Essent Group Ltd. (ESNT) stock intrinsic value fair value estimate & owner earnings analysis

Essent Group insures U.S. residential mortgages against borrower default (private mortgage insurance) through Essent Guaranty, and reinsures mortgage risk written by others through its Reinsurance segment. At December 31, 2025 it had about $248 billion of insurance in force, up about 2% from a year earlier, with annual persistency of 85.7%. Roughly 93% of the book was written since 2021, so it is young and has not yet been tested by a housing downturn. How we measure earnings. We start from operating cash flow (already after cash taxes and interest), subtract stock compensation as a real cost, and subtract maintenance capital spending, which is trivial ($4-7 million a year). We do not remove any working-capital adjustment: for an insurer, changes in unearned premiums and loss reserves are the business itself. On this basis owner earnings per diluted share were $2.76 (2016), $3.65, $6.19, $5.81, $6.65 (2020), $6.15, $5.26 (2022), $6.92, $7.79 and $8.28 (2025). We use the 2020-2025 median, about $6.80, as the normal level: it spans the pandemic, the 2022 dip and the recent strong years, and excludes the pre-2018 years when the company was still scaling. We deliberately sit below the latest two years, which benefited from low credit losses and a shrinking share count. Last year's per-share owner earnings grew about 6%, helped by buybacks; for the base case we assume no growth at all rather than the trailing pace, because insurance in force grew only 2% and persistency has been flat, and new-business volume depends on the housing market, which we do not credit. First-half 2026 operating cash flow ($389 million) and net income ($362 million) were slightly below the same period of 2025, consistent with a plateau rather than acceleration. Base case (about $85 per share): earnings hold at roughly $6.80 per share for about 15 years, then fade gradually as the current book runs off and the franchise's history of replacing it (new business written every year since 2010, GSE-approved eligibility, A2-rated insurer) is credited only partially. Bear case (about $45): a severe housing and credit downturn like those the industry has seen before; the disclosed sensitivity of a young, mostly recent-vintage book is that losses can arrive quickly. Earnings run at about half of normal for a decade, recovering to roughly $5 afterward. Bull case (about $120): the book keeps growing about 2% a year, as it did in 2025, from the $8.28 recently earned for a decade, and holds for 25 years total, given the high persistency and continued credit quality. Left out of every case: rate cuts or a housing boom lifting volumes, share gains, and any value from buybacks. What could make this wrong: (1) a sharp rise in unemployment or falling home prices producing claims well above the reserves on the 2021-vintage-heavy book; (2) changes to GSE mortgage-insurance requirements, capital rules or competition compressing premium rates; (3) a rapid refinancing wave shortening the life of the book, since low persistency reduces future premiums. We found no balance-sheet or solvency warning that changes the picture; we could not independently reconcile the exact size of reserve releases in the strongest years from the summary data, so we anchored on the median rather than the peak. Because this is an unpredictable-cycle credit insurer, the margin-of-safety price is set well below the base value, near the level the bear case supports.