ESSENT GROUP LTD. (ESNT): what the price assumes

In the published model solve dated 2026-Q2, anchored at $68.90, ESSENT GROUP LTD. (ESNT) is priced for 9.8% return on equity. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-26.

Generated: 2026-08-30 · Exported: 2026-08-31 · Source: https://boothcheck.com/report/ESNT

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Solve inputs: computed at a 9.3% cost of equity with 4% terminal growth over a 10-year stage, on common book equity (FY2026).

How unusual the bet is: within-range

Valuation X-Ray

The price is supported by asset-based and earnings-power value. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Asset, Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.9%); the inversion above states its own rate.

Per-Model Detail (n=4)

Economic-Unit Decomposition (Sum Of The Parts)

The issuer is a funded financial business. Debt, interest, and cash flows are operating inputs, so industrial EV, net-debt, WACC, and free-cash-flow lenses do not apply; value the common-equity claim with book, earnings, capital, and payout economics.

No unit-level total common-equity value is stated. Each financial unit requires supported standalone common equity, normalized earnings, capital adequacy, and payout capacity. Consolidated debt, interest, and cash are operating balances, not an enterprise-to-equity bridge; company-level book, earnings, capital, and payout lenses remain the coherent cross-checks.

Solvency

Deposit/float-funded balance sheet: debt is funding, not corporate leverage, and GAAP operating cash flow follows loan flows. Net-debt, interest-coverage, and cash-burn lenses do not apply. The solvency frame for a financial is regulatory capital and payout capacity (CET1, stress buffer, dividends plus buybacks against earnings).

Bullet Takeaways

• The in-force book stood at roughly $248.4 billion of private mortgage insurance at the end of 2025, with an annual persistency rate of 85.7%, which means most of this year's revenue was priced and sold in earlier years.
• Credit is turning: loans in default rose to 20,210 from 18,439, the default rate moved to 2.50% from 2.27%, and the 10-K states that the book "is entering its anticipated period of highest claim frequency."
• Second-quarter results are due August 7, 2026; the shares trade near book value while the business has been earning a return on equity around 12%.

Bull Case

Mortgage insurance is an unusual thing to value because almost none of the work happens in the year you are looking at. A policy is written once, priced against the borrower's credit at that moment, and then collects premium every month for as long as that borrower keeps the loan. So a mortgage insurer's income statement this year is mostly a report on decisions made three to seven years ago, and the balance sheet is where the live information is. That is why the sector is read off book value and the return earned on it rather than off an earnings multiple, and why a mortgage insurer trading near book with a mid-teens return is either an opportunity or a warning.

Start with the scale of what has been written. The company carried approximately $248.4 billion of private mortgage insurance in force at the end of 2025, spread across 807,230 policies, with the annual persistency rate at 85.7%, unchanged from a year earlier. Persistency is the quiet engine here. Every point of it means another year of premium on business whose acquisition cost was paid long ago, and with mortgage rates where they are, borrowers holding low-rate loans have little reason to refinance away.

The underwriting is also increasingly done at scale rather than file by file. Roughly 76% of insurance in force had been originated on a delegated basis as of the end of 2025, against 74% a year earlier. Delegated underwriting means the lender applies Essent's guidelines directly, which lowers the cost of writing business and puts the discipline into the guidelines rather than into headcount. The exposure per policy is also structurally capped: coverage runs at approximately 27% of the underlying primary insurance in force across the portfolio, varying between 6% and 35% by policy. This is not an insurer with unlimited downside per claim.

The return on that setup has been comfortably above what it costs to raise the equity. The business has been earning a return on equity of about 12%. Raising fresh equity costs it a little under ten percent, so the spread is genuine, and the shares change hands at about 1.06 times book value. A financial earning a genuine spread over its own cost of capital while trading barely above the capital itself is the shape value investors look for, and it is why the static valuation approaches here point the way they do.

Capital return is where management has been putting the difference. The share count has fallen about 3.4% a year over the last four years, which for a company whose value is measured per share of book is direct compounding: fewer claims on the same capital base. Alongside that sits a common dividend of $1.40 a share annually. The capital framework the industry operates under, the eligibility requirements maintained jointly by Fannie Mae and Freddie Mac, sets the floor on how much of that capital has to stay put, and the company uses third-party reinsurance and its Bermuda reinsurance arm to manage the required-asset burden. Buying back stock at roughly book value while earning above the cost of that book is the cleanest capital allocation decision available to a business like this, and it is the one being made.

Bear Case

The advantage that has carried this industry for a decade is house price appreciation, and it is quietly running out. When a borrower defaults but the house is worth more than the loan, the property gets sold and the insurer often pays nothing. That mechanism is why post-crisis loss experience has looked so benign. MTG's own 10-K names the fading of it directly, noting that home price appreciation and pre-claim third-party sales have mitigated net losses in recent periods, and that it expects its exposure to increase as delinquencies arrive on loans that have not seen the same price gains. The timing, it adds, is uncertain. That is the erosion, and it applies across the sector.

Essent's own numbers have begun to show it. Loans in default rose to 20,210 at the end of 2025 from 18,439 a year earlier and 14,819 the year before that, taking the default rate to 2.50% from 2.27%. What matters more is the second number underneath it. The average case reserve per default rose to roughly $19,600 from about $15,500, and total reserves for losses climbed to $429.6 million from $310.2 million. More defaults, each one reserved at a higher expected cost. That is what the early part of a credit turn looks like on an insurer's balance sheet, and it is happening while the policy count is going the other way, down to 807,230 from 813,013.

The company is not hiding from it. The 10-K states plainly that its book "is entering its anticipated period of highest claim frequency", and notes that defaults and reserve severity will be driven by macroeconomic factors it cannot control. It also lists the drivers that push incurred losses up, including "credit quality of borrowers, including higher debt-to-income ratios and lower FICO scores, which tend to increase incurred losses." The newer vintages were written into a market of high prices, high rates and stretched affordability. Those are the loans now entering the years when claims peak.

There is a structural cost arriving alongside the credit one. Bermuda enacted its Corporate Income Tax Act in December 2023, and the company's reinsurance operations there had historically not been subject to a corporate income tax. A permanently higher tax rate on part of the group lowers the after-tax return on equity for every future year, independent of how the credit cycle goes. Nothing about the underwriting has to deteriorate for that to reduce the number the whole valuation rests on.

Here is the honest shape of the bear, though, because the price already reflects a good deal of this. The methods anchored on book value, on earnings power and on peer multiples all land above today's price, so nobody is paying a premium here. What today's price assumes is that the company sustains a return on equity of roughly 9.8%, against the 12% it has recently earned. The bear case is not that the market is wrong to be cautious. It is that the caution may not be deep enough: if the reserve build continues at the pace of the last two years, the earned return has further to fall than the price currently allows, and a business valued on book earns its multiple back only by keeping that book intact.

Valuation

An insurer is worth what it earns on its capital, so the reading starts with price against book rather than price against earnings. The shares trade at roughly 1.06 times book value, and inverted, that says the market expects a sustained return on equity of about 9.8%. The business has recently been earning about 12%. The gap between those two numbers is the entire valuation argument, and it runs in the buyer's favour rather than against them. The calculation uses a cost of equity near 9.5%, and it is close to one-for-one sensitive to that input: each additional percentage point of required return raises the implied return by roughly the same amount.

Two references frame how ordinary that assumption is. Against the company's own record, the assumed return is well within what it has demonstrated. Against the peer group, the price-to-book sits in the lower half of the range. And historically, a return at this level has proved reasonably durable, with something like three quarters of firms earning it sustaining it for as long as a decade. This is not a demanding bet. It is a bet that the business stays roughly as good as it has been.

The methods agree, which is itself unusual. The approaches built on book value plus profitability, on earnings power, and on peer multiples all land above today's share price. The one method that lands below it is a forward model that projects a terminal price-to-sales multiple, with the price sitting about 48% above where it comes out. For a mortgage insurer that lens is poorly matched to the business: premium revenue reflects a book priced years ago rather than current sales activity, so scaling it by a sales multiple measures the wrong thing. The pattern that matters is that every value-oriented approach reaches or exceeds the price.

The specific method built for this kind of company is worth naming. It takes tangible book value per share, around $60, and applies a multiple derived from the return earned relative to the required return. On a 12% return against a 9.3% required return, that method lands well above where the shares trade. It is the same arithmetic a bank analyst runs, and it says the market is currently unwilling to capitalize the full spread.

Against the direct cohort the comparison is one of scale rather than economics, since the peers file on similar terms. RDN grew revenue 14.1% and NMIH 7.3% on their latest filed figures, while MTG shrank 1.2% and ACT grew 2.0%. Essent sits in the middle of that group by revenue. What distinguishes it is the balance-sheet decision rather than the underwriting: the share count has fallen about 3.4% a year over four years while the peer set has been less aggressive.

For a company like this the balance-sheet question is regulatory capital and payout capacity rather than leverage or coverage. The eligibility requirements maintained by Fannie Mae and Freddie Mac set the required assets, and Essent manages the burden with third-party reinsurance and its own Bermuda reinsurer. The offsetting item is the one that moved this year: total reserves for losses rose to $429.6 million from $310.2 million, and the average reserve per default rose with it. Reserves are capital already spoken for. If the reserve build continues, it competes directly with the buyback for the same dollars, and the buyback is the mechanism doing most of the compounding.

Catalysts

Second-quarter results are scheduled for August 7, 2026. The line to watch is not the profit figure but the default inventory and the reserve per default, because those two numbers are what changed materially through 2025 and they determine how much of the earned return survives.

The first quarter set a reference point. The company reported net income of $171.8 million, or $1.82 per diluted share, and attributed the result partly to favourable credit trends and the level of interest rates. High rates cut both ways for this business: they suppress new originations, which limits new insurance written, and they raise persistency on the existing book, which extends the premium stream. The second-quarter report is the next read on which of those two effects is dominating.

The sell side has been drifting upward, from different starting positions. Keefe Bruyette raised its target to $74 from $73 on July 3, 2026 with an Outperform rating, and JPMorgan raised its target to $72 from $65 on July 12, 2026 while staying Neutral. Both sit above the current share price and below where the book-value methods in this report land, which is a reasonable place for the street to be on a company trading close to its own capital: the upside is arithmetic, and the timing depends on a credit cycle nobody can date.

Peer Cohorts (Per Segment, With Filing Citations)

Mortgage Insurance (reported)

• MTG (MGIC Investment Corp)
• FY2025 10-K: …However, there can be no assurance that the higher premium rates adequately reflect the risks associated with higher coverage percentages. In accordance with GAAP for the mortgage insurance industry, loss reserves are only established for policies covering delinquent loans. Historically, because relatively few…
• FY2025 10-K: Insurer Eligibility Requirements issued by each of Fannie Mae and Freddie Mac to set forth requirements that an approved insurer must meet and maintain to provide mortgage guaranty insurance on loans delivered to or acquired by Fannie Mae or Freddie Mac, as applicable Premium Rate The contractual rate charged for…
• NMIH (NMI Holdings, Inc.)
• FY2025 10-K: …and services (including training and loan review services), financial strength, customer relationships, name recognition and reputation, the strength of management teams and sales organizations, the effective use of technology, and innovation in the delivery and servicing of insurance products. We expect the MI…
• FY2025 10-K: …is placed; • annual - premiums are paid in advance for a subsequent twelve-month period over the life of a policy; • monthly - premiums are paid in advance on a monthly basis over the life of the policy; and • Monthly Advantage ® - premiums are billed upon our receipt of notice of a mortgage close and then paid in…
• RDN (RADIAN GROUP INC)
• FY2025 10-K: …mortgage is originated, but we also have the ability to provide Primary Mortgage Insurance on individual loans in an aggregate group of mortgages after they have been originated. We mainly write Primary Mortgage Insurance in a "first loss" position, where we are responsible for the first losses incurred on an insured…
• FY2025 10-K: …to assist us in evaluating various portfolio strategies and identifying opportunities to grow the economic value of our insured portfolio. Premiums on our mortgage insurance products generally are written on either: (i) a recurring basis, which can be monthly or annual premiums, pursuant to our Monthly and Other…
• ACT (Enact Holdings, Inc.)
• FY2025 10-K: …coverage percentage. Generally, our risk across all policies written is approximately 25% of the underlying primary insurance in-force ("IIF"), but may vary from policy to policy, typically between 6% and 35% coverage. We file our premium rates, as required, with insurance departments of U.S. States and the District…
• FY2025 10-K: …GSEs enter into risk sharing transactions with financial institutions designed to reduce the risk of their mortgage portfolios. Competition also comes from portfolio lenders that are willing to hold credit risk on their balance sheets without credit enhancement. In addition, investors can make use of risk-sharing…

Reinsurance (reported)

• CB (Chubb Limited)
• FY2025 10-K: …to policyholders. For both ceded and assumed reinsurance, risk transfer requirements must be met in order to account for a contract as reinsurance, principally resulting in the recognition of cash flows under the contract as premiums and losses. To meet risk transfer requirements, a reinsurance contract must include…
• FY2025 10-K: …in the policy, and earned over the policy coverage period. Mandatory reinstatement premiums assessed on reinsurance policies are earned in the period of the loss event that gave rise to the reinstatement premiums. All remaining unearned premiums are recognized over the remaining coverage period. Premiums from…
• TRV (Travelers Companies, Inc.)
• FY2025 10-K: …estimate, the estimated amount of redundancy (or even the finding of whether or not a redundancy exists) may change as new information becomes available. Reinstatement premiums Additional premiums payable to reinsurers to restore coverage limits that have been exhausted as a result of reinsured losses under certain…
• FY2025 10-K: …expenses) relating to the underlying reinsured contracts. The presence of any feature that can delay timely reimbursement of claims by a reinsurer results in the reinsurance contract being accounted for as a deposit rather than reinsurance. The assumptions used in estimating the amount and timing of the reinsurance…
• PGR (PROGRESSIVE CORP/OH/)
• FY2025 10-K: …reviewed regularly and resulting adjustments are reflected in income in the current period. Such loss and loss adjustment expense reserves are susceptible to change. Reinsurance Our reinsurance activity includes transactions which are categorized as Regulated and Non-Regulated. Regulated refers to plans in which we…
• FY2025 10-K: 7 Commercial Lines Liability 680 845 Physical Damage 1 1 Other 204 218 Other business 207 354 Total reinsurance recoverables on unpaid claims 3,802 4,456 Unallocated claims adjustment expense related to: Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance 2,185 2,018 Reinsurance…
• ALL (ALLSTATE CORP)
• FY2025 10-K: …programs primarily related to our Run-off Property-Liability segment. The allowance was $54 million and $63 million as of December 31, 2025 and 2024, respectively. The allowance is based upon our ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing and other…
• FY2025 10-K: …These reinsurance agreements have been approved by the appropriate regulatory authorities. All significant intercompany transactions have been eliminated in consolidation. Catastrophe reinsurance We anticipate completing the placement of our 2026 Nationwide Excess Catastrophe Reinsurance Program and Florida Excess…
• AIG (American International Group, Inc.)
• FY2025 10-K: …Any subsequent differences arising on such estimates are recorded in the periods in which they are determined. For both ceded and assumed reinsurance, risk transfer requirements must be met for reinsurance accounting to apply. If risk transfer requirements are not met, the contract is accounted for as a deposit,…
• FY2025 10-K: …to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. All loans with borrowers experiencing financial difficulty that were modified in the 12 months prior to December 31, 2025 are current and performing in accordance with their modified terms. 8. Reinsurance In…
• CINF (CINCINNATI FINANCIAL CORPORATION)
• FY2025 10-K: …reinsurance companies to assume a portion of their insured risk in exchange for a portion of premiums from insurance policies covering those risks. The treaties and their exposure to losses are diverse in nature, including various lines of business and geographies for the reinsured risks. Some of our treaties reflect…
• FY2025 10-K: …preferences on the insurance industry and the markets in which we operate, could harm our ability to maintain or increase our business volumes and profitability • Inability to defer policy acquisition costs for any business segment if pricing and loss trends would lead management to conclude that the segment could…
• HIG (The Hartford Insurance Group, Inc.)
• FY2025 10-K: …Statements. 90 Table of Contents Index to MD&A Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Reinsurance Recoverables Property and Casualty insurance product reinsurance recoverables represent loss and loss adjustment expense recoverables from a number of…
• FY2025 10-K: …of 60.79% of $329 in excess of $1.29 billion for the treaty term effective January 1, 2026 through December 31, 2026. The second agreement incepted January 1, 2026 and provides indemnity per occurrence excess of loss coverage of 90% of $300 in excess of $1.6 billion for the treaty term effective January 1, 2026,…
• WRB (W. R. BERKLEY CORP)
• FY2025 10-K: …attract and retain key personnel, including our President and CEO, Executive Chairman, senior executive officers, presidents of our businesses, experienced underwriters and other skilled employees who are knowledgeable about our business. If the quality of our underwriting team and other personnel decreases, we may…
• FY2025 10-K: …catastrophe losses and casualty losses involving multiple claimants or insureds; and facultative reinsurance that reduces exposure on individual policies or risks for losses that exceed treaty reinsurance capacity. Depending on the business, the Company purchases specific additional reinsurance to supplement the…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.