# Essent Group Ltd. (ESNT) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from Essent Group Ltd.'s 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/1448893/000144889325000009/esnt-20241231.htm Accession: 0001448893-25-000009 Filing date: 2025-02-19 Report date: 2024-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/ESNT/ All MD&A years: /company/ESNT/mda/ Previous year: /company/ESNT/mda/fy2023/ (FY 2023) Next year: /company/ESNT/mda/fy2025/ (FY 2025) ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the "Selected Financial Data" and our financial statements and related notes thereto included elsewhere in this report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled "Special Note Regarding Forward-Looking Statements" and "Risk Factors." We are not undertaking any obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made. Overview Essent Group Ltd. (collectively with its subsidiaries, “Essent”) serves the housing finance industry by offering private mortgage insurance and reinsurance, title insurance and settlement services to mortgage lenders, borrowers and investors to support homeownership. We have one reportable segment: Mortgage Insurance. Essent Guaranty, Inc., our wholly-owned mortgage insurance subsidiary which we refer to as "Essent Guaranty," is approved by Fannie Mae and Freddie Mac and licensed to write coverage in all 50 states and the District of Columbia. For the years ended December 31, 2024, 2023 and 2022, our mortgage insurance operations generated new insurance written, or NIW, of approximately $45.6 billion, $47.7 billion and $63.1 billion, respectively. As of December 31, 2024, we had approximately $243.6 billion of mortgage insurance in force. The financial strength ratings of Essent Guaranty are A3 with a positive outlook by Moody's Investors Service, Inc. ("Moody's"), A- with a stable outlook by S&P Global Ratings ("S&P") and A (Excellent) with a stable outlook by A.M. Best Company ("AM Best"). Through our wholly-owned Bermuda-based subsidiary, Essent Reinsurance Ltd., which we refer to as "Essent Re", we reinsure U.S. mortgage risk in the GSE credit risk transfer market and provide underwriting consulting services to third-party reinsurers. As of December 31, 2024, Essent Re provided insurance or reinsurance relating to GSE risk share and other reinsurance transactions covering approximately $2.2 billion of risk. Essent Re also reinsures Essent Guaranty's NIW under a quota share reinsurance agreement. The insurer financial strength ratings of Essent Re are A- with a stable outlook by S&P and A (Excellent) with a stable outlook by A.M. Best. We also offer title insurance products both directly and through a network of title insurance agents, as well as title and settlement services. This operating segment was established upon our acquisitions of Agents National Title Insurance Company (renamed Essent Title Insurance, Inc. effective January 1, 2025), a title insurance underwriter, and Boston National Title, a national title agency, which was effective July 1, 2023. Title insurance operations are included in the Corporate & Other category. We have a highly experienced, talented team with 625 employees as of December 31, 2024. Our holding company and reinsurance business are domiciled in Bermuda. Our U.S. mortgage insurance and title insurance operations are headquartered in Radnor, Pennsylvania. Current Developments The Federal Reserve increased the target federal funds rate several times during 2022 and 2023 in an effort to reduce consumer price inflation. As a result of progress on inflation, the Federal Reserve has reduced the target federal funds rate by 100 basis points since September 2024. Mortgage interest rates, however, remain elevated, which has reduced home buying and mortgage refinance activity resulting in lower volumes of mortgage originations, NIW and title insurance and settlement service transactions. Higher interest rates have also resulted in increases in our net investment income generated by our investment portfolio and the persistency of our mortgage insurance in force. On September 26, 2024, Hurricane Helene made landfall and caused property damage in certain counties in Florida, Georgia, South Carolina, North Carolina, Tennessee and Virginia. On October 9, 2024, Hurricane Milton made landfall, causing damage in certain counties in Florida. Based on prior industry experience, we expect the ultimate number of hurricane-related defaults that result in claims will be less than the default-to-claim experience of non-hurricane-related defaults. The impact on our reserves in future periods will be dependent upon the performance of the hurricane-related defaults and our expectations for the amount of ultimate losses on these delinquencies. In January 2025, several wildfires caused property damage in Southern California. As of January 31, 2025, our insurance in force in areas with Federal Emergency Management Agency (FEMA) disaster declarations due to these wildfires was less than 0.1% of our total insurance in force. 55 Legislative and Regulatory Developments Our results are significantly impacted by, and our future success may be affected by, legislative and regulatory developments affecting the housing finance industry. Key regulatory and legislative developments that may affect us include: U.S. Tax Reform On August 16, 2022, the “Inflation Reduction Act of 2022” (IRA), was enacted, which, among other things, provides for a corporate alternative minimum tax and an excise tax on corporate stock repurchases. Based on our current analysis of the provisions, we do not expect the IRA to have a material impact on our financial position or results of operations. As the IRS issues additional guidance related to the IRA, we will evaluate any potential impact to our consolidated financial statements. Bermuda Corporate Income Tax On December 27, 2023, the Government of Bermuda enacted the Corporate Income Tax Act 2023 (CIT). Starting January 1, 2025, the CIT will result in a new 15% corporate income tax on in-scope entities that are resident in Bermuda or that have a Bermuda permanent establishment, without regard to any assurances that had previously been given pursuant to the Exempted Undertakings Tax Protection Act 1966. The CIT also includes various transitional provisions and elections that we are in the process of evaluating. In particular, we believe that, based on their current structure and operations, our Bermuda companies will be eligible to elect a five-year “limited international presence” exemption under the CIT. We intend to make this election within the timeframe required under Bermuda law, and therefore do not expect the CIT to have a material impact upon our effective tax rate until we no longer meet the exemption criteria, or January 1, 2030, the fifth anniversary of the inception date of the tax, whichever may occur sooner. The exemption criteria are subject to interpretation of existing Bermuda law, as well as any related new regulations that may be issued by the Government of Bermuda. No assurances can be made that we will continue meeting such criteria for the entire five-year period. Factors Affecting Our Results of Operations Net Premiums Written and Earned Premiums associated with our U.S. mortgage insurance business are based on insurance in force, or IIF, during all or a portion of a period. A change in the average IIF during a period causes premiums to increase or decrease as compared to prior periods. Average net premium rates in effect during a given period will also cause premiums to differ when compared to earlier periods. IIF at the end of a reporting period is a function of the IIF at the beginning of such reporting period plus NIW less policy cancellations (including claims paid) during the period. As a result, premiums are generally influenced by: •NIW, which is the aggregate principal amount of the new mortgages that are insured during a period. Many factors affect NIW, including, among others, the volume of low down payment home mortgage originations, the competition to provide credit enhancement on those mortgages, the number of customers who have approved us to provide mortgage insurance and changes in our NIW from certain customers; •Cancellations of our insurance policies, which are impacted by payments on mortgages, home price appreciation, or refinancings, which in turn are affected by mortgage interest rates. Cancellations are also impacted by the levels of claim payments and rescissions; •Premium rates, which represent the amount of the premium due as a percentage of IIF. Premium rates are based on the risk characteristics of the loans insured, the percentage of coverage on the loans, competition from other mortgage insurers and general industry conditions; and •Premiums ceded or assumed under reinsurance arrangements. See Note 5 to our consolidated financial statements. Mortgage insurance premiums are paid either on a monthly installment basis ("monthly premiums"), in a single payment at origination ("single premiums"), or in some cases as an annual premium. For monthly premiums, we receive a monthly premium payment which is recorded as net premiums earned in the month the coverage is provided. Monthly premium payments are based on the original mortgage amount rather than the amortized loan balance. Net premiums written may be in excess of net premiums earned due to single premium policies. For single premiums, we receive a single premium payment at origination, which is recorded as "unearned premium" and earned over the estimated life of the policy, which ranges from 36 to 156 months depending on the term of the underlying mortgage and loan-to-value ratio at date of origination. If single premium policies are cancelled due to repayment of the underlying loan and the premium is non-refundable, the remaining unearned premium balance is immediately recognized as earned premium revenue. Substantially all of our single premium policies in force as of December 31, 2024 were non-refundable. Premiums collected on annual policies are recognized as net premiums 56 earned on a straight-line basis over the year of coverage. For the years ended December 31, 2024 and 2023, monthly premium policies comprised 99% and 97% of our NIW, respectively. Premiums associated with our GSE and other risk share transactions are based on the level of risk in force and premium rates on the transactions. Title insurance premiums are based on the number of title insurance policies issued and generally recognized as income at the transaction closing date which approximates the policy effective date. Persistency and Business Mix The percentage of IIF that remains on our books after any 12-month period is defined as our persistency rate. Because our insurance premiums are earned over the life of a policy, higher persistency rates can have a significant impact on our profitability. The persistency rate on our U.S. mortgage insurance portfolio was 85.7% at December 31, 2024. Generally, higher prepayment speeds lead to lower persistency. Prepayment speeds and the relative mix of business between single premium policies and monthly premium policies also impact our profitability. Our premium rates include certain assumptions regarding repayment or prepayment speeds of the mortgages. Because premiums are paid at origination on single premium policies, assuming all other factors remain constant, if loans are prepaid earlier than expected, our profitability on these loans is likely to increase and, if loans are repaid slower than expected, our profitability on these loans is likely to decrease. By contrast, if monthly premium loans are repaid earlier than anticipated, our premium earned with respect to those loans and therefore our profitability declines. Currently, the expected return on single premium policies is less than the expected return on monthly policies. Net Investment Income Our investment portfolio was predominantly comprised of investment-grade fixed income securities and money market funds as of December 31, 2024. The principal factors that influence investment income are the size of the investment portfolio and the yield on individual securities. As measured by amortized cost (which excludes changes in fair market value, such as from changes in interest rates), the size of our investment portfolio is mainly a function of increases in capital and cash generated from or used in operations which is impacted by net premiums received, investment earnings, net claim payments and expenses. Realized gains and losses are a function of the difference between the amount received on the sale of a security and the security's amortized cost, as well as any provision for credit losses or impairments recognized in earnings. The amount received on the sale of fixed income securities is affected by the coupon rate of the security compared to the yield of comparable securities at the time of sale. Income from Other Invested Assets As part of our overall investment strategy, we also allocate a relatively small percentage of our portfolio to limited partnership investments in real estate, consumer credit and traditional venture capital and private equity investments. The results of these investing activities are reported in income from other invested assets. These investments are generally accounted for under the equity method or fair value using net asset value (or its equivalent) as a practical expedient. For entities accounted for under the equity method that follow industry-specific guidance for investment companies, our proportionate share of earnings or losses includes changes in the fair value of the underlying assets of these entities. Fluctuations in the fair value of these entities may increase the volatility of the Company’s reported results of operations. Other Income Other income includes revenues associated with underwriting consulting services to third-party reinsurers, title settlement services and contract underwriting services. The level of these revenues is dependent upon the number of customers who have engaged us for these services. Revenue from underwriting consulting services to third-party reinsurers is also dependent upon the level of premiums associated with the transactions underwritten for these customers. Revenues from title settlement services and contract underwriting are also dependent upon the number of loans processed for these customers. In connection with the acquisition of our mortgage insurance platform, we entered into a services agreement with Triad Guaranty Inc. and its wholly-owned subsidiary, Triad Guaranty Insurance Corporation, which we refer to collectively as "Triad," to provide certain information technology maintenance and development and customer support-related services. In return for these services, we receive a flat monthly fee which is recorded in other income. During 2023, Triad entered into a three year renewal and extended the services agreement through November 2026. As more fully described in Note 5 to our consolidated financial statements, the premiums ceded under certain reinsurance contracts with unaffiliated third parties varies based on changes in market interest rates. Under GAAP, these contracts contain 57 embedded derivatives that are accounted for separately as freestanding derivatives. The change in the fair value of the embedded derivatives is reported in earnings and included in other income. Provision for Losses and Loss Adjustment Expenses Mortgage Insurance The provision for losses and loss adjustment expenses reflects the current expense that is recorded within a particular period to reflect actual and estimated loss payments that we believe will ultimately be made as a result of insured loans that are in default. Losses incurred are generally affected by: •the overall state of the economy, which broadly affects the likelihood that borrowers may default on their loans and have the ability to cure such defaults; •changes in housing values, which affect our ability to mitigate our losses through the sale of properties with loans in default as well as borrower willingness to continue to make mortgage payments when the value of the home is below or perceived to be below the mortgage balance; •the product mix of IIF, with loans having higher risk characteristics generally resulting in higher defaults and claims; •the size of loans insured, with higher average loan amounts tending to increase losses incurred; •the loan-to-value ratio, with higher average loan-to-value ratios tending to increase losses incurred; •the percentage of coverage on insured loans, with deeper average coverage tending to increase losses incurred; •credit quality of borrowers, including higher debt-to-income ratios and lower FICO scores, which tend to increase incurred losses; •the level and amount of reinsurance coverage maintained with third parties; •the rate at which we rescind policies. Because of tighter underwriting standards generally in the mortgage lending industry and terms set forth in our master policy, we expect that our level of rescission activity will be lower than rescission activity seen in the mortgage insurance industry for vintages originated prior to the financial crisis; and •the distribution of claims over the life of a book. As of December 31, 2024, 56% of our IIF relates to mortgage insurance business written since January 1, 2022 and was less than three years old. As a result, based on historical industry performance, we expect the number of defaults and claims we experience, as well as our provision for losses and loss adjustment expenses ("LAE"), to increase as our portfolio seasons. See "—Mortgage Insurance Earnings and Cash Flow Cycle" below. We establish loss reserves for delinquent loans when we are notified that a borrower has missed at least two consecutive monthly payments ("Case Reserves"), as well as estimated reserves for defaults that may have occurred but not yet been reported to us ("IBNR Reserves"). We also establish reserves for the associated loss adjustment expenses, consisting of the estimated cost of the claims administration process, including legal and other fees. Using both internal and external information, we establish our reserves based on the likelihood that a default will reach claim status and estimated claim severity. See "—Critical Accounting Policies" for further information. Based upon our experience and industry data, claims incidence for mortgage insurance is generally highest in the third through sixth years after loan origination. As of December 31, 2024, 56% of our IIF relates to business written since January 1, 2022 and was less than three years old. Although the claims experience on new insurance written by us to date has been favorable, we expect incurred losses and claims to increase as a greater amount of this book of insurance reaches its anticipated period of highest claim frequency. The actual default rate and the average reserve per default that we experience as our portfolio matures is difficult to predict and is dependent on the specific characteristics of our current in-force book (including the credit score of the borrower, the loan-to-value ratio of the mortgage, geographic concentrations, etc.), as well as the profile of new business we write in the future. In addition, the default rate and the average reserve per default will be affected by future macroeconomic factors such as housing prices, interest rates and employment. Due to business restrictions, stay-at-home orders and travel restrictions initially implemented in March 2020 as a result of the novel coronavirus disease 2019 ("COVID-19"), unemployment in the United States increased significantly in the second quarter of 2020, declining during the second half of 2020 through 2022. As unemployment is one of the most common reasons for borrowers to default on their mortgage, the increase in unemployment increased the number of delinquencies on the 58 mortgages we insure, and has the potential to increase claim frequencies on defaults. We experienced a significant increase in the amount of new defaults reported in 2020, especially during the second and third quarters of 2020. We received 36,784 defaults in the three months ended June 30, 2020 and 12,614 defaults in the three months ended September 30, 2020, which resulted in a significant increase in our default rate from 0.83% at March 31, 2020 to 4.54% at September 30, 2020. We segmented these two quarters’ 49,398 defaults as specifically COVID-19 related (“Early COVID Defaults”) and provided losses for these two cohorts differently as compared to our normal loss reserving methodology. In response to the COVID-19 pandemic, the United States government enacted a number of policies to provide fiscal stimulus to the economy and relief to those affected by this global disaster. Specifically, mortgage forbearance programs and foreclosure moratoriums were instituted by Federal legislation along with actions taken by the FHFA and the GSEs. The mortgage forbearance plans permit these borrowers to temporarily reduce or suspend their mortgage payments for up to 18 months for loans in an active COVID-19-related forbearance program as of February 28, 2021. For borrowers that have the ability to begin to pay their mortgage at the end of the forbearance period, we expect that mortgage servicers will continue to work with them to modify their loans at which time the mortgage will be removed from delinquency status. We believe that the forbearance process could have a favorable effect on the frequency of claims that we ultimately pay while extending traditional default-to-claim timelines. Based on the forbearance programs in place and the credit characteristics of the Early COVID Defaults, we believe that the ultimate number of Early COVID Defaults that result in claims will be less than our historical default-to-claim experience. Accordingly, we applied a lower reserve rate to the Early COVID Defaults than the rate used for defaults that had missed a comparable number of payments as of March 31, 2020 and in prior periods that did not have access to forbearance plans. The defaulted loans reported to us in the second and third quarters of 2020 had reached the end of their forbearance periods as of March 31, 2022. During the first quarter of 2022, the Early COVID Defaults cured at elevated levels, and the cumulative cure rate for the Early COVID Defaults at March 31, 2022 exceeded our initial estimated cure rate implied by our estimate of ultimate loss for these defaults established at the onset of the pandemic. Based on cure activity through March 31, 2022 and our expectations for future cure activity, as of March 31, 2022, we lowered our estimate of ultimate loss for the Early COVID Defaults. During the three months ended June 30, 2022, Early COVID Defaults cured at levels that exceeded our estimate as of March 31, 2022, and we further lowered our estimate of loss for these defaults as of June 30, 2022 to 2% of the initial risk in force. These revisions to our estimate of ultimate loss for the Early COVID Defaults resulted in a benefit recorded to the provision for losses of $164.1 million for the year ended December 31, 2022. Due to the level of Early COVID Defaults remaining in the default inventory, beginning in the third quarter of 2022, we resumed reserving for the Early COVID Defaults using our normal reserve methodology. The transition of defaults to foreclosure or claim has not returned to pre-pandemic levels as of December 31, 2024. As a result, the level of defaults in the default inventory that have missed twelve or more payments is above pre-pandemic levels. The Federal Reserve increased the target federal funds rate several times during 2022 and 2023 in an effort to reduce consumer price inflation. As a result of subsequent reductions in inflation rates, the Federal Reserve has reduced the target federal funds rate by 100 basis points since September 2024. Mortgage interest rates, however, have remained elevated, which may lower home sale activity and affect the options available to delinquent borrowers. It is reasonably possible that our estimate of losses could change in the near term as a result of changes in the economic environment, the impact of elevated levels of consumer price inflation on home sale activity, housing inventory, and home prices. On September 26, 2024, Hurricane Helene made landfall and caused property damage in certain counties in Florida, Georgia, South Carolina, North Carolina, Tennessee and Virginia. On October 9, 2024, Hurricane Milton made landfall, causing damage in certain counties in Florida. Loans in default increased by 3,620 in the year ended December 31, 2024, including 2,119 defaults we identified as hurricane-related defaults. Based on prior industry experience, we expect the ultimate number of hurricane-related defaults that result in claims will be less than the default-to-claim experience of non-hurricane-related defaults. In addition, under our master policy, our exposure may be limited on hurricane-related claims. For example, we are permitted to exclude a claim entirely where damage to the property underlying a mortgage was the proximate cause of the default and adjust a claim where the property underlying a mortgage in default is subject to unrestored physical damage. Accordingly, when establishing our loss reserves as of December 31, 2024, we applied a lower estimated claim rate to new default notices received in the fourth quarter of 2024 from the affected areas than the claim rate we apply to other notices in our default inventory. The impact on our reserves in future periods will be dependent upon the performance of the hurricane-related defaults and our expectations for the amount of ultimate losses on these delinquencies. In January 2025, several wildfires caused property damage in Southern California. As of January 31, 2025, our insurance in force in areas with FEMA disaster declarations due to these wildfires was less than 0.1% of our total insurance in force. As more fully described in Note 5 to our consolidated financial statements, at December 31, 2024, we had approximately $1.6 billion of excess of loss reinsurance covering NIW from January 1, 2018 through August 31, 2019 and August 1, 2020 through December 31, 2024 and quota share reinsurance on portions of our NIW effective September 1, 2019 through 59 December 31, 2020 and January 1, 2022 through December 31, 2024. The impact on our reserves in future periods will be dependent upon the amount of delinquent notices received from loan servicers, the performance of defaults and our expectations for the amount of ultimate losses on these delinquencies. Title Insurance Our reserve for title insurance claim losses includes reserves for known claims as well as for losses that have been incurred but not yet reported to us (“IBNR”), net of recoupments. We reserve for each known claim based on our review of the estimated amount of the claim and the costs required to settle the claim. Reserves for IBNR claims are estimates that are established at the time the premium revenue is recognized and are based upon historical experience and other factors, including industry trends, claim loss history, legal environment, geographic considerations, and the types of policies written. We also reserve for losses arising from closing and disbursement functions due to fraud or operational error. Although claims against title insurance policies can be reported relatively soon after the policy has been issued, claims may also be reported many years later. By their nature, title claims are often complex, vary greatly in dollar amounts and are affected by economic and market conditions, as well as the legal environment existing at the time of settlement of the claims. Estimating future title loss payments is difficult because of the complex nature of title claims, the long periods of time over which claims are paid, significantly varying dollar amounts of individual claims and other factors. Reinsurance We use reinsurance to provide protection against adverse loss experience in our mortgage insurance and title insurance portfolios and to expand our capital sources. When we enter into a reinsurance agreement, the reinsurer receives a premium and, in exchange, agrees to insure an agreed upon portion of incurred losses. These arrangements have the impact of reducing our earned premiums, but also reduce our mortgage insurance risk in force (RIF), which provides capital relief, and may include capital relief under the PMIERs financial strength requirements. Our incurred losses are reduced by any incurred losses ceded in accordance with the reinsurance agreement. For additional information regarding reinsurance, see Note 5 to our consolidated financial statements. Other Underwriting and Operating Expenses Our other underwriting and operating expenses include components that are substantially fixed, as well as expenses that generally increase or decrease in line with the level of mortgage insurance NIW, title insurance policies issued and settlement services provided. Our most significant expense is compensation and benefits for our employees, which represented 60%, 58% and 59% of other underwriting and operating expenses for the years ended December 31, 2024, 2023 and 2022, respectively. Compensation and benefits expense includes base and incentive cash compensation, stock compensation expense, benefits and payroll taxes. Underwriting and other expenses include legal, consulting, other professional fees, premium taxes, travel, entertainment, marketing, licensing, supplies, hardware, software, rent, utilities, depreciation and amortization and other expenses. We anticipate that as we continue to add new customers and increase our mortgage insurance IIF, title insurance policies issued and settlement services provided, our expenses will also continue to increase. Other underwriting and operating expenses also include premiums retained by agents, which represent the portion of title insurance premiums retained by our third-party agents pursuant to the terms of their respective agency contracts and are recorded as an expense. The percentage of premiums retained by agents vary according to regional differences in real estate closing practices and state regulations. Interest Expense Through June 30, 2024, interest expense was incurred as a result of borrowings under our secured credit facility (the “Existing Credit Facility”). Borrowings accrued interest at a floating rate tied to a standard short-term borrowing index, selected at the Company’s option, plus an applicable margin. On July 1, 2024, we completed an underwritten public offering of $500 million of 6.25% Senior Notes due in 2029 and used approximately $425 million of the net proceeds to repay all of the borrowings outstanding under the term loan portion of the Existing Credit Facility. Concurrently, on July 1, 2024, the Fourth Amended and Restated Credit Agreement (the “Revolving Credit Agreement”) became effective, providing for an effective increase in the Company’s revolving credit facility borrowing capacity from $400 million to $500 million. See Note 7 to our consolidated financial statements. 60 Income Taxes Income taxes are incurred based on the amount of earnings or losses generated in the jurisdictions in which we operate and the applicable tax rates and regulations in those jurisdictions. Our U.S. insurance subsidiaries are generally not subject to income taxes in most states in which we operate; however, our non-insurance subsidiaries are subject to state income taxes. In lieu of state income taxes, our insurance subsidiaries pay premium taxes that are recorded in other underwriting and operating expenses. Essent Group Ltd. ("Essent Group") and its wholly-owned subsidiaries, Essent Re and Essent Agency (Bermuda) Ltd., are domiciled in Bermuda, and their income is not subject to a corporate income tax as of December 31, 2024. See "—Legislative and Regulatory Developments—Bermuda Corporate Income Tax" above. Under a quota share reinsurance agreement, Essent Re reinsures 25% of Essent Guaranty's NIW through December 31, 2020 and 35% of Essent Guaranty’s NIW after December 31, 2020. Essent Re also provides insurance and reinsurance to Freddie Mac and Fannie Mae. The amount of income tax expense or benefit recorded in future periods will be dependent on the jurisdictions in which we operate and the tax laws and regulations in effect. Mortgage Insurance Earnings and Cash Flow Cycle In general, the majority of any underwriting profit (premium revenue minus losses) that a book generates occurs in the early years of the book, with the largest portion of any underwriting profit realized in the first year. Subsequent years of a book generally result in modest underwriting profit or underwriting losses. This pattern generally occurs because relatively few of the claims that a book will ultimately experience typically occur in the first few years of the book, when premium revenue is highest, while subsequent years are affected by declining premium revenues, as the number of insured loans decreases (primarily due to loan prepayments), and by increasing losses. Key Performance Indicators Insurance In Force As discussed above, mortgage insurance premiums we collect and earn are generated based on our IIF, which is a function of our NIW and cancellations. The following table includes a summary of the change in our IIF for the years ended December 31, 2024, 2023 and 2022 for our U.S. mortgage insurance portfolio. In addition, this table includes our RIF at the end of each period. [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["($ in thousands)","","2024","","2023","","2022"],["IIF, beginning of period","","$","239,078,262","","","$","227,062,055","","","$","207,190,544"],["NIW","","45,561,332","","","47,666,852","","","63,061,262"],["Cancellations","","(40,994,171)","","","(35,650,645)","","","(43,189,751)"],["IIF, end of period","","$","243,645,423","","","$","239,078,262","","","$","227,062,055"],["Average IIF during the period","","$","241,571,892","","","$","234,518,135","","","$","215,485,518"],["RIF, end of period","","$","56,477,150","","","$","54,591,590","","","$","49,903,626"]] [[/GREPCENT_TABLE]] The following is a summary of our IIF at December 31, 2024 by vintage: [[GREPCENT_TABLE]] [["($ in thousands)","","$","","%"],["2024","","$","43,370,993","","","17.8","%"],["2023","","41,118,618","","","16.9"],["2022","","51,504,293","","","21.1"],["2021","","50,162,523","","","20.6"],["2020","","35,499,947","","","14.6"],["2019 and prior","","21,989,049","","","9.0"],["","","$","243,645,423","","","100.0","%"]] [[/GREPCENT_TABLE]] 61 Average Net Premium Rate Our average net premium rate is calculated by dividing net premiums earned for our U.S. mortgage insurance portfolio by average insurance in force for the period and is dependent on a number of factors, including: (1) the risk characteristics and average coverage on the mortgages we insure; (2) the mix of monthly premiums compared to single premiums in our portfolio; (3) cancellations of non-refundable single premiums during the period; (4) changes to our pricing for NIW; and (5) premiums ceded under third-party reinsurance agreements. The following table presents the average net premium rate for our U.S. mortgage insurance portfolio: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2024","","2023","","2022"],["Base average premium rate","","0.41","%","","0.40","%","","0.41","%"],["Single premium cancellations","","\u2014","","","\u2014","","","0.01"],["Gross average premium rate","","0.41","","","0.40","","","0.42"],["Ceded premiums","","(0.06)","","","(0.05)","","","(0.05)"],["Net average premium rate","","0.35","%","","0.35","%","","0.37","%"]] [[/GREPCENT_TABLE]] The continued use of third-party reinsurance along with changes to the level of future cancellations of non-refundable single premium policies and mix of IIF may reduce our average net premium rate in future periods. Persistency Rate The measure for assessing the impact of U.S. mortgage insurance policy cancellations on IIF is our persistency rate, defined as the percentage of IIF that remains on our books after any twelve-month period. See additional discussion regarding the impact of the persistency rate on our performance in "—Factors Affecting Our Results of Operations—Persistency and Business Mix." Risk-to-Capital The risk-to-capital ratio has historically been used as a measure of capital adequacy in the U.S. mortgage insurance industry and is calculated as a ratio of net risk in force to statutory capital. Net risk in force represents total risk in force net of reinsurance ceded and net of exposures on policies for which loss reserves have been established. Statutory capital for our U.S. insurance companies is computed based on accounting practices prescribed or permitted by the Pennsylvania Insurance Department. See additional discussion in "—Liquidity and Capital Resources—Insurance Company Capital." As of December 31, 2024, the net risk in force for Essent Guaranty was $35.2 billion and its statutory capital was $3.6 billion, resulting in a risk-to-capital ratio of 9.8:1. The amount of capital required varies in each jurisdiction in which we operate; however, generally, the maximum permitted risk-to-capital ratio is 25.0 to 1. State insurance regulators have continued to examine their respective capital rules to determine whether, in light of the 2007-2008 financial crisis, changes are needed to more accurately assess mortgage insurers' ability to withstand stressful economic conditions. As a result, the capital metrics under which they assess and measure capital adequacy may change in the future. Independent of the state regulator and GSE capital requirements, management continually assesses the risk of our insurance portfolio and current market and economic conditions to determine the appropriate levels of capital to support our business. 62 Results of Operations: Consolidated The following table sets forth our consolidated results of operations for the periods indicated: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["Summary of Operations (In thousands)","","2024","","2023","","2022"],["Revenues:"],["Net premiums written","","$","966,580","","","$","894,282","","","$","820,029"],["Decrease in unearned premiums","","24,302","","","22,624","","","22,498"],["Net premiums earned","","990,882","","","916,906","","","842,527"],["Net investment income","","222,070","","","186,139","","","124,409"],["Realized investment gains (losses), net","","(2,350)","","","(7,204)","","","(13,172)"],["Income (loss) from other invested assets","","7,375","","","(11,118)","","","28,676"],["Other income","","24,927","","","25,036","","","18,384"],["Total revenues","","1,242,904","","","1,109,759","","","1,000,824"],["Losses and expenses:"],["Provision (benefit) for losses and LAE","","81,220","","","31,542","","","(174,704)"],["Other underwriting and operating expenses","","270,874","","","225,081","","","171,733"],["Interest expense","","35,319","","","30,137","","","15,608"],["Total losses and expenses","","387,413","","","286,760","","","12,637"],["Income before income taxes","","855,491","","","822,999","","","988,187"],["Income tax expense","","126,088","","","126,613","","","156,834"],["Net income","","$","729,403","","","$","696,386","","","$","831,353"]] [[/GREPCENT_TABLE]] Revenues Net Premiums Earned The increase in net premiums earned for 2024 compared to 2023 is primarily driven by increases in net premiums earned in both our mortgage insurance and title insurance operations in 2024. For more information, see Net Premiums Written and Earned under “Results of Operations: Mortgage Insurance” and Net Premiums Earned under “Results of Operations: Corporate & Other”. Net Investment Income Our consolidated net investment income was derived from the following sources for the periods indicated: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["(In thousands)","","2024","","2023"],["Fixed maturities","","$","186,345","","","$","178,829"],["Short-term investments","","40,856","","","13,651"],["Gross investment income","","227,201","","","192,480"],["Investment expenses","","(5,131)","","","(6,341)"],["Net investment income","","$","222,070","","","$","186,139"]] [[/GREPCENT_TABLE]] The increase in our consolidated net investment income to $222.1 million for the year ended December 31, 2024 as compared to $186.1 million for the year ended December 31, 2023 was due to the increase in the weighted average balance of our investment portfolio, as well as an increase in the average yield on the investment portfolio. The average balance of investments at amortized cost increased to $6.1 billion during the year ended December 31, 2024 from $5.5 billion during the year ended December 31, 2023, primarily as a result of investing cash flows generated from operations. The pre-tax investment income yield increased from 3.5% in the year ended December 31, 2023 to 3.7% in the year ended December 31, 2024 primarily due to a general increase in investment yields due to increasing interest rates. 63 The pre-tax investment income yields are calculated based on amortized cost and exclude investment expenses. See "—Liquidity and Capital Resources" for further details of our investment portfolio. Income (Loss) from Other Invested Assets Income from other invested assets for the year ended December 31, 2024 was a gain of $7.4 million as compared to a loss of $11.1 million for the year ended December 31, 2023. The increase in income from other invested assets for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily due to favorable fair value adjustments recorded during 2024. Other Income Other income was $24.9 million for the year ended December 31, 2024 compared to $25.0 million for the year ended December 31, 2023. Other income includes fair value adjustments on embedded derivatives contained in certain of our reinsurance agreements. In the year ended December 31, 2024 we recorded a net unfavorable decrease in the fair value of the embedded derivatives of $2.1 million compared to a net favorable increase of $1.9 million in the year ended December 31, 2023. Expenses Provision for Losses The increased provision for losses for 2024 compared to 2023 was primarily driven by an increase in new mortgage insurance defaults, which impacted our mortgage insurance reserves. See “Results of Operations: Mortgage Insurance" for more information. Other Underwriting and Operating Expenses The increase in underwriting and operating expenses for 2024 compared to 2023 was primarily due to an increase in compensation expense, including stock compensation, primarily due to increased headcounts, as well as an increase other general operating expenses, both resulting from 12 months of title insurance operations in 2024. For more information, see “Results of Operations: Mortgage Insurance” and “Results of Operations: Corporate & Other.” Interest Expense For the years ended December 31, 2024 and 2023, we incurred interest expense of $35.3 million and $30.1 million, respectively. Interest expense increased in 2024 compared to 2023 due to an increase in the average outstanding borrowings during the period and a $3.2 million loss on debt extinguishment for the write-off of unamortized debt issuance costs, partially offset by a decrease in the weighted average interest rate. On July 1, 2024, Essent Group issued $500 million of 6.25% senior notes and utilized the proceeds to repay all of the outstanding term loan borrowings under the Credit Facility. For the years ending December 31, 2024 and 2023, our borrowings carried a weighted average interest rate of 6.68% and 6.84%, respectively. For the years ended December 31, 2024 and 2023, the average amount of borrowings outstanding was $462.5 million and $425.0 million, respectively. Income Taxes Our subsidiaries in the United States file a consolidated U.S. Federal income tax return. Our income tax expense was $126.1 million for the year ended December 31, 2024 compared to $126.6 million for the year ended December 31, 2023. The effective tax rate for the year ended December 31, 2024 was 14.7% compared to 15.4% for the year ended December 31, 2023. Our effective income tax rate reflects the amount of earnings or losses generated in the jurisdictions in which we operate, the applicable tax rates and regulations in those jurisdictions, and the impact of discrete items. For the year ended December 31, 2024, income tax expense includes $1.3 million of favorable adjustments related to prior year tax returns and $0.7 million of excess tax benefits associated with the vesting of common shares and common share units. For the year ended December 31, 2023, income tax expense includes $5.3 million of net expense associated with prior year tax returns and a $2.7 million net benefit for the deferred tax asset recognized for unrealized losses on the investment portfolios of Essent Group and Essent Re upon the enactment of the Bermuda Corporate Income Tax. See Note 12 to our consolidated financial statements. At December 31, 2024 and 2023, we concluded that it was more likely than not that our deferred tax assets would be realized. Pursuant to the FAST Act Modernization and Simplification of Regulation S-K, discussions related to the changes in the consolidated results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 have been omitted. Such omitted discussion can be found under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on February 16, 2024. 64 Results of Operations: Mortgage Insurance [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["(In thousands)","","2024","","2023","","2022"],["Revenues:"],["Net premiums earned","","$","924,676","","","$","878,937","","","$","842,527"],["Net investment income","","183,341","","","159,868","","","112,285"],["Realized investment gains (losses), net","","(2,343)","","","(6,392)","","","(1,829)"],["Income (loss) from other invested assets","","7,171","","","(490)","","","33,142"],["Other income","","14,152","","","20,692","","","18,384"],["Total revenues","","1,126,997","","","1,052,615","","","1,004,509"],["Losses and expenses:"],["Provision (benefit) for losses and LAE","","75,182","","","30,120","","","(174,704)"],["Other underwriting and operating expenses","","115,744","","","115,182","","","111,505"],["Total losses and expenses before allocations","","190,926","","","145,302","","","(63,199)"],["Corporate expense allocations","","43,787","","","47,274","","","48,100"],["Total losses and expenses after allocations","","234,713","","","192,576","","","(15,099)"],["Income before income tax expense","","$","892,284","","","$","860,039","","","$","1,019,608"],["Loss ratio (1)","","8.1","%","","3.4","%","","(20.7)","%"],["Expense ratio (2)","","17.3","%","","18.5","%","","18.9","%"],["Combined ratio","","25.4","%","","21.9","%","","(1.8)","%"],["(1) Loss ratio is calculated by dividing the provision for losses and LAE by net premiums earned."],["(2) Expense ratio is calculated by dividing the sum of other underwriting and operating expenses and corporate expense allocations by net premiums earned."]] [[/GREPCENT_TABLE]] Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023 and Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 For the year ended December 31, 2024, our Mortgage Insurance segment reported income before income tax expense of $892.3 million, compared to income before income tax expense of $860.0 million for the year ended December 31, 2023. The increase in our operating results in 2024 over 2023 was primarily due to an increase in net premiums earned and investment income, partially offset by an increase in the provision for losses and LAE. Our Mortgage Insurance segment reported income before income tax expense of $1.0 billion for the year ended December 31, 2022. The decrease in our operating results in 2023 compared to 2022 was primarily due to an increase in the provision for losses and LAE, partially offset by increases in net premiums earned and net investment income. Net Premiums Written and Earned Mortgage Insurance net premiums earned increased in the year ended December 31, 2024 by 5% compared to the year ended December 31, 2023. The increase in net premiums earned was due to the increase in our average IIF from $234.5 billion in 2023 to $241.6 billion in 2024. The average net premium rate was 0.35% for both the years ended December 31, 2024 and 2023. Mortgage Insurance net premiums earned increased in the year ended December 31, 2023 by 9% compared to the year ended December 31, 2022. The increase in net premiums written and earned was due to the increase in our average IIF from $215.5 billion in 2022 to $234.5 billion in 2023, partially offset by the decrease in the average net premium rate from 0.37% for the year ended December 31, 2022 to 0.35% for the year ended December 31, 2023. The decrease in the average net premium rate during the year ended December 31, 2023 was a primarily due to changes in the mix of the mortgages we insure, changes in our pricing and a decrease in premiums earned on the cancellation of non-refundable single premium policies. In the year ended December 31, 2023, premiums earned on the cancellation of non-refundable single premium policies decreased to $6.3 million from $20.8 million in the year ended December 31, 2022 as a result of a decrease in existing borrowers refinancing their mortgages during 2023 as compared to 2022. 65 In the year ended December 31, 2024, unearned premiums decreased by $24.3 million as a result of $33.3 million of unearned premium that was recognized in earnings during the year partially offset by net premiums written on single premium policies of $9.0 million. In the year ended December 31, 2023, unearned premiums decreased by $22.6 million as a result of $44.6 million of unearned premium that was recognized in earnings during the year partially offset by net premiums written on single premium policies of $22.0 million. In the year ended December 31, 2022, unearned premiums decreased by $22.5 million as a result of $64.2 million of unearned premium that was recognized in earnings during the year partially offset by net premiums written on single premium policies of $41.7 million. Provision for Losses and Loss Adjustment Expenses For the year ended December 31, 2024, the Mortgage Insurance segment recorded a provision losses of $75.2 million compared to a provision of $30.1 million for the year ended December 31, 2023. The increase in the provision for losses in 2024 was primarily due to increases in new defaults reported, resulting in an increase in the provision for losses recorded for current year defaults, partially offset by cure activity for defaults reported in prior years. The increase in defaults was due in part to defaulted loans in the areas impacted by Hurricanes Helene and Milton. In 2024, loans in default increased by a total of 3,620, including 2,119 defaults we identified as hurricane-related defaults. For the year ended December 31, 2022, we recorded a benefit to the provision for losses of $174.7 million primarily due to a decrease in the estimate of ultimate loss for Early COVID Defaults as well as cure activity for defaults with reserves using our normal reserve methodology. The following table presents a rollforward of insured loans in default for our U.S. mortgage insurance portfolio for the periods indicated: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2024","","2023","","2022"],["Beginning default inventory","","14,819","","","13,433","","","16,693"],["Plus: new defaults","","37,499","","","30,550","","","25,636"],["Less: cures","","(33,134)","","","(28,655)","","","(28,873)"],["Less: claims paid","","(671)","","","(467)","","","(261)"],["Less: rescissions and denials, net","","(74)","","","(42)","","","(32)"],["Ending default inventory","","18,439","","","14,819","","","13,433"]] [[/GREPCENT_TABLE]] The following table includes additional information about our loans in default as of the dates indicated for our U.S. mortgage insurance portfolio: [[GREPCENT_TABLE]] [["","","As of December 31,"],["","","2024","","2023"],["Case reserves (in thousands) (1)","","$","285,944","","","$","226,121"],["Total reserves (in thousands) (1)","","$","310,156","","","$","245,402"],["Ending default inventory","","18,439","","","14,819"],["Average case reserve per default (in thousands)","","$","15.5","","","$","15.3"],["Average total reserve per default (in thousands)","","$","16.8","","","$","16.6"],["Default rate","","2.27","%","","1.80","%"],["Claims received included in ending default inventory","","164","","","126"]] [[/GREPCENT_TABLE]] _______________________________________________________________________________ (1)The U.S. mortgage insurance portfolio reserves exclude reserves on GSE and other risk share risk in force at Essent Re of $51 thousand and $29 thousand as of December 31, 2024 and 2023, respectively. 66 The following table provides a reconciliation of the beginning and ending U.S. mortgage insurance reserve balances for losses and LAE: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["(In thousands)","","2024","","2023","","2022"],["Reserve for losses and LAE at beginning of year","","$","245,402","","","$","216,390","","","$","406,096"],["Less: Reinsurance recoverables","","24,004","","","14,618","","","25,940"],["Net reserve for losses and LAE at beginning of year","","221,398","","","201,772","","","380,156"],["Add provision for losses and LAE occurring in:"],["Current year","","171,907","","","138,601","","","99,351"],["Prior years","","(96,751)","","","(108,437)","","","(272,785)"],["Incurred losses and LAE during the current year","","75,156","","","30,164","","","(173,434)"],["Deduct payments for losses and LAE occurring in:"],["Current year","","2,687","","","517","","","224"],["Prior years","","20,366","","","10,021","","","4,726"],["Loss and LAE payments during the current year","","23,053","","","10,538","","","4,950"],["Net reserve for losses and LAE at end of period","","273,501","","","221,398","","","201,772"],["Plus: Reinsurance recoverables","","36,655","","","24,004","","","14,618"],["Reserve for losses and LAE at end of period","","$","310,156","","","$","245,402","","","$","216,390"]] [[/GREPCENT_TABLE]] _______________________________________________________________________ (1) The U.S. mortgage insurance portfolio reserves exclude reserves on GSE and other risk share risk in force at Essent Re of $51 thousand, $29 thousand, and $0.1 million as of December 31, 2024, 2023 and 2022, respectively. 67 The following tables provide a detail of reserves and defaulted RIF by the number of missed payments and pending claims for our U.S. mortgage insurance portfolio: [[GREPCENT_TABLE]] [["","","As of December 31, 2024"],["($ in thousands)","","Number of Policies in Default","","Percentage of Policies in Default","","Amount of Reserves","","Percentage of Reserves","","Defaulted RIF","","Reserves as a Percentage of Defaulted RIF"],["Missed payments:"],["Two payments","","6,691","","","36","%","","$","32,672","","","11","%","","$","522,644","","","6","%"],["Three payments","","3,154","","","17","","","26,278","","","9","","","250,696","","","10"],["Four to eleven payments","","6,408","","","35","","","122,551","","","43","","","515,600","","","24"],["Twelve or more payments","","2,022","","","11","","","93,269","","","33","","","153,376","","","61"],["Pending claims","","164","","","1","","","11,174","","","4","","","12,478","","","90"],["Total case reserves (1)","","18,439","","","100","%","","285,944","","","100","%","","$","1,454,794","","","20"],["IBNR","","","","","","21,446"],["LAE","","","","","","2,766"],["Total reserves for losses and LAE (1)","","","","","","$","310,156"]] [[/GREPCENT_TABLE]] _______________________________________________________________________________ (1)The U.S. mortgage insurance portfolio reserves exclude reserves on GSE and other risk share risk in force at Essent Re of $51 thousand. [[GREPCENT_TABLE]] [["","","As of December 31, 2023"],["($ in thousands)","","Number of Policies in Default","","Percentage of Policies in Default","","Amount of Reserves","","Percentage of Reserves","","Defaulted RIF","","Reserves as a Percentage of Defaulted RIF"],["Missed payments:"],["Two payments","","5,041","","","34","%","","$","24,917","","","11","%","","$","361,986","","","7","%"],["Three payments","","2,247","","","15","","","19,690","","","9","","","165,433","","","12"],["Four to eleven payments","","5,421","","","37","","","97,424","","","43","","","417,876","","","23"],["Twelve or more payments","","1,984","","","13","","","78,540","","","35","","","132,257","","","59"],["Pending claims","","126","","","1","","","5,550","","","2","","","6,302","","","88"],["Total case reserves (2)","","14,819","","","100","%","","226,121","","","100","%","","$","1,083,854","","","21"],["IBNR","","","","","","16,959"],["LAE","","","","","","2,322"],["Total reserves for losses and LAE (2)","","","","","","$","245,402"]] [[/GREPCENT_TABLE]] _______________________________________________________________________________ (2)The U.S. mortgage insurance portfolio reserves exclude reserves on GSE and other risk share risk in force at Essent Re of $29 thousand as of December 31, 2023. During the year ended December 31, 2024, the provision for losses and LAE was $75.2 million, comprised of $171.9 million for current year losses, partially offset by $96.8 million of favorable prior years' loss development. During the year ended December 31, 2023, the provision for losses and LAE was a benefit of $30.2 million, comprised of $138.6 million of current year losses, offset by $108.4 million of favorable prior years' loss development. During the year ended December 31, 2022, the provision for losses and LAE was a benefit of $174.7 million, comprised of $99.4 million of current year losses, offset by $272.8 million of favorable prior years' loss development. In each period, the favorable prior years' loss development was the result of a re-estimation of amounts ultimately to be paid on prior year defaults in the default inventory, including the impact of previously identified defaults that cured. 68 The following table includes additional information about our mortgage insurance claims paid and claim severity as of the dates indicated: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["($ in thousands)","","2024","","2023","","2022"],["Number of claims paid","","671","","","467","","","261"],["Amount of claims paid","","$","22,660","","","$","10,216","","","$","4,665"],["Claim severity","","63","%","","59","%","","44","%"]] [[/GREPCENT_TABLE]] Other Underwriting and Operating Expenses Following are the components of other underwriting and operating expenses for the Mortgage Insurance segment for the periods indicated: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2024","","2023","","2022"],["($ in thousands)","","$","","%","","$","","%","","$","","%"],["Compensation and benefits","","$","72,156","","","62","%","","$","68,996","","","60","%","","$","66,410","","","60","%"],["Premium taxes","","23,007","","","20","","","22,544","","","20","","","20,977","","","19"],["Ceding commission","","(24,248)","","","(21)","","","(21,326)","","","(19)","","","(17,516)","","","(16)"],["Other","","44,829","","","39","","","44,968","","","39","","","41,634","","","37"],["Total other underwriting and operating expenses","","$","115,744","","","100","%","","$","115,182","","","100","%","","$","111,505","","","100","%"],["Average number of employees during the period","","","","299","","","","","297","","","","","301"]] [[/GREPCENT_TABLE]] The significant factors contributing to the change in other underwriting and operating expenses are: •Compensation and benefits increased in 2024 compared to 2023 and in 2023 compared to 2022 primarily due to increases in stock based compensation expense. Compensation and benefits includes salaries, wages and bonus, stock compensation expense, benefits and payroll taxes. •Premium taxes increased from 2022 to 2023 and from 2023 to 2024 primarily due to an increase in premiums written. •The increases in ceding commission from 2022 to 2023 and 2023 to 2024 results from increases in the amount of reinsured insurance in force under our outstanding quota share arrangements. •Other expenses increased in 2023 compared to 2022 primarily as a result of increases in professional fees and software related expenses. Other expenses include professional fees, travel, marketing, hardware, software, rent, depreciation and amortization and other facilities expenses. 69 Results of Operations: Corporate & Other [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["Summary of Operations (In thousands)","","2024","","2023","","2022"],["Revenues:"],["Net premiums earned","","$","66,206","","","$","37,969","","","$","\u2014"],["Net investment income","","38,729","","","26,271","","","12,124"],["Realized investment gains (losses), net","","(7)","","","(812)","","","(11,343)"],["Income (loss) from other invested assets","","204","","","(10,628)","","","(4,466)"],["Other income","","10,775","","","4,344","","","\u2014"],["Total revenues","","115,907","","","57,144","","","(3,685)"],["Losses and expenses:"],["Provision for losses and LAE","","6,038","","","1,422","","","\u2014"],["Other underwriting and operating expenses","","155,130","","","109,899","","","60,228"],["Interest expense","","35,319","","","30,137","","","15,608"],["Total losses and expenses before allocations","","196,487","","","141,458","","","75,836"],["Corporate expense allocations","","(43,787)","","","(47,274)","","","(48,100)"],["Total losses and expenses after allocations","","152,700","","","94,184","","","27,736"],["Income (loss) before income taxes","","$","(36,793)","","","$","(37,040)","","","$","(31,421)"]] [[/GREPCENT_TABLE]] Net Premiums Earned Net premiums earned reported in Corporate & Other relate to premiums earned by our title insurance operations. The increase in net premiums earned in 2024 is primarily due to a full year of title insurance operations in 2024. Net premiums earned in 2023 represent six months of title insurance operations as a result of our acquisition effective July 1, 2023. Provision for Losses & LAE The provision for losses reported in Corporate & Other relates to loss provisions recorded by our title insurance operations subsequent to our acquisition effective July 1, 2023. Upon acquisition, we recorded $14.1 million of title insurance reserves through purchase accounting. The increase in the provision for losses in 2024 was primarily due to an increase in title insurance policies issued and related title premium for the full year 2024 as compared to the six months subsequent to the acquisition of the title insurance operations as well as recent industry experience and trends. Title insurance reserves as of December 31, 2024 and 2023 were $18.7 million and $14.7 million, respectively. Other Underwriting and Operating Expenses Following are the components of other underwriting and operating expenses for the Corporate & Other category for the periods indicated: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2024","","2023","","2022"],["($ in thousands)","","$","","%","","$","","%","","$","","%"],["Compensation and benefits","","$","64,236","","","41","%","","$","45,902","","","42","%","","$","33,892","","","56","%"],["Premium and other taxes","","1,497","","","1","","","(376)","","","\u2014","","","\u2014","","","\u2014"],["Other","","89,397","","","58","","","64,373","","","58","","","26,336","","","44"],["Total other underwriting and operating expenses","","$","155,130","","","100","%","","$","109,899","","","100","%","","$","60,228","","","100","%"],["Average number of employees during the period","","","","260","","","","","149","","","","","47"]] [[/GREPCENT_TABLE]] The significant factors contributing to the change in other underwriting and operating expenses are: 70 •Compensation and benefits increased in 2024 compared to 2023 and in 2023 compared to 2022 primarily due to an increase in the average number of employees, which resulted from the acquisition of the title insurance operations on July 1, 2023. Compensation and benefits includes salaries, wages and bonus, stock compensation expense, benefits and payroll taxes. •Premium and other taxes within Corporate & Other are related to our title insurance operations. •Other expenses increased in 2024 compared to 2023 and in 2023 compared to 2022 primarily as a result of title and settlement services direct cost incurred and increases in professional fees. Other expenses include professional fees, travel, marketing, hardware, software, rent, depreciation and amortization and other facilities expenses. Other expenses also includes premiums retained by agents which represents the portion of title insurance premiums retained by our third-party agents pursuant to the terms of their respective agency contracts. Premiums retained by agents increased in 2024 compared to 2023 due to a full year of title insurance operations in 2024, partially offset by decreased utilization of third party agents for insurance premiums written during 2024. Liquidity and Capital Resources Overview Our sources of funds consist primarily of: •our investment portfolio and interest income on the portfolio; •net premiums that we will receive from our existing IIF as well as policies that we write in the future; •borrowings under our Senior Notes and Revolving Credit Facility; and •issuance of capital shares. Our obligations consist primarily of: •claim payments under our policies; •interest payments and repayment of borrowings under our Senior Notes and Revolving Credit Facility; •the other costs and operating expenses of our business; •the repurchase of common shares under the share repurchase plan approved by our board of directors; and •the payment of dividends on our common shares. As of December 31, 2024, we had substantial liquidity, with cash of $131.5 million, short-term investments of $764.0 million and fixed maturity investments of $5.1 billion. We also had $500 million of available capacity under our Revolving Credit Facility. Holding company net cash and investments available for sale totaled $1.1 billion at December 31, 2024. In addition, Essent Guaranty is a member of the Federal Home Loan Bank of Pittsburgh (the “FHLBank”) and has access to secured borrowing capacity with the FHLBank to provide Essent Guaranty with supplemental liquidity. Essent Guaranty had no outstanding borrowings with the FHLBank at December 31, 2024. On July 1, 2024, we completed an underwritten public offering of $500 million of 6.25% Senior Notes due in 2029. The Company used the net proceeds from the sale of the Senior Notes to repay the $425 million of borrowings outstanding under the term loan portion of the Existing Credit Facility and intends to use the remaining net proceeds for general corporate purposes. On July 1, 2024, concurrently with the closing of the offering of the Senior Notes and the repayment of all of the borrowings outstanding under the term loan portion of the Existing Credit Facility, the Fourth Amended and Restated Credit Agreement (the “Revolving Credit Agreement”) became effective and amends and restates the Existing Credit Facility. The Revolving Credit Agreement provides for an effective increase in the Company’s revolving credit facility borrowing capacity from $400 million to $500 million. Management believes that the Company has sufficient liquidity available both at its holding companies and in its insurance and other operating subsidiaries to meet its operating cash needs and obligations and committed capital expenditures for the next 12 months. While the Company and all of its subsidiaries are expected to have sufficient liquidity to meet all their respective expected obligations, additional capital may be required to meet any new capital requirements that are adopted by regulatory authorities or the GSEs, to respond to changes in the business or economic environment, to provide additional capital related to the growth 71 of our risk in force in our mortgage insurance portfolio, or to fund new business initiatives. We regularly review potential investments and acquisitions, some of which may be material, that, if consummated, would expand our existing business or result in new lines of business, and at any given time we may be in discussions concerning possible transactions. We continually evaluate opportunities based upon market conditions to further increase our financial flexibility through the issuance of equity or debt, or other options including reinsurance or credit risk transfer transactions. There can be no guarantee that any such opportunities will be available on acceptable terms or at all. At the operating subsidiary level, liquidity could be impacted by any one of the following factors: •significant decline in the value of our investments; •inability to sell investment assets to provide cash to fund operating needs; •decline in expected revenues generated from operations; •increase in expected claim payments related to our mortgage insurance or title insurance portfolios; or •increase in operating expenses. Our U.S. insurance subsidiaries are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate and, in the case of Essent Guaranty, the GSEs. Under the insurance laws of the Commonwealth of Pennsylvania, our insurance subsidiaries may pay dividends during any twelve-month period in an amount equal to the greater of (i) 10% of the preceding year-end statutory policyholders' surplus or (ii) the preceding year's statutory net income. The Pennsylvania statute also requires that, without the prior approval of the Pennsylvania Insurance Department, dividends and other distributions may only be paid out of positive unassigned surplus. At December 31, 2024, Essent Guaranty, had unassigned surplus of approximately $396.6 million. As of January 1, 2025, Essent Guaranty has dividend capacity of $396.6 million. Essent Re is subject to certain dividend restrictions as prescribed by the Bermuda Monetary Authority and under certain agreements with counterparties. Class 3B insurers must obtain the BMA's prior approval for a reduction by 15% or more of total statutory capital or for a reduction by 25% or more of total statutory capital and surplus as set forth in its previous year's statutory financial statements. In connection with a quota share reinsurance agreement with Essent Guaranty, Essent Re has agreed to maintain a minimum total equity of $100 million. As of December 31, 2024, Essent Re had total equity of $1.8 billion. In connection with its insurance and reinsurance activities, Essent Re is required to maintain assets in trusts for the benefit of its contractual counterparties. See Note 3 to our consolidated financial statements. As of January 1, 2025, Essent Re has dividend capacity of $441.9 million. At December 31, 2024, our insurance subsidiaries were in compliance with these rules, regulations and agreements. Cash Flows The following table summarizes our consolidated cash flows from operating, investing and financing activities: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["(In thousands)","","2024","","2023","","2022"],["Net cash provided by operating activities","","$","861,532","","","$","763,001","","","$","588,817"],["Net cash used in investing activities","","(706,926)","","","(525,569)","","","(398,872)"],["Net cash used in financing activities","","(164,913)","","","(176,885)","","","(190,196)"],["Net (decrease) increase in cash","","$","(10,307)","","","$","60,547","","","$","(251)"]] [[/GREPCENT_TABLE]] Operating Activities Cash flow provided by operating activities totaled $861.5 million for the year ended December 31, 2024, as compared to $763.0 million for the year ended December 31, 2023 and $588.8 million for the year ended December 31, 2022. The increase in cash flow from operations of $98.5 million in 2024 compared to 2023 was primarily due to increases in net premiums written and investment income and a decrease in income tax and interest payments, partially offset by an increase in operating expenses paid in the year ended December 31, 2024. The increase in cash flow from operations of $174.2 million in 2023 compared to 2022 was primarily due to an increase in prepayments, a component of other assets, in the year ended December 31, 2022 and increases in net premiums written and investment income partially offset by an increase in operating expenses paid in the year ended December 31, 2023. 72 Investing Activities Cash flow used in investing activities totaled $706.9 million for the year ended December 31, 2024, $525.6 million for the year ended December 31, 2023 and $398.9 million for the year ended December 31, 2022. Cash used in investing activities primarily related to investing cash flows from the operations of the business in each of the periods presented. Financing Activities Cash flow used in financing activities totaled $164.9 million, $176.9 million and $190.2 million for the years ended December 31, 2024, 2023 and 2022, respectively. In each year, cash flows used in financing activities primarily related to the repurchases of common shares as part of our share repurchase plans, quarterly cash dividends paid and treasury stock acquired from employees to satisfy tax withholding obligations. Cash flow from financing activities for the year ended December 31, 2024 also included cash inflow from the issuance of Senior Notes, partially offset by cash outflows associated with the repayment of the term loan portion of the Existing Credit Facility, as well as the payment of debt issuance costs. Insurance Company Capital We compute a risk-to-capital ratio for our U.S. mortgage insurance companies on a separate company statutory basis, as well as for our combined insurance operations. The risk-to-capital ratio is our net risk in force divided by our statutory capital. Our net risk in force represents risk in force net of reinsurance ceded, if any, and net of exposures on policies for which loss reserves have been established. Statutory capital consists primarily of statutory policyholders' surplus (which increases as a result of statutory net income and decreases as a result of statutory net loss and dividends paid), plus the statutory contingency reserve. The statutory contingency reserve is reported as a liability on the statutory balance sheet. A mortgage insurance company is required to make annual contributions to the contingency reserve of 50% of net premiums earned. These contributions must generally be maintained for a period of ten years. However, with regulatory approval, a mortgage insurance company may make early withdrawals from the contingency reserve when incurred losses exceed 35% of net premiums earned in a calendar year. During the year ended December 31, 2024, no capital contributions were made to our U.S. mortgage insurance subsidiaries and Essent Guaranty paid dividends to Essent US Holdings, Inc. totaling $165.5 million. During the years ended December 31, 2024 and 2023, Essent US Holdings made capital contributions totaling $24.5 million and $38.1 million to its title insurance subsidiary, respectively. Prior to December 31, 2024, Essent Guaranty reinsured that portion of the risk that is in excess of 25% of the mortgage balance with respect to any loan insured prior to April 1, 2019, after consideration of other reinsurance, to Essent Guaranty of PA, Inc. On December 31, 2024, Essent Guaranty and Essent PA entered into a commutation and release agreement in which all outstanding risk in force assumed by Essent PA was commuted back to Essent Guaranty in exchange for cash. Upon the commutation and release, Essent PA surrendered its insurance license and is no longer an insurance subsidiary of Essent Group Ltd. as of December 31, 2024. Essent Guaranty has entered into reinsurance agreements that provide excess of loss reinsurance coverage for new defaults on portfolios of mortgage insurance policies issued from January 1, 2018 through August 31, 2019 and August 1, 2020 through December 31, 2024. The aggregate excess of loss reinsurance coverages decrease over a ten-year period as the underlying covered mortgages amortize. Essent Guaranty has entered into quota share reinsurance agreements with panels of third-party reinsurers ("QSR" agreements). Each of the third-party reinsurers has an insurer minimum financial strength rating of A- or better by S&P Global Ratings, A.M. Best or both. Under each QSR agreement, Essent Guaranty will cede premiums earned on a percentage of risk on all eligible policies written during a specified period, in exchange for reimbursement of ceded claims and claims expenses on covered policies, a specified ceding commission, as well as a profit commission that varies directly and inversely with ceded claims. These reinsurance coverages also reduce net risk in force and PMIERs Minimum Required Assets. See Note 5 to our consolidated financial statements. The following tables summarizes Essent Guaranty's QSR agreements as of December 31, 2024: [[GREPCENT_TABLE]] [["QSR Agreement","","Eligible Policy Period","","Ceding Percentage"],["QSR-2019","","September 1, 2019 - December 31, 2020","","(1)"],["QSR-2022","","January 1, 2022 - December 31, 2022","","20%"],["QSR-2023","","January 1, 2023 - December 31, 2023","","17.5%"],["QSR-2024","","January 1, 2024 - December 31, 2024","","15%"]] [[/GREPCENT_TABLE]] _______________________________________________________________________________ (1)Under QSR-2019, Essent Guaranty cedes 40% of premiums on singles policies and 20% on all other policies. 73 During the first quarter of 2025, Essent Guaranty entered into two forward quota share agreements with highly rated third-party reinsurers ceding 25% of the risk on all eligible policies written by Essent Guaranty in calendar years 2025 and 2026. Our risk-to-capital calculation for Essent Guaranty as of December 31, 2024 was as follows: [[GREPCENT_TABLE]] [["Statutory capital: ($ in thousands)"],["Policyholders\u2019 surplus","","$","1,101,894"],["Contingency reserves","","2,492,487"],["Statutory capital","","$","3,594,381"],["Net risk in force","","$","35,159,976"],["Risk-to-capital ratio","","9.8:1"]] [[/GREPCENT_TABLE]] For additional information regarding regulatory capital see Note 16 to our consolidated financial statements. The information above has been derived from the annual and quarterly statements of Essent Guaranty, which have been prepared in conformity with accounting practices prescribed or permitted by the Pennsylvania Insurance Department and the National Association of Insurance Commissioners Accounting Practices and Procedures Manual. Such practices vary from accounting principles generally accepted in the United States. Essent Re has entered into GSE and other risk share transactions, including insurance and reinsurance transactions with Freddie Mac and Fannie Mae. Under a quota share reinsurance agreement, Essent Re reinsures 25% of Essent Guaranty’s NIW under through December 31, 2020 and 35% of Essent Guaranty's NIW after December 31, 2020. During the year ended December 31, 2024 Essent Re paid dividends totaling $300 million to Essent Group. During the year ended December 31, 2023, Essent Re paid $60 million in dividends to Essent Group. As of December 31, 2024, Essent Re had total stockholders’ equity of $1.8 billion and net risk in force of $23.3 billion. Financial Strength Ratings The insurer financial strength ratings of Essent Guaranty, our principal mortgage insurance subsidiary, are A3 with a positive outlook by Moody's, A- with a stable outlook by S&P and A (Excellent) with a stable outlook by A.M. Best. The insurer financial strength ratings of Essent Re are A- with a stable outlook by S&P and A (Excellent) with a stable outlook by A.M. Best. Private Mortgage Insurer Eligibility Requirements Fannie Mae and Freddie Mac, maintain coordinated Private Mortgage Insurer Eligibility Requirements (PMIERs). The PMIERs represent the standards by which private mortgage insurers are eligible to provide mortgage insurance on loans owned or guaranteed by Fannie Mae and Freddie Mac. The PMIERs include financial strength requirements incorporating a risk-based framework that require approved insurers to have a sufficient level of liquid assets from which to pay claims. This risk-based framework provides that an insurer must hold a substantially higher level of required assets for insured loans that are in default compared to a performing loan. The PMIERs also include enhanced operational performance expectations and define remedial actions that apply should an approved insurer fail to comply with these requirements. As of December 31, 2024, Essent Guaranty, our GSE-approved mortgage insurance company, was in compliance with the PMIERs. As of December 31, 2024, Essent Guaranty's Available Assets were $3.6 billion or 178% of its Minimum Required Assets were $2.0 billion based on our interpretation of the PMIERs. Under PMIERs guidance issued by the GSEs effective June 30, 2020, Essent will apply a 0.30 multiplier to the risk-based required asset amount factor for each insured loan in default backed by a property located in a FEMA Declared Major Disaster Area eligible for Individual Assistance and that either (1) is subject to a forbearance plan granted in response to a FEMA Declared Major Disaster, the terms of which are materially consistent with terms of forbearance plans, repayment plans or loan modification trial period offered by Fannie Mae or Freddie Mac, or (2) has an initial missed payment occurring up to either (i) 30 days prior to the first day of the incident period specified in the FEMA Major Disaster Declaration or (ii) 90 days following the last day of the incident period specified in the FEMA Major Disaster Declaration, not to exceed 180 days from the first day of the incident period specified in the FEMA Major Disaster Declaration. In the case of the foregoing, the 0.30 multiplier shall be applied to the risk-based required asset amount factor for a non-performing primary mortgage guaranty insurance loan for no longer than three calendar months beginning with the month the loan becomes a non-performing primary mortgage guaranty insurance loan by reaching two missed monthly payments absent a forbearance plan described in 1) above. Further, under temporary provisions provided by the PMIERs guidance, Essent will apply a 0.30 multiplier to the risk-based required asset amount factor for each insured loan in default backed by a property that has an initial missed payment occurring on or after March 1, 2020 and prior to April 1, 2021 (COVID-19 Crisis Period). The 0.30 multiplier will be applicable for insured loans in 74 default (1) subject to a forbearance plan granted in response to a financial hardship related to COVID-19 (which shall be assumed to be the case for any loan that has an initial missed payment occurring during the COVID-19 Crisis Period and is subject to a forbearance plan, repayment plan or loan modification trial period), the terms of which are materially consistent with terms offered by Fannie Mae or Freddie Mac, or (2) for no longer than three calendar months beginning with the month the loan becomes a non-performing primary mortgage guaranty insurance loan by reaching two missed monthly payments. FHFA and the GSEs announced that effective November 1, 2023, defaulted loans will be no longer eligible for COVID forbearance plans and will follow the GSEs standard forbearance plans going forward. In August 2024, Fannie Mae and Freddie Mac, under the oversight of FHFA, issued an update to the planned sunset of the use of the 0.3x Required Asset multiplier for loans in a COVID forbearance plan. The sunset of the 0.3x Required Asset multiplier for loans in a COVID forbearance plan will become effective on March 31, 2025. Also in August 2024, the GSEs issued updates to the PMIERs calculation of Available Assets. The updated PMIERs Available Asset requirements are subject to a phased-in implementation, will have no impact on Essent’s Available Assets or sufficiency ratio until March 31, 2025, and will become fully effective on September 30, 2026. Essent expects to remain in full compliance with the existing and updated PMIERs requirements. Financial Condition Stockholders' Equity As of December 31, 2024, stockholders’ equity was $5.6 billion compared to $5.1 billion as of December 31, 2023. Stockholders' equity increased primarily due to net income generated in 2024, partially offset by an increase in accumulated other comprehensive loss related to an increase in our net unrealized investment losses and by dividends paid and the repurchase of common shares under our share repurchase plan. Investments As of December 31, 2024, investments totaled $6.2 billion compared to $5.5 billion as of December 31, 2023. In addition, our total cash was $131.5 million as of December 31, 2024, compared to $141.8 million as of December 31, 2023. The increase in investments was primarily due to investing net cash flows from operations during the year ended December 31, 2024 partially offset by an increase in our net unrealized investment losses. 75 Investments Available for Sale by Asset Class [[GREPCENT_TABLE]] [["Asset Class","","December 31, 2024","","December 31, 2023"],["($ in thousands)","","Fair Value","","Percent","","Fair Value","","Percent"],["U.S. Treasury securities","","$","547,290","","","9.3","%","","$","996,382","","","18.9","%"],["U.S. agency securities","","\u2014","","","\u2014","","","7,195","","","0.1"],["U.S. agency mortgage-backed securities","","1,125,436","","","19.2","","","821,346","","","15.6"],["Municipal debt securities(1)","","583,501","","","9.9","","","547,258","","","10.5"],["Non-U.S. government securities","","69,798","","","1.2","","","67,447","","","1.3"],["Corporate debt securities(2)","","1,783,046","","","30.3","","","1,297,055","","","24.6"],["Residential and commercial mortgage securities","","478,086","","","8.1","","","517,940","","","9.8"],["Asset-backed securities","","631,959","","","10.8","","","564,995","","","10.8"],["Money market funds","","657,605","","","11.2","","","444,121","","","8.4"],["Total Investments Available for Sale","","$","5,876,721","","","100.0","%","","$","5,263,739","","","100.0","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","","December 31,","","December 31,"],["(1) The following table summarizes municipal debt securities as of :","","2024","","2023"],["Special revenue bonds","","83.3","%","","81.4","%"],["General obligation bonds","","16.7","","","18.6"],["Total","","100.0","%","","100.0","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","","December 31,","","December 31,"],["(2) The following table summarizes corporate debt securities as of :","","2024","","2023"],["Financial","","41.8","%","","42.0","%"],["Consumer, Non-Cyclical","","15.1","","","15.9"],["Industrial","","8.2","","","8.1"],["Communications","","5.7","","","7.2"],["Consumer, Cyclical","","6.3","","","7.1"],["Utilities","","8.7","","","6.3"],["Technology","","6.4","","","6.2"],["Energy","","5.1","","","4.7"],["Basic Materials","","2.7","","","2.5"],["Total","","100.0","%","","100.0","%"]] [[/GREPCENT_TABLE]] 76 Investments Available for Sale by Rating [[GREPCENT_TABLE]] [["Rating(1)","","December 31, 2024","","December 31, 2023"],["($ in thousands)","","Fair Value","","Percent","","Fair Value","","Percent"],["Aaa","","$","2,513,014","","","48.1","%","","$","2,561,363","","","53.2","%"],["Aa1","","101,809","","","2.0","","","104,474","","","2.2","%"],["Aa2","","301,080","","","5.8","","","291,501","","","6.0","%"],["Aa3","","271,069","","","5.2","","","208,882","","","4.3","%"],["A1","","511,076","","","9.8","","","377,188","","","7.8","%"],["A2","","411,999","","","7.9","","","329,423","","","6.8","%"],["A3","","463,616","","","8.8","","","253,081","","","5.3","%"],["Baa1","","218,454","","","4.2","","","220,901","","","4.6","%"],["Baa2","","198,193","","","3.8","","","226,449","","","4.7","%"],["Baa3","","151,729","","","2.9","","","166,121","","","3.4","%"],["Below Baa3","","77,077","","","1.5","","","80,235","","","1.7","%"],["Total (2)","","$","5,219,116","","","100.0","%","","$","4,819,618","","","100.0","%"]] [[/GREPCENT_TABLE]] _______________________________________________________________________________ (1)Based on ratings issued by Moody's, if available. S&P or Fitch Ratings ("Fitch") rating utilized if Moody's not available. (2)Excludes $657,605 and $444,121 of money market funds at December 31, 2024 and December 31, 2023, respectively. Investments Available for Sale by Effective Duration [[GREPCENT_TABLE]] [["Effective Duration","","December 31, 2024","","December 31, 2023"],["($ in thousands)","","Fair Value","","Percent","","Fair Value","","Percent"],[" 1 Year","","$","1,587,022","","","26.9","%","","$","1,892,074","","","35.9","%"],["1 to 2 Years","","544,630","","","9.3","","","371,583","","","7.1"],["2 to 3 Years","","473,301","","","8.1","","","538,775","","","10.2"],["3 to 4 Years","","445,614","","","7.6","","","402,668","","","7.6"],["4 to 5 Years","","546,414","","","9.3","","","376,722","","","7.2"],["5 or more Years","","2,279,740","","","38.8","","","1,681,917","","","32.0"],["Total Investments Available for Sale","","$","5,876,721","","","100.0","%","","$","5,263,739","","","100.0","%"]] [[/GREPCENT_TABLE]] Material Cash Requirement from Known Contractual and Other Obligations As of December 31, 2024, the approximate future cash requirements from known contractual and other obligations of the type described in the table below are as follows: [[GREPCENT_TABLE]] [["","","Payments due by period"],["($ in thousands)","","Total","","Less than 1 year","","1 - 3 years","","3 - 5 years","","More than 5 years"],["Senior notes","","$","500,000","","","$","\u2014","","","$","\u2014","","","$","500,000","","","$","\u2014"],["Estimated loss and LAE payments (1)","","328,866","","","114,772","","","158,335","","","55,502","","","257"],["Operating lease obligations","","45,205","","","5,853","","","9,319","","","8,727","","","21,306"],["Unfunded investment commitments (2)","","110,368","","","110,368","","","\u2014","","","\u2014","","","\u2014"],["Total","","$","984,439","","","$","230,993","","","$","167,654","","","$","564,229","","","$","21,563"]] [[/GREPCENT_TABLE]] _______________________________________________________________________________ (1)Our estimate of loss and LAE payments reflects the application of accounting policies described below in "—Critical Accounting Policies—Reserve for Losses and Loss Adjustment Expenses." The payments due by period are based on management's estimates and assume that all of the loss and LAE reserves included in the table will result in payments. (2)Unfunded investment commitments are callable by our investment counterparties. We have assumed that these investments will be funded in the next year but the funding may occur over a longer period of time, due to market conditions and other factors. We lease office space in Pennsylvania, Missouri, North Carolina, New York, Virginia and Bermuda under leases accounted for as operating leases. A portion of the space leased in North Carolina has been subleased to Triad; minimum lease 77 payments shown above have not been reduced by minimum sublease rental income of $0.2 million due in 2025 under the non-cancelable sublease. Off-Balance Sheet Arrangements Essent Guaranty has entered into fully collateralized reinsurance agreements ("Radnor Re Transactions") with unaffiliated special purpose insurers domiciled in Bermuda. The Radnor Re special purpose insurers are special purpose variable interest entities that are not consolidated in our consolidated financial statements because we do not have the unilateral power to direct those activities that are significant to their economic performance. As of December 31, 2024, our estimated off-balance sheet maximum exposure to loss from the Radnor Re entities was $0.2 million, representing the estimated net present value of investment earnings on the assets in the reinsurance trusts. See Note 5 to our consolidated financial statements for additional information. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operation are based upon our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles (GAAP). In preparing our consolidated financial statements, management has made estimates, assumptions and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing these financial statements, management has utilized available information, including our past history, industry standards and the current and projected economic and housing environment, among other factors, in forming its estimates, assumptions and judgments, giving due consideration to materiality. Because the use of estimates is inherent in GAAP, actual results could differ from those estimates. In addition, other companies may utilize different estimates, which may impact comparability of our results of operations to those of companies in similar businesses. A summary of the accounting policies that management believes are critical to the preparation of our consolidated financial statements is set forth below. Mortgage Insurance Premium Revenue Recognition Mortgage guaranty insurance policies are contracts that are generally non-cancelable by the insurer, are renewable at a fixed price, and provide for payment of premium on a monthly, annual or single basis. Upon renewal, we are not able to re-underwrite or re-price our policies. Consistent with industry accounting practices, premiums written on a monthly basis are earned as coverage is provided. Premiums written on an annual basis are amortized on a pro rata basis over the year of coverage. Primary mortgage insurance written on policies covering more than one year are referred to as single premium policies. A portion of the revenue from single premium policies is recognized in earned premium in the current period, and the remaining portion is deferred as unearned premium and earned over the expected life of the policy. If single premium policies related to insured loans are cancelled due to repayment by the borrower, and the premium is non-refundable, then the remaining unearned premium related to each cancelled policy is recognized as earned premium upon notification of the cancellation. Unearned premium represents the portion of premium written that is applicable to the estimated unexpired risk of insured loans. Rates used to determine the earning of single premium policies are estimates based on an analysis of the expiration of risk. Reserve for Losses and Loss Adjustment Expenses We establish reserves for losses based on our best estimate of ultimate claim costs for defaulted loans using the general principles contained in ASC No. 944, in accordance with industry practice. However, consistent with industry standards for mortgage insurers, we do not establish loss reserves for future claims on insured loans which are not currently in default. Loans are classified as defaulted when the borrower has missed two consecutive payments. Once we are notified that a borrower has defaulted, we will consider internal and third-party information and models, including the status of the loan as reported by its servicer and the type of loan product to determine the likelihood that a default will reach claim status. In addition, we will project the amount that we will pay if a default becomes a claim (referred to as "claim severity"). Based on this information, at each reporting date we determine our best estimate of loss reserves at a given point in time. Included in loss reserves are reserves for incurred but not reported ("IBNR") claims. IBNR reserves represent our estimated unpaid losses on loans that are in default, but have not yet been reported to us as delinquent by our customers. We will also establish reserves for associated loss adjustment expenses, consisting of the estimated cost of the claims administration process, including legal and other fees and expenses associated with administering the claims process. Establishing reserves is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Our estimates of claim rates and claim sizes will be strongly influenced by prevailing economic conditions, such as the overall state of the economy, current rates or trends in unemployment, changes in housing values and/or interest rates, and our best judgments as to the future values or trends of these macroeconomic factors. Losses incurred are also generally affected by the characteristics of our insured loans, such as the loan amount, loan-to-value ratio, the percentage of coverage on the insured loan and the credit quality of the borrower. See "Results of Operations: Mortgage Insurance - Provision for Losses and Loss Adjustment Expenses" for a 78 discussion of this estimate and Note 6 to our consolidated financial statements a sensitivity of the key assumption for this estimate. Income Taxes Deferred income tax assets and liabilities are determined using the asset and liability (or balance sheet) method. Under this method, we determine the net deferred tax asset or liability based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and give current recognition to changes in tax rates and laws. Changes in tax laws, rates, regulations and policies, or the final determination of tax audits or examinations, could materially affect our tax estimates. We evaluate the realizability of the deferred tax asset and recognize a valuation allowance if, based on the weight of all available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. When evaluating the realizability of the deferred tax asset, we consider estimates of expected future taxable income, existing and projected book/tax differences, carryback and carryforward periods, tax planning strategies available, and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires management to forecast changes in the mortgage market, as well as the related impact on mortgage insurance, and the competitive and general economic environment in future periods. Changes in the estimate of deferred tax asset realizability, if applicable, are included in income tax expense on the consolidated statements of comprehensive income. ASC No. 740 provides a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In accordance with ASC No. 740, before a tax benefit can be recognized, a tax position is evaluated using a threshold that it is more likely than not that the tax position will be sustained upon examination. When evaluating the more-likely-than-not recognition threshold, ASC No. 740 provides that a company should presume the tax position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. If the tax position meets the more-likely-than-not recognition threshold, it is initially and subsequently measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. This analysis is inherently subjective, as it requires management to forecast the outcome of future tax examinations and the amount of tax benefits that will ultimately be realized given the facts, circumstances, and information available at the reporting date. New information may become available in future periods that could cause the actual amount of tax benefits to vary from management's estimates. Investments Our fixed maturity and short-term investments are classified as available for sale and are reported at fair value. The related unrealized gains or losses are, after considering the related tax expense or benefit, recognized as a component of accumulated other comprehensive income (loss) in stockholders' equity. Realized investment gains and losses are reported in income based upon specific identification of securities sold. Each quarter we perform reviews of all of our investments in order to determine whether declines in fair value below amortized cost were as a result of credit losses in accordance with applicable guidance. We determine whether a credit loss exists by considering information about the collectability of the instrument, current market conditions, and reasonable and supportable forecasts of economic conditions. We recognize an allowance for credit losses, up to the amount of the impairment when appropriate, and write down the amortized cost basis of the investment if it is more likely than not we will be required or we intend to sell the investment before recovery of its amortized cost basis. Under the previous other-than-temporary impairment model for available-for-sale investment securities, a security impairment was deemed other-than-temporary if we either intend to sell the security, or it was more likely than not that we would be required to sell the security before recovery or we did not expect to collect cash flows sufficient to recover the amortized cost basis of the security. During the years ended December 31, 2024, 2023 and 2022, the unrealized losses recorded in the investment portfolio principally resulted from fluctuations in market interest rates and credit spreads. Each issuer was current on its scheduled interest and principal payments. We recorded impairments of $0.5 million, $0.2 million and $12.7 million in the years ended December 31, 2024, 2023, and 2022, respectively. The impairments resulted from our intent to sell these securities subsequent to the reporting date. For information on our material holdings in an unrealized loss position, see "—Financial Condition—Investments." Recently Issued Accounting Pronouncements There are no recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows. See Note 2 of our consolidated financial statements. 79