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Essent Group Ltd (NYSE:ESNT)
Q3 2021 Earnings Call
Nov 5, 2021, 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 2021 Earnings call. [Operator Instructions] Thank you.

I would now like to turn the call over to Chris Curran, Senior Vice President of Investor Relations. Please go ahead, sir.

Chris Curran -- Senior Vice President, Investor Relations

Thank you, Paula. 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 2021 was issued earlier today and is available on our website at essentgroup.com. 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 26, 2021, 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, and good morning, everyone. Earlier today, we released our third-quarter earnings, which continue to demonstrate the strengths of our buy, manage, and distribute, operating model and generating high-quality earnings, robust returns, and excess capital. Combined with investing capital back into the business and redistribution to shareholders through dividends and buybacks, our business is operating on all fronts.

For the third quarter, we reported net income of $205 million as compared to $160 million, last quarter. Income for the third quarter includes $41 million of earnings associated with some of our strategic investments and limited partnerships. On a diluted per share basis, we earned $1.84 for the third quarter compared to $1.42 last quarter, while our annualized return on average equity for the third quarter was 20%. At September 30, our insurance in force was $208 billion, a 9% increase compared to $191 billion as of the third quarter, a year ago. The credit quality of our insurance in force remains strong, with an average weighted FICO of 745 and an average LTV of 92%. Also, we have reinsurance coverage on 75% of the portfolio as of September 30.

On the business front, we formally rolled out the next generation of EssentEDGE in October, the latest iteration of our risk-based engine offers more refined pricing as we continue to optimize our unit economics. With EDGE technology sitting in the cloud, we are able to analyze large amounts of data with machine learning and seamlessly deliver price to customers. Given the commoditized nature of mortgage insurance, we believe that collecting and evaluating more data of the price mortgage risk is a long-term competitive advantage. As of September 30, we are in a position of strength with $4.2 billion in GAAP equity, access to $2.4 billion in excess of loss reinsurance, and over $800 million of available liquidity. With a year-to-date operating margin of 78% and operating cash flow of $518 million, our operating engine continues to drive our balance sheet strength. As evidence of this, Essent Guaranty remains the highest-rated monoline in our industry, at single-A by A.M. Best and A3 and BBB+ by Moody's and S&P, respectively.

While our preference has been to retain excess capital and reinvest back in the business, the strength of our model enables a measured approach to excess capital as evidenced by our dividend and share repurchase program. However, it's important to remind everyone that a credit event can quickly change the needs of our business whereby capital distribution can quickly pivot to capital shortage. While reinsurance should help soften headwinds from credit cycles, we remain committed to managing capital for the long term and maintaining a fortress balance sheet. At September 30, our book value per share was $37.58. We believe that success in our type of business is measured by growth in book value per share. Since going public in 2013, our annualized growth in book value per share is 21%, which we believe is a meaningful demonstration of our ability to invest capital and build long-term shareholder value.

Finally, given our financial performance during the third quarter, I am pleased to announce that our Board has approved a $0.01 per share increase in our dividend to $0.19. This represents a 19% increase from the dividend that we paid in the fourth quarter of 2020. Now, let me turn the call over to Larry.

Lawrence E. McAlee -- Senior Vice President and Chief Financial Officer

Thanks, Mark, and good morning, everyone. I will now discuss our results for the quarter in more detail. For the third quarter, we earned $1.84 per diluted share, including $0.28 per diluted share associated with net unrealized gains on other invested assets compared to $1.42 last quarter, and $1.11 in the third quarter, a year ago. As Mark noted, income and other invested assets in the third quarter was $41 million, including $39.5 million of net unrealized gains. Through June 30, 2021, unrealized gains and losses reported on these investments were recorded in shareholders' equity through other comprehensive income.

In the third quarter, management determined that the unrealized gains and losses on these investments should be reflected in earnings rather than other comprehensive income. Net earned premium for the third quarter of 2021 was $219 million and includes $11.6 million of premiums earned by Essent Re on our third party business. The average net premium rate for just the US mortgage insurance business in the third quarter was 40 basis points, down from 41 basis points in the second quarter. Persistency increased during the quarter to 62.2% at September 30, 2021, compared to 58.3% at June 30, 2021, and 56.1% at March 31, 2021.

Our provision for losses and loss adjustment expenses was a benefit of $7 million in the third quarter of 2021 compared to a provision of $10 million, last quarter. The benefit for losses in the third quarter was impacted by the continued cure activity on existing defaults. The decrease in the provision was due primarily to the makeup of the default portfolio as older, more seasoned defaults with higher case reserves secured during the current quarter, while new defaults reported with lower case reserves were added.

During the third quarter, we received 5,132 new default notices, which is up 4% compared to 4,934 defaults reported in the second quarter. We had 8,862 defaults cured during the third quarter compared to 10,453 cures in the second quarter of 2021. At September 30, our default rate decreased to 2.47% from 2.96%, at June 30. Since the fourth quarter of 2020, we have reserved for new defaults using our pre-COVID-19 reserve methodology. As a reminder, for new defaults reported in the second and third quarters of 2020, we provided reserves using a 7% claim rate assumption. This assumption was based on the expectation that programs such as the federal stimulus, foreclosure moratoriums, and mortgage forbearance may extend traditional default to claim timelines and result in claim rates lower than our historical experience. We have not adjusted these reserves previously recorded in the second and third quarters of 2020, which totaled $243 million, as they continue to represent our best estimate of the ultimate losses associated with these defaults.

Other underwriting and operating expenses in the third quarter were $42 million compared to $41 million in the second quarter. We now estimate that other underwriting and operating expenses for the full year 2021 will be in a range of $170 million. Our updated estimate of the annualized effective tax rate for the full year 2021 is 16% before consideration of discrete items. The tax rate for the third quarter was 16.8%.

During the quarter, Essent Group Limited paid a cash dividend totaling $19.9 million to shareholders in September and repurchased $70.9 [Phonetic] million of stock during the quarter. As of September 30, we have bought back approximately 2 million shares for a total of $89 million. During the third quarter, Essent Guaranty completed a dividend of $47 million to its US holding company. From a PMIERs perspective, after applying the 0.3 factor for COVID-19 defaults, I think Guaranty's PMIERs sufficiency ratio was strong at 162% with $1.2 billion in excess available assets. Excluding the 0.3 factor, our PMIERs sufficiency ratio remained strong at 152% with $1.1 billion in excess available assets.

Now, let me turn the call back over to Mark.

Mark A. Casale -- Chairman, President and Chief Executive Officer

Thanks, Larry. In closing, our third quarter performance was solid as we produced strong earnings and continued to generate excess capital. Our buy, manage, and distribute operating model is driving robust returns and confidence in our economic engine is high. We remain positive, and continuing to leverage EssentEDGE, and optimizing our unit economics in a competitive market as we continue to utilize technology to leverage more predictive pricing variables. We believe that combining AI with large quantities of data is where the financial services industry is moving and we believe Essent is at the forefront of this. The strengthen in our MI results affords us flexibility in allocating excess capital across the core business, potential strategic investments, and redistribution to shareholders.

While considering and executing on each of these levers, we are taking a measured approach around capital allocation. We believe long-term investors will be rewarded with this patience [Phonetic]. Now, let's get to your questions. Operator?

Questions and Answers:

Operator

The floor is open [Phonetic] for your questions. [Operator Instructions] Your first question comes from Rick Shane of JPMorgan.

Rick Shane -- JPMorgan -- Analyst

Hey guys. Good morning and thank you for taking my question. Mark, one of the big changes that's occurred with the amount of refinance activity and the amount of NIW over the last 18 months is a significant shift in vintage of the portfolio. If you could just talk about any difference in characteristic of the new vintage or how we should think about seasoning of that over the next couple of years? That would be really helpful.

Mark A. Casale -- Chairman, President and Chief Executive Officer

Sure, Rick. The fundamental kind of characteristics of the new business versus the old hasn't really changed that much. We've been -- think about an average FICO of 745, kind of an LTV of 92%-ish, that's been consistent.

What we saw a little bit in 2020 was more refinancing versus purchase, this year. But I would say the portfolio -- it continues to be strong. So, I wouldn't look at any big differences. It's relatively young again versus where it was, given the amount of refinancings. But we've also had a lot of the embedded HPA already in that young portfolio. Our mark to market LTV on the portfolio, it's right around 80%. So, it's a pretty strong portfolio, Rick. So again, I wouldn't look to see too many differences. And again, I think we're pretty pleased with the portfolio as it stands today.

Rick Shane -- JPMorgan -- Analyst

Got it. And on the second part of the question, just how should we think about the seasoning because historically, the portfolio has been sort of more homogenized in terms of vintage, and now you have more concentrated vintages. So, we probably need to think about seasoning just a little bit more. How do we -- how should we consider that?

Mark A. Casale -- Chairman, President and Chief Executive Officer

Yeah, good question. Again, I think if rates go up, which we think they will, right, as given some of the headwinds we're seeing around inflation. I think the persistency can really go back to normal. So, you're right. It could be thinking of these vintages -- it's not -- it's -- we're kind of stuck then almost in these kinds of '20 and '21 vintages. I would look at this as actually a good thing, right?

So, we're locking in kind of the yields that we have on the premiums. We already have the embedded HPA. I would say the wind is at our back in terms of the portfolio. So, as it seasons, and as we enter into a potential headwind, right, I mean the industry or the economy is not going to grow forever, it's a pretty good portfolio to go into that type of environment. And remember, most of it's reinsured; 75% at the end of September. But probably, we'll quickly approach 90% as we complete the latest ION [Phonetic], which we're in the market with now. So again, I think we're pretty well-positioned for the portfolio, probably better maybe than most investors, I think, in terms of again, locking into that those two years of -- two-year vintages. I think we'll end up performing pretty well.

Rick Shane -- JPMorgan -- Analyst

Sounds great. Hey, Mark, thank you very much.

Mark A. Casale -- Chairman, President and Chief Executive Officer

Sure.

Operator

Your next question comes from Mark DeVries of Barclays.

Mark DeVries -- Barclays -- Analyst

Thank you. Mark, I think you get credit for being a little bit more candid about the competitive environment than some of your competitors. And we've heard this earnings season, the competition has been pretty stable around pricing. Just wanted to get a sanity check to see if that kind of aligns with what you're observing.

Mark A. Casale -- Chairman, President and Chief Executive Officer

Yeah, I would say from a competitive standpoint, just in general, taking a step back, the business is changing, Mark. It's changing from a rate card-only relationship business to fee-only. And I think a lot of the companies are struggling with that, I really do. Because you have a lot of them are still using rate cards and promoting rate cards. We were at -- we've heard feedback from lenders directly to me that some of our competitors were trying to sell them off the engine versus trying to use the card versus the engine. And number one, that tells me they're behind on the technology, clearly.

So, in terms of using a static card versus an engine, I think they're using the cards as a crutch. I think a lot of the industry, as we said, is commission-based. So, people do what they're incented to do. And I think, again, I think the industry is changing. I think we took that challenge head-on. It's going from relationship to fee. We invested in the technology to make sure we could price more accurately and that's using more information. Again, if it's all about fee, you better have more information than the next guy, and we started that process three years ago, now. And the result is in EssentEDGE kind of the next generation of it. So, I do think they're struggling with that.

In terms of -- just in terms of kind of premiums though, from an Essent perspective, and I know we've been asked about, I know there's been a lot of questions around premium, they are compressing, but really the majority of that compression is coming from the decline in SCI, right? And also, a little bit as the reinsurance ramps up. We see our premium levels, the gross premium levels, stabilizing in 2022. Where it goes after that is really a function of kind of a premium on new NIW [Phonetic]. And, Mark, our premium on new NIW has been relatively flattish for the past eight quarters. I'm not sure everyone can say that.

Again, what we see in the industry is a few guys kind of chasing the market down. They go after the bid cards and there's two large lenders that bid out their product every four months, six months, and folks gravitate toward that. We have not. It's something -- we've been involved in those type of lenders in the past, we just refused to kind of lower our price every four months like clockwork. We don't think it's prudent in the long term. And again, that's why where the engine is going to be more of a long-term advantage. We can pick our spots. And again, it's all about unit economics, right??It's about optimizing the premium level with pricing, which I think we're doing. And we're also, in terms of investment income, always looking to increase the yield there.

And then, Mark, sometimes it gets back down to old-fashioned managed expenses. So, again, it's -- we took our guidance down on expenses, that's something we can control every day. We don't see that across the industry. So yeah, I mean, again I think competitively, either -- those are the factors really driving it. But I think from an Essent perspective, again, we always feel like we're going to be kind of in the middle of the pack in terms of share and we're going to use that -- the engine and our analytics to try to optimize the premium for whatever share we do get.

Mark DeVries -- Barclays -- Analyst

Okay, that's very helpful context. And then, I think you mentioned reinsurance is [Phonetic] up to like 75% of the portfolio is now reinsured, where do you see that going?

Mark A. Casale -- Chairman, President and Chief Executive Officer

Yeah, I mean, generally, it's around 90% and that's kind of a good guide for us to get where we were. We're out in the market now with another ION. We like 90%, so again, getting back to kind of the premium levels markets. I think it was about like 4 basis points or 5 basis points that we are seeding to reinsurance. It's a meaningful number. I mean, you're looking at close to $100 million, if not more than $100 million, which is again significant. But we think, again, from a hedging perspective, enabled to hedge out that mezzanine exposure, it is money well spent. And when the COVID wins were blowing, last year, I think investors, and maybe not initially, but longer-term, it certainly, it hasn't -- we're very glad that we had that reinsurance. And again, that's all part of the buy, manage, and distribute, operating model. I think it's critical because again when you think about housing, right? Housing is is very good right now, Mark. I mean you have tailwinds in terms of excess demand versus supply, HPA has grown a lot, and we'll expect it to modify. GDP growth is good, but there's always clouds on the horizon, right? When we talked about inflation, given housing surplus or shortage could turn into a surplus someday, we will enter into another recession, right, at some point.

COVID was a scare in my view and it turned out not to be a real credit event, even though we booked a number of reserves around that. And it's almost like the hurricane, it didn't quite happen and people, hopefully, from an Essent perspective, you have to keep your guard up [Phonetic]. Hence, my comment in the script around maintaining a fortress balance sheet. What does that mean? That means making sure you have not just excess capital, but low leverage that we're prepared for every event. So, we kind of have a dual approach to this, with capital, all right. Are we using capital to look for opportunities outside of the core business, which we're doing. We're clearly investing in a lot of those -- the venture funds, which turned out -- we had a nice gain on in this quarter and in this year, which I think is good evidence that we're pretty good at allocating capital. But that wasn't even the primary purpose of it, the primary purpose of it was to use things to improve our core business. And now I think we're going to expand that scope to look outside the core business. Meanwhile, you still want to make sure you have the core balance sheet in case things don't go bad, so you don't want to grow and just try to run into a brick wall. So, it's a balance that you have to have when you're managing a risk organization like we are.

Mark DeVries -- Barclays -- Analyst

Okay, great. Thank you.

Operator

Your next question comes from Mihir Bhatia of Bank of America.

Mihir Bhatia -- Bank of America -- Analyst

Hi. Good morning, and thank you for taking my questions. Maybe we'll start with that -- just the ending of that last answer, in terms of investing outside non-MI businesses. Valuations, have they got more interesting there anymore -- are we closer to seeing that investment actually happen?

Mark A. Casale -- Chairman, President and Chief Executive Officer

Yeah, I mean, I think the valuations have not gotten more interesting as evidenced by the gain in some of our limited partnership interest. I mean those were comprised of some of our real estate funds which have done well because of HPA, but also, a number of the underlying companies have gone public or have spacked [Phonetic] at, I would say, pretty healthy valuation. So we've been the beneficiary of that, but it's going to -- I think it hurts you on the front-end in terms of new businesses. That doesn't stop us from continuing to look and to evaluate, I mean here. So, we're out. We've really started to build the infrastructure. So we started with the funds a few years ago, we started to bring on folks who are professional investors, who are -- who have experience in looking at these types of businesses. I mean we're operators. We're not professional investors like the folks in the audience today. So -- but we do understand the business and we're good operators. So, we think it's a good -- we think a combination of investors and operators is pretty good.

So, we'll continue to look at these venture-type funds and the companies that they invest in. I was out traveling a few weeks ago for two days, visiting a lot of these companies. So, I'd like to kind of -- I used to always pre-COVID go out and visit our customers and get a chance to know them, and I'll continue to do that, probably not at the pace I did before, again just because of the changing nature of the business that I spoke to earlier, and I'm out a lot now looking at these young companies. And I'd like to sit across from them. I'd like to try to understand their business, see how we can add value to them. What do we bring to the table? Clearly, capital. I think we bring infrastructure around managing a business. I think we bring a lot of experience on how to scale a business from start -- from scratch. We clearly bring regulatory expertise in terms of how to manage a business. And now, we're looking for a good fit, right? Is it a company that can grow? Do they have the passion that we had when we started the business? I mean, I'd like to see a lot of that. We don't know we see it in some of the venture companies. They're more interested sometimes in getting from Series A to Series B at a better valuation and building a great business. We want to work with the folks who want to build a great business and I kind of know it when I see it. So, we have a watch list. We'll continue to work with these companies and we'll see what happens.

But also, Mihir, I'm not against anything big either, so we're open because we're here allocating capital for shareholders, and whatever we can do to continue to grow Essent or to make Essent a better company for shareholders, we're going to do it. It's not about what I think what I want to do, it's what we think is -- that needs to be done for shareholders. And if we don't find anything, we'll push more money back to the shareholders. It's kind of that simple.

Mihir Bhatia -- Bank of America -- Analyst

Yes, no. Thank you for that. That is good to hear and helpful. I did want to ask -- go back to your comments on persistency for a second. I mean, I understand, given the rate expectations that persistency goes up, but I was curious that given the high level of home price appreciation, could that have an impact on persistency? I mean, we're hearing more -- I know historically, it hasn't had a big impact, but we're hearing more and more from originators and servicers that there is potential for them to mine their portfolios, still generate more refi-like activity or cash-outs, and things like that, so I was curious about -- is that something you're seeing or hearing about at all from your customers? Thank you.

Mark A. Casale -- Chairman, President and Chief Executive Officer

We're not seeing it, yet. But again, that certainly could be -- again, a lot of it's going to be dependent on rate. So, I mean if they're in the money they probably should be refinancing whether they can leverage HPA to potentially get out of that mine. Good for them, good for the borrower, or whatever is good for the borrower, it's good for us longer term. But remember, it's correlated. So, if their level of refinancing goes up, we certainly will see that in the NIW number. But again, we haven't seen that. I think we're 90%-ish plus purchase.

But again, I think as we go into 2022, depending where rates are, we think purchase market will -- and we think it will continue to be strong. I think it's going to take a pretty big spike in rates for it to kind of dampen the demand of new homeownership. I mean, again, the millennials which -- we sound like a broken record, but it's $4 million to $5 million, and new potential homeowners come into that space every year, given how they're aging. So, we feel pretty confident on purchase over the next couple of years. And then refinance, I still think it's just a function of rates.

Mihir Bhatia -- Bank of America -- Analyst

Got it. And then, my last question, just in terms of opex and we heard a lot this quarter about the car companies in particular about it getting more expensive to higher technology talent. I assume you're seeing that too. So, my question is just, does that in any way slow down your initiatives around ML and AI, and just building out that rate card more? Just -- and also maybe just comment on the availability of talent affecting that. Thank you.

Mark A. Casale -- Chairman, President and Chief Executive Officer

Yeah, it's a good question. I would say, yeah, the technology talent is a little different than other talent that we have in the organization in terms of attracting them, there's a lot of opportunities. We haven't -- we're pretty efficient in terms of leveraging talent. We haven't had much -- we haven't had too many issues. We're bringing in -- one of the initiatives we're doing across the company is bringing in younger folks right out of college. So, we've done that, we've done it in our underwriting group, where we've had a really successful junior underwriting program. We've done it in the BD group. We've done it within our corporate development area. We're kind of on the hunt for talent both, I would say, right out of college and also 15 years out of school. We've done a really good job building -- bringing in some really strong talent kind of in that mid-30-ish type range, which we think again is kind of building that next core for Essent to grow to the next level.

On the IT front, we're bringing folks in out of college through training, and obviously, across in another level. So, to answer your question, no. We haven't had net much, but we're not out hiring a lot. We're very -- in terms of who we hire -- and we also leverage outside resources. So, we can also leverage -- we're leveraging AWS guys a lot just for our move to the cloud. They're actually bringing in a lot of their engineers to help accelerate our move to the cloud. We thought, I think initially, our move to the cloud was going to be at the end of, what 2023, and now we believe we'll be fully on the cloud by the middle of next year. And AWS has really been a good partner in helping us accelerate that. So, I want to say we have 20-plus folks of theirs, working with us on-site and remote to make that happen faster.

So a lot of it is just making sure you can use either people on-site, or I mean -- having them work for you, I mean, here, or using contractors or using third-party consultants to kind of accelerate. It's always -- we kind of look at it -- faster, cheaper, and who -- who can you use to solve the problem quicker.

Mihir Bhatia -- Bank of America -- Analyst

Thank you.

Mark A. Casale -- Chairman, President and Chief Executive Officer

Sure.

Operator

Your next question comes from Ryan Gilbert of BTIG.

Ryan Gilbert -- BTIG -- Analyst

Hi, thanks. Good morning, guys. Wondering if you had any comments on how Essent might participate as the GSEs [Phonetic] ramp up their CRT programs again?

Mark A. Casale -- Chairman, President and Chief Executive Officer

Yeah. Well, remember, we're participating in -- adequately out of Essent Re. So, Freddie was I think our sole provider, last year. I understand they kind of pulled out of the market. So, we would expect the Fannie guys to -- as they're ramping that up, we'll participate in that. And we participate in this twofold, right. Not only of us taking principal risk, but we also do it via our MGA, where we get pretty -- it's been a nice, steady business for us over the last few years. We also get a profit component of it. And so, we see some nice potential there with Essent Re, probably on a smaller scale than Essent.

But again, as we think about strategic investments in new businesses, and our ability to scale, Essent Re is another good example of us starting a business, post-IPO, from scratch, and it's at a point now where it's, as we said before, it's very efficient business. I mean we earn on an annualized basis $50 million in third-party premiums. And it's a pretty efficient team over there in Bermuda. So, again, it's never going to drive growth at Essent. But and -- when you think about, again, improving unit economics, it's always the little things that count. And we've been very pleased there. And again with Fannie covenants in the market, we would expect their potential may be to grow a little bit more than they have.

Ryan Gilbert -- BTIG -- Analyst

Thanks very much. That's all I had.

Mark A. Casale -- Chairman, President and Chief Executive Officer

Okay.

Operator

Your next question comes from Geoffrey Dunn of Dowling and Partners.

Geoffrey Dunn -- Dowling and Partners -- Analyst

Thanks. Good morning. Just a couple more number-related questions. First, Larry, can you break down the liquidity between Bermuda and US Hold co. and define any of the movements from US to Bermuda, this quarter?

Lawrence E. McAlee -- Senior Vice President and Chief Financial Officer

Geoff, we don't break out. We sort of decided to put them together because they're very fungible -- the cash balance at US Holdings and as a Group Limited. We did not move any distributions there up from the US to Bermuda during the quarter. So, we'll be disclosing just the combined cash and investment balances at both holding companies going forward.

Mark A. Casale -- Chairman, President and Chief Executive Officer

And part of it, Geoff, is we're moving it out of Guaranty in the US Holdings, and it may sit there. We don't need it up a group just because you have the 5% withholding tax. So, when you think about movement within US Holdings, we did form another unit this year called Essent Ventures, which is where we're holding a lot of the venture funds, which we kind of removed them from Guaranty. We've also made -- small direct investments in Ventures, very small, but we can use the cash for that, and any potential other strategic investments. And we can always move it up to group. Also, think of Essent Re, Essent Re's another backdoor way to get cash up to the group level.

So again, we just thought it was simpler to say holding company versus like get into a lot of the ins and the outs.

Geoffrey Dunn -- Dowling and Partners -- Analyst

Okay. And then, if you look at your relative reserving, your early stage delinquency buckets been running 11%, 12%. This quarter, we're down to 9%. Is that just a timing mix this year with the inter-quarter cures or has experience prompted you to carry a lower relative reserve on the earlier delinquencies?

Lawrence E. McAlee -- Senior Vice President and Chief Financial Officer

Yeah, no, Geoff, it's mix. We made no significant changes in [Phonetic] reserve factors continue to use the same model. And again, just a mix between the timing of that. But yeah, no. All mix.

Mark A. Casale -- Chairman, President and Chief Executive Officer

And I think to be clear, Geoff, just so everyone understands kind of at the context of it, and I know Larry addressed this in the script, but we haven't touched the second or third quarter cohorts, yet. And they're trending very well. So, we had a 93% kind of cure rate assumption for both of those quarters. We're getting close. I mean, we're 86% on the second quarter cohort, 81% on the third quarter cohort. And I think the second quarter cohort was 88% at the end of October. So, we're moving closer to that number. What we believe, at the end of the fourth quarter -- first quarter, we'll be able to make a call on -- on reserve release. We certainly don't believe we're over reserved at this point. We think we're adequately reserved. But we'll continue -- again, if it trends this way, always things can happen.

I think a lot of the negative provision this quarter was just a function of the model. We moved back to the model back in the fourth quarter of last year. So, a COVID default in the fourth quarter got hung up at 9% expected claim raise, and kind of ran through the delinquency buckets, so it build up higher reserves, and -- because it stuck -- went all the way to 180, why not if they're in forbearance. And then in cure, there is a big reserve release. So, I think it's, from an investor standpoint, I think it bodes well. I think it's something to look at that -- the fact that we're running it through kind of mechanically through the model and seeing this type of performance, I think is actually pretty good.

Geoffrey Dunn -- Dowling and Partners -- Analyst

Thanks for the comments.

Operator

We have one more question. Your final question comes from Bose George of KBW.

Bose George -- KBW -- Analyst

Hey guys. Just a couple of little things. Actually on the expenses, so your guidance now suggests the fourth quarter is close to $45-ish million. So, is that a good run rate for 2022, as well, at least as the starting point?

Mark A. Casale -- Chairman, President and Chief Executive Officer

I wouldn't -- I wouldn't say that, yet. Some of it is -- we always like to give the guidance. We're going to pump that till February, Bose. So, but again, yeah. I mean it's not a bad run rate, but we'll firm that up in February.

Bose George -- KBW -- Analyst

Okay. And then, actually, just in terms of the seeding that you did to Essent Re, this year, and NIW, I guess you took it up to 35 from 25 [Phonetic]. What are the variables you look at in terms of potentially increasing that either for the back book or prospectively?

Mark A. Casale -- Chairman, President and Chief Executive Officer

It's -- a lot of it -- it's a good question. So, a lot of it is capital. A lot of it's making sure we don't trip anything around PFIC or the BEAT tax. So, we're pretty comfortable at 35 [Phonetic]. No plans right now, to be honest with you, to move it up. Certainly something we'll look at, but let's see how all the infrastructure bills go through and see where taxes land. Always a lot of movement there.

So, we'll wait and see where [Phonetic] the dust settles there, and then, we'll reevaluate it.

Bose George -- KBW -- Analyst

Okay, great. That's all I had. Thanks.

Operator

This concludes the Q&A portion for today's call. I will now turn the floor back over to management for any additional or closing remarks.

Mark A. Casale -- Chairman, President and Chief Executive Officer

No additional comments here. Just want to wish everyone a good weekend. And thank you for your participation today. Take care.

Operator

[Operator Closing Remarks]

Duration: 37 minutes

Call participants:

Chris Curran -- Senior Vice President, Investor Relations

Mark A. Casale -- Chairman, President and Chief Executive Officer

Lawrence E. McAlee -- Senior Vice President and Chief Financial Officer

Rick Shane -- JPMorgan -- Analyst

Mark DeVries -- Barclays -- Analyst

Mihir Bhatia -- Bank of America -- Analyst

Ryan Gilbert -- BTIG -- Analyst

Geoffrey Dunn -- Dowling and Partners -- Analyst

Bose George -- KBW -- Analyst

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