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Essent Group Ltd (ESNT 0.22%)
Q3Â 2019 Earnings Call
Nov 8, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Essent Group Limited Third Quarter 2019 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [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.
Christopher G. Curran -- Senior Vice President of Corporate Development
Thank you, Joy. 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.
Mark A. Casale -- Chairman, President and Chief Executive Officer
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 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. Both secular housing trends and demographics are providing strong underpinnings for homeownership. 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 evolve. Also given that pricing engines are being integrated into the 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 protects capital in stressed 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 match 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 the treasury and the progress that they are making in 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.
Lawrence E. McAlee -- Senior Vice President, Chief Financial Officer
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 $760000 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 link note transactions. This loss is included in other income in 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 nine basis points from June 30, 2019, to 75 basis points as of September 30. Other underwritings 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 Ltd. 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 a risk-to-capital ratio of 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?
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from Mihir Bhatia with Bank of America Merrill Lynch. Please go ahead. Your line is open.
Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst
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? Or 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?
Mark A. Casale -- Chairman, President and Chief Executive Officer
Yes, 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 Forset housing and we said for a while that demographics really have provided a nice tailwind. So high tide lifts all those 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 in here is a secular growth story without a lot of the cyclicality that we 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 getting $18 billion of NIW. We grew insurance in force 23% kind of year-over-year and 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 it 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's 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. I mean 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 more in with. So I would say the gross longer-term at Essent is really going to be driven by the industry growth.
Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst
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 the capital structure?
Mark A. Casale -- Chairman, President and Chief Executive Officer
Yes -- no. Yes. In terms of tangible, I think it helps on our 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 what -- we don't have an issuer rating yet at the Holdco but my guess now with this rating we'd be investment-grade at the Holdco which is significant. So forever in the market to issue senior debt that there's probably 25- to 50-basis point 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 of 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 -- rating agencies -- I said it I think a year ago that the rating agencies would start to recognize it and they did. We're also A 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 the fact that we're able to mitigate a lot of this risk.
Part of the Moody's ratings process and this is interesting is we went through a CCAR scenario. Moody's gave us the CCAR assumptions which is -- it's a 5-year projection of the P&L balance sheet and shareholders' equity. It's the down 25 HPA over the first couple of years. There's 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 through the whole five years. So we had trough ROEs probably in the mid-single digits but we continue to add to book value. And I think that's a pretty strong output. And I think in the past 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 to -- and I think it'll -- 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's -- it was reflected in the A3 rating. But I think that's a pretty strong -- it's a pretty strong validation.
Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst
No. So certainly, and I think we appreciate your comments on -- yes especially the CCAR scenario type 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 toward rate cuts again and 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...
Mark A. Casale -- Chairman, President and Chief Executive Officer
Yes. It will. 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. So just because of the growth in the portfolio, you should see the investment income grow -- continue to grow maybe not to the level if rates were higher but still growing at a nice pace.
Lawrence E. McAlee -- Senior Vice President, Chief Financial Officer
Yes, Mihir...
Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst
Do the ILN help you on that? Yes. Sorry just to be -- sorry...
Mark A. Casale -- Chairman, President and Chief Executive Officer
The ILNs did not help us on -- I mean we can get lower rate...
Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst
I can do the strategy I was thinking more.
Mark A. Casale -- Chairman, President and Chief Executive Officer
Yes. No, it doesn't really -- it doesn't come into play. I think we managed -- 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 risks in the 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 75 -- approximately $75 million 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? Can it help us underwrite more efficiently? Is one of the funds that we invest in has access to a single-family rental which we believe is really the replacement for non-QM in the market? And really it's -- it plays at a lower FICO than 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 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 and organized way to look at growth opportunities.
Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst
Thank you for taking my questions.
Mark A. Casale -- Chairman, President and Chief Executive Officer
You're welcome.
Operator
Our next question comes from Sam Choe with Credit Suisse. Please go ahead, Your line is open.
Sam Choe -- Credit Suisse -- Analyst
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?
Mark A. Casale -- Chairman, President and Chief Executive Officer
No, it's still -- I mean some of it is just a 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 postcrisis we've seen this most of our claims are still due to job loss death divorce all the normal default parameters that you would expect and that an MI has to pay. I mean that's what we're here to do. We're not seeing any of the things that you saw back in the past. So some of this year and that's why when we point to losses clearly the default rate of 75 basis points is an extraordinarily low rate. As the -- 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 would 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. It's when it gets -- the volatility above that is what really impacts capital.
Sam Choe -- Credit Suisse -- Analyst
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 how -- what you guys have been doing operationally on that front. And where do you see that trending in the immediate term?
Mark A. Casale -- Chairman, President and Chief Executive Officer
I think that the ratio it really is just a mathematical output right? I mean it's really -- we really focused 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're -- I think we've done a good job. We can always do better. And I -- 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 growth as Mihir -- in response to Mihir's question earlier is really going to become -- come from housing and the growth in that market which we obviously think is better than expected but we're pleased with it.
Sam Choe -- Credit Suisse -- Analyst
Okay, that's it for me. Thank you.
Operator
Our next question comes from Phil Stefano with Deutsche Bank. Please go ahead. Your line is open.
Philip Stefano -- Deutsche Bank -- Analyst
Yes, thanks. Good morning. So 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? I mean you had 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?
Mark A. Casale -- Chairman, President and Chief Executive Officer
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 kinds of tests in the market and we switch them on and off. I would say price it's very sensitive to price changes based on what we can tell. So yes there are 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 I mean 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 a 745 FICO and 90% LTV. You're not going to -- there's not -- shouldn't be that much pricing volatility. I think in the -- as the years go on the next few years so 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 toward kind of a Geico and Progressive model where there's going to be risks and pricing in 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 OK 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 risk 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 price. 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 exist. 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 a core business straight up and we're still pretty pleased with them. I mean 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.
Philip Stefano -- Deutsche Bank -- Analyst
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 you yourself, in particular, have sophisticated enough to deal with this the [Speech Overlap]?
Mark A. Casale -- Chairman, President and Chief Executive Officer
No. It'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 allow you to -- because you really have to -- right now we said this before we kind of price on 12 to 15 factors. So when 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 and more granular and other types of things they still kind of get it back to the customer in less than a second.
So, I mean I think there are investments in it. I'm not sure they're as great as you think they were. 10 years ago it might have been -- it might have cost a fortune with older Cobalt-based systems. And now the systems are very modular. A lot of things you can move on to the cloud and do it much quicker. The tools are much better. It will enable us I think. And I think I would say the same thing for the rest of the industry to build these types of tools. And I think what the result's going to be is 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 is going to go when credit is this good you're going to need a little bit of a scare. The other thing you got to keep in mind with pricing Phil is capital. And right now we're 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 are 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's good housing is going let's get more share or let's buy back 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 cautious and conservative on how we manage our capital.
Philip Stefano -- Deutsche Bank -- Analyst
Got it. Thanks, guys. And hopefully Ben shoulder holds up for you
Mark A. Casale -- Chairman, President and Chief Executive Officer
Thanks.
Operator
Our next question comes from bose George with KBW. Please go ahead. Your line is open.
Bose George -- KBW -- Analyst
Hi, guys. Good morning. I wanted to ask about the position to use quota share reinsurance the drivers there and just how you balance that with the use of ILN.
Mark A. Casale -- Chairman, President and Chief Executive Officer
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 reinsurers. 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.
Bose George -- KBW -- Analyst
Okay. And then actually -- and from a return standpoint if you look at it that way sort of what's -- are they sort of equally efficient in terms of the returns you generate using that kind of reinsurance?
Mark A. Casale -- Chairman, President and Chief Executive Officer
Yes. I mean the cost -- I mean there's obviously the parts. There are a lot of 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 what we are. As we continue to hedge out the portfolio and 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 four to five basis points we're shaving $100 million off the top line. 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 the 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're seeing Essent I think we're -- 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 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.
Bose George -- KBW -- Analyst
Okay makes sense actually. And one other small question. Just on the other income line item is that just some GSE risk sharing and curious why that was down this quarter versus the last couple?
Lawrence E. McAlee -- Senior Vice President, Chief Financial Officer
Yes. Bose, this is Larry. No. In other income, the GSE risk share premiums are in earned premium and we made that comment in the script just to clarify. So earned premium includes our primary earned premiums on the U.S. business as well as GSE premiums. What's in other income are some service fees some underwriting fees and what's impacted that during the quarter is that we took a loss of $760000 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.
Bose George -- KBW -- Analyst
Okay, great. Thanks.
Operator
Our next question comes from Mackenzie Aron with Zelman Associates. Please go ahead. Your line is open.
Mackenzie Aron -- Zelman Associates -- Analyst
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?
Mark A. Casale -- Chairman, President and Chief Executive Officer
The premium impact was pretty -- it was probably the largest we've ever had. It was over three basis points. So it was a big number. I mean we'll disclose that number I think it was 14?
Lawrence E. McAlee -- Senior Vice President, Chief Financial Officer
14 [Speech Overlap]
Mark A. Casale -- Chairman, President and Chief Executive Officer
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 this stuff out to understand that. And it's really driving it is the reinsurance more so than the premium compression. I think the premium compression it's 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 ceded 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. So I think that's important for you guys to kind of model out. So it's 49, this quarter. It will definitely trend lower over the next year -- to a couple -- two or three years. I mean it will be on a quarterly basis. It's not a cliff. It's just -- it's a slow steady drop. And then just -- it's important for investors to understand that.
Mackenzie Aron -- Zelman Associates -- Analyst
Great. Thank you.
Operator
Next question comes from Jack Micenko with SIG. Please go ahead. Your line is open.
Jack Micenko -- SIG -- Analyst
Hi, 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 you think about risk-adjusted returns and that sort of thing?
Mark A. Casale -- Chairman, President and Chief Executive Officer
Not really. I mean they're managed separately, and I think it's a different risk there and we're very -- I think when you just take a step back with Bermuda. And a whole it's been pretty successful. And it's another platform to invest in the risk. We're up to close to $850 million of risk in force. We have a pretty steady share with that among other reinsurers. So we like the returns. We still have actually given the performance has performed better and we would have even estimated at the time of origination. What I like about it Jack is there's some optionality there. Again if there's -- as you know there's always perception risk and real risk. I think given our position in Bermuda. If there was a headline scare I think the -- some of the reinsurers may be more prone to headline scares than others and if there's a little reduction in capacity and we still like the risk because 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 no I don't -- I think we like the business there. And if we could do more at certain returns we certainly would. It depends really where you're playing in the structure too. I mean there's -- it's lower in the structure which is a little riskier. You 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 I -- we wouldn't necessarily given our capital position need to kind of allocate capital from one to the other.
Jack Micenko -- SIG -- Analyst
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. And 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 an MI together are there obvious pros or cons that you could think of or strategic reasons why that would or wouldn't make sense?
Mark A. Casale -- Chairman, President and Chief Executive Officer
No. I don't think there's any strategic reason at all, to be honest. I mean they're different call points at the customer's different decision-makers. The businesses are pretty correlated in terms of originations. So I think you have to be -- we've always looked to title in the past 20 years I've looked at. 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 a -- the title industry the players there are very -- some of the bigger guys are really strong. And I just -- I don't see quite the fit yes just because of the core.
Jack Micenko -- SIG -- Analyst
Appreciate the thought.
Operator
Next question comes from Chris Gamaitoni with Compass Point. Please go ahead. Your line is open.
Chris Gamaitoni -- Compass Point -- Analyst
Good morning everyone. Most of my questions have been answered. I just want to start from a high level. As you go into the kind of the end of the year Board planning just what are your corporate priorities heading into next year?
Mark A. Casale -- Chairman, President and Chief Executive Officer
It'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 -- 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 uses -- 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.
Chris Gamaitoni -- Compass Point -- Analyst
Perfect. Thanks so much.
Operator
Next question comes from Rick Shane with JPMorgan. Please go ahead. Your line is open.
Rick Shane -- JP Morgan -- Analyst
Hi, 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?
Mark A. Casale -- Chairman, President and Chief Executive Officer
No. 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 the bucket. And again these are -- so it's different. If there's the larger concentration in an earlier bucket versus a later bucket that will cause -- that will really cause a swing.
Rick Shane -- JP Morgan -- Analyst
Yeah, great. Thanks, guys.
Operator
There are no further questions at this time. I will turn the call back over to the presenters.
Mark A. Casale -- Chairman, President and Chief Executive Officer
Great. Thank you, operator. Before ending our call we just like to thank everyone for your participation. We very much appreciate our analysts and our investors and have a great weekend.
Operator
[Operator Closing Remarks]
Duration: 42 minutes
Call participants:
Christopher G. Curran -- Senior Vice President of Corporate Development
Mark A. Casale -- Chairman, President and Chief Executive Officer
Lawrence E. McAlee -- Senior Vice President, Chief Financial Officer
Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst
Sam Choe -- Credit Suisse -- Analyst
Philip Stefano -- Deutsche Bank -- Analyst
Bose George -- KBW -- Analyst
Mackenzie Aron -- Zelman Associates -- Analyst
Jack Micenko -- SIG -- Analyst
Chris Gamaitoni -- Compass Point -- Analyst
Rick Shane -- JP Morgan -- Analyst
