Essent Group Ltd.

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First, regulatory guardrails implemented after the global financial crisis, such as the Qualified Mortgage rule, and robust underwriting and quality assurance standards of Fannie Mae and Freddie Mac (the GSEs), have significantly improved industry credit quality and performance. Loss mitigation tools such as mortgage forbearance provide additional buffers to homeowners in hardship, preventing foreclosures and reducing claims.

Second, broad adoption of risk-based pricing engines enables mortgage insurers to not only evaluate and price long-tail mortgage credit risk granularly, but also to rapidly deploy targeted pricing strategies in response to changes in credit dynamics with pricing flexibility. We believe EssentEDGE, our proprietary risk-scoring engine powered by machine learning technology, is an effective risk management tool, allowing us to deliver our best rates to borrowers and optimize our unit economics and risk-adjusted returns.

Third, programmatic use of reinsurance hedges against risk and mitigates volatility, making MI a more stable and sustainable franchise through the cycle. At year-end 2023, approximately 93% of Essent’s IIF is subject to some form of reinsurance, including $1.4 billion of Insurance-Linked Notes (ILN) and excess-of-loss (XOL) protection, plus additional coverage from Quota Share (QS) reinsurance. Credit risk transfer to both capital markets and traditional reinsurers has proven to be a cost-effective way of managing risk and capital.

Given our strong balance sheet and profitability, along with the benefits of transformative changes to our business, S&P Global Ratings raised the long-term financial strength ratings of our two primary operating entities, Essent Guaranty and Essent Re, to ‘A-’ from ‘BBB+’ with a stable outlook in January 2024. With this upgrade, we reached a milestone of ‘A-’ or higher financial strength ratings by all rating agencies that cover Essent Guaranty and Essent Re.

A MEASURED APPROACH TO CAPITAL MANAGEMENT

We continue to take a measured approach to capital management to ensure that we always operate from a position of strength, balancing the needs to maintain a strong balance sheet, grow our core business, invest in our franchise, and return capital to shareholders. As a true believer of “capital begets opportunity,” we maintain the lowest debt-to-capital ratio in the industry at 8% and over $1 billion of total liquidity at the holding companies at the end of 2023, including $694 million of net cash and investments plus $400 million of undrawn revolving credit capacity.

Along with our core MI business that continues to have strong operating returns, Essent Re, our Bermuda-based reinsurance company, had another strong year of performance in 2023. In addition to reinsuring our U.S. MI business through a 35% affiliate QS agreement, Essent Re participates in risk-share transactions with the GSEs and other third parties and provides fee-based agency services to reinsurer clients. In July 2023, we closed on the acquisition of a title insurance business for $93 million, which provides a platform for us to leverage our capital, lender network and risk analytics in an adjacent sector with a large addressable market. Our EssentVentures unit has invested $277 million across venture capital, private equity, structured credit funds and direct investments, which has generated $74 million of value ever-to-date.

The strength of our operating model provides us with confidence in the stability of Essent’s cash flow and our ability to return earnings to our shareholders in the form of dividends and share repurchases. Our Board approved a 12% increase of Essent’s quarterly dividend to $0.28 per share for March 2024. Since we initiated a quarterly dividend of $0.15 per share in September 2019, 2024 marks the fifth consecutive year that we have increased our annualized dividend to shareholders. In 2023, we distributed $106 million to shareholders as dividends and repurchased 1.5 million ESNT shares for $66 million. In October 2023, our Board authorized a new $250 million share repurchase authorization effective at the start of 2024 and that will run through year-end 2025.

We intend to continue to implement capital strategies that we believe are in the best long term interest of our shareholders.

COMMITMENT TO SUSTAINABILITY BEST PRACTICES

Essent’s mission is to serve as a trusted, best-in-class partner to the housing finance industry by responsibly offering mortgage insurance, reinsurance and risk management products to mortgage lenders and investors to support affordable home ownership. Having a home provides a sense of security, well-being and belonging. The very core of what we do enables more people to buy their own homes, creating a positive ripple effect throughout their communities.

Under the direction of our Chief Executive Officer and Board of Directors, we are committed to supporting sustainability initiatives that are relevant to the Company and align with our company-wide dedication to responsible corporate citizenship that positively impacts the communities and people served. The strength of our balance sheet and operating model helps Essent to fulfill our mission to support affordable and sustainable homeownership. We remain committed to helping borrowers achieve home ownership. We continue to believe that Essent and our industry can play a greater role in leveraging private capital to support a strong and robust housing finance system while mitigating taxpayer risk.

Our continued success is directly related to our commitment to our core values—Integrity, Service, Innovation and Community. These values are the building blocks of our business and our ESG practices. Our annually published sustainability report provides more information on how we are delivering on our ESG commitment to our employees, our business partners and our community.

As a responsible corporate citizen, Essent is dedicated to Service and Community. Our practices make a difference in the communities where we live and work. Our corporate giving program and employee volunteer program are designed to sponsor national and local community organizations with a focus on children, education, health and housing. Embedded within the core of our MI business is a more inclusive future, and our dedication to responsible corporate stewardship is critical to our long-term success—doing the right thing is and will always be at the forefront of our mission.

Corporate Governance Practices

Essent has a strong top-down approach to ESG. Our Board is very active and has formal oversight over our environmental awareness, cybersecurity, corporate culture, employee engagement, diversity and community commitment. The charter of our Nominating, Governance and Corporate Responsibility Committee emphasizes that committee’s responsibility for the “governance” and “environmental” aspects of the Company’s sustainability programs, while the role of the Compensation Committee includes overseeing the “social” aspects of the Company’s sustainability programs, including receiving periodic updates from the Company’s management responsible for significant “social” activities. Our Corporate Governance Guidelines further detail the Board’s oversight of technology, innovation and cyber risk, and continued commitment to diversity and inclusion.

At the highest level, we believe that our Board has adopted a set of corporate governance and executive compensation standards that exemplify our commitment to sound governance practices:

We have also formalized and adopted a number of internal policies with respect to corporate and institutional governance, including:

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Anti-Corruption Policy

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Anti-Money Laundering Awareness Policy

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Anti-Trust Policy

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Code of Business Conduct and Ethics

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Compliance Policy

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Corporate Giving Policy

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Disaster Recovery Plan

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Disability Accommodation Policy

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Diversity, Prevention of Discrimination & Harassment Policy

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Fitness for Duty Policy

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Fraud Policy & Procedures

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Gift & Entertainment Policy

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Government Relations and Political Activities Policy

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Human Rights and Labor Policy

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Information Security Program Policy

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Media and External Communications Policy

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Privacy Policy

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Statement of Freedom of Association, Right to Collective Bargaining

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Third Party Vendor Code of Conduct

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Vulnerability Management Policy

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Whistleblower Policy

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Our Board of Directors is committed to increasing the diversity of representation on the Board. We have two highly qualified female directors who bring with them particularly notable experience in the information technology, cybersecurity, and insurance and risk management fields. In addition, we continue to identify potential new diverse candidates to serve on our Board.

We believe that engaging with investors is fundamental to our commitment to good governance. Throughout the year, we seek opportunities to engage in two-way conversations with our investors to gain and share valuable insights into current and emerging business strategies and trends. During 2023, we held approximately 100 meetings with shareholders whose ownership represented approximately 35% of shares outstanding as of the end of 2023 to discuss various key corporate matters. Topics discussed included our credit performance, capital management philosophy, and our risk management practices including around underwriting risk, investment risk and regulatory compliance risk, among others. These meetings were conducted in person, via teleconference or at industry conferences.

Social Issues and Human Capital

We have approximately 530 employees working from primary offices in Pennsylvania, North Carolina, Missouri, New York, Virginia and Bermuda, as well as remotely throughout the United States. We provide competitive benefits that promote the health of our employees and their families and design compelling job opportunities, aligned with our mission, in a fast-paced, results-focused work environment. All of our employees are eligible to receive grants under our equity incentive plan, which as discussed above currently has nearly 100% participation. We offer varied employee training, development, mentorship and leadership opportunities and encourage our employees to continue to develop in their careers.

At Essent, we realize that continuous engagement with our employees is vital to driving successful, meaningful outcomes. Engagement surveys are conducted periodically and allow us to identify areas of strength and opportunities for improvement to ensure continued satisfaction and retention of our employees. CEO-led town hall style meetings are held regularly with our employees, covering topics such as business strategy and outlook, the competitive landscape, and emerging industry trends, and include a question-and-answer session with management. We believe that this format facilitates strong and productive conversations across our organization. As a result of our ongoing commitment to employee engagement and satisfaction, we continue to have a very high average annual employee retention rate over the past 5 years.

We are focused on cultivating a diverse and inclusive culture where our employees can freely bring diverse perspectives and varied experiences to work. We seek to hire and retain highly talented employees and empower them to create value for our shareholders. In our employee recruitment and selection process and operation of our business, we adhere to equal employment opportunity policies and encourage the participation of our employees in training programs that will enhance their effectiveness in the performance of their duties.

Our commitment to good corporate citizenship extends to supporting the communities that we serve. Our Board of Directors, management and employees are committed to transforming our communities by leveraging the power of our Company. We partner with charitable organizations, make donations, and connect our employees with volunteer opportunities to better their communities. Essent’s charitable contributions focus in particular on housing, education, children and the military.

Our employees volunteer their time and talents to support local charities and community organizations. We encourage our employees to contribute their time to support various community and charitable activities. To foster participation, all full-time employees are granted a full day of paid time off to perform a “Day of Service” through a 501(c)(3) organization to help their communities. We also encourage charitable giving by employees by providing a 1:1 match of donations to 501(c)(3) organizations, up to $1,000 per employee per year.

Our charitable program places special emphasis on championing education, in particular, for underserved youth. For example, we have made a $3 million, 10-year commitment to Cristo Rey Philadelphia High School. Cristo Rey is an inner-city, independent, college preparatory school for low-income students who cannot otherwise afford a private education. Cristo Rey is a new model of private high school that opened in 2012 and has developed a unique partnership with local educators, businesses and universities. In addition, we have made a $1.2 million multi-year commitment to support a Science, Technology, Engineering and Math (STEM) program specifically targeted to young women. We expanded our corporate giving program with a significant grant to the Pennsylvania-based Main Line Health Behavioral Health Services, which opened a new behavioral health unit expansion in 2022. In 2023, we contributed $250,000 to establish the Clarifi Housing Stability Center and a Housing Stabilization Fund to aid Philadelphia, PA families in housing crisis.

Environmental Responsibility

Essent is committed to the stewardship of our shared environment. While the nature of our operations does not directly impact the environment in a material way, we seek to operate our corporate facilities in an environmentally sustainable, safe and healthy manner. We strive to be energy efficient across our operations, utilizing energy management systems that conserve energy as well as LED lighting and motion control sensors. Our corporate headquarters in Radnor, Pennsylvania is Energy Star certified as an environmentally-conscious corporate headquarters. In addition, we are committed to increasing waste recycling and increasing overall environmental awareness and training across our organization.