Essent Group (ESNT)

Mortgage insurance provider Essent Group (NYSE:ESNT) fell short of the markets revenue expectations in Q3 CY2025, with sales falling 1.5% year on year to $311.8 million. Its GAAP profit of $1.67 per share was 5.3% below analysts’ consensus estimates.

Company Overview

Serving as a crucial bridge between homebuyers and the American dream of homeownership, Essent Group (NYSE:ESNT) provides private mortgage insurance and title services that enable lenders to offer home loans with down payments of less than 20%.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

Essent Group competes with other private mortgage insurers such as MGIC Investment Corporation (NYSE:MTG), Radian Group (NYSE:RDN), and Enact Holdings (NASDAQ:ACT), as well as with government agencies like the Federal Housing Administration (FHA) that also provide mortgage insurance.

Insurance companies generate revenue three ways. The first is the core insurance business itself, represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected but not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from policy administration, annuities, and other value-added services. Over the last five years, Essent Group grew its revenue at a mediocre 6.2% compounded annual growth rate. This was below our standard for the insurance sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Essent Group’s annualized revenue growth of 10.1% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Essent Group missed Wall Street’s estimates and reported a rather uninspiring 1.5% year-on-year revenue decline, generating $311.8 million of revenue.

Net premiums earned made up 82.2% of the company’s total revenue during the last five years, meaning Essent Group barely relies on non-insurance activities to drive its overall growth.

Net premiums earned commands greater market attention due to its reliability and consistency, whereas investment and fee income are often seen as more volatile revenue streams that fluctuate with market conditions.

Insurers sell policies then use reinsurance (insurance for insurance companies) to protect themselves from large losses. Net premiums earned are therefore what's collected from selling policies less what’s paid to reinsurers as a risk mitigation tool.

Essent Group’s net premiums earned has grown at a 3.1% annualized rate over the last five years, worse than the broader insurance industry and slower than its total revenue.

When analyzing Essent Group’s net premiums earned over the last two years, we can see that growth accelerated to 5.9% annually. Since two-year net premiums earned grew slower than total revenue over this period, it’s implied that other line items such as investment income grew at a faster rate. These extra revenue streams are important to the bottom line, yet their performance can be inconsistent. Some firms have been more successful and consistent in managing their float, but sharp fluctuations in the fixed income and equity markets can dramatically affect short-term results.

Essent Group’s net premiums earned came in at $246.3 million this quarter, down 1% year on year. But this was still enough to meet Wall Street Consensus estimates.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

Insurance companies are balance sheet businesses, where assets and liabilities define the economics. Interest income and expense should therefore be factored into the definition of profit but taxes - which are largely out of a company’s control - should not. This is pre-tax profit by definition.

Over the last four years, Essent Group’s pre-tax profit margin has risen by 7.9 percentage points, going from 73.8% to 65.9%. It has also declined by 10.2 percentage points on a two-year basis, showing its expenses have consistently increased at a faster rate than revenue. This usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

In Q3, Essent Group’s pre-tax profit margin was 63.9%. This result was 1.7 percentage points worse than the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Essent Group’s EPS grew at an unimpressive 10% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its pre-tax profit margin didn’t improve.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Essent Group, its two-year annual EPS growth of 5% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Essent Group reported EPS of $1.67, up from $1.65 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects Essent Group’s full-year EPS of $6.87 to grow 5.7%.

Insurers are balance sheet businesses, collecting premiums upfront and paying out claims over time. Premiums collected but not yet paid out, often referred to as the float, are invested and create an asset base supported by a liability structure. Book value per share (BVPS) captures this dynamic by measuring these assets (investment portfolio, cash, reinsurance recoverables) less liabilities (claim reserves, debt, future policy benefits). BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality. While other (and more commonly known) per-share metrics like EPS can sometimes be lumpy due to reserve releases or one-time items and can be managed or skewed while still following accounting rules, BVPS reflects long-term capital growth and is harder to manipulate.

Essent Group’s BVPS grew at an excellent 12% annual clip over the last five years. BVPS growth has also accelerated recently, growing by 14.4% annually over the last two years from $44.98 to $58.86 per share.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Essent Group currently has $495 million of debt and $5.74 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.1×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 1.0× for an insurance business. Anything below 0.5× is a bonus.

Return on Equity, or ROE, ties everything together and is a vital metric. It tells us how much profit the insurer generates for each dollar of shareholder equity entrusted to management. Over a long period, insurers with higher ROEs tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, Essent Group has averaged an ROE of 15.4%, healthy for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This is a bright spot for Essent Group.

We struggled to find many positives in these results. Its EPS missed and its revenue fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $61.25 immediately after reporting.

Updated: December 3, 2025 at 11:45 PM EST

Before deciding whether to buy Essent Group or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Essent Group isn’t a terrible business, but it isn’t one of our picks. To begin with, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its expanding pre-tax profit margin shows the business has become more efficient, the downside is its projected EPS for the next year is lacking. On top of that, its net premiums earned growth was weak over the last five years.

Essent Group’s P/B ratio based on the next 12 months is 1x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $67.25 on the company (compared to the current share price of $61.88).