Essent Group Ltd. (NYSE:ESNT) Q2 2022 Earnings Conference Call August 5, 2022 10:00 AM ET Company Participants Philip Stefano - Vice President of Investor Relations Mark Casale - Chief Executive Officer David Weinstock - Interim Chief Financial Officer Chris Curran - President of Essent Guaranty, Inc. Conference Call Participants Mark DeVries - Barclays Rick Shane - JPMorgan Doug Harter - Credit Suisse Bose George - KBW Mihir Bhatia - Bank of America Ryan Gilbert - BTIG Geoffrey Dunn - Dowling & Partners Op ...

Financial Data and Key Metrics Changes - For Q1 2022, the company reported net income of $274 million, up from $136 million a year ago, primarily due to the release of approximately $100 million of COVID reserves [6] - Diluted earnings per share increased to $2.52 from $1.21 a year ago, with an annualized return on average equity of 26% [6] - Book value per share rose to $38.98, a 12% increase from $34.75 a year ago, with an annualized growth rate of 21% since going public in 2013 [12] Business Line Data and Key Metrics Changes - The insurance in force increased by 5% to $207 billion compared to $197 billion a year ago, with a strong credit quality reflected in a weighted average FICO of 746 and a weighted average original LTV of 92% [8] - The net premium earned for Q1 2022 was $215 million, including $12 million from third-party business [17] - The average net premium rate for the U.S. mortgage insurance business decreased by 1 basis point to 39 basis points [17] Market Data and Key Metrics Changes - The company's 12-month persistency rate was 69%, while the 3-month annualized persistency was approximately 80% [9] - The company noted that rising rates and strong home price appreciation are starting to challenge affordability and housing demand, but the structural outlook for the housing market remains positive [7] Company Strategy and Development Direction - The company is focused on a diversified and programmatic reinsurance strategy, with approximately 90% of its portfolio reinsured as of March 31 [10] - The company emphasizes a measured approach to capital management, favoring attractive investments over share repurchases for long-term value creation [14] - A new $250 million share repurchase program was authorized, alongside a 24% increase in dividends, reflecting stability in earnings and cash flow [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of the operating model and the company's role in affordable and sustainable homeownership [25] - The company anticipates that insurance in force will grow throughout the year, supported by strong persistency and embedded home equity [29] - Management acknowledged that while the first quarter's new insurance written was strong, the overall outlook for the year may be tighter than expected due to rising rates and reduced supply [42] Other Important Information - The company reported a trailing 12-month underwriting margin of 93% and operating cash flow of $702 million, indicating a strong financial position [11] - The carrying value of other investment assets on the balance sheet was $213 million, with $82 million of value created from investments [13] Q&A Session Summary Question: Why did Essent not grow in terms of insurance in force this quarter? - Management indicated that pricing has been consistent, leading to a decline in market share, and they are cautious about the current market conditions [28] Question: What is the outlook for rational behavior among mortgage originators? - Management noted that there are good controls in place, and they do not see irrational behavior among competitors [32] Question: How do returns in the CRT market compare to core business returns? - Management stated that returns in the CRT market are better due to an imbalance in the reinsurance market, but they are cautious about allocating all capital to this area [35] Question: What is the outlook for new delinquency formation? - Management indicated that delinquencies have normalized, with strong employment and wage growth contributing to reduced expected losses [39] Question: What is the outlook for the industry’s new insurance written (NIW)? - Management expressed that while the first quarter was strong, achieving upper targets for NIW may be challenging due to rising rates and reduced supply [42]

PART I. [FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Essent Group Ltd [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited condensed consolidated financial statements for Essent Group Ltd. and its subsidiaries for the period ended March 31, 2022, including balance sheets, statements of comprehensive income, changes in stockholders' equity, cash flows, and detailed notes explaining the company's operations, accounting policies, investments, reinsurance, loss reserves, debt, capital, and statutory compliance [Condensed Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%28Unaudited%29) This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates | (In thousands) | March 31, 2022 | December 31, 2021 | | :--------------- | :------------- | :---------------- | | Total Assets | $5,586,145 | $5,722,174 | | Total Liabilities| $1,371,077 | $1,486,060 | | Total Stockholders' Equity | $4,215,068 | $4,236,114 | - **Total investments** decreased from **$5,133,359 thousand** at December 31, 2021, to **$4,875,426 thousand** at March 31, 2022[21](index=21&type=chunk) - **Cash** significantly increased from **$81,491 thousand** at December 31, 2021, to **$203,845 thousand** at March 31, 2022[21](index=21&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Unaudited%29) This section outlines the company's financial performance, including revenues, expenses, and net income over specific periods | (In thousands, except per share amounts) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Total Revenues | $264,611 | $244,797 | | Net Premiums Earned | $215,330 | $219,067 | | Net Investment Income | $24,680 | $21,788 | | Realized investment (losses) gains, net | $(7,352) | $641 | | Income before income taxes | $328,447 | $168,185 | | Net Income | $274,167 | $135,648 | | Basic Earnings per Share | $2.53 | $1.21 | | Diluted Earnings per Share | $2.52 | $1.21 | - **Net income** increased significantly by **102.1%** from **$135,648 thousand** in Q1 2021 to **$274,167 thousand** in Q1 2022[26](index=26&type=chunk) - **Basic EPS** more than doubled from **$1.21** in Q1 2021 to **$2.53** in Q1 2022[26](index=26&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity%20%28Unaudited%29) This section tracks changes in the company's equity, reflecting net income, dividends, and other comprehensive income/loss | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------- | :-------------------------------- | :-------------------------------- | | Net Income | $274,167 | $135,648 | | Dividends and dividend equivalents declared | $(21,819) | $(18,119) | | Other comprehensive loss | $(203,006) | $(59,203) | | Balance, end of period (Retained Earnings) | $3,007,162 | $2,269,039 | - **Accumulated Other Comprehensive Income (Loss)** shifted from a gain of **$50,707 thousand** at the beginning of 2022 to a loss of **$(152,299) thousand** by the end of March 2022, primarily due to **unrealized depreciation of investments**[29](index=29&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29) This section details the company's cash inflows and outflows from operating, investing, and financing activities | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $180,629 | $187,771 | | Net cash provided by (used in) investing activities | $38,893 | $(186,259) | | Net cash used in financing activities | $(97,168) | $(23,320) | | Net increase (decrease) in cash | $122,354 | $(21,808) | | Cash at end of period | $203,845 | $81,022 | - **Cash flow from investing activities** dramatically improved from a net outflow of **$186,259 thousand** in Q1 2021 to a net inflow of **$38,893 thousand** in Q1 2022[34](index=34&type=chunk) - **Net cash used in financing activities** increased significantly from **$23,320 thousand** in Q1 2021 to **$97,168 thousand** in Q1 2022, primarily due to increased treasury stock acquisitions[34](index=34&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section provides detailed disclosures and explanations for the condensed consolidated financial statements, covering the company's business model, significant accounting policies, investment portfolio composition and performance, reinsurance arrangements, loss reserving methodologies, debt obligations, capital, and statutory compliance [Note 1. Nature of Operations and Basis of Presentation](index=9&type=section&id=Note%201.%20Nature%20of%20Operations%20and%20Basis%20of%20Presentation) This note describes Essent Group Ltd.'s business model, primary operations, and the accounting principles used in financial statement preparation - **Essent Group Ltd.** is a Bermuda-based holding company offering private mortgage insurance and reinsurance for U.S. residential properties through its subsidiaries, primarily Essent Guaranty, Inc. and Essent Reinsurance Ltd[38](index=38&type=chunk)[39](index=39&type=chunk) - **Essent Guaranty's quota share reinsurance coverage** with Essent Re increased from **25%** to **35%** effective January 1, 2021[39](index=39&type=chunk) [Note 2. Recently Issued Accounting Standards](index=9&type=section&id=Note%202.%20Recently%20Issued%20Accounting%20Standards) This note discusses the potential impact of new accounting pronouncements on the company's financial reporting - The company is monitoring ASU No. 2020-04 (Reference Rate Reform) but does not expect a **material impact** on its consolidated financial statements[42](index=42&type=chunk)[45](index=45&type=chunk) [Note 3. Investments](index=10&type=section&id=Note%203.%20Investments) This note provides details on the company's investment portfolio, including fair value, unrealized gains/losses, and impairment considerations | (In thousands) | March 31, 2022 Fair Value | December 31, 2021 Fair Value | | :--------------- | :-------------------------- | :--------------------------- | | Total investments available for sale | $4,662,905 | $4,962,887 | | Unrealized Gains (March 31, 2022) | $10,678 | $98,747 (Dec 31, 2021) | | Unrealized Losses (March 31, 2022) | $(184,301) | $(33,467) (Dec 31, 2021) | - The company recorded impairments of **$6.8 million** in Q1 2022 due to intent to sell securities in an unrealized loss position, compared to no impairments in Q1 2021[56](index=56&type=chunk) - Income from other invested assets for Q1 2022 includes **$15.0 million** of net unrealized gains, reflecting a change in accounting policy to recognize these gains/losses in earnings rather than OCI since June 30, 2021[57](index=57&type=chunk)[60](index=60&type=chunk) [Note 4. Reinsurance](index=14&type=section&id=Note%204.%20Reinsurance) This note explains the company's reinsurance arrangements, including quota share agreements and risk transfer mechanisms - Essent Guaranty entered into a new quota share reinsurance agreement (QSR 2022) effective January 1, 2022, ceding **20%** of risk on eligible policies written in 2022[69](index=69&type=chunk) - **Total Risk in Force (RIF) ceded** under QSR 2019 and QSR 2022 was **$5.0 billion** as of March 31, 2022[70](index=70&type=chunk) | (In thousands) | Total VIE Assets | On-Balance Sheet Maximum Exposure to Loss | Off-Balance Sheet Maximum Exposure to Loss | Total Maximum Exposure to Loss | | :--------------- | :--------------- | :---------------------------------------- | :----------------------------------------- | :----------------------------- | | Radnor Re Entities (Total) | $2,299,378 | $(4,060) | $686 | $(3,374) | [Note 5. Reserve for Losses and Loss Adjustment Expenses](index=18&type=section&id=Note%205.%20Reserve%20for%20Losses%20and%20Loss%20Adjustment%20Expenses) This note details the methodologies and changes in reserves for estimated future claims and related expenses | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------- | :-------------------------------- | :-------------------------------- | | Reserve for losses and LAE at beginning of period | $407,445 | $374,941 | | Net incurred losses and LAE during the current period | $(106,858) | $32,322 | | Reserve for losses and LAE at end of period | $293,072 | $411,123 | - The company experienced a **$131.2 million favorable prior year development** in Q1 2022, including **$101.2 million** related to '**Early COVID Defaults**,' significantly reducing the net incurred losses and LAE[86](index=86&type=chunk)[92](index=92&type=chunk) - The **estimate of ultimate loss** for '**Early COVID Defaults**' was lowered from **7%** to **4%** of initial risk in force due to elevated cure rates, resulting in a **$101.2 million** benefit to the provision for losses in Q1 2022[92](index=92&type=chunk) [Note 6. Debt Obligations](index=19&type=section&id=Note%206.%20Debt%20Obligations) This note outlines the company's outstanding debt, including credit facilities, terms, and interest rates - The company has a **secured Credit Facility** with **$825 million** committed capacity (**$400 million** revolving, **$425 million** term loans), maturing December 10, 2026[94](index=94&type=chunk) - As of March 31, 2022, **$425 million** was borrowed under the Credit Facility with a **weighted average interest rate of 1.99%**, up from **1.79%** at December 31, 2021[94](index=94&type=chunk) [Note 7. Commitments and Contingencies](index=19&type=section&id=Note%207.%20Commitments%20and%20Contingencies) This note discloses potential future obligations and liabilities arising from various agreements and legal matters - The company has **indemnification obligations** under contract underwriting agreements, but management believes potential claims are not material[97](index=97&type=chunk) - Contingencies triggering material **indemnification obligations** have not occurred historically and are considered to have a remote risk of loss or payment[98](index=98&type=chunk) [Note 8. Capital Stock](index=20&type=section&id=Note%208.%20Capital%20Stock) This note provides information on the company's common stock, dividends, and share repurchase programs | Quarter Ended | 2022 Quarterly Dividend per Common Share | | :-------------- | :--------------------------------------- | | March 31 | $0.20 | - In May 2022, the Board declared a **quarterly cash dividend** of **$0.21** per common share[103](index=103&type=chunk) - The company **repurchased 1,593,562 common shares** for **$69.9 million** in Q1 2022, completing its **$250 million** repurchase plan in April 2022. A new **$250 million** plan was approved in May 2022[104](index=104&type=chunk) [Note 9. Stock-Based Compensation](index=21&type=section&id=Note%209.%20Stock-Based%20Compensation) This note details the accounting for stock options and other equity-settled awards granted to employees | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------- | :-------------------------------- | :-------------------------------- | | Compensation expense | $4,807 | $5,179 | | Income tax benefit | $957 | $986 | - As of March 31, 2022, there was **$28.3 million** of **unrecognized compensation expense** related to nonvested shares/units, expected to be recognized over a weighted average period of **2.3 years**[113](index=113&type=chunk) [Note 10. Dividends Restrictions](index=22&type=section&id=Note%2010.%20Dividends%20Restrictions) This note explains regulatory and contractual limitations on the payment of dividends by the company's subsidiaries - **Essent Guaranty paid a $100.0 million dividend** to its parent in Q1 2022. As of March 31, 2022, Essent Guaranty could pay an additional **$376.7 million** in ordinary dividends in 2022[118](index=118&type=chunk) - **Essent Re maintains total equity of $1.3 billion**, exceeding its minimum requirement of **$100 million**[119](index=119&type=chunk) [Note 11. Earnings per Share (EPS)](index=23&type=section&id=Note%2011.%20Earnings%20per%20Share%20%28EPS%29) This note presents the calculation of basic and diluted earnings per share, reflecting the impact of outstanding shares | (In thousands, except per share amounts) | March 31, 2022 | March 31, 2021 | | :--------------------------------------- | :------------- | :------------- | | Net income | $274,167 | $135,648 | | Basic weighted average shares outstanding | 108,166 | 112,016 | | Diluted weighted average shares outstanding | 108,590 | 112,378 | | Basic earnings per share | $2.53 | $1.21 | - The **dilutive effect of nonvested shares** was **424 thousand** in Q1 2022, up from **362 thousand** in Q1 2021[121](index=121&type=chunk) [Note 12. Accumulated Other Comprehensive Income (Loss)](index=24&type=section&id=Note%2012.%20Accumulated%20Other%20Comprehensive%20Income%20%28Loss%29) This note details components of comprehensive income not included in net income, such as unrealized investment gains/losses | (In thousands) | Before Tax (2022) | Tax Effect (2022) | Net of Tax (2022) | | :--------------- | :---------------- | :---------------- | :---------------- | | Balance at beginning of period | $65,280 | $(14,573) | $50,707 | | Net unrealized losses on investments | $(238,903) | $35,897 | $(203,006) | | Balance at end of period | $(173,623) | $21,324 | $(152,299) | - **Accumulated other comprehensive income** shifted from a net gain of **$50,707 thousand** at the beginning of 2022 to a net loss of **$(152,299) thousand** by March 31, 2022, primarily due to **$203.0 million** in **net unrealized losses on investments**[125](index=125&type=chunk) [Note 13. Fair Value of Financial Instruments](index=24&type=section&id=Note%2013.%20Fair%20Value%20of%20Financial%20Instruments) This note describes the valuation methodologies and hierarchy used to determine the fair value of financial assets and liabilities - The company classifies **financial instruments** into **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than quoted prices), and **Level 3** (unobservable inputs) based on valuation techniques[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk) | (In thousands) | Level 1 (March 31, 2022) | Level 2 (March 31, 2022) | Total (March 31, 2022) | | :--------------- | :----------------------- | :----------------------- | :--------------------- | | Total assets at fair value | $807,237 | $3,855,668 | $4,662,905 | - **U.S. Treasury securities** and **money market funds** are classified as **Level 1**, while most other fixed-income securities (e.g., mortgage-backed, municipal, corporate debt) are **Level 2**[132](index=132&type=chunk) [Note 14. Statutory Accounting](index=27&type=section&id=Note%2014.%20Statutory%20Accounting) This note provides information on the company's compliance with statutory accounting principles and regulatory capital requirements | (In thousands) | Essent Guaranty (2022) | Essent Guaranty (2021) | Essent PA (2022) | Essent PA (2021) | | :--------------- | :--------------------- | :--------------------- | :--------------- | :--------------- | | Statutory net income | $200,277 | $112,401 | $859 | $1,129 | | Statutory surplus | $1,081,986 | $1,091,217 | $56,910 | $54,964 | | Contingency reserve liability | $1,862,482 | $1,575,323 | $57,461 | $56,535 | - **Essent Guaranty** was in compliance with **PMIERs 2.0** as of March 31, 2022[143](index=143&type=chunk) - **Essent Guaranty** increased its **contingency reserve** by **$69.8 million** in Q1 2022, while Essent PA increased its by **$0.1 million**[144](index=144&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a comprehensive analysis of Essent Group's financial condition and results of operations, highlighting key performance drivers, the impact of COVID-19, legislative and regulatory developments, and detailed comparisons of financial metrics for the periods presented. It also discusses the company's liquidity, capital resources, and compliance with industry-specific requirements [Overview](index=29&type=section&id=Overview) This section provides a high-level introduction to Essent Group's business, operations, and financial strength ratings - **Essent Group** is a private mortgage insurance company with Essent Guaranty licensed in all 50 states and D.C., holding **financial strength ratings** of **A3 (Moody's)**, **BBB+ (S&P)**, and **A (A.M. Best)**[152](index=152&type=chunk) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------- | :-------------------------------- | :-------------------------------- | | New Insurance Written (NIW) | ~$12.8 billion | ~$19.3 billion | | Insurance In Force (IIF) | ~$206.8 billion | N/A | - **Essent Reinsurance Ltd. provides insurance/reinsurance** for GSE risk share and other transactions, covering approximately **$1.9 billion** of risk as of March 31, 2022[154](index=154&type=chunk) [COVID-19](index=29&type=section&id=COVID-19) This section discusses the impact of the COVID-19 pandemic on the company's operations, defaults, and loss reserving - The company experienced a significant increase in **new defaults** in Q2 and Q3 2020 ('**Early COVID Defaults**'), which were reserved differently due to extended default-to-claim timelines from forbearance programs and federal stimulus[155](index=155&type=chunk) - As of March 31, 2022, approximately **95%** of '**Early COVID Defaults**' had cured, leading to a normalization of default patterns for new defaults reported after September 30, 2020[159](index=159&type=chunk) [Legislative and Regulatory Developments](index=30&type=section&id=Legislative%20and%20Regulatory%20Developments) This section highlights recent or proposed legislative and regulatory changes affecting the company's business - The company is evaluating the potential impact of newly proposed **PFIC regulations**, which set limits on 'good assets' within the PFIC asset test of a foreign holding company[161](index=161&type=chunk) [Factors Affecting Our Results of Operations](index=30&type=section&id=Factors%20Affecting%20Our%20Results%20of%20Operations) This section details the various factors that influence Essent Group's financial performance, including premium generation, policy persistency, investment income, other revenue streams, loss reserving, and operational expenses, providing context for changes in financial results [Net Premiums Written and Earned](index=30&type=section&id=Net%20Premiums%20Written%20and%20Earned) This section analyzes the drivers of premium revenue, including new insurance written, cancellations, and reinsurance effects - Premiums are influenced by **New Insurance Written (NIW)**, policy cancellations, premium rates, and reinsurance arrangements[162](index=162&type=chunk) - **Monthly premium policies** comprised **98%** of NIW in Q1 2022, up from **93%** in Q1 2021[164](index=164&type=chunk) [Persistency and Business Mix](index=31&type=section&id=Persistency%20and%20Business%20Mix) This section examines the rate at which policies remain in force and the composition of the company's insurance portfolio - The **persistency rate on the portfolio** was **69.1%** at March 31, 2022, with higher rates generally leading to increased profitability[166](index=166&type=chunk) - Higher prepayment speeds lead to lower persistency, and the expected return on single premium policies is currently less than on monthly policies[167](index=167&type=chunk) [Net Investment Income](index=31&type=section&id=Net%20Investment%20Income) This section discusses income generated from the company's investment portfolio, primarily fixed-income securities - The **investment portfolio** primarily consists of investment-grade fixed income securities and money market funds[168](index=168&type=chunk) - **Investment income** is mainly influenced by the size of the investment portfolio and the yield on individual securities[168](index=168&type=chunk) [Income from Other Invested Assets](index=31&type=section&id=Income%20from%20Other%20Invested%20Assets) This section details income and fair value changes from alternative investments, such as limited partnership funds - A small percentage of the portfolio is allocated to limited partnership investments in real estate, financial services, technology, and private equity funds[169](index=169&type=chunk) - Since June 30, 2021, **unrealized gains and losses** from these entities are reflected in earnings rather than other comprehensive income, potentially increasing volatility[170](index=170&type=chunk) [Other Income](index=32&type=section&id=Other%20Income) This section describes miscellaneous revenue streams, including contract underwriting and reinsurance consulting services - **Other income** includes revenues from contract underwriting services, underwriting consulting services to third-party reinsurers, and changes in the fair value of embedded derivatives in reinsurance contracts[172](index=172&type=chunk)[174](index=174&type=chunk) [Provision for Losses and Loss Adjustment Expenses](index=32&type=section&id=Provision%20for%20Losses%20and%20Loss%20Adjustment%20Expenses) This section explains the factors influencing and the methodologies for estimating future claims and related expenses - **Losses are affected by economic conditions**, housing values, product mix, loan characteristics (LTV, coverage), borrower credit quality, reinsurance, rescission rates, and portfolio seasoning[176](index=176&type=chunk) - **Reserves are established for delinquent loans** (Case Reserves) and estimated unreported defaults (IBNR Reserves), along with associated LAE[178](index=178&type=chunk) - The **default rate** increased significantly from **0.83%** at March 31, 2020, to **4.54%** at September 30, 2020, due to COVID-19, but has since declined to **1.93%** at March 31, 2022[180](index=180&type=chunk)[213](index=213&type=chunk) [Third-Party Reinsurance](index=34&type=section&id=Third-Party%20Reinsurance) This section outlines the company's use of reinsurance to manage risk, reduce capital requirements, and diversify capital sources - **Third-party reinsurance** is used to protect against adverse loss experience and expand capital sources, reducing earned premiums but also **Risk in Force (RIF)** and providing capital relief[186](index=186&type=chunk) [Other Underwriting and Operating Expenses](index=34&type=section&id=Other%20Underwriting%20and%20Operating%20Expenses) This section details the various non-loss related expenses incurred in the company's underwriting and operational activities - **Compensation and benefits** represent the most significant expense, accounting for **61%** of other underwriting and operating expenses in Q1 2022[188](index=188&type=chunk)[223](index=223&type=chunk) - Other expenses include legal, consulting, professional fees, premium taxes, travel, marketing, licensing, and depreciation[189](index=189&type=chunk) [Interest Expense](index=34&type=section&id=Interest%20Expense) This section covers the costs associated with the company's debt obligations, primarily from its credit facility - **Interest expense** is incurred from borrowings under the **secured Credit Facility**, which accrues interest at a floating rate[190](index=190&type=chunk) [Income Taxes](index=34&type=section&id=Income%20Taxes) This section explains the company's tax provisions, applicable rates, and tax considerations across its operating jurisdictions - **Income taxes** are based on earnings in operating jurisdictions and applicable tax rates; U.S. insurance subsidiaries pay premium taxes in lieu of state income taxes[191](index=191&type=chunk) - Essent Group and Essent Re are domiciled in Bermuda, which does not have a corporate income tax[192](index=192&type=chunk) [Mortgage Insurance Earnings and Cash Flow Cycle](index=34&type=section&id=Mortgage%20Insurance%20Earnings%20and%20Cash%20Flow%20Cycle) This section describes the typical profit and cash flow patterns over the life cycle of a mortgage insurance policy - The majority of **underwriting profit** typically occurs in the early years of a book, with subsequent years seeing declining premium revenues and increasing losses as the portfolio seasons[194](index=194&type=chunk) [Key Performance Indicators](index=35&type=section&id=Key%20Performance%20Indicators) This section outlines key metrics used to assess the company's operational and financial health, including insurance in force, average net premium rate, persistency rate, and risk-to-capital ratio, providing insights into portfolio growth, profitability, and capital adequacy [Insurance In Force](index=35&type=section&id=Insurance%20In%20Force) This section presents the total amount of insurance coverage outstanding and its composition by vintage year | (In thousands) | March 31, 2022 | March 31, 2021 | | :--------------- | :------------- | :------------- | | IIF, end of period | $206,842,996 | $197,091,191 | | Average IIF during the period | $206,631,135 | $197,749,668 | | RIF, end of period | $45,261,164 | $41,135,978 | - **IIF increased by 4.9%** year-over-year, reaching **$206.8 billion** at March 31, 2022[197](index=197&type=chunk) | Vintage Year | IIF at March 31, 2022 ($ in thousands) | % of Total | | :------------- | :------------------------------------- | :--------- | | 2022 (through March 31) | $12,730,681 | 6.2% | | 2021 | $77,556,621 | 37.5% | | 2020 | $71,633,103 | 34.6% | | 2019 | $18,001,459 | 8.7% | | 2018 | $8,357,025 | 4.1% | | 2017 and prior | $18,564,107 | 8.9% | [Average Net Premium Rate](index=35&type=section&id=Average%20Net%20Premium%20Rate) This section analyzes the average premium charged on the company's insurance policies, net of reinsurance | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------- | :-------------------------------- | :-------------------------------- | | Base average premium rate | 0.41% | 0.44% | | Single premium cancellations | 0.02% | 0.04% | | Gross average premium rate | 0.43% | 0.48% | | Ceded premiums | (0.04)% | (0.06)% | | Net average premium rate | 0.39% | 0.42% | - The **net average premium rate decreased** from **0.42%** in Q1 2021 to **0.39%** in Q1 2022, influenced by reinsurance and changes in single premium cancellations[198](index=198&type=chunk) [Persistency Rate](index=36&type=section&id=Persistency%20Rate) This section reports the rate at which the company's insurance policies remain in force over time - The **persistency rate**, defined as the percentage of IIF remaining after 12 months, was **69.1%** at March 31, 2022[166](index=166&type=chunk)[200](index=200&type=chunk) [Risk-to-Capital](index=36&type=section&id=Risk-to-Capital) This section details the ratio of net risk in force to statutory capital, indicating capital adequacy - As of March 31, 2022, the **combined net risk in force** for U.S. insurance companies was **$30.3 billion**, with **combined statutory capital of $3.1 billion**, resulting in a **risk-to-capital ratio of 9.9 to 1**[200](index=200&type=chunk) - The **maximum permitted risk-to-capital ratio** is generally **25.0 to 1**[200](index=200&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) This section provides a detailed comparative analysis of the company's financial performance for the three months ended March 31, 2022, versus the same period in 2021, highlighting key revenue and expense drivers and their impact on net income [Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021](index=36&type=section&id=Three%20Months%20Ended%20March%2031%2C%202022%20Compared%20to%20the%20Three%20Months%20Ended%20March%2031%2C%202021) This section provides a comparative analysis of financial results for the specified periods, highlighting key performance changes | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------- | :-------------------------------- | :-------------------------------- | | Net Income | $274,167 | $135,648 | | Total Revenues | $264,611 | $244,797 | | Total Losses and Expenses | $(63,836) | $76,612 | | Income before income taxes | $328,447 | $168,185 | - **Net income increased by 102.1%** to **$274.2 million** in Q1 2022, primarily driven by a decrease in the provision for losses and LAE and an increase in income from other invested assets[202](index=202&type=chunk) - **Net premiums earned decreased by 2%** due to a lower average net premium rate, despite an increase in average IIF[204](index=204&type=chunk) - **Net investment income increased to $24.7 million** in Q1 2022 from **$21.8 million** in Q1 2021, due to a larger investment portfolio and higher yields[207](index=207&type=chunk) - The **provision for losses and LAE was a benefit of $106.9 million** in Q1 2022, compared to an expense of **$32.3 million** in Q1 2021, mainly due to **favorable prior year development** related to '**Early COVID Defaults**'[212](index=212&type=chunk)[221](index=221&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) This section details the company's financial flexibility, including its sources and uses of funds, current liquidity position, and capital adequacy in relation to regulatory requirements and business growth. It also covers cash flow activities and financial strength ratings [Overview](index=41&type=section&id=Overview) This section describes the company's overall financial flexibility, including funding sources, liquidity, and capital management strategies - The company's **primary sources of funds** include its investment portfolio, net premiums, Credit Facility borrowings, and capital share issuance[228](index=228&type=chunk) - As of March 31, 2022, the company had **substantial liquidity** with **$203.8 million** in cash, **$517.4 million** in short-term investments, and **$4.1 billion** in fixed maturity investments[230](index=230&type=chunk) - **Essent Guaranty has access to secured borrowing capacity** with the Federal Home Loan Bank of Pittsburgh for supplemental liquidity[232](index=232&type=chunk) [Cash Flows](index=43&type=section&id=Cash%20Flows) This section analyzes the company's cash generation and utilization across operating, investing, and financing activities | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $180,629 | $187,771 | | Net cash provided by (used in) investing activities | $38,893 | $(186,259) | | Net cash used in financing activities | $(97,168) | $(23,320) | - **Cash flow from operating activities decreased slightly** in Q1 2022 due to lower premiums collected[239](index=239&type=chunk) - **Cash flow from investing activities shifted to a net inflow of $38.9 million** in Q1 2022, primarily from sales of investments for portfolio repositioning[240](index=240&type=chunk) [Insurance Company Capital](index=44&type=section&id=Insurance%20Company%20Capital) This section details the capital structure and regulatory capital adequacy of the company's insurance subsidiaries - The **combined risk-to-capital ratio** for U.S. insurance subsidiaries was **9.9:1** as of March 31, 2022[246](index=246&type=chunk) | (In thousands) | March 31, 2022 | | :--------------- | :------------- | | Policyholders' surplus | $1,138,937 | | Contingency reserves | $1,919,943 | | Combined statutory capital | $3,058,880 | - **Essent Guaranty paid a $100 million dividend** to its parent in Q1 2022[243](index=243&type=chunk) [Financial Strength Ratings](index=45&type=section&id=Financial%20Strength%20Ratings) This section lists the credit ratings assigned to the company and its subsidiaries by major rating agencies - **Essent Guaranty holds A3 (Moody's), BBB+ (S&P), and A (A.M. Best) ratings** with stable outlooks[248](index=248&type=chunk) - **Essent Re holds BBB+ (S&P) and A (A.M. Best) ratings** with stable outlooks[248](index=248&type=chunk) [Private Mortgage Insurer Eligibility Requirements](index=45&type=section&id=Private%20Mortgage%20Insurer%20Eligibility%20Requirements) This section discusses the company's compliance with regulatory capital and asset requirements for private mortgage insurers - **Essent Guaranty was in compliance with PMIERs 2.0** as of March 31, 2022[249](index=249&type=chunk) - **Essent Guaranty's Available Assets were $3.19 billion**, **174%** of its **Minimum Required Assets of $1.84 billion**, as of March 31, 2022[249](index=249&type=chunk) - **PMIERs guidance allows a 0.30 multiplier** for risk-based required assets on certain insured loans in default during the COVID-19 Crisis Period (March 1, 2020, to April 1, 2021)[252](index=252&type=chunk) [Financial Condition](index=46&type=section&id=Financial%20Condition) This section analyzes the company's balance sheet, focusing on changes in stockholders' equity and the investment portfolio composition, including asset classes, credit ratings, and effective duration [Stockholders' Equity](index=46&type=section&id=Stockholders%27%20Equity) This section analyzes changes in the company's total equity, including the impact of net income, dividends, and share repurchases - **Stockholders' equity decreased from $4.24 billion** at December 31, 2021, to **$4.22 billion** at March 31, 2022[253](index=253&type=chunk) - The decrease was primarily due to **increased net unrealized investment losses**, share repurchases, and dividends paid, partially offset by net income[253](index=253&type=chunk) [Investments](index=46&type=section&id=Investments) This section provides a detailed breakdown of the company's investment portfolio by asset class, credit rating, and duration - **Total investments decreased from $5.1 billion** at December 31, 2021, to **$4.9 billion** at March 31, 2022, while **cash increased to $203.8 million**[254](index=254&type=chunk) - The decrease in investments was mainly due to **increased net unrealized investment losses** and portfolio repositioning, partially offset by investing net cash flows from operations[254](index=254&type=chunk) | Asset Class | March 31, 2022 Fair Value | March 31, 2022 Percent | | :------------ | :-------------------------- | :--------------------- | | Corporate debt securities | $1,283,644 | 27.5% | | U.S. agency mortgage-backed securities | $854,775 | 18.3% | | Asset-backed securities | $594,451 | 12.8% | | Municipal debt securities | $512,185 | 11.0% | | Residential and commercial mortgage securities | $538,870 | 11.6% | | U.S. Treasury securities | $423,640 | 9.1% | | Money market funds | $383,597 | 8.2% | | Non-U.S. government securities | $71,743 | 1.5% | | Total Investments Available for Sale | $4,662,905 | 100.0% | | Rating (Moody's) | March 31, 2022 Fair Value | March 31, 2022 Percent | | :----------------- | :-------------------------- | :--------------------- | | Aaa | $2,372,351 | 50.9% | | Aa1 | $80,491 | 1.7% | | Aa2 | $334,764 | 7.2% | | Aa3 | $212,344 | 4.5% | | A1 | $275,127 | 5.9% | | A2 | $413,390 | 8.9% | | A3 | $240,922 | 5.2% | | Baa1 | $226,229 | 4.8% | | Baa2 | $218,244 | 4.7% | | Baa3 | $190,644 | 4.1% | | Below Baa3 | $98,399 | 2.1% | | Total Investments Available for Sale | $4,662,905 | 100.0% | | Effective Duration | March 31, 2022 Fair Value | March 31, 2022 Percent | | :----------------- | :-------------------------- | :--------------------- | | < 1 Year | $1,277,568 | 27.4% | | 1 to < 2 Years | $398,752 | 8.6% | | 2 to < 3 Years | $412,012 | 8.8% | | 3 to < 4 Years | $514,026 | 11.0% | | 4 to < 5 Years | $615,448 | 13.2% | | 5 or more Years | $1,445,099 | 31.0% | | Total Investments Available for Sale | $4,662,905 | 100.0% | [Off-Balance Sheet Arrangements](index=51&type=section&id=Off-Balance%20Sheet%20Arrangements) This section discloses the company's contractual obligations and exposures not recognized on the balance sheet - **Essent Guaranty has fully collateralized reinsurance agreements** (Radnor Re Transactions) with unconsolidated special purpose insurers[273](index=273&type=chunk) - The **estimated off-balance sheet maximum exposure to loss** from Radnor Re entities was **$0.7 million** as of March 31, 2022[273](index=273&type=chunk) [Critical Accounting Policies](index=51&type=section&id=Critical%20Accounting%20Policies) This section highlights the accounting policies that require significant judgment and estimation by management - There were **no significant changes in critical accounting policies** from the 2021 Form 10-K as of the filing date[274](index=274&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks within its investment portfolio, primarily focusing on interest rate fluctuations, credit quality, concentration risk, and prepayment risk, and how these risks are managed - The **investment portfolio is sensitive to fluctuations** in U.S. market drivers, particularly interest rates[276](index=276&type=chunk) - **Key market risk drivers monitored** include changes in interest rates, term structure of interest rates, market volatility/credit quality, concentration risk, and prepayment risk[277](index=277&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk) - As of March 31, 2022, the **effective duration of investments available for sale was 3.7 years**, indicating a **3.7%** change in fair value for a **100 basis point** yield curve shift[281](index=281&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the most recent fiscal quarter - Management concluded that **disclosure controls and procedures were effective** as of March 31, 2022[282](index=282&type=chunk) - There were **no material changes in internal control over financial reporting** during the most recent fiscal quarter[283](index=283&type=chunk) PART II. [OTHER INFORMATION](index=48&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, shareholder meeting results, and required exhibits [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the company is not currently involved in any material legal proceedings - The company is **not currently subject to any material legal proceedings**[286](index=286&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors discussed in the company's Annual Report on Form 10-K for 2021 and confirms no material changes to those risks - There have been **no material changes in risk factors** from those previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[287](index=287&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section provides details on the company's common share repurchase activities during the first quarter of 2022, including the completion of an existing plan and the approval of a new one | Period | Total Number of Shares Purchased | Average Price Per Share | | :------- | :------------------------------- | :---------------------- | | January 1 - January 31, 2022 | 425,164 | $46.59 | | February 1 - February 28, 2022 | 334,126 | $45.35 | | March 1 - March 31, 2022 | 912,883 | $41.96 | | Total | 1,672,173 | N/A | - The company **repurchased 1,593,562 common shares** for **$69.9 million** under its **share repurchase plan** in Q1 2022, completing the plan in April 2022[104](index=104&type=chunk)[289](index=289&type=chunk) - A **new share repurchase plan authorizing up to $250 million** of **common shares** was approved in May 2022, to be completed by the end of 2023[104](index=104&type=chunk)[289](index=289&type=chunk) [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) This section reports the final voting results from the 2022 Annual General Meeting of Shareholders, including the election of directors, re-appointment of auditors, and advisory votes on executive compensation and its frequency - The **2022 Annual General Meeting of Shareholders was held on May 4, 2022**, with **101,056,112 shares** present or by proxy[290](index=290&type=chunk) | Proposal | Votes For | Votes Withheld/Against | Broker Non-Votes | | :--------- | :-------- | :--------------------- | :--------------- | | Election of three Class II directors | 95,650,564 (Robert Glanville) / 98,128,974 (Angela L. Heise) / 89,668,628 (Allan Levine) | 2,715,387 / 236,977 / 8,697,323 | 2,690,161 | | Re-appointment of PricewaterhouseCoopers LLP | 100,430,436 | 593,859 | 31,817 | | Advisory vote on executive compensation | N/A (no specific vote count provided in table) | N/A | N/A | | Advisory vote on frequency of executive compensation | 96,075,312 (One Year) | 49,486 (Two Years) / 2,190,729 (Three Years) | 2,690,162 | - The **Board of Directors determined to hold a non-binding, advisory vote on executive compensation annually**, based on shareholder feedback[295](index=295&type=chunk) [Item 6. Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications and financial information in Inline XBRL format - **Exhibits include certifications** by the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1) and financial information in Inline XBRL format (101)[296](index=296&type=chunk) [SIGNATURES](index=55&type=section&id=SIGNATURES) This section contains the official signatures of the authorized officers of Essent Group Ltd., confirming the due authorization and filing of the report - The **report is signed by Mark A. Casale** (President, CEO, and Chairman), Lawrence E. McAlee (SVP and CFO), and David B. Weinstock (VP and Chief Accounting Officer) on May 6, 2022[304](index=304&type=chunk)

Part I [Item 1. Business](index=7&type=section&id=Item%201.%20Business) Essent Group Ltd. provides private mortgage insurance, reporting $84.2 billion NIW and $207.2 billion IIF in 2021 under extensive regulation [Overview](index=7&type=section&id=Overview) Essent, a private MI provider, reported $84.2 billion NIW and $207.2 billion IIF in 2021, with defaults significantly decreasing to 16,963 loans Key Business Metrics (2019-2021) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | New Insurance Written (NIW) | $84.2 billion | $107.9 billion | $63.6 billion | | Insurance in Force (at year-end) | $207.2 billion | - | - | - Essent Re, the company's Bermuda-based subsidiary, increased its quota share reinsurance coverage of Essent Guaranty's NIW from **25% to 35%**, effective January 1, 2021[41](index=41&type=chunk) - The number of insured loans in default status decreased significantly from **31,469** at the end of 2020 to **16,963** at the end of 2021, representing **2.2%** of policies in force, as economic conditions improved and forbearance plans concluded[46](index=46&type=chunk) [Our Industry](index=8&type=section&id=Our%20Industry) The $12.3 trillion U.S. mortgage market saw private MI's share reach 50% in 2021, facing intense competition from six private insurers and government programs - In 2021, total U.S. residential mortgage origination volume was estimated at **$3.99 trillion**, comprising **$1.65 trillion** in purchase originations and **$2.34 trillion** in refinancing originations, driven by historically low interest rates[53](index=53&type=chunk) - Private mortgage insurance's share of the total insured market has grown significantly since the 2008 financial crisis, reaching an estimated **50%** in 2021[56](index=56&type=chunk) - The private mortgage insurance industry consists of **six active insurers**, including Essent Guaranty, competing on factors like pricing, customer relationships, underwriting guidelines, and financial strength[64](index=64&type=chunk) [Our Products and Services](index=11&type=section&id=Our%20Products%20and%20Services) Essent offers primary and pool mortgage insurance, with primary coverage averaging 25%, and provides reinsurance through Essent Re for new business - The company's primary mortgage insurance risk coverage generally averages **25%** of the underlying loan balance but can range from **6% to 35%**[68](index=68&type=chunk) - Effective March 1, 2020, Essent implemented a new master policy consistent with GSE Rescission Relief Principles, which provides rescission relief for loans that remain current for **36 months** or have made **60 payments**, with certain exceptions for fraud[76](index=76&type=chunk) - Through its Bermuda subsidiary Essent Re, the company increased its quota share reinsurance of Essent Guaranty's new insurance written (NIW) from **25% to 35%** effective January 1, 2021[78](index=78&type=chunk) [Our Mortgage Insurance Portfolio](index=13&type=section&id=Our%20Mortgage%20Insurance%20Portfolio) Essent's $207.2 billion IIF as of Dec 2021 is high-quality, with 41.3% from FICO 760+ borrowers, and geographically diversified Insurance in Force (IIF) by Policy Year (as of Dec 31, 2021) | Policy Year | IIF ($ in thousands) | | :--- | :--- | | 2021 | $79,832,367 | | 2020 | $76,550,717 | | 2019 | $20,252,049 | | 2018 | $9,482,084 | | 2017 | $8,509,847 | | 2016 and prior | $12,563,480 | | **Total** | **$207,190,544** | Portfolio by Credit Score (IIF as of Dec 31, 2021) | FICO Score | IIF ($ in thousands) | % of Total | | :--- | :--- | :--- | | >=760 | $85,501,113 | 41.3% | | 740-759 | $35,111,019 | 17.0% | | 720-739 | $31,158,325 | 15.0% | | 700-719 | $26,105,790 | 12.6% | | 680-699 | $16,819,629 | 8.1% | | <=679 | $12,494,668 | 6.0% | | **Total** | **$207,190,544** | **100.0%** | - The company's insurance portfolio is geographically diversified. As of December 31, 2021, the top three states by Insurance in Force (IIF) were California (**13.1%**), Texas (**9.9%**), and Florida (**9.7%**)[89](index=89&type=chunk)[91](index=91&type=chunk) [Customers, Sales and Marketing](index=16&type=section&id=Customers%2C%20Sales%20and%20Marketing) Essent serves mortgage originators, with top ten customers generating 41.6% of NIW in 2021, using a relationship-focused, non-commission sales strategy - The top ten customers generated **41.6%** of the company's New Insurance Written (NIW) on a flow basis for the year ended December 31, 2021[95](index=95&type=chunk) - The company employs a collaborative sales approach that includes regular portfolio reviews, joint product development, and customer training to build deep relationships with lenders[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) - Essent utilizes a non-commission-based compensation structure for its sales force, which includes an equity ownership program to align their efforts with long-term corporate goals like customer service and risk selection[104](index=104&type=chunk) [Underwriting and Risk Management](index=18&type=section&id=Underwriting%20and%20Risk%20Management) Essent uses GSE-consistent underwriting (69% delegated), managing risk via a comprehensive framework and third-party reinsurance arrangements - As of December 31, 2021, approximately **69%** of the company's insurance in force was originated through its delegated underwriting program, where customers underwrite loans based on Essent's guidelines[116](index=116&type=chunk) - The company's risk management framework covers the entire "loan life cycle," which includes three components: customer qualification, policy acquisition (underwriting and pricing), and portfolio management (quality assurance and surveillance)[120](index=120&type=chunk) - Essent utilizes third-party reinsurance to manage risk exposure and capital, employing arrangements such as fully collateralized excess of loss reinsurance (via insurance-linked notes) and quota share reinsurance[126](index=126&type=chunk)[127](index=127&type=chunk) [Defaults and Claims](index=21&type=section&id=Defaults%20and%20Claims) Essent's default rate fell from 3.93% to 2.16% in 2021, with 16,963 loans in default, influenced by GSE forbearance programs and various claim settlement options Default Status Comparison | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Number of policies in force | 785,119 | 799,893 | | Loans in default | 16,963 | 31,469 | | Percentage of loans in default | 2.16% | 3.93% | - The company believes that GSE forbearance programs for borrowers impacted by COVID-19 could have a favorable effect on the frequency of claims ultimately paid, as these programs provide borrowers more time and resources to cure defaults[135](index=135&type=chunk) - Upon a valid claim, the company generally has three settlement options: pay a percentage of the claim amount and let the customer keep the property, pay the actual loss amount after an approved third-party sale, or pay the full claim amount and acquire the property[138](index=138&type=chunk) [Regulation](index=23&type=section&id=Regulation) Essent is subject to extensive U.S. federal and state regulations, including GSE PMIERs and Dodd-Frank Act rules, plus Bermuda Monetary Authority oversight - The company's primary U.S. insurance subsidiary, Essent Guaranty, is subject to the Private Mortgage Insurer Eligibility Requirements (PMIERs) set by the GSEs, which include risk-based financial strength requirements. The company was in compliance with the latest version, **PMIERs 2.0**, as of December 31, 2021[149](index=149&type=chunk) - The Dodd-Frank Act impacts the business through the Qualified Mortgage (QM) and Qualified Residential Mortgage (QRM) rules, which affect the size of the mortgage market and the demand for private mortgage insurance[162](index=162&type=chunk)[167](index=167&type=chunk)[169](index=169&type=chunk) - The company's Bermuda reinsurance subsidiary, Essent Reinsurance Ltd., is registered as a Class 3A insurer and is regulated by the Bermuda Monetary Authority (BMA), which imposes solvency, liquidity, and reporting requirements[192](index=192&type=chunk)[196](index=196&type=chunk) [Human Capital Management](index=33&type=section&id=Human%20Capital%20Management) Essent had 343 employees in 2021, with 95% retention, an ownership culture (90%+ equity), and a workforce 63% women and minorities - The company had **343 employees** as of December 31, 2021, and reports a high employee retention rate of approximately **95%** over the past 5 years[215](index=215&type=chunk)[216](index=216&type=chunk) - Essent promotes an ownership culture by granting equity to all employees; as of year-end 2021, over **90%** of the workforce had received equity share awards[217](index=217&type=chunk) - The company's workforce is approximately **63%** comprised of women and minorities as of December 31, 2021[220](index=220&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from pandemic impacts, operational challenges, regulatory changes, and tax implications from its Bermuda-based structure [Risks Relating to the COVID-19 Pandemic](index=35&type=section&id=Risks%20Relating%20to%20the%20COVID-19%20Pandemic) The company faces significant uncertainty from the COVID-19 pandemic, risking higher policy losses, increased delinquencies, and impacts on capital and reinsurance - The company faces risk that policy losses from COVID-19 may be substantially different than the loss reserves established, as reserves are based on estimates subject to significant uncertainty and do not account for future losses from loans not yet delinquent[231](index=231&type=chunk) - A deterioration in homeowners' ability to make mortgage payments could increase delinquencies, including those related to forbearance, which would in turn increase the amount of regulatory and PMIERs capital the company is required to hold[232](index=232&type=chunk) [Risks Relating to the Operation of Our Business](index=36&type=section&id=Risks%20Relating%20to%20the%20Operation%20of%20Our%20Business) Operational risks include intense competition, customer concentration (41.6% NIW from top ten), declining low down payment originations, and investment volatility - The company faces intense competition from the other five active private mortgage insurers, which could lead to price reductions or loosening of underwriting standards to gain market share[240](index=240&type=chunk) - The company is reliant on its largest customers, with the top ten generating **41.6%** of NIW in 2021. The loss of a significant customer could materially impact new business volume[241](index=241&type=chunk) - Loss reserves are established only for loans in default, not based on ultimate loss estimates for the entire portfolio. This means future losses on currently performing loans are not reflected in the financial statements and could materially impact future results as defaults occur[260](index=260&type=chunk)[261](index=261&type=chunk) [Risks Relating to Regulation and Litigation](index=43&type=section&id=Risks%20Relating%20to%20Regulation%20and%20Litigation) Regulatory risks include dependence on GSEs, potential changes to PMIERs, Dodd-Frank Act rules, and broad state/Bermuda insurance regulations, plus litigation - The company's business is highly dependent on the GSEs. Legislative or regulatory actions that change the GSEs' role, charters, or requirements for private mortgage insurance could significantly reduce revenues and profitability[294](index=294&type=chunk)[297](index=297&type=chunk) - Changes to the GSEs' Private Mortgage Insurer Eligibility Requirements (PMIERs) could negatively impact the company's ability to write business, generate expected returns, or participate in the market[303](index=303&type=chunk)[305](index=305&type=chunk) - The Dodd-Frank Act's rules for Qualified Mortgage (QM) and Qualified Residential Mortgage (QRM) could adversely affect the demand for private mortgage insurance if they reduce the overall mortgage origination market or create incentives for lenders to use government insurance programs[306](index=306&type=chunk)[311](index=311&type=chunk) [Risks Relating to Taxes and Our Corporate Structure](index=48&type=section&id=Risks%20Relating%20to%20Taxes%20and%20Our%20Corporate%20Structure) The Bermuda holding structure poses tax risks, including potential U.S. federal income tax for non-U.S. subsidiaries and CFC rules for U.S. shareholders - There is a risk that the IRS could successfully contend that Essent Group Ltd. or its non-U.S. subsidiaries are engaged in a U.S. trade or business, which would subject them to U.S. federal income and branch profits taxes[328](index=328&type=chunk) - U.S. shareholders owning **10%** or more of the company's stock (by vote or value) may be subject to current U.S. income tax on their pro rata share of the company's "subpart F income" under the Controlled Foreign Corporation (CFC) rules[330](index=330&type=chunk)[332](index=332&type=chunk) - Dividend payments from U.S. insurance subsidiaries to the parent holding company are restricted by state insurance laws, which could impact the holding company's liquidity and ability to pay its own dividends or fund operations[347](index=347&type=chunk) [Item 1B. Unresolved Staff Comments](index=57&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - Not applicable[385](index=385&type=chunk) [Item 2. Properties](index=57&type=section&id=Item%202.%20Properties) The company leases office facilities in Pennsylvania, North Carolina, California, and Bermuda, which management deems adequate for current operations - The company leases its office facilities in Pennsylvania, North Carolina, California, and Bermuda and believes its current properties are adequate for its needs[386](index=386&type=chunk) [Item 3. Legal Proceedings](index=57&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings - The company is not currently subject to any material legal proceedings[387](index=387&type=chunk) [Item 4. Mine Safety Disclosures](index=57&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's business - Not applicable[388](index=388&type=chunk) Part II [Item 5. Market for Company's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=58&type=section&id=ITEM%205.%20MARKET%20FOR%20THE%20COMPANY%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Essent Group Ltd. common shares trade on NYSE (ESNT), with quarterly dividends increasing to $0.19/share in Q4 2021, and $69.6 million in Q4 2021 share repurchases Quarterly Dividends per Share (2021) | Quarter | Dividend per Share | | :--- | :--- | | Q1 2021 | $0.16 | | Q2 2021 | $0.17 | | Q3 2021 | $0.18 | | Q4 2021 | $0.19 | Share Repurchases (Q4 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 2021 | 422,963 | $46.92 | | Nov 2021 | 442,230 | $46.55 | | Dec 2021 | 654,806 | $43.52 | | **Total** | **1,519,999** | **-** | - As of December 31, 2021, **$92.2 million** remained available for share repurchases under the company's **$250 million** share repurchase plan announced in May 2021[398](index=398&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=60&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Essent reported $681.8 million net income in 2021, driven by reduced loss provisions, stable premiums, strong capital ($3.17 billion PMIERs Available Assets), and capital returns [Results of Operations](index=69&type=section&id=Results%20of%20Operations) Net income rose to $681.8 million in 2021, driven by a sharp reduction in loss provisions, with stable net premiums earned and increased investment income Consolidated Results of Operations (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net premiums earned | $872,543 | $862,564 | $777,425 | | Total revenues | $1,028,510 | $955,154 | $867,567 | | Provision for losses and LAE | $31,057 | $301,293 | $32,986 | | Total losses and expenses | $206,196 | $465,058 | $208,506 | | Income before income taxes | $822,314 | $490,096 | $659,061 | | Net income | $681,783 | $413,041 | $555,713 | - The decrease in the provision for losses and LAE in 2021 was primarily due to a decrease in new defaults reported, cure activity for existing defaults, and favorable housing price appreciation[466](index=466&type=chunk) - The average net premium rate decreased from **0.46%** in 2020 to **0.41%** in 2021, driven by an increase in ceded premiums, changes in the mix of insured mortgages, and a decrease in accelerated earnings from canceled single premium policies[459](index=459&type=chunk) [Liquidity and Capital Resources](index=74&type=section&id=Liquidity%20and%20Capital%20Resources) Essent maintained strong liquidity with $81.5 million cash and $4.9 billion investments, robust operating cash flow, and Essent Guaranty's PMIERs Available Assets at 177% of required Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $709,256 | $727,931 | $589,848 | | Net cash used in investing activities | ($583,167) | ($1,154,417) | ($545,076) | | Net cash (used in) provided by financing activities | ($147,428) | $457,966 | ($38,368) | - As of December 31, 2021, Essent Guaranty's Available Assets under PMIERs 2.0 were **$3.17 billion**, representing **177%** of its Minimum Required Assets of **$1.79 billion**, indicating a strong capital buffer[502](index=502&type=chunk) - The combined statutory risk-to-capital ratio for the U.S. insurance subsidiaries was **10.4 to 1** as of December 31, 2021, well within the regulatory limit of **25.0 to 1**[455](index=455&type=chunk)[499](index=499&type=chunk) [Critical Accounting Policies](index=84&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant estimates for premium revenue, loss reserves (only for defaulted loans), income taxes, and investment valuation - The company establishes loss reserves for its best estimate of ultimate claim costs but only for loans that are already in default (at least two consecutive missed payments). It does not establish reserves for future claims on currently performing loans[526](index=526&type=chunk) - Revenue from single premium policies is deferred as unearned premium and recognized over the estimated life of the policy. If a policy is canceled and the premium is non-refundable, the remaining unearned premium is immediately recognized as earned[525](index=525&type=chunk) - The company evaluates the realizability of deferred tax assets by considering future taxable income, tax planning strategies, and economic outlooks. As of year-end 2021, management concluded it was more likely than not that deferred tax assets would be realized[529](index=529&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=86&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is its investment portfolio, sensitive to interest rates, credit quality, and volatility, with a 4.0-year effective duration - The company's main market risks include changes in interest rates, credit quality of investments, concentration risk, and prepayment risk[537](index=537&type=chunk)[538](index=538&type=chunk)[539](index=539&type=chunk) - As of December 31, 2021, the effective duration of the company's investments available for sale was **4.0 years**. This implies a **100 basis point** parallel shift in interest rates would change the portfolio's fair value by approximately **4.0%**[541](index=541&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=87&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2021, with an unqualified auditor's opinion on both financials and internal controls [Report of Independent Registered Public Accounting Firm](index=88&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP issued an unqualified opinion on Essent's 2021 financial statements and internal controls, noting loss reserve valuation as a critical audit matter - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion, stating the financial statements are presented fairly in all material respects and that the company maintained effective internal control over financial reporting[551](index=551&type=chunk) - The audit identified the "Valuation of the Reserve for Losses and Loss Adjustment Expenses" as a critical audit matter due to the significant judgment and complexity involved in management's estimates of claim rates and sizes[559](index=559&type=chunk)[560](index=560&type=chunk) [Consolidated Financial Statements](index=90&type=section&id=Consolidated%20Financial%20Statements) As of Dec 31, 2021, total assets were $5.72 billion, liabilities $1.49 billion, equity $4.24 billion, with $681.8 million net income and $6.11 diluted EPS Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Investments | $5,133,359 | $4,654,277 | | Total Assets | $5,722,174 | $5,202,724 | | Reserve for losses and LAE | $407,445 | $374,941 | | Total Liabilities | $1,486,060 | $1,340,091 | | Total Stockholders' Equity | $4,236,114 | $3,862,633 | Consolidated Income Statement Data (in thousands) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Net premiums earned | $872,543 | $862,564 | | Total revenues | $1,028,510 | $955,154 | | Provision for losses and LAE | $31,057 | $301,293 | | Net income | $681,783 | $413,041 | | Diluted EPS | $6.11 | $3.88 | [Notes to Consolidated Financial Statements](index=94&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, investments, reinsurance, loss reserves (including COVID-19 impact), stock compensation, and statutory capital requirements - The company utilizes both quota share and excess of loss reinsurance to manage risk. As of Dec 31, 2021, risk in force (RIF) ceded under its third-party quota share agreement was **$4.6 billion**. It also had multiple excess of loss transactions covering various vintage years[632](index=632&type=chunk)[633](index=633&type=chunk) - The reserve for losses and LAE at Dec 31, 2021, includes **$243.0 million** for "Early COVID Defaults" (defaults from April-Sept 2020). The company believes these defaults will have a lower claim rate than historical defaults due to forbearance programs[647](index=647&type=chunk)[650](index=650&type=chunk) - The company's U.S. insurance subsidiaries are required to maintain statutory capital. As of Dec 31, 2021, Essent Guaranty's statutory surplus was **$1.04 billion**, and its contingency reserve was **$1.79 billion**. The company was in compliance with all statutory and GSE (PMIERs) capital requirements[738](index=738&type=chunk)[739](index=739&type=chunk)[740](index=740&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=129&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting or financial disclosure matters - None[768](index=768&type=chunk) [Item 9A. Controls and Procedures](index=129&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[769](index=769&type=chunk) - Management's assessment concluded that the company maintained effective internal control over financial reporting as of December 31, 2021[772](index=772&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=130&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's 2022 Annual General Meeting of Shareholders proxy statement - Information is incorporated by reference to the company's definitive proxy statement for the 2022 Annual General Meeting of Shareholders[779](index=779&type=chunk) [Item 11. Executive Compensation](index=130&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the company's 2022 Annual General Meeting of Shareholders proxy statement - Information is incorporated by reference to the company's definitive proxy statement for the 2022 Annual General Meeting of Shareholders[780](index=780&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=130&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference, with 488,775 securities to be issued and 3.2 million available for future issuance under equity plans Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Number of Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Number of Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 488,775 | N/A | 3,203,705 | | Equity compensation plans not approved by security holders | — | — | — | | **Total** | **488,775** | **—** | **3,203,705** | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=130&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item is incorporated by reference from the company's 2022 Annual General Meeting of Shareholders proxy statement - Information is incorporated by reference to the company's definitive proxy statement for the 2022 Annual General Meeting of Shareholders[785](index=785&type=chunk) [Item 14. Principal Accounting Fees and Services](index=131&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information for this item is incorporated by reference from the company's 2022 Annual General Meeting of Shareholders proxy statement - Information is incorporated by reference to the company's definitive proxy statement for the 2022 Annual General Meeting of Shareholders[789](index=789&type=chunk) Part IV [Item 15. Exhibits, Financial Statement Schedules](index=131&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including corporate governance documents and certifications - This item lists all financial statements, schedules, and exhibits filed with the Form 10-K, including consents and certifications required by the Sarbanes-Oxley Act[791](index=791&type=chunk)[792](index=792&type=chunk)[793](index=793&type=chunk)

Financial Data and Key Metrics Changes - For Q4 2021, the company reported net income of $181 million, up from $124 million a year ago, with diluted earnings per share of $1.64 compared to $1.10 in Q4 2020 [4][5] - Full-year 2021 net income was $682 million, or $6.11 per diluted share, with a return on average equity of 17% [5][8] - The insurance in force at year-end was $207 billion, a 4% increase from $199 billion at the end of 2020 [5][10] - The average weighted FICO score of the insurance portfolio was 745, with an average loan-to-value (LTV) ratio of 92% [5][8] Business Line Data and Key Metrics Changes - The net earned premium for Q4 2021 was $217 million, including $11.4 million from Essent Re's third-party business [10] - The average net premium rate for the U.S. mortgage insurance business remained unchanged at 40 basis points for Q4 2021 [11] - Persistency increased to 65.4% at the end of Q4 2021, up from 62.2% at the end of Q3 2021 [10] Market Data and Key Metrics Changes - The default rate decreased to 2.16% at year-end 2021, down from 3.93% at the end of 2020 [11][12] - The company has reinsurance coverage on 90% of its portfolio as of December 31, 2021 [5][8] Company Strategy and Development Direction - The company aims to optimize unit economics and generate high-quality earnings while managing capital effectively [4][5] - The introduction of the EssentEDGE pricing engine is expected to enhance competitive advantage through data analysis and machine learning [6][7] - The company is focused on leveraging technology to improve operational efficiency and customer experience [38] Management's Comments on Operating Environment and Future Outlook - Management expressed a positive outlook for the housing market, citing strong demand and low unemployment as supportive factors [4][5] - The company anticipates continued opportunities in the housing finance and technology sectors, despite potential challenges from rising interest rates [36][42] - Management highlighted the importance of credit selection and risk management in navigating a potentially more aggressive lending environment [25][48] Other Important Information - The company returned over one-third of its earnings to shareholders through dividends and share repurchases in 2021 [8][9] - A $0.01 increase in the quarterly dividend was announced, marking a 25% increase from the previous year [9] Q&A Session Summary Question: Comments on competitive environment around pricing - Management noted consistent pricing in Q4 2021, with some market share fluctuations but maintained focus on credit selection rather than market share [18][19] Question: Thoughts on potential consolidation in the industry - Management believes consolidation is likely but requires a catalyst, with credit events being a potential trigger [20] Question: Managing credit risk in a competitive environment - Management emphasized the importance of their risk management tools and the ability to adjust pricing based on credit quality [23][24] Question: Drivers of operating expenses and future growth - Management indicated that personnel costs are a primary driver of expenses, with continued investments in technology and people [28] Question: Dividend versus buyback analysis - Management favors a balanced approach to capital distribution, prioritizing dividends while also considering share repurchases [30] Question: Impact of home price appreciation on affordability - Management acknowledged that rising home prices could affect affordability, particularly in certain markets, but believes core demand will remain strong [42][43] Question: Observations on lending standards in 2022 - Management noted that while lenders may want to loosen standards, GSE regulations act as a guardrail, maintaining credit quality [48][49]

ESSENT GROUP LTD. | NYSE: ESNT © 2022 Essent Group Ltd. All rights reserved. | essentgroup.com | 1 ESSENT GROUP LTD. INVESTOR PRESENTATION 4Q & FY-21 NYSE: ESNT February 11, 2022 Disclaimer This presentation may include "forward-looking statements" which are subject to known and unknown risks and uncertainties, many of which may be beyond our control. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "plan," "anticipat ...

[PART I — FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) The financial information section provides an overview of the company's financial performance and condition, including unaudited statements and management's analysis [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited condensed consolidated financial statements present the financial position, results of operations, and cash flows for Essent Group Ltd. as of September 30, 2021, and for the three and nine months then ended [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and equity as of September 30, 2021, and December 31, 2020 Condensed Consolidated Balance Sheet Highlights (Unaudited) | (in thousands of USD) | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$5,589,516** | **$5,202,724** | | Total Investments | $5,031,267 | $4,654,277 | | **Total Liabilities** | **$1,421,532** | **$1,340,091** | | Reserve for losses and LAE | $412,956 | $374,941 | | **Total Stockholders' Equity** | **$4,167,984** | **$3,862,633** | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This statement details the company's revenues, expenses, and net income for the three and nine months ended September 30, 2021 and 2020 Statement of Comprehensive Income Highlights (Unaudited) | (in thousands of USD, except per share) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | **$283,536** | **$243,038** | **$771,594** | **$707,955** | | Net Premiums Earned | $218,718 | $222,258 | $655,222 | $640,225 | | (Benefit) Provision for Losses | ($7,483) | $55,280 | $34,490 | $239,220 | | **Net Income** | **$205,353** | **$124,536** | **$500,796** | **$289,439** | | **Diluted EPS** | **$1.84** | **$1.11** | **$4.47** | **$2.77** | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This statement outlines the changes in the company's stockholders' equity, driven by net income, dividends, and share repurchases - Total stockholders' equity increased to **$4.17 billion** as of September 30, 2021, from **$3.75 billion** as of September 30, 2020, driven by **net income of $500.8 million** for the nine-month period, partially offset by **dividends declared ($57.5 million)** and **treasury stock acquisitions ($94.8 million)**[28](index=28&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020 Cash Flow Summary (Unaudited) | (in thousands of USD) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $518,167 | $548,506 | | Net cash used in investing activities | ($403,412) | ($1,083,317) | | Net cash (used in) provided by financing activities | ($151,760) | $582,152 | | **Net (decrease) increase in cash** | **($37,005)** | **$47,341** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed information on accounting policies, investment portfolio, reinsurance, loss reserves, debt, capital stock, and statutory compliance, including PMIERs [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, including a significant increase in net income, the impact of COVID-19, key performance indicators, liquidity, and regulatory compliance [Overview](index=29&type=section&id=Overview) This section provides a high-level summary of the company's insurance in force, new insurance written, reinsurance coverage, and the impact of COVID-19 on default reserving - As of September 30, 2021, Essent had **$208.2 billion** of insurance in force (IIF), with new insurance written (NIW) at **$23.6 billion** for Q3 2021 and **$67.8 billion** for the first nine months of 2021[151](index=151&type=chunk) - Essent Re, the company's reinsurance subsidiary, increased its quota share reinsurance coverage of Essent Guaranty's NIW from **25% to 35%** effective January 1, 2021[152](index=152&type=chunk) - The company reverted to its normal loss reserving methodology for defaults reported after September 30, 2020, as new default credit characteristics trended towards pre-pandemic levels, following a significant increase in new defaults in 2020 due to COVID-19[153](index=153&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) This section analyzes the company's net income, premiums earned, and provision for losses, highlighting the impact of decreased defaults and favorable development from cures - Net income for Q3 2021 was **$205.4 million**, a significant increase from **$124.5 million** in Q3 2020, primarily driven by a decrease in the provision for losses and LAE and higher income from other invested assets[194](index=194&type=chunk) - Net premiums earned decreased by **2%** in Q3 2021 compared to Q3 2020, mainly due to higher ceded premiums under reinsurance agreements, despite an increase in average insurance in force[195](index=195&type=chunk) - The provision for losses and LAE was a **benefit of $7.5 million** in Q3 2021, compared to an **expense of $55.3 million** in Q3 2020, due to a decrease in new defaults and favorable development from cures[204](index=204&type=chunk)[212](index=212&type=chunk) Default Inventory Trend | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Beginning Default Inventory | 23,504 | 38,068 | | New Defaults | 5,132 | 12,614 | | Cures | (8,862) | (15,135) | | **Ending Default Inventory** | **19,721** | **35,464** | [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) This section details the company's strong liquidity position, including cash, investments, and compliance with regulatory capital requirements like PMIERs - As of September 30, 2021, the company had substantial liquidity, including **$65.8 million in cash**, **$309.8 million in short-term investments**, and **$4.6 billion in fixed maturity investments**, with holding company net cash and investments totaling **$513.0 million**[224](index=224&type=chunk) - The combined risk-to-capital ratio for U.S. insurance subsidiaries was **10.5 to 1** as of September 30, 2021, significantly below the general maximum permitted ratio of **25.0 to 1**[191](index=191&type=chunk)[240](index=240&type=chunk) - Essent Guaranty was in compliance with PMIERs 2.0, with **Available Assets of $3.16 billion**, which is **162%** of its **Minimum Required Assets of $1.95 billion** as of September 30, 2021[245](index=245&type=chunk) [Financial Condition](index=45&type=section&id=Financial%20Condition) This section reviews the company's balance sheet strength, including growth in stockholders' equity and investments, and the quality of its investment portfolio - Stockholders' equity increased to **$4.17 billion** at September 30, 2021, from **$3.86 billion** at December 31, 2020, driven by net income, partially offset by dividends and share repurchases[247](index=247&type=chunk) - Total investments grew to **$5.0 billion** as of September 30, 2021, from **$4.7 billion** at year-end 2020, primarily from investing cash flows from operations[248](index=248&type=chunk) Investment Portfolio Quality by Rating (Fair Value) | Rating Category | September 30, 2021 (%) | December 31, 2020 (%) | | :--- | :--- | :--- | | Aaa to A3 (High Grade) | 88.2% | 91.7% | | Baa1 to Baa3 (Investment Grade) | 15.5% | 10.7% | | Below Baa3 | 1.6% | 0.7% | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's investment portfolio is primarily exposed to interest rate risk, with an effective duration of 3.8 years as of September 30, 2021 - The primary market risk exposure is to changes in interest rates, which can affect the value of fixed-rate bonds and influence persistency and claim rates[272](index=272&type=chunk) - The effective duration of the investments available for sale portfolio was **3.8 years** at September 30, 2021, indicating that a **100 basis point** change in interest rates would change the portfolio's fair value by approximately **3.8%**[276](index=276&type=chunk) [Item 4. Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective based on an evaluation as of the end of the period[277](index=277&type=chunk) - No material changes occurred in the company's internal control over financial reporting during the third quarter of 2021[278](index=278&type=chunk) [PART II — OTHER INFORMATION](index=52&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) This section covers other information including legal proceedings, risk factors, equity security sales, and exhibits [Item 1. Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not currently subject to any material legal proceedings - As of the reporting date, the company is not involved in any material legal proceedings[281](index=281&type=chunk) [Item 1A. Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes have occurred in the company's risk factors since the filing of its 2020 Annual Report on Form 10-K[282](index=282&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2021, the company repurchased 1,565,357 common shares under its plan, with $160.8 million remaining available for future repurchases Share Repurchases in Q3 2021 | Period | Total Shares Purchased | Average Price Paid Per Share (USD) | | :--- | :--- | :--- | | July 2021 | 586,169 | $44.10 | | August 2021 | 472,369 | $46.59 | | September 2021 | 506,819 | $45.39 | | **Total Q3** | **1,565,357** | **N/A** | - The share repurchase plan, announced in May 2021, authorized up to **$250 million** in repurchases, with **$160.8 million** remaining available under this authorization as of September 30, 2021[284](index=284&type=chunk) [Item 6. Exhibits](index=53&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including management agreements, CEO/CFO certifications, and financial statements in Inline XBRL - Exhibits filed with the report include CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley) and financial data in Inline XBRL format[286](index=286&type=chunk)

Company Overview - Essent Group Ltd is a leading specialty insurer in the U.S housing finance industry, offering mortgage insurance and reinsurance[4] - The company has transformed its business model to a "Buy, Manage & Distribute" approach, utilizing programmatic reinsurance[4] - EssentEDGE®, a dynamic pricing platform, allows for precise credit selection and granular pricing[4] Financial Performance - As of September 30, 2021, Essent's total Insurance In Force (IIF) reached $208.2 billion[4] - The combined risk-to-capital ratio was 10.5:1 as of September 30, 2021[4] - Net income for the quarter was $205.4 million, including income from other invested assets of $39.5 million[5] - The combined ratio was 15.9% and the annualized ROE was 19.9%[5] - Shareholders' equity stood at $4.2 billion[5] - Book value per share has an annualized growth rate of 21.4% from December 31, 2013[7] Market Position and Strategy - Essent maintains a strong market position with an average annual NIW market share of approximately 16% from 2016 through 2020[12] - The company utilizes Credit Risk Transfer (CRT) to manage housing cycles and diversify capital sources[17] - As of September 30, 2021, Essent has access to $2.4 billion in ILN/XOL reinsurance coverage, protecting 75% of its IIF[23] Capital and Liquidity - As of September 30, 2021, GAAP Equity was $4.2 billion[25] - Available liquidity was $513 million in net cash and investments at Essent Group Ltd and Essent US Holdings, Inc[25] - The company maintains conservative financial leverage below 10%[25]

Financial Data and Key Metrics Changes - For Q3 2021, the company reported net income of $205 million, an increase from $160 million in the previous quarter [7] - Diluted earnings per share were $1.84, up from $1.42 in the last quarter [8] - The annualized return on average equity for Q3 was 20% [8] - Book value per share increased to $37.58, with an annualized growth of 21% since going public in 2013 [11] Business Line Data and Key Metrics Changes - Net premium for Q3 2021 was $219 million, including $11.6 million from Essent Re's third-party business [15] - The average net premium rate for U.S. mortgage insurance decreased to 40 basis points from 41 basis points in the previous quarter [15] - Persistency increased to 62.2% at September 30, 2021, compared to 58.3% at June 30, 2021 [15] Market Data and Key Metrics Changes - As of September 30, 2021, the insurance in force was $208 billion, a 9% increase from $191 billion a year ago [8] - The default rate decreased to 2.47% from 2.96% at June 30, 2021 [16] Company Strategy and Development Direction - The company rolled out the next generation of EssentEDGE, enhancing its risk-based engine for refined pricing [9] - The focus is on leveraging technology and data analytics to optimize unit economics in a competitive mortgage insurance market [21] - The company maintains a strong capital position with $4.2 billion in GAAP equity and $2.4 billion in excess of loss re-insurance [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of the portfolio, noting that the average FICO score is 745 and LTV is 92% [8] - The company is prepared for potential economic headwinds, emphasizing the importance of maintaining a fortress balance sheet [34] - Management highlighted the ongoing transition in the industry from rate card to fee-based models, positioning the company favorably due to its technological investments [28] Other Important Information - The Board approved a $0.01 increase in the dividend to $0.19 per share, representing a 19% increase from the previous year [11] - The company repurchased $70.9 million of stock during the quarter, totaling approximately $89 million in buybacks year-to-date [19] Q&A Session Summary Question: Changes in portfolio characteristics due to refinance activity - Management noted that the fundamental characteristics of the new business remain strong, with an average FICO of 745 and LTV of around 92% [23] Question: Competitive environment and pricing stability - Management confirmed that competition remains stable, with a shift from rate card to fee-only models impacting the industry [27][28] Question: Re-insurance levels and future expectations - Management indicated that re-insurance coverage is expected to increase to around 90% as new transactions are completed [32] Question: Impact of home price appreciation on persistency - Management acknowledged that while they have not seen significant changes yet, higher home price appreciation could lead to increased refinancing activity [41] Question: Technology talent acquisition and its impact on initiatives - Management stated that while attracting technology talent is competitive, they have been successful in leveraging both internal and external resources to meet their needs [46][47] Question: Participation in GSEs' CRT programs - Management confirmed participation in GSEs' CRT programs, particularly through Essent Re, and noted the potential for growth as Fannie Mae ramps up its offerings [49]

� ESSENT® ESSENT GROUP LTD. | NYSE: ESNT © 2021 Essent Group Ltd. All rights reserved. | essentgroup.com | 1 ESSENT GROUP LTD. INVESTOR PRESENTATION 2Q21 NYSE: ESNT August 6, 2021 Disclaimer This presentation may include "forward-looking statements" which are subject to known and unknown risks and uncertainties, many of which may be beyond our control. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "plan," "anticipa ...