Essent .(US:ESNT)2022-05-05 16:00PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Essent Group Ltd Item 1. Financial Statements (Unaudited) 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) 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, 202221 - Cash significantly increased from $81,491 thousand at December 31, 2021, to $203,845 thousand at March 31, 202221 Condensed Consolidated Statements of Comprehensive Income (Unaudited) 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 202226 - Basic EPS more than doubled from $1.21 in Q1 2021 to $2.53 in Q1 202226 Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) 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 investments29 Condensed Consolidated Statements of Cash Flows (Unaudited) 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 202234 - 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 acquisitions34 Notes to Condensed Consolidated Financial Statements (Unaudited) 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 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 Ltd3839 - Essent Guaranty's quota share reinsurance coverage with Essent Re increased from 25% to 35% effective January 1, 202139 Note 2. Recently Issued Accounting Standards 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 statements4245 Note 3. Investments 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 202156 - 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, 20215760 Note 4. Reinsurance 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 202269 - Total Risk in Force (RIF) ceded under QSR 2019 and QSR 2022 was $5.0 billion as of March 31, 202270 | (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 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 LAE8692 - 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 202292 Note 6. Debt Obligations 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, 202694 - 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, 202194 Note 7. Commitments and Contingencies 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 material97 - Contingencies triggering material indemnification obligations have not occurred historically and are considered to have a remote risk of loss or payment98 Note 8. Capital Stock 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 share103 - 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 2022104 Note 9. Stock-Based Compensation 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 years113 Note 10. Dividends Restrictions 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 2022118 - Essent Re maintains total equity of $1.3 billion, exceeding its minimum requirement of $100 million119 Note 11. Earnings per Share (EPS) 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 2021121 Note 12. Accumulated Other Comprehensive Income (Loss) 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 investments125 Note 13. Fair Value of Financial Instruments 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 techniques127128129 | (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 2132 Note 14. Statutory Accounting 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, 2022143 - Essent Guaranty increased its contingency reserve by $69.8 million in Q1 2022, while Essent PA increased its by $0.1 million144 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 | 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, 2022154 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 stimulus155 - 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, 2020159 Legislative and Regulatory Developments 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 company161 Factors Affecting Our Results of Operations 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 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 arrangements162 - Monthly premium policies comprised 98% of NIW in Q1 2022, up from 93% in Q1 2021164 Persistency and Business Mix 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 profitability166 - Higher prepayment speeds lead to lower persistency, and the expected return on single premium policies is currently less than on monthly policies167 Net Investment Income 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 funds168 - Investment income is mainly influenced by the size of the investment portfolio and the yield on individual securities168 Income from Other Invested Assets 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 funds169 - Since June 30, 2021, unrealized gains and losses from these entities are reflected in earnings rather than other comprehensive income, potentially increasing volatility170 Other Income 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 contracts172174 Provision for Losses and Loss Adjustment Expenses 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 seasoning176 - Reserves are established for delinquent loans (Case Reserves) and estimated unreported defaults (IBNR Reserves), along with associated LAE178 - 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, 2022180213 Third-Party Reinsurance 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 relief186 Other Underwriting and Operating Expenses 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 2022188223 - Other expenses include legal, consulting, professional fees, premium taxes, travel, marketing, licensing, and depreciation189 Interest Expense 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 rate190 Income Taxes 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 taxes191 - Essent Group and Essent Re are domiciled in Bermuda, which does not have a corporate income tax192 Mortgage Insurance Earnings and Cash Flow Cycle 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 seasons194 Key Performance Indicators 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 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 $206.8 billion at March 31, 2022197 | Vintage Year | IIF at March 31, 2022 ($ 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 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 cancellations198 Persistency Rate 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, 2022166200 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 1200 - The maximum permitted risk-to-capital ratio is generally 25.0 to 1200 Results of Operations 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 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 assets202 - Net premiums earned decreased by 2% due to a lower average net premium rate, despite an increase in average IIF204 - 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 yields207 - 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'212221 Liquidity and Capital Resources 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 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 issuance228 - 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 investments230 - Essent Guaranty has access to secured borrowing capacity with the Federal Home Loan Bank of Pittsburgh for supplemental liquidity232 Cash Flows 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 collected239 - Cash flow from investing activities shifted to a net inflow of $38.9 million in Q1 2022, primarily from sales of investments for portfolio repositioning240 Insurance Company Capital 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, 2022246 | (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 2022243 Financial Strength Ratings 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 outlooks248 - Essent Re holds BBB+ (S&P) and A (A.M. Best) ratings with stable outlooks248 Private Mortgage Insurer Eligibility Requirements 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, 2022249 - Essent Guaranty's Available Assets were $3.19 billion, 174% of its Minimum Required Assets of $1.84 billion, as of March 31, 2022249 - 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 Financial Condition 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 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, 2022253 - The decrease was primarily due to increased net unrealized investment losses, share repurchases, and dividends paid, partially offset by net income253 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 million254 - The decrease in investments was mainly due to increased net unrealized investment losses and portfolio repositioning, partially offset by investing net cash flows from operations254 | 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 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 insurers273 - The estimated off-balance sheet maximum exposure to loss from Radnor Re entities was $0.7 million as of March 31, 2022273 Critical Accounting Policies 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 date274 Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 rates276 - Key market risk drivers monitored include changes in interest rates, term structure of interest rates, market volatility/credit quality, concentration risk, and prepayment risk277278279 - 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 shift281 Item 4. Controls and Procedures 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, 2022282 - There were no material changes in internal control over financial reporting during the most recent fiscal quarter283 PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, shareholder meeting results, and required exhibits Item 1. Legal Proceedings 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 proceedings286 Item 1A. Risk Factors 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, 2021287 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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 2022104289 - 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 2023104289 Item 5. Other Information 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 proxy290 | 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 feedback295 Item 6. Exhibits 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 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, 2022304