Essent Group Ltd

Previous wording

The following discussion should be read together with the “Selected Financial Data” and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K as of and for the year ended December 31, 2023 as filed with the Securities and Exchange Commission and referred to herein as the “Annual Report,” and our condensed consolidated financial statements and related notes as of and for the three and six months ended June 30, 2024 included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which we refer to as the “Quarterly 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” in this Quarterly Report and Part I, Item 1A “Risk Factors” in our Annual Report and Part II, Item 1A “Risk Factors” in this Quarterly Report. 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.

Current wording

The following discussion should be read together with the “Selected Financial Data” and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K as of and for the year ended December 31, 2023 as filed with the Securities and Exchange Commission and referred to herein as the “Annual Report,” and our condensed consolidated financial statements and related notes as of and for the three and nine months ended September 30, 2024 included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which we refer to as the “Quarterly 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” in this Quarterly Report and Part I, Item 1A “Risk Factors” in our Annual Report and Part II, Item 1A “Risk Factors” in this Quarterly Report. 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.

Previous wording

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. Our mortgage insurance operations generated new insurance written, or NIW, of approximately $12.5 billion and $20.8 billion for the three and six months ended June 30, 2024, respectively, compared to approximately $13.5 billion and $26.4 billion for the three and six months ended June 30, 2023, respectively. The financial strength ratings of Essent Guaranty are A3 with a positive outlook by Moody’s Investors Service (“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.

Current wording

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. Our mortgage insurance operations generated new insurance written, or NIW, of approximately $12.5 billion and $33.3 billion for the three and nine months ended September 30, 2024, respectively, compared to approximately $12.5 billion and $38.9 billion for the three and nine months ended September 30, 2023, respectively. The financial strength ratings of Essent Guaranty are A3 with a positive outlook by Moody’s Investors Service (“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 Ratings Services, Inc. ("AM Best").

Previous wording

We also offer mortgage-related insurance and reinsurance through our wholly-owned Bermuda-based subsidiary, Essent Reinsurance Ltd., which we refer to as "Essent Re." As of June 30, 2024, Essent Re provided insurance or reinsurance relating to GSE risk share and other reinsurance transactions covering approximately $2.3 billion of risk. Essent Re also reinsures Essent Guaranty’s NIW under a quota share reinsurance agreement. In April 2021, Essent Guaranty and Essent Re agreed to increase the quota share reinsurance coverage of Essent Guaranty’s NIW provided by Essent Re from 25% to 35% effective January 1, 2021. The quota share reinsurance coverage provided by Essent Re for Essent Guaranty’s NIW prior to January 1, 2021 will continue to be 25%, the quota share percentage in effect at the time NIW was first ceded. 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.

Current wording

We also offer mortgage-related insurance and reinsurance through our wholly-owned Bermuda-based subsidiary, Essent Reinsurance Ltd., which we refer to as "Essent Re." As of September 30, 2024, Essent Re provided insurance or reinsurance relating to GSE risk share and other reinsurance transactions covering approximately $2.3 billion of risk. Essent Re also reinsures Essent Guaranty’s NIW under a quota share reinsurance agreement. In April 2021, Essent Guaranty and Essent Re agreed to increase the quota share reinsurance coverage of Essent Guaranty’s NIW provided by Essent Re from 25% to 35% effective January 1, 2021. The quota share reinsurance coverage provided by Essent Re for Essent Guaranty’s NIW prior to January 1, 2021 will continue to be 25%, the quota share percentage in effect at the time NIW was first ceded. 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 AM Best.

Previous wording

We have a highly experienced, talented team with 528 employees as of June 30, 2024. Our holding company is domiciled in Bermuda and our U.S. mortgage insurance business is headquartered in Radnor, Pennsylvania.

Current wording

We have a highly experienced, talented team with 602 employees as of September 30, 2024. Our holding company is domiciled in Bermuda and our U.S. mortgage insurance business is headquartered in Radnor, Pennsylvania.

Previous wording

The Federal Reserve increased the target federal funds rate several times during 2022 and 2023 in an effort to reduce consumer price inflation. These rate increases have resulted in higher mortgage interest rates which reduced home buying and mortgage refinance activity resulting in lower volumes of mortgage originations, new insurance written and title insurance and settlement service transactions. These rate increases have also resulted in increases in our net investment income generated by our investment portfolio and the persistency of our mortgage insurance in force.

Current wording

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, in September 2024, the Federal Reserve reduced the target federal funds rate by 50 basis points. Mortgage interest rates remain elevated which has reduced home buying and mortgage refinance activity resulting in lower volumes of mortgage originations, new insurance written and title insurance and settlement service transactions. These rate actions have also resulted in increases in our net investment income generated by our investment portfolio and the persistency of our mortgage insurance in force.

Previous wording

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 June 30, 2024 were non-refundable. Premiums collected on annual policies are recognized as net premiums earned on a straight-line basis over the year of coverage. For the six months ended June 30, 2024 and 2023, monthly premium policies comprised 98% and 96% of our NIW, respectively.

Current wording

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 September 30, 2024 were non-refundable. Premiums collected on annual policies are recognized as net premiums earned on a straight-line basis over the year of coverage. For the nine months ended September 30, 2024 and 2023, monthly premium policies comprised 98% and 96% of our NIW, respectively.

Previous wording

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 portfolio was 86.7% at June 30, 2024. Generally, higher prepayment speeds lead to lower persistency.

Current wording

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 portfolio was 86.6% at September 30, 2024. Generally, higher prepayment speeds lead to lower persistency.

Previous wording

•the distribution of claims over the life of a book. As of June 30, 2024, 49% of our IIF relates to 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.

Current wording

•the distribution of claims over the life of a book. As of September 30, 2024, 53% of our IIF relates to 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.

Previous wording

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 June 30, 2024, 49% 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.

Current wording

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 September 30, 2024, 53% 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.

Previous wording

The economy in the United States has been experiencing elevated levels of consumer price inflation. The Federal Reserve increased the target federal funds rate several times during 2022 and 2023 in an effort to reduce consumer price inflation. These rate increases have resulted in higher mortgage interest rates 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.

Current wording

The economy in the United States has experienced elevated levels of consumer price inflation and 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, in September 2024, the Federal Reserve reduced the target federal funds rate by 50 basis points. Mortgage interest rates remain 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.

Previous wording

As more fully described in Note 4 to our condensed consolidated financial statements, at June 30, 2024, we had approximately $1.3 billion of excess of loss reinsurance covering NIW from January 1, 2018 through December 31, 2019 and August 1, 2020 through December 31, 2023 and quota share reinsurance on portions of our NIW effective September 1, 2019 through 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.

Current wording

As more fully described in Note 4 to our condensed consolidated financial statements, at September 30, 2024, we had approximately $1.7 billion of excess of loss reinsurance covering NIW from January 1, 2018 through December 31, 2019 and August 1, 2020 through December 31, 2024 and quota share reinsurance on portions of our NIW effective September 1, 2019 through 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.

Previous wording

Our most significant expense is compensation and benefits for our employees, which represented 60% of other underwriting and operating expenses for both the three and six months ended June 30, 2024, compared to 58% and 57% of other underwriting and operating expenses for the three and six months ended June 30, 2023, respectively. Compensation and benefits expense includes base and incentive cash compensation, stock compensation expense, benefits and payroll taxes.

Current wording

Our most significant expense is compensation and benefits for our employees, which represented 59% and 60% of other underwriting and operating expenses for the three and nine months ended September 30, 2024, compared to 57% and 57% of other underwriting and operating expenses for the three and nine months ended September 30, 2023, respectively. Compensation and benefits expense includes base and incentive cash compensation, stock compensation expense, benefits and payroll taxes.

Previous wording

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 three and six months ended June 30, 2024 and 2023 for our U.S. mortgage insurance portfolio. In addition, this table includes our RIF at the end of each period.

Current wording

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 three and nine months ended September 30, 2024 and 2023 for our U.S. mortgage insurance portfolio. In addition, this table includes our RIF at the end of each period.

Previous wording

As of June 30, 2024, our combined net risk in force for our U.S. mortgage insurance companies was $34.8 billion and our combined statutory capital was $3.5 billion, resulting in a risk-to-capital ratio of 9.9:1. 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 are currently examining their respective capital rules to determine whether, in light of the 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.

Current wording

As of September 30, 2024, our combined net risk in force for our U.S. mortgage insurance companies was $34.9 billion and our combined statutory capital was $3.6 billion, resulting in a risk-to-capital ratio of 9.7:1. 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 are currently examining their respective capital rules to determine whether, in light of the 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.

Previous wording

For the three months ended June 30, 2024, we reported net income of $203.6 million, compared to net income of $172.2 million for the three months ended June 30, 2023. For the six months ended June 30, 2024, we reported net income of $385.3 million, compared to net income of $343.1 million for the six months ended June 30, 2023. The increases in our operating results in 2024 over the same periods in 2023 was primarily due to increases in net premiums earned and net investment income, partially offset by increases in operating expenses.

Current wording

For the three months ended September 30, 2024, we reported net income of $176.2 million, compared to net income of $178.0 million for the three months ended September 30, 2023. For the nine months ended September 30, 2024, we reported net income of $561.5 million, compared to net income of $521.0 million for the nine months ended September 30, 2023. The decrease in our operating results during the three months ended September 30, 2024 compared to the same period in 2023 was primarily due to increases in the provision for losses and operating expenses, largely offset by increases in net premiums earned and net investment income, The increase in our operating results during the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to increases in net premiums earned and net investment income, partially offset by increases in the provision for losses and operating expenses.

Previous wording

30, 2024 by 17%, compared to the six months ended June 30, 2023. Net premiums written and earned in the three and six months ended June 30, 2024 include $16.6 million and $31.9 million of net premiums written and earned by our title insurance operations. The increase in net premiums written and earned was also due to the increase in our average IIF from $233.5 billion for the three months ended June 30, 2023 to $239.5 billion for the three months ended and June 30, 2024, and $231.1 billion for the six months ended June 30, 2023 to $239.2 billion for the six months ended June 30, 2024. The average net premium rate was 0.36% and 0.33% for the three months ended June 30, 2024 and 2023, respectively. The average net premium rate was 0.36% and 0.34% in the six months ended June 30, 2024 and 2023, respectively. The increase in the average net premium rate in the three and six month periods ended June 30, 2024 was a result of a decrease in ceded premiums, changes in the mix of mortgages we insure, higher persistency and changes in our pricing. In the three and six months ended June 30, 2024, ceded premiums decreased to $27.3 million and $57.7 million, respectively, from $39.5 million and $73.1 million in the three and six months ended June 30, 2023, respectively, due to a decrease in outstanding excess of loss reinsurance in the three and six months ended June 30, 2024 than the comparable periods of the prior year, as a result of the retiring of outstanding notes for two of our seasoned ILN transactions in 2023.

Current wording

Net premiums written and earned increased in the three months ended September 30, 2024 by 1%, compared to the three months ended September 30, 2023. Net premium written and earned increased in the nine months ended September 30, 2024 by 11%, compared to the nine months ended September 30, 2023. Net premiums written and earned in the three and nine months ended September 30, 2024 include $17.7 million and $49.6 million of net premiums written and earned by our title insurance operations, compared to $20.6 million for the three and nine months ended September 30, 2023. The increase in net premiums written and earned was also due to the increase in our average IIF from $237.3 billion for the three months ended September 30, 2023 to $242.1 billion for the three months ended and September 30, 2024, and from $233.1 billion for the nine months ended September 30, 2023 to $240.2 billion for the nine months ended September 30, 2024. The average net premium rate was 0.35% and 0.35% for the three months ended September 30, 2024 and 2023, respectively. The average net premium rate was 0.36% and 0.34% in the nine months ended September 30, 2024 and 2023, respectively. The increase in the average net premium rate in the nine month period ended September 30, 2024 compared to the same period in 2023 was a result of a decrease in ceded premium, changes in the mix of mortgages we insure, higher persistency and changes in our pricing. In the nine months ended September 30, 2024, ceded premiums decreased to $92.5 million from $103.4 million in the nine months ended September 30, 2023 due to a decrease in outstanding excess of loss reinsurance in the nine months ended September 30, 2024 than the comparable period of the prior year, as a result of the retiring of outstanding notes for two of our seasoned ILN transactions in 2023.

Previous wording

In the three months ended June 30, 2024 and 2023, unearned premiums decreased by $6.3 million and $3.6 million, respectively. The change in unearned premiums was a result of net premiums written on single premium policies of $1.6 million and $7.4 million, respectively, which was offset by $7.9 million and $11.0 million, respectively, of unearned premium that was recognized in earnings during the periods. In the six months ended June 30, 2024 and 2023, unearned premiums decreased by $13.4 million and $9.0 million, respectively. This was a result of net premiums written on single premium policies of $4.5 million and $14.3 million, respectively, which was offset by $17.9 million and $23.3 million, respectively, of unearned premium that was recognized in earnings during the periods.

Current wording

In the three months ended September 30, 2024 and 2023, unearned premiums decreased by $6.0 million and $6.2 million, respectively. The change in unearned premiums was a result of net premiums written on single premium policies of $2.4 million and $4.7 million, respectively, which was offset by $8.4 million and $10.9 million, respectively, of unearned premium that was recognized in earnings during the periods. In the nine months ended September 30, 2024 and 2023, unearned premiums decreased by $19.3 million and $15.2 million, respectively. This was a result of net premiums written on single premium policies of $6.9 million and $18.9 million, respectively, which was offset by $26.2 million and $34.1 million, respectively, of unearned premium that was recognized in earnings during the periods.

Previous wording

The increases in net investment income for the three and six months ended June 30, 2024 as compared to the same periods in 2023 was due to an increase in the pre-tax investment income yield as well as an increase in the weighted average balance of our investment portfolio. The pre-tax investment income yield decreased from 3.5% and 3.4% in the three and six months ended June 30, 2023 to 3.8% in both the three and six months ended June 30, 2024, respectively, primarily due to a general increase in investment yields due to rising interest rate. The average cash and investment portfolio balance increased to $6.0 billion for the three months ended June 30, 2024 from $5.4 billion for the three months ended June 30, 2023. The average cash and investment portfolio balance increased to $5.9 billion for the six months ended June 30, 2024 from $5.4 billion for the six months ended June 30, 2023. The increase in the average cash and investment portfolio was primarily due to investing cash flows from operations, See “— Liquidity and Capital Resources” for further details of our investment portfolio.

Current wording

The increases in net investment income for the three and nine months ended September 30, 2024 as compared to the same periods in 2023 was due to an increase in the pre-tax investment income yield as well as an increase in the weighted average balance of our investment portfolio. The pre-tax investment income yield increased from 3.6% and 3.5% in the three and nine months ended September 30, 2023 to 3.8% in both the three and nine months ended September 30, 2024, respectively, primarily due to a general increase in investment yields due to rising interest rates. The average cash and investment portfolio balance increased to $6.2 billion for the three months ended September 30, 2024 from $5.5 billion for the three months ended September 30, 2023. The average cash and investment portfolio balance increased to $6.0 billion for the nine months ended September 30, 2024 from $5.4 billion for the nine months ended September 30, 2023. The increase in the average cash and investment portfolio was primarily due to investing cash flows from operations, See “— Liquidity and Capital Resources” for further details of our investment portfolio.

Previous wording

Income (loss) from other invested assets for the three months ended June 30, 2024 was a loss of $0.4 million as compared to a loss of $4.9 million for the three months ended June 30, 2023. Income (loss) from other invested assets for the six months ended June 30, 2024 was a loss of $2.3 million as compared to a loss of $7.6 million for the six months ended June 30, 2023.The decrease in losses from other invested assets was primarily due to improved fair value adjustments recorded during the three and six months ended June 30, 2024 as compared to the same periods in 2023.

Current wording

Income (loss) from other invested assets for the three months ended September 30, 2024 was income of $2.8 million as compared to a loss of $3.1 million for the three months ended September 30, 2023. Income (loss) from other invested assets for the nine months ended September 30, 2024 was income of $0.5 million as compared to a loss of $10.7 million for the nine months ended September 30, 2023.The increase in income from other invested assets was primarily due to favorable fair value adjustments recorded during the three and nine months ended September 30, 2024 as compared to the same periods in 2023.

Previous wording

Other income for the three months ended June 30, 2024 was $6.5 million as compared to $8.1 million for the three months ended June 30, 2023. Other income for the six months ended June 30, 2024 was $10.3 million compared to $13.0 million for the six months ended June 30, 2023. The decrease in other income for the three and six months ended June 30, 2024 as compared to the same periods in 2023 was primarily due to a decrease in the fair value adjustments on our embedded derivatives contained in certain of our reinsurance agreements. In the three months ended June 30, 2024, we recorded a favorable increase in the fair value of these embedded derivatives of $0.7 million compared to a favorable increase in the fair value of the embedded derivatives of $2.7 million in the three months ended June 30, 2023. In the six months ended June 30, 2024 we recorded a net unfavorable decrease in the fair value of the embedded derivatives of $1.2 million compared to a net favorable increase of $2.4 million inthesix months ended June 30, 2023. Other income also includes Triad service fee income, contract underwriting revenues and underwriting consulting services to third-party reinsurers. For the three and six months ended June 30, 2024, other income also includes settlement services revenues from our title operations.

Current wording

Other income for the three months ended September 30, 2024 was $7.4 million as compared to $5.6 million for the three months ended September 30, 2023. The increase in other income for the three months ended September 30, 2024 as compared to the same period in 2023 was primarily due to increases in settlement services revenue and Triad service fee income. Other income for the nine months ended September 30, 2024 was $17.7 million compared to $18.6 million for the nine months ended September 30, 2023. The decrease in other income for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to unfavorable derivative fair value adjustments and a decrease in underwriting consulting services to third party reinsurers, partially offset by increases in settlement services revenue and Triad service fee income. In the nine months ended September 30, 2024 we recorded a net unfavorable decrease in the fair value of the embedded derivatives of $2.3 million compared to a net favorable increase of $1.5 million inthe nine months ended September 30, 2023.

Previous wording

In the three months ended June 30, 2024 we recorded a benefit for losses of $0.3 million compared to a provision of $1.3 million for the three months ended June 30, 2023. In the six months ended June 30, 2024 we recorded a provision for losses of $9.6 million compared to a provision of $1.1 million for the three months ended June 30, 2023. The decrease in provision for losses during the three months ended June 30, 2024 was primarily due the composition of cure activity of defaults that cured in the three months ended June 30, 2024, compared to the same period in 2023. The increase in the provision for losses in the six months ended June 30, 2024 compared to six months ended June 30, 2023 was primarily due to a provision for losses recorded for current year defaults along with an increase in reserve per default, partially offset by cure activity for defaults reported in prior years.

Current wording

In the three months ended September 30, 2024 we recorded a provision for losses of $30.7 million compared to a provision of $10.8 million for the three months ended September 30, 2023. In the nine months ended September 30, 2024 we recorded a provision for losses of $40.2 million compared to a provision of $11.9 million for the nine months ended September 30, 2023. The increases in the provision for losses in the three and nine months ended September 30, 2024 compared to the comparable periods of the prior year was primarily due to increases in new defaults reported, resulting in increases in the provision for losses recorded for current year defaults, partially offset by cure activity for defaults reported in prior years.

Previous wording

During the three months ended June 30, 2024, the provision for losses and LAE was a benefit of $0.3 million, comprised of $31.2 million of current year losses offset by $31.5 million of favorable prior years’ loss development. During the three months ended June 30, 2023, the provision for losses and LAE was $1.3 million, comprised of $31.4 million of current year losses partially offset by $30.1 million of favorable prior years’ loss development. In both periods, the 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.

Current wording

During the three months ended September 30, 2024, the provision for losses and LAE was a provision of $30.7 million, comprised of $53.6 million of current year losses partially offset by $22.9 million of favorable prior years’ loss development. During the three months ended September 30, 2023, the provision for losses and LAE was $10.8 million, comprised of $37.5 million of current year losses partially offset by $26.7 million of favorable prior years’ loss development. In both periods, the 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.

Previous wording

During the six months ended June 30, 2024, the provision for losses and LAE was $9.6 million, comprised of $70.6 million of current year losses partially offset by $61.0 million of favorable prior years’ loss development. During the six months ended June 30, 2023, the provision for losses and LAE was $1.1 million, comprised of $64.1 million of current year losses partially offset by $63.0 million of favorable prior years’ loss development. In both periods, the 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.

Current wording

During the nine months ended September 30, 2024, the provision for losses and LAE was $40.2 million, comprised of $124.2 million of current year losses partially offset by $83.9 million of favorable prior years’ loss development. During the nine months ended September 30, 2023, the provision for losses and LAE was $11.9 million, comprised of $101.5 million of current year losses partially offset by $89.6 million of favorable prior years’ loss development. In both periods, the 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.

Previous wording

•Compensation and benefits increased in the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 primarily due to an increase in the number of employees resulting from the acquisition of the title operations, as well as increased stock compensation expense. Compensation and benefits includes salaries, wages and bonus, stock compensation expense, benefits and payroll taxes.

Current wording

•Compensation and benefits increased in the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023 primarily due to an increase in the average number of employees during the periods, as well as increased stock-based compensation expense. Compensation and benefits includes salaries, wages and bonus, stock-based compensation expense, benefits and payroll taxes.

Previous wording

•Premium taxes increased primarily due to an increase in premiums written, including title insurance premiums written net of premiums retained by agents, in the three and six months ended June 30, 2024.

Current wording

•Premium taxes increased primarily due to an increase in premiums written, including title insurance premiums written net of premiums retained by agents, in the three and nine months ended September 30, 2024.

Previous wording

•Other expenses increased primarily as a result of the title and settlement services direct costs incurred in the three months ended June 30, 2024, and increases in software and occupancy related expenses partially offset by a decrease in professional fees and an increase in ceding commission earned under the QSR Agreements. In the three and six months ended June 30, 2023, other expenses included approximately $0.7 million and $4.1 million, respectively, of transaction costs associated with the Company's title business acquisition. Other expenses include professional fees, travel, marketing, hardware, software, rent, depreciation and amortization and other facilities expenses.

Current wording

•Other expenses decreased in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 primarily as a result of decreases in professional fees and an increase in ceding commission earned under the QSR Agreements. Other expenses increased for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 primarily as a result of a full year-to-date period of title insurance and settlement services expenses as well as increases in software and occupancy related expenses, partially offset by a decrease in professional fees and an increase in ceding commission earned under the QSR Agreements. In the three and nine months ended September 30, 2023, other expenses included approximately $0.2 million and $4.4 million, respectively, of transaction costs associated with the Company's title business acquisition. Other expenses include professional fees, travel, marketing, hardware, software, rent, depreciation and amortization and other facilities expenses.

Previous wording

Our subsidiaries in the United States file a consolidated U.S. Federal income tax return. Our income tax expense was $35.6 million and $37.1 million for the three months ended June 30, 2024 and 2023, respectively, and $67.6 million and $67.5 million for the six months ended June 30, 2024 and 2023, respectively. The provision for income taxes for the six months ended June 30, 2024 was calculated using an estimated annual effective tax rate of 15.1% as compared to an estimated annual effective tax rate of 15.2% for the six months ended June 30, 2023. For the six months ended June 30, 2024, income tax expense includes $0.6 million of discrete tax benefit associated with realized and unrealized losses recognized during the period as well as excess tax benefits associated with the vesting of common shares and common share units. For the six months ended June 30, 2023, income tax expense includes $1.3 million of discrete tax benefit associated with realized and unrealized losses recognized during the period partially offset by excess tax deficits associated with the vesting of common shares and common share units. For the six months ended June 30, 2023, income tax expense also includes $5.3 million of net expense associated with prior year tax returns. The tax effects of discrete items are recognized in the reporting period in which they occur and are not considered in determining the annual effective tax rate.

Current wording

Our subsidiaries in the United States file a consolidated U.S. Federal income tax return. Our income tax expense was $31.4 million and $31.5 million for the three months ended September 30, 2024 and 2023, respectively, and $99.0 million and $99.0 million for the nine months ended September 30, 2024 and 2023, respectively. The provision for income taxes for the nine months ended September 30, 2024 was calculated using an estimated annual effective tax rate of 15.1% as compared to an estimated annual effective tax rate of 15.2% for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, income tax expense includes $0.6 million of discrete tax benefit associated with realized and unrealized losses recognized during the period as well as excess tax benefits associated with the vesting of common shares and common share units. For the nine months ended September 30, 2023, income tax expense includes $2.0 million of discrete tax benefit associated with realized and unrealized losses recognized during the period partially offset by excess tax deficits associated with the vesting of common shares and common share units. For the nine months ended September 30, 2023, income tax expense also includes $5.3 million of net expense associated with prior year tax returns. The tax effects of discrete items are recognized in the reporting period in which they occur and are not considered in determining the annual effective tax rate.

Previous wording

•interest payments and repayment of borrowings under our Credit Facility;

Current wording

•interest payments and repayment of borrowings under our Senior Notes and Revolving Credit Facility;

Previous wording

As of June 30, 2024, we had substantial liquidity with cash of $197.4 million, short-term investments of $1.5 billion and fixed maturity investments of $3.9 billion. We also had $400 million available capacity under the revolving credit component of our Credit Facility, with $425 million of borrowings outstanding under our Credit Facility. Borrowings under the Credit Facility contractually mature on December 10, 2026. Holding company net cash and investments available for sale totaled $808.4 million at June 30, 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 June 30, 2024.

Current wording

As of September 30, 2024, we had substantial liquidity with cash of $109.3 million, short-term investments of $1.0 billion and fixed maturity investments of $4.9 billion. We also had $500 million available capacity under our Revolving Credit Facility. Holding company net cash and investments available for sale totaled $991.2 million at September 30, 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 September 30, 2024.

Previous wording

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 all of the borrowings outstanding under the term loan portion of the 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 Credit Facility, the Fourth Amended and Restated Credit Agreement (the “Revolving Credit Agreement”) became effective and amends and restates the 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.

Current wording

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.

Previous wording

Our U.S. mortgage insurance subsidiaries are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate and the GSEs. Under the insurance laws of the Commonwealth of Pennsylvania, the 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 dividends and other distributions be paid out of positive unassigned surplus without prior approval. At June 30, 2024, Essent Guaranty had unassigned surplus of approximately $352.4 million and Essent PA had unassigned surplus of approximately $19.4 million. As of June 30, 2024, Essent Guaranty and Essent PA could pay additional ordinary dividends in 2024 of $323.8 million and $5.4 million, respectively.

Current wording

Our U.S. mortgage insurance subsidiaries are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate and the GSEs. Under the insurance laws of the Commonwealth of Pennsylvania, the 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 dividends and other distributions be paid out of positive unassigned surplus without prior approval. At September 30, 2024, Essent Guaranty had unassigned surplus of approximately $362.8 million and Essent PA had unassigned surplus of approximately $22.2 million. As of September 30, 2024, Essent Guaranty and Essent PA could pay additional ordinary dividends in 2024 of $261.8 million and $5.4 million, respectively.

Previous wording

Cash flow provided by operating activities totaled $405.6 million for the six months ended June 30, 2024, as compared to $352.5 million for the six months ended June 30, 2023. The increase in cash flow provided by operating activities was primarily due to increases in net premiums written and investment income partially offset by an increase in operating expenses paid in the six months ended June 30, 2024.

Current wording

Cash flow provided by operating activities totaled $634.8 million for the nine months ended September 30, 2024, as compared to $547.5 million for the nine months ended September 30, 2023. The increase in cash flow provided by operating activities was primarily due to increases in net premiums written and investment income partially offset by an increase in operating expenses paid in the nine months ended September 30, 2024.

Previous wording

Cash flow used in investing activities totaled $255.3 million for six months ended June 30, 2024 compared to $261.5 million used in investing activities for the six months ended June 30, 2023. In both periods, cash flow used in investing activities relates primarily to investing cash flows from operations.

Current wording

Cash flow used in investing activities totaled $599.0 million for nine months ended September 30, 2024 compared to $396.3 million used in investing activities for the nine months ended September 30, 2023. In both periods, cash flow used in investing activities relates primarily to investing cash flows from operations.

Previous wording

Cash flow used in financing activities totaled $94.7 million and $104.1 million for the six months ended June 30, 2024 and 2023, respectively, primarily related to the quarterly cash dividends paid, repurchases of common stock under our share repurchase plans and treasury stock acquired from employees to satisfy tax withholding obligations.

Current wording

Cash flow used in financing activities totaled $68.3 million and $135.7 million for the nine months ended September 30, 2024 and 2023, respectively, primarily related to the quarterly cash dividends paid, repurchases of common stock under our share repurchase plans and treasury stock acquired from employees to satisfy tax withholding obligations. For the nine months ended September 30, 2024, cash flows from financing activities 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.

Previous wording

During the six months ended June 30, 2024 and 2023, no capital contributions were made to our U.S. mortgage insurance subsidiaries and Essent Guaranty paid dividends to Essent US Holdings, Inc. of $107.5 million and $180 million, respectively. During the six months ended June 30, 2024, no capital contributions were made to our title insurance subsidiary.

Current wording

During the nine months ended September 30, 2024 and 2023, no capital contributions were made to our U.S. mortgage insurance subsidiaries and Essent Guaranty paid dividends to Essent US Holdings, Inc. of $165.5 million and $260 million, respectively. During the nine months ended September 30, 2024, no capital contributions were made to our title insurance subsidiary. During the nine months ended September 30, 2023, Essent US Holdings made a capital contribution of $6 million to its title insurance subsidiary.

Previous wording

Essent Guaranty has entered into a quota share reinsurance agreement with a panel of third-party reinsurers ("QSR" agreement"). 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 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 specific ceding commission, as well as a profit commission that varies directly and inversely with ceded claims. These reinsurance coverages also reduces net risk in force and PMIERs Minimum Required Assets. See Note 4 to our condensed consolidated financial statements.

Current wording

Essent Guaranty has entered into a quota share reinsurance agreement with a panel of third-party reinsurers ("QSR" agreement"). Each of the third-party reinsurers has an insurer minimum financial strength rating of A- or better by S&P Global Ratings, AM Best or both. Under each QSR agreement, Essent Guaranty will cede premiums 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 specific ceding commission, as well as a profit commission that varies directly and inversely with ceded claims. These reinsurance coverages also reduces net risk in force and PMIERs Minimum Required Assets. See Note 4 to our condensed consolidated financial statements.

Previous wording

(2)The initial profit commission on QSR-2019 was up to 60%. Since Essent Guaranty did not exercise its option to terminate this QSR agreement on December 31, 2021, the maximum profit commission that Essent Guaranty could earn increased to 63% in 2022 and thereafter.

Current wording

(2)The original profit commission on QSR-2019 was up to 60%; however because Essent Guaranty did not exercise its option to terminate this QSR agreement on December 31, 2021, the maximum profit commission that Essent Guaranty could earn increased to 63% in 2022 through June 30, 2024. Effective July 1, 2024, Essent Guaranty renegotiated the terms, extending the termination date for QSR-2019 through December 31, 2027. The renegotiated terms increased the ceding commission from 20% to 26% and decreased the maximum profit commission from 63% to 62.5%.

Previous wording

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 through December 31, 2020 and 35% of Essent Guaranty’s NIW after December 31, 2020. During the six months ended June 30, 2024 Essent Re paid $125 million in dividends to Essent Group and no dividends during three and six months ended June 30, 2023. Essent Group made no capital contributions to Essent Re during the six months ended June 30, 2024 and 2023. As of June 30, 2024, Essent Re had total stockholders’ equity of $1.8 billion and net risk in force of $22.8 billion.

Current wording

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 through December 31, 2020 and 35% of Essent Guaranty’s NIW after December 31, 2020. During the nine months ended September 30, 2024 Essent Re paid $212.5 million in dividends to Essent Group and no dividends during the nine months ended September 30, 2023. Essent Group made no capital contributions to Essent Re during the nine months ended September 30, 2024 and 2023. As of September 30, 2024, Essent Re had total stockholders’ equity of $1.8 billion and net risk in force of $23.0 billion.

Previous wording

The insurer financial strength rating of Essent Guaranty, our principal mortgage insurance subsidiary, is rated A3 with a positive outlook by Moody’s Investors Service (“Moody's”), A- with a stable outlook by S&P and A (Excellent) with stable outlook by A.M. Best. The insurer financial strength rating of Essent Re is A- with a stable outlook by S&P and A (Excellent) with stable outlook by A.M. Best.

Current wording

The insurer financial strength rating of Essent Guaranty, our principal mortgage insurance subsidiary, is rated A3 with a positive outlook by Moody’s Investors Service (“Moody's”), A- with a stable outlook by S&P and A (Excellent) with stable outlook by AM Best. The insurer financial strength rating of Essent Re is A- with a stable outlook by S&P and A (Excellent) with stable outlook by AM Best.

Previous wording

Fannie Mae and Freddie Mac, maintain coordinated Private Mortgage Insurer Eligibility Requirements, which we refer to as the "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 June 30, 2024, Essent Guaranty, our GSE-approved mortgage insurance company, was in compliance with the PMIERs. As of June 30, 2024, Essent Guaranty's Available Assets were $3.5 billion or 171% of its Minimum Required Assets of $2.1 billion based on our interpretation of the PMIERs.

Current wording

Fannie Mae and Freddie Mac, maintain coordinated Private Mortgage Insurer Eligibility Requirements, which we refer to as the "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 September 30, 2024, Essent Guaranty, our GSE-approved mortgage insurance company, was in compliance with the PMIERs. As of September 30, 2024, Essent Guaranty's Available Assets were $3.6 billion or 189% of its Minimum Required Assets of $1.9 billion based on our interpretation of the PMIERs.