Essent Group Ltd. (NYSE:ESNT) Q1 2023 Earnings Conference Call May 5, 2023 10:00 AM ET Company Participants Phil Stefano - Vice President-Investor Relations Mark Casale - Chairman & Chief Executive Officer David Weinstock - Chief Financial Officer Chris Curran - President-Essent Guaranty Conference Call Participants Mark DeVries - Barclays Bose George - KBW Mihir Bhatia - Bank of America Geoffrey Dunn - Dowling & Partners Doug Harter - Credit Suisse Roland Mayer - RBC Capital Markets Eric Hagen - BTIG Opera ...

Part I [Item 1. Business](index=7&type=section&id=Item%201.%20Business) Essent Group Ltd. is a private mortgage insurance company providing credit protection to lenders, with **$63.1 billion** in New Insurance Written and **$227.1 billion** in Insurance in Force for 2022 - Essent Guaranty, the primary U.S. mortgage insurance subsidiary, holds strong financial strength ratings: **A3 (Stable)** from Moody's, **BBB+ (Stable)** from S&P, and **A (Excellent)** from A.M. Best[27](index=27&type=chunk) - The company also operates Essent Reinsurance Ltd. in Bermuda, which provides reinsurance for GSE risk-sharing transactions and reinsures a portion of Essent Guaranty's NIW, with quota share reinsurance coverage increasing from **25% to 35%** for NIW effective January 1, 2021[28](index=28&type=chunk)[58](index=58&type=chunk) - As of December 31, 2022, the default rate on insured loans was **1.66% (13,433 loans)**, a decrease from **2.16% (16,963 loans)** at the end of 2021, showing improvement as pandemic-related forbearances resolve[31](index=31&type=chunk)[106](index=106&type=chunk) Key Business Metrics (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | New Insurance Written (NIW) | $63.1 billion | $84.2 billion | $107.9 billion | | Insurance in Force (IIF) at Year-End | $227.1 billion | $207.2 billion | $198.9 billion | | NIW from Top 10 Customers | 39.9% | 41.6% | 35.8% | [Our Industry and Competition](index=8&type=section&id=Our%20Industry%20and%20Competition) The U.S. residential mortgage market, driven by GSEs, relies on private mortgage insurance for low down payment loans, with the industry's market share growing to an estimated **48%** in 2022 amidst intense competition from six private insurers and government programs - The private mortgage insurance industry's share of the total insured market has more than doubled since 2009, reaching an estimated **48%** in 2022[39](index=39&type=chunk) - The industry consists of six active private mortgage insurers: Essent Guaranty, Arch Mortgage Insurance, Enact Holdings, MGIC, National Mortgage Insurance, and Radian Guaranty[43](index=43&type=chunk) - Competition also comes from government agencies (FHA, VA), state-sponsored funds, and alternative products like 'piggyback loans' that eliminate the need for PMI[44](index=44&type=chunk)[45](index=45&type=chunk) [Our Products and Services](index=10&type=section&id=Our%20Products%20and%20Services) Essent primarily offers loan-by-loan primary mortgage insurance, with premiums paid monthly or upfront, and its Bermuda subsidiary, Essent Re, increased its quota share reinsurance of Essent Guaranty's New Insurance Written to **35%** - The majority of policies are primary mortgage insurance, with risk coverage typically ranging from **6% to 35%** of the underlying loan balance[47](index=47&type=chunk)[48](index=48&type=chunk) - Premium payments are primarily structured as monthly or single premium policies, with substantially all policies being of these types as of December 31, 2022[50](index=50&type=chunk)[54](index=54&type=chunk) - Essent Re, the Bermuda subsidiary, increased its quota share reinsurance of Essent Guaranty's NIW from **25% to 35%** effective January 1, 2021[58](index=58&type=chunk) [Our Mortgage Insurance Portfolio](index=13&type=section&id=Our%20Mortgage%20Insurance%20Portfolio) As of December 31, 2022, Essent's **$227.1 billion** insurance in force demonstrates high credit quality, with **84.3%** originated in the last three years, **41.1%** from borrowers with FICO scores >=760, and a geographically diverse concentration Insurance in Force (IIF) by Policy Year (as of Dec 31, 2022) | Year | IIF ($ thousands) | % of Total | | :--- | :--- | :--- | | 2022 | $60,609,538 | 26.7% | | 2021 | $71,533,600 | 31.5% | | 2020 | $59,228,334 | 26.1% | | 2019 | $14,742,465 | 6.5% | | 2018 | $6,714,277 | 3.0% | | 2017 and prior | $14,233,841 | 6.2% | | **Total** | **$227,062,055** | **100.0%** | Portfolio by FICO Score (IIF as of Dec 31, 2022) | FICO Score | IIF ($ thousands) | % of Total | | :--- | :--- | :--- | | >=760 | $93,389,066 | 41.1% | | 740-759 | $38,842,311 | 17.2% | | 720-739 | $34,981,632 | 15.4% | | 700-719 | $29,146,543 | 12.8% | | 680-699 | $18,859,824 | 8.3% | | <=679 | $11,842,679 | 5.2% | Portfolio by LTV (IIF as of Dec 31, 2022) | LTV | IIF ($ thousands) | % of Total | | :--- | :--- | :--- | | 85.00% and below | $24,454,468 | 10.8% | | 85.01% to 90.00% | $63,436,445 | 27.8% | | 90.01% to 95.00% | $107,932,064 | 47.6% | | 95.01% and above | $31,239,078 | 13.8% | - The portfolio is geographically diverse, with the top three states (California, Texas, Florida) accounting for **33.8%** of total IIF as of December 31, 2022[70](index=70&type=chunk)[72](index=72&type=chunk) [Underwriting and Risk Management](index=19&type=section&id=Underwriting%20and%20Risk%20Management) Essent employs a balanced underwriting approach, with **71%** of its insurance in force originated through its delegated program, and manages risk through a comprehensive loan life cycle framework supported by third-party reinsurance - As of December 31, 2022, approximately **71%** of insurance in force was originated through the Delegated Underwriting program, up from **66%** in the prior year[93](index=93&type=chunk) - The risk management process is structured around the "loan life cycle," encompassing customer qualification, policy acquisition (underwriting and pricing), and portfolio management (quality assurance and surveillance)[97](index=97&type=chunk) - The company uses various third-party reinsurance arrangements, including fully collateralized excess of loss coverage and quota share agreements, to hedge against adverse losses, provide capital relief, and diversify capital sources[102](index=102&type=chunk) [Regulation](index=25&type=section&id=Regulation) Essent is subject to extensive federal and state regulation, including GSEs' PMIERs, state insurance laws governing capital and rates, and federal laws like the Dodd-Frank Act, while its Bermuda subsidiary operates under a less restrictive framework - Essent Guaranty is in compliance with the GSEs' Private Mortgage Insurer Eligibility Requirements (PMIERs), which are critical for its ability to insure loans sold to Fannie Mae and Freddie Mac[123](index=123&type=chunk) - State insurance regulations, particularly in its domicile of Pennsylvania, govern capital levels, dividend payments, and transactions with affiliates, with control presumed if a person acquires **10% or more** of voting securities, requiring prior regulatory approval[124](index=124&type=chunk)[127](index=127&type=chunk) - Federal regulations such as the Dodd-Frank Act's QM and QRM rules directly impact the size of the residential mortgage market and the demand for private mortgage insurance[135](index=135&type=chunk)[139](index=139&type=chunk)[141](index=141&type=chunk) - The Bermuda-based subsidiary, Essent Reinsurance Ltd., is registered as a Class 3A insurer and is subject to the Bermuda Insurance Act, which imposes solvency, liquidity, and reporting standards supervised by the BMA[158](index=158&type=chunk)[162](index=162&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks related to intense industry competition, reliance on key customers, potential economic downturns, evolving regulatory requirements, and the tax implications of its corporate structure [Risks Relating to the Operation of Our Business](index=40&type=section&id=Risks%20Relating%20to%20the%20Operation%20of%20Our%20Business) Operational risks include intense competition, significant customer concentration with the top ten customers accounting for **39.9%** of NIW in 2022, and potential impacts from economic downturns or declining home values that could increase defaults and losses - Intense competition could negatively impact NIW if competitors reduce pricing or loosen underwriting guidelines[190](index=190&type=chunk) - The top ten customers accounted for **39.9%** of NIW in 2022, and one customer represented more than **10%** of consolidated revenues, highlighting significant customer concentration risk[191](index=191&type=chunk) - A downturn in the U.S. economy or a decline in home values could lead to more defaults and increase losses, as could catastrophic events[209](index=209&type=chunk) - Loss reserves are established only for loans in default, not based on ultimate loss estimates for the entire portfolio, which could lead to disproportionate adverse effects on earnings in certain periods[208](index=208&type=chunk) [Risks Relating to Regulation and Litigation](index=50&type=section&id=Risks%20Relating%20to%20Regulation%20and%20Litigation) The company's business is highly dependent on GSEs, making it vulnerable to legislative or regulatory changes to their role, evolving PMIERs, and the impact of federal rules like QM/QRM and Basel IV capital rules - The business is highly dependent on the GSEs; legislative or regulatory actions changing their role or credit enhancement requirements could significantly reduce revenues[233](index=233&type=chunk)[235](index=235&type=chunk) - Changes to the GSEs' PMIERs could negatively impact the company's ability to write mortgage insurance at current levels or generate anticipated returns[239](index=239&type=chunk) - The CFPB's QM rule and the multi-agency QRM rule could reduce the size of the mortgage origination market or create incentives for lenders to use government insurance programs over PMI[240](index=240&type=chunk)[245](index=245&type=chunk) - The implementation of Basel IV rules for banking organizations could decrease the demand for mortgage insurance if it no longer provides a capital benefit for lenders[246](index=246&type=chunk)[248](index=248&type=chunk) [Risks Relating to Taxes and Our Corporate Structure](index=55&type=section&id=Risks%20Relating%20to%20Taxes%20and%20Our%20Corporate%20Structure) Essent's Bermuda domicile poses tax risks, including potential U.S. federal income taxation, Controlled Foreign Corporation (CFC) rules for shareholders, Passive Foreign Investment Company (PFIC) classification, and limitations on dividend payments from regulated subsidiaries - The company's Bermuda-domiciled entities (Essent Group Ltd. and Essent Re) risk being subject to U.S. federal income tax if the IRS successfully contends they are engaged in a U.S. trade or business[256](index=256&type=chunk)[257](index=257&type=chunk) - Due to attribution rules, Essent Reinsurance Ltd. is deemed a Controlled Foreign Corporation (CFC), subjecting any **10%** U.S. Shareholder to current taxation on their pro rata share of "subpart F income"[259](index=259&type=chunk) - While management believes Essent Group Ltd. is not a Passive Foreign Investment Company (PFIC), changes in business circumstances or tax law could alter this status, leading to adverse tax consequences for U.S. investors[265](index=265&type=chunk)[266](index=266&type=chunk) - As a holding company, Essent Group Ltd.'s ability to pay dividends is dependent on receiving dividends from its insurance subsidiaries, which are restricted by state insurance laws; for example, Essent Guaranty's 2022 dividends to its parent were **$315.0 million**[275](index=275&type=chunk)[276](index=276&type=chunk) Part II [Item 5. Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=68&type=section&id=Item%205.%20Market%20for%20the%20Company's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Essent Group Ltd.'s common shares trade on the NYSE under "ESNT", with quarterly dividends totaling **$0.86 per share** in 2022, and an authorized **$250 million** share repurchase plan that remained unutilized as of year-end 2022 - The company's common shares are traded on the New York Stock Exchange under the symbol "ESNT"[315](index=315&type=chunk) - As of December 31, 2022, the company was authorized to purchase up to **$250 million** of its common shares under a plan announced in May 2022, with the full amount remaining available[322](index=322&type=chunk) Quarterly Dividends per Share (2022) | Quarter | Dividend per Share | | :--- | :--- | | Q1 2022 | $0.20 | | Q2 2022 | $0.21 | | Q3 2022 | $0.22 | | Q4 2022 | $0.23 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=70&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) For 2022, Essent reported **$831.4 million** net income, driven by a **$174.7 million** net benefit for losses due to favorable COVID-19 default development, despite a **3%** decrease in net premiums earned, while maintaining a strong capital position with **174%** of PMIERs Minimum Required Assets - The significant increase in net income for 2022 was primarily due to a **$174.7 million** benefit for losses, driven by a **$164.1 million** favorable revision to the estimated ultimate loss for early COVID-19 defaults[380](index=380&type=chunk)[390](index=390&type=chunk) - The average net premium rate decreased from **0.41%** in 2021 to **0.37%** in 2022, primarily due to changes in the mix of mortgages insured, pricing changes, and fewer cancellations of non-refundable single premium policies[377](index=377&type=chunk)[381](index=381&type=chunk) - As of December 31, 2022, Essent Guaranty's Available Assets under PMIERs were **$3.19 billion**, which is **174%** of its Minimum Required Assets of **$1.83 billion**, indicating a strong capital buffer[422](index=422&type=chunk) Summary of Operations (2021 vs 2022) | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net premiums earned | $842,527 | $872,543 | | Total revenues | $1,000,824 | $1,028,510 | | (Benefit) provision for losses and LAE | $(174,704) | $31,057 | | Total losses and expenses | $12,637 | $206,196 | | Net income | $831,353 | $681,783 | [Results of Operations](index=79&type=section&id=Results%20of%20Operations) Net income rose to **$831.4 million** in 2022 from **$681.8 million** in 2021, primarily due to a **$174.7 million** net benefit for losses, despite a **3%** decrease in net premiums earned, while net investment income increased **40%** - Net premiums earned decreased by **3%** in 2022 due to a lower average net premium rate (**0.37%** vs **0.41%** in 2021), partially offset by a **6%** increase in average insurance in force[381](index=381&type=chunk) - The provision for losses and LAE was a benefit of **$174.7 million** in 2022, a significant reversal from the **$31.1 million** expense in 2021, primarily due to a decrease in the estimated ultimate loss for Early COVID Defaults and strong cure activity[388](index=388&type=chunk)[395](index=395&type=chunk) - Net investment income increased **40%** to **$124.4 million** in 2022, driven by a higher average investment portfolio balance (**$5.1 billion** vs. **$4.7 billion**) and an increased pre-tax yield (**2.6%** vs. **2.0%**)[384](index=384&type=chunk) - The ending default inventory decreased to **13,433 loans** at year-end 2022 from **16,963 loans** at year-end 2021, with the default rate falling to **1.66%** from **2.16%**[389](index=389&type=chunk) [Liquidity and Capital Resources](index=84&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2022, Essent maintained substantial liquidity with **$81.2 million** in cash and **$5.0 billion** in investments, and its U.S. insurance subsidiaries were well-capitalized with a combined risk-to-capital ratio of **10.2 to 1** - The company has substantial liquidity, with **$81.2 million** in cash and **$5.0 billion** in total investments as of December 31, 2022[403](index=403&type=chunk)[425](index=425&type=chunk) - Net cash from operating activities was **$588.8 million** in 2022, a decrease from **$709.3 million** in 2021, primarily due to changes in working capital and higher tax payments[408](index=408&type=chunk)[409](index=409&type=chunk) - Essent Guaranty is in compliance with PMIERs, with Available Assets of **$3.19 billion** exceeding Minimum Required Assets of **$1.83 billion** as of December 31, 2022[421](index=421&type=chunk)[422](index=422&type=chunk) U.S. Insurance Subsidiaries' Combined Statutory Capital (as of Dec 31, 2022) | Metric (in thousands) | Amount | | :--- | :--- | | Policyholders' surplus | $1,072,667 | | Contingency reserves | $2,105,484 | | **Combined statutory capital** | **$3,178,151** | | Combined net risk in force | $32,265,701 | | **Combined risk-to-capital ratio** | **10.2:1** | [Financial Condition](index=89&type=section&id=Financial%20Condition) As of December 31, 2022, stockholders' equity increased to **$4.5 billion**, supported by **$5.0 billion** in high-quality, primarily investment-grade fixed-income investments with an effective duration of **4.0 years** - Stockholders' equity grew to **$4.5 billion** at year-end 2022 from **$4.2 billion** at year-end 2021, primarily due to **$831.4 million** in net income[424](index=424&type=chunk)[379](index=379&type=chunk) - The effective duration of the investments available for sale portfolio was **4.0 years** as of December 31, 2022, indicating that a **100 basis point** parallel shift in the yield curve would change the portfolio's fair value by approximately **4.0%**[465](index=465&type=chunk) Investments Available for Sale by Rating (as of Dec 31, 2022) | Rating | Fair Value ($ thousands) | Percent | | :--- | :--- | :--- | | Aaa to Aa3 | $2,901,029 | 61.1% | | A1 to A3 | $1,102,350 | 23.3% | | Baa1 to Baa3 | $645,218 | 13.6% | | Below Baa3 | $93,028 | 2.0% | | **Total** | **$4,741,625** | **100.0%** | [Item 8. Financial Statements and Supplementary Data](index=100&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Essent Group Ltd.'s audited consolidated financial statements for 2022, including balance sheets and income statements, with PricewaterhouseCoopers LLP issuing an unqualified opinion and highlighting the valuation of loss reserves as a critical audit matter - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[472](index=472&type=chunk) - The auditor identified the valuation of the Reserve for Losses and Loss Adjustment Expenses as a Critical Audit Matter due to the significant management judgment involved in estimating claim rates and sizes, which required a high degree of auditor subjectivity and effort[478](index=478&type=chunk)[480](index=480&type=chunk) Consolidated Balance Sheet Highlights (as of Dec 31) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Total Investments | $4,999,566 | $5,133,359 | | Total Assets | $5,723,797 | $5,722,174 | | Reserve for losses and LAE | $216,464 | $407,445 | | Total Liabilities | $1,261,488 | $1,486,060 | | Total Stockholders' Equity | $4,462,309 | $4,236,114 | [Item 9A. Controls and Procedures](index=143&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, a conclusion confirmed by the independent auditor - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[673](index=673&type=chunk) - Management assessed internal control over financial reporting using the COSO framework and concluded it was effective as of December 31, 2022[676](index=676&type=chunk) - No material changes to the company's internal control over financial reporting occurred during the most recent fiscal quarter[678](index=678&type=chunk) Part III [Items 10-14](index=144&type=section&id=Items%2010-14) Information for Items 10 through 14, covering governance, compensation, ownership, related transactions, and accounting fees, is incorporated by reference from the company's forthcoming 2023 proxy statement - Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and principal accounting fees and services is incorporated by reference from the forthcoming 2023 proxy statement[682](index=682&type=chunk)[683](index=683&type=chunk)[684](index=684&type=chunk) Part IV [Item 15. Exhibits, Financial Statement Schedules](index=144&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section provides an index of all financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, including corporate governance documents and required certifications - This section provides an index of all financial statements, schedules, and exhibits filed with the Form 10-K[689](index=689&type=chunk)

Essent Group Ltd. (NYSE:ESNT) Q4 2022 Earnings Conference Call February 10, 2023 10:00 AM ET Company Participants Phil Stefano - Vice President-Investor Relations Mark Casale - Chairman and Chief Executive Officer Dave Weinstock - Interim Chief Financial Officer Chris Curran - President-Essent Guaranty Conference Call Participants Mark DeVries - Barclays Rick Shane - JPMorgan Mihir Bhatia - Bank of America Bose George - Keefe, Bruyette, &Woods Geoffrey Dunn - Dowling & Partners Operator Good morning, my nam ...

Table of Contents Title of each class Trading Symbol(s) Name of each exchange on which registered Common Shares, $0.015 par value ESNT New York Stock Exchange UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended September 30, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commi ...

ESSENT GROUP LTD. | NYSE: ESNT © 2022 Essent Group Ltd. All rights reserved. | essentgroup.com | 1 ESSENT GROUP LTD. INVESTOR PRESENTATION 3Q22 NYSE: ESNT November 4, 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," "anticipate," "be ...

Essent Group Ltd. (NYSE:ESNT) Q3 2022 Earnings Conference Call November 4, 2022 10:00 AM ET Company Participants Phil Stefano – Vice President-Investor Relations Mark Casale – Chairman and Chief Executive Officer David Weinstock – Interim Chief Financial Officer Chris Curran – President-Essent Guaranty Conference Call Participants Mark DeVries – Barclays Rick Shane – JPMorgan John Kilichowski – Credit Suisse Alex Bond – KBW Mihir Bhatia – Bank of America Rowland Mayor – RBC Capital Markets Operator Good mor ...

Table of Contents Title of each class Trading Symbol(s) Name of each exchange on which registered Common Shares, $0.015 par value ESNT New York Stock Exchange UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended June 30, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission ...

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)