There was an uptick in delinquencies. I'm curious if that is geographically concentrated in any way just portfolio seasoning. And then we did notice that the reserve rate on delinquencies went down a little bit for the second quarter in a row. Is that a function of underlying home price appreciation and perceived less risk?
No, it's not. I mean, I think on the first question, it's really just general seasoning and it's a broad section of the portfolio. No discerning kind of indicators around LTV or DTI. And in terms of the reserves, it's still just – it's really, a lot of it is just where it sits in a bucket. And again, these are essentially – it's different if there's the larger concentration in a earlier bucket versus a later bucket that'll really cause the swing.
Got it. Great. Thanks guys.
There are no further questions at this time. I will turn the call back over to the presenters.
Great. Thank you, operator. Before ending our call, we'd just like to thank everyone for your participation. We very much appreciate our analysts and our investors and have a great weekend.
Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. And you may now disconnect.